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2012: The year of reforms and revisions for Sebi

For the Securities and Exchange Board of India, 2012 will always be remembered as the year of reforms and reviews.

For the Securities and Exchange Board of India (Sebi), 2012 will always be remembered as the year of reforms and reviews. The capital market watchdog reviewed the fundraising avenues to act as a perfect enabler for the government?s divestment programme besides amending various regulations to bring in more transparency along with checks & balances.

The year started on a high with Sebi approving introduction of offer for sale (OFS) and institutional placement programme (IPP) to help the government meet its divestment target of R40,000 crore for FY12. Though the government fell short of its target in the last financial year, it is currently reaping the benefits of the OFS route having raised more than R6,500 crore through two transactions and lining up many more.

Interestingly, second half of the year also saw the regulator relax provisions related to payment of margins and cooling period for the OFS and IPP route based on feedback received from various market participants. Sebi also eased the norms for insurance companies and mutual funds to participate in preferential allotment, thus, paving way for LIC picking up further stake in many state-owned banks.

Start of the year also saw Sebi bringing in restrictions in the manner one could trade in stocks on the listing day. While circuit filters were introduced to curb sharp movements in the stock price, day trading was banned to keep away traders and speculators. The result was a notable reduction in the wild swings that shares saw on the day of listing.

The primary market process were also in for some major review with the twin objectives of getting more retail investors in the market and removing any form of avoidable bottlenecks. So, while retail investors were provided assured allotment in an initial public offer (IPO), the nationwide network of stock exchanges was used to increase the penetration level of public issues.

Merchant banking fraternity was also directed to disclose their track record while managing IPOs to make them more accountable for the pricing of the issue and price movement post-listing. Though bankers resisted the move, the regulator made it clear that it was no mood to budge on this.

Sebi tried to put in further checks on the bankers by introducing a concept of ?safety net? in all IPOs wherein issuers will have to buy back shares from retail investors if the price falls beyond 20% in the first three months of listing. The ?safety net? mechanism, however, is yet to be implemented.

In May 2012, came the new norms for consent orders, which many view as the most important regulatory review of the year. Introduced in 2007, consent route came under high criticism due to the arbitrary manner in which cases were settled. Chairman UK Sinha had made his displeasure public soon after assuming office in 2010 and had promised an overhaul.

The new norms kept insider trading along with some other fraudulent and unfair trade practices outside the purview of consent mechanism. The regulator also attempted to make the penalty levying mechanism as transparent as possible.

The year also saw Sebi trying to re-energise the mutual fund industry, which never appeared to have recovered from the regulatory changes imposed in 2009. To start with, fund houses were allowed to charge a higher expense ratio for money collected from beyond the top 15 cities. Fund houses also got the go-ahead for higher expense ratio to take care of the annual redemption.

Incidentally, both the moves came under heavy criticism from a section of market players and investor associations. Sebi, on its part, said steps have been taken after due consideration and would benefit all fund houses and not just the larger ones as suggested by critics.

The year also saw Sebi taking a view that the retail investors must be kept away from the derivatives market. In November, the regulator ruled mini contracts on Sensex and Nifty, which were primarily aimed at small investors, have to be discontinued. Sebi also tightened the norms for including stocks in the derivatives segment.

Retail investors were once again Sebi?s focus when it directed market intermediaries to offer a basic services demat account wherein there would be no annual charges if the value of holdings is less than R50,000.

Another important regulatory change during 2012 was the approval of recommendations of the Bimal Jalan Committee that was formed to look into the issue of ownership and governance of stock exchanges, depositories and clearing corporations.

While there was hectic lobbying on certain sensitive recommendations of the committee, Sebi stuck to its stand and said exchanges will have to adhere to the diversified ownership requirement, which put a cap on individual shareholding.

The year also saw Sebi defending its stance in various courts of law. The two most high profile matters during the year were Sahara and MCX Stock Exchange (MCX-SX). While litigation related to Sahara is still on, MCX-SX has got the Sebi approval for launching a full-fledged stock exchange.

The year that was

* Trade controls and call auction on listing day in IPOs

* Merchant bankers to disclose track record

* OFS, IPP approved to enable govt achieve divestment target

* Consent order guidelines tightened to keep out insider trading violations

* Launched SCORES to enable investors register complaints with SEBI

* Tightened norms for inclusion of stocks in F&O segment

* Approved Bimal Jalan Committee recommendations

* Allowed MFs to charge higher expense ratio for money collected beyond top 15 cities

* Exchanges directed to discontinue mini derivatives on Sensex, Nifty

* Basic services demat account launched for retail investors

* Stricter checks and balances on algo trading programmes

* Assured allotment for retail investors in IPOs

* Pre-trade risk controls to avoid flash crash situations

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First published on: 03-01-2013 at 00:09 IST
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