Six years of deft and diligent Sinha

It has been a fruitful tenure — from successful primary market overhaul to weeding out ponzi schemes

As Upendra Kumar Sinha, the understated, low-profile, yet tenacious Chairman of the Securities and Exchange Board of India gets set to hand over the baton to Ajay Tyagi on March 1, investors have reason to feel sad. For, all his actions over the past six years had an unwavering underlying theme — protection of the small investor.

Coming as he did in the wake of two high-profile Chairmen such as M Damodaran and C B Bhave, expectations weren’t too high at the outset of Sinha’s tenure. But he went about his task in a workman-like manner that was quite effective in bringing about far-reaching changes to regulations governing market infrastructure institutions, intermediaries, primary markets and almost all segments connected to equity markets. His earlier stints at the helm of the UTI Asset Management company and with the Ministry of Finance, made it easy for him to zero-in on the problem areas.

His zeal to clean up the system has ruffled many feathers and many stakeholders would be glad to see his term coming to an end. But this sentiment will definitely not be echoed by the small investor.

Here’s a rewind of some key events that marked Sinha’s tenure.

Primary market overhaul

In the first year that Sinha took over, the SEBI issued orders against seven companies and three merchant bankers in 2011 for misdoings related to primary offers. This helped clean up primary markets that had turned into a murky den controlled by fly-by-night promoters and avaricious brokers.

Rules governing primary offers were also thoroughly overhauled. Merchant bankers were asked to display their track records on websites, take more responsibility for the disclosures in the prospectus and the kind of issues they manage.

Besides this, eligibility norms for companies making an offer was tightened and rules introduced to curtail post-issue price manipulation.

Following this crackdown, the IPO market dried down completely. Just four IPOs were made on the National Stock Exchange in 2013, compared to 71 in 2010. But the market has picked up since then and the improved quality of the recent issues shows that the short-term pain was worth the long-term benefit.

Crackdown on Ponzis

Sinha’s run-in with Subroto Roy of Sahara provided a lot of entertainment to the onlookers, but more importantly, it helped bring ponzi schemes under SEBI’s purview. It was before Sinha took over, in 2009-10, that SEBI raised objection to the offer of optionally fully convertible debentures (OFCDs) issued by companies of the Sahara group to around 2.2 crore retail investors; raising around ₹19,000 crore. Sahara was asked to refund the money to the investors along with interest.

But as the saga unfolded, it became evident that the many of the investors whose names were included in the truck-loads of documents, sent by Sahara to SEBI, were non-existent. While the issue is still to see a closure, it helped throw light on ponzi schemes across the country that were duping the small investors, while operating in a regulatory vacuum.

With the amendment of the Securities Contract Regulation in 2014, the regulation of ponzi schemes has now been officially brought under the stock market regulator. Sinha’s tenure also saw SEBI going after many other promoters who had raised funds through ponzi schemes, such as Rose Valley and PACL.

Regulatory over-reach

Sinha’s tenure will also be remembered for his attempt to regulate the mutual fund distributors, making them stop styling themselves as advisors. This issue is still unresolved, with the distributors having won the latest round. But Sinha has succeeded in bringing in guidelines to regulate sections of the securities market that had hitherto escaped regulatory scrutiny, such as research analysts, registrar and transfer agents, credit rating agencies, alternative investment funds and so on.

In fact, one of the first tasks that Sinha undertook on assuming charge as the Chairman was to bring in revised regulations for stock exchanges, clearing corporations and market intermediaries. SEBI went to the extent of even laying down the skill-sets that employees of stock brokers need to have, making some allege that the regulator is micro-managing and over-reaching his mandate.

Other regulatory changes

Among other significant regulations implemented under Sinha were the new Foreign Portfolio Investors regulations that categorised foreign portfolio investors into three categories and made disclosures and checks tighter for the high-risk categories. The minimum public holding of 25 per cent was also enforced after Sinha took over, with SEBI introducing the Offer for Sale route to enable quick divestment of promoter stake.

There were some creases in his term as well. The war against illiquid stocks and the bid to move them to another category did not work and many of the stocks have since been transferred back to their former groups. Similarly, the bid to close down regional stock exchanges (RSE) has also not been handled well, with investors unable to find an exit route for stocks formerly listed on RSEs. The bid to seek a closure for suspended stocks has also not paid off.

Overhauling the rules for commodity market is work-in-progress, one that his successor will have to focus on. Regulation of algo trades and trading from colocation (colo) facilities is another area that will have to be tackled by the next SEBI chief.

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