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Tyagi’s first six months usher in more reforms

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SEBI chief Ajay Tyagi’s perception as an outsider to capital markets is fast changing. A career bureaucrat for 33 years, Tyagi was relatively less exposed to stock markets than previous two SEBI chairmen, who came from financial institutions. Yet, Tyagi’s attempt at solving some core issues in a short time span after joining SEBI make him stand apart, observers say.

SEBI repeatedly failed in reviving cash equity volumes due to cosmetic changes to rules in the past. The result: India was ranked second most speculative market globally after South Korea as balance tilted towards derivatives. But seven months into the job, Tyagi has hinted at serious changes. SEBI is thinking of implementing physical or delivery-based derivative settlement and has invited public comments for it. The move could encourage give and take of shares instead of notional book entries and boost cash trading volumes. Stock lending and borrowing, which will even benefit LIC, could get a push and lead to product innovation.

“Physical settlement will curb manipulation and build retail players trust in stock markets by reiterating investment culture that was lost to derivatives,” said Deven Choksey, Promoter, KR Choksey Investment Managers.

Clamp down on P-Notes

Despite a clamp down on P-Notes for years, SEBI could never put a full stop to these hot money instruments. But for the first time in September, derivative position of foreign funds held via P-Notes became nil from around ₹50,000 crore in June. In July SEBI completely banned them unless for hedging purpose. It was a death knell for the instruments shrouded in mystery and linked to major market crash events.

Stock brokers seem happy too. Last month SEBI took some of their compliance burden off by allowing single license for equity and commodity. It is anticipated that both segments will soon be made available on a single trading screen to further save on business cost.

SEBI was behind the curve in setting norms for trading technology and did not have an effective policy to tackle corporate governance lapses. Committees to suggest the way forward on both issues were set up only in the past two months. According to experts, Tyagi has also steered clear of empanelling high- cost legal firms, another greay area, as SEBI had been doing that without a tendering process.

‘Regaining lost charm’

“SEBI is regaining its lost charm,” said Sumit Agrawal, Partner, Suvan Law Advisors. “Details of case hearing are now available on SEBI website. The regulator has also been graceful in revoking its earlier orders where it overstepped its jurisdiction.”

Dust gathered on case files relating to unfair trade practice by Reliance Industries and allegations of providing unfair access to brokers by the NSE. In less than a month after Tyagi took charge, SEBI banned Reliance from markets for a year and imposed heavy fine. After dodging the ball on NSE for two years under UK Sinha, SEBI under Tyagi ordered a probe against NSE and 14 of its key officials. He nudged the exchange to withdraw its IPO till the matter was resolved.

“Tyagi’s tenure has brought in much required decisiveness in SEBI,” said Sandeep Parekh, Founder, Finsec Law Advisors. “The new team of officials under him is good. While transparency is seeping in, push for clearing backlog of cases and enforcement action is awaited. Short-cuts such as banning 331 companies from trading on suspicion should be avoided.”

Conflict of interest

While Tyagi has already spoken about action against pending cases, a view is that regulator should ensure transparency about its own staff. For instance, SEBI has never disclosed details or status of inquiry either internal or by external agencies such as CBI. There are issues of conflict of interest within the organisation too. Instances of people being advisers to lobby of legal firms and companies and the same sitting on SEBI committees have come up time and again and requires a clean-up.