Sebi rakes in Rs 40 cr via consent orders

Regulator Settles Close To 400 Cases
In Just Over A Year Under The New System
Reena Zachariah & Ashish Rukhaiyar
MUMBAI
Jan 01, 2009

THE market regulator’s decision to put resolution of disputes on the fast track is working well. In just over a year after announcing rules for consent orders, the Securities and Exchange Board of India (Sebi) has settled close to 400 cases, a senior Sebi official said.

Although the new system of settling disputes in capital markets between a regulator and the accused through a penalty, or a fine, was introduced in April 2007, the whole process gathered steam in the last six months of the year. Sebi has garnered close to Rs 40 crore through the consent order system, through various cases such as market manipulation & price rigging, insider trading and capital “issue” related manipulation, among others.

The consent and compounding process helps reduce the backlog of pending cases both with the regulator and with the courts. The new system has been modelled on the lines of a similar system in the US. The Securities and Exchange Commission (SEC) settles over 90% of administrative/civil cases against market intermediaries by consent orders.

The regulator also took some other major policy initiatives this year. In August, a joint panel of RBI and Sebi decided to introduce currency futures in the exchanges to manage volatility in the value of rupee.

Mutual funds, which have emerged as one of the important class of financial intermediaries among investors, witnessed some tough challenges this year, especially the close-ended ones. The recent rush by large corporate investors in fixed maturity plans (FMPs) to redeem their investments resulted in considerable pressure on fund houses, forcing Sebi to review its norms relating to this product. The regulator recently imposed a ban on early exit by investors in close-ended schemes and made it mandatory for fund houses to list these schemes.

In order to address the asset-liability mismatches, the regulator said for closeended schemes, the underlying assets will not have a maturity beyond the date on which the schemes expires. Over the course of the past two years, FMPs had emerged as one of the most popular products offered by fund houses.

As part of the market regulator’s reform process for the primary market, it introduced an alternative mode of payment, applications supported by blocked amount (ASBA) in issues, whereby the application money remains in the investors’ account till the finalisation of basis of allotment in the issue.

This was a major departure from the current practice of retail investors paying upfront the full amount for the shares that have bid for, while large institutional investors need to put only 10% of the money. Sebi’s move implies that a retail investor can participate in a public or rights issue without the application money, actually leaving his bank account, thus eliminating the refund process.

However, the results couldn’t be ascertained as the IPO market fully dried up, due to the global credit crisis. In view of the current market conditions, Sebi also took a U-turn by doing away with the restrictions on issue of participatory notes by foreign institutional investors against securities, including derivatives, as the underlying.

VALUE PLAY
In August, a joint panel of RBI and Sebi decided to introduce currency futures in the stock exchanges to manage volatility in the value of rupee. MFs witnessed some tough challenges this year, especially the close-ended ones.