Mehul Shah & Ashish Rukhaiyar
Mumbai, 23 March
After huge net Jan-Feb outflows, this month has seen second-highest flows into India among Asian markets. Foreign institutional investors (FIIs), bearish till recently on the Indian equity market, seem to be having a change of heart.
After selling Indian shares in the first two months of the current calendar year, the post-Budget period has seen them turn positive. Till date this month, India has seen the second-highest FII inflow among leading Asian markets for which data is available, after Japan.
Attractive valuations after the recent correction, impressive domestic growth potential, enhanced policy clarity and a robust long-term story seem to have turned the tide in India’s favour, say market players. Data available with the Securities and Exchange Board of India (Sebi) show that post-Budget, the direction of FII flows shifted.
Foreign investors put in $304.6 million (Rs 1,370 crore) in March. This comes after net outflows of more than $2 billion (Rs 9,000 crore) in January and February. Some of the biggest participants from abroad on the street — Deutsche, Morgan Stanley, Citi — have all sounded optimistic in their recent India strategy reports.
“While we remain cognizant of the escalating tensions in the MENA (Middle East and North Africa) region, inflating oil prices and a potential worsening of the post-earthquake nuclear crisis in Japan, we believe that many of the India-specific macro risks (slowing industrial momentum, sharp rise in current account deficit, worries of escalated FII outflows and policy inertia) which drove the first bout of sharp underperformance since January are now either well discounted or abating,” said Abhay Laijawala and Abhishek Saraf, strategists at Deutsche Bank, in a note to clients.
According to Bloomberg data, only Japan has been able to attract higher FII flows ($2.2 bn) in March when compared to India. South Korea has registered a net outflow of $1.33 bn. Taiwan and Indonesia have seen $1.9 bn and $561 million, respectively, being taken out in March. The data for China was not available.
“We see upsides on the market from here and a more aggressive portfolio/market mix, moderately better macro, slightly higher valuations and a largecap over midcap bias,” said Aditya Narain of Citi, in a client note of March 18. Citi has a December 2011 Sensex target of 22,000.
Similarly, on March 15, Ridham Desai of Morgan Stanley, said: “From a pure India perspective (not taking into account relative dynamics), Indian equities look attractive and seem to be priced and positioned for a lot of the negatives on the horizon.”
With the exception of oil prices and a potential runaway increase in already elevated commodity prices, Deutsche Bank strategists expect to see a slow but certain recovering in the domestic macro situation heading into the second half of calendar year 2011. “Our view is that investors must begin to position portfolios for a steady market recovery,” they say.
Monday, 19 December 2011
Performance may get Sebi retirees an extension
Ashish Rukhaiyar
Mumbai, 11 March
Bureaucrats and capital market veterans wanting to become whole-time members of the Securities and Exchange Board of India (Sebi) might have to wait longer than expected. While there are still some months left before two of the three members retire, the industry is already abuzz with talk that they might get an extension.
The three-year term of two whole-time members, M S Sahoo and K M Abraham, will end this July. Both were appointed by the Central government in 2008. While the appointment is for three years, the government can give an extension.
According to sources, the ministry of finance is satisfied with Sebi’s functioning in the past two years, and is not in a mood to revamp the brass in one go. U K Sinha was appointed chairman only last month and it is believed two new members in such a situation isn’t desirable.
Things will be cleared by the end of this month, as the selection process, if initiated, has to be begin three to four months before a term ends. The selection process of a whole-time member is similar to that of a chairman, with the final nod coming from a Cabinet committee.
“If one looks at the last few years, Sebi has come out with some of the biggest orders against high-flying corporate entities,” said a person on condition of anonymity. “It is widely said that the quality of Sebi orders and investigations has improved after Sahoo and Abraham came on board. Also, some of the initiatives taken to improve market efficiency have not gone unnoticed.”
Sahoo is in overall charge of derivatives and new products, legal affairs, enforcement and regulation, and supervision of market intermediaries. He shares a rapport with Sinha, having worked together at the finance ministry. Abraham handles corporate finance, investigations, vigilance and integrated surveillance, among other things. The third member, Prashant Saran, assumed office in May 2009.
The work done by the two members has definitely caught the attention of bureaucratic circles of Delhi. According to a person privy to the developments, at a recent conclave of bureaucrats, some actions of the Sebi members were discussed with great appreciation.
“The conclave was attended by over 20 IAS (Indian Administrative Services) officers of joint secretary and director level. Everyone kept talking about Sebi’s good work in the last couple of years. The sense that one got was that the two members would get an extension, though there are many eyeing that position,” said this person, who attended the conclave.
Interestingly, G Anantharaman is the only former whole-time member who has the distinction of spending more than three years at Sebi, having worked with the regulator from December 2004 to March 2008. He was appreciated for his investigations and orders related to disgorgement and the IPO irregularities scam.
Mumbai, 11 March
Bureaucrats and capital market veterans wanting to become whole-time members of the Securities and Exchange Board of India (Sebi) might have to wait longer than expected. While there are still some months left before two of the three members retire, the industry is already abuzz with talk that they might get an extension.
The three-year term of two whole-time members, M S Sahoo and K M Abraham, will end this July. Both were appointed by the Central government in 2008. While the appointment is for three years, the government can give an extension.
According to sources, the ministry of finance is satisfied with Sebi’s functioning in the past two years, and is not in a mood to revamp the brass in one go. U K Sinha was appointed chairman only last month and it is believed two new members in such a situation isn’t desirable.
Things will be cleared by the end of this month, as the selection process, if initiated, has to be begin three to four months before a term ends. The selection process of a whole-time member is similar to that of a chairman, with the final nod coming from a Cabinet committee.
“If one looks at the last few years, Sebi has come out with some of the biggest orders against high-flying corporate entities,” said a person on condition of anonymity. “It is widely said that the quality of Sebi orders and investigations has improved after Sahoo and Abraham came on board. Also, some of the initiatives taken to improve market efficiency have not gone unnoticed.”
Sahoo is in overall charge of derivatives and new products, legal affairs, enforcement and regulation, and supervision of market intermediaries. He shares a rapport with Sinha, having worked together at the finance ministry. Abraham handles corporate finance, investigations, vigilance and integrated surveillance, among other things. The third member, Prashant Saran, assumed office in May 2009.
The work done by the two members has definitely caught the attention of bureaucratic circles of Delhi. According to a person privy to the developments, at a recent conclave of bureaucrats, some actions of the Sebi members were discussed with great appreciation.
“The conclave was attended by over 20 IAS (Indian Administrative Services) officers of joint secretary and director level. Everyone kept talking about Sebi’s good work in the last couple of years. The sense that one got was that the two members would get an extension, though there are many eyeing that position,” said this person, who attended the conclave.
Interestingly, G Anantharaman is the only former whole-time member who has the distinction of spending more than three years at Sebi, having worked with the regulator from December 2004 to March 2008. He was appreciated for his investigations and orders related to disgorgement and the IPO irregularities scam.
Wednesday, 9 March 2011
Sebi's stricture stumps broking community
Joydeep Ghosh & Ashish Rukhaiyar
Mumbai March 09, 2011
The Securities and Exchange Board of India’s (Sebi) letter to lead managers to stop enlisting 10 broking houses for future public issues has stumped the broking community.
Sebi’s February letter to six lead managers said the broking houses — referred as sub-syndicate members — which were unable to compensate investors who had not received Coal India shares despite legitimate bidding should not be enlisted for forthcoming public issues, till the matter is resolved.
The Rs 15,200-crore initial public offering (IPO) of Coal India (CIL) was managed by six investment bankers — Citigroup, Deutsche Equities, DSP Merrill Lynch, Enam Securities, Kotak Mahindra Capital and Morgan Stanley India.
Yesterday, the lead managers met Sebi officials to raise important issues on how to resolve this deadlock. With just about a month to go before ONGC’s IPOs of around Rs 14,000 crore is supposed to hit the market, top brokers obviously want things to be resolved fast.
Over 10,000 investors were unable to participate in the CIL issue in spite of submitting legitimate forms. Brokers blamed it on technical glitches, but Sebi has asked them to compensate the investors. According to industry officials, average amount per investor could be Rs 12,000 to 15,000, depending on the application size. That is, 10 top brokers have to pay a compensation of Rs 10-15 crore.
The amount per se is not an issue. But paying all consumers is. “We have been working on this for the last two months and paid 50 per cent of the investors. But there are some issues that we are trying to resolve through the lead managers with the market regulators,” said the president of a leading broking house.
One of the main problem is that though applications might be from one broker, the investor might have submitted with another. “According to Sebi mandate, I need to compensate such investors as well. I am willing to pay customers where I have defaulted, but how can I pay others who have my form but have deposited it with another broker,” said another head of a broking house. Consequently, many have approached the investors but making payment, according to an acknowledgement slip.
Another issue causing worry is that this compensation for default does not have a precedent. Sebi’s order comes despite a disclaimer in the offer document which says “neither our company, the selling shareholder nor any member of the syndicate is liable to the bidders for any failure in downloading the bids due to faults in any software/hardware system or otherwise.”
Investment banks and broking houses feel such compensation policies will hurt the industry in future. Most retail investors come in with applications at the last moment after taking into account the institutional investor’s response to the issue.
“When applications are being uploaded till 12-1 in the night, there could be genuine mistakes,” said IPO head of an investment bank. Some investment bankers felt this issue could be resolved in 10-15 days. “We have been working on a war footing for sometime. But it is difficult to achieve 100 per cent success,” said the president of a broking house.
Tech solution
Sebi is in the process of modifying the online bidding mechanism that would reduce instances of brokers unable to upload bid details. Stock exchanges will soon provide stock brokers with an access to the online ASBA (Application Supported by Blocked Amount) mechanism wherein brokers will be able to key in the important details of the applicant including, demat account number, bank account number (where money will remain blocked) and the bid details.
Thereafter, banks that have access to the system will verify the account details and block the amount. This, according to market players, will drastically reduce the workload on syndicate members. Currently, all that a broker can do is collect ASBA form from the investor and deposit it physically at the bank where the investor has his account.
Mumbai March 09, 2011
The Securities and Exchange Board of India’s (Sebi) letter to lead managers to stop enlisting 10 broking houses for future public issues has stumped the broking community.
Sebi’s February letter to six lead managers said the broking houses — referred as sub-syndicate members — which were unable to compensate investors who had not received Coal India shares despite legitimate bidding should not be enlisted for forthcoming public issues, till the matter is resolved.
The Rs 15,200-crore initial public offering (IPO) of Coal India (CIL) was managed by six investment bankers — Citigroup, Deutsche Equities, DSP Merrill Lynch, Enam Securities, Kotak Mahindra Capital and Morgan Stanley India.
Yesterday, the lead managers met Sebi officials to raise important issues on how to resolve this deadlock. With just about a month to go before ONGC’s IPOs of around Rs 14,000 crore is supposed to hit the market, top brokers obviously want things to be resolved fast.
Over 10,000 investors were unable to participate in the CIL issue in spite of submitting legitimate forms. Brokers blamed it on technical glitches, but Sebi has asked them to compensate the investors. According to industry officials, average amount per investor could be Rs 12,000 to 15,000, depending on the application size. That is, 10 top brokers have to pay a compensation of Rs 10-15 crore.
The amount per se is not an issue. But paying all consumers is. “We have been working on this for the last two months and paid 50 per cent of the investors. But there are some issues that we are trying to resolve through the lead managers with the market regulators,” said the president of a leading broking house.
One of the main problem is that though applications might be from one broker, the investor might have submitted with another. “According to Sebi mandate, I need to compensate such investors as well. I am willing to pay customers where I have defaulted, but how can I pay others who have my form but have deposited it with another broker,” said another head of a broking house. Consequently, many have approached the investors but making payment, according to an acknowledgement slip.
Another issue causing worry is that this compensation for default does not have a precedent. Sebi’s order comes despite a disclaimer in the offer document which says “neither our company, the selling shareholder nor any member of the syndicate is liable to the bidders for any failure in downloading the bids due to faults in any software/hardware system or otherwise.”
Investment banks and broking houses feel such compensation policies will hurt the industry in future. Most retail investors come in with applications at the last moment after taking into account the institutional investor’s response to the issue.
“When applications are being uploaded till 12-1 in the night, there could be genuine mistakes,” said IPO head of an investment bank. Some investment bankers felt this issue could be resolved in 10-15 days. “We have been working on a war footing for sometime. But it is difficult to achieve 100 per cent success,” said the president of a broking house.
Tech solution
Sebi is in the process of modifying the online bidding mechanism that would reduce instances of brokers unable to upload bid details. Stock exchanges will soon provide stock brokers with an access to the online ASBA (Application Supported by Blocked Amount) mechanism wherein brokers will be able to key in the important details of the applicant including, demat account number, bank account number (where money will remain blocked) and the bid details.
Thereafter, banks that have access to the system will verify the account details and block the amount. This, according to market players, will drastically reduce the workload on syndicate members. Currently, all that a broker can do is collect ASBA form from the investor and deposit it physically at the bank where the investor has his account.
Sebi to review SME norms
Ashish Rukhaiyar
Mumbai March 2, 2011
Investment bankers express concern over market making, trading lot size.
In a clear indication that the Securities and Exchange Board of India (Sebi) wants to launch a separate trading platform for small and medium enterprises (SMEs) as early as possible, the regulator has decided to meet investment bankers to address some of the areas of concern.
It is believed Sebi will tweak some of the guidelines notified for the SME platform to make the segment attractive, especially in the initial period. The regulator is also looking at introducing 15-minute call auction windows at regular intervals through the trading session.
According to persons familiar with the development, the bankers have expressed apprehensions over two key features of regulatory guidelines — compulsory market making for three years and a minimum trading lot size of Rs 100,000. Investment bankers want the regulator to bring down both.
Incidentally, bankers have already discussed these issues with stock exchange representatives in a series of recent meetings.
“We discussed our issues with exchange officials, who have forwarded them to the regulator,” said an investment banker who was part of the discussions. “While there are practical difficulties in three years of market making, a minimum trading lot size of Rs 100,000 will put most of the retail investors out of this segment. This will impact liquidity,” he explained on condition of anonymity.
Representatives of the umbrella body of investment bankers — Association of Merchant Bankers of India (AMBI) — were also part of the discussions.
Another person privy to the developments said while there are some other minor concern areas too, market making has emerged as the key issue.
“There are various views on the role of stock exchanges to popularise this whole new segment,” said a person who wished not to be named. “Enough information needs to be disseminated through their respective websites. Everything else, however, has been dwarfed by the discussions related to market making and (trading) lot size,” he added.
A separate trading platform for SMEs has been on the radar for long, with the initial draft regulations announced in November 2009. The norms were later notified by the regulator in May 2010. The regulator has fixed an after-issue upper limit of Rs 25 crore capital at face value for a company that intends to list in the segment. If a company’s after-issue face value capital is less than Rs 25 crore, a further issue of shares will be allowed, provided the new capital does not exceed Rs 25 crore.
Further, companies listed in the segment will be compulsorily shifted to the main board of the exchange after exceeding the Rs 25-crore after-issue paid-up capital limit. While the issue also needs to be 100 per cent underwritten, investment bankers will have to underwrite 15 per cent of the issue in their own account. Bankers who have the responsibility of market making may be represented on the board of the company, subject to an agreement with the issuer.
Mumbai March 2, 2011
Investment bankers express concern over market making, trading lot size.
In a clear indication that the Securities and Exchange Board of India (Sebi) wants to launch a separate trading platform for small and medium enterprises (SMEs) as early as possible, the regulator has decided to meet investment bankers to address some of the areas of concern.
It is believed Sebi will tweak some of the guidelines notified for the SME platform to make the segment attractive, especially in the initial period. The regulator is also looking at introducing 15-minute call auction windows at regular intervals through the trading session.
According to persons familiar with the development, the bankers have expressed apprehensions over two key features of regulatory guidelines — compulsory market making for three years and a minimum trading lot size of Rs 100,000. Investment bankers want the regulator to bring down both.
Incidentally, bankers have already discussed these issues with stock exchange representatives in a series of recent meetings.
“We discussed our issues with exchange officials, who have forwarded them to the regulator,” said an investment banker who was part of the discussions. “While there are practical difficulties in three years of market making, a minimum trading lot size of Rs 100,000 will put most of the retail investors out of this segment. This will impact liquidity,” he explained on condition of anonymity.
Representatives of the umbrella body of investment bankers — Association of Merchant Bankers of India (AMBI) — were also part of the discussions.
Another person privy to the developments said while there are some other minor concern areas too, market making has emerged as the key issue.
“There are various views on the role of stock exchanges to popularise this whole new segment,” said a person who wished not to be named. “Enough information needs to be disseminated through their respective websites. Everything else, however, has been dwarfed by the discussions related to market making and (trading) lot size,” he added.
A separate trading platform for SMEs has been on the radar for long, with the initial draft regulations announced in November 2009. The norms were later notified by the regulator in May 2010. The regulator has fixed an after-issue upper limit of Rs 25 crore capital at face value for a company that intends to list in the segment. If a company’s after-issue face value capital is less than Rs 25 crore, a further issue of shares will be allowed, provided the new capital does not exceed Rs 25 crore.
Further, companies listed in the segment will be compulsorily shifted to the main board of the exchange after exceeding the Rs 25-crore after-issue paid-up capital limit. While the issue also needs to be 100 per cent underwritten, investment bankers will have to underwrite 15 per cent of the issue in their own account. Bankers who have the responsibility of market making may be represented on the board of the company, subject to an agreement with the issuer.
I-bankers fret as Sebi tells them to reveal track record
Ashish Rukhaiyar
Mumbai February 25, 2011
Investment bankers are disturbed at a discussion paper circulated by the capital markets regulator last year, requiring them to disclose their past track record when they set about a fresh offer document.
Track record in this context is traditionally understood to mean not only the company and its issue size handled in the past by a banking entity, but also the movement of its shares. Investment bankers see no good reason why they should be held responsible for the share price movement after listing. They intend to meet the Securities and Exchange Board of India (Sebi) to discuss this.
“It is proposed that all merchant bankers be directed to disclose the track record,” Sebi said in a discussion paper circulated around November. Sebi feels the record of the investment banker managing the issue would be a good barometer for making investment decisions. The regulator said the disclosure should be made available in the offer document and also on the website of the investment banker. In recent weeks, investment bankers have had a series of meetings on this issue and voiced concern among themselves.
The Association of Merchant Bankers of India (Ambi), their umbrella body, has decided to take up this matter with the regulator.
Indicating what?
Bankers, on condition of anonymity, say while their record would typically be judged in terms of returns generated by the companies that they had taken public, this is not such a simple matter. “One cannot get the correct picture by looking at the issue price and the current market price in isolation,” says the director of an investment banking entity. “How will one judge the returns if the stock doubled after listing and then dropped below the issue price? If one looks at the high, then the issue can be termed good. But the fall thereafter makes it a bad one,” says this banker, also an active member of Ambi.
They note that companies, once listed, are not required to discuss business decisions with their investment bankers. In such a scenario, the performance of the bankers should not be correlated to the stock price.
“I do not agree with this concept, as investment bankers cannot be held responsible for share price movement post-listing,” says Prithvi Haldea of Prime Database. “There are a lot of external factors like decisions taken by the promoters or management, market conditions, sector outlook. A company is under no obligation to consult bankers on decisions that can impact the share price. But, yes, the bankers should be pulled up for wrong disclosures,” says this former member of Sebi’s Primary Market Advisory Committee.
“There is nothing inherently wrong with the company but still the stock could be in doldrums on account of overall negative sentiment in the market. How does one judge performance in such a scenario?” asks another investment banker specialising in mid-sized issues. Investors take a decision based on the company and its outlook and not on the basis of the investment banker, he adds.
Concerns such as these have made bankers apprehensive about this disclosure. They feel if the regulator still wishes to proceed, other checks and balances are needed. Stock returns cannot be the only barometer, they say.
Mumbai February 25, 2011
Investment bankers are disturbed at a discussion paper circulated by the capital markets regulator last year, requiring them to disclose their past track record when they set about a fresh offer document.
Track record in this context is traditionally understood to mean not only the company and its issue size handled in the past by a banking entity, but also the movement of its shares. Investment bankers see no good reason why they should be held responsible for the share price movement after listing. They intend to meet the Securities and Exchange Board of India (Sebi) to discuss this.
“It is proposed that all merchant bankers be directed to disclose the track record,” Sebi said in a discussion paper circulated around November. Sebi feels the record of the investment banker managing the issue would be a good barometer for making investment decisions. The regulator said the disclosure should be made available in the offer document and also on the website of the investment banker. In recent weeks, investment bankers have had a series of meetings on this issue and voiced concern among themselves.
The Association of Merchant Bankers of India (Ambi), their umbrella body, has decided to take up this matter with the regulator.
Indicating what?
Bankers, on condition of anonymity, say while their record would typically be judged in terms of returns generated by the companies that they had taken public, this is not such a simple matter. “One cannot get the correct picture by looking at the issue price and the current market price in isolation,” says the director of an investment banking entity. “How will one judge the returns if the stock doubled after listing and then dropped below the issue price? If one looks at the high, then the issue can be termed good. But the fall thereafter makes it a bad one,” says this banker, also an active member of Ambi.
They note that companies, once listed, are not required to discuss business decisions with their investment bankers. In such a scenario, the performance of the bankers should not be correlated to the stock price.
“I do not agree with this concept, as investment bankers cannot be held responsible for share price movement post-listing,” says Prithvi Haldea of Prime Database. “There are a lot of external factors like decisions taken by the promoters or management, market conditions, sector outlook. A company is under no obligation to consult bankers on decisions that can impact the share price. But, yes, the bankers should be pulled up for wrong disclosures,” says this former member of Sebi’s Primary Market Advisory Committee.
“There is nothing inherently wrong with the company but still the stock could be in doldrums on account of overall negative sentiment in the market. How does one judge performance in such a scenario?” asks another investment banker specialising in mid-sized issues. Investors take a decision based on the company and its outlook and not on the basis of the investment banker, he adds.
Concerns such as these have made bankers apprehensive about this disclosure. They feel if the regulator still wishes to proceed, other checks and balances are needed. Stock returns cannot be the only barometer, they say.
Sebi looks at cash settlement in IRF
Ashish Rukhaiyar
Mumbai February 18, 2011
Sebi-RBI committee looking at ways to boost dwindling volume.
As part of efforts to boost volumes in exchange-traded interest rate futures (IRF), the Securities and Exchange Board of India (Sebi) is evaluating the option of introducing cash settlement in the segment. If approved, it could come as a shot in the arm for the niche market that has been witnessing almost nil volumes for months.
IRF is an exchange-traded derivatives product for hedging interest rate risks. Only the National Stock Exchange (NSE) offers IRFs, which were launched for the first time in 2003.
According to people familiar with the development, the joint technical committee reviewing the guidelines and contract specifications for IRFs is looking at cash settlement as one of the ways to attract more market participants. The committee comprises representatives of Sebi and the Reserve Bank of India (RBI).
“It is believed that the uncertainty over liquidity of the underlying bond is acting as the biggest deterrent for the growth of the IRF market,” said a person privy to the developments. “If cash settlement is allowed, concerns related to dumping of illiquid bonds can be addressed,” he added.
He, however, clarified that nothing had been finalised yet and the technical committee could look at tweaking other features of the segment without switching to cash settlement.
At present, participants can settle contracts with delivery of government (GoI) securities with a tenor between nine and 12 years. The tenor of deliverable grade securities has been fixed between 7.5 years and 15 years.
IRFs are based on a notional 10-year GoI bond, bearing a notional seven per cent interest rate, payable half-yearly. They were launched for the second time in September 2009. But volumes are still negligible. On most days in the recent past, only a single token trade has been executed on NSE.
Incidentally, the regulator has been trying hard to make the IRF segment more market friendly. Another idea that is being discussed is the concept of banks performing the role of market makers to enhance liquidity. Banks are the biggest players in the IRF market and any initiative taken by them is expected to lead to an exponential rise in volumes. Globally, IRF is a huge market with volumes running into trillions of dollars.
With U K Sinha, the new chairman of Sebi assuming office from Friday (February 18), it is expected that the revised guidelines for IRFs will be unveiled soon.
Mumbai February 18, 2011
Sebi-RBI committee looking at ways to boost dwindling volume.
As part of efforts to boost volumes in exchange-traded interest rate futures (IRF), the Securities and Exchange Board of India (Sebi) is evaluating the option of introducing cash settlement in the segment. If approved, it could come as a shot in the arm for the niche market that has been witnessing almost nil volumes for months.
IRF is an exchange-traded derivatives product for hedging interest rate risks. Only the National Stock Exchange (NSE) offers IRFs, which were launched for the first time in 2003.
According to people familiar with the development, the joint technical committee reviewing the guidelines and contract specifications for IRFs is looking at cash settlement as one of the ways to attract more market participants. The committee comprises representatives of Sebi and the Reserve Bank of India (RBI).
“It is believed that the uncertainty over liquidity of the underlying bond is acting as the biggest deterrent for the growth of the IRF market,” said a person privy to the developments. “If cash settlement is allowed, concerns related to dumping of illiquid bonds can be addressed,” he added.
He, however, clarified that nothing had been finalised yet and the technical committee could look at tweaking other features of the segment without switching to cash settlement.
At present, participants can settle contracts with delivery of government (GoI) securities with a tenor between nine and 12 years. The tenor of deliverable grade securities has been fixed between 7.5 years and 15 years.
IRFs are based on a notional 10-year GoI bond, bearing a notional seven per cent interest rate, payable half-yearly. They were launched for the second time in September 2009. But volumes are still negligible. On most days in the recent past, only a single token trade has been executed on NSE.
Incidentally, the regulator has been trying hard to make the IRF segment more market friendly. Another idea that is being discussed is the concept of banks performing the role of market makers to enhance liquidity. Banks are the biggest players in the IRF market and any initiative taken by them is expected to lead to an exponential rise in volumes. Globally, IRF is a huge market with volumes running into trillions of dollars.
With U K Sinha, the new chairman of Sebi assuming office from Friday (February 18), it is expected that the revised guidelines for IRFs will be unveiled soon.
Take 2: Impartiality will be C B Bhave's legacy
Ashish Rukhaiyar
Mumbai February 15, 2011
Chandrasekhar Bhaskar Bhave has always tried to avoid controversy, but that’s something that has followed him like a shadow in the last three years of his professional career. So, as he hangs up his boots as chairman of the Securities & Exchange Board of India (Sebi) on Thursday, he will see ‘controversy’ as a common thread running through his tenure.
Eyebrows were raised when he was moved from the National Securities Depository Ltd (NSDL) to head Sebi. Reason: NSDL was involved in a legal battle with Sebi itself. Although he recused himself from the proceedings, there was a fair amount of flak when Sebi decided to quash the NSDL committee report.
In the last few of months of his tenure, he took on powerful corporate houses – served a second showcause notice on Mukesh Ambani’s Reliance Industries; investigated the Anil Ambani group and gave it a consent order at Rs 50 crore; refused to give permission to Jignesh Shah’s MCX-SX to operate (the matter is in the Bombay High Court). Besides, he consistently made fund raising difficult for Subroto Roy’s Sahara Group.
He courted controversy also when he banned entry load on mutual funds, and took on the Insurance Regulatory and Development Authority (Irda) over unit-linked insurance plans (Ulips). The result: Ulips have become much cheaper. Also, crores of investor money has been saved by the ban on entry load.(Click for table & graph)
Sebi also had a run-in with the Forward Markets Commission (FMC) when it allowed the national Stock Exchange (NSE) to launch futures on gold exchange traded funds (ETFs). FMC managed to stay the launch of the gold-linked product.
Interestingly, during his tenure, the stock market went through an entire cycle. That is, when he took over in February 2008, the Bombay Stock Exchange’s benchmark Sensitive Index, or Sensex, was hovering around 18,000. It is at the same level now. There was a sharp dip to 8,000 and spike to 21,000 over the period.
Given the high volatility, the share of retail investors has fallen sharply during his tenure. In the last three years, their share in total market capitalisation has declined. Even the mid-cap segment, where retail investors’ participation has been traditionally higher, is down 14 per cent. (See table on market performance during his tenure).
But, it was not due to lack of effort from Sebi. The investment limit for retail investors was doubled – from Rs 1 lakh to Rs 2 lakh, application supported by blocked amounts (Asba) was introduced, listing time of initial public offers (IPOs) was reduced, and 100 per cent payment for institutional investors at the time of investing in an IPO was allowed. Despite these measures, investors shied away from the market because of heavy losses incurred in the IPOs after listing.
Among other measures, he extended the validity of the Sebi observation letter to one year, from the three months earlier, thereby giving companies more time to launch IPOs. He also gave companies the flexibility to announce the price band two days before the opening of an issue.
The concept of anchor investors was introduced for public issues. He also fulfilled a long-standing demand of the market by approving physical settlement in the equity derivatives segment. The agenda papers of Sebi board meetings were also made available on the website.
At a time when over-the-counter currency derivatives market commanded a volume in excess of $15 billion, Sebi decided to launch those on the exchange platform, providing transparent pricing and zero counter-party risk. Market participants instantly embraced the new instrument.
Sebi then moved a step forward by allowing futures contracts in euro, yen and pound sterling. The regulator finally topped it by allowing rupee-dollar options. Bhave also tried to infuse fresh life into exchange-traded interest rate futures (IRFs), but failed.
Unfinished agenda
The MCX-SX matter is still pending in the Bombay High Court. It will be interesting to see if there will be any change in the regulator’s stand after the new chairman takes over. The ongoing legal tussle has been marked with allegations against Bhave and some other Sebi officials for favouring NSE.
While Bhave did constitute a panel under former presiding officer of Securities Appellate Tribunal, C Achuthan, to overhaul the country’s takeover regulations, the final decision is yet to be taken. The panel, formed in September 2009, submitted its report in July 2010. The Sebi board has deliberated on the issue in the last two meetings, but chose not to take a decision. Apparently, the government is yet to decide on some of the recommendations proposed by the Achuthan Committee.
Mumbai February 15, 2011
Chandrasekhar Bhaskar Bhave has always tried to avoid controversy, but that’s something that has followed him like a shadow in the last three years of his professional career. So, as he hangs up his boots as chairman of the Securities & Exchange Board of India (Sebi) on Thursday, he will see ‘controversy’ as a common thread running through his tenure.
Eyebrows were raised when he was moved from the National Securities Depository Ltd (NSDL) to head Sebi. Reason: NSDL was involved in a legal battle with Sebi itself. Although he recused himself from the proceedings, there was a fair amount of flak when Sebi decided to quash the NSDL committee report.
In the last few of months of his tenure, he took on powerful corporate houses – served a second showcause notice on Mukesh Ambani’s Reliance Industries; investigated the Anil Ambani group and gave it a consent order at Rs 50 crore; refused to give permission to Jignesh Shah’s MCX-SX to operate (the matter is in the Bombay High Court). Besides, he consistently made fund raising difficult for Subroto Roy’s Sahara Group.
He courted controversy also when he banned entry load on mutual funds, and took on the Insurance Regulatory and Development Authority (Irda) over unit-linked insurance plans (Ulips). The result: Ulips have become much cheaper. Also, crores of investor money has been saved by the ban on entry load.(Click for table & graph)
Sebi also had a run-in with the Forward Markets Commission (FMC) when it allowed the national Stock Exchange (NSE) to launch futures on gold exchange traded funds (ETFs). FMC managed to stay the launch of the gold-linked product.
Interestingly, during his tenure, the stock market went through an entire cycle. That is, when he took over in February 2008, the Bombay Stock Exchange’s benchmark Sensitive Index, or Sensex, was hovering around 18,000. It is at the same level now. There was a sharp dip to 8,000 and spike to 21,000 over the period.
Given the high volatility, the share of retail investors has fallen sharply during his tenure. In the last three years, their share in total market capitalisation has declined. Even the mid-cap segment, where retail investors’ participation has been traditionally higher, is down 14 per cent. (See table on market performance during his tenure).
But, it was not due to lack of effort from Sebi. The investment limit for retail investors was doubled – from Rs 1 lakh to Rs 2 lakh, application supported by blocked amounts (Asba) was introduced, listing time of initial public offers (IPOs) was reduced, and 100 per cent payment for institutional investors at the time of investing in an IPO was allowed. Despite these measures, investors shied away from the market because of heavy losses incurred in the IPOs after listing.
Among other measures, he extended the validity of the Sebi observation letter to one year, from the three months earlier, thereby giving companies more time to launch IPOs. He also gave companies the flexibility to announce the price band two days before the opening of an issue.
The concept of anchor investors was introduced for public issues. He also fulfilled a long-standing demand of the market by approving physical settlement in the equity derivatives segment. The agenda papers of Sebi board meetings were also made available on the website.
At a time when over-the-counter currency derivatives market commanded a volume in excess of $15 billion, Sebi decided to launch those on the exchange platform, providing transparent pricing and zero counter-party risk. Market participants instantly embraced the new instrument.
Sebi then moved a step forward by allowing futures contracts in euro, yen and pound sterling. The regulator finally topped it by allowing rupee-dollar options. Bhave also tried to infuse fresh life into exchange-traded interest rate futures (IRFs), but failed.
Unfinished agenda
The MCX-SX matter is still pending in the Bombay High Court. It will be interesting to see if there will be any change in the regulator’s stand after the new chairman takes over. The ongoing legal tussle has been marked with allegations against Bhave and some other Sebi officials for favouring NSE.
While Bhave did constitute a panel under former presiding officer of Securities Appellate Tribunal, C Achuthan, to overhaul the country’s takeover regulations, the final decision is yet to be taken. The panel, formed in September 2009, submitted its report in July 2010. The Sebi board has deliberated on the issue in the last two meetings, but chose not to take a decision. Apparently, the government is yet to decide on some of the recommendations proposed by the Achuthan Committee.
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