Bhave barking up wrong tree, say ex-Sebi officials

Claim decision to allow MCX-SX to buy stakes in almost-defunct stock exchanges and nod for currency derivatives trading separate issues

Former officials of the Securities & Exchange Board of India (Sebi) feel ex-Sebi chief C B Bhave might be wrong in asking the Central Bureau of Investigation (CBI) to start a preliminary inquiry against his predecessor, as well as his successor at the regulatory body.

Earlier, the CBI had initiated a probe to ascertain whether there were irregularities in granting a licence to stock exchange MCX-SX.

In an interview with The Economic Times, Bhave had said Sebi had taken a policy decision that a mere probe wasn’t enough to deny approval to any entity. While agreeing with this, the former Sebi officials said Bhave had forgotten a basic aspect — while Sebi’s 2007 decision was only to allow MCX-SX to buy small stakes in almost-defunct stock exchanges, what Sebi, under Bhave, did was allow MCX-SX to start currency derivatives trading. “Anybody can figure the dimensions of the two decisions are completely different,” the officials said.

Sebi’s 2007 decision followed a finance ministry letter that said Financial Technologies promoter Jignesh Shah and his companies might not be ‘fit and proper’ to acquire five per cent stakes in the Delhi and Vadodara stock exchanges.

The former Sebi officials, however, agreed with Bhave that at that time, the finance ministry did not give any conclusive evidence of irregularities committed by Shah; the regulator was primarily dependent on allegations by the income tax department. Also, the income tax department had subsequently closed the case.

But, the officials said, what Bhave didn’t explain in the recent interview was how Sebi, during his term at the helm, renewed the MCX-SX licence twice, though Shah’s entities had failed to comply with the MIMPS (manner of increasing and maintaining pubic shareholding in recognised stock exchanges) regulations, which mandated stake sale by an entity wouldn’t exceed five per cent.

The officials said there were other “curious” questions, too. Barely three weeks after it renewed MCX-SX’s licence for currency derivatives trading, Sebi, on September 23, 2010, passed a detailed order that said the promoters were “dishonest” and, therefore, not “fit and proper to start equity trading”.

This means according to the regulator, Shah and his entities were fit and proper for currency trading, but not for equity trading. The officials questioned why Sebi, under Bhave, changed its mind about Shah and his entities in just three weeks. In his interview, Bhave, who headed Sebi between 2008 and 2011, had said the CBI should apply the same yardsticks and logic for Sebi’s decisions in Shah’s case, too. “They (CBI) have shown they are unafraid of starting a primary inquiry against an ex-chairman. Let them do the same for the current chairman (U K Sinha) and another earlier chairman (M Damodaran),” he said.

While CBI has said it was just a preliminary probe and no raids or arrests had been made, former home secretary G K Pillai has publicly expressed disappointment over the issue and attributed his resignation as MCX-SX chairman due to the unwarranted probe against Bhave, former comptroller and auditor general Vinod Rai and a number of former policymakers have said they refused to believe Bhave was capable of irregularities.