Sebi moves forward

Regulator's coordination with RBI is welcome

Just six years ago, then Finance Minister Pranab Mukherjee ticked off both the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) for "quarrelling like petulant children". Coordination has improved since then, as shown by Sebi's decision on Saturday to bar wilful defaulters - whether promoters, companies or directors - from accessing the capital markets and from taking board positions in listed companies. The RBI, which has a tough set of rules in place which say that anyone tagged a wilful defaulter cannot raise fresh funds from the banking system, had approached Sebi to put such curbs on their access to capital markets as well. Coordination has been visible also in several other recent cases, including the smooth rollout of the e-IPO process, which is designed to reduce paperwork in initial public offerings or IPOs to nearly zero. At the prodding of the RBI, several banks worked hard to roll out the ASBA (Applications Supported by Blocked Amount) system through all the bank branches. This was as crucial for the success of e-IPOs as it was important for seamless and speedy transfer of money from investors to a company's IPO account.

Though Sebi's diktat on wilful defaulters is applicable prospectively, it's an important deterrent for many promoters who try to game the system. The other Sebi move on amending the definition of 'control' in the context of mergers and acquisitions and fixing 25 per cent voting rights as a threshold, a discussion paper on which is expected on Monday, will remove ambiguities that companies currently confront during takeovers. Currently, the definition of 'control' under the Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011 doesn't specify a threshold for shareholding, leaving assessment of control to consideration of facts and circumstances of each case. As a result, there have been multiple shades of opinion and findings. There have been many cases, including in the much-talked about Jet-Etihad deal, when the issue of control was debated a lot and it was felt that Sebi needed to put in place specific guidelines defining clear lines to determine control.

Both the decisions are welcome and mark a good start to Sebi Chairman U K Sinha's extended tenure that began last month. Some recent far-reaching regulatory changes have allowed mutual funds to serve as a strong counterbalance to foreign portfolio investors. Besides, the regulator has ensured that 44 per cent of equity mutual investment comes from cities beyond the top 15. And contrary to the perception about its weak investigation capabilities, Sebi has debarred over 1,000 entities from the capital markets after they were found to be misusing stock exchange platforms for tax evasion, and 90 per cent of its decisions against market intermediaries have been upheld by the Securities Appellate Tribunal. Such regulatory action is welcome.