NSEL crisis: 'Time for Sebi to take leadership'

Experts say investor sentiment can't be hurt further

Governance and regulatory experts say the National Spot Exchange (NSEL) crisis has reached a stage where a strong regulator such as the  Securities and exchange board of India (Sebi) have to take leadership and  prevent the situation from worsening further. 

 

The calls have come after the settlement which was originally due to happen on July 31 was first deferred to August 15 then extended to five months. 

 

On Tuesday, the exchange proposed a timeline that may extend beyond the current financial year. The plan also suggested that the settlement of a fifth of the dues was contingent upon realisation of sale proceeds of the stocks supposed to be in the warehouses.

 

Shriram Subramanian, founder, Ingovern Research said, "I am of the view that this is a time to also demonstrate leadership by SEBI (as you have written) and also inter-regulatory collaboration."

 

Subramanian added: "The market environment is going to be dynamic and regulators need to work together."

 

Even people who have worked with the regulator feel it has role.

 

A former senior official with Sebi said: "The structure is that it was a transaction of financing or deposit taking or a collective investment scheme run by the exchange.The appropriate regulator is either government of India, if it is treated as deposit taking or Sebi if it is in the nature of investments. This mess has been caused because of regulatory vacuum known to all concerned. It is expected that authorities will wake up and act in a cohesive manner so as to not hurt investor sentiment any further."

 

Sebi's engagement in this scandal has to be at multiple levels. First of all, top brokers most of whom are Sebi registered intermediaries are neck deep into the mess. Secondly, it has to examine the affairs of Mcx stock exchange, whose head was a director on the board of NSEL. Thirdly, the promoter of the troubled exchange Financial Technologies is a listed entity, with thousands of retail investors.

 

Another angle not many are talking about is that of the whole operation being a collective investment scheme, where Sebi has indisputable authority and recently acquired extensive powers.

 

The prime minister has directed the setting up of a task force that is said to include Sebi representation. But this task force can be a supplement to the existing mechanism and enable better coordination, but not a substitute, say experts. 

 

With a view to limit financial losses and to pressurise the promoters to take personal responsibility, the government and regulators so far have extended a long rope. But, governance circles are not amused.

 

Subramanian said, "There is no sense of urgency demonstrated by anyone. In the past 10 days nothing has come out from NSEL and FT group. It shouldn’t have taken so long to state the facts and figures."

 

There is murkiness underlying this, he added.