Sebi Sore Over Mof Tack On Badla

The Securities and Exchange Board of India (Sebi) is disappointed at the approach followed by the ministry of finance on the issue of introducing the modified carryforward system (MCFS) as recommended by the J R Verma committee report.

While there is no official reaction to the ministrys interference, Sebi insiders see the move as a lack of faith attitude of the government towards the market regulator.

The committee has been appointed by the Sebi board. The NSE was given representation in the Verma committee merely to obtain a counter view on badla. If crucial decisions are to be taken by the ministry, there is no need to have Sebi, an insider said. The ministry has made it clear that it will not impose the stand that it would take on the issue and allow the Sebi board to take a decision independently.

The view would be expressed by the ministry through their nominee director on the Sebi board, Shankar Acharya. The ministry sought time to seek opinion on the issue and since then had a series of discussions with experts like L C Gupta, UTI executive trustee P J Nayak, and Ajay Shah of Indira Gandhi Institute and Ravi Narain of the NSE.

According to Sebi sources, the Sebi board is unlikely to meet on October 3 as all board members are not able to give their commitment on that day.

The MCFS, despite being on the agenda at two previous Sebi board meetings, remains to be cleared. However, even if there is a possibility of the government nominee being voted out in the board meeting, it is unlikely that the Sebi board would take any decision against the ministrys reservations. Nobody would want to antagonise the finance ministry to which Sebi is answerable to, he added.

A managing director of a leading institutional brokerage was contacted to seek the market reaction to the developments. He opined that the ego clash between the two major bourses, BSE and NSE, has resulted in the present murky situation. It is very unfortunate that we can see that the ministry and NSE is one group and BSE and Sebi in the other. It is not healthy in the interest of the market, he said.

The draft report of the L C Gupta committee on derivatives has expressed reservations on the existing carryforward system. M G Damani told Business Standard earlier that the committee had gone out of its way to criticise badla.

Market observers feel the cash market that the Gupta committee is talking of does not exist. The managing director of the institutional brokerage added: Even NSE is not a cash market as the number of deliveries is very low compared to the turnover. There is hardly any delivery business.

While there is no official reaction to the ministrys interference, Sebi insiders see the move as a lack of faith attitude of the government towards the market regulator.