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“My friends wondered how I was selected for the job. I said it was sheer destiny,” is how G V Ramakrishna, the second chairman of the Securities and Exchange Board of India (Sebi), who would chart the future course of the regulator by identifying key issues and possible solutions, described his appointment by Prime Minister V P Singh.
In his autobiography, ‘Two score and Ten,’ which talks about his 50 years of service in the government, his innings in Sebi forms just a chapter. But that chapter gives some great insights into the early days of the regulator. Describing his own little exposure to Dalal Street, he says in the book, “Earlier, my only acquaintance with the capital market was when I had heard P D Kasbekar, the Controller of Capital Issues (CCI), discuss with I G Patel the new capital issues in our weekly meetings in the department of economic affairs. An issue of Rs 2 crore was considered very large and there were extended discussions on allowing it or not.”
The CCI derived his powers from the Capital Issues (Control) Act, 1948, a World War era relic. The act itself was brought in to channelise savings towards war efforts. Neither did it provide for the post-liberalisation capital requirements of the corporate sector nor foresee the need to protect the small investor.
Explaining his ordeal in those early days, Ramakrishna writes how he had to “improvise” and “make do” with what he had. “There was a circular in the department of economic affairs that merchant bankers who were involved in public issues had to be cleared by the government. I got this power transferred to Sebi.”
Even as he continued his improvisations, the Sebi Act, 1992, was passed by Parliament and a new regulator, with investor interest at its heart, was born. The preamble of the Act talks of three major objectives, the first of which is “To protect the interests of investors in securities.”
While the objectives were noble, the path was far from smooth. Defying the ‘Nothing grows under a banyan tree’ adage, the Bombay Stock Exchange had risen to be a 25-floor skyscraper from its humble beginnings under a banyan tree some 150 years earlier. Brokers owned the exchange, ran and traded on it. And, they did not like the idea of Sebi. (MARCHING INTO ADULTHOOD: THE MEN THAT DROVE THE MACHINE)
At the start
Ramkrishna’s predecessor, S A Dave, recalls, “The stock market was dominated by BSE brokers, who were part of a 100-year-old organisation. They were used to a very traditional way of working and were very resistant to change. Sebi brought about a revolution on Dalal Street, transforming it from a traditional to a professional way of working.”
The rise of Sebi coincided with that of the National Stock Exchange (NSE). Fathered by institutions such as IDBI, NSE’s unique selling point was that it did not have a single broker on its board or management. The launch of screen-based trading, dematerialisation of shares and entry of modern derivatives followed. Between 1992 and 2000, the Indian share market transformed from a “den of brokers” into a professionally run marketplace, a great deal more transparent and conscious of the being called the investor. Regulations were in place for issue of capital, mutual funds, takeover, insider trading and collective investment schemes, among others.
Even the scamsters caught up with the technology and regulations. While it was Harshad Mehta in 1992, Ketan Parekh and his K-pack of stocks hogged the limelight in the 2000s. In an eight-month period soon after he took over in 2002, then Sebi chief G N Bajpai passed an astounding 330 orders. But, the conviction rate was meagre, with the orders leading to appeals and time-consuming litigation.
Using a single word, ‘Consent’, which lay buried in the Act, Sebi came up with the consent order mechanism to quickly settle cases with the accused for a consent fee. The mechanism itself would get into a lengthy litigation in the coming years but it helped save a lot of litigation time while it lasted.
As corporate governance became the buzzword globally, Sebi also came up with Clause 49 in the listing agreement, which provided for half the board being independent. But, even Sebi could not see the invisible tiger Satyam Computer Services founder Ramalinga Raju was riding on. The scam, which broke in early 2008, was the worst assault on the credibility of the regulator till date, but it managed to salvage some pride by quickly moving in to supersede the board and announcing peer review of auditors.
Around this period, Sebi’s focus firmed up on the activities of some large corporate groups, which were caught for serious violations. Some of these cases are still live.
Now
Even as Sebi grapples with some of these old challenges, it’s never short of new ones. Sebi’s present chief, U K Sinha, sees technology posing fresh challenges. “In many parts of the world these trading patterns have created problems. Even in India, we had two or three instances where we discovered that our system needs to be improved. We are not going to ban algorithmic or high frequency trading. Our challenge is to manage it so that it does not create a disruptive impact on the larger market.”
A risk management system, bringing back the retail investor through a better grievance redressal and arbitration mechanism, and corporate governance are other items on Sebi’s radar as it turns 25.
Dave, the man who started it all in the summer of ’88, said, “It is very rare that one can see an organisation completing 25 years in one’s lifetime. It is a matter of great pride.”
