Setting an ambitious agenda for this fiscal, Sebi today announced it will put in place stringent norms for high frequency trades along with higher penalties for misuse, initiate strong action against auditors for lapses and expressed hope that P-Note users will start directly investing in the Indian market.
The watchdog also plans to seek delisting of over 4,200 listed companies whose shares are not being traded, apart from having an online platform for sale and purchase of mutual funds.
As part of efforts to further strengthen the domestic markets and protect investor interests, the Securities and Exchange Board of India (Sebi) eyes more strong regulations for credit rating agencies that among others will require such entities to disclose reasons for their actions.
Concerned over misuse of the high-frequency or algo trade, Sebi Chairman U K Sinha said a strong set of norms will be in place in 3-4 months to ensure fair opportunity for trading entities.
"While Sebi is among the first regulators to have some kind of regulations in place on HFT (High Frequency Trading), there is a need to make it stronger. We are working on that.
"It is not only about misuse of algo trade and co-location facilities, but also about fairness, and we are trying to address the issue. We are now looking to increase penalty for its misuse," Sinha said at an interaction here.
The regulator will soon be floating a discussion paper in this regard.
To weed out shares that are not being actively traded, Sebi will push for delisting of more than over 4,200 listed companies while promoters refusing to provide an exit opportunity to investors will face strict penal action.
In addition, Sebi has warned of stringent action against auditors who turn a blind eye to lapses in financial accounts of listed firms.
Setting out Sebi's agenda for the current fiscal, Sinha emphasised that delisting of these companies is one of the key focus areas.
Close on the heels of making norms stricter for Participatory Notes (P-Notes), Sinha today ruled out any concession for hedge funds with riskier profile in Indian markets and stressed that P-Note users should eventually move to direct route of investing in Indian markets.
Taking note of the risks posed by possible cyber attacks, Sinha said the regulator is working to address the gaps and will ensure appropriate action is taken soon.
"There are some government agencies also looking into the aspects of cyber security from the perspective of national security and they have also given us some inputs," he said.
With regard to P-Notes, Sinha pointed out that their share in foreign portfolio investments here has already fallen to a record low of 9.3 per cent.
"From a peak of over 55 per cent in 2007, the share of Offshore Derivative Instruments -- commonly known as Participatory Notes -- has now fallen to 9.3 per cent. I see this percentage falling even further, going ahead," he said.
Allaying concerns that the tightening of rules for these offshore investment instruments would hit the flow of funds into Indian markets, Sinha said there are over 8,000 FPIs registered in India, but only 39 of them are issuing ODIs.
"Idea is to make FPIs simpler and reduce the difference between FPIs and ODIs," he noted.
Sending out a strong message to the mutual fund industry, the Sebi Chairman said the regulator is in favour of a model where investor buys these products directly without any middlemen, adding that a new online platform for buying and selling these instruments will be in place very soon.
"We should worry more about investors than about those doing business of mutual fund distribution. Globally, the mutual fund is moving towards direct buying. Anyway, IFAs account for less than 10 per cent of mutual fund industry's asset under management," he said.
The distributors and financial advisors have been lobbying hard against mandatory disclosure of commissions by fund houses, which have also been asked by the regulator to disclose to investors salaries and other payouts to top management.
Meanwhile, the Sebi chief made it clear that stock exchanges would have to wait for more time before being allowed to start their own commodity derivatives trading platforms.
"BSE wanted a commodity platform. We told them that they will have to wait for some time as we are not very comfortable with the risk management framework in the entire commodity marketplace as yet," he noted.
