SEBI JOINS SWACHH BHARAT MOVE - TO CLEAN UP BOURSES

By Ruma Dubey

SEBI, after a long time, yesterday announced some measures which could probably bring more depth and a sense of equanimity on the bourses.

Indeed it is after a long time that SEBI has bared its teeth, is sharpening its claws, showing that it is the watchdog of the market; something which we know but have kind of forgotten. Right from culling the list of listed companies to bringing to book errant auditors, SEBI has touched upon all things bothering us on the markets.

First on the ilk of listed but rarely or never traded companies. The listing statistics shows that there are totally some 8000 stocks listed across the various stock exchanges of India. Over 3000 shares of these are listed on regional bourses and 1200 stocks have been suspended for trading since 1999. Thus active trading is seen only in 1000 shares. And SEBI has finally woken up to this statistics (better late than never) and initiated a few action plans. Steps proposed:

• To delist or force some 4200 companies to delist and thus clean up the markets – companies suspended for seven years to be asked to delist, giving an exit option to investors.
• For delisting, fair value for shares to be determined by a third party valuer.
• Companies listed on regional bourses to be asked to delist – only 500 companies till now have moved from regional to national exchanges; 3000 more remain.

The other measures proposed are:

• To launch options contract in commodity markets and introduce more new commodities for trading.
• SEBI has invited Nandan Nilekani to help create tech platforms to facilitate buying and selling of mutual funds.
• To tweak the rules to help star-ups list with ease on the exchanges.
• Working on regulating and strengthening high-frequency or algorithm trading, to ensure all players and not some brokers as is the case now, will have easy access to market data and exchanges for this trading.
• Firms that have a high order-to-trade ratio would also be penalised to deter players from canceling orders.
• Strong action against auditors who look the other way when it comes to detecting flaws in the financial accounts of listed firms.
• Planning to make it mandatory for credit rating agencies to disclose reasons for suspension of ratings.

These are all very progressive and measures in the right direction. As such we Indians are excellent when it comes to making plans, chalking plans on the paper. But what we suffer from is the ‘implementation syndrome’. SEBI needs to ensure that none of these promoters go scot free, leaving the investors high and dry. It is usually seen with such ‘vanishing’ companies that all of a sudden neither the company nor any of the directors can be traced. Countless letters to SEBI, the Registrar of Company (RoC) and the company does not get any response. The promoters make merry, earn a life time of money and the investors are left merely wringing their hands in frustration.

Apart from giving the investors an exit route, SEBI should black list promoters of these companies to ensure history does not repeat itself. None of the promoters should be allowed to raise money or even stand in as non-executive director for other companies for the next 10 years. From being a mere ornament on the Board, these non-executive directors need to be made more accountable.