S. Ramakrishnan, Managing Director, Tata Tele

The 59-year-old SEBI Chairman-he's had the post for all of 161 days at the time this sentence is being written-G.N. Bajpai is here, there, and everywhere. From the profusion of speeches and interviews comes a single message: SEBI wants to be a dynamic and respected regulator. Oh, yawn, we've heard this story before. The regulator promises to be the meanest watchdog of them all, a scam breaks, and it recourses to the tried-and-tested, "we have no teeth" refrain.

Only the soft-spoken Bajpai has a plan, one that spells affirmative action. Judge us by what we are and want to be, not by what we were, is his between-the-lines message, as he steers clear of the controversy over SEBI's role (or lack of one) in the carnage on the markets in 2001. "We can create mechanisms through which the systemic, operational, and structural risks in the system can be brought to a minimum," says Bajpai. He then details the four-layered rejuvenation regimen he has in mind for SEBI (see Affirmative Action, The Bajpai Way): more disclosure, a greater degree of enforcement, and the strengthening of the capital market's structure. All sound stuff, and very tough.

Bajpai's days are filled. There are the meetings with investor grievance cells, market intermediaries, and companies-targeted at understanding the system and policing it better. Then, there are hearings in cases filed by SEBI: in his five months in office, Bajpai has been part of 200. And there's the work itself: since February, when Bajpai took over as Chairman, SEBI has introduced a t+3 rolling settlement across all scrips and exchanges and an online system for companies to file time-sensitive price information-Electronic Data Information and Retrieval System-to enhance transparency. But what about the scams in the making: is the new face of the regulator overlooking the obvious as he strives to build a cleaner, stronger, more active SEBI?

No shortage of scams...

Just what Bajpai's effected and proposed changes mean to SEBI will be manifest in its attitude to possible scams. There is plenty to pick from. The movement of penny stocks (up, up, and away), since April 2002 indicates the possibility of manipulation. On the basis of some investor complaints SEBI has written to the exchanges asking them to investigate the matter. And once the exchanges get back (which should have happened by the time this magazine hits the stands), says Bajpai, SEBI will act.

But why did SEBI have to wait for investor complaints to act when it was evident that something was fundamentally wrong in the trades on penny stocks. "SEBI should be like a big brother watching over the markets," suggests G.V. Ramakrishna, a former chairman of the stock market regulator. Ramakrishna advocates the institution of a daily market surveillance system (DMSS)-two officers who will start work after trading closes for the day, sift through the day's data, identify unusual patterns if any, and have a report ready for the chairman by the time he is in the next morning. Preventive surveillance such as this would have almost certainly averted the near-meltdown at the Calcutta Stock Exchange in March, 2001.

And while SEBI has managed to stay on top of the recent scare over accounting improprieties-following several well-publicised snafus in the same domain in the US-by mandating that the guidelines formulated by its accounting standards committee will apply to all listed companies, there's more work to be done. "Most companies," explains a Mumbai-based investment banker who'd rather not be named, "use the M&A route to clean up their books." That falls outside the purview of SEBI-it comes under the ambit of the Department of Company Affairs. And the two agencies will have to work together, and with the Institute of Chartered Accountants of India (ICAI) to really do anything on the accounting front.

The stockmarket watchdog will have to work with the DCA to address the third, and perhaps most pernicious problem it faces: that of vanishing companies (those that disappeared with money raised from hapless investors). SEBI can't prosecute these companies, only DCA can. Former chairman Ramakrishna advocates a joint investigation, but neither agency seems keen on a partnership.

.... Or teeth, despite everything that's said

Thanks to a certain D.R. Mehta (the former chairman of SEBI), everyone with a pair of half-functional ears has heard about the regulatory body's lack of teeth (alas!).

Even schoolchildren know of the Justice D.R. Dhanuka committee report-it recommended the strengthening of SEBI-that's pending with the Union Government since November 1998 (those slackers!). There's no denying the need to bestow SEBI with more powers. Absolute power, in this case, could well make the markets clean and efficient.

Still, it's not as if SEBI uses its existing powers optimally (See What SEBI Does With Its Powers). Indeed, over the past five years, on four counts, it has levied the maximum possible penalty a mere 21 times, despite investigating a total of 262 cases. Maybe, Bajpai's affirmative action strategy will help change that. If it does, Ghyanendra Nath Bajpai will go down in history as the man who turned a toothless old feline into a ferocious panther.

"It Is Difficult For Any Regulator To Prevent Frauds"

A combative SEBI chairman says more power will help the regulator reach the truth. Excerpts:

The prices of penny stocks with low floats have been on an ascent. That could be because of manipulation, possibly a scam. Is SEBI looking into it?

We have written to the stock exchanges directing them to examine trading patterns and examine the possibility of unfair trades in certain stocks. If the exchanges need us to investigate, we will do that.

What is SEBI doing about accounting improprieties?

The world over, the approach to accounting has been rule-based-that is, to follow the letter of the law. What I am suggesting is we should follow accounting principles not just in letter but also in spirit. We are going to discuss this with chartered accountants. We have an accounting standards committee that will formulate guidelines for listed companies.

The practice of de-listing has been rampant over the past year. In some cases, the small investor has lost out because of this. Is SEBI going to do something about it?

The committee on de-listing should be out with its report shortly. Yes, a number of mncs and some Indian companies are de-listing. The issue is if I provide someone an entry route, I must also provide an exit route. But when somebody exits the market, one has to ensure it does not hurt the market and individual investors.

SEBI has always been reactive, not proactive. What are you doing to do change that?

It is difficult for any regulator to prevent frauds. But what we can do is to take the initiative, create mechanisms by which the systemic, operational, and structural risks are brought to the minimum. But these steps will have to be evolutionary.

As far as the regulatory body's approach is concerned we have designed a comprehensive strategic action plan in the area of surveillance and functioning of capital markets with a view not only to modernise the Indian securities market but put it on par with global markets. For example, I am thinking of t+1 settlement cycle in India by 2004, ahead of even the US. Though for that to happen, we have to rope in the rbi to bring in real time gross settlement (rtgs) system.

SEBI's long-standing gripe has been about its lack of powers. But what about the powers it does have? Are they used?

I am looking for empowerment. The monetary penalty that sebi can effect at present is not potent enough. We would like to have powers whereby sebi will be able to disgorge ill-gotten gains. Secondly, today we can only ask for evidence and have to rely on whatever evidence is produced before us. And all our judgements are being tested on fundamental law of jurisprudence of criminal liability where evidence must be incontrovertible. We want to be empowered adequately enough so that we are able to reach the truth either by search or seizure.

Affirmative Action, The Bajpai Way
By May 2003, SEBI will be a new animal if the chairman has his way.

INVESTORS

AIM: To empower investors make informed decisions and facilitate fair dealing
PROGRESS: Online filing and dissemination of time-sensitive price information.

• Benchmarking of mutual fund schemes
• Valuation norms for unlisted scrips in MF portfolios
• Rationalisation of depository participants' charges
• New regulations for portfolio managers

PLANS: Launch of nationwide investor awareness campaign

• Enhancing continuous disclosure standards
• Implementation of Malegam Committee recommendations on disclosures in offer documents

MARKETS

AIM: To ensure that consumers and other participants believe that the markets are efficient and clean
PROGRESS: T+3 rolling settlement across all scrips across exchanges

• Institution of Justice Kenia committee on demutualisation
• Working on independent governance of exchanges
• Abolition of no-delivery period
• Introduction of surveillance reporting for derivatives

PLANS: Strengthening of secondary market

• Strengthening of derivatives market
• Review of market infrastructure
• Institution of centralised listing authority
• Review of depository services
• Development of debt market

REGULATORY REGIME

AIM: To create an appropriate and effective regulatory regime in which all stakeholders have confidence
PROGRESS: Posting of Securities Appellate Tribunal orders on SEBI website

• Consultative process for framing regulations
• Shortening of enquiry process
• Quicker regulatory response

PLANS: Review of regulations

• Making the regulatory process more transparent
• Re-engineering systems and processes
• Introduction of T+1 settlement and new products

CORPORATES

AIM: To ensure that firms and their managers understand and meet regulatory obligations
PROGRESS: Institutionalised feedback
PLANS: Strengthening Corporate Governance code

• Improving quality of intermediaries