The Hindu Business Line : SEBI will do its job

There has been a relentless rise in the indices and the prices of several formerly illiquid low-priced shares (popularly called penny stocks) have skyrocketed.

It was bound to attract the attention of Government sooner or later and it did. The Prime Minister is unlikely to forget the scam that took place in his previous avatar as Finance Minister.

Last week, there was a flurry of (confirmed and unconfirmed), reports of emergency meetings in the PMO, intelligence sleuths descending on Mumbai and income tax raids on brokers. Collectively, they trashed the Sensex by 265 points in just one trading session on Thursday. The market recovered its poise the very next day and Monday saw the index shoot up to close at near its peak of 8,500.

"Too many cooks spoil the broth" is an old adage, which has never been as true as in India. Non-economists speak of economics and non-scientists talk of science (wherein the world are Science Congresses and Music Conferences inaugurated by those who do not know anything about science and music?).

Something akin is happening in financial markets. Both those in and not in the know think their voices ought to be heard. Thus, there is no shortage of opinions on whether the boom is justified or not. The media too is having a field day. The possibility of vested interests misusing media access is ever-present.

It seems to have been forgotten that the Securities and Exchange Board ofIndia (SEBI) has vast powers to regulate trading in stock exchanges.

The latter themselves have numerous controls in terms of margins of various kinds - minimum margin, volatility margin, etc. - and surveillance software to track abnormal trading patterns and price movements.

2005 is not 1992. Weekly settlements (increasing the risk of defaults), badla, physical transfers of scrips, bad deliveries, etc. are a thing of the past. Speculation and overtrading may lead to large losses for individual investors but do not pose systemic threats - at least nowhere close to the pre-demat, T+2 settlement and margins era.

If, indeed, prices of some stocks are rigged by broker cartels, the stock exchanges and SEBI have enough teeth to bring the erring parties to book.

Policymakers and regulators would generally be well advised to keep their opinions on the market to themselves. Regulators are there to do the job of regulating markets and market participants. They should be left free and encouraged to do their job.

Above all, it is well to remember that rational and irrational behaviour are very much part of markets. Provided there are adequate safeguards and controls - and there is no reason to think these are wanting - `irrationality' will soon correct.

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