The Hindu Business Line : `SEBI taking steps to make capital market safe for investors'

THE Securities and Exchange Board of India (SEBI) is working on a series of steps, including permitting short selling of securities by institutions, increasing the positions limit for derivatives and stricter regulation of mutual fund intermediaries to make the capital market more attractive and safer for investors.

Detailing the regulator's plans at a session on "Securities laws and capital market - global benchmarking," at the national convention of company secretaries here on Friday, the SEBI Chairman, Mr M. Damodaran, was confident that the steps would be in place before the end of this calendar year.

He asserted that there would be no extension of the deadline for companies to comply with Clause 49 of the Listing Agreement and the revised norms would be in place from January 1.

Pointing out that there were 30 principles set out by the international organisation for Securities Commissioners, Mr Damodaran said the Indian capital market was "fully compliant" in 25 of them and would comply with the remaining five shortly. In April 2007, India would host the general assembly of world securities commissioners at Mumbai, by which the country would be compliant in the 30 principles, and might endeavour to contribute to a few more.

One of the issues that the SEBI was looking at was to allow short selling of equities by institutions, a facility that was available to individuals. The regulator was keen to remove this dichotomy in the market and hoped to permit it by the end of this year in the interest of stability in the market. The regulator would also put in place a system of stock borrowing and lending to facilitate this. It was also moving towards a system of physical settlement rather than cash settlement for transactions.

All of these should happen by the end of this calendar year, if not latest by the end of this financial year, Mr Damodaran said.

He said the regulator would increase the positions limit in the derivatives market, which was now common for both derivatives and futures. SEBI would have separate positions limits for futures and options and would also move up the present limits to remove distortions.

The Indian capital market was among the best in the world and compared favourably with the best even in terms of costs. However, SEBI was looking at the time taken for companies to raise money from the market. "We take, I believe, far too much time," Mr Damodaran said, between the time companies realise that they need to raise capital to the time they actually do it. One of the major challenges was to reduce this time line without compromising on the standards of regulation or amending existing laws.

It was because of this large gap — it takes 21 days between the date a company filed its documents to the date it can start the process of book-building — that a number of companies decide to raise resources through global depository receipts. Companies went in for GDRs simply because the process was easier and faster and the regulatory requirements were not as stringent. SEBI's endeavour was, without lowering the base, to persuade them that the Indian time line was also shorter and that companies need not go to Luxembourg (for GDR issues).

At the same time, Mr Damodaran said the regulator would be strict in enforcing laws and empowering investors as a means to protecting them. He scoffed at charges that SEBI was being intrusive when it sought to pull up errant companies.

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