Sebi now has details of who the real beneficiaries are
When a Rajat Gupta is released after a two-year prison term for insider trading, the immediate conclusion is that, in contrast to the US SEC, Sebi has done remarkably badly—on average, it still takes around three years for Sebi to even conclude an investigation and there are several cases where it takes much longer. While there is little doubt that Sebi has a long way to go vis-a-vis the SEC, a more appropriate comparison would be with regulators of similar countries—compared to China, for instance, Sebi comes up smelling of roses. Even in comparison with the SEC, let’s not forget the US regulator has seven times the staff and very expensive computers that can crunch real-time information across various databases compared to the fairly rudimentary tools that Sebi has at its disposal. And yet, it recently debarred 1,000 entities after it found they were using the stock market platform to avoid income taxes of over R15,000 crore.
Sebi’s biggest achievement, of course, was the introduction of screen-based trading with computerised match-making, which meant brokers could no longer rip-off clients by reporting incorrect prices of trades carried out by them; an even bigger change was that of dematerialisation of shares. Between them, the Indian stock market regulator’s biggest achievement has been the fact that, since Ketan Parekh, there hasn’t been another instance of a really big stock market fraud.
While the moves on introducing greater transparency in operations including stringent norms for insider trading are still appreciated, very little is known about what Sebi has done as far as participatory notes (PNs) are concerned. Since the identity of those trading in the markets through PNs issued by FIIs was not known, PNs were generally seen as a way for Indian black money to get routed back into the stock markets. Data shared by Sebi suggests the share of money coming in through the PN route has fallen dramatically, to under 10% today and, more important, Sebi says it knows all the details of the ultimate ownership of the PNs. While the next logical step would be to regularly share this with the taxman—running it against that database would help pick up details of whether the funds belong to Indian taxpayers—the progress achieved so far is commendable.