Sebi at 25: Success, failures and challenges ahead

Eternal vigilance is the price of market stability and market growth, said Prime Minister Manmohan Singh in 2006. The regulator has kept the faith in its 25-year journey that has seen it steadily gain more powers to oversee India’s capital markets. It has ensured a well-functioning market and driven market development: dematerialisation of shares, shortening settlement cycles, initiating nationwide electronic trading, introducing risk management systems, establishing clearing corporations, nurturing the mutual fund industry and so on.

Rightly, the regulator has earned respect from domestic and global investors for improving the efficacy of the market. After all, there have been no broker defaults after 2001. Initiating the process of consultation papers before framing regulation has also enhanced its credibility with stakeholders. Today, the Indian capital market compares favourably with mature markets. Sebi is an active player of Iosco, an association of market regulators, working for orderly securities markets. However, regulation, either rules or enforcement, is far from perfect, particularly in areas like insider trading, where Sebi’s track record is none too bright. However, there is no case really to make Sebi a security police. Enforcement can be strengthened with continuous monitoring and improving market intelligence. This requires a rich talent pool. Sebi and all regulators must encourage lateral entry to draw the best talent.

India’s financial markets are still segmented. However, can one regulator be blamed for another’s failure when the remit over a financial product overlaps? Should, say, credit default swaps be overseen by Sebi or the insurance regulator? A unified financial regulator makes eminent sense to remove both overlap and excluded boundaries.