7 key challenges Madhabi Puri Buch faces as new Sebi chief

Business

Having demitted office as a whole-time member in October 2021, she must be fully aware of the challenges and the tasks ahead.

Samie Modak reports.

Madhabi Puri Buch took charge as Sebi chairman on March 2.

Having demitted office as a whole-time member in October 2021, she must be fully aware of the challenges and the tasks ahead.

Business Standard spoke to industry players and Sebi watchers to put together some of the key challenges before the new Sebi boss:

Settling the NSE fiasco: The controversies surrounding the NSE are over six years old but refuse to die down.

An order issued last month by market regulator Sebi against the NSE’s former boss Chitra Ramkrishna which stated she passed on confidential information to a Himalayan yogi has caused quite a stir, with various central agencies getting active in the probe.

Puri Buch would like to put the issue to rest so that Sebi’s energies could be diverted towards other important areas.

Tackling volatility: While the worst of Covid-19 is most likely behind us, volatility has once again started to rear its ugly head.

The likely increase in interest rates by the US Federal Reserve this month and the spike in geopolitical tensions have led to wild swings in the market.

Already key indices have seen double-digit corrections from their peaks.

Further deterioration in sentiment may impact retail flows into the market.

The new chief will have to ensure all the systems and processes run smoothly, and volatility doesn’t lead to any market dislocation.

Experts say a crackdown on market manipulation and insider trading is also the key to safeguarding retail interest.

Retail flows via the mutual fund route, as well as the direct investing route over the past two years have been seen as a success story.

It is in everyone’s interest that household savings continue to get channelised into the financial market.

Balancing act: Any Sebi chief has to always do the delicate balancing act. Going easing on regulations increases the risk of manipulation.

On other hand, acting too strict leads to backlash from stakeholders.

A recent example of this has been the rule around the separation of the chairman and managing director post at India Inc.

Despite giving companies more than four years to comply, Sebi had to withdraw the rule after hectic lobbying.

There are growing concerns over Sebi’s regulatory overreach with some lobbying hard to relax rules around the approval of related party transactions (RPs).

Writing new rules and making changes to existing ones are part of market development, but the job may not be as easy as it appears.

Filling key vaccines: At a time when Sebi is expected to act expeditiously on cases, the regulator faces a vacuum in key positions.

The regulator is currently functioning with only two whole-time members (WTMs).

Besides, the regulator is also looking to rope in executive directors.

Cases are piling up before the Securities Appellate Tribunal (SAT) due to lack of quorum and disruption caused by the pandemic.

Earlier this month, the government appointed a third member.

Important appeals in matters, such as NSE colocation and Franklin Templeton Mutual Fund scheme wind up, are pending before the SAT.

Puri Buch will need enough manpower and support from the Centre in this regard to function efficiently.

A bitter pill for brokers, MFs & FPIs: Hectic lobbying by India Inc helped it avert stricter governance rules.

Mutual funds, FPIs, and brokers weren’t as lucky as the regulator has made them swallow a bitter pill. Brokers are grappling with new rules around share pledging and margin funding.

MFs have seen their profitability take a hit as Sebi has been trying to bring down the cost of investing and forcing them to show more skin in the game.

Meanwhile, FPIs are anxious about the new shorter T+1 settlement.

The move towards the T+3 settlement cycle for IPOs, too, has been delayed.

No doubt, all these changes are aimed at market development and improving investor experience.

However, Sebi will have to ensure that these changes — many of which are still in implementation stages — don’t prove to be too disruptive.

IPO gravy train: 2021 saw record IPO mobilisation of nearly Rs 1.1 trillion.

But volatility in the secondary market and the sharp fall in the shares of newly listed companies, particularly start-ups, have threatened to derail the IPO gravy train.

Sebi, too, has proposed new norms aimed at bringing further rationality in the pricing of stocks of new-age companies.

The regulator faces a tough choice between ensuring that fund mobilisation continues at a healthy pace to boost the economy and protecting small investors from burning their fingers from greedy IPOs.

Regulating its own boss: Sebi often faces a dilemma when it comes to regulating public sector undertakings (PSUs).

Several of them don’t have an adequate public float and board compositions, and they tend to flout rules while issuing new shares.

In many cases, Sebi has to look the other way as penalising the government or PSUs isn’t easy.

The matter is set to get more complicated with the IPO insurance behemoth LIC, which is listing with just 5 per cent float and will have to increase it to 25 per cent within five years.

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