SEBI needs to pace its regulatory changes
Editorial,
July 26, 2023
In the six-month period from February, SEBI has floated over three dozen consultation papers seeking to overhaul the ground-rules for market players
After a frenzied pace of rule-making in the last six months, it is good that the Securities Exchange Board of India (SEBI) is finally seeking feedback from market participants on their ability to comply with them. In an interaction with the media this week, the Chairperson disclosed that SEBI was open to toning down any of its regulations if industry could demonstrate real implementation challenges. The statement, and the interaction itself, seemed to be a response to the growing rumble from market players about SEBI’s over-stringent approach to regulation in recent times.
While it is de rigeur for market participants to crib and carp about ease of doing business whenever regulations are tightened , the fact is that SEBI has been on an overdrive in recent months. In the six-month period from February, it has floated over three dozen consultation papers seeking to overhaul the ground-rules for market players from Alternative Investment Funds and mutual funds to stock brokers, listed companies and company insiders. Some of these have been contentious. For instance, the proposed regulations on the disintermediation of secondary market trades and the new AMC-level expense limits for mutual funds risk disrupting the profits and entrenched business models of large industries with public stakeholders. New responsibilities for mutual fund trustees and the requirement that companies officially deny rumours published by media, present practical difficulties in implementation. A new law on suspicious trading activities, which sought to haul up investors exhibiting ‘unusual trading patterns’ on the presumption of guilt, failed to pass the test of fairness.
At the press meet, the SEBI chief promised to have a relook at some legacy regulations that have proved tough to implement. Listed companies may be allowed to come up with their own mechanism to decide on the market rumours they will take note of. A rethink has also been promised on the reverse book-building route for companies seeking to delist from the bourses.
But after its recent overdrive, SEBI may need to do much more to convince the market that it is conscious of its facilitative, market development role. For one, every new regulation when proposed should be accompanied by an impact assessment on industry, to weigh the cost of compliance against likely payoffs to investors. Two, if the consultation process with industry entails multiple iterations and a longer timeline, SEBI must be tolerant of this. This is especially true of regulations that have a major disruptive impact. Most important though, SEBI may need to be more thoughtful about writing newer regulations. Having put in place a set of water-tight securities market laws over the last three decades, the basic guardrails needed to protect investors from rogue elements are already in place. For incremental laws, a “don’t fix it if it ain’t broken” approach should now suffice.
[The Hindu Business Line]
