SEBI: Between a rock and a hard place

It appears as though SEBI is trying to adopt the an-ostrich-which-buries-its-head-in-the-sand-and-hopes-that-the-crisis-will-blow-over attitude.

The Securities and Exchange Board of India (SEBI) is in the horns of a dilemma – On the one hand, it has to justify and defend the actions of the then Forward Markets Commission (FMC) that wrongfully and unlawfully declared Financial Technologies India Ltd. (FTIL) as not fit and proper[1], and on the other it now needs to act against the top 5 brokers and call them also not fit and proper. What makes it messy for SEBI is that FMC is now rolled into it and therefore, it inherits FMCs sins too. What is strange is its reluctance to call the errant brokers for what they are – instead, it is dragging its feet. What gives?

As the truth emerges, slowly but surely that the brokers were the main culprits in the National Spot Exchange Limited (NSEL)

FMs come and go but brokers are untouched

Only in India, do we see injustice meted out go uncorrected for long periods of time. In one single stroke of pen, the then FMC Secretary, Ramesh Abhishek, at the goading of the Finance Ministry and Govt. official K P Krishnan, declared FTIL to be ‘not fit and proper’ to hold any shares in any commodity derivatives exchange in the country, which was followed by similar orders to FTIL by other regulatory bodies controlling financial and energy derivatives across the globe. The damage and loss of reputation to FTIL founder Jignesh Shah is immeasurable – he had to do a fire sale of all his companies.

Now the Economic Offence Wing (EOW) of the state of Maharashtra has filed a 28,337-page charge sheet in a special Mumbai court[2]. But as the truth emerges, slowly but surely that the brokers were the main culprits in the National Spot Exchange Limited (NSEL), SEBI seems to not want to act against them.

What is SEBI waiting for?

Now SEBI is also controlling FMC and therefore it behooves it to declare the top 5 brokers, to whom it has been issuing show-cause notices to call them also not fit and proper. The alacrity with which Ramesh Abhishek acted against FTIL is the exact opposite of the pace with which SEBI is proceeding against the errant brokers. Aren’t laws equally applicable to all citizens? SEBI cannot run away from its responsibilities forever – it must remember that it is solely for the shareholders and not vested interests. The list of cases on which SEBI has not acted is long – NDTV[3], Tata Sons[4] come to mind. This is no way for the sole regulatory agency to perform.

Reports of imminent action by SEBI have been coming for the past 6 months but nothing so far – it appears as though SEBI is trying to adopt an-ostrich-which-buries-its-head-in-the-sand and hopes that this crisis will blow over. Sending Show-cause notice after show cause notice is mere optics. Please act on the Serious Frauds Investigation Office (SFIO) recommendations[5]. Even the Ministry of Corporate Affairs wants to you act against the brokers[6].

One of the accused, IIFL is trying to raise up to Rs.2000 crores in Bonds (Non-Convertible Debentures) and went public on Tuesday[7] the 22^nd.  Wake up, SEBI! Do the right thing!

References:

[1] The Target – Amazon.in, Shantanu Guha Ray

[2] EOW submits charge sheet against 63 in NSEL scam – Dec 28, 2018, Economic Times

[3] It is the system, stupid! – Jan 8, 2018, PGurus.com

[4] Swamy slams SEBI Chairman for not acting on complaints of insider trading against Tata companies – Oct 11, 2017, PGurus.com

[5] NSEL scam: SFIO wants SEBI to put broker-firms through ‘fit and proper’ test – Jan 1, 2019, The Hindu Business Line

[6] NSEL scam: Corporate Ministry allows SFIO to prosecute everyone involved – Jan 17, 2019, The Hindu Business Line

[7] IIFL taps Rs.2,000 crore NCD issue to diversify fund sources – Jan 22, 2019, Economic Times