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ARTICLE : Giving the markets a regulatory boost
Thursday, 23 August 2012 03:04

Giving the markets a regulatory boost

Aslew of measures announced by the capital market regulator SEBI on August 16 will, it is claimed, help in achieving certain salutary objectives such as imparting greater transparency in the primary market process, ensuring higher allotment to retail investors and improving the reach of IPOs. SEBI also announced steps to “re-energise” the mutual funds industry, which has recently been languishing for lack of regulatory clarity in certain cases and an inadequate remuneration structure. The success of both these sets of measures will ultimately depend on how well they impact favourably on the capital market edifice as a whole, comprising the regulator, stock exchanges, market intermediaries and investors. In that sense, like nearly all previous changes in the regulatory rules that have been announced from time to time, the recent ones are incremental in nature, valid at a given point in time, but subject to review as the environment changes. SEBI itself has conceded that point in its approach to small investors. While the new rules seek to confer benefits to small investors — a minimum amount of shares and wider access to IPOs — SEBI has hardly been consistent in this area. As recently as in January this year, two new methods for increasing minimum public shareholding of companies — the Institutional Placement programme and the Offer for Sale of Shares through the stock exchanges — favour large investors over small ones.

For many reasons the small investor’s sense of alienation in the IPO process will remain. But that is not to say that the new changes are unwelcome or ineffectual. The minimum application size has been raised and this will enable investors to get more shares. By throwing open the existing brokers’ terminals at more than 1000 centres to IPOs, SEBI is welcoming more retail investors. The parallel moves to alter the mutual fund rules by incentivising the distributors, encouraging investments from small towns, and rationalising service tax are justified as they seek to address specific lacunae. But the strongest case for encouraging mutual funds rests on the ground that they are a time-tested and globally validated method for channelling retail investment to the stock markets. The SEBI chairman is on strong ground in seeking to extend the Rajiv Gandhi Equity Scheme, proposed in the last budget, to mutual fund investments. Looking beyond these measures, the mutual fund industry needs to be more transparent and less formal, so as to attract retail investment from small towns. As always consumer education is the key.