capital markets summit: Refreshing change: Setting of new standards underway at Sebi

The recently concluded FICCI Capital Markets Summit featured a number of regulators and policy makers as guest speakers. Over the past few years that I have been moderating this conference, this year has seen a stimulating and engaging change in regulatory approach.

The change was strong and significant. There was a clearly defined direction in which the regulatory framework should be steered. The importance of market participants’ views and their issues was recognised. The focus was on logic and data behind regulatory changes. And it has been recognized that the role of regulators goes beyond regulation and helps build nations.

In his inaugural address, Chairman Sebi clearly conveyed the message that Sebi’s regulations should be based on disclosure and should not be restrictive. For any product or transaction in primary or secondary markets, there could be more requirements to make adequate disclosures, but the intent will not be to stop things. She emphasized that as a country we are not a “nanny state” telling people what to do.

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The other notable aspect of her speech concerned the use of a consultative approach. She asked for suggestions from market players, participants, practitioners and industry associations. The interdependence of the regulatory authority and the market participants can be seen from the realization that markets only function and function robustly through their participants. While it is important for market participants to work with regulators and within the framework of regulations, regulators are also committed to finding solutions to the issues faced by participants in order to ensure adequate growth of the market. A notable step is that each Sebi department has appointed its own person in charge, with the task of developing the market and suggesting improvements.

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While welcoming practical suggestions from market participants and industry bodies, the Chair made it clear that making concrete recommendations backed by concrete data to justify them. Apparently a general remark or an anecdotal case is unlikely to be considered. But there is an absolute openness to practical suggestions for improvement when backed by sufficient background work, logic and data. For me, this meant two transformative and visible changes – first, regulators get their business, and second, the days of general lobbying are over.

She very vividly explained the logic and structure of the regulatory framework, which will be a combination of principles-based and regulation-based. While there has been an informed debate about a principles-based vs. regulation-based approach, I would agree that, given our current legal construction, it might be difficult to move to a fully principles-based approach. A right combination of both, backed by facts and data, might be a viable method for now. As our market continues to grow and mature, moving towards a principles-based approach with modernizing the surveillance system could be the right combination.

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At the same time, it was clear that a disclosure-based framework, or a combination of principles- and regulation-based framework, will not dilute the need for compliance. There would be no compromise on compliance or the proper functioning of the market and violations will be dealt with appropriately.

A regulator that is aware of its role in nation building, open to constructive dialogue, progressive and focused on developing the market is certainly unique. Today we often refer to global standards in political matters. With the refreshing attitude we witnessed at the conference, the day may not be far off when our regulators set a global standard that is made in India.

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