Sucheta Dalal :To Tell Or Not To Tell (22 Dec 2003)
Sucheta Dalal

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To Tell Or Not To Tell (22 Dec 2003)  

All over the world, capital market regulators strive to ensure uniformity of information to all investors. That’s why disclosure requirements and information dissemination rules for listed companies, which sometimes seem onerous, have to be complied with.

But sensitive corporate information is not the only thing that gives a price advantage to investors. Large operators and speculators are in a much better position to plan their portfolios and trading strategies if armed with correct information about the plans of their rivals and trading patterns of large institutional investors. In normal circumstances, this information is not available to the market and that is why stock market reporters work hard to get such details. During the Ketan Parekh-led bull run of 2000, many newspapers reported large deals and stock accumulation by foreign institutional investors and leading mutual fund managers. Most of these columns named no names and attributed the deals to pseudonyms that they assigned to various funds and investors. That kept them out of legal trouble. The source of information was often someone interested in ramping up particular stocks by suggesting FII interest in it. Investigations proved that many of these so-called FIIs were just Ketan Parekh and his cronies, operating through overseas corporate bodies that masqueraded as serious foreign investors.

This time round, things are very different. Although FIIs have pumped in over Rs 30,000 crore into the capital market this year alone, very few details about their investment strategy ever became public. All that changed last month. Suddenly, the media had access to sensitive information provided by the Securities and Exchange Board of India to the finance ministry. We have copies of the documents too.

There was information on FIIs who had failed to give the regulator details on Participatory Notes (PNs); these were, Citigroup Global Markets Mauritius Pvt Ltd, Copthall Mauritius Ltd (JP Morgan Chase), HSBC Financial Services (Middle East) Ltd and Goldman Sachs Investments Mauritius Ltd. It was revealed that Citigroup and Goldman Sachs had traded with Credit Suisse First Boston whose own FII registration has not been renewed after its dubious dealings with Ketan Parekh. A fact that SEBI has taken serious objection to. The reports also told us that 31 entities who had subscribed to PNs appeared to be OCBs and many had Indian sounding names. This information was published with a complete list of the 31 entities. All this information is sensitive but not terribly price-sensitive information. But SEBI’s copious answers to members of Parliament did not stop at this. The macro comments on the state of the market and the regulatory measures initiated to control excessive speculation quickly moved into price sensitive territory. For instance, sometime at the end of November, SEBI gave the finance ministry information on the following:

* Names of top 10 brokers through whom FIIs invest and the quantum of investment;

* Quantum of investment (sale, purchase and net) by the top 25 FIIs and the 50 top scrips in their portfolio, with quantum of investment in each. (Only 8 FIIs show heavy sales and purchases, suggesting a big churning of their portfolio. Their net investment isn’t very substantial. It’s not clear, if SEBI has investigated their operations and scrutinised their sub-accounts for possible mischief. We don’t have an answer because our zealous MP didn’t ask the relevant question);

* If that were not enough, SEBI provided information on investment by top 5 FIIs, in every scrip in the Sensex/Nifty;

* It provided a list of the top 50 investors in PNs and the exact scrips they had invested in; p It gave a list of top 20 scrips in terms of net investment by FIIs in the 6 months before November 2003.

Without ascribing any motives to the MP who asked these questions (he may well have asked them with the most noble intentions) it’s important to question whether such detailed and sensitive information ought to be provided to parliamentarians who simply fire scores of questions at SEBI. We need to debate this issue. The nexus between politicians, brokers, industrialists and ill-gotten wealth is well known and politicians are always lobbied to let-off scamsters. The connection between politics and money has been further underlined by the Judeo-Jogi episodes. Even at the moment, there is a big political mobilisation on to ‘save’ a fund manager banned by SEBI. That is why, the demands for price sensitive information must be checked before it becomes an epidemic. And the finance ministry must take up the issue at an appropriate forum and ensure some basic changes.

First, sensitive market related information, even on macro issues, should ideally be sought through the Standing Committee of Parliament. Second, the finance ministry, on the advise of SEBI, should have the powers to separate price sensitive information from general facts and views. Sensitive information cannot be provided to MPs on a fishing expedition without any regulatory jurisdiction or a specific issue.

Interestingly, the Reserve Bank of India doesn’t provide a fraction of the information that SEBI does, even when it is asked as a starred question in Parliament. Recently, a simple query about the top 10 entities through whom the RBI conducted its international currency operations was deflected as being “sensitive”. At least questions asked in Parliament are immediately put up on the government website. In SEBI’s case, information was provided to an individual, via the finance ministry.

Third, all market related information which is of significance to investors, must be immediately released on the SEBI website and available to all investors at the same time it goes to various committees. After all, doesn’t SEBI expect listed companies to release price sensitive information to the public within 30 minutes of the board meeting? SEBI is a young regulator, which has been forced to face two JPCs in the first decade of its existence. That’s why it tends to probably respond to questions from parliamentarians with too much alacrity.

One is not arguing for SEBI to become less transparent or opaque like the RBI, but it’s in everybody’s interest to ensure that information emanating from the regulator is openly disseminated and not open to misuse by privileged persons.

-- Sucheta Dalal