Sucheta Dalal :Infrastructure revamp and other decisions
Sucheta Dalal

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Infrastructure revamp and other decisions  

Apr 11, 2004

The ONGC allottment  fiasco continues to haunt the regulator and a series of developments to beef up capital market infrastructure are underway. Read the original at

Infrastructure revamp

By Sucheta Dalal

The ONGC fiasco has correctly triggered a complete revamp and assessment of capital market infrastructure by the Securities and Exchange Board of India (Sebi). The regulator now admits that the market infrastructure, especially that of the primary market needs to be upgraded to cope with a larger number of Initial Public Offerings (IPOs) anticipated next year. Sebi has set up an internal task force to look into the shortcomings of each market segment, especially Registrars, Depository Participants (DPs) and Depositories. Simultaneously, it has begun to clear long delayed issues relating to preferential allotments, delisting of companies through share buybacks and reverse book-building.

Curiously, Sebi has been sitting on the Committee Report that recommended ’reverse book-building’ that was headed by its Executive Director Pratip Kar for almost three years. Instead of acting on the recommendations, Sebi had set up an internal committee to fine-tune the proposals. The regulations were finally notified last week. Some major action is also expected on the depository front. Following representations from investor associations and its own findings, Sebi will soon induce a big drop in demat charges by transferring a fair portion of the costs to companies.

It will also restrict the various charges currently levied by DPs. The idea is to encourage investor participation in the markets by making dematerialisation more affordable.

ONGC unresolved

Human error or not, the problems at ONGC are far bigger than was disclosed by the government and certainly not restricted to High Networth Investors. Last week, The Indian Express gave Sebi a list of investor complaints—all from retail investors. It would be recalled that the retail quota was undersubscribed.

Yet, here is what these investors say. Purnima Punwani hasn’t received her 60 shares; Krishna Vaidya applied with two options, one of which was at the cut-off price. He wonders why both applications were rejected; Deviprakash Seksaria says he received 100 shares in his demat account, they vanished the next day and he was later credited with 67 shares. He had applied as a MRPL shareholder. Why didn’t he get full allotment if the retail segment was undersubscribed?

Moreover, how can shares ‘vanish’ from this demat account without his explicit permission? Dr Surendra Dhelia is angry that the basis of allotment has not been made public and investors cannot check whether or not they have received the correct allotment. Several of his relatives who applied in the MRPL category also received 67 per cent allotment. Dr DV Punwani, for instance, received only 41 out of 60 shares applied for. Astonishingly, the government quietly slipped a clause into the ONGC offer allowing it to take credit for the issue before March 31, even before allotment was completed and investors continue to struggle for clarity.

Did the government deliberately underplay the problem so that the money could be credited to its account before the financial year? Sebi has no answers. It is still grappling with the problems. It wouldn’t even say how investors who lost money due to the registrar’s error would be compensated.

MAPIN change

The rumble of anger against Sebi’s comprehensive database on market participants—called MAPIN—is slowly turning into a roar. On the one hand, the Delhi High Court, which had earlier stayed Sebi’s attempts to photograph and finger-print relatives of market participants also asked the regulator to give a personal hearing to the brokers who had filed a lawsuit. On the other hand, those who are likely to affected by the second round of registration and tagging are lobbying hard to block the next round altogether. Tarun Das of the Confederation of Indian Industry has already written a strongly worded letter recording industry’s objection to MAPIN. Other industry associations are bound to follow its example. Interestingly, they are also finding sympathisers at the highest level in government. Sebi too has realised that MAPIN in its present form would not fly and has started making some drastic changes anticipating the objections.

Market disbelief

Sebi’s discussion paper on MAPIN had said, “Illegal activities such as terrorist financing and money laundering are also major concerns of regulators around the globe. Regulators need to identify the violators and take speedy and stringent enforcement action. Therefore, the regulators are turning to creation of a comprehensive database of market participants. The Central Registration Depository of the US NASD (Nasdaq Stockmarket) is an example”.

The problem is that nobody in India really believes that finger-printing market participants will improve the speed or stringency of enforcement action. In fact, scamsters and their exact modus operandi are usually well known in India. If justice is delayed or denied, it is usually because of the money power or political clout of the culprits and their circle of beneficiaries.

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-- Sucheta Dalal