Probably for the first time ever, the government has a situation where the four names short-listed to head the Securities and Exchange Board of India (Sebi) are all equally excellent. They are honest, know the capital market, have not lobbied to get on to the short-list, are all capable of providing dynamic leadership, and cleaning up much of what is wrong at Sebi. They are: IDBI Chairman M. Damodaran, National Stock Exchange Managing Director Ravi Narain, National Share Depository Chairman C.B. Bhave and Dr Jaimini Bhagwati, a former Joint Secretary with the Finance Ministry who is now with the World Bank. Will any of them actually get the job? Not necessarily. Ravi Narain and C.B. Bhave apparently don’t want the job because they cannot afford a huge salary cut at this time in their lives. (Ironically, Bhave and Narain are not even part of the obscenely paid private sector executives, but the regulator’s remuneration is so low, that the job is unaffordable for anyone not looking for a post-retirement sinecure). The government is probably reluctant to shift Damodaran, who already has a tough challenge in turning around IDBI and finally, the IAS lobby is working overtime to ensure that Jaimini Bhagwati is kept away from the post because he is from the Indian Foreign Service. If that weren’t enough, a bunch of retiring bureaucrats is working to eliminate all four from the list, because they suffer from a serious handicap — all of them are approximately 50 years old, give or take a couple of years. One will now have to wait and see if the government ends up appointing a suitable candidate as Sebi Chairman or prefers to muddle along with mediocrity.
Sebi is understood to have added a fifth show-cause notice to four that it has already served on market operators who sold heavily on May 17 when the BSE Sensex had crashed over 800 points in intra-day trading. Sources say Merrill Lynch Espana, Foreign Institutional Investor (FII), is the new addition to the list.
Sebi has revealed no names, but it is reliably learnt that UBS Securities is also among those who are being questioned. A preliminary Sebi report on the May 17 debacle (available with us) mentions UBS as having provided incorrect information to the regulator about sales of a client named Caxton. Others served with notices include a hedge fund, a relatively unknown Indian brokerage firm and a third FII that reportedly traded for several hedge fund accounts, which had ‘‘considerable sale position in scrips which had witnessed a fall on May 17’’. However, the preliminary report shows that whether or not Sebi issues show-cause notices, there were many curious sellers that day who merit closer scrutiny by the regulator.
When Gujarat Ambuja announced its complicated four-part tie-up with the world cement major Holcim, it was immediately clear that market operators had prior knowledge about the deal.
In the run up to the announcement, the ACC scrip has jumped from around Rs 290 to touch a high of Rs 370 on the eve of the announcement. That is the price at which Holcim will make an open offer.
Trading volumes in ACC has also quadrupled with 40-45 lakh shares changing hands every day. Soon after the deal, Sebi declared its intention to investigate the matter and dashed off letters to the two leading stock exchanges. We now learn that the National Stock Exchange (NSE) has clearly identified three firms as having run up massive trading volumes, suggesting informed buying. These names were reportedly handed over to Sebi at a recent meeting.
The question is, will Sebi ever be able to book anybody for insider trading? After exonerating Reliance of price manipulation and insider trading in the Larsen & Toubro case and losing the Samir Arora matter, it seems a long shot for the market regulator to succeed at proving insider dealing in ACC. On the other hand, if it fails to follow up the case, insider trading is bound to turn more brazen and rampant in future.
Finance Minister P. Chidambaram is surely suffering a lapse of memory when he says, ‘‘The NDA government used divestment proceeds for current expenditure. The proposal (of the UPA regime) is that sell-off proceeds will go to the investment fund and be treated as capital receipts.’’ The Disinvestment Commission headed by G.V. Ramakrishna, which Chidambaram set up in his previous stint as Finance Minister, had first mooted the idea of putting divestment proceeds into a separate Disinvestment Fund (the government now prefers the positive vibes flowing out of Investment Fund) and using them to rehabilitate ailing Public Sector Units or for socially relevant development. Chidambaram had then ignored the suggestion and clipped the Disinvestment Commission’s powers. Ramakrishna may not have been given credit for his idea on disinvestment proceeds, but the government did indeed honour him with a Padma Bhushan only a day earlier.