Sucheta Dalal :Demutualisation of bourses (11 February 2002)
Sucheta Dalal

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Demutualisation of bourses (11 February 2002)  

The difference of opinion between the Finance Ministry and the capital market watchdog is probably behind the repeated postponement of a clear decision over demutualisation of stock exchanges and their new management structure. Sebi chairman D.R. Mehta is openly in favour of the having brokers on stock exchange boards, while the finance ministry prefers the National Stock Exchange (NSE) model of a professionally managed bourse. Naturally, brokers on all stock exchanges, even the smallest ones that have almost no trading at all, are fighting hard to keep control over their little fiefs. They argue that de-mutualisation or corporatisation of bourses is not a panacea. Although the NSE, which accounts for 65 per cent of India’s secondary market turnover, is a stupendous success, it hardly makes the case that professional exchanges always succeed. The OTC Exchange of India, which was India’s first professionally run exchange is a huge failure. Given that we have just two professionally run bourses, statistically speaking, one would say that professional bourses fail 50 per cent of the time! But why are brokers determined to hang on to the boards of tiny regional bourses with no business? Because, outdated listing rules permit them to collect listing fees and ensure the survival of the bourse even though there is no trading turnover.

Lucky February

For all those market intermediaries who are facing disciplinary action by the Securities and Exchange Board of India, February is turning out to be a lucky month indeed. Sebi chairman D.R.Mehta who is scheduled to demit office on February 21, seems to be in a major stock clearance mode. There are three or four hearings being held everyday to clear up the backlog of disciplinary action cases pending against brokers. More curiously, the Valentine Day mood seems to have gripped the chairman. Plenty of brokers who may otherwise have faced suspension or worse are being let off with a mere warning. Since, Sebi does not explain its orders, one has very sketchy information about the seriousness of their offences.

UTI trustees sued

It was bound to happen sometime. The board of trustees at the Unit Trust of India (UTI), which miserably failed in its fiduciary duties to unit holders, is being sued by a couple of investors before the consumer forum at Kanpur. The charge: breach of trust and cheating. The complaint is backed by the Midas Touch Investors Association of Kanpur. The petitioners’ charge that the trustees failed in their duty to protect unit holders and also that part payment for redemption in 2000-2001 was made illegally from the money of continuing unit holders, since the Net Asset Value was then much lower than the repurchase price. Apart from asking for compensation at the May 2001 repurchase price plus interest, the complaints say that trustees should be made liable to pay damages to investors from their own pocket. UTI in an initial reply has predictably denied all the allegations and strongly argued that the issues raised are not covered under the Consumer Protection Act. But the Consumer forum has fixed March 1, 2002 for the next hearing when one will know whether it plans to hear the case.

Auditors under fire

The Enron debacle in the US is taking a toll on Indian auditors as well. With the finance ministry pushing for stricter statutory supervision for auditors, the Institute of Chartered Accountants of India (ICAI) is working double quick to tighten its own code of conduct for its members. It is also planning to set an exposure limit to the fees that audit firms can earn through consultancy assignments for audit clients. But are these actions sufficient to keep auditors outside the supervisory purview of an independent regulator? At least the finance ministry, which mooted better supervision for auditors certainly does not agree.

Harassing cell users

Every other year the government—read the Central Board of Excise and Customs—comes up with the amazing notion of going after individual users of ‘smuggled’ cellphones and asking them to pay a fine. Given that on an average these gizmos cost less than Rs 10,000, it is amazing that even a government babu can come up with such a tool of harassment. But what can one expect? Customs officials, it seems would prefer to go after hapless individuals rather than attack the obvious source of a variety of smuggled goods such as shopping centres such as Heera Panna, Manish Market and Musafirkhana in Mumbai and similar assortment of glitzy stores in other cities. Just a couple of shops in these markets, which openly sell smuggled goods would probably yield more evasion than an entire year chasing cellphone owning individuals. But then the thrill is probably in harassing people rather than raising revenues for government.

-- Sucheta Dalal