SEBI’s Performance as a Regulator – A Brief, Critical Review A description of SEBI as a regulator of the securities market would be incomplete without at least a brief review of its accomplishments so far. This review is a thumbnail sketch of the regulator’s more important contributions and is not meant to be exhaustive. SEBI’s role has been reviewed along the following major areas (i) Primary market, market access and intermediaries (ii) Disclosure requirements (iii) Corporate Governance (iv) Market for corporate control (v) Trading Mechanisms (vi) Settlement systems (vii) Dematerialisation (viii) Institutionalisation of Trading and Ownership of Securities (ix) Market Integrity and Insider Trading (x) Ownership and Governance of stock exchanges; and (xi) Compliance Enforcement. Primary Markets
SEBI has regulated the primary market through (i) the regulation of issuers’ access to market (ii) regulation of information production at the time of issue, and (iii) regulation of processes and procedures relating to issuance of securities. These aspects have been primarily governed through the Disclosure and Investor Protection Guidelines,2000 (DIPG). All three aspects have evolved considerably over the years. Access related regulations have, for example, evolved from a regime of unrestricted access to equity markets to the current regime which uses a combination of size and profitability record as proxies for quality of the issuer to restrict market access. More recently a rating of all Initial Public Offerings by an accredited credit rating agency has also been mandated. The guidelines also prescribe criteria for issuance of debt that seek to ensure that the issuer’s creditworthiness has been certified by an independent rating agency and that the issuer is not in default to certain categories of creditors such as deposit holders and banks and financial institutions. The disclosure related aspects of issuance of securities have been noted under our discussion on Disclosure. The changes to the issue process have ranged from items of minutiae such as the number of centres for receiving applications to public offerings to measures that affect substantively affect investor welfare such as the basis of allotment. Of these various initiatives, the guidelines for book building issues was an initiative that truly transformed the primary market. SEBI has relied on certification by the merchant banker to ensure compliance with the regulations. The provisions cast the responsibility for the accuracy of the prospectus on the issue manager as well as for ensuring that other intermediaries involved in an issue such as the banker and registrar had the required license and the underwriter had the financial capacity to provide the service. Incorrect certification would mean the risk of loss of license to carry on its business for the agency that did not qualify to provide the service as well as for the merchant banker that certified incorrectly. Over time this certification mechanism has been continuously strengthened. (SEBI (1995) and SEBI (1996)) The most significant initiative was the announcement of guidelines for book building public issues. The growing popularity of book building is evident from the data . The first book built issue appeared in 1998-99, even though the guidelines were announced as far back as 1996. One of the key institutional prerequisites for book building to work effectively was demateralisation, which was made mandatory for public issues in 2001. The bookbuilding mechanism was continually improved in 1997-98 and 1998-99. The number of book built issues started picking up from 2000-01, the year in which SEBI threw open book building to issues of all size and made some important amendments to the guidelines. The numerous institutional changes that accompanied the introduction of book building, such as the change in allotment patterns, may have made...
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