Taking stock, fast

Sebi brass, including ex-chief Buch, face corruption charge. Probe fast for investor confidence

Madhabi Puri Buch’s three-year term as Sebi chief ended last Friday, but she’s yet to wash her hands of it. Although she dodged conflict-of-interest charges and a call from Parliament’s public accounts committee while in office, a special anti-corruption court has now ordered registration of a complaint against her and other Sebi officials in connection with a company’s listing. This company was allegedly allowed to list without fulfilling regulatory conditions, resulting in losses for investors. The court has said that, at first glance, it looks like a case of “regulatory lapses and collusion”.

Charges of collusion and corruption are difficult to prove against chiefs of regulatory bodies. Another former Sebi chief, CB Bhave, was accused of allowing MCX-SX to function as a full-fledged private stock exchange, but the case was closed after a few years. Last year, Sebi dropped charges in the NSE co-location case, citing lack of evidence – which can also mean nobody looked hard enough. The charge was that some traders were allowed to set up their servers near NSE servers for a speed advantage – they could execute trades faster than rivals. A former NSE chief, who was allegedly receiving orders from a mystic in the Himalayas, was exonerated.

Since 1988, when it was set up, Sebi has weathered many high-profile scandals. Although some, like the Satyam case, involved collusion by auditors, the fact remains that Sebi failed to protect investors. The Harshad Mehta scam of 1992, when  Sensex jumped four-fold in a year, shook investor confidence for a long time. There was the Ketan Parekh scam, and the IL&FS collapse. In the Sahara case, Sebi ordered refund of ₹25,000cr to investors, but 13 years on, not even 10% has been returned.

India’s stock markets aren’t new but the middle-class’s strong participation in them is just a decade old. Month after month, even when portfolio investors have pulled funds, the middle class has kept its faith in SIPs. Yet, the over 10,000-point fall in Sensex since last Oct shows how fragile the market is even now. A swift probe is necessary to maintain investor confidence. 

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