BSE brokers vs SEBI -- Regulators too need funds

Suresh Krishnamurthy

THE LONG-STANDING spat between SEBI and the brokers regarding the levy of registration fees based on the turnover of brokers has finally ended.

The Supreme Court judgment upholding the levy by SEBI has come as a shot in the arm for the capital market regulator. The brokers' contention that the levy was a tax, not fees, and the quantum collected was unreasonable was examined and rightly dismissed by the Apex Court. Indeed, what has appeared for long to be unreasonable was the uncompromising attitude of the brokers, and this judgment forces them to co-operate with the system.

The Supreme Court judgment also needs to be viewed as a boost to funding regulation in India. While stating that if the fee is regulatory in nature the requirement of quid pro quo would recede to the background, the Apex Court may have only followed precedents. Still, the fact that this is the first time a case involving fund mobilisation by regulatory authorities has been decided, underlines the significance of the judgment for regulation in India. Also, by making the reasonableness of the levies by regulatory authorities subject to judicial review, the court has provided a check on unnecessary fund mobilisation efforts by regulatory authorities.

In fact, it is being argued that the taxpayer need not fund regulation, the principal beneficiary of which is the industry. Even if such an extreme position may appear untenable on many grounds, a regulator being financially strong augurs well for its functional autonomy. In such a situation, other avenues such as raising funds from the beneficiaries of a regulated market need to be explored by regulators such as SEBI and the apex court's judgment has come in handy in this regard.

In the context of the broker's case, SEBI should also forthwith act to mobilise funds from brokers. It has been suggested that SEBI may now opt to go for a further compromise with the brokers. While such efforts that help funds flow into SEBI's kitty may be welcome, SEBI should also cease to adopt a kid glove approach when dealing with the brokers on this issue. SEBI is slated to receive close to Rs 600 crore from the brokers. While the brokers may be relieved that the liability now may be lower than estimated earlier, it still may need to be pushed by the regulator to cough up the money in time.

If SEBI's submissions to the Apex Court is to be believed some of SEBI's important projects such as a system for electronic data gathering and retrieval and investor education hinge on these registration fees. The systems for electronic date gathering and retrieval could enhance the levels of transparency in the system considerably. Also, if the various studies conducted recently are to be believed, then there is a dire need for investors to be educated, especially on the relationship between risk and return. Till now, SEBI had the lack of funds as an excuse for not taking up these projects on a war footing. It will no longer have such excuses if the funds are collected as envisaged. In such a backdrop and considering the importance of these projects for investor protection, it is essential that SEBI cracks the whip on the brokers and ensures that the funds are mobilised sooner rather than later.