The Hindu Business Line : Agenda for SEBI's new CEO

THERE is reason to hope that Mr Meleveetil Damodaran will mould SEBI (Securities and Exchange Board of India) into shape and make it a more effective regulatory body.

Mr Damodaran assumed office as the Chairman of SEBI last Friday. Not since Mr G. V. Ramakrishna was at the helm has SEBI had a CEO of whom so much is expected, and with reason, too. The panache with which Mr Damodaran handled the crisis-ridden Unit Trust of India and IDBI is the principal reason why expectations are high.

He joined the UTI when the organisation was going through its worst patch and a question mark loomed over its future. The crisis was deftly handled as the mutual fund behemoth was split into two, islanding the problem areas.

The government was persuaded to provide a bail-out package with room for it to recover the whole or part of the cost. Most important, the work culture changed at the UTI, enabling fund managers to do their job without extraneous pressure. This led to several of its funds notching up impressive track records. UTI Mutual Fund is now well placed to market itself on the strength of performance.

In IDBI, too, a crisis of immense proportions was handled dextrously with assistance from the government. .

Heading SEBI could well be the toughest of the three assignments Mr Damodaran has handled over the past five years.

He moves into SEBI when its regulatory framework is robust and it has played no mean role in creating market infrastructure that is one of the more advanced in the world. This has been the situation for close to five years now.

SEBI has, however, failed in implementation of its regulations, especially when it comes to market participants and companies of note. Progress in the following areas will ensure that Mr Damodaran leaves SEBI in healthy shape, as was the case with UTI and IDBI:

Insider trading and price manipulation ahead of key corporate actions continue to be rampant. This has proved to a tough area to crack even in the US. But the Securities and Exchange Commission has managed to haul up several recalcitrant players who have settled their cases by paying penalties, though they do not plead guilty.

Tackling the menace of price manipulation, strengthening enforcement and surveillance and imposing deterrent penalties should take top priority in the normal course. But there is a simpler problem that demands urgent attention.

The Web site of SEBI — www.sebi.gov.in — needs to be sorted out. One can usually access the home page comfortably. But click on the multitude of links on that page and your problems start. The Web site needs to be streamlined so that it becomes a valuable source of information for investors and is easy to access at all times. The site could also do with a more organised and cogent presentation of its wide-ranging content.

A regulator's credibility hinges on its ability to achieve a fairly high conviction rate against errant market players. SEBI's record is poor as, without exception, the Securities and Appellate Tribunal has overturned its decisions and penal measures in cases against prominent market players. To achieve more convictions, a focus on building a case that passes the test of stringent scrutiny is a must.

If SEBI is to make progress, there has to be a vast improvement in the quality of its manpower skills at its disposal. Regulatory bodies always find it tough to move in lockstep with the market.

But they need not lag the market in the manner SEBI has so far. It has to invest in developing skill-sets in areas such as finance, accounting, tax and law by attracting professionals of quality and integrity.

This would mean making its compensation and working culture attractive. Mr Damodaran made considerable progress on such aspects in the UTI and an encore is expected in SEBI.

The regulator may not be able to match investment-banking outfits on compensation. But the prestige, learning opportunity and market value of the experience can counter such a deficit and help attract quality manpower.

SEBI's regulatory framework is robust in terms of coverage. There is, however, a need to simplify and trim the regulations, so that they are compact, easy to follow and comprehend.

A plethora of reports is filed by a variety of market participants, institutions and companies to comply with regulations.

These should be placed in the public domain in a timely manner, so that analysts can record a history of trends in several areas. This would complement SEBI's efforts and enhance its effectiveness as a regulator.

Tracking of regulatory filings by specialised outfits is a commercial business in the US and investors and the SEC have benefited from their efforts.

There is also a need to tone up the quality of disclosures in areas such as earnings announcements, mergers/acquisitions and FII flows to make them more meaningful for investors.

Living up to his billing is not going to be easy for SEBI's new CEO given the expectations and the complications of the markets. He may need to do more than any of his predecessors to leave a lasting impact.

Staying clear of comments on market levels and deftly warding off political pressures — SEBI Chairmen have found these two aspects difficult to avoid — are essential.

If Mr Damodaran leaves a mark on SEBI, it may yet be his most significant contribution to the financial sector and investors.

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