Efficiency and effectiveness of SEBI as securities market regulator

Abstract

The command model of governance has failed miserably to address the grievances of market participants and securing the property rights. The paradigm shift of recognizing the significance of market friendly processes and need for dynamic reforms, security market regulatory agency (SEBI) has been set-up in the country to ensure a predictable regulatory environment and participatory decision making. The Supreme Court in one of its judgments relating to SEBI has observed Integration of power by vesting legislative, executive and judicial powers in the somebody, in future, may raise several public law concerns as the principle of control of one body over the other was the central theme underlying the doctrine of separation of powers". The IPC Report (1992) had found serious fault for lapses on the part of Ministry of finance in supervising the securities markets. The IPC (2001) Report had made many observations relating to functioning of SEBI and regretted that a full decade after the establishment of SEBI, its performance has fallen far short of the expectations reposed in it This suggests that the constitution of regulators need close re-examination. These concerns raise issues regarding the factors and dynamics which explain the functioning of the regulator - whether the regulator has expertise, whether it is autonomous in taking decisions, is accountable for its actions, has adequate powers and resources for its effective functioning. This study is an attempt to investigate these issues in relation to SEBI. The methodology adopted has been, primarily a study of the securities legislation both in India, the US, UK and Canada; a study of the framework of institutional design of independent regulatory authorities by IOSCO and OECD; and focus group interviews with officials concerned. The study concludes that the SEBI Board lacks independence; the prescribed accountability measures for the regulator are ineffective, lack of penal authority over all those connected with the market, lack of deterrent enforcement despite the provisions, failure to do surveillance and proactively prevent the market integrity issues etc. It has adequate authority and financial resources but lacks skilled human resources. Accordingly, recommendations have been made to amend the statutes, since it is the statute which establishes a regulator and is the weapon for efficient and effective governance of securities markets.