A Cannonball from Sebi

Having made the first arrests in the stock market scam, the CBI is now

gunning for more.

But while everybody is looking only KP-wards, there are reasons to look

elsewhere as well. Take a look at the Securities and Exchange Board of India’s

report on the market crash. Ketan Parekh was the mastermind all right, but he

wanted the market to keep moving northwards as much as you and me did. He set

the stage for the spoils, and everyone else muscled in and spoiled his party.

Now they are having a party, he is in jail, and millions of small investors are

wondering how they lost out on all of their life’s savings in under a week.

Sebi has pointed its accusing finger at brokers, who compounded the damage by

turning short sellers and unwinding of their bull positions. Couple this with

the liquidation of long positions and you had the perfect recipe for the bottom

to fall out of the market. It wasn’t just a Friday or Tuesday or Monday that

was ‘black’…things are so bleak that there is no other appetizing color

even on Sundays.

The report has singled out some brokers as short-sellers who played a role in

precipitating the initial market decline. There are even reports that a leading

foreign institution’s Indian arm funded short-sellers who triggered the ICE

avalanche.

In the midst of all this is missing that party who lost the most in this

market scam, as in all other previous ones and possibly in all future ones too–the

small investor. Sure, prime minister Atal Behari Vajpayee has dug out an olive

branch for smaller investors, promising them a Bill in the current session of

Parliament that would bring in a law to protect them from similar onslaught in

the future. But wasn’t that just the kind of promise that was made when

Harshad…? The PM went another step and backed the move to give more powers to

Sebi.

But nothing works in coordination in the corridors of power. Barely a day

before the prime minister went off and sounded his ‘stronger-Sebi promise’,

someone in the finance ministry decided that Sebi should justify its demand for

greater teeth in order to bite better as a watchdog. While Sebi wanted to be

able to "give directions to investors", finance ministry mandarins

decided that the former should redraft the Securities Laws Amendment Bill, which

gives Sebi immensely more reach, including the authority to order imprisonment

and conduct physical searches on offenders.

So, as the finance ministry claimed, is Sebi "trying to make the best of

the current fiasco"? Interesting question, considering that Sebi’s

request on ‘investor guidance’ has no precedent anywhere in the world. Sebi

continues to insist, meanwhile, that as a regulator, it should be able to direct

broker outfits, foreign institutional investors and large market operators who

are in a position to influence the market.

So the tussle for greater teeth goes on as megaliths flex their bureaucratic

muscle and scream for more. In the midst of all this, no one has anything to say

about the small investor. Action on the PM’s promise will have to be taken

much lower down the rung, and that after Parliament adopts the bill and both

Houses clear it, and it finally becomes law. Even then, there is little chance

of the benefits percolating down to that level where they are most sorely

needed.

A start could have been made in another manner. Redressal could have been

thought of, and deemed necessary, this time around itself, rather than an intent

to pass a bill that will become a law, which, in turn, will help the investor

when he gets scorched yet again by yet another scam, when another Harshad Mehta

or Ketan Parekh milks the market, makes his zillions and spends a few days

behind bars. Justice delayed is just justice denied alright, but when the

elected government of a democratic state is guilty of this delay, it is no less

than faith gone astray.

Rajeev Narayan in New Delhi