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

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

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

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

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