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While the 59-year-old Sebi chief Ajay Tyagi showed the right intent at the start, some of the decisions the market regulator took ran subsequently into complexities.
Ajay Tyagi hit the ground running in his new assignment as chairman of the Securities and Exchange Board of India (Sebi).
In less than a month in office, Sebi had passed the long-pending order against Reliance Industries in a 10-year-old case of unlawful gains.
The market regulator imposed a penalty of over Rs 1,000 crore, including interest, on the country’s biggest company, sending a signal that the former bureaucrat would not shy away from taking bold decisions.
Besides Reliance, Tyagi also had to deal with cases involving high-profile entities, including Tata Sons and Infosys, at the start of his tenure.
While the 59-year-old Sebi chief showed the right intent at the start, some of the decisions the market regulator took ran subsequently into complexities.
These decisions included the overnight ban on 331 ‘suspected shell’ companies, the last-minute withdrawal of a circular mandating companies to disclose loan defaults and the order against Gujarat Chief Minister Vijay Rupani (Hindu undivided family).
The Securities Appellate Tribunal set aside the order against Rupani and directed Sebi to issue a fresh order after hearing all parties.
While restricting trading in 331 companies at the behest of the corporate affairs ministry, Sebi faced criticism as the action was taken without internal investigation, affecting a few genuine companies in the process.
Sebi's circular asking companies to reveal bank loan defaults within a day was widely welcomed.
However, the regulator withdrew it a day before it was to be made operational without citing any reason.
Tyagi also had to deal with the highly sensitive case against the National Stock Exchange for providing unfair access to certain brokers at its co-location facility.
The matter is still under examination, with the market regulator ordering multiple audits against the NSE and brokers to ascertain unlawful gains, if any.
Besides, Tyagi undertook the challenging assignment of investigating a huge pile of cases against entities who manipulated the stock exchange platform to launder money by availing of the long-term capital gains exemption benefit.
Tyagi tightened the participatory-notes (p-notes) framework further by barring investors from taking unhedged positions in the derivatives segment.
On the other hand, Sebi continued with its efforts to ease regulations for foreign portfolio investors to encourage direct participation.
Fortunately for Tyagi, unlike in the past, the latest p-note tightening did not lead to any market disturbance because of a bullish undercurrent.
Tyagi’s first year in office coincided with a strong run both in the secondary and the initial public offering market.
In 2017, the Sensex and the Nifty rallied around 30 per cent, while fund-raising through IPOs was the highest ever at over Rs 70,000 crore.
With Tyagi at the helm, Sebi took a tough stand against audit firm Price Waterhouse for its role in an accounting fraud at Satyam.
The regulator banned PW from taking fresh assignments for two years and ordered disgorgement of Rs 13.09 crore.
“I think the new Sebi chief is making the right moves. Some of the decisions can run into complexities as the ecosystem is challenging,” said JN Gupta, founder of proxy advisory firm SES.
A huge backlog of pending cases was another key challenge for Tyagi.
The Sebi chief expanded the adjudication team and undertook internal shuffling to deal with this issue. He also announced a new system to clear cases in a time-bound manner.
“Sebi still needs to deal with the legacy issue of enforcement pendencies, which at current disposal rates will last at least a decade without the addition of new cases.
"Sebi will need to aggressively look at using the consent mechanism to bring down the number of cases,” said Sandeep Parekh, founder, Finsec Law Advisors.
Tyagi acted strongly against companies in which there were alleged leaks of price-sensitive information.
The regulator’s order against Axis Bank and HDFC Bank, directing them to identify the leaks, pin those responsible and improve systems, sent a strong message to India Inc to be careful while dealing with sensitive information.
Under Tyagi’s leadership, Sebi undertook the tricky decision asking mutual funds to consolidate their schemes.
It directed all fund houses to have only one scheme in each category, a move that could see unwinding of around 20 per cent of existing schemes.
Tyagi announced measures to further integrate the securities and commodity derivatives market by allowing exchanges to dabble in both segments.
As Tyagi enters the crucial second year of his tenure, there are several unfinished tasks at hand.
For one, Sebi has to take a decision on overhauling the corporate governance framework based on suggestions made by the Uday Kotak-led committee.
The regulator is also planning changes to the derivatives market to curb excessive speculation and safeguard small investors.
Sebi will soon have to take the NSE co-location case to its logical conclusion.
Further, it plans to announce measures to bring down transaction costs for mutual funds.
Sebi is studying implementation of the loan default disclosure framework.
More importantly, Sebi will need to be on guard to ensure the banking fraud does not spill over to the equities market.
Also, the markets could be more volatile in the coming year as global central banks look to normalise their monetary stance and as the decision by domestic exchanges to snap ties with their foreign counterparts plays out.
Photograph: Mitesh Bhuvad/PTI Photo.
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