Primary market reforms have been on top of the agenda of Securities and Exchange Board of India chairman Chandrasekhar Bhaskar Bhave, who completes six months in the hot seat today.

Bhave, 58, talks to Rajesh Bhayani on his agenda for initial public offer (IPO) reforms, self-regulation for brokers, currency futures and more. Excerpts:

There were expectations that Sebi would introduce some changes in the participatory notes guidelines. What's the status?

The Board did review the matter, but no decision was taken. So it's status-quo.

There have been complaints about foreign institutional investors lending their stocks overseas to enable foreign entities to short-sell. Your comments?

We have received representations regarding FIIs lending stocks in the over-the-counter market overseas. On the safety of the borrower or the lender, Sebi isn't concerned as both are outside Indian jurisdiction. We are examining the impact of such deals on the Indian market and regulatory requirements.

We have to keep in mind that the Indian market has accepted the need for lending/borrowing and the consequent short-selling as a desirable feature.

Stock lending and borrowing has not picked up in the Indian market. Don't you think they need to be changed?

Based on the representations we received, we have asked the stock exchanges to give their comments and tell us what changes they require. We will decide after we receive their recommendations.

One of your most important initiatives is IPO reforms. What is the status?

Sebi wants to reduce the time gap between the closure of an issue and its listing. This process is aimed at removing refund-related concerns and the grey market in IPOs.

As a first step, we have proposed that the application money can be debited only after shares are allotted. Some banks are ready with their software and are testing their systems internally as well as with the stock exchanges and registrars.

We will start the new system when four to five banks are on board. We will implement it first as a pilot project and the old method of payment will be available as well. Making it mandatory will take some more time. The issuer will have to provide this option in the prospectus when we are ready to start the new system.

What about asking institutional investors to make full payment along with their IPO applications?

Once we test the new system with a few issues and find it all right, we will make it mandatory for institutional investors to make full payment along with IPO applications.

This will not take long because the number of institutions is relatively small and institutions can pay the full amount either by cheque or can avail of the blocked account facility. This can be sooner than expected.

What's your view on the recent resignations in the Bombay Stock Exchange?

Sebi will not intervene in the management issues of an exchange. Resolving the issues is the responsibility of the exchange board. We will act only if any regulatory issues are thrown up. 

But isn't it affecting BSE's listing and other plans?

Sebi is not hindering anyone's plans who follow the norms. BSE has not applied for an IPO, but they want to get listed without IPO. We are examining if it is good to do so. The question is, why do they want us to make an exception? We have no issue if they float an IPO and get listed.

There are concerns about price rigging on the first day of listing. Do you think there should be circuit filters on the first day?

Circuit filters are applied on a base price and if there is no base price that itself can give rise to problems of a share getting stuck in circuit filters day after day. So we have taken the view that it is better to let the market find the price. If there are any manipulations, the entities involved should be punished.

Are you in favour of regulating private equity players?

Typically investors are not regulated; intermediaries are regulated. So the question is, as PE funds do they need registrations? Probably not. As investors, they should be free to carry on their activities as permitted by law. The issue would arise only if they raise funds from Indian retail investors. We will then have to address the issue of investor protection.

Investors in mutual funds are rising. Do you think there is a need to relook MF investment norms?

We have appointed an advisory committee headed by SA Dave that will consider all the issues raised by different stakeholders, including trustees and investors.

We are discussing the issues with AMFI, which is a body of asset management companies. We are also organising a meeting with MF trustees to discuss their concerns.

What is Sebi doing for investor education?

Investor education is a continuous and a mammoth exercise. Even developed country regulators tell us that there are gaps in investor education in their countries. Investor seminars, informative material on the web-site, encouraging stock exchanges and depositories to take up such initiatives and supporting investor organisations are some of our efforts.

The decision on a self regulatory organisation for market intermediaries is pending. What's Sebi's view?

The World Bank has been commissioned to study the issue and will also look at the practices in other parts of the globe. We are also studying our internal environment. We have received some representations that Sebi's SRO regulations are not conducive.

Some of the provisions like Sebi nominating half of the SRO board members are seen as obstacles. We also have to see whether the conditions in the market are appropriate for an SRO.

For example, if we have an SRO for brokers, then the brokers would be subject to inspection by Sebi, exchanges as well as the SRO. Are we increasing the regulatory burden on brokers? These are vital issues.

When do you expect currency futures trading to start on the exchanges?

We have given the first in-principle approval and expect the others to get ready soon. It would be fair to say that it would start in a month's time.

What about interest rate futures?

RBI has already published the final report on the subject. A joint committee of RBI and Sebi will look into the issue of operationalising the report recommendations.