If the Joint Parliamentary Committee has its way, capital market reforms will take a huge step backwards, and the Controller of Capital Issues could come back in a slightly modified manner, with the government vetting each public issue and deciding on its price.
With share prices falling dramatically from the highs of the mid-90s and the early 2000s, the JPC has concluded that it is unscrupulous promoters who are to blame. And the solution is not to get the regulatory agencies like the Sebi and the Department of Company Affairs to work better, but to control things as they were in the pre-1990s.
"As regards initial public offerings", the JPC says, "two vital issues - pricing and tracking the end use of funds - have been totally neglected by Sebi." (While tracking funds is not Sebi's job, the JPC has said this has to be done by Sebi.)
"While determining pricing is a difficult task", says the JPC, "... to leave this entirely to the discretion of management based on the recommendations of the merchant bankers , does not serve the interests of the small investors."
The JPC says the Sebi view that markets will determine prices "is not acceptable to the committee." The JPC then goes on to recommend that "totally free market pricing in a market which is highly imperfect and has a long history of fraud and manipulation is not a workable solution."
Book building as a means to discover the correct price of a share, the JPC says, hasn't worked either, and so, "it is therefore suggested that Sebi should either use industry benchmarks or evolve other suitable criteria for this purpose."
While an investors association had made a plea to ban preferential allotment of shares on the grounds of this being anti-investor, the JPC has said that while it cannot be banned, this has to be strictly watched to prevent abuse.
The DCA has been asked to prepare the rules for preferential allotment in consultation with Sebi.