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LS for more teeth to Sebi; govt to promote demutualisation

The government on Wednesday assured the Lok Sabha that it would 'emphatically' promote demutualisation of trading to prevent abuse of market by brokers and traders as the house passed a bill to provide more teeth to the Securities and Exchange Board of India to restore investors' confidence.

"Passage of the Bill will be a move towards restoration of investors' confidence," Finance Minister Jaswant Singh told members while replying to the debate on The Securities and Exchange Board of India (Amendment) Bill, 2002.

Cutting across party lines, members supported the Bill aimed at increasing the number of members from six to nine, besides empowering the Sebi to summon persons or institutions, suspending trading of any security at any exchange, prohibiting insider trading and manipulative and deceptive devices as also enhancing the penalties under the original Act.

The government was, however, severely criticised for bringing in an ordinance instead of directly coming to Parliament with the legislation which prompted Singh to assure that necessary changes would be made in Sebi or other laws on the basis of the recommendations of the Joint Parliamentary Committee probing the stock scam.

He said government took recourse to ordinance due to urgency of the situation and it was not intended to bypass and disrespect Parliament or standing committee but suggested that working of the standing committees be improved to cut down the time taken by these.

Participating in a discussion on Sebi (amendment) Bill, the members said empowerment of the regulator was needed as the small investor was the worst hit.

Kirit Somaiya (Bharatiya Janata Party) said investors - especially the small ones - have lost millions of rupees due to a series of financial scams during the last decade and there was a need to hold the market regulator accountable in such a scenario.

The BJP member wanted the government to appoint a small committee to suggest more amendments to the Act to help protect the small investor.

He said long delay in the finalisation of the report by the Takeover Code Committee has resulted in serious violations in the past few years.

Nitish Sengupta favoured amendment in the Sebi Act and asked government to make efforts to revive the 'badla' system, which was abolished suddenly as a step to regulate the capital market effectively.

Under the badla system brokers and investors were allowed to carry forward their positions at a particular cost. But the system was lacking proper checks and balances leading to financial scams of different nature.

A C Jose (Cong) favoured stringent laws and financial penalties against the guilty involved in scams and frauds.

Sengupta said government must ensure that small investors, which have virtually disappeared since last few years in the wake of financial scams, should be brought back into the system and hoped that enhancement of powers of Sebi would help in this regard.

He asked the government to look into the recommendations of the Deepak Parekh Committee to revive the badla system.

M A K Swain (BJP) favoured the system of checks and balances while increasing powers of the Sebi saying there were corruption charges against various Sebi officials.

He suggested that tenure of Sebi chairman should not be more than three years while favouring a rank of finance secretary for the chairman.

Swain said increase in financial penalty to Rs 25 crore (Rs 250 million) from Rs 500,000 would be crucial for protecting the interest of small investors.

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