There is a concern in the industry about a growing trust deficit and a subsequent increase in compliances. Do you agree with this view, and is there a case for relooking at compliances?
We need to look at optimal regulation which looks at compliance as an important consideration. There could be multiple ways of doing things. They (regulations) may have served the purpose at a time and may not be actually relevant because some of the context may have changed, technology may have changed, and the market may have developed. We have to see whether that micromanagement is at all necessary.
Regulation need not be only a tick-box approach. The point is what is the rationale of a particular regulation or compliance, how far it is going to be effective and what is the element of risk. Where there is fear of more systemic risk, we should be very strict because spillovers will be high, market risk will be higher and (would) impact the development of the market. Integrity (of markets) needs to be always maintained but, at the same time, if we give too much importance to small things, then there will possibly be unnecessary costs.
Will the regulations be reviewed to address these concerns?
Yes. That is what we intend to do in a more intensive way. We need to see if the purpose of a regulation is XYZ, we need to see if the objective of the same regulation can be met with lesser compliance and lower cost. That process will begin.
We will have every division, and every department within the Sebi look at all the regulations they are handling, work with the stakeholders, have discussions, find out wherever there is a possibility of simplification, then prepare a plan and go forward on rationalisation. This will be a key focus.
Sebi was very prompt on measures to curb the volatility triggered by excessive speculation in the derivatives market. However, there is a concern among market participants that some of these regulations may have been a little excessive because volumes have fallen 30-40%. Is there room to reconsider some of these decisions?
If you see volumes over a period of three to four months, then yes, volumes have fallen. But, if you see it over a period of two years, it is still 30-35% higher. The point is there was a very steep growth-I would say exponential growth in terms of volumes. To some extent, those have been tempered with the steps that were taken. Our objective at the time was to really look at the systemic issues. F&O (futures and options) is a very important segment because you need to have risk mitigation, price discovery and hedging opportunities. We had put out a consultation paper after stakeholder discussions. We have received about 800 comments.We have received a number of representations for and against in terms of several other things, in terms of fixation of limits, intraday limits, end of day limits. I think we will take a call and come back on the decisions.
There was a thinking earlier on bringing down the expense ratio of mutual funds further. What are your thoughts?
I would not like to comment on this specifically in view of the overall exercise that is being undertaken as to how much we will micromanage. Are we going to fix everything? This will be clarified because concerned divisions will be talking to Amfi (Association of Mutual Funds in India). They may have some other ideas. We have to give a little bit of time for consultations. You cannot rush with changes, or else it becomes difficult for people to absorb those changes. Therefore, such decisions, when we take, we would like to after a proper consultation, giving reasonable time to stakeholders so that we do not have to go back and forth on it.
You met some very large FPI representatives soon after taking charge. What can be done to get them to raise their India exposure?
At this moment, in my opinion, they have a very positive view on India. Over the past five years, FPIs (foreign portfolio investors) have brought in a net $57 billion into India across debt and equity markets. There have been some outflows, but those were driven by the environment. And, of course, they can book profits. Over the past six years, India has delivered double-digit CAGR (compound annual growth rate) returns in US dollar terms. Overall, if you see the EMs (emerging markets), it was 0% and in China, it was negative 3%.
Many things have been done already. We have an SOP (standard operating procedure) in place for harmonising documentation requirements. Second, we have an abridged common application form for FPIs. Third, we have a tracker portal in place for greater transparency in the process. We have an FPI outreach cell where we direct an ongoing engagement with FPIs across the globe.
There may to some extent be the issue of a combined KYC (know your customer) between Sebi and RBI (Reserve Bank of India). We have to meaningfully look at it in the sense of whether it can be worked out better. There are some additional documentation that RBI asks, beyond the common application form. That is something which we will work out with the RBI and the Department of Revenue.
We would be engaging them in a more granular way going forward with FPIs. I would be travelling to the US for the spring meetings of the IMF-World Bank and would be engaging with several of them. We will get to know if they have any issues.
The much-awaited initial public offer of the NSE has been kind of stalled for many years. Could you tell us what the status is?
There are some issues that need to be sorted out. The Sebi and NSE are consulting each other on various issues that need to be (addressed). I think we can be positively moving forward on different issues. We have to see how potential risks will be mitigated. I think subject to satisfactory resolution of these issues, in my opinion, it can move forward.
Could you share at what stage is the proposal to allow foreign individuals to trade directly in Indian stocks?
I would not be able to comment on this at the moment. I think that is one which requires far more sort of engagement in terms of how the requisite KYC will be done and how we take care of that. But that is an idea which is being put on the table, I mean, at least from the RBI, it is noted that… But on whether or not how far we will be able to move, I cannot say at this point.
