Securities and Exchange Board of India - Role as a Regulator

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Case Details:

Case Code : FINC036
Case Length : 14 Pages
Period : 1999 - 2004
Pub. Date : 2005
Teaching Note :Not Available
Organization : SEBI
Industry : -
Countries : India

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Regulator

The Indian economy was liberalized in 1991. In order to achieve the full potential of liberalization and enable the Indian stock market to attract huge investments from foreign institutional investors (FIIs), it was necessary to introduce a series of stock market reforms.

SEBI's efforts to boost investments in the capital markets faced a severe setback in 1992 when Mehta's illegal activities led to a stock market scam. Mehta had managed to obtain huge funds from top banks and financial institutions in India, including State Bank of India, Stanchart, National Housing Bank, Citibank and ANZ Grindlays, to manipulate stock prices, which rose significantly. Between September 1991 and April 1992, the BSE index went up by 143%. However, when the prices crashed, several small investors lost their hard-earned money. The amount involved in this crisis was approximately Rs.54 bn. SEBI's inefficiency in regulating the markets was brought to light for the first time. A journalist commented, "Harshad Mehta in 1992 had caught the SEBI napping"...

The Setback

In the mid-1990s, another incident happened, which had a negative impact on SEBI's reputation.

In 1995, Pawan Sachdeva, the Managing Director and a major shareholder in a shoe manufacturing company - MS Shoes was alleged to have rigged the prices of his company's shares.

MS Shoes launched a public issue of Rs 4.28 bn in February 1995 at Rs 199 per share. Simultaneously, the company had also planned to have a rights issue totaling Rs 2.71 bn.

The company went for an advertisement campaign just before the public issue, highlighting that the share offered to the public at Rs. 199 was at a steep discount as compared to the existing market price of Rs 505 on the BSE...

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