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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Excerpts Contd...

The Reformer

In spite of the setbacks faced by SEBI, it continued its efforts to introduce more capital market reforms in India, making the markets an attractive investment destination for FIIs. According to SEBI, a significant increase was witnessed in the volume and amount of stock transactions done on BSE and NSE. In the fiscal 1993-94, the average amount of total transactions per day was valued at Rs 8 bn, which had increased ten fold to Rs. 80 bn in 1998-99...

The Crash

SEBI's role as a regulator of Indian capital markets was once again questioned on March 02, 2001, when the BSE index crashed by 176 points. This was the result of the large position taken by a stockbroker - Ketan Parikh (KP) in ten stocks, popularly known as K10.

The companies in which KP held high equity stakes included Amitabh Bachchan Corporation Limited, Mukta Arts, Tips, Pritish Nandy Communications, HFCL, Global Telesystems, Zee Telefilms, Crest Communications and PentaMedia Graphics. He had huge exposures in these stocks, which required a lot of money. Reportedly, KP borrowed from various companies and banks for this purpose...

The Reasons

Analysts felt that the major reason for SEBI's failure to protect investors against scams was lack of skilled human capital. For instance, they quoted the example of the KP scam in which KP had taken huge positions in ten stocks. In spite of SEBI possessing this information, it could not gauge KP's vested interests in acquiring these huge positions and his illegitimate plans...

Restoring Investor Confidence

In a poll conducted in early 2002 by Equity Master, an equity research company in India, over 90% of the respondents believed that the regulatory environment was not sufficient to protect the rights of retail investors in India.

Bajpai realized that SEBI had to change this belief of retail investors. He said, "Restoring the confidence of retail investors in the market will be an important task of SEBI."

Bajpai decided to achieve this objective by focusing on investor education, corporate governance, transparency and enforcement of regulations...


Exhibit I: SEBI's Guidelines for Public Issue
Exhibit II: Benefits of Demat Trading
Exhibit III: A Note on Rolling Settlement
Exhibit IV: Number of Equity and Bond Issues (1991-2004)
Exhibit V: Changes in Market Capitalization of BSE (1999-2004) (As on March 31)


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