| Sebi chairman G. . Bajpai (left) and former president of Indian Chamber of Commerce Aditya V. Lodha in Calcutta on Tuesday. Picture by Kishor Roy Chowdhury
Calcutta, Dec. 9: The Securities and Exchange Board of India (Sebi) is planning to set up a centralised surveillance system that will enable it to keep a closer watch on the markets, says chairman G. . Bajpai.
Also on his agenda are introduction of ‘straight-through processing’, adding more derivatives products and setting up a school for capital market participants in partnership with a “world class institute”.
At present, Sebi is dependent on the stock exchanges to a great extent, for monitoring of the markets. The installation of an integrated surveillance system, which could take up to two years, would enable Sebi to keep an eye on all segments and products on its own, Bajpai said.
With funds obtained from the United States Assistance for International Development (USAID), Sebi had engaged a “consultant of international repute” to study the surveillance situation in the Indian market.
“The consultant has submitted its report and suggested a model for the Indian situation,” Bajpai said in an interview with The Telegraph.
The proposed surveillance system would entail a huge investment and could take two years to materialise.
Bajpai, who took over as Sebi chairman early last year, has taken a number of radical steps to tighten the regulatory framework. Under his regime, the settlement cycle has been shortened to two days, and now he says he would introduce ‘straight-through processing’ of trades within six months.
The system would enable investors to transact and deliver shares for settlement with one push of a button. Under the system, shares sold by you would automatically flow out of your depository account and reach the buyer’s account without any human intervention.
“Introduction of ‘straight-through processing’ will take us closer to T+1 settlement, which we would introduce only after the Reserve Bank has launched and tested ‘real-time gross settlement’. The advantages of ‘straight-through processing’ is it cuts costs and scope for human errors,” Bajpai said.
Sebi prides itself for introducing T+2 settlement in India ahead of the United States, United Kingdom and other western markets that still run on a three-day settlement cycle. The regulator is now looking to shorten the cycle further.
Other initiatives include introduction of more derivatives products. “We’ll be introducing a new interest rate derivative very soon. The market has not accepted the ZCYC (Zero Coupon Yield Curve) product, and wants another variant,” Bajpai said.
Going ahead, Sebi will further increase product offerings in derivatives segment. “Though we do not have anything else to offer in the near future, we’ll certainly expand the range of derivatives products,” Bajpai added.
While hinting at a cut in the ‘lot size’ — or the minimum order value — for equity derivatives to make them more accessible to retail investors, he clarified it was unlikely to happen in the near future. “Because it’s a risky product, we do not want retail investors to access the market till they have a better understanding of the products and the risks,” he said.
Sebi is also considering launch of a new trading mechanism, called ‘call auction mechanism’ for illiquid stocks. “It’s been quite successful in the United States and some markets in Europe. OTCEI has taken the initiative to examine the system and could launch it,” he said.
The challenge for the regulator is to keep pace with changes, Bajpai says and to develop new skills, Sebi is looking to set up a school for capital market participants.
“It’s going to be in partnership with a world class institute. We have already approached leading institutes for alliance,” he said but refused to name prospective partners.
Regional stock exchanges have lived their life and cannot survive in their present form, according to Bajpai.
To survive, they would either have to merge amongst themselves or with larger bourses. “The third option is to introduce other products — commodities, for instance,” Bajpai said.
Sebi would support them, but the bourses must initiate the change. “Unless they heed the call of the hour, they’ll turn into historical monuments,” he said.