The new chairman of the capital market regulator, Securities and Exchange Board of India (Sebi), takes over on Friday and Thursday was the last day of C.B. Bhave who completed three eventful years. Finance ministry veteran and UTI mutual fund chairman U.K. Sinha has large shoes to fill and has two key challenges before him. His actions on two issues will give a pointer on what he will mean for the Indian capital market. The first is the issue of loads in mutual funds. Sebi was the first global regulator to remove the conflict of interest embedded in a mutual fund by making a mutual fund a no-load product. Distributors are now paid by the asset management company (AMC) out of its own money and directly by consumers as a transaction or advisory fee. The mutual fund industry—the banks, the corporate distributors and the AMCs— are looking for a quick reversion to the imposition of a load embedded in the price of a mutual fund and are working to get the new Sebi chief to see it their way. The lack of an organized consumer lobby, of course, does away with the reverse pressure. What Sinha decides on this will define how he views the future of the mutual fund industry.
The second area is his stance on the ongoing debate around ownership of exchanges, and the conflict between profitability and governance. MCX Stock Exchange (MCX-SX) has openly battled Sebi in its bid to set up a stock exchange that would compete with the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The battle has been fought overtly and covertly. The company has gone to court, written to the ministry of finance (MoF) to pass a direction to Sebi telling it to allow the setting up of the exchange. (Though regulators are independent, MoF has the authority to pass a "direction" to get regulators to do what the government wants. It is one of the measures of the last resort available to a finance minister to bring recalcitrant regulators in line.) The covert battle has been fought by seeking to influence public opinion by funding research papers, events, surveys and wall-to-wall advertising in the media.
Market participants watched in astonishment a company battle institutions by targetting individuals rather than the institutions.The new Sebi chief will have to decide whether it is the institution that is above the individual or the individual that will change the course of stock market history.
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'I made my money by selling too soon.'
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