Monday, June 13, 2011

SEBI Plans to Change Rules For Existing Demat, IPO & Secondary Market Trading

In a bid to ensure greater participation of retail investors in the stock market, Sebi is planning a series of changes to the existing demat, IPO and secondary market trading rules. These changes will not only make the stock market a safer place but also streamline the entire process of investing, Sebi chairman U K Sinha told TOI in an interview. Separate committees have been set up to work on these initiatives, he added.

"We have been able to identify a number of irritants (for investors). And we will spend the next few months removing them," Sinha said. However , he added, the changes being planned will in no way be at the cost of diluting the antimoney laundering rules and the policies of Financial Action Task Force (FATF), an international body that helps in combating terror financing. 

Sebi also plans to overhaul the 'Know Your Client' (KYC) process to make it simpler for investors and modify IPO forms. The KYC process identifies each investor and helps the regulator and other market intermediaries track down transactions from start to completion. Sinha underlined the need for streamlining the KYC procedure as various market-related agencies have different standards which often duplicate work and inconvenience investors. "The next thing we are going to do is to have not only a uniform standard but a common and inter-operable KYC," Sinha said. Which means if an investor has fulfilled his KYC requirements at any of the Sebi-authorized places, that will be valid at all points of the market, like depository , mutual fund, brokers, etc. 

"The new regime will be 100% compliant with Prevention of Money Laundering Act (PMLA) and with FATF, of which India is a full member . The idea is to make it standardized but simple," he said. A public sector body or companies from the private sector may be roped in to provide this standardized service , he added. 

The regulator is also working to simplify the demat account opening process. Currently, while opening a demat account, an investor has to fill in a booklet which is over 50 pages and has to sign more than 50 times. 

"We are working to simplify the form," Sinha said. Besides , Sebi also believes that IPO documents and the information given to investors in the form of disclosures are voluminous and they do not communicate anything significant . "Investors usually want to know at what price an IPO is offered and compare it to its peers, what multiple is it as per its known earnings, and at the same time what is the sectoral ratio, etc." Sinha believes such useful information is either not provided or is lost in the voluminous offer documents. 

Sebi has also found that often investors would like to know about the track record of merchant bankers who bring an issue to the market. Such information seems to be necessary for ordinary investors and hence would be made available to retail investors once the IPO rules are changed. "These are much more important information than the 150-200 pages of information that we are giving ," the Sebi chairman said. "We have set up a group and I'm hopeful that very soon we will be able to modify these forms. The idea is to provide relevant information and disclosure to the investor in a manner that he can understand ," he added.

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