Last week, CB Bhave, chairman, Securities and Exchange Board of India (Sebi), announced among many other things, the introduction of a new regime of transparency. Under this, we will get access to all behind the scene agenda papers of all Sebi board meetings.
So, as a start, on December 15, we will come to know what went behind removing the exit clause from closed-end funds, and extending the time during which a company had to come out with a rights issue to 12 months following Sebi permission, from three earlier.
Anyone curious enough to delve deep into these issues would have in any case got the information and the board agenda papers, under the Right to Information (RTI) Act. But by taking a proactive step, Bhave has literally institutionalised the RTI process in Sebi.
This move will also bring in a tremendous amount of internal discipline into the working of Sebi, as members — as well as those that attempt to push agendas through them — will stand exposed. Now that this information will reach us by default, the risk of taking a wrong call by any member has increased.
As if that were not enough, in less than a week from today, before December 12, Sebi will also put up a code to avoid conflicts of interest of its board members. So, if a member feels that s/he has, for instance, a relationship with the market participant whose case has come up for hearing, s/he will need to inform the board, which will take a decision on whether s/he can continue to hear the case.
Equally, on the other side, if any participant feels that the member hearing its matter had an association with it earlier that could motivate the member’s decision, he can ask for the member to be changed, which again, the board will decide.
Considering that the pivotal feature of all financial sector reforms is transparency — its absence in certain areas is driving the ongoing global meltdown — this is not just a welcome policy decision but a surprising one, coming from a board that voted unanimously and “unequivocally” on it.
In all the years of my tracking regulation and regulators, I have yet to come across such a decision, not only in India but globally. A regulator seeking transparency from those it regulates is commonplace. The entire Clause 49 debate, stronger corporate governance norms, audited quarterly results and so on are all positive decisions of a market turning transparent.
But for a regulator to demand transparency from itself, at the highest level, is probably a world’s first. Market participants should celebrate. And our other financial regulators — Reserve Bank of India governor D Subbarao and Insurance Regulatory Development Authority chairman J Hari Narayan must follow.
Subbarao’s serial-cutting of policy rates is probably the most nimble-footed decisions the central bank has taken in decades. But surely we would like to know more about the urgency behind these decisions. I believe Subbarao will open RBI up.
Hari Narayan, however, is plagued by a legacy of non-disclosure and opacity that the insurance industry operates under, the world over. The climb to transparency for him is going to be very, very steep. And while I don’t expect much there, turning IRDA and the insurers it regulates transparent is the most important ground level reform in finance today — a consumer must know what she is buying.