• Reliance Power?
A big IPO. I don’t take names. He wanted to know what we had done or were proposing to do. I clarified that we don’t fix prices, we vend, offer documents, and give our observations on offer documents. Other than that there have been calls about the market.
• Calls from the government?
Calls from the government, certainly not. I wish often there were more calls. In order to get an understanding of what we were doing in the last three years.
• When the market tanked a thousand points, did somebody call to at least understand what was going on?
No. I don’t think anyone called me. Again I am glad you asked this, because when the market tanked on a few days, we have come on television in order to clarify to the investors that the closure is as per our system and it’s not a panic reaction to the foreign markets. Other than that, we have taken no position on market levels.
• So it’s not as if you are closing the market because it’s falling. It just trips by itself.
It is something that is set in motion objectively.
• In your time, it’s (the Sensex) seen 5,000, it’s seen 20,000. Were there nights when you lost sleep?
I won’t say I lost sleep on account of this. One loses sleep on account of a number of things, so you can’t really have a causal relationship with any particular thing. You did worry, not about the level, but the pace at which the market kept reaching the lowest level.
• You did worry.
I think one did worry because at the back of our minds, the question was, is this orderly conduct in the market place?
• Can you go back and tell us when were you most worried about a rising market.
I won’t say worried. I would say four days, when it gained a thousand points, you did tend to . . . whether there was irrational exuberance in the market place. You asked yourself if things were going too fast.
• And what was the answer to yourself?
We certainly looked around . . . to see if there were signs of misconduct in the market place. We didn’t find anything prima facie.
• Have you found the investor maturing?
There is some investor maturity. I think the investor is sending the message if you don’t price it right, we are not here to buy.
• And it’s not SEBI’s job to price them right.
Absolutely not, and I am glad you asked this question. SEBI’s job is not about pricing. SEBI’s job is about ensuring complete and correct disclosure through the lead manager who brings the issue to us.
• When you were on Walk the Talk last time, a few months after you took over, you had said one of your challenges was to bring the aam aadmi to the stock market, convince him it’s not a casino. And we had one aam aadmi on TV the other day, the day Reliance Power opened, saying he felt like slashing his throat. What do you tell that investor?
I think what such investors need to be told is or need to be asked is, and they need to ask this themselves: Did you ask the right questions before you put your money there? Were you taken away by the hype? I got a letter from an investor, it’s addressed to somebody else, saying I saw you guys saying everything was good about a particular issue — till it listed below issue price. Now I find you saying everything wrong and talking it down. What happened to you guys? I think people need to look whether there is genuine expertise in those who give advice or is it agenda-driven advice.
• Is that adviser in this case the media?
I think the media has a very large role to play, and I’m afraid that role is not being played to the best of its ability.
• Let’s elaborate on that. . .
Take the electronic media. There are people who make statements which are a clear indication of talking up or talking down stocks. And what do we have by way of investor protection — a disclosure, which says this person is having a position in that stock. Earlier we had statements like not really, may be, is likely my clients have nothing in particular. We moved away from that. Today you get a broad spectrum: it is entirely possible I have this. Is this disclosure? It is clearly not. I want to know before somebody gives me advice, are you giving me advice because you are going to benefit?
• There is another question, it’s not something to say I have it or I don’t have it. I have a position in this stock or not. But I think a large disclosure would be: am I going to have a position in this stock or not. Because I know I am talking it up (and) I could buy it today.
Ideally, I would like a situation where, at the beginning of the programme, I know it might not be media-friendly in terms of excitement, if somebody says we are going to discuss these five stocks, and these two persons who are in your studio have these exposures, so that while he is talking I can look at his face take a judgement call on whether this guy is pushing up a stock.
• So you think this disclosure portion is too routine.
I think it’s far too routine . . . disclosure has to be complete, you make it to the right audience, not the TV anchor. It’s the investor who is going to put his money. Filing disclosure is not enough.
• Do you think these people have been driving up the market or driving down the market?
Well, let me put it lightly. When we heard the term ‘anchor investors’ first, I thought anchor investor is the guy that brings in a lot of money initially into a project around whose reputation others invest. I am beginning to believe, at the end of my three-year-tenure, that an anchor investor is an anchor and investor put together. I am worried that (they are) those who are responsible. . . who take the message to a billion-plus people who will hopefully, one day, be interested in the market. If that message gets distorted, what happens?
• Have you taken this up with media leaders, owners, editors, writers.
My predecessor and his predecessor had meetings with those from the media. The first time they were told we will write out our code of conduct. It was left to them. Maybe they have an in-house code of conduct. We didn’t see anything in the industry. My immediate predecessor, I am told, offered to write it out himself. I don’t think there was much response or too many takers. We hope we would be third time lucky by individually engaging people. There have been some improvements. Not that we want to take the credit, but maybe over time improvements will come. Disclosures we referred to had got that much better than I think it was previously.
• But you would think strongly that the media, particularly senior media people, editors, anchors — they need to have a strong code of conduct now?
I think there ought to be a code of conduct for media houses; not that we need to go public with it, but you need to make a statement that we have a media code of conduct. And more importantly, I think, you need to see leadership in the business of disseminating correct information.
• Because, if these correctives are not put in place— disclosures are one thing, but also strong codes of conduct, as in other capitalist systems like the US, for example— do you expect a backlash? Or do you expect Government or regulators getting tempted to interfere?
That’s the worst thing that will happen. We are the best people to write our code of conduct than somebody else. Self-regulation is, I think, the best form of regulation. But self-regulation doesn’t mean absence of regulation. It doesn’t mean a situation where everybody says, leave me to myself, I know what’s right or wrong. Let people sit together and evolve a code of conduct.
• Let me push the envelope on this. Did you find some credible evidence or indication that some senior people in the media were actively playing the market?
Well, even if I did, I’m not going to share it with you . . . certainly it was not the question of playing the market. You don’t have to play the market, I don’t have to play the market. The question is whether I am talking up something, whether I am talking down something.
• (In recent months) you were attacked by almost all the financial media. I call this the age of pink-paper triumphalism: everything has to go up all the time. Anything that comes in the way is the enemy of new capitalism. You were attacked when you were seen putting some obstruction or some speed-breakers in the way of IPOs, preferential allotments, institutional investors.
Well, we did, I am glad you asked this. In August 2005, we said we will do away with the discretionary allotments. All of them came down on us like a tonne of bricks saying you will drive away institutions from the markets. We were told these are quality investors, you need to give them discretionary allotments— institutions, foreign institutions. When we said we got evidence that these guys too sell on day one, we were told by these people they will stay in the long term, we need to give them more. Today those same people who criticised us are out there in print saying, we should not believe that these people don’t flip. . . My question is, why didn’t somebody take us seriously two years ago?
• You have been a bit of turn-around artist for the government. UCO Bank, IDBI, UTI. SEBI, you said, didn’t need a turn-around, but you have seen its evolution for three years. What were the tougher decisions?
I will look at it as tougher challenges and not tougher decisions.
• You deal with people who make in one day more in dollars than what we make in months in rupees.
Much more. I think they make every hour what we make in months. I am not envious for that. I think all of us have different things that make us do the things that we do. I have great pride in the fact that I have had enormous challenges over 37 years, and as I sign off, hopefully, I have given my best shot. But that said, what are the major challenges in the last three years. Can we go to campuses to recruit people standing alongside those who pay a king’s ransom? We have done that. We got the best people from the best institutions into SEBI in the last two years.
• You once spoke (to them) about the choice of being a regulator or being among the regulated.
I said the choice is writing out regulations that you can explain to your grandchildren with a sense of ownership, should those survive until then, saying, I wrote these regulations. That pride you can’t quantify in rupees or dollars. Whether you sell soap, toothpaste or cattlefeed, you will make money, but if you work here, you work for the only regulator, not one among the several manufactures. The only regulator. Come and gives the early years of your life, contribute to regulation. Then fly your flag outside.
• Did they buy that slogan?
They have bought it. This year’s ongoing recruitment, I have 35 people of management institutes in my office. Not the IIMs, as the processes haven’t commenced as yet. But last year, we went to IIMs, we have managed a few people. In the law schools, we were the major recruiters.
• We could still do with better compensations.
We could do with far better compensations.
• Has the government system understood the respect that a regulator must have? You’ll not say, but we have seen them walking all over the Telecom regulator.
Well, I am happy to say that over three years, nobody has walked over me. To their great credit, they haven’t attempted to walk over me. . . I think it’s a question of where you come from. It’s not about the power you get. It’s about responsibility and doing the thing that you are asked to you. And, I think, reverting to your question of autonomy to SEBI: nobody gives you autonomy, you learn to become autonomous. Nobody says this your charter of autonomy. But that said, I think we need to understand that the functional autonomy of regulators is something that you need to take seriously. The people out there in the market need to understand that you are a keeper of the level playing field between public and private. How do you do that if you are seen as beholden to the government?
• What unfinished tasks are you getting back to next week. I know about your football book.
Well, there is lot of reading left, there is lot of writing, hopefully, left.
• You have used lots of sporting metaphors. In fact, one thing you said, describing the role of a regulator, is that there has to be goal-line saves.
Yes, there is nobody behind the regulator. In cricketing metaphor, you are the deep third man, after you there is a boundary line. The ball can go past somebody else, but if it beats you it’s gone. That’s the role of regulator, really.
M Damodaran, Outgoing SEBI chairman
