Market takes a stand on Sebi chair

Experience, not politics, should decide Bajpai successor

Do you have it in you to be responsible for Rs 16,00,000 crore of investor wealth, invested in more than 7,500 companies, spread across 69 lakh demat accounts with a trading velocity of Rs 20,000 crore a day?

Do you feel upto regulating almost 13,000 brokers, an equal number of sub-brokers, 540 foreign institutional investors, 37 mutual funds, 60 portfolio managers, 11 custodians, two depositories with 431 depository participants?

Are you strong enough to resist the lobbying by all these participants while simultaneously ensuring the development of capital markets?

You will need to have hands-on experience of modern financial markets, both as a participant as well as a policymaker. You should have a proven track record of building institutions in public or private sector. We are looking for people with high integrity.

If you feel you are the right person for this job, email your resume to While salary will not be constraint, any lobbying will be a disqualification.

This should be an ad for chairman of the Securities and Exchange Board of India (Sebi). It is based on feedback from chairpersons and CEOs of India’s top financial services companies and senior policymakers in North Block, the hub of Finance Ministry, on what the new Sebi chairman should be like. The current chairman G N Bajpai retires on February 20, 2005.

Ideally, any appointment to public office, particularly one so important, so sensitive and so controversial as Sebi chairman’s, should be more transparent, its expanse of candidates wider, its choice more thought through. But what has been happening to most such offices is that they have become political appointments, havens for retired bureaucrats.

Most of these are ‘generalists’, that is, they bring in administrative experience, but no technical knowledge or skills. ‘‘It’s a dynamic market,’’ says a market participant, ‘‘how long can you have people learning at the expense of the public?’’ By the time a person gets to understand the market, the market has moved on, he says.

According to marketmen and policymakers we spoke to, there are four essential skills the new Sebi chairman should have:

A deep knowledge of modern financial markets. That is, he should not assume that he has to regulate only the spot equity market. ‘‘He should,’’ says an academic-policymaker, ‘‘understand futures and options markets, the commodities markets, the debt markets.’’

Experience in building and running institutions.

Legal literacy. The job of a regulator is to make and implement law. ‘‘If the law is weak,’’ says a participant-observer who has served on some Sebi committees, ‘‘operators will find loopholes. If the investigation is weak, the Securities Appellate Tribunal will upturn Sebi decisions.’’

The new chairman, says a director at one of India’s largest financial services group, ‘‘should have a professional background in financial services. Decision making should be faster, he should have a vision of what financial markets should do, and be able to anticipate their evolution.’’

What we need is a robust appointment system that’s transparent and unsurprising. What happens today is not known—neither the selectors, nor the shortlisted candidates, nor the basis of selection, not even the job requirement. What’s known is the names touted in the gossip columns of pink papers.

Says a former regulator: ‘‘A search committee should be constituted. This committee should shortlist candidates on the basis of a set of criteria. Since job requirements are constantly evolving, they should keep that evolution in mind.’’

Which probably means recruiting professionals from the private sector (from banks, mutual funds, law firms and suchlike). But while the government mindset is against hiring private sector people as regulators - the appointment of Ratan Tata as head of the Investment Commission is a welcome exception - there is the other issue of compensation. While the latter can be tackled over time, one look across the world and you know that private sector participation is not unwelcome (see box).

Says the CEO of one of the larger mutual funds: ‘‘Sebi should invest in and build a cadre of professionals from which to choose a chairman. Also, the person should know one year in advance that he’s being groomed for the job.’’


Ila Patnaik

Ila Patnaik