How can investors be shielded from adani type volatility supreme court

How can investors be shielded from adani type volatility supreme court

NEW DELHI: In what could impact market sentiments, the Supreme Court on Friday sought to know from the Union government.

and market regulator Sebi by Monday the steps needed to improve the regulatory and statutory mechanisms to ‘ring-fence’ investors against volatility of the kind that singed Adani Croup shares, triggered by short-seller Hindenburg Research, and whether an expert panel led by a retired judge could be set up for a holistic review.

Solicitor general Tushar Mehta said, ‘Sebi is on top of the issue and looking into the events, which followed a certain report by a foreign entity, within existing robust regulatory mechanism’. However, he said he would get back to the court with a detailed response on Monday.

A bench of CJI DY Chandrachud, and justices PS Narasimha and JB Pardiwala conveyed the court's concerns towards the need for ‘examining, strengthening of the regulatory mechanisms to ensure that Indian investors are protected against a certain volatility, the kind of which was witnessed in the recent few

‘This, in turn, would require due assessment of regulatory framework, relevant causal factors and the need for strengthening the regulatory mechanism in the interest of the investors and stable operation and development of securities market,’ the bench said and told the SC to consult the finance ministry experts over the issues flagged by the court for a response by Monday.

While repeatedly asserting that it was treading with utmost caution so as not to step into policy domain or impact market sentiments, the CJl-led bench in its order ‘It was suggested to the SC that if the government is willing to accede to setting up of an expert body for an overall assessment of the situation, necessary statements can be made to that effect for constitution of a committee to that end.’

‘We have requested the SC to place on record a brief note of factual and legal aspects (relating to the regulatory framework governing stock markets) to further the deliberations.

The SG has assured that Sebi is closely monitoring the situation. The observations of the court during the proceedings are neither intended nor should be construed to be any reflection on discharge of statutory functions by Sebi or any regulatory body,’ the bench clarified. lt also told the SC to inform Sebi and its officers that it would not indulge in any witch-hunting exercise.

It also termed the PILS filed by advocates Vishal Tiwari and ML Sharma as not so well informed and told them firmly to not use the proceedings before the court to affect market sentiments.

‘We are proceeding with great circumspection in this matter,’ it said.

However, during the proceedings, which it described as 'open dialogue', the bench said: ‘The point of concern of the court is this — How do we ensure protection of Indian investors? Suppose it is because of short selling...literally in the course of three-four minutes, trades are done.As a result of short selling, the value of products get depressed, depending on the number of shares offered in the market.

Then the seller steps into the market to buy shares, and gets the benefits Of the depressed price and makes profit.’

If this happens on a small scale in the market, probably no one is bothered. But the point is that, something like this happens... total loss suffered by Indian investors run into lakhs of crores of rupees... how do we ensure, going in future, that we have a robust mechanism in place?’

‘Today capital is moving seamlessly in and out of India.

How do we ensure that Indian investors are ring-fenced? The small investors, a large chunk of which is from the middle-class, who throng the stock market, have no control over it. How do you ensure that they are protected? What role should be envisaged for Sebi in future? In different contexts, Sebi has circuit breakers. It stops trading when it feels the prices of certain shares are being pulled down. What happens if such an event happens over three or four days (as in the case of Adani),’ it asked.

The SG said, ‘The trigger point was the (Hindenburg) report, the author of which was outside the country and hence, beyond our jurisdiction.

The bench said, ‘One of the suggestions is to have a broader expert committee. We don't cast any doubt on Sebi or other regulatory bodies. But the government can have a finance sector law reforms committee, or some such thing for getting inputs. Then the government can think of the kind of modification needed in existing statute or regulatory framework.

It is for the government to decide. Beyond a point we would not enter into the policy domain. But, we can use our good offices to put in place a mechanism to ensure this does not happen in future.’

‘Can we have an expert committee, which may comprise persons from diverse sectors such as securities, international banking, along with a wise guiding force in a retired judge? We can give a vital role to Sebi in the committee. lt can analyse threadbare the powers Sebi needs in future to deal with similar such events.

It's a new world where capital moves across countries seamlessly. lt is going to be more pronounced in future. Today India is not what it was in the 1990s.’

The SC said, ‘Today the stock market is thronged by not high-value investors. With changing financial and tax regime, investment is made by a majority from the middle-class. Take instructions, apart from speaking with Sebi, have a word with the finance ministry and their experts and inform us on Monday what should be done to help the process.’.

‘We can also have an expert from the securities bar (the advocates who practise in Securities Appellate Tribunal), who can act as an amicus for the court and also for the committee. We do not want to say anything that would affect the market sentiments. We will tread with great caution in an area like this. The petitions are not well thought of but we need to go beyond it,’ the bench said.