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The Regime Change at SEBI: An Analysis and the Way Forward

Madhavan is a third-year law student at Lovely Professional University.


On 1 March 2022, Madhabi Puri Buch was appointed as the new chairperson of the Indian stock market regulator SEBI. She succeeded Ajay Tyagi in becoming the 11th Chairperson and the first female chairperson. In addition to this, she brings many firsts to SEBI. She is the youngest chairperson at age 56. Also the first non-IAS individual since 2002 as well as the first person from the private sector to lead the market regulator. “Committed to data Empowerment”, says her LinkedIn Bio. Maybe she is the answer to SEBI‘s long need for a leader with strong financial experience and an innovative attitude. Someone who understands modern advancements and can put a leash on the stock exchanges especially NSE after the Chitra Ramakrishna Episode. She is known for her data-driven approach to decision making. “Financial data and transactional data”, she says at the Account Aggregator launch “will help to create the foundation of machine learning AI-based services which will then help to take these services to every single citizen of the country”.

Background: Madhabi Puri Buch

She graduated in Mathematics from Delhi’s St Stephen’s College and subsequently went for an MBA from the Indian Institute of Management, Ahmedabad. Post-MBA she joined ICICI Bank as Project Finance Analyst from 1989 to 1992. After that, she served as a lecturer in Accounting and Organisation Behaviour at West Cheshire College of the United Kingdom. Leaving teaching in 1995 she joined ORG-MARG as a Market Research consultant for a year. Then she came back to ICICI and led as CEO of ICICI Web Trade Ltd. and ICICI HFC Ltd. After serving as CEO she returned to ICICI bank and climbed the corporate ladder. She served ICICI Bank in various capacities. She had been the head of marketing & sales, product development, operations, brand marketing and then finally the executive director of the bank in 2006. Afterward, she moved to ICICI securities in 2009 and served as CEO for 2 years.

Her experience in the financial sector is very diverse. She was Head of Business Development at private equity firm Greater Pacific Capital in Singapore and a consultant for New Development Bank in Shanghai. Her corporate career kicked off during the period of Indian economic reforms. Thus witnessing the historical years of our economy. She was among the handful of executives who were groomed by veteran banker KV Kamath, the founder and former CEO of ICICI Bank.

The Chairperson's appointment is not her first time in SEBI. She had served as a whole-time member till 21 October 2021 for more than 4 years. As a SEBI Whole-Time Director, she was part of many committees and handled the Market Regulation Department, Integrated Surveillance Department, Department of Economic & Policy Analysis, the National Institute of Securities Markets and IT Department among others.

As pointed out before, the earlier chairpersons were from civil services. They had a strong bureaucratic background but comparatively lacked knowledge of market technology. But things are different in her case. She headed a technology panel that explored solutions for early detection of market anomalies. Besides, she has a deep understanding of India’s bureaucracy as well, since her extended family members are civil servants from the Madhya Pradesh Cadre.

Previous Shortcomings and Ineffectiveness of SEBI and Unfinished Business for the Chairperson

Among the various regulators, SEBI was among the first and has been seen to be one of the more effective in terms of delivering on its mandate. Despite this, it has had its flipsides too. Favouritism, multiple scams by NSE especially the Co-location scam, etc. have lowered the regulator’s credibility. With the appointment of the new chairperson the challenges, previous mismanagements and the unfinished business in front are discussed in detail as below.

Policing issue

The enforcement process is one of the three things that are left incomplete according to outgoing chairperson Ajay Tyagi. The pace at which SEBI has moved was slow and he would have liked it much quicker. SEBI does not hold absolute power for market regulation and by virtue of law, faces some resistance. The Securities Contracts (Regulation) Act, 1956 authorises the government to retain some powers for rulemaking in the securities market. There are some fundamental flaws associated with this. The Act should be amended and the powers should be transferred from GOI to SEBI empowering SEBI to make regulations for all operational matters under the act.

The following reasons are attributed to this change.

1. The rulemaking process involves matters related to the markets, regarding which the regulator is likely to have a better understanding compared with the GOI given their continuous interaction with the market and market participants.

2. Unlike the SEBI process of rulemaking for the securities, the GOI process is neither transparent nor does it follow any consultative process while notifying the rules under the SEBI Act.

3. Finally, a more explicit shift of regulatory responsibility also means more explicit accountability.

When SEBI acquires full powers it becomes a sine qua non to have strong policing. Judging from its previous approach there seems to be a shortcoming in this area. A recent example is the Algo scam. SEBI neither fixed any responsibility nor took any effort to assess the illegal profits of the Algo scam. This is because SEBI officers did not have the training or skills that were available to them in the 1990s, when senior officials from the police, income tax department and enforcement directorate headed SEBI’s inspection and investigation divisions. After 2013, SEBI lobbied hard to get enormous powers including search, seizures and investigations but did not have the people to exercise them. The new chairperson should strive to change that and have a well-trained and experienced team for law enforcement. Inspiration can be taken from the 4th SEBI chairperson DR Mehta in this regard. When Mehta was chairperson in 1995, he wanted his own team. Therefore he brought in senior officials from IAS, enforcement directorate, and income tax departments into senior positions.

Amplifying the capital markets

There are two aspects to this. Firstly, the market expansion of a specific market sector like the bond market. Secondly, expanding the accessibility of the capital markets to rural areas.

The majority of investments in the capital markets are from a handful of states like Maharashtra and Gujarat. The third on the list is Uttar Pradesh which has a good number of investors but is very minuscule compared to its huge population. Capital markets fail to penetrate deep into the economy. The coronavirus proved to be somewhat helpful here.

The pandemic catalysed the increase in the number of Demat accounts in spite of the economic slowdown. The cumulative number of total Demat accounts increased from 41 million at the beginning of FY 21 to 55 million by the end of FY21 – an increase of 34.7 %. On average, about 1.2 million new demat accounts were opened per month in FY21 as compared to 0.42 million per month during the preceding year. But, the majority of India is away from the touch of capital markets. As former SEBI chairperson U.K Sinha says, there are segments of the geography where a lot of activities are taking place both by way of surplus money which can be invested and also by way of the need for raising money. This surplus money can add a ton of liquidity to the markets. SEBI has done a lot to encourage people to participate in the capital market such as abolishing entry load on mutual funds, simpler KYC norms etc. But it can do more by developing a vibrant retail debt segment, encouraging deeper participation in equity by pension, superannuation, and gratuity funds, and reducing the cost of transactions.

Madhabi has a better chance of increasing the reach of the capital markets and penetrating it deep into Indian society, owing to her marketing and business development experience at ICICI. Increasing internet penetration and the rise of discount brokers are also going to provide great stimulus.

Apart from overall market expansion, there exist specific market segments which could not muster the necessary impetus. Ajay Tyagi listed three things that remained incomplete during his tenure. The expansion of the bond and commodities market were two of the three things. According to him, the lack of policy clarity from the government did not allow the expansion of the commodities market. For the bond market though, more than 8 lakh bonds were issued but it was limited to AAA companies and SEBI failed to expand the depth to lower-rated issuers.

Erecting SEBI’s character

From 2008, SEBI became the institution that followed the principle of ‘show me the person and I will show you the rule’. There are instances when selective enforcement of imprecise regulations from SEBI resulted in preferential treatment to NSE. For instance,BSE, in 2010, wanted to purchase a stake in Computer Age Management Services (CAMS) Pvt Ltd - a mutual fund back-office service provider. But MD & CEO of BSE, Madhu Kannan was rejected from proceeding further orally by SEBI with the reasoning that the purchase of a market intermediary by a Stock exchange would amount to a conflict of interest. On the contrary, in December 2013 National Stock Exchange (NSE)’s strategic investment arm picked up a 45 per cent stake in CAMS without informing SEBI.

Even when SEBI in June 2012 announced new guidelines for recognition of Stock Exchanges and clearing corporations, it did not explicitly forbid exchanges from holding stakes in unrelated businesses such as transaction service providers. Instances like these did not portray a strong image of the Indian market regulator. Establishing crystal clear regulations and ensuring a strict implementation should be on the priority list of Ms. Buch.

The NSE scam blemished the character of the market regulator. SEBI failed to do its job in cracking open the scam. Even years after the scams, SEBI is not cleaning up the mess and holding accountability. SEBI commissioned ISB Hyderabad to assess the illegal profits made by NSE brokers who logged in earlier. But this is a complete conflict of interest. "I am completely unclear”, says Sucheta Dalal, a business journalist who investigated the Harshad Mehta scam, “how and why ISB Hyderabad was selected or considered competent to handle this, especially since it has been the beneficiary of NSE funding. It is also important to ask why there is no report for over six years and when it will be placed in the public domain".

Madhabi has the opportunity to set a firm character for the Board which went somewhat missing after GV Ramakrishna, who is regarded as SEBI’s best and most formidable chairperson yet. She has the opportunity of uplifting the name of the board which got tainted after the NSE scams and set an example. Anil Singhvi, a corporate governance expert and market watcher says, “I expect her (Madhabi Puri Buch) to raise the prestige and reputation of SEBI, which has taken a huge toll in the last few years”.

Increasing competition

Competition should be encouraged in the market. A single exchange should not be accentuated with a golden halo of absolute monopoly. Because in case the haloed exchange gets corrupted, it is the public money that takes a hit. Besides, it pushes the departments and even the market regulator on the back foot in establishing the wrongdoings of the haloed exchange. The scams committed by NSE are one such example. NSE got away with no damage because SEBI never attempted to make a strong case, under the pretext that NSE, as an institution, should not be damaged to ensure the stability of the market.

One of the main benefits of increased competition is a reduction in trading and post-trading fees as was witnessed in the case of Brazil, as revealed by the Oxera, which undertook a detailed analysis of the prices charged by Bovespa (the national stock exchange in Brazil). The analysis found trading fees in Brazil to be higher than in all financial centres where competition has been introduced. Thus increasing competition brings out efficient services and better financial products at cutthroat prices.

Recently, SEBI issued a discussion paper titled “Review of Ownership and Governance norms for facilitating new entrants to set up Stock Exchange /Depository”. This is a positive step towards increasing competition among stock exchanges and mitigating NSE’s monopoly. Stricter implementation of policies for the increasing market competition is hoped from SEBI in the future.


Madhabi’s tenure is going to be very interesting. All eyes are set on her. She is heading the regulator at a time when its character is on the line. Another reason her term is going to be special is that she is going to lead in a time of Russo-Ukrainian war, Sri Lankan economic crisis, and coronavirus pandemic. Global trade faces a serious risk because of these factors. Heading the market regulator of a booming economy at this time is not going to be an easy job. The chairperson has plenty of work to do in order to augment SEBI. SEBI did an exceptional job of market regulation in its inception years. But it has to mitigate its structural inefficiencies which crept in over the years. Modern advancements and increasing monopolies in the capital markets are the major challenges for the regulator. It has to put strong internal governance to establish its paramountcy. It played a crucial role in economic accomplishments during the finance reforms of the 90s. With advancing technology and a competitive environment it has to play a bigger role this time in order to brighten the Indian economy.

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