G N Bajpai, chairman of the Securities and Exchange Board of India, will not say a word about the movement of the markets. But when it comes to booking offenders, he loses no time to go on the offensive.

Extracts from a free-wheeling interview with Janaki Krishnan and Tamal Bandyopadhyay:

The markets are on a roll. Do you smell a rat?

As a regulator, I cannot comment on market movements. As you all have written Sebi is on high alert. We have a responsibility to maintain and enhance the efficacy of the market and we do it in consultation with the people operating in the market.

It is not as if we are anticipating something or expecting something to happen. If there is anything that is not desirable we are taking note of it immediately. There are two things.

First, Sebi is proactive and looking at what is happening and what should be taken care of. Then, we are taking action. Our team is so charged with the responsibility that they immediately go about executing whatever decision we take.

What's your outlook on the primary market?

The IPOs are coming. You may say the new issues are coming from the public sector, but there are some from the private sector too.

The revival of primary markets has something to do with the overall economy. The manufacturing sector is looking up and a large number of companies are preparing to enter the market.

Why are you restructuring Sebi?

Sebi has taken up organisational restructuring to induce efficiency and harmonise its activities. We feel that one kind of activity should be put in one place.

For instance, registration was being done a number of different places and now it has been integrated at one place.

A number of new divisions have been created. There are people who have spent more than five years or in one particular cadre and it is desirable to give them a job rotation. We have done this.

We have added strength to surveillance and investigation. We should be in a position to ensure that our surveillance is effective enough to visualise in advance what is happening in the market and identify any lapses and take proactive steps.

How much time do you take to complete investigations?

We take much lesser time in completing the investigations than other regulators such as the Securities Exchange Commission. On an average the SEC takes two years (to complete one case). In our case, it is much less.

What're your views on overseas corporate bodies?

As a market regulator I will have a concern if any organisation's activities are detrimental to the interest of the market place.

The moment we get a sense of it, we will take appropriate action. Take the case of participatory notes. We have asked for information and now we are analysing them.

We have the right to know who is the ultimate investor or the ultimate beneficiary. We have got the names of the people and the organisations which are investing.

It is not that substantial amount is coming through participatory notes. Though the proportion is not large, the numbers are quite high. We will take appropriate action to ensure that any of this does not become an issue for the market.

How active are the hedge funds in Indian market?

Hedge funds are not allowed to participate directly in India and we don't propose to allow them to participate.

There is a provision that they can take the participatory note route. We will examine how they are present there. Even JPC has said that we must verify (this). So long it does not disturb the integrity of the market, it is fine.

Before I allow anybody to enter into the market I must ensure that risk management measures are effectively in place. We will examine the data and then we will see if there are any areas of concern and then we will take appropriate action.

Aren't the Indian markets dependent on FIIs?

There are domestic financial institutions such as LIC and other insurance companies also. Mutual funds have a lot of money. You can say that FII participation is much higher than domestic participation. But as long as there is no discomfort in their participation why should we bother?

The corpus of the mutual fund industry today is much larger than what it was when UTI was a dominant player in the sector. There is now greater inflows by FIIs as they feel that India is an attractive destination.

Do the regional exchanges have any future?

I cannot say which exchange has a future. The fact is electronic technology is going to change the structure of exchanges and we have to accept this reality.

Those exchanges which can change their business models accordingly will remain (in business) and the others will not.

Are retail investors present in the market?

If delivery of stocks are any indicator then there is a slow and steady growth in participation by retail investors. Delivery percentage is now at 27 per cent.

Even at the height of the market boom it was only 20 per cent. Even Nasdaq and NYSE have delivery percentages between 20 to 25 per cent.

Why aren't mutual funds encouraging retail investors?

I am aware that some mutual Funds are running single-investor schemes. But corporate money is short-term money and they are not investors in the equity markets. They deploy their excess cash in mutual funds schemes for management of cash flows.

What I have been trying to argue is that India has a high level of domestic investors and high yielding investment opportunities are shrinking and therefore it is an opportunity for the mutual fund industry to go and mop up the disposable incomes from individuals.

We have also asked fund houses for their investment patterns. We have asked them to come out with suggestions as to what should the minimum number of investors in a scheme.

They have come out with something like 20 to 25 investors. We may give them a transition period (to increase the investor base).

In case of Alliance Capital, why did you target an individual and not the company?

This impression is wrong that we wanted to target an individual. We wanted to target an evil -- the evil of insider trading. Whomsoever gets involved has to be questioned.

We want to make sure that before we say or do anything, we have sufficient ground. I have told my colleagues that you will not utter a word against an individual until you come to a conclusion. Sebi respects people and organisations. We do not prematurely talk about anybody.

So you are fairly sure about nailing Samir Arora?

Otherwise, we would not have issued the order...

Globally it is accepted that it is very difficult to prove insider trading...

We feel confident about our grounds. Beyond that I cannot say anything. We want to conclude this case as fast as possible.

By global standards, our market cap to GDP ratio is very low...

Sebi cannot ask companies to get listed. This has something to do with the economic development. If you see the market cap to GDP ratio higher in the developed countries it is because their economy is more developed.

We believe you are reconsidering the T+6 arrangement for the book-built issues...

We are here to facilitate the market. Our policy must be implementable and must add to the efficiency of the market. We feel to improve efficiency, T+6 is desirable but in case the operators find difficult I am prepare to look at the issue.

Is there any rethink on asking corporates to remove non-executive directors who have already completed three terms of three years? We are open to suggestions and changes will be made.

There are some representations on this issue. We will examine them. If I am able to satisfy myself that it is in the interests of the market I will not hesitate to make the changes.

What's your agenda for the future?

We want to make the Indian markets a benchmark for the rest of the world. A strategic initiative has been undertaken to minimise operational, systemic and structural risks. We are already ahead of the rest of the world in many respects.

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