13 November 2008

SEBI Annual Report 2008 - big fees and big pendency

The SEBI Annual Report 2007-08 is out today. Two notable things which stand out are a) steep increase in fees collected and b) large pendency in quasi judicial proceedings. Of course neither issue is new.

Fees Collected (see Page 94 of the report)
SEBI mainly operates out of the fees collected by it from transactions and intermediaries in the securities market and also interest from a corpus which it has accumulated from past fees and some interest free loans from public sector institutions. Around three years back SEBI increased its fees, and in light of the boom in the markets, the amount collected dramatically increased. This in fact reached unnecessary levels as operating costs of SEBI have hovered well below Rs. 50 crores (Rs. 500 million). The bloating corpus resulted in caps being introduced in the fees. Since, fees still continued to gallop, they were revised comprehensively around the middle of this year (by 50 to 90%) based on a VK Chopra committee report (see page 34) of which I was a part. This is reflected in the Annual Report - fees increased by nearly 100 percent year on year. With expenses being a quarter of annual fee and a bloated corpus to boot, it may be time SEBI wrote a one time cheque to the government of India.

Pendency of quasi judicial orders (see page 108)
While this is a long standing problem i.e. of a very large number of cases pending adjudication/enquiry/other orders, the introduction of consent orders last year only made a small dent in the large number of outstanding cases. While an aggressive attempt is being made to reduce the backlog, the problem is far too great to be tackled by just putting in some extra effort. See page 108 - there are 1500 cases pending with the Board and another two thousand plus pending with officers, not counting those in the court. With a disposal of only 200 odd cases by the officers with some two thousand plus still outstanding and a disposal of 600 plus by the Board with over 1500 oustanding, there is a need to approach the problem from a different perspective. My perspective has always been that people should take a call and the institution should not pursue all violations which come to its attention. The American SEC goes after only a few cases which come to its attention. Similarly, it would be useful to go after the big fish as also a sample of the smaller violations rather than every case which comes to its attention. Trivial cases must immediately be dropped. Unfortunately, in the government no one really wants to take the call of dropping an action which creates this huge inflow of new cases. Unless a brave attempt is made to rationalise the number of cases seriously taken up, getting a zero backlog will be a difficult if not impossible target to achieve.

On a happy note, the consent process and efficiency have virtually eliminated the backlog of cases pending before the appellate tribunal (SAT). Witness that 203 appeals were filed in the year while the year end pendency is only 138.

See the full posting on my main blog.

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