Budget Proposals Might Undermine SEBI Role; Government Told That It Would Be Tough To Enforce Public Holding Rule

The Securities and Exchange Board of India’s (SEBI) has informed the government that recent budget proposals could undermine its role as capital market regulator.

This would be especially so, since it would be difficult to implement the recommendation that minimum public shareholding should be raised to 35% from 25%, SEBI has informed the government.

Incidentally, as many as 31 public sector units including Punjab National Bank, Hindustan Aeronautics Ltd, Bank of India and Corporation Bank are yet to comply with the 25% minimum public shareholding norm.

Earlier, SEBI Chairman Ajay Tyagi has already written to Union Finance Minister Sitharaman that the proposal to transfer its surplus funds will affect its financial autonomy.

The regulator has stated that any move to transfer its surplus funds to the Consolidated Fund of India would mean that the fees levied by SEBI on investors and traders would become a type of additional tax, resulting in a perverse incentive to increase the generation of such revenue for the government.

The question of whether SEBI has the statutory authority to levy a fee on market intermediaries had been raised in a 2001case between the regulator and the Bombay Stock Exchange (BSE) Brokers’ Forum.

The matter went before the Supreme Court, which decided in favour of SEBI, that the fee as a as a matter of fact, is a tax in the guise of fee and is so excessive as to lose the character of a fee.

The Supreme Court had stated that SEBI requires substantial sums of money to regulate the securities market and protect investor interest.

It had stated that SEBI could charge a regulatory fee for services it renders to the market. The regulator currently has the flexibility to increase or decrease fees but the budget proposal would limit its flexibility.