'We are having a relook at buyback regulations'

To revive the corporate debt market, the Securities and Exchange Board of India (Sebi) has taken various measures, like simplifying rules on corporate debt paper and raising the limit of FII participation. C B Bhave, its chairman, who was in Kolkata on Thursday to inaugurate a new office, shared some views on various issues. Excerpts:

What is being done to increase retail participation in the debt market?

Our debt market is essentially an institutional market, and few institutions participate in it. Institutions prefer to do transactions bilaterally, rather than in an exchange environment.

The question before us was, which other institutions can come and give different views about securities. We need a variety of views. The (investment) limit on FIIs has been increased to $15 billion. Unfortunately by the time we increased it, the global meltdown came, so the appetite of foreign investors for debt was low. In the long run, this will be a correct step and add variety and depth to the market.

In the case of domestic institutions, the new pension scheme will be helpful. When money collected in the scheme gathers momentum,it will help our debt market gain variety.

Another issue is that since it is unrealistic for screen trading to begin in the debt market for only a few players, we focused our attention on settlement. We found that settlement is also bilateral, since trades are bilateral. There is no clearing corporation intervention. That means one party takes the entire risk. So we are looking if a clearing corporation can come in.

The difficulty some players expressed was that in debt transactions the number is small, but the value is large. If the clearing corporation utilises one or a few banks, between pay-in and pay-out the entire risk will be with the clearing bank, and the risk is big. So, we have requested RBI if we can we have a mechanism where the money will be with RBI between pay-in and pay-out.

In the latest monetary  policy statement, RBI has said it is going to make such a facility available to the clearing corporation. This will give market players more comfort.

The bond issue by Tata Finance showed that retail investors had enough appetite for bond issues.

What is the status of peer review of companies?

There have been lots of reports that peer review is a problem, but since it is yet to be completed, I do not want to designate it so. It is taking a longer time as we have to eliminate any conflict of interest that existed, which is a three-way process. The work is on and for many companies we have received the peer review. We are waiting for the entire exercise to be completed.

Who will bear the expense for peer review?

Sebi will pay peer auditors' fees for the first year. We will review how this exercise will be funded further. There might be a conflict of interest if companies pay the peer review fees. So, we have decided to pay to complete the process

What is the update on an SME exchange?

We have put out a consultative paper and conditions under which the SME exchange will function. We have some applications. One issue that came up was that earlier attempts in the direction had  failed. We want to make our best effort this time.

When will the Satyam investigation be over?

While the investigation is on, we do not put these things in the public domain. The process is on.

What are your views on buyback offers by companies?

We are seeing if we can tighten our regulations, so that the announcement is followed by action. We are looking at what regulations are needed, as some litigation in this regard did not go in our favour. There are some difficulties in bringing changes in buyback norms and we are having a relook at the regulations.

Will you make it mandatory for companies to buy back a stipulated percentage of shares from shareholders in such offers?

We have received the suggestion and are examining it.

Are you thinking of allowing currency options?

For all companies who want to hedge, options are a good idea. We had a joint committee with RBI in this regard. This committee will now have to review, on introducing different derivatives, as well as currencies. We need to go step by step.

What about interest rate derivatives?

That's one area where Sebi and RBI are both involved. A committee is finalising its report. We will go the same way as we did in the case of currency futures.

What's Sebi's position on increasing trading timings of exchanges?

We are collecting opinion in this regard. There are demands that the timings should be increased.