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Why should I quit? asks Mehta

Janaki Krishnan in Bombay

Securities & Exchange Board of India (Sebi) chairman DR Mehta is not planning to resign. "Why should I resign," he shot back to a specific query from journalists. He made it clear in an interview to Business Standard later that he had been in regular touch with the finance ministry and so far the feedback to him had been positive.

"The Nasdaq has fallen from 5,500 to 1,600. Has anyone called for the SEC chief's resignation?" he retorted.

Reacting to the allegations that Sebi had been found wanting in its role as a regulator and was unable to anticipate the turn of events or even react to events once they had occurred, Mehta was inclined to lay the onus on the stock exchanges as the first level regulators and then the banks and the corporates that had financed the brokers.

"How is Sebi to be blamed if the markets go up or down," he queried. He pointed out, apart from Calcutta Stock Exchange, which had suffered payments problem to the tune of Rs 610 million, the rest of the stock exchanges had seen their settlements through.

"The brokers have defaulted to the banks, not to the exchanges," he said, adding that Sebi was not responsible for what happened in the banking system.

"I am not saying that Sebi is not responsible. I must not be misunderstood," he clarified. He however insisted that though violations had been found in certain aspects of stock exchange functioning it could not labelled a systemic failure as the exchanges had continued to function smoothly.

Sebi will now be looking into the angle of corporates that financed brokers, allowing them to manipulate prices of stocks.

Mehta, who appeared initially defensive in the interview, did not agree that there might have been any lacuna in the reporting system between the exchanges and Sebi.

He denied any instances of circular trading, saying that a report on the trading activities of the top 20 brokers in January 2000 across the major exchanges had revealed no irregularities.

"We got four reports from the stock exchanges saying there was neither any concentration of trading in any particular scrip nor evidence of circular trading, he said.

Institutions are being denigrated, Mehta said, pointing out that Sebi has had a great track record of cleaning up the Indian markets and bringing them to the standard of global exchanges.

Sebi initiated the process of 100 per cent computerisation on the Indian stock exchanges. Not even Japan and the US can claim that, he said.

Almost all Indian paper had been dematerialised within a period of three years, whereas even advanced countries took more than a decade to do that, Mehta said.

Talking about the so called comparisons between 1992 and 2001, Mehta said, margins in 1992 amounted to a miserly Rs 420 million, whereas at the peak of the boom in 2000, daily margins were in the range of Rs 73 billion. "Along with the funds in the exchange's trade guarantee funds, this amount was sufficient to cover most eventualities," he said.

Denying that Sebi had been sleeping when prices were booming through 1999-2000, Mehta said the board had taken all possible steps to strengthen the market surveillance systems and load higher margins to increase the cost of speculative trading.

"Margins in HFCL were 67 per cent at one time," Mehta said, noting that with base capital and additional base capital along with such strict margins are more than enough to prevent the contingency of default.

Reiterating his stand that the presence of a regulator, howsoever strong, cannot prevent frauds-"Does the IPC prevent murders?"-Mehta argued that what follows later is a matter of investigation, not a witch-hunt.

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