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SEBI sets up risk management group to review margins

Our Bureau

NEW DELHI, March 30

THE Securities and Exchange Board of India (SEBI) has constituted a group on risk management to review the existing levels and types of margins stipulated for secondary stock market transactions and is expected to suggest a `simplistic' margins system.

``The main purpose of this group is to see whether we can have a less complex system of having one or two levels of margins as against the prevailing system of multiple levels of margins'', Mr. D.R. Mehta, Chairman of SEBI, told newspersons at a conferen ce on `International corporate governance' here today.

The risk management group, which will have about 12-13 members, will submit an interim report and will have its first meeting in Mumbai on April 7. Mr. Pratip Kar, Executive Director, SEBI, will be the Member-Secretary of the newly-constituted group. Mr. L.K. Singhvi, Senior Executive Director, will also be part of the group.

The conference on corporate governance had been jointly organised by the US-based Conference Board, the Associated Chambers of Commerce and Industry of India (Assocham) and Modicorp Ltd.

According to Mr. Mehta, there is a ``general impression'' among various participants of the stock markets that the margins are currently on the ``higher side''. He also indicated that under the revised system the margins levels could `somewhat' come down in normal scrips. In the case of very volatile scrips, the margins could be even higher.

The issue of enhancing the circuit-breaker limit from the current level of 8 per cent will also be examined by this group, Mr. Mehta said.

GACL issue: When asked about the progress made in the investigations initiated by the market regulator on the appointment of two Gujarat Ambuja Cement nominees on the Associated Cement Companies (ACC) board, Mr. Mehta said that the legal department of SE BI is looking into the matter and a final order is likely to be available by mid-April.

Following the acquisition of the 7.2 per cent stake in ACC by GACL from the Tatas, the GACL Managing Director, Mr. N.S. Sekhsaria, was appointed as the Deputy Chairman of ACC and Mr. A.L. Kapur as one of the GACL directors on the ACC board. The market re gulator is examining the legal aspects of these appointments and whether this would tantamount to change in the management and effective control of the company.

Mr. Mehta also said that SEBI intends to expand the number of scrips under the demat form as well as the number of scrips under the rolling settlements. The number of scrips under rolling settlement is expected to touch 166 by May this year, when the fin al tranche of shares under mandatory rolling settlement will be completed.

Market rebound seen: Meanwhile, speaking to newspersons here on the fringe of the conference, Mr. Basudeb Sen, Executive Director, Unit Trust of India (UTI), said that the markets will rebound during the next few weeks. He felt that the BSE Sensex could touch the 5,900 points level by June this year.

Role of PFI nominees: In his inaugural address, Mr. Montek Singh Ahluwalia, Planning Commission member, called for a ``rethink'' in the approach and role of public financial institutional (PFI) nominees in the boards of companies to which loans have been disbursed.

``Interest of the lending institutions are protected by stronger bankruptcy laws and not by having a presence on the boards of companies. Our perception is that the best way to achieve good corporate governance is to have lenders on the board. We have to get away from this'', he said.

Further, Mr. Ahluwalia pointed out that it had never been easy, in the past, to ensure that representatives of financial institutions pursue actions with a primary objective of maximisation of shareholders value. ``There is a tendency to pursue larger is sues relating to public interest. What really the institutional nominees should do is pursue issues that are in the interests of the shareholders of the company'', he said.

Mr. Ahluwalia emphasised the need to upgrade the quality of Indian accounting standards to the international level. ``No good corporate governance is possible unless there is a major improvement in auditing. For this, Indian accounting standards have to correspond to the major international accounting standards'', he said.

Cap.:(Left to right) Dr. Carolyn Kay Brancato, Director, Global Corporate Governance Research Centre, Mr. B.K. Modi, Chairman, Modicorp Ltd, Mr. Montek Singh Ahluwalia, Member, Planning Commission, and Mr. Shekher Bajaj, President, Assocham, at the confe rence on `International corporate governance' in the Capital on Thursday.