THE DECISION OF the Securities and Exchange Board of India to create a Central Database of Market Participants and Investors Identification Number (MAPIN) has been controversial right from its inception in November 2003, though few question its objective. A central database of participants and investors would serve the cause of the securities market in many ways. Chiefly, by creating a unique, non-duplicable identity for all investors, MAPIN would leave an audit trail for every transaction. That alone would help check several malfeasant acts. Besides, an inventory of all market participants that MAPIN would build in time is an essential attribute of a developed market. However, the scheme to build the database, especially the overwhelming emphasis on biometric techniques, including fingerprinting to generate the ID, has met with considerable opposition. After successively extending the deadline for implementing the scheme — now, it is till the end of this year — SEBI appointed a Committee to take another look at the entire issue, particularly if less intrusive methods can be used, and at a lower cost than what MAPIN entails.

Not surprisingly, the Committee has come out strongly against the methodology used. Making the valid point that fingerprinting only reinforces small investors' perceptions that the stock market is dominated by criminals and that every investor is suspect unless proved otherwise, the Committee has called for an overhaul. Convergence of identity continues to be a dream, it says. In the recent past, several bodies, including those connected with the capital market, have issued multiple and independent IDs without any thought of integrating them. MAPIN has not used any of these information resources. Considerable cost and time savings would have been achieved if it had. A biometrics-based system is questionable on other counts as well. Anyway, even now each trade can be traced to an investor in at least four ways — the depository account, the PAN number, the broker's registration number or the bank account. It is extremely doubtful if MAPIN will succeed when all these sources fail. Moreover, even as MAPIN relies on biometrics to generate a unique number, there is no proposal to use biometrics in specific trades. For, it is highly impractical to provide physical access to a trading terminal to all investors so that their distinguishing features can be cross-checked each time.

The recommendation to do away with fingerprinting was, therefore, inevitable though the Committee deliberated on a number of options, including some that rely on biometrics. By recommending a `de-dupe' software already used by the Indian financial sector for generating unique IDs without relying on biometrics, the Committee has all but given the MAPIN system a burial. Obviously, efforts would be made to include those already covered in the new system. The key to the new system's success lies in increased disclosure by participants and investors as a periodical mandatory updating of data has been recommended. That may prove a stupendous task, defeating the purpose of the whole exercise. However, for now, the Committee's recommendation to do away with fingerprinting accurately reflects investor sentiment.

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