In a problem-solving mode

REGULATORS STEP UP TO SECURE SECTOR STABILITY

- JOYDEEP GHOSH

FINANCIAL REGULATORS, ACROSS the world, have unenviable jobs. Either they take hard positions against the industry or individual, thereby inviting the wrath or displeasure of one or both.

In 2024, Indian financial regulators were able to achieve both, though the balance is debatable. The Reserve Bank of India (RBI), the Securities and Exchange Board of India (Sebi), and the Insurance Development Authority of India (Irdai) were all criticised by industry and individuals univocally. But the good news is that they took corrective measures across the sector.

For example, the market regulator waited for a long time, perhaps too long, some may say, before it acted on the two biggest threats to investor wealth—futures and options (F&O) and small-and-medium enterprises (SME) initial public offerings (SME IPOs).

This, despite its own reports indicating that over 90% of investors were losing money in the derivative segment. But when it did, there were a series of steps, some indirect, such as introducing uniformity in fees to discourage discount brokerages, and then direct ones like increasing the contract size to ₹15 lakh, reducing the number of weekly contracts to one per exchange, and imposing a 2% addition extreme loss margin.

With SME IPOs, Sebi tried to improve the quality of companies getting listed by mandating that the firm needs to have an operating profit of ₹1 crore for two out of the three preceding years, phased release for promoter lock-ins, and the offer for sale should not exceed 20% of the total issue size. Of course, it could have been harsher by increasing the lot size from 2 to 4 lakh, as proposed in the consultation paper. But it is enough handholding for now.