There is an urgent need to increase the level of self-governance, as the cost of compliance and non-compliance has gone up substantially as people prefer to fight it out than reach a settlement, a senior SEBI official said on Wednesday.
“The cost of compliance has increased substantially of late and so is the cost and the instances of the non-compliance and resultant increase in the number of litigations. So, the only way out, I feel, is to increase self-governance,” V.S. Sundaresan, an executive director with the market watchdog SEBI, said here.
He was addressing a seminar on Capital markets organised by the industry lobby Assocham.
Citing the example of the two-decade-old disputes in the telecom sector, especially on the issue regarding the AGR (adjusted gross revenue) based revenue sharing model with the government, he said after the long legal battle, the government was forced to convert their dues into equity in one company and give extended payment schedules to the rest of the industry.
In long legal battle, what everyone lost was a huge amount of money, time and resources. The same applies to most other legal battles, be they in the courts of law or at other quasi-judicial fora, he added.
It can be noted that Vodafone, which was the second-largest mobile operator, is nearly broke now even after its merger with Idea cellular. And when they lost the AGR case in the Supreme Court, the government was forced to convert the debt into equity, and as a result, the sovereign is the single largest shareholder in the otherwise private sector company with over 33% stake.
Given this example, Mr. Sundaresan said it is high time. Instead of choosing litigation, we should take self-correcting measures when there are disputes and go for consensual settlements because legal battles can only, in most cases, lead to sheer waste of money and time.
On the need to widen the market depth, he said even after all the efforts by the regulator and market participants to go beyond the four major metros, as much as 55% of the market is still with these four metros.
Weaknesses of capital markets, he said, is that there is a serious lack of investor awareness as they don’t know what’s the right product for them, and hence they tend to lose money.
He also cited a recent SEBI study, which found that nine out of ten investors in the futures and options market the retail investors lost heavily.
