Outgoing SEBI Chief Ajay Tyagi On NSE Co-Location Probe, Governance And Unfinished Business

Ajay Tyagi gave way to Madhabi Puri Buch, who took charge as the tenth SEBI chief to become the first woman to head the markets regulator.

As he handed over the reins, Tyagi, for the first time, opened up about the NSE co-location probe that eventually led the regulator to identify governance issues at India's largest exchange. He also discussed enhancing governance in boardrooms and listed three unfinished agenda points.

NSE Order

In 2015, the Securities and Exchange Board of India had received a complaint alleging that a few high-frequency traders or brokers used the National Stock Exchange's system to their advantage via an arrangement with the bourse's staff.

At his last press meet as the chief of the regulatory body, Tyagi indicated that the investigation was sidetracked and the main issue got buried under the "burden of Yogi".

SEBI, he said, tried in right earnest. It started investigations on co-location which was a complex issue. “We came out with an order within our remit and our understanding," adding that the penalties imposed then were "perhaps the highest among any similar orders.”

“The adjudicating officer must show application of mind while penalising,” Tyagi noted. The regulator's order was criticised by the Securities Appellate Tribunal.

Tyagi said there are other enforcement agencies that have their own mandate. “Let other agencies come out with their order. Maybe SEBI missed something.”

Governance

SEBI has received considerable pushback on the issue of separation of chairman and managing director postx.

“We gave four years to comply on this front. At the end, just 56% of the companies complied. We received representation from industrialists and industry bodies. We need to look at practicality of implementing the order,” Tyagi said.

That forced the regulator to make the rule a matter of voluntary compliance. “Well, HUL went ahead to separate the post after SEBI made it voluntary.”

Tyagi also noted that public sector units have not been able to meet governance standards. PSUs and private companies should have the same level of regulations once they are listed, he said.

Unfinished Businesses

Tyagi listed three things that remained incomplete—better enforcement, expansion of bond market and commodity derivatives market.

Enforcement including investigation and adjudication: the pace at which SEBI has moved was “slow”, and he would have liked it much quicker.

Commodity markets: lack of policy clarity from the government did not allow expansion of the market.

Bond market: Though more than 8 lakh crore of bonds were issued, the depth of the market is limited only to AAA companies. SEBI failed to expand the depth to lower-rated issuers, he said.