Markets are driving in the top gear these days, but the aam aadmi has mostly watched the market up-move sitting on the fence or a few have evinced interest at the market top. To change this situation and encourage greater retail participation, varied attempts are being made. Recently, the Finance Minister (FM) asked the Securities and Exchange Board of India (SEBI) - the capital market regulator, to bring in more retail investors. Although FM didn’t speak about it overtly to the media, SEBI chief, Mr U.K. Sinha later indicated that FM gave a few important messages to the capital market regulator.

Important message

FM asked capital market regulator to make functioning of capital markets more transparent and talked about creating investor awareness as well. Also, SEBI was advised to remain wakeful against probable violations in the capital markets. FM also urged the capital market regulator to focus more on redressing investor grievances.

But the message is not restricted to SEBI alone…

Although SEBI has been directly addressed for now, this was a clear hint given to other financial sector regulators as well. Basically, the Government is working on suggestions given by Financial Sector Legislative Reforms Commission (FSLRC).

And what are the key suggestions of FSLRC?

In early 2011, a commission was appointed by the Government of India for recommendations on financial sector legislative reforms and a report on that was submitted to the Government in March 2013. It was felt that, the financial policies and practices have witnessed many substantial changes over last 100 years. But despite several piecemeal amendments, legal structures remained more or less same or static. This therefore potentially puts the whole financial system at a severe risk. You see, lack of legal reforms has given rise to serious problems such as:
 

• Lack of clarity on purview of responsibility and powers of regulators;
• Inter-regulatory disputes;
• Regulator-related court battles;
• Adventurism of market participants; and
• The growing shadow banking and financial sector
   

Due to aforesaid, the interest of retail investors has been affected quite adversely. Shadow banking and shadow financial services have garnered huge sums of money from retail investors. If retail investors are not protected, the entire financial sector could be exposed to a systemic risk, which could make it unstable.

What will change for retail investors…

Keeping the aforesaid problems in mind, the mandate was given to the commission to rewrite and clean up the financial sector legislations and architecture. Moreover, FSLRC was to give the long term solution to the problems faced by the system at present.

The Government is expected to have a greater dialogue with FSLRC before taking a final call on implementing recommendations. Having a unified law and financial regulatory agency has also been proposed in the report submitted by the commission in March 2013.

PersonalFN is of the view that, the Government is moving in the right direction however, it remains to be seen if tough calls are taken. Having unified regulatory agency and unifying laws governing trading of financial and underlying products would be a big decision.

As remains the question of encouraging retail investors; it calls for changing the investment environment. This would happen only when adequate awareness is created among investors. It is important for retail investors to have a complete knowledge of risks they are exposed to before investing in any financial product. It is equally important to have an effective channel for redressing investors’ grievances.

PersonalFN has been consistently taking various initiatives to spread financial literacy and create awareness among investors. For the Indian financial system to remain sound and stable it is imperative that retail investors should actively and yet prudently participate in financial markets. It is important that they thoughtfully allocate their investible surplus to productive investments in their journey of wealth creation where could be planning for several financial goals.

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fernterry333@hotmail.com Aug 11, 2014 SEBI has done nothing for the small investor.  Even though its primary role is to protect the interest of the small investor SEBI has taken a lackadaisical attitude while the small investor bleeds.  Companies have rampantly disobeyed and flaunted rules.  The only recourse that the small investor has is to approach SEBI.  The SCORES website is unusually not user friendly and if a complaint has been successfully made on the SCORES website, SEBI just gives generic answers and seems to be on the side of errant companies.  Complaints such as companies not compliant e.g. not re-listing, not declaring quarterly results, not answering investor grievances are easy for SEBI to take up but SEBI just sits on the fence while the small investor bleeds.  SEBI is toothless, and possibly is on the take where errant companies are concerned because otherwise there is no other reason for SEBI not to do its job.
johne766@gmail.com Sep 16, 2014 Very efficiently written post. It will be valuable to anyone who usess it, as well as myself. Keep doing what you are doing i will definitely read more posts.
johnk387@gmail.com Sep 16, 2014 Your style is really unique compared to other folks I've read stuff from.

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