Instead of becoming a solution for
ease of doing business, leveling the field can push players to distort it to
gain advantage
Regulators are often criticized for
not doing enough to create a level-playing field. The switch to paperless and
automated trading was to eliminate forgery, induce transparency in transactions
and quicken settlement. Listing
agreements aim to make issuers accountable to their shareholders. Disclosures
have to be disseminated to all the stakeholders at the same time so as not to
discriminate between small and big investors. The policy makers are, in turn, attacked
for focusing on the demand side and ignoring the suppliers of paper.
Liberalization of the economy has freed most sectors from the need to apply for
licences. The goods and services tax regime has reduced the time and cost of
transporting goods from one state to another. Many countries and companies
prohibit exchanging monetary compensation for resolution from those with powers
to dispense clearances and award contracts. Two recent controversies ironically
expose the limitations of a symmetrical environment to carry out business. One
shines a light on how even the best practices can be exploited. The other is an
apt example of how the fear of being left out from the legitimate pursuit of
wealth creation can perpetuate the rotten power structure that is sought to be
dismantled for being loaded against the small player.
If the collective weight of the
arbitrary allotment of 2G spectrum and coal mines to cronies paralyzed the
economy in the waning days of the UPA-2 government, at the heart of another
2009-2014 era misconduct that is grabbing the market’s attention is once again
the issue of breach of faith by the custodians of the interests of investors. After conniving auditors, careless mutual fund
managers and selfish promoters, the role of a bourse has come under scrutiny
for violating the sanctity of the market. The National Stock Exchange stands
guilty of providing some traders 10:1 speed advantage by allowing them to set
up their servers in its premises. The Securities and Exchange Board of India
has imposed a hefty penalty and banned NSE’s head of regulations, two brokers
and two officials with another intermediary from associating or providing
services to participants. The period since receiving a whistle-blower’s
complaint in 2015 has been marked by the watchdog’s uneven response. The initial
indifference turned to reluctant acknowledgement of the problem. The long-drawn
inquiry that at times looked like to have hit a dead-end is an outcome of the
complexity of the issue. Just like privileged information, unfair access to
data to refine trading strategies is becoming increasingly contentious. Such
instances often end with a consent agreement, capturing the frustration of the
regulator in digging out convincing evidence of malpractices. A fine without
admitting to wrong-doing is a face-saving finale. Till recently it did appear that the Sebi-NSE
confrontation was heading in a similar direction. The abrupt indictments were,
therefore, surprising. Confirming the suspicion that the case was fast-tracked
to achieve a neat conclusion, the appellate tribunal has held in abeyance the crackdown
on some of those who have been punished. The market monitor’s discharge of the
exchange’s former technology official and business chief also consolidates the
position that the dark-fiber network connecting the trading platform’s server
with select brokers might be due to ignorance of the gravity of the misstep.
In a nod to the difficulty in establishing guilt in securities frauds, the
US Securities Exchange Commission is seeking a jury trial in a bribery scandal.
It will allow investors a scrutiny of the facts marshaled by the plaintiffs and
the defendants even though Cognizant
Technology Solutions has agreed to pay US$25 million as settlement under the Foreign
Corruption Prevention Act for using its Indian construction services provider as
a conduit for US $3.64-million bribes for three years from 2012 to local government
officials to secure permits and clearances for campuses in Chennai and Pune. An audit conducted by leading law firms in the US
and India, with the help of forensic experts from Hong Kong, in 2017 found no
evidence of the involvement of the contractor, L&T, or any of its
executives.
The top brass of the NSE lost sight of the manipulation of technology deployed for
superior user experience. The alleged L&T-Cognizant collusion points to the
failure to install appropriate mechanism to check the implementation of
economic reforms at the grassroots. Just
like marrying sophisticated tools with manual investigation has reduced but not
eliminated insider trading, a level-playing field can lead to efforts to make
it lopsided to secure advantage.
-Mohan Sule
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