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Asia-PacificOctober 3 2004

Ghyanendra Nath Bajpai

Chairman, Securities and Exchange Board of India
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May 17, 2004 was a black day for the Indian equity market. The stock market nosedived as investors, shell-shocked by the result in the national election, sold stocks. But for G N Bajpai, chairman of the Securities and Exchange Board of India (SEBI), India’s market regulator, it was a day of victory. “What happened on that day was unfortunate and should never have happened, but our risk management systems passed a crucial test. There was no payment default on the stock exchanges the next day even though the payout was several times larger than what caused the last market crisis,” says Mr Bajpai.

Having worked with India’s largest life insurance company for 36 years, and rising to become its chairman, Mr Bajpai has a nuts-and-bolts understanding of the workings of the securities markets. Since he took over as head of the market regulator in February 2002, SEBI has strengthened its surveillance and monitoring systems, and is strict in enforcing rules, even punishing large foreign brokerage firms.

Under his charge, the Indian securities market has rapidly upgraded to world-class standards in terms of operating costs and efficiency of its trading and settlement systems. “In some areas like trade settlement, real-time monitoring of trading positions and margins, we are ahead,” says the energetic Mr Bajpai, whose next challenge is to push settlement of trades, which currently takes place within two days of the transaction date (T+2), to T+1. That is something even developed markets in Europe and America cannot boast about.

But the problem in India’s vast hinterland is moving cash not securities. “Almost all trading is done in electronic shares so moving securities is not an issue; the issue is moving cash. Once the real-time gross settlement payment system is fully in place, we will move to T+1,” says Mr Bajpai. On June 30, SEBI introduced straight-through processing or electronic contracts for institutional trades, comprising about four-fifths of traded value.

Mr Bajpai’s deft intervention averted a tricky situation for the government recently. The finance minister’s move to introduce a securities turnover tax in his budget was received with hostility by brokers and day traders, and the market fell 2.5%. The next morning, Mr Bajpai was on television channels to clarify that the tax would not be introduced right away, and brokers would have a chance to discuss the matter with the finance minister. Tempers were soothed and the markets perked up.

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