SEBI'S ERROR

sebi's error

One great feature of capitalism is that it unleashes human potential. It is the closest thing to a meritocracy. But not always. There is a tendency for power to concentrate. For the wealthy to get wealthier. It is here that that role of regulators becomes critical. To ensure a level playing field. To promote as much competition as possible.

Stock markets are integral to a capitalist economy. And we admire India's stock market regulator, SEBI's initiatives in promoting transparency and competition. SEBI is now proposing higher capital requirements for mutual funds, investment banks and brokers. The minimum net worth requirement for mutual funds used to be Rs 100 m. It has now been increased five times to Rs 500 m.

The apparent reason is that mutual funds will be able to absorb more losses if they have higher capital. But we think SEBI has got it completely wrong this time. Quantity does not always assure quality. After all, weren't all the firms that caused the global financial crisis, very large? We think, by hiking the net worth requirement, SEBI will create a high entry barrier. One that only the wealthy can cross. Not necessarily the most talented. It will end up promoting a rich boys' club beyond the reach of many