We will increase investor protection fund soon, says Ajay Tyagi

The Sebi is examining the investor protection fund (IPF) and would soon increase it, chairman Ajay Tyagi said. At the CII Financial Markets Summit, he also explained the reason behind the 10% cap on single stock investment by mutual funds and said it would stay. Excerpts:

Many brokers are defaulting recently. We have seen that and there is a concern that the investor protection fund (IPF) is woefully short with the stock exchanges, and so exchanges are delaying in declaring these brokers as defaulters and have also put a tight cap on the payout per customer, which is just rS 25 lakh that is poorly low. Your view.

I agree with you that the IPF is woefully insufficient and we have examined it. We will soon be taking action in consultation with the exchanges to increase the IPF. It is much less but we will not allow that to be a criterion for delaying declaring a broker for default.

The MF industry has highlighted some issues with regard to generating alpha at a time when the weightage of certain stocks has crossed the 10% mark, which is a cap for a lot of schemes. So will there be some relaxation given in terms of how you measure performance?

Mutual funds themselves have issued a press statement that they have not asked for changes in the cap in a particular scrip. If you are asking me this, 10% is the diversification cap for various stocks. So, if any scrip is outperforming this, that doesn’t mean that you allow more than the cap. That will be self-reinforcing. Actually, the particular scrip does more in the index and you allow the cap to the higher level, so you are allowing higher investment in the same scrip. That doesn’t sound very logical at all. So for the sake of diversification, the 10% ceiling is something which stays.

There is a stark imbalance in the cash market and delivery-based volumes. The derivative market volume is almost 85% compared to cash market volumes. This has made the markets a satta bazaar. What is Sebi’s road map to balance it?

In the derivative market, if you recall, we have put physical delivery as one of the criteria about three years back and over a period of time that has been implemented to reduce speculation. In the cash market also, the upfront margin and intraday introduction of upfront margin will reduce it. The upfront margin will be measured four times starting from December, so that will reduce the speculation.

FPIs have highlighted some challenges in Sebi’s proposal to move to a T+1 settlement title. How will Sebi address the issue?

To have early settlement is something which is in everyone’s interest in terms of increasing liquidity and reducing margins. If anyone wants to trade, it cannot be anyone’s argument that they want to settle it late. But, there are some operational issues which we are aware of vis a vis FPIs and custodians because of time difference and other factors. We have not really finalised anything in this.

There is a clear road map that you have for development of the corporate bond market. Can you highlight what are some of the key aspects that are there in the works?

One measure is the RFQ platform which we have brought out and have mandated MFs to trade a certain percentage of their trade on the platform for transparent discovery of bond prices. PFRDA and Irdai have also agreed in principle to mandate certain or prescribe certain percentage for their entities to come on the RFQ platform. So that will improve transparency in bond pricing.