MUMBAI: The first board meeting of the Securities and Exchange Board of India (SEBI) since Chairperson Madhabi Puri Buch came under scrutiny from Hindenburg Research and faced a series of charges from the Congress Party is scheduled for Monday.
The board is expected to discuss the numerous allegations regarding non-disclosures and conflicts of interest against her, alongside a range of policy decisions related to consultation papers that have surpassed their public consultation deadlines.
Notably, a formal agenda has not been finalised for this critical board meeting, according to sources. Should the allegations against Buch be addressed, she will need to recuse herself from the proceedings.
On August 10, the New York-based short-seller Hindenburg Research levelled several allegations against Madhabi Buch and her husband, Dhaval, primarily concerning non-disclosure of income from her private advisory businesses to both the government and SEBI, as well as conflicts of interest arising from Dhaval’s employment following her appointment.
Subsequently, Congress spokesperson Pawan Khera raised additional charges based on her income tax filings and other official documents.
The Buchs have categorically denied all charges, describing them as “malicious and baseless,” and have threatened legal action. While SEBI refrained from convening an emergency board meeting, it did issue a statement the following day, cautioning investors against reacting to allegations made by the short-seller and assuring them that the regulatory framework in the country remains robust. The statement reaffirmed confidence in the regulatory leadership but did not delve into the specifics of the various disclosures.
A SEBI source stated, “The Madhabi issue has been in deliberation for the past week or so, and the board cannot but discuss it. The nature of the allegations makes it clear that the board cannot ignore them.”
It is unusual that SEBI did not call for an emergency board meeting following the Hindenburg and Congress allegations, especially given that Madhabi Buch has participated in four public events in Mumbai since then, though she has avoided press interactions—contrary to her previous practice of engaging with the media on the sidelines.
Additionally, the government has yet to issue an official response to these allegations, with the only governmental action thus far being the Public Accounts Committee of Parliament inviting her for a performance review.
Some observers argue that it is “unfair to expect the board to be answerable for the chairperson’s alleged non-disclosures, as she has been appointed by the government.”
The board is also expected to discuss eleven consultation papers that have passed their public consultation deadlines and are ready for final decisions.
Among the significant topics likely to be addressed are proposed measures to restrict retail participation in the Futures and Options (F&O) segment—a development the market is watching closely—and regulations for a ‘mutual fund lite’ aimed at passively managed funds.
Other discussions may include the introduction of a new asset class bridging Portfolio Management Services (PMS) and mutual funds, as well as an extension of the definition of ‘connected persons’ under insider trading norms to include certain relatives.
Since January, SEBI has published two studies highlighting the significant losses retail investors have faced in the derivatives market. The latest report, released last week, revealed that 93 percent of retail investors in the derivatives space lost an average of ₹2 lakh each in the last three fiscal years ending March 2024, amounting to a collective loss of ₹1.8 trillion during that period.
The anticipated reforms concerning the derivatives framework are expected to have a considerable impact on the market, aiming to curb the gambling-like trading behaviours that have proliferated with daily expirations of index-derivative contracts.
On July 30, SEBI issued a consultation paper proposing a framework that would limit derivatives contracts to weekly expirations (one index-based weekly contract per stock exchange), increase the minimum contract value to ₹15-20 lakh at launch and subsequently to ₹20-30 lakh, and rationalise strike prices, among other measures.
Other potential announcements include reforms related to derivatives, foreign investors, and essential decisions affecting market participants and intermediaries.
Another key reform in the pipeline is the launch of a performance validation agency, which has been under consideration for over a year. A consultation paper on establishing such an agency, tasked with authenticating performance claims from various intermediaries—including research analysts and regulated algorithmic providers—was released previously.
Additionally, discussions may include simplifying compliance for foreign investors (FPIs) with new disclosure norms outlined in the August 2023 circular, which requires entities with concentrated holdings in corporate groups or substantial exposure to the domestic market to provide granular disclosures of entities that own, control, or have an interest in the specific FPI.
However, in a July 30 consultation paper, SEBI suggested that FPIs may only need to disclose whether they are a land-bordering country (LBC) or non-LBC entity based on the location of the majority of entities that hold ownership, control, or economic interest in the FPI.