Sebi planning major reforms for mutual funds, market: Bhave

The Securities and Exchange Board of India has proposed major reforms for the mutual fund industry and the stock markets in the aftermath of the recent liquidity crisis faced by the industry and the Satyam Computer Services fiasco, chairman C B Bhave said.

 While the liquidity crisis faced by mutual funds is over, "it has showed chinks in armours of mutual funds,'' he said, adding, ''Fundamental reforms of mutual funds are necessary. We are half way through it."

Speaking at an economic convention organised by the Indian Merchants' Chamber on Friday, Bhave said the regulator was also keen on continued reform of the primary market.

Despite, the recent lull in the market, he said, the SEBI has decided to continue with the primary market reforms.

While the SEBI has started a peer review of the audit for Sensex and Nifty companies, it is also considering amendments to regulations with regard to pledging of shares by promoters of listed firms, to include the pledging of shares of their holding companies with banks and non-banking finance companies (NBFCs) as well, he said.

''Following Sebi's earlier directive for disclosure of pledged shares of listed companies to investors, we are now considering if the regulations can be amended in cases where the promoters have pledged shares of the holding company too,'' Bhave said.

Since pledging of shares are based on the market valuation of shares, there is the risk of divulging the real value of these shares and the firm's holding pattern in subsidiary firms that are listed. Any fall in the valuation of shares of such pledged shares would result in lenders selling off pledged shares in case the promoters fail to top up their margins.

The review of guidelines comes in the aftermath of the Satyam Computer Services fiasco in January.