sebi

India's capital markets regulator, Sebi, has been the talk of the town under the dynamic leadership of Madhabi Puri Buch. As the first woman and non-IAS individual to head Sebi, her tenure has been marked with bold orders and regulations, leading to increased proactiveness of the Sebi. While efficiency has increased, not all market participants are pleased, but few dare to air their concerns openly. From Mutual Funds to FPIs, AIFs to listed companies, all stakeholders are experiencing Sebi's reach. We discuss Sebi's hyperactivity, its impact on market participants, and the balance between compliance and ease of doing business. Listen to corporate lawyer Krishnava Dutt, Managing Partner at Argus Partners and former Sebi executive director JN Gupta now Managing Director at Stakeholders Empowerment Services as they shed light on the impact of Sebi's regulations with host Kiran Somvanshi in this episode of The Morning Brief podcast. Tune in!

You can check out more episodes of The Morning Brief on: The Uncertain Fate Of Asia’s Largest Refinery, Has milk politics turned sour in Karnataka?, El Niño: Little Boy, Big Trouble, E-20 Explained: The blender’s pride or bane? And more.

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Welcome back to another episode of our podcast, where we dive deep into the world of finance and investment. In today's episode, we will be exploring the fascinating realm of mutual fund costs and SEBI's recent proposals to bring them down.

As the saying goes, "The devil is in the details," and when it comes to investing, understanding the various expenses involved is crucial for making informed decisions.

In this captivating episode, we will dissect SEBI's latest discussion paper on Mutual Fund TER (Total Expense Ratio), which shed light on the inner workings of mutual fund costs and the need for change. We'll embark on a journey led by our expert hosts, Deepak & Shray, who will unravel the complexities of the system and explore the potential implications of SEBI's proposals.

Get ready to gain valuable insights and answers to burning questions.

1. What is the Total Expense Ratio (TER) of a mutual fund, and what does it include and exclude?
2. Why does SEBI propose changes in TER, and how will it affect mutual fund investors?
3. How do large distributors exploit the system, and what measures can be taken to address this issue?
4. Can tweaking TERs alone make the mutual fund industry 10x bigger, or are there other critical factors to consider?
5. What innovative avenues could mutual funds explore to earn higher TER while providing value to investors?

Tell us on twitter @capitalmind_in on how did you like this episode. Your feedback means the world to us!

Show Notes & References

02:00 Thoughts on the recent discussion paper by SEBI on Mutual Fund TERs

10:30 SEBI is saying "You are making too much money", reduce fees

19:25 Largest India equity scheme is charging the maximum fees possible

31:30 Limited Purpose Trading membership for AMCs to trade directly on the exchange

43:00 Why should a big fund house have the ability to charge more on a new scheme?

48:00 Performance based AUM through sandbox

53:00 How do you make the mutual fund industry 10X bigger?

"Sebi on 22 October has barred 10 entities, including Bombay Dyeing & Manufacturing Company Ltd and its promoters -- Nusli N Wadia, Ness Wadia and Jehangir Wadia -- from the securities markets for up to two years. 

Recently, as of 7th September 2022, total Demat accounts in India touched the 10 crore mark. This is a staggering increase from 4 crore Demat accounts in Mach 2020. This alone is a testimony of increased participation and inclusion of individuals in Indian markets.

More and more Indians, especially youngsters, are taking to investing in equities enabled by their smartphones - digital broking, increased information access, and social media influence.

The whole securities (stock) market ecosystem has evolved immensely over the past decade and deserves a lot of credit for the recent growth in the participation of new investors. At the helm of the ecosystem sits our regulators who are responsible to enable, guide, protect and watch the market participants to ensure that we have a fair and thriving market.

In this episode, Deepak and Shray talk about the role SEBI can play in shaping the future of the markets. They talk about data warehousing, data accessibility, regulatory enhancements, bond markets, disclosures & reporting, and a lot more that would make our markets more accessible. 

02:00 - As low as only 3% of household income is directed towards stock markets. Why are people so scared of investing in stocks?

04:00 - Game changers - Digital public goods in our financial system

09:00 - Data warehousing framework at RBI and its US counterpart

16:00 - Does an average investor even use the granular data that we’re expecting the regulators to build for?

24:00 - What company data should a centralized database ideally have?

32:00 - The way Indian companies play with stock tickers

34:30 - How will this organized information make things better for all participants?

39:30 - Better information access makes our markets more accessible to FIIs

43:00 - Crazy things that mutual funds & companies do with disclosures

48:00 - PMS & AIF returns should be cross-verified and shouldn’t be based on self disclosures

“The more developed you are, the more signages you see on the road”

55:00 - SEBI is a far better regulator than many western counterparts. What do you still wish they should improve

59:00 - Would information disclosures will be a hassle for smaller companies?

1:03:30 - AMFI - the Self Regulatory Organization (SRO) recognized by SEBI

1:11:00 - What can SEBI do less to make space for things you wish it should do?

1:15:00 - How much impact can SEBI have on increasing household participation in the markets?

With technology comes great responsibility, says SEBI, as it attempts to regulate the algorithmic trading markets that have just started to evolve in India. The concept of “API” trading, through Application Programming Interfaces is the standard in the web and app-based world, but SEBI doesn’t want you to manage your own money programmatically. Or, worse, to give it to someone else who is “unregulated” to manage your money through an algorithm either. 

In this episode we discuss SEBI’s recent consultation paper on algorithmic trading and how it impacts you. What roles do algorithms play in managing your money and will a program be investing on your behalf in the near future.

1. SEBI published a consultation paper on algorithmic trading by retail investors on Thu Dec 9 2021
2. The paper impacts any form of “automated” trading: through a broker provided API in general as well as Algo Trading
3. An example of an Algorithm that already exists - Good Till Traded orders offered by your broker. They place an order automatically every single day through a program.
4. Algorithms that would help retail investors- “Buy/Sell this stock if it falls 10%”, or manage the extreme risk on my portfolio (insurance, of sorts).
5. The motivation for this paper is the emergence of 3rd Party platforms that make use of APIs through algorithms, where you share your API keys etc and they automatically trade on your account.
6. The Algorithm behaves like a proxy fund manager or money manager. They can trade your account whenever they want.
7. Concern: What if they make big losses and you have no idea of how much they can hurt you?
8. Concern: Can’t these platforms get a lot of customers and then auto-manipulate a stock, in the name of algo trading?
9. Concern: APIs + Algorithms could be used to overwhelm/stuff the exchange or be used to manipulate a security’s price. Rate limiting and cool off periods could help address this.
10. Consultation paper currently bans all APIs and places onus on brokers to regulate them and suggests that brokers take responsibility to run the algorithms on their system
11. The paper would enable the Broker to empanel someone (and do the checks/risk assessment/quality control) but would prevent an individual from setting up something themselves - but this seems unenforceable.
12. Stopping APIs altogether is like using a sledgehammer to kill a mosquito. We could achieve many of the objectives by having the algorithm pop up an approve/reject screen that the user has to click on. If you have say more than 50 lakhs or something in your account then you could potentially have fully automatic execution. This would be a useful middle ground to protect the smaller retail customers.
13. When I click a buy button on Zerodha Kite it triggers an API, when you click a buy button on Smallcase to buy on say zerodha it also triggers a bunch of API, when you place an order through a program that also triggers an API - how do you differentiate between the three? And you can’t build an app without APIs
14. Even fund managers are found guilty of say front running or offloading - SEBI can come after them since they are regulated. If you’re trading other people’s money and earning from it - you have to be treated with the same level of compliance as a fund manager (PMS/AIF etc)
15. There aren’t any fund manager rules that allow you to run strategies with the kind of leverage that these algorithms allow you to.
16. According to Nithin’s twitter space only 0.5% of zerodha users use algos.If you’re running your own algorithm that really should be allowed
17. Future of fund management (especially at scale) will require some levels of automation and APIs so we can’t take a regressive or overly harsh stand.

Read more at https://capitalmind.in!

New Segment ALERT: 

Today's episode is from our newest segment called Queen Conversations. This segment features conversations about the latest news and hot topics in the media. 

This discussion is surrounding the Nipsey Hussle's death, and how it sent shock waves through the black community. 

Join me with my guest co-host, Simone, talk about how black on black crime impacts the african american community and how some of the popular platforms with huge followings of black people continue to perpetuate problems within our culture. 

This conversation takes the same everyday media headlines, and focuses on the deeper message, growth, and evolution that we can LEARN from these issues. 

This is a mature women's conversation, it is NOT for the purposes of gossiping, judging, or criticizing another man or woman. The All Queens Army is all about positivity and growth. 

Enjoy, Queens!