## Thursday, February 03, 2011

### C. B. Bhave's 3 years at SEBI

I first met C. B. Bhave when I walked into his office in September 1993. I was a freshly minted Ph.D. at the time. Speaking with him made a huge difference to my thinking about finance and markets.

He had clearly figured out the key building blocks of a revolution in the Indian capital market: electronic trading, clearing corporation, demutualisation, derivatives trading, depository, etc. Most Indian bureaucrats would have visited the trading floor of the LSE and the NYSE and replicated it. He had the strength of mind to look beyond global best practices'. And from 1994 to 2001, the revolution went from ideas to action. It is hard to find an area of the Indian economy where the reforms were more successful.

The governance problem in finance spans two rather distinct problems: regulation (the making of rules) and supervision (the enforcement of rules). The best rules in the world are pointless if they are not backed by teeth. SEBI has shaped up as one of the best success stories in India's economic and commercial law, in the way rule of law has come to prominence. SEBI's orders are on their website. They are appealed at SAT. SAT processes cases rapidly. SAT is tough and competent. It's a great arrangement.

I remember, in the dark days where accusations about the IPO Scam' were being bandied about, Bhave said to me that he remained confident that over the years, SEBI would sort itself out, thanks to the checks and balances that come with the rule of law. It is a message that we need to apply to all other financial regulators in India.

Bhave's SEBI made significant progress on strengthening the enforcement process leading up to good quality orders. On one hand, this required improvement of staff and processes. This is, of course, work in progress. A lot of work remains to be done before SEBI consistently writes high quality stuff. But the best orders of Bhave's SEBI are much superior to anything that came before. In addition, a strong enforcement process at SEBI required political toughness in not buckling under pressure.

It is, hence, not a surprise that his time at SEBI has been an exceptional one. Here are a few retrospectives on his time at SEBI:

1. I think in this scam tainted India u will stand out as some one who has tried. I pray that those who are back in that seat will also try....

Manoj Abraham

2. Read your blog about Bhave.. Surely Great way to go for him...I watched the video as well on cnbc.. I really liked the comment you made that how C.B. Bhave's initiatives were not only strong but COMPETENT.

SANYA CHAWLA

3. CB Bhave will surely go down as one who gave teeth to SEBI. When I posted this piece on SEBI - http://bit.ly/ecToCH - a couple months ago, I gave credit to SEBI for making sweeping changes in the Capital Markets, when much of that credit is actually deserved by Mr Bhave. Unfortunately, good people in our country tend to be pushed outside the system. And so it is with CB Bhave. The reforms he has initiated at SEBI however can never be pushed away.

4. Very very interesting editorial in Mint: see here. They are telling the story of the gangs that got rid of C B Bhave.

5. Anonymous, thanks, modified the blog post to use it.

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