Ms Deena Mehta, Managing Director of Asit C. Mehta Investment Interrmediates Ltd, (who was also first woman President of BSE before its corporatisation) talks to Business Line on how the retail investor is being systematically sidelined from the stock market by the system.

What are your concerns about the stock market today?

Demutualisation has changed the character of the stock market. The big guys are getting bigger and driving retail investors away from the market.

Then there is the matter of transparency. When badla (a home grown carry forward scheme) was banned, there were small brokers who were servicing big clients. Then these NBFCs came up, and they do margin funding of shares. So many broking houses have NBFC subsidiaries.

There is regulatory arbitrage between SEBI and RBI. Margin trading is regulated by SEBI but NBFCs are regulated by RBI. There are SEBI norms for lending against shares which NBFCs don't follow.

SEBI mandates a 50 per cent margin (for margin funding by brokers), and only against certain shares.

Here NBFCs have their margins like even 10-20 per cent and lend against all kinds of shares.

Rules for margin funding should be the same whichever the regulator.

In badla we at least used to know the outstanding exposures in the market. What is in the books of NBFCs we don't know. From the point of view of transparency it is not good.

In what way is retail being driven away from the market?

Systematically the retail investor is being alienated. Look at algorithmic trading and the co-hosting of servers. Small brokers have to make a lot of investment in technology to compete.

The retail investor cannot even execute an order at a certain price because the prices move so fast, he won't get his price.

Then there is so much paper work. KYC is repeated unnecessarily. Like if ABC have demat account and A dies then B and C need to have a demat account for which KYC would already have been done, isn't it? But it is not so. The demat nominees' KYC also has to be given.

There is no sync between the cash and derivatives market. The cash market is becoming very small and the derivatives market is large. So much more trading is happening than investment. Foreign money comes in cheaper and overseas investors get returns but for domestic investors, the returns are not good enough. The prosperity of the market has to go to the people, but it is not.

Take the matter of stock options, suddenly they were changed to European options. Suddenly retail investors cannot execute the options. They are at the hands of option writers. They cannot exit. Now retail is not able to participate. Why were the rules changed? Everything is being done to suit the large traders. Only lip service is being done about the small investor.

Indian mutual funds are doing a fantastic job. But, if there is no distributor then what will happen, who will distribute? You have to incentivise them. Again, investing in mutual funds is a herculean task for the investor.

How does one reach out to more investors? Do you think IPOs serve to bring new investors into the stock market?

IPO should be done through exchanges. Actually this was provided for in between by SEBI but changed in 2006. So what has happened is that the distribution infrastructure is now limited to merchant bankers' footprint. For a large IPO like Reliance Power there are 167 unique locations, and for a small IPO may be 20-30 unique locations. But if you distribute through the exchanges, then the footprint of the stock market covers 1,500 locations and more investors can be reached out. The last mile connectivity of the stock exchanges is much larger. SEBI should allow it.

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