When a top regulator asked CB Bhave to stop margining FIIs...

Chandrakant Bhaskar Bhave had some very public issues to deal with during his seminal tenure as the head of the Securities and Exchange Board of India, which we all know of.

But there were also others that never saw the light of the day. One such cropped up when a counterpart from one of the epicentres of the global financial crises came on the line.

The reason? This regulator was aggrieved with Sebi’s diktat, which had asked all institutions — foreign and domestic — to put up a certain amount of margin money for their trades in the Indian equity markets as Wall Street started melting.

Asking foreign institutions to do so would be seen as a sign of lack of faith in them, this regulator, who was fighting a major meltdown, advised. It could very well undermine confidence in these institutions, Bhave was told.

SEBI was asked to make an exception and let the institutions continue operating without the margin requirement.

As is his wont, Bhave is said to have considered the request rationally, but finding no basis for making such an exception, he politely refused.

The result? The Indian equity markets did not face a single payment crisis during the entire length of the global financial crises, even as Lehman Brothers imploded, AIG went belly-up and Merrill Lynch rushed into wedlock with Bank of America.

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After Lehman Brothers was declared bankrupt post the closing of markets for the weekend on September 12, 2008, a call went from SEBI Bhavan to the offices of Lehman Brothers at Ceejay House in Worli, a building owned by former aviation minister Praful Patel.

“Are you still a going concern?” SEBI asked.

“I am not sure,” a top honcho on the other side replied.

SEBI immediately moved to closed out positions of the bank over the weekend and was able to announce on Monday, September 15, that the total exposure of Lehman in India was zero. That evening, Lehman filed for bankruptcy.

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The levels of the Sensex may hardly have changed three years after he joined, but many in the financial industry believe that the market has progressed far beyond it on the basis of how SEBI was able to act on its own convictions.

While the government was looking to merge Sebi’s considerable corpus of funds gathered from activities with its own accounts, a move various heads of regulators have said would affect their autonomy, Bhave attempted to add to Sebi’s corpus — through a request for addition of amounts received from consent orders to the investor protection fund instead of the Consolidated Fund of India, which is under the guardianship of the President.

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When market participants requested that the pricing norms for negotiated deals be changed, SEBI refused because it would have been unfair to other investors. SEBI decisions during Bhave’s tenure made it clear that wherever else in the country lobbying may have had an impact, at SEBI Bhavan it didn’t make a difference. Investor protection was the only mantra that drove decisions there.