The Finance Minister, Shri Pranab Mukherjee initiated the process of disbursement of disgorgement proceeds to investors who have been identified as rightful beneficiaries of the gains recovered from the wrong doers, here today. Describing this as a significant milestone, the Finance Minister said that this is the first time that not only the manipulators are being penalized but the amount recovered is being redistributed to the persons who were deprived of their gains. The Finance Minister expressed hope that this first but significant step will go a long way towards making the investors feel safe and secure while investing in the stock markets. Following is the text of the Finance Minister’s speech:

“It gives me great pleasure to be here on the SEBI Foundation Day which is aptly being commemorated in the presence of representatives from the community of retail investors. This event underscores the importance of investor protection even when we strive to develop the securities market.

I am of the view that investor protection should remain the cornerstone of any developmental and regulatory steps taken for the development of the securities market. Given the income disparity, in addition to the large institutional and individual investors we have small retail investors in the Indian securities market. It becomes incumbent not only for the Government but also for the regulator to safeguard the interests of these retail investors who typically invest their hard earned savings. Besides this is required to encourage retail participation for ensuring greater depth of the market and promote the inclusive growth strategy of the Government.

Investor protection has always been the foremost concern and priority for the Government of India ever since retail-focused capital markets development was promoted post 1991 reforms. With this goal in mind, in December 2006, my predecessor had informed Hon’ble Members of Parliament that SEBI has been directed to reallocate the shares from the persons who illegally benefited from allotments in various IPOs to such retail investors who were denied allocation of shares in 21 IPOs during 2003-05.

The following years witnessed setting up of a Committee under the chairmanship of Justice D P Wadhwa, (Former Judge, Supreme Court of India) to advise on the procedure of identification of persons who might have been deprived on account of such IPO irregularities and the manner in which reallocation of shares to such persons should take place.

I am happy to note that towards implementing the recommendations of the Wadhwa Committee, SEBI has appointed an Administrator in February 2010 who has since identified around twelve lakh seventy four thousand (12,74,736) unsuccessful IPO applicants to whom, in the first occasion, an amount of Rs.23.28 cr. Approx. is proposed to be disbursed.

Several initiatives have been taken towards improving the integrity and efficiency in IPO process. Mandatory declaration of PAN number, facility of electronic transfer of funds for public issue refunds, regulations on book-building IPO norms, strengthening of disclosure norms by promoters, reduction in the timeline between closing date of subscription of an issue and listing etc are some of them.

Further SEBI’s decision to make mutual fund advisers the agents of customers rather that of the company whose products they sell would go a long way in protecting small investors. I believe India could set global standards by following a no load plus fee model for the entire financial sector to ensure a fair deal for all market participants. I hope all financial sector regulators would work towards this goal. SEBI has also been active in taking timely and effective measures to deal with the wrong doers. However, despite many of these efforts more concerted steps are needed in fully addressing investor protection issues given its magnitude.

Given the strength of its infrastructure and a robust regulatory regime, the Indian securities market today is among the most attractive investment destinations in the world. Further, retail participation of Indian investors in the securities markets, directly and through mutual funds, has been increasing significantly over these years.

Investor education is integral for ensuring investor protection. Given the low level of awareness among the investors, it is very important and highly indispensable that investors’ education and awareness is given top priority in the country. Investor education would provide investors with the tools to protect themselves against fraud (and other abuses) and to assess the risks associated with particular investments. Educated investors also can better choose investments that are the most appropriate for them in light of their individual circumstances, such as age, wealth, income, debt and years to retirement. Investor education has become even more important with the rise in popularity of the internet, which may bring more first-time investors into the securities markets. I am happy to note the progress made by SEBI in improving the level of investor education and financial literacy and hope that efforts in this direction will be further strengthened in future.

Today, it is my privilege to initiate the process of disbursal of disgorgement proceeds to investors who have been identified as rightful beneficiaries of the gains recovered from the wrong doers. This is a significant milestone since this is the first time that not only the manipulators are being penalized but the amount recovered is being redistributed to the persons who were deprived of their gains. I am sure this first but significant step will go a long way towards making the investors feel safe and secure while investing in the stock markets. I take this opportunity to urge SEBI to reinforce its endeavour for identification of persons who have made undue gains and seek to ensure that such gains are reallocated to the investors who had suffered the losses unfairly.

While celebrating this occasion, I would also urge SEBI to redouble its efforts in protecting and promoting the interests of all our investors and making our country the best investment destination. I wish SEBI all success in its endeavors, particularly towards strengthening the cause of investor protection in the country.”

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