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Sebi doesn’t want ‘Abhimanyus’ in the market: Buch

Securities and Exchange Board of India’s chairperson Madhabi Puri Buch warned fintech companies to not act against the interests of investors by creating hurdles for exiting their products and making lofty product return claims. She said fintech providers should not have a business model that builds barriers for customers to exit.

“If your business model suggests that once the customer is in, then there is no exit for them. We do not like it,” said Buch at the Global Fintech Fest in Mumbai on Wednesday.

The regulator does not want ‘Abhimanyus’ in the market, said Buch.

Buch said customers should be able to exit as easily as they enter an ecosystem.

“If your business model relies on building barriers (for customers) to exit, it is unlikely to find favour with the regulator. It is an important principle that we follow. We believe that whenever a customer has ease of entering then he also has the right to exit,” she said.

Buch said data is a ‘public good’ and no private party can claim ownership of this citing the example of Aadhaar and Unified Payments Interface.

“Private innovation should be built on top of it. If someone has a business and they assume that they will own the infrastructure, you are setting yourself up for a rude shock subsequently,” Buch said.

The Sebi chief also said any business model that relies on a black box and that cannot be audited or validated will not be permitted.

“If the regulator senses that there are inadequate disclosures then the question is, is the investor being misled or if he is being conned? If your business model is woven around a black box which is not open to sunlight or is not capable of being validated or audited it cannot be permitted,” said Buch.

She said the regulator is not in favour or against algorithms in securities trading, provided there is transparency in terms of disclosures.

“If algos claim they can deliver 350 per cent return, they must be able to simulate it in an independent arrangement so that Sebi can validate,” Buch said.

She also said the regulator is working on creating an ASBA(application supported by blocked amount) like facility for the secondary market, similar to the existing model for initial public offerings, in a move aimed to reduce structural vulnerability. In ASBA, an investor instructs her bank to block money for an investment that will result in money effectively leaving an investor’s bank account only after a trade is completed. This method is mandatory for investing in Initial Public Offerings (IPOs).

“We are now actively engaged in looking at the ASBA-like secondary market. If it can be done for the primary market why can’t it be done for the secondary market? If you are buying shares and you must settle, the money should not leave your account. It needs to be settled with T+1, following which money will be appropriately taken,” Buch said.

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