Why was CCI SHUT DOWN and SEBI CREATED? | Dr. Anil Lamba

本站添加: 2026-05-24

[00:00:00]I'm sure you all heard of SEBI, Securities and Exchange Board of India.

[00:00:06]It is the premier financial regulator of the country. It regulates the stock market. It has a major responsibility to protect investor interest. [music] But when was it formed? Why was it formed? When did it come into being?

[00:00:22]Prior to SEBI, there was another institution. Which was that? Why did that institution shut down and they felt the need to create SEBI? By the end of this video, you will understand what was the role of the earlier institution, what went wrong, and how SEBI was born.

[00:00:40]Those of you who invest in shares, particularly the public issues, would often have come across companies offering shares at different amounts of premium. A 10 rupee share could be sold for 25, 100, 500. Now, who decides these premiums? And what is the logic of premium? The logic of premium is very simple. Let's imagine you are an entrepreneur. You've been running your business. The business has done fairly well. You are the sole proprietor, and you run it for several years, and now you want to expand, and to raise the funds, you decide to come out with an IPO. You make a public issue of shares.

[00:01:23]You sell your 10 rupee shares for 10 rupees, and then the company does very well. And little later, a 10 rupee share starts selling for 20, and little later for 50, and then for 100, and then maybe for 500. So, the people who purchased your shares for 10, you as an entrepreneur received 10 bucks. But the people who invested with you can now sell it for 200, 300, 500, which is fine, which is the way it should be. You are here to add value to your shareholders. But now if you want to raise some more money, you realize this time I will not give a 10 rupee share for 10 because even if I give it to you for a 100 you will still benefit because my share sell for 500. Even if I give it to you for 200 people will still buy. So it become win-win. I will also make money.

[00:02:09]You will also make money. In a way I've always equated in a nicer way. Shares issued at a premium to something like imagine you are a theater owner, movie theater. You have a popular movie running, Shah Rukh Khan, Salman Khan, so the top actors. You are selling your ticket for 100 and some doubts come and buy from the box office and they stand on the street corner and start selling a same ticket for 1,000.

[00:02:37]You start wondering movie I am playing the movie in my theater money is being made by that guy. You said sometime you you almost must be tempted to shut down the box office, take your tickets and go stand on the street and start selling it yourself in black. In a way a share being sold at a premium is like the theater owner selling their own tickets in black but in a nicer way. Now the question is who decides how much premium you can charge. I'm going to take you back several years. Let's say late 80s.

[00:03:07]You know those days any company that wanted to come out with a public issue of shares and wanting to charge a premium had to apply to an institution called CCI, controller of capital issues. So you have a past track record last time you issued shares for 10 bucks, charged 10 bucks, today they are selling for several hundred. So you make an application listen this time I want to raise but I want to charge a premium.

[00:03:35]And CCI would say yes, yes, of course you should charge a premium and they had a ridiculous formula and they would apply the formula and say all right, you can issue shares at a three rupee premium or something as ridiculous as that, five rupee premium. And all these entrepreneurs used to rebel. Who's CCI to tell me how much premium to charge? I mean, you don't tell a farmer how much to sell tomatoes for in the market. If there is shortage of tomatoes because there was less rainfall, the same tomatoes will start selling at a higher price in a premium.

[00:04:10]And if there is excess production, then the prices will crash.

[00:04:16]Nobody like a CCI intervenes to tell them at what price. So, if you leave it to me, if my 10 rupee share is selling for 500, I'll not be a fool to sell it for a 10 rupee share at a 490 rupee premium because I do understand the moment I make a fresh public issue, the number of shares in the market has let's say doubled. So, the price theoretically will become half. So, if I price it at a higher figure, my issue will flop and I will also not sell a 10 rupee share at a 5 or 10 rupee premium, otherwise it will be heavily oversubscribed. So, automatically I will find a middle path where I will also benefit, they will also benefit. Who's CCI to tell me how much premium to charge? One fine day, the government abolished the office of CCI. This was I think in 1990 or 91. And suddenly we came into a free pricing regime. Not used to that. I the biggest beneficiary of CCI used to be the investor who was able to buy some excellent blue chips at throwaway prices. Even those people used to criticize the CCI finally. And then suddenly we came into a free pricing regime. The first public issue post CCI, I keep forgetting was either MRPL, Madras Refineries, or TNPL, Tamil Nadu Petrochemical. That company came out with a with an offer a 10 rupee share at an unheard of 145 rupee premium or something. So, 155 is what you had to pay. Now, suddenly the investors were confused. Should we buy? Should we not buy? So, you look at the track record of the share market price of this company and let's say it was selling at 170, 180, 190.

[00:06:01]It still looked like a reasonable offer. So, somehow the issue got subscribed. And when it got listed, when it started trading in the stock exchange, the price fell below 155. And suddenly there was a scramble. We need somebody like a CCI to protect our interest. Who's there to look after our interest? And guys, that is how SEBI was formed. SEBI was set up to fill the void created by the abolition of CCI.