The detection and the prompt follow-up action by the SEBI of large-scale malpractices in two recent public offers - those of the Yes Bank and IDFC - are laudable. The capital market regulator has identified a set of perpetrators, who have made multiple applications, in their own names or through benami and fictitious ones, with the intention of cornering shares meant for retail investors. For long, public offers having widespread investor appeal have attracted applicants bent on encashing the premium such issues command. Obviously the chances of getting shares allotted in such public offers improve when multiple applications are made. While every effort has been made to encourage retail participation in the stock market, it is common knowledge that many genuine investors stay away, to a great extent due to the failure to stamp out market malfeasance. This default has had other serious implications too. For instance, money laundering and evading taxes are known to exist in a system where even a fairly-easy-to-perpetrate fraud such as the one involving multiple applications persists despite being expressly forbidden. Public issue literature has always carried a warning against such practices. Now that the capital market regulator has so comprehensively identified the malfeasant acts, the modus operandi and the perpetrators - there are many common names in the lists for both the public issues - it is time to impose stringent penalties.

Simultaneously, there ought to be an increased awareness of the causes that have made such practices so very common and difficult to eradicate. Demand for quality issues in the primary market far outstrips their supply. It is also necessary to find out why despite the advance of technology and regulation, the malpractices continue unabated. It has been after considerable investment in technology that the capital market shifted completely to a paperless mode. This should have had major, positive effect on the integrity quotient of the new issues market. Successful applicants now receive shares in their demat accounts, which in turn are linked to specific bank accounts. Audit trails should be a simple matter. Potential manipulators, it was assumed, would be wary of trying to cheat the system. Yet as the SEBI order (on the IDFC issue) points out "thousands of dematerialised accounts being opened on the same day with the same branch and being introduced by the same bank should have alerted the depository participants." Far from exercising diligence, banks and the depository participants have, prima facie, been guilty, at the very least, of negligence, if not collusion. The SEBI order in fact strongly indicts certain banks - which have compounded the offence by liberally funding the benami account holders - and one depository participant and recommends a further probe into the role of merchant bankers and even the depositories.