Need to get incentive structure for financial products right, said CB Bhave, Chairman, Securities and Exchange Board of India (Sebi) at a Confederation of Indian Industries' Mutual Fund Summit 2011. He said the need of the hour is to have simpler financial products.
According to him, the government needs to examine the role of Association of Mutual Funds in India (AMFI) and Sebi. "AMFI must explore a self-regulatory role for the mutual fund industry. It can give a policy paper on mutual funds to Sebi, government."
He sees the need to address short-term money flows into mutual funds. "We feel the MF industry is becoming a shock absorber due to the short-term money."
Here is an excerpt from press conference:
 Q: As a regulator do you think mutual fund industry needs to do more because there have been lot many steps taken by the regulator but as you were referring to many issues, there needs to be much more proactive role that the industry needs to play?
A: I didn’t want my speech to be understood as saying that the industry is not doing anything. We must make a distinction. There is always in our lives a chance and an ability to improve on what we are doing and life keeps changing, So what I was suggesting was since the industry looking at the picture between 2010 and 2015 and by all accounts, except for some unexpected events, we expect that there will be strong growth of both the economy as well as the capital market during this period.
So this is a good time for the industry to ask itself as to what have we done so far and where do we need to go and what improvements we need to bring about in order to get that.
Q: There has been lot of orders which has been passed recently in regards to insider trading including the HDFC Mutual Fund. Your comments on (a) the HDFC Mutual Fund insider trading in itself—how serious an issue is this and (b) insider trading is a menace in itself? (b) Do you think Sebi law needs much more tightening or regulations be much more likely to track insider trading cases? Do you think Sebi right now has the wherewithal to track the entire insider trading?
A: I have to correct you. We must all learn to make a distinction between front running and insider trading and the case that was directed had nothing to do with insider trading. It had to do with front running and front running means that if you are working for an institution then before that institution buys, since you know the institution is going to buy, you put in your buy order and when the institution is actually buying you sell, so that you make a profit or visa versa. So the case caught was of this kind. 
There have been murmurs in the market that front running goes on and therefore naturally our effort is inline with what I told you earlier to keep our surveillance on and see whether we see any patterns in trading or any such thing by which we can detect this kind of front running. It is serious case but at the same time you must have seen from the judgement as to what is the extent of that case. The extent is not in Rs 1000s of crore. I do not remember the exact number but I know that it’s a smaller number.
However that should not make us complacent that this amount is small, so it is alright. That investigation is yet to be complete. This is only an interim orders but once the investigation is complete we would also be looking at whether there were any lacuna in our system itself gives rise to this or is it that just an individual acted in an aberrant manner and we have been able to catch him. We will look at both these issues.
We will also look at whether we were able to catch him because the system was good or whether by just chance we caught him. Then if any system improvements are needed that will also be carried out.
Q: Could you clear your stance on AMFI?
A: What I was mentioning that while this discussion goes on about what needs to be done between 2010 and 2015, this question also should be examined whether it is worthwhile for AMFI to be a self regulatory organisation. So far AMFI’s stand has been that we are not a self-regulatory organisation (SRO) which is as I said I am not taking any position that it should be an SRO.
I am saying just examine this question that for your growth from 2010 to 2015 is this also an issue. Will it help you in any way, will it help the industry. So all these things we need to examine.