Articles by R H Patil

In the early 1990s, India figured low in the global ranking of the state of capital markets. The adoption of sophisticated IT tools in trading and settlement mechanisms has now placed India in the lead. The National Stock Exchange has played an important role in this transformation. Shorter settlement periods and dematerialisation have been other major developments. But all is not entirely positive. The introduction of individual stock futures poses a major risk; so also the large inflow of funds through participatory notes.

The healthy development of the corporate debt market hinges on a significant level of reforms in regulations governing the primary and secondary markets in corporate debt. The recent initiatives of both Securities Exchange Board of India (SEBI) on the issuance and trading of corporate debt and the RBI's investment guidelines to its regulated entities like banks and primary dealers in this area comprise essentially the first set of reforms. Further initiatives are needed to consciously shape the corporate debt markets, upgrade them and bring them on par with our equity markets in terms of efficiency in trading, price discovery process, transparency, and investor friendliness. In this article an attempt is made to explain the rationale behind the recent measures announced by RBI and SEBI and then draw out the broad contours of the future directions needed to deepen and widen the corporate debt market, both through the stock exchange and banking mechanism.

The Reserve Bank of India's Working Group on Rupee Derivatives has, inter alia, recommended introduction of exchange traded derivatives to supplement OTC derivatives. But before we introduce exchange traded interest rates futures it is necessary to be fully aware of the ground realities. The basic issue is the healthy development of the market and abolition of the regulations that artificially protect the interests of a set of intermediaries whose role and functions have got significantly reduced with massive induction of IT applications into the capital and financial markets. Regulatory reforms should facilitate continuous reduction in transaction costs and upgradation of transactional efficiency across different segments of the market. A regulatory regime that ends up protecting the role of certain players merely because they played a useful role in the past in the development of some segments of the markets would be doing a disservice.

While equity markets in India have got radically transformed since the 1991-92 securities scam, the government securities markets have not changed very much except that the Reserve Bank of India has significantly improved the settlement process. Recognising the need for introducing transparency and to reform the secondary markets in government securities and money market instruments, the RBI will soon operationalise the Negotiated Dealing System (NDS). Simultaneously, the Clearing Corporation of India (CCIL), promoted by major banks, financial institutions and primary dealers, will be a key market infrastructure to significantly improve market efficiency and integrity. Together with the NDS, the CCIL will introduce major reforms in the way the government securities and money markets function today.

The possibility of friction, even conflict, as a result of the functioning of multiple regulators overseeing different segments of the financial sector does not make a convincing case for a single all-powerful super-regulator on the lines of the arrangement in the UK. A more satisfactory solution to the problem would be to devise an institutional mechanism for conflict resolution.