GN Bajpai: SEBI should review market infrastructure settings

Copyright © HT Digital Streams Limit all rights reserved. Opinion GN Bajpai 4 min Read 03 Apr 2025, 12:30 pm ist which allows the smooth flow of the strength of capital question market infrastructure institutions (MII), whether physical infrastructure, technology, powers or management. (Photo: Reuters) Summary of India’s MII framework needs the attention of the Securities Market regulator, SEBI. The risks have changed, new technology has been deployed and innovations have been used. The institutional configuration of the capital market may not be left behind with the curve. The regulatory regime of the Indian capital market has seen rapid reforms in areas of industry risk management such as contracting cycles, public presentation processes, and so on. In various areas, the market has moved significantly before the expected evolution curve, even if compared to capital markets in developed economies. Capital market risks have three frames: structural, systemic and operational. Although the focus of reforms on reducing industry risks and to some extent was also systemic risks, the framework for market infrastructure institutions (MIIs) was not transformed into tandem with either these changes or market growth, which exposed the market to structural risk. Also read: M. Damodaran: Sebi’s regulatory approach must reassure the market in December 2024, NSC Clearing Ltd (NSCL) reported a £ 176.65 deficit in the required liquidity norms, which was declared as the £ 312,37 crore non-reception, the stock exchange. It speaks volumes about risks arising from poor financial links. To prevent the settlement risk, the Indian stock market moved from delivery versus payment (DVP) to a central counterparty (CCP) system, which transferred this risk class from brokers to the Clearing Corporation. Centralized approval guarantees the settlement of trades. Remember that the Ketan Parekh scam unfolded with a Kolkata Stock Exchange in 2001 in the settlement of trades worth approximately £ 120. Brokers of the stock exchange were unable to fulfill their obligations. Now, NSCL’s insufficient liquidity at risk, is the CCP settlement guarantee. There are other problems too. In February 2024, NSE, the world’s largest derivative exchange in terms of the number of contracts, suffered a technical error that stopped the trade for hours. Similarly, in October 2023 and July 2024, BSE could have errors and investors could not place orders. Such dislocations can be caused by hardware, software, brokers’ connection and/or capacity problems. But it affects millions of investors. More recently, on October 11, 2024, after an inspection, Sebi issued a ‘show cause’ notice to NSDL, a stock keeping, for non-compliance. Also read: Sebi’s new approach to keeping markets under the guard should help reduce distortions in February 2023, Sebi launched a qualified stockbrokers (QSB) frame to reduce the risks from brokers, reviewed in March 2024. To qualify, brokers must comply with the size of the scale, apart from the standards of designated management, rule compliance, service quality, county, county, county, county, county, county, county, county, etc. QSBs are only 24 out of thousands of brokers working in the market, several of whom have come under the maintenance action. The Indian capital market has had a smooth run for more than two decades without any major failure or scandal involving large -scale misconduct. For this, we must credit regulatory regulations under successive leadership. Smooth functioning increases the trust of the public and the participation of the market. Recent numbers carry it out. By September last year, India had more than 175 million Demat accounts, with more than 4 million added each month. India recorded the world’s most initial public offers (IPOs) in 2024, which helped raise £ 1.71 trillion. Yet, cases of errors and misconduct mean that it is time to review the MII frame. The MII framework includes the structure, rules and participants of the market, while MIIs include stock exchanges, deposits and deposits, brokers, cleaning houses and financial institutions. Also read: GN Bajpai: India’s banking industry needs a complete organizational overhaul. The market undergoes a metamorphic transformation. The number of transactions grows, a variety of products is increasing and methods of mediation are reformed. The volume, variety, velocity and value of market transactions are designed by algorithmic, ‘quantity’ and high-frequency trade. Meanwhile, market innovation is on a flight. A few months ago, Black Rock, the world’s largest asset manager, unveiled a new product containing a variety of assets, from real estate, gold and equity to debt, crypto, etc., which utilized the fractionalization and composition. The name of the game is newness and higher returns. It follows that ‘dark patterns’ of trade has become even harder to see. The Ketan Parekh scam, which involves the relationship between issuers and brokers, apart from the leading and circular trading, was facilitated by the under-utilized market infrastructure of exchanges and brokers. At the time, the regulator addressed this dilapidated by the consolidation and demutualization of exchanges and brokers, compulsory stock -materialization and a broad recharge at the regulatory regime. Also read: SEBI Reforms: Demat for housing associations, cooperatives a boost for financial inclusion, enabling the smooth flow of capital requirements, whether physical infrastructure, technology, skills or management. Rising volumes call for a capacity reinforcement, plus a technological upgrade to keep up with innovations, combined with the application of human thoughts to understand which ideas participants can come. Market movement information is a must and MIIs should not be left behind the curve. Shares exchanges, which act as subordinate regulators, should also be more proactive. Deficiencies in the MII framework invite human ingenuity to find kinks in the market to utilize for profits, some of which can distort the market. So a MII review needs Sebi’s urgent attention. Of course, without causing any ‘regulatory inflation’. The author is former chairman, Life Insurance Corporation of India and Securities and Exchange Board of India. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More Topics #sebi #Capital Mark #stock Market Mint Specials