Securities and Exchange Board of India (SEBI)’s International Advisory Board (IAB) held its first meeting in New Delhi today.
SEBI constituted the IAB in September, 2011. The role of the IAB will be to guide SEBI and, in doing so, bring in the global experiences and emerging developments and challenges. The IAB will meet twice in a year.
At its first meeting, the IAB deliberated on several important issues which are currently relevant for the Indian securities market:
i. The IAB took note of the initiatives taken by SEBI for enhancing the retail participation and for increasing penetration beyond top-10 cities and discussed the issues and challenges faced by SEBI in this regard. The IAB observed that there is a need to widen the reach of the mutual fund industry in the country, both horizontally and vertically. The IAB emphasized that in order to enhance the participation of households, the mutual fund industry has to educate the investors of the attractiveness of mutual funds in terms of returns and cost effectiveness, compared to other financial products. The IAB stressed the need for the mutual funds to offer life cycle products along with plain vanilla products. The IAB underscored the need to have in place an effective framework for regulation of distributors. The IAB also suggested that SEBI may consider encouraging competition in the industry while insisting on transparency and reducing the dependence on the existing channels of distribution by enhancing the distribution of mutual fund products through alternative channels, like internet.
ii. The IAB was apprised of the situation prevailing in the Indian primary market. The IAB emphasized the need to have a listing and trading platform for smaller companies, to address the conflicts of interests at the level of the market intermediaries and to make the enforcement actions more effective. The IAB advised SEBI to explore the provision of green shoe option for price stabilization and independent research coverage of listed companies for a few years post listing through a common agency.
iii. The IAB appreciated the initiatives of SEBI to have uniform KYC norms in the Indian securities market. After taking note of the practices in some of the Financial Action Task Force (FATF) compliant countries, the IAB advised SEBI to explore risk-based customer due diligence processes without granting any sort of exemptions to any category of investors.
iv. The IAB took note of the risk management mechanisms in place in the equity and equity derivative segments in India. The IAB advised SEBI on the need to strengthen the legal framework to strengthen and better protect the collaterals of the clients posted with the brokers. The IAB also deliberated on the global developments related to algorithmic / high frequency trades and co-location and the resultant challenges to risk management. The IAB advised SEBI to have consistently high regulatory standards to cope with the increasing technological advancements and to strengthen the pre-trade risk management mechanism. As a step towards inter-operability of central counterparties, the IAB advised SEBI to prescribe common standards/ protocol for market participants.
v. The IAB also looked into the means to canalize the domestic savings into the securities markets so as to help meet the growth objectives. Among the measures recommended by the IAB are the development of a vibrant corporate bonds market and exploring the introduction of securitized debt instruments and real estate investment trusts, with appropriate risk management.
The current Members of the IAB, in addition to the Chairman, SEBI are Prof. Viral Acharya, Ms. Jane Diplock, Prof. Mark Maletz, Prof. Maureen O’Hara, Prof. Arvind Panagariya and Dr. Andrew Sheng (Arranged alphabetically by the surnames).
Prof. Acharya is the C.V. Starr Professor of Economics in the Department of Finance at New York University Stern School of Business and a Member of Advisory Scientific Committee of European Systemic Risk Board. Ms. Diplock, presently an Independent Director of Singapore Exchange Limited, is the former Chairman of both the Executive Committee of the International Organization of Securities Commissions (IOSCO) and of the New Zealand Securities Commission.
Prof. Maletz is a Senior Fellow at Harvard Business School and an internationally recognized thought leader in the areas of leadership development and organization transformation. Prof. O’Hara, the Robert W. Purcell Professor of Finance at the Johnson Graduate School of Management, Cornell University, is the Chairman of the Economic Advisory Board of the FINRA and a Member of the CFTC-SEC Task Force investigating the ‘flash crash’.
Prof. Panagariya is the Jagdish Bhagwati Professor of Indian Political Economy at Columbia University and the former Chief Economist of the Asian Development Bank. Dr. Sheng, the former Chairman of the Securities and Futures Commission of Hong Kong, is presently the Chief Advisor to the China Banking Regulatory Commission and a Board Member of the Qatar Financial Centre Regulatory Authority.
Mr. Prashant Saran, Mr. Rajeev Kumar Agarwal, Whole Time Members of the SEBI Board, Mr. V K Jairath, Member of the SEBI Board, and all the Executive Directors of SEBI participated in the First Meeting of the IAB.
During the intermediate breaks, the Members of the IAB interacted with Mr. D K Mittal, Secretary, Department of Financial Services, Ministry of Finance and Dr. Kaushik Basu, Chief Economic Advisor, Department of Economic Affairs, Ministry of Finance.