INDIAN SECURITIES MARKETS - NEW BENCH MARKS

G.N.BAJPAI1

The Securities and Exchange Board of India (SEBI) is indeed happy joining hands with the
Federation of Chamber of Commerce and Industry (FICCI) in organizing this two day
seminar on the theme, “Ind ian Securities Market – New Benchmarks”. Let me begin by
welcoming all the participants and in particular our distinguished guests …

The timing of the seminar could not have been more opportune. Globally, Securities
Markets are emerging out of a prolonged phase of suspended animation (of bulls)
drugged by the overdose of technology stock meltdown and series of wide spread market
misconducts across nations including those of the Indian sub-continent. Unusual and fast
paced rise and fall in the valuations in the securities market are occasions for
introspection – in retrospect and prospect by the Regulators – primary and ultimate, as
also macro and micro industry associations. Such events are conceived on concepts –
investment themes, reared in the womb of rumors and nourished in the cradle of volumes.
Irrationality deserves to be probed to ensure that the axe of the dump does not fall on the
fortunes of the innocent investing community and eventually hurt the economic order.

Significance of Securities Market :

I am strongly of the view that vibrant securities are an amazing vehicle for disseminating
opportunities and mitigating economic deprivation. The market’s ability of providing
convenient financing clothing to human ingenuity facilitates the development of “creative
destruction” whereby archaic; time cycle for modern to be archaic has contracted beyond
anticipation, and decayed philosophies and perspectives are challenged by more relevant
thought processes and inventions. Let me quote my friend, Mr. Raghuram Rajan and his
co-author Luigi Zingales from their latest book, “Saving Capitalism from the Capitalists”.
“In the United States, constant financial innovation creates devices to channel risk capital
to people with daring ideas.” I share their assessment that one of the significant causes
for the economic retardation of the euphemistically described third world economies is
the absence of a securities market or a primitive securities market because finance in an
under developed system tends to be unprogressive and hidebound which eventually
blocks harnessing potentials of economies of scale and opportunities of scope.

Changing Ethos :

Financial Markets, across the globe, are undergoing profound, unprecedented and
fast-paced changes. Technology has revolutionized the processes and the information
explosion has sparked off remarkable changes in the way the world has been operating.

1
Speech delivered by Shri. G.N.Bajpai at the SEBI-FICCI Convention On Capital Markets,
Mumbai on August 6, 2003 ,at Oberoi Towers
Though organizations, their competencies and product portfolios are expanding and
going global, their profit margins are shrinking, competition is intensifying and lives –
working and social, are becoming more and more complex and tougher day by day.
Opportunity zones are encountering a blood bath, globally.

Change has become a ubiquitous phenomenon. Indeed, the intensity and speed of
changes in the market place is rendering all veterans, conventional and orthodox
organizations and people redundant at an amazing speed. Unambiguously, markets have
become merciless without any respect for the long standing and accumulated expertise.
Amidst such choppy waves, market participants are virtually left with two choices –
either change or perish.

Apparently, nothing but change is stable in the world, which interestingly offers
both - opportunities and challenges. To me, change is an exciting opportunity to
reposition oneself because of the survival crisis created by unanticipated change and/or
the excitement offered by the unfolding of new caverns of opportunities, which were not
visible earlier to the naked eye.

It would not be inappropriate to conclude that the future looks

non- linear, discontinuous and unpredictable and what matters most today is the capability
to deal with the future. Thus, the future is all about imagination and new creations. Are
we missing the procession of emerging opportunities; or mortgaging our future at the
altar of survival….., which, I am sure, successful organizations and people cannot afford
to do.

Therefore, it has become imperative to weave clear cut strategies to strengthen

each link in the value chain to deal with these changing dimensions of the business
landscape.

Changes in the Indian Securities Market :

The Indian securities market is in transition. There have been revolutionary

changes over a period of time. As everyone sitting here is aware of them, I do not wish to
bore you with details. In fact, on almost all the operational and systemic risk management
parameters, settlement system, disclosures, accounting standards, the Indian Securities
Market is at par with the global standards. Indeed, on a few paradigms, it is ahead of the
global benchmarks. Some of those initiatives are:

• T+2 settlement cycle.

• On line monitoring of positions and margins and automatic disablement of
terminals.
• Corporate governance index as a measure of wealth creation, management and
distribution.
• Establishment of CLA.
• Central counterparty.
• Commencement of Straight Through Processing
 The list is large, but, better leave that here and focus on “what next”. “What next” -
these two words and eight characters arouse extreme interest.
The Road Ahead :

As mentioned earlier, the “Road Ahead” is all about imagination. Let me share
what I visualize of the future structure of the Global Securities Markets in general and of
the Indian Securities Market, in particular. I would also touch upon the possible
repositioning of the various segments and their participants. Interestingly, I am conscious
that even this imagination may undergo whole scale reorientation. A clear and candid
disclaimer – this is the imagination of a prose writer (I have never been a poet) and not
that of the Chairman, SEBI who is a statutorily christened pontiff authorized to develop
and regulate the securities market of India.

I would like to divide the talk into the following sections and would address them
one by one.

• Future structure of the trading platforms

• Future structure of the Clearing and Settlement mechanism
• Future structure of the Intermediaries in the market
• Future structure of the Financial Products
• Role of organizations like Credit Rating Agencies
• Tomorrow’s investors
• Tomorrow’s issuers
• Tomorrow’s professionals
• Future structure of the Regulatory Regime

Future structure of the trading platforms :

The focus of a lot of work in the financial Markets is on making them more
transparent, competitive, efficient, efficacious and cost effective. My sense is that a lot of
that can be infused in the Market by the simple act of bringing more and more financial
products to the electronic trading platforms provided by the Securities Markets.
Discussions on competitive advantages and disadvantages of over the Counter (OTC)
trading and the exchange driven environment have by and large settled down. Global
Markets agree, undisputedly, that though both the markets complement each other and
serve specific set of market participants, an exchange driven environment offers better
values in terms of price discovery, transparency and competitiveness. With this thinking
crystallizing, more and more products are joining the trading platforms. Evidences from
across the globe are live. Who would have thought a couple of years ago about power,
weather, catastrophe, hailstorm, temperature, electricity, credit risk being traded on the
exchanges but, that is all a reality today…… I see enormous potential in many more
products coming to the trading platforms of the exchanges. Therefore, I see the expansion
of the exchange traded products an everlasting phenomenon… because ethos will be of
providing solutions to even unimagined and unanticipated problems.
 I see one more dramatic development taking shape on the exchanges and that is
the capability of directly mapping the ultimate investors. It essentially means
disintermediation i.e. investors bypassing the brokers. Tomorrow’s investors may be able
to log on and execute their trades themselves and systems would be potent enough to
check the availability of funds or securities in their bank or DP account before execution
of orders. And, that may be possible through mobile phones, internet, ATM machines
and what not…

The system would lock in funds or the securities before the trade actually goes
through. I would also imagine that a reverse transaction would unlock the said funds or
securities and create room for further trading by the investors. This would be a paradigm
shift in the market structure, which would spark off radical changes in the market place,
especially for the broking community. I would come back to this point when I talk about
the future shape of the Intermediaries in the market.

As the exchanges are in the business of providing liquidity to the market place
through a transparent and efficient mechanism called the trading platform, like any other
business their success or failure would be determined by the competencies they possess
and strategies they adopt to position themselves in the future. I see the integration /
amalgamation / mergers of the entities (exchanges) and businesses into liquidity business
on the lines of other opportunity zones. Indeed, this has already begun if you incisively
survey around. Creation of the Euronext (merger of Amsterdam Stock Exchange, Paris
Stock Exchange and Brussels Stock Exchange), Singapore Exchange Ltd. (merger of
Stock Exchange Singapore and Singapore Mercantile Exchange (SIMEX)) and
OneChicago (alliance of Chicago Mercantile Exchange (CME), Chicago Board of trade
(CBOT) and Chicago Board Options Exchange (CBOE)) are live examples to
substantiate the underlying thinking. Further, London International Financial Futures and
Options Exchange (LIFFE) has also joined hands with Euronext to create Euronext.liffe.
Let me hasten to add, as of now I am of the view India needs at least 2-3 exchanges to
serve the continental structure of the market and fight the challenges of building a
competitive edge. However, eventually there would not be more than say 5-6 stock
exchanges across the globe, in the time to come. Which five-six, I don’t know! That
would depend on the strategic global moves that existing exchanges across the globe take
as they all are competing for the future opportunity share in a very competitive
environment. Further, my feeling is that these exchanges would simply be exchanges and
not securities exchanges as they would trade commodities, securities, currencies, bullion,
weather, credit risk or anything else you can imagine and beyond.

Therefore, what I am saying is that fragmentation of the liquidity in an asset

through its trading at different exchanges or different exchanges for different underlying
assets would become an obsolete phenomenon, across the globe. It is logical because
creation of a trading platform is an onerous job and demands huge monetary stakes.
Further, if both the commitment of the large amount of fresh resources or the incremental
cost on the augmentation of the capabilities of the existing trading platforms is going to
create similar values, augmentation will definitely be a better choice. It would be like
expansion of a shop in terms of more product lines and more brands of the existing
product lines.

This phenomenon is also envisaged from the perspective of the enormously better
values to the investors, the clients on this shop (exchange), in terms of the economies of
scale (trade discounts), convenience (ease), economic use of the risk capital (facility of
cross margining across the positions) etc. It would be like shopping from a big mall,
which serve customers with A to Z of their requirements. This is, undisputedly, a
significant competitive advantage from the market’s perspective.

Further, with corporatization and demutalization of the exchanges across the

globe there is a clear difference in the way these exchanges are looked at. You would not
be surprised if tomorrow BSE gets listed on the BSE and / or at some other exchanges
across the globe. For your information, Australian Stock Exchange, London Stock
Exchange, Hong Kong Stock Exchange, Singapore and Stockholm are listed on
themselves. Segregation of the ownership and trading rights on exchanges is a major
move from the perspective of bringing in professionalism and credibility to the market
place (exchanges). My feeling is that this phenomenon would continue to strengthen in
the future…

Future structure of the Clearing and settlement mechanism :

As mentioned above, today, at the global level, trading is being commoditized and
energies of the policy makers are concentrated on the clearing and settlement function.
All of us would agree that having traded on an exchange platform what matters to the
parties ultimately is the settlement of the transactions. Therefore, clearing and settlement
functions are unequivocally a crucial link in the whole value chain.

Until some time ago, exchanges had separate clearing corporations / houses. This
practice is no longer prevalent. Today, a single clearing corporation serves the clients
(investors) across the exchanges and beyond that hunts for opportunities even outside the
exchanges. Look at Options Clearing Corporation (OCC) in the U.S., which serves across
exchanges (CBOE, Philadelphia and American Stock Exchanges) and Over-the-counter
transactions simultaneously. That was an unbelievable phenomenon a little while ago.
Similarly, London Clearing House offers a product called “Swapclear”, which is all about
providing the clearing and settlement function to the parties in a swap deal. Do n’t you
think it is all different ..… significantly different?

On the horizon, I see a global revolution on the clearing and settlement function.
Tomorrow’s clearing corporations would operate at the planetary level managing risks
across economies, markets, segments and what not. Further, I would argue that the speed
with which the economies and markets across the globe are integrating, there may be a
need only for a couple of clearing corporations to serve the entire world. The merger of
the two major clearing corporations at the global level, Cedel International and Deutsche
bourse clearing corporations to form Clearstream validates this thinking. Of course, I
would imagine these organizations to be very competitive and focused on delivering
world class risk management solutions to their customers across the globe.
 As a strategic move, I would say that these new generation clearing corporations
would reposition themselves as “Risk Managers at the Global Level” and that would lead
to the emergence of a whole new concept - Risk Management Outsourcing (RMOs)
organizations on the lines of the now popular Business Process Outsourcing (BPOs)
outlets.

Indeed, I would stretch my imagination and say that tomorrow these crazy
clearing corporations (risk managers) may compete even with traditional bankers on the
credit guarantee front. What I am saying is that I would not be surprised, if an entity
approaches a clearing corporation rather than a bank for trade guarantee tomorrow which
may eventually happen as these new age clearing corporations would become risk
managers exploring the opportunities for risk management across sectors, relentlessly.
Don’t you think that a bank guarantee is a risk management function?

In the changing paradigm, the competitive pressures in the market would demand
these clearing corporations to go for an independent rating – both professional and credit.
I think, I am talking about something very unconventional but, believe me, that is likely
to happen. The issue is not whether but when? I am envisaging the credit rating of
clearing corporations as a means to establish their credibility amongst the market
participants, who (clients of the clearing corporation) are exposed to its risk. My feeling
is that credit rating by an independent professional agency would help them stand firmly
on their own feet.

Future structure of the Intermediaries in the market :

Now, I will come back to the point I was mentioning while talking about the
possible changes in the structure of the trading pla tforms. The point was the capability of
the exchanges to map investors (customers) direct, without any intermediation, through
leveraging of the technology, which would put bank and DP accounts of a client on line.
Don’t you see that this transformation in the business model would call for some radical
repositioning at the end of broking agencies? I think, it would. Let me share with you
how….

First I envisage that even in that kind of environment broking would have a role
to play. We need to appreciate that in that scenario, brokers would be serving the people
who are basically traders or are trading on the margins i.e. without securities or funds in
their respective accounts. Further, on the derivatives side, where positions remain open
for long on margins, market participants would definitely need brokers. This would result
in two business models in the market – a delivery-based business model, where clients
deal direct with the exchanges and a non-delivery-based business model, where clients
trade on ma rgins through brokers. I would acknowledge that the opportunity zone of the
second model viz., non-delivery-based business would always be bigger than that of first.

In that scenario, I think, brokers would need to redefine their competencies, skills
set and deliveries. To tap a part of the values from delivery based business, they would
need to position themselves as consultants or advisors to the clients as their role on the
execution of the trades would come down drastically. Then, what is called add-on
services (research based advisory) today would become the prime piece to be served to
the investors. Further, for non delivery business, they would need to build up fresh
competencies to deal with the rocket science called derivatives. Don’t you think that a
sizable change is taking place in the broking business? If you don’t, get up and start
looking at it please…

Further, my feeling is that markets across the globe would shift to the clearing and
trading member concept. Beyond this, these members wo uld possess global
competencies, thinking and perspective and explore opportunities across segments at the
global level. It goes without saying that on the lines of the shrinking numbers of trading
platforms and clearing agencies, the world would witness a similar phenomenon on the
clearing and trading members’ level. I would imagine that there would be only a few
clearing members and a large number of trading members in that kind of environment.

Further, as I talked in the case of clearing corporations, clearing members and

trading members would go for rating, both professional and credit. In addition to this,
they would need to innovate relentlessly without any complacency. Value delivery alone
will facilitate rejuvenation for longer life.

Future structure of the Financial Products :

As discussed before, technology is helping market players redefine the way they
have been operating in the market. To take an example from banking, today, banks are
taking ATM machines to the customers – indeed a noble concept. Availability of
concepts like phone banking, anytime banking etc. has been possible because of
technological advancements.

With increasing complexities of the business environment, the world would need
more complex financial products as a strategic solution to the specific situations. My
feeling is that financial innovation would become as ubiquitous a phenomenon as quality
control and customer care. Availability of financial products linked to the temperature,
earthquake, snow fall, rain fall, hailstorm and what not communicates that there is a huge
room for creativity and imagination in this area.

Today, anything and everything is being traded in the market. The emergence of
areas like credit derivatives, real options, securitization is paving an entirely fresh set of
opportunities for the market place. Securitization of any kind of receivables including
inventory (champagne bonds) to album royalties (Bowie Bonds) is a remarkable
accomplishment. A tremendous amount of creativity and imagination is at work in these
markets and financial innovation is going to be one of the most happening things in the
world. There is a huge room for structured and synthetic products even in the Indian
Market. To me it appears, the market is in for an exciting phase, in terms of the financial
innovations.
 I believe, we need to explore new frontiers in the field of finance by going beyond
the known parameters and then only we can discover fundamentally distinguished and
great financial products. In my opinion, this calls for dedicated efforts on the subject and
so there is an urgent need for an institution say “Center for Financial Innovations” in the
country. My thinking is that this center may become the hub for the global market
participants through its distinguished strategic resources in terms of the core
competencies of the intellects and the low cost structure. This center would have the
potential of emerging as the source of knowledge and innovation across the globe.

I would summarize this topic of financial innovation by saying that “To lead, one
needs to be different and to be different one needs to innovate strategically on a persistent
basis”. Only differentiation can help someone redefine the basis of competition and
emerge as a leader. Therefore, I would urge market participants to innovate relentlessly to
lead in the market.

Role of organizations like Credit Rating Companies :

At a number of places during my talk, I have mentioned about the rating by

independent professionals viz Credit Rating Companies. And they would rate every
character – on the stage and off the stage of the drama in the securities markets - even the
regulators and the credit rating agencies themselves. I would like to clarify that I am not
promoting business opportunities for the Credit Rating Agencies (CRAs) in any manner.
The only interest I have is regulatory responsibilities. It is just the way I see the
businesses taking shape and credit and professional ratings becoming more and more
important. My feeling is that ratings would be used as a strategic selling point by the
market participants, tomorrow. And, interestingly, this all would be voluntary as markets
would be driving this phenomenon across the globe.

I would like to mention here that there comes a bigger responsibility for the
Rating Agencies, globally. Today, at the international level questions are being raised
about the credibility of the Credit Rating Agencies (CRAs) themselves. Debates go on
and on without any conclusion. I think that CRAs need to be more transparent, logical
and pro-active in their approach to the rating. They have a huge task of, I would say,
reestablishing their credibility in the global markets. They need to honor their residual
responsibility with abundant caution and care. They need to focus on their rating
migration indices as a proof of their performance and delivery to the market beyond
expectations consistently.

Tomorrow’s investors :

Tomorrow, investors would be perceived as not just investors but as buyers of

financial solutions. Hence, the philosophy of the customer being king would drive the
Securities Market as well. Accordingly, no more customers will chase products; but
products would be chasing the customers. Tomorrow, financial institutions would co-
design products / services with their customers and strive to provide them with global
solutions. Simplification of the customers’ life would be priced by the market. Look at
what some International Banks are doing by providing all the services to their customers
from checking account to savings account to housing loan to car loan to credit card and
what not…with a single bank account; they are simplifying their customers’ lives. I think,
it is pretty interesting.

Tomorrow, investors would be more educated, informed and take their decisions
based on the fundamentals of the issues. The concept of the hard mentality would
evaporate from the globe. Tomorrow, investors would be aware of their rights and
participate in the decision making process, wherever they have stakes. Further, their
awareness coupled with radical initiatives by the policy makers would result in the
reduction of the market misconducts, which has become the cause of concern for the
economies globally.

Tomorrow’s Issuers :
Some recent market misconducts have shaken the confidence of the market
participants significantly. Damages are beyond imagination and appear irreparable. But,
lessons learnt from these incidents are critical. Corporates should have realized that the
only way to sustain and grow is through winning the confidence of the stakeholders and
to win their confidence they need to be more transparent in their approach. In this age of
information explosion they cannot afford to do something fishy and keep that under the
carpet.

Therefore, my feeling is that tomorrow’s regime would be purely a disclosures-

oriented regime; every bit of information flowing to the stakeholders’ domain.
Accounting standards would become more stringent and transparency-oriented. Here, I
would like to mention that as organizations are becoming more and more global in terms
of their operations and resource raising, there is a need for evolving “Global Accounting
Standards” i.e. universal accounting standards across the globe. This may appear
laughable and ridiculous but that is the way the globe is going to go in the times to come.
If it does not happen, a fragmented approach to accounting and disclosure requirements
in different countries would become one of the biggest impediments on the path of global
integration.

I would also say, tomorrow’s organization would also be more law-abiding, more
ethical in their approach and follow good corporate governance practices. This would
emerge from the enormous external pressure of the stakeholders. Leadership is also being
redefined across the globe and what would be critical in the long run is the ethics in the
business and dealings.

I would convey to the Indian corporates to do fewer things but do them better than
the best, globally. We need to appreciate that no one can int ernalize the versatility of
competencies. Hence, it would be imperative for tomorrow’s leaders to leverage,
outsource, network and create strategic alliances with others. Further, we need to think
without precedents as precedents create the risk of limited thinking by withholding the
imagination from running radical to develop fundamentally great and different products
and services. Therefore, be different faster than being better and be better faster than
being leaner. We need to go beyond known paradigms to be
path-breakers and secure a place at the international atrium.

Therefore, we all need to strategize to position “India Incorporated” at the Global

level. We need to come out of the thinking of being a developing country because
‘developing’ is a mindset. There are areas where India is globally competitive. Our
biggest strength is the educated, trained and skilled manpower – the scientific minds. We
have proved that by the exhibition of resilience of the Indian economy even in the midst
of global meltdown steaming nonchalantly out of the collapse of far eastern economies
and troubled Latin American setting. We need to focus on our strengths and identify the
weak links in the chain and dent them with determination. We have the entrepreneurial
acumen to paint India as a giant figure on the global canvas. I strongly believe, we have
the potential to do so and we can do it. A perception is steadily growing about India being
a dynamic market among the international community.

Tomorrow’s professionals :

The changing paradigms of the business environment provide professionals with

only two choices – either change or perish. The choice of either of these two alternatives
lies with individual professionals. Gone are the days of employment security through
lifetime employments. Now, we all need to be comfortable with the word called
“insecurity” in our profession. Accordingly, the focus of professionals needs to be on
emerging opportunities, competence building, strategies for the leadership position in
those opportunity zones and principles-centered business practices. It must be clear that
these professionals would derive values from their value delivering capabilities.

Interestingly, today, there is a competition for competence in the market.

Fortunately or unfortunately, the success or failure of a professional, in this battle for
competence determines his potential for growth and competitive differentiation.
Professionals need to strategize and re-strategize almost on a continuous basis. They
need to persistently strengthen their existing knowledge and acquire/create new
knowledge, compatible with the existing one, as quickly and as inexpensively as possible,
to continue leading in the opportunity zones. They need to develop the capability to learn,
unlearn and relearn on a persistent basis.

Today, professionals are competing for space in crowded markets. The

competitive position of professionals in the market place would depend on the speed with
which they run on the learning curve, discover new frontiers of knowledge in all
dimensions of their operations and then think creatively and imaginatively on the
strategic ways to transform this accumulated knowledge into a value delivering
proposition. It should be understood that the existence of knowledge does not ensure
success; Professionals must also possess the capabilities to leverage on that knowledge to
create values.

In this increasingly competitive and complicated business environment, it is

imperative for professionals to primarily focus on value creation through a continuous
improvement in their competence levels. They also need to cultivate and nurture
leadership and ethical practices. Only an appropriate mix of competence, leadership and
ethical practices would ensure the long term growth of individuals, add value to their
contribution, keep them relevant to the emerging ethos. Obsolescence, out of time and
tune, is the gravest of risks and the only insurance against getting buried in the debris of
obsolescence is “constant upgradation of skills relevant to the time and tune”.

The recurring financial crises and the scams that rocked the world in the recent
past were the products of weak and meek professionalism. I believe, competence was
never in paucity, but ethics was. The said crises have called for a sharper focus on ethics
in the professions. That is the reason, I strongly believe, today, professionals with
outstanding business acumen, leadership and ethical bent of mind are required across the
globe. The time has come for professionals to demonstrate extraordinarily high standards
of leadership and integrity. I have a strong conviction that tomorrow’s successful leaders
would value principles more than the companies they work for.

Future structure of the Regulatory Regime :

The foregoing propels the feeling that markets, across the globe, are being redefined,
reinvented and reconfigured on a persistent basis. Unquestionably, Regulations need to
keep pace with the dynamically changing business environment because Regulators
cannot deal with the complexities of the new age business environment with archaic
rules, regulations and a rudimentary perspective. It would be like shooting a moving
target with a static gun position. Therefore, in this era of revolution across the globe,
regulations need to be enterprising, forward looking and evolutionary in nature.

My feeling is that tomorrow the Regulators’ focus would shift dramatically from
regulations to the Development of the Markets. In my view, Regulations just happen to
be incidental to the developmental process. This change in the regulators’ focus would
bring in a paradigm shift in their approach, which would facilitate their transition from
being enforcement-oriented, reactive, adversarial, incident driven and hard to
compliance, to being partnership-oriented, preventive, problem solving and soft.

Tomorrow, Regulations would simply define the broad

framework / parameters for the game and within that framework; market participants
would be allowed to operate without any intervention. This approach is all about having
confidence in the market and systems. Now, the challenge would be to ensure that the
people don’t play foul with the game. Protection of the system’s integrity through
architecting a proper risk management system would be another challenge before the
regulators. This would demand regulators to make tactical choices with regard to the
tools, best time intervention and regulatory style to fit the audience.

Another significant challenge to the securities market regulators across the globe
is posed by the convergences of the opportunity zones. Traditionally, businesses were
clearly differentiated; Banks conducted banking, insurance companies offered risk covers
and securities companies offered investment opportunities. This resulted in separation of
supervisory structures along business lines. But, today, those traditional business models
have become the footnotes of finance literature because as mentioned before, stock
exchanges may become simply exchanges trading anything and eve rything and not just
securities; similarly, securities brokers may become just brokers exploring opportunities
across the different dimensions of the economy. On similar lines, institutions in finance
are talking about a one-stop shop offering all the products ranging from commodities to
securities to currencies and an opportunity for profit in a cavern in the moon under one
roof. This change in business models is necessitated by the values buried in the
opportunities from economies of scale and economies of scope.

Though it makes economic sense to create a one-stop shop for customers, there is
a critical issue of risk of one activity spilling over to the other segments of the financial
markets. Now, as the regulators are different for different activities, there is a potential
problem of shifting responsibilities among the regulators, at times of crisis.
Therefore, this emergence of new age one stop financial institutions has resulted
in a titanic challenge to the regulators, internationally. They need to co-operate at a level
more than ever before. Creation of the Financial Services Authority by merger of all the
regulators in the economy, in the U.K., has set a new precedent globally. Now, a number
of countries across the globe, are thinking on these lines. Recently, Germany has joined
the U.K. through creation of the Financial Services Supervisor, a combined regulatory
authority for banking, securities and insurance. The logic is simple – integration of the
opportunities zone demands a flexible, efficient and effective supervisory regime, which
can be accomplished either through effective co-ordination among the regulators or the
creation of a single regulatory body. Some economies are choosing the first option and
some the second.

Wherever the first model for regulations is adopted, regulators would need to
strike an intelligent balance between the safety of the markets under their regulatory
jurisdiction, and the creative initiatives of the market participants. No matter what, the
market should be given a fair opportunity to explore avenues for expansion and growth
because that would result in competition in various opportunity domains and thus the
emergence of better values to the ultimate customers.
Another dimension of the whole regulations would be with regard to the
integration of the global regulatory practices. This is thought of from the perspective that
today organizations are truly global in terms of raising resources and operational domain.
This would definitely demand a greater consistency in the regulatory approach across the
globe. The point is getting momentum and may be substantiated from the increase in the
numbers of Memorandums of Understanding (MOUs), signed by the various regulators in
the global markets, in the recent past. Eventually, the world as a consequence of
globalised securities market, may have to move to integrated regulations and even a
regulator where domestic regulators will be sitting on the line as watch dogs and make
marginal customization to meet the unique challenges thrown up by the local
environment.

SEBI strongly believes that being protectionist would not work in the long run in
this globalized environment and we need to make our Securities Markets competitive;
capable enough to compete with anyone across the globe. Driven by the said philosophy,
the goal for SEBI is to make the “Indian Securities Market truly world class, competitive,
transparent and efficient.” Accordingly, we are endeavoring not only to adopt global best
practices and standards in all the spheres of the Securities Market but aim at leading the
global regulatory framework. Today, we can say that our securities market is by and large
at par with the international standards in all structural and operating parameters. Indeed
we are aiming at making the “Indian Securities Market a Benchmark for the rest of the
world”.

Conclusion :

Let me end by bringing in the beginning. It is globally recognized that the growth
of the economy depends to a large extent globally on the growth of the Securities Market
as it provides the vehicle for raising resources and managing risks. Today, the wheels of
the economy cannot move without the Securities Market. Indeed, it is a modern marvel
for accomplishing astonishing numbers in terms of economic growth.

Further, today’s Securities Markets are absolutely different from what they were
10 years ago or will be in the next 10 years. They would remain in transition. There
would be ups and downs. Many would succeed and many would vanish along the
transformation journey. This would always be the reconfirmation of the point that
businesses are no more businesses; they have become battles of competency.

To conclude, I would say that the Securities Market opportunity zone is

contracting somewhere and expanding somewhere. This may appear paradoxical. It must
be understood that leadership demands a brilliant focus on emerging opportunities,
competence building, strategies for the leadership position in the opportunity zones and
principles-centered business practices. Therefore, we need to create a culture, which
embraces change and moves ahead with an objective to lead. Let us compete for the
future global opportunities.