2007年-世界发展银行全球_India___Role_of_Self-Regulatory_Organizations_in_Securities_Market_Regulation_83页_1mb

Summary of "India: Role of Self-Regulatory Organizations in Securities Market Regulation"

Core Content

This document explores the role of Self-Regulatory Organizations (SROs) in the regulation of India's securities market, analyzing the benefits and risks of self-regulation and presenting various models and options for reform. It also examines international trends and experiences to provide insights for India's regulatory landscape.

Main Views

• Self-regulation involves a mix of private interests and government oversight, allowing the industry to influence regulatory policy while being subject to government supervision.
• Self-regulation is seen as a mechanism for reflecting industry expertise in regulatory policy and improving compliance due to industry buy-in.
• However, concerns exist about conflicts of interest, particularly in Exchange SROs, where the same entities that operate the market also regulate it.
• The optimum role of SROs depends on the sophistication of the securities industry, maturity of the regulatory system, legal framework, and resource availability.

Key Information

1. Factors for Considering Changes to the Self-Regulatory System

• Public Policy Objectives: Include identifying drivers for change, defining regulatory priorities, and managing key risks.
• Local Circumstances in India:
  • The size and complexity of capital markets.
  • Adequacy of current regulatory resources.
  • Legal framework challenges.
• Transitional Issues:
  • Risk of falling standards during transition.
  • Costs and resources required for implementation.
  • Need for consensus on the approach.
  • Approval processes.
• Regulatory Structure Issues:
  • Ownership and Governance: The board composition is crucial for managing conflicts of interest.
  • Responsibilities: SROs are responsible for market conduct, member regulation, and oversight.
  • Oversight: Requires periodic reviews, reporting, and approval of rules by government regulators.
  • Exchanges' Roles: They are responsible for market regulation, while SROs handle member regulation.

2. Options for Securities Market Self-Regulation in India

Four main theoretical models are discussed:

• Option 1: Restructured Exchange SRO (Joint subsidiary of NSE & BSE)

  • Benefits: Utilizes existing Exchange platforms, minimizes structural change risks.
  • Risks: Conflicts of interest between Exchange operations and regulation, difficulty in forming a joint subsidiary.
  • Ownership: Jointly owned by NSE and BSE.
  • Governance: Majority independent directors, with member, NSE, and BSE representatives.

• Option 2: Hybrid Model (Independent SRO for Member Regulation, Exchanges for Market Regulation)

  • Benefits: Exchanges retain market regulation, while independent SROs handle member regulation.
  • Risks: Potential conflicts between SROs and Exchanges’ business interests.
  • Ownership: NSE and BSE for market regulation; member intermediaries for member regulation.
  • Governance: Independent board for SROs, with member directors elected by members.

• Option 3: Central Independent SRO for Both Market and Member Regulation

  • Benefits: Theoretically the most efficient and effective model.
  • Risks: High transition costs and potential for conflicts with members or SEBI.
  • Ownership: Member intermediaries (notional ownership with limited rights).
  • Governance: Majority independent directors, with member directors elected by members.

• Option 4: Government Model

  • Benefits: Centralized regulation by SEBI, broader powers and mandate.
  • Risks: SEBI may lack capacity to regulate all aspects of the market.
  • Ownership: Government-controlled.
  • Governance: Central authority.

3. Phased Approach to Reform

• A phased approach is recommended to reduce risks associated with major changes.
• The first phase should focus on limiting SRO scope to securities markets.
• Later, the possibility of expanding SRO responsibilities to other sectors could be considered.
• Industry associations in other sectors could be encouraged to develop their own standards without becoming full SROs.

4. International Trends in Self-Regulation

• SROs are not universally defined and vary in structure and function across jurisdictions.
• Demutualization of Exchanges and increased market competition have influenced the evolution of self-regulation.
• In many countries, government regulators are taking a more active role, reducing reliance on SROs.
• However, independent SROs are gaining prominence in some regions, particularly in the US and Canada.
• IOSCO emphasizes the importance of effective oversight and independent governance for SROs.

5. Corporate Governance and Conflict Management

• SROs must ensure public interest responsibilities, including fair representation of users and independent board members.
• Organizational separation of business and regulatory functions is considered a best practice.
• Conflict management includes independent board composition, transparent rules, and separate entities for SRO operations.

Conclusion

India's self-regulatory system faces significant challenges due to the complexity and growth of its capital markets. While self-regulation offers benefits such as industry expertise and efficiency, it also introduces risks like conflicts of interest. The document outlines several options for reform, emphasizing the need for a phased approach, independent governance, and effective oversight. It also highlights the importance of learning from international experiences to improve the regulatory framework in India.