The Securities and Exchange Board of India (Sebi) is considering regulations to help settle trade undertaken in the over the counter (OTC) market through a clearing corporation. The market regulator has already initiated discussions in this regard with the Reserve Bank of India (RBI).
?We have asked the RBI to consider if clearing through the central bank facilities are possible for the purpose of settling the trade on corporate bonds,? said CB Bhave, chairman, Sebi,
while delivering the inaugural address at the 6th Annual Conference on Capital Markets, organised by industry body Ficci here on Thursday.
Pointing to the recent turmoil, which led to a loss of trust among many market participants, Bhave said, ?This is the biggest challenge that the financial markets are facing today. The failure of a few institutions should not lead to the failure of the market.?
He said that the settlement mechanism in the OTC and credit derivative markets failed miserably during the ongoing crisis, leading to loss of trust among market participants. ?However, we have not witnessed a single failure of settlements done through clearing corporations. Therefore, we need to think whether we should bring OTC transactions under the fold of our clearing system; we need to find a solution to it in the next six months,? he said.
He also felt that against the backdrop of the ongoing de-leveraging process in world financial markets, which has seen huge outflow of funds from India, there is a need for regulating highly leveraged trade in various asset classes.
?Leverage in the economy is a major issue to be addressed. We should take necessary measures to ensure that leverage doesn?t go out of our hands so that we are better equipped to face similar downturns in future,? said the Sebi chairman.
Speaking about the Satyam fraud, he said that the industry must introspect whether the episode is just about corporate governance failure in the country or some thing else.
He said that the scandal occurred despite the comp-
any meeting stringent eligibility criteria of the Sarbanes Oxley Act of the US; its accounts were also audited by the worlds biggest audit firm. In this regard, Bhave asked market participants whether the prescription of more regulation and legislation could help avoid Satyam-like episodes in future.
The regulator, however, assured market participants about further tightening of regulatory measures if the need arises.
?Certainly, if there is a regulatory tightening required, we will do that,? said Bhave.
Stricter measures
•Sebi has initiated discussions in this regard with the RBI
•Bhave said settlement mechanism in the OTC failed during the ongoing crisis
•This led to a loss of trust among market participants
•There has been no failure of settlements done through clearing corporations
•There is a need for regulating highly leveraged trade in various asset classes