Tech revolution: Blockchain can transform trading, says Sebi chief

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Published: November 6, 2019 4:23:29 AM

The capital markets regulator chief was addressing an event commemorating the silver jubilee of the National Stock Exchange (NSE), which has become a market leader since its inception and controls two-thirds of volumes by disrupting the 144-year-old BSE back with its electronic screen-based trading terminals in 1994.

Blockchain, Sebi chief, Ajay Tyagi, BSE, NSE, Artificial Intelligence, Machine Learning, GDP, NPA, bond marketThe Sebi chief said that the blockchain technology had the potential to completely transform the trading, clearing & settlement process.

Sebi chief Ajay Tyagi on Tuesday urged stock exchanges to follow governance norms better than what they preach to listed companies. He also said that exchanges should not use their oligopolistic position to charge exorbitant and unreasonable fees from investors.

The capital markets regulator chief was addressing an event commemorating the silver jubilee of the National Stock Exchange (NSE), which has become a market leader since its inception and controls two-thirds of volumes by disrupting the 144-year-old BSE back with its electronic screen-based trading terminals in 1994.

Technology has made possible algo trading, T+2 days settlements and holding securities in electronic format among many other things. And in future too, technology can continue to transform capital markets. The Sebi chief said that the blockchain technology had the potential to completely transform the trading, clearing & settlement process. He said: “The fund management industry, which has already taken the initial step with robo advisory services, could look very different in future with adoption of Artificial Intelligence & Machine Learning.”

Alongside this, Tyagi also highlighted the role of exchanges in governance. “Exchanges need to follow governance norms much better than what they preach to listed companies. While exchanges are for-profit commercial entities, they should refrain from using their oligopolistic position by putting out exorbitant fee structures,” said Tyagi.

Highlighting the need to devote sufficient resources for regulatory functions, Sebi chief said that exchanges are the first level of regulation and that they have to be “above board” as the exchanges have to have the highest integrity compared to the brokers and entities being traded on them. Interestingly, the National Stock Exchange has been mired in the co-location case, with the markets regulator levying a penalty on NSE and barring it from raising money from securities market for a period of six months in an earlier order.

The markets regulator also underlined the need for the development of a robust bond market. He said that the one area that required much more attention was a unified approach among regulators in the development of bond markets. Given the present NPA (non-performing assets) position of banks, there is an urgent need to develop this market so that entrepreneurs have an alternate route to raise funds.

He further added that the amount raised from the capital markets is an indicator of its economic development. India’s market capitalisation to GDP of 78% was far below many of the developed countries with USA at 150% and Japan at 120%. In the last two years, the amount raised through capital markets is around `9 lakh crore a year, of which 25-30% is in equity and 70-75% is in debt securities. This amount is comparable to incremental trade disbursed by banks in this period. This demonstrates the growing clout of capital markets, Tyagi added.

The use of technology has played an important role in transforming capital markets and this was expected to continue further. From algo trading to settlement in T+2 days, to easy foreign fund/security flows, to e-holding of securities, all are possible because of technology.

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