This blog post is in continuation of the previous blog posts on Raghuram Rajan's report titled "A Hundred Small Steps" written in 2008 whilst he was with the Planning Commission of India.
Proposal 16: "Create the concept of one consolidated membership of an exchange for qualified investors (instead of the current need to obtain memberships for each product traded). Consolidated membership should confer the right to trade all the exchange’s products on a unified trading screen with consolidated margining." -This should make it easier for small businesses to register and trade with the exchanges. Fees always act to reduce economic activity for the activity the fee is charged for. Lower fees and consolidation of fees would lead to more economic activity in the space.
Proposal 17: "Encourage the setting up of ‘professional’ markets and exchanges with a higher order size, that are restricted to sophisticated investors (based on net worth and financial knowledge), where more sophisticated products can be traded." -This would lead to creation of niche markets with lack of access for the entire business community. This would not create equal opportunities for all sizes of investors. So it would be difficult to support such a proposal. Such structures are usually seen in dark pools of high speed trading and they have come for considerable criticism from regulatory agencies.
Proposal 18: "Create a more innovation friendly environment, speeding up the process by which products are approved by focusing primarily on concerns of systemic risk, fraud, contract enforcement, transparency and inappropriate sales practices. The threshold for allowing products on professional exchanges (see Proposal 16) or Over the Counter markets should be lower, so that experimentation
can take place." There should not be barriers to entry for new investment products that reduce systemic risk. Trading of collateralized debt obligations (CDOs) or rated covered bonds on home loans as seen in Europe and USA is absent in India. They act as means to finance home and infrastructure loans. Probably such products could be introduced through this mechanism.
Proposal 19: "Allow greater participation of foreign investors in domestic markets as in Proposal 2. Increase participation of domestic investors by reducing the extent to which regulators restrict an institutional investor’s choice of investments. Move gradually instead to a ‘prudent man’ principle where the institutional investor is allowed to exercise judgement based on what a prudent man
might deem to be appropriate investments. Emphasize providing access to suitable equity linked products to the broader population as part of the inclusion agenda." More access for mom and pop investors could conflict the proposal 17 above. I do not support proposal 17 any way.
Next post will be on "Creating a Growth Friendly Regulatory Environment" as has been covered in the report.
Link to previous blog post in this series: A Hundred Small Steps: Part 3
Next blog post in this series: A Hundred Small Steps: Part 5
Proposal 16: "Create the concept of one consolidated membership of an exchange for qualified investors (instead of the current need to obtain memberships for each product traded). Consolidated membership should confer the right to trade all the exchange’s products on a unified trading screen with consolidated margining." -This should make it easier for small businesses to register and trade with the exchanges. Fees always act to reduce economic activity for the activity the fee is charged for. Lower fees and consolidation of fees would lead to more economic activity in the space.
Proposal 17: "Encourage the setting up of ‘professional’ markets and exchanges with a higher order size, that are restricted to sophisticated investors (based on net worth and financial knowledge), where more sophisticated products can be traded." -This would lead to creation of niche markets with lack of access for the entire business community. This would not create equal opportunities for all sizes of investors. So it would be difficult to support such a proposal. Such structures are usually seen in dark pools of high speed trading and they have come for considerable criticism from regulatory agencies.
Proposal 18: "Create a more innovation friendly environment, speeding up the process by which products are approved by focusing primarily on concerns of systemic risk, fraud, contract enforcement, transparency and inappropriate sales practices. The threshold for allowing products on professional exchanges (see Proposal 16) or Over the Counter markets should be lower, so that experimentation
can take place." There should not be barriers to entry for new investment products that reduce systemic risk. Trading of collateralized debt obligations (CDOs) or rated covered bonds on home loans as seen in Europe and USA is absent in India. They act as means to finance home and infrastructure loans. Probably such products could be introduced through this mechanism.
Proposal 19: "Allow greater participation of foreign investors in domestic markets as in Proposal 2. Increase participation of domestic investors by reducing the extent to which regulators restrict an institutional investor’s choice of investments. Move gradually instead to a ‘prudent man’ principle where the institutional investor is allowed to exercise judgement based on what a prudent man
might deem to be appropriate investments. Emphasize providing access to suitable equity linked products to the broader population as part of the inclusion agenda." More access for mom and pop investors could conflict the proposal 17 above. I do not support proposal 17 any way.
Next post will be on "Creating a Growth Friendly Regulatory Environment" as has been covered in the report.
Link to previous blog post in this series: A Hundred Small Steps: Part 3
Next blog post in this series: A Hundred Small Steps: Part 5
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