Too much control stifles innovation

MULTIPLE MARKET REGULATORS

Mumbai - An international financial centre

The high-powered committee, chaired by former World Bank economist Percy Mistry, has recommended a package of radical measures to transform India's business capital into a global financial hub. Can they work?

Is the fragmentation of regulators and uncertainty about who will regulate new instruments and markets delaying the introduction of innovative products?

The Percy Mistry committee thinks so, but experts feel that we should be patient enough to deal with a delay in 3-5 months (or even longer) for the introduction of innovative products.

However, Rashesh Shah, CEO and Managing Director of Edelweiss says, the duplication of regulators in financial markets can be overcome.

"There is already a coordination committee of the regulators such as the Reserve Bank of India and the Securities and Exchange Board of India. I think, the more serious problem as far as Mumbai is concerned is the overlapping of powers between the Mumbai Municipal Corporation, the State Government and the Centre,"he says.

Adds Shahina Mukadam, head of research at IDBI Capital Markets: "Our markets are at an emerging stage. We should be prepared to wait for a proper policy framework to emerge as far as innovative products are concerned. We should not forget the scams and frauds in the financial and capital markets take back the country several years backwards."

However, the Committee report was critical, saying the multiplicity of the regulatory bodies, is particularly acute with organised financial market trading, regulatory responsibilities for which are spread between three regulators: commodity derivatives are regulated by the Forward Markets Commission; equity spot and derivatives and corporate bonds are regulated by Sebi; and the government bonds and currency trading are regulated by RBI.

Another issue that is hampering the market is the country's shift towards over-prescriptive regulation. The Committee points out the during the launch of the Gold ETF, the Sebi Committee did the kind of preparatory groundwork that a financial firm should do, it designed an alternative product structure.

"The consequence of this approach is that every financial innovation requires interminable changes to be made to either governing laws, subordinated regulations or both. This raises the cost of innovation considerably," the report notes.