The sub-group set up by the high-level committee on capital markets which met last week has failed to resolve the deadlock between the Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI) on regulation of debt instruments traded and settled on stock exchanges. It is learnt that both sides stuck to their guns and the meeting was adjourned for further discussions on the issue.
Sebi took the stand that since exchanges are regulated by it, the RBI would not be able to legally have a standing in taking action against stock exchanges or their brokers in the event of a problem arising at the bourse at which the instrument is traded.
RBI, however, stuck to its stand that government debt and even corporate debt must be regulated by the apex bank as the debt markets are under its control. Sebi, however, holds the view that while issuance of government securities should be regulated by RBI, trades at a stock exchange and their subsequent settlement through an exchange infrastructure should be regulated only by Sebi. Currently, the National Stock Exchange (NSE) reports the deals which take place in government securities to RBI, but the exchange itself is regulated by Sebi.
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Sebi chairman D R Mehta, however, sought to play down the dispute between the two regulators and in his first comment on the issue, told that relations between Sebi and RBI are "at their best" and there is no dispute between the regulators.
"In the case of money market mutual funds, RBI itself asked us to regulate these entities. We did not ask for their regulation. They took the initiative and we responded. So where is the question of a fight? Similarly, take the case of regulation of the debt markets. The issue of promoting the debt market was pending with the high-level committee for the past two years. About a couple of months ago, we were asked to bring a note to the committee on the steps that could be taken to boost the debt markets and that is where someone raised the issue of regulating the government securities traded at stock exchanges. It was felt that this was a grey area and we decided to set up a sub-group to thrash out the issue," said Mehta.
"RBI should continue to be the sole authority for monitoring the issuance of government securities but any instrument traded at stock exchanges should be regulated by us as we are the authority to govern these entities," said Mehta.