Regulation and oversight of securities markets in India can be improved further with better information sharing and policy coordination between various financial sector regulators such as Sebi and RBI, an IMF study has suggested.
The study by the International Monetary Fund, which was conducted as part of a Financial Sector Assessment Programme, found that the the risk management framework for securities and derivatives clearing and settlement systems in India "is prudent, the operational reliability is high and the regulation and oversight functions are effective".
At the same time, the assessment results indicated that the regulation and oversight of all systems should be improved by implementing formal arrangements for information sharing and policy coordination between the various regulators.
The IMF observed that the RBI and Sebi regularly cooperate with each other on various matters in various fora.
However, the cooperation on payment and securities clearing and settlement systems is not formalised and there were no explicit agreements in place with regard to information sharing or coordination of policy implementation.
"The overall quality of the oversight and supervision on payment and securities clearing and settlement systems would be enhanced if the RBI and Sebi met regularly on a technical and higher level, and had formal arrangements for information sharing and policy coordination," IMF said.
The study also suggested that the RBI and the Sebi can be encouraged to include the commodities market regulator FMC in regular meetings.
The assessment results also indicate that the crisis management procedures can be improved further, although the operational reliability of the systems is high and Business Continuity Planning and Disaster Recovery sites are in place.
"The readiness to respond to a crisis in an orchestrated manner would, however, benefit from the establishment and regular testing of detailed crisis management. All systems test the connectivity to their back-up sites on a regular basis together with participants.
"But no system has crisis management plans in place that include detailed procedures and actions to be taken in case of a major crisis. Such crisis management plans should include the definition of a crisis management team as well as procedures to consult and inform participants and regulators.
"Crisis management procedures should be tested regularly, for example by simulating stress scenarios that affect the financial and operational soundness of the system," the IMF said.
The assessment also found that the transparency can be improved with regard to various systems relating to the securities markets.
