Publication: India : Role of Self-Regulatory Organizations in Securities Market Regulation

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World Bank
This Note identifies four main theoretical options for securities markets self-regulation in India, based on precedents from international markets. There is no single 'right' approach - the note outlines three options that employ Self Regulatory Organizations (SROs), which could be viable solutions for Indian capital markets. These are: (1) Restructure the existing Exchange SRO system to create a joint SRO subsidiary of the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The new entity would be responsible for both market and member regulation. The Exchanges provide an existing platform for SRO functions that works reasonably well. This platform includes a governance structure, professional management, experienced staff, documented programs and procedures, and IT tools. But this option raises all of the issues on conflicts of interest at Exchange SROs. (2) Hybrid structure: NSE and BSE retain responsibility for market regulation, and create a new independent SRO for member regulation. This option is very similar to Association of National Stock Exchange Members of India's (ANMI's) proposal to create a member-based SRO (but the SRO should not be based on a trade association because of the significant conflicts of interest). It is based on the idea that supervising members is best done by a central regulator, but that regulating its own market is essential to an Exchange's market quality and brand. (3) New central independent SRO for both market and member regulation. A single independent SRO is theoretically the cleanest and efficient solution. But it is difficult to develop and in fact is only now in the process of being implemented in the USA and Canada.
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World Bank. 2007. India : Role of Self-Regulatory Organizations in Securities Market Regulation. © Washington, DC. License: CC BY 3.0 IGO.
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