The article is about the recent decision by the Securities and Exchange Board of India (SEBI) to recognize the National Stock Exchange (NSE) as a Market Infrastructure Institution (MII). It delves into the roles and importance of SEBI, MIIs, and NSE in the country’s economy.
Securities and Exchange Board of India (SEBI)
Established on 12th April, 1992, SEBI works under the provisions of the Securities and Exchange Board of India Act, 1992. This regulatory body has been entrusted with two major functions – protecting the interests of investors in securities, and regulating the securities market.
What are Market Infrastructure Institutions (MIIs)?
MIIs consist of stock exchanges, depositories, and clearing houses, forming a pivotal part of the nation’s crucial economic infrastructure. In 2010, a panel led by former Reserve Bank of India Governor Bimal Jalan defined ‘market infrastructure’ as fundamental facilities and systems that serve the capital market.
MIIs’ main role is managing the allocation and reallocation of capital or financial resources, thus ensuring the optimal use of money for economic growth. They form the core of the capital allocation system and have a net-positive impact on society, akin to other infrastructure institutions.
National Stock Exchange (NSE)
Incorporated in 1992, the National Stock Exchange of India Limited (NSE) has evolved into India’s largest financial market. Boasting a sophisticated, electronic market, NSE ranks fourth globally in terms of equity trading volume. It was the pioneer in providing modern, fully automated electronic trading in India. Also, it runs the largest private wide-area network in the country. The NIFTY 50, the flagship index on the NSE, tracks the performance of a portfolio of blue-chip companies – the largest and most liquid Indian securities.
The Systemic Importance of MIIs
The systemic importance of MIIs in India becomes evident considering their phenomenal growth, as gauged by market capitalization, capital raised, number of investor accounts, and value of assets held in depositories. A failure of an MII can trigger significant collapses, causing a ripple effect that may lead to overall economic downfall, potentially extending beyond the securities market and the country. Consequently, the governance and oversight of MIIs need to be of the highest standards to avoid any potential domino effect.
Indian Institutions Designated as MIIs
SEBI has named several institutions in India as MIIs. Among stock exchanges, these include BSE, NSE, the Multi Commodity Exchange of India, and Metropolitan Stock Exchange of India. The list of depositories consists of Central Depository Services Ltd. and National Securities Depository Ltd. The regulatory body also acknowledges seven clearing houses such as the Multi Commodity Exchange Clearing Corporation. Clearing houses play a crucial role as they validate and finalize securities trades, ensuring buyers and sellers fulfill their obligations.