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India needs a super regulator for financial market: expert

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Marti G. Subrahmanyam
Marti G. Subrahmanyam

N. Ravi Kumar and Meera Srinivasan

As instruments of investment become more and more innovative

CHENNAI: India needs a super regulator for the financial market, an umbrella body supervising all sectors, as instruments of investment become more and more innovative, said Marti G. Subrahmanyam, professor of finance and economics at Stern School of Business, New York University.

Underlining the need for a blue print of an optimal regulatory structure, the economist, during his visit to The Hindu on Monday, said India could look at countries like the United Kingdom, Japan and Ireland that either have a single financial sector regulator or propose to establish one.

"We should really think seriously ... start on a clean slate," he said to a query on the components of regulation, particularly in the context of the emerging market for hedge funds.

According to Prof. Subrahmanyam, who is on the board of many leading corporate entities, including ICICI Bank Limited and Infosys Technologies Limited, a group should study the structure. Apart from recommending a timeframe for implementation of the structure, the group should chalk out strategies for moving with "today's patch work of regulation."

Nevertheless, the Securities and Exchange Board of India, despite public criticism and being a relatively young body, had turned out to be one of the most successful regulators in the world.

Noting that the role of the Forward Markets Commission, however, was not clear, Prof. Subrahmanyam said: "Now that commodities have become a huge issue, I think the distinction between commodities and securities is technical."

On hedge funds and their regulation, the author of several books on financial markets said, since they supposedly involved sophisticated, rich individuals who could take care of themselves, "I do not see any need for using public resources, whether regulatory or financial."

Pointing out that the funds have an ability to get in and get out, he said the country, therefore, should make up its mind on whether such types of investment were required. In the event of allowing them, the rules for the foreseeable future should be set.

Prof. Subrahmanyam emphasised the need for regulators to recruit people as qualified as those they regulate. But for this, the salary structures of the regulatory bodies should be different and not pegged on the government scales.

On Indian managers, he said while many of the senior managers in India have grown up and learnt to manage in a scarcity economy, the flip side was that some of them might not be able to think freely in a completely free economy.

In contrast, the young breed of managers did not encounter such challenges.

"The younger generation has exceptionally high confidence levels in comparison to their peers from other countries."

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