The Securities and Exchange Board of India (SEBI) is planning to come up with a ‘sandbox’ policy to support development of financial technologies for the capital market, Chairman Ajay Tyagi said here on Thursday.
Mr. Tyagi said he also felt that blockchain technology may pose challenge to exchanges and depositories.
Legal changes
“We will come out with a sandbox policy. We are examining whether any changes in laws are required in terms of its dispensation, which may be needed when you try to have a sandbox and allow an activity which otherwise needs registration that the Act may not provide,” Mr. Tyagi said on the sidelines of the 8th India Finance Conference organised by the Indian Institutes of Management at Calcutta, Bangalore and Ahmedabad. A sandbox approach denotes the trial of a concept before final adaptation, thus minimising the impact of any failure.
Mr. Tyagi said the capital market regulator was also contemplating whether something new could be tried without having to bring in any legislative changes.
He said that technology experts felt that machine learning/artificial intelligence and blockchain were two significant changes that would fundamentally alter the shape of capital markets.
“They have made inroads in the area of high frequency and algorithmic trading and some bits of fund management as well. Going ahead, they would find increasing applications in areas of capital market that require rapid data and information processing,” he said.
However, blockchain technology, with all its inherent advantages, may pose serious challenge to centralised record keeping institutions such as exchanges, depositories and other entities related to payments and settlement. Pointing out that trust was the backbone of finance, the SEBI chief said that public trust in functioning of financial markets had of late declined due to some financial reporting scandals.
Creating and maintaining trust in the system should be the shared objective of accounting firms, rating agencies, market intermediaries, board and management of public companies and financial institutions, he said.
Mr. Tyagi also said that the regulator would soon come out with a circular on the terms and conditions that would govern mutual funds that wanted to separate their stressed assets. “Bad and toxic assets should be separated from healthy ones, so that there is less redemption pressure,” he said. This move is linked to the IL&FS crisis and the blow to the NBFC sector, which has exposed MFs to illiquid debt instruments. It is also aimed at protecting the retail investors whose redemption value gets affected due to these bad assets.
Mr. Tyagi felt that the Indian capital market’s performance compared favourably with other major global economies, and the return of Nifty had increased by around 5.8 % in the current fiscal (up to December 15, 2018) compared to the almost neutral return in Dow Jones.
The Indian market’s volatility at 12% is among the lowest compared to the U.S., China, Japan, South Korea, Hong Kong and Brazil. The Indian rupee’s depreciation at around -10.4 %, compared with the - 9 % of China and the Euro, was better than the U.K. and Brazilian currencies’ performance, he said.
