Panel Sees Rbi As Chief Debt Market Regulator
An internal committee of the Reserve Bank of India (RBI) has recommended making the central bank the supreme authority for regulating the debt market.
It has suggested empowering the RBI with powers superceding those of other regulators _ the Securities and Exchange Board of India (Sebi) and the Department of Companies Affairs.
Arguing that the debt market is inadequately regulated, with many overlaps and some unregulated segments, the panel has said the entire debt market should come within the RBI's purview since the interest rate structure was an important element of regulation.
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The committee, which was constituted in January 1998 under the chairmanship of RBI legal adviser N V Deshpande, recently submitted its report to the RBI. Sources said a copy of the report has also been tendered to the high-level committee on capital market, comprising the finance secretary, RBI governor and Sebi chairman.
It has suggested that the RBI be vested with regulatory powers relating to various debt instruments, gold, derivatives, PSU bonds and fixed deposits of both finance and manufacturing companies.
The panel has also suggested amending the Securities Contracts Regulation (SCR) Act to empower the RBI to regulate trading in government securities and other debt instruments. It has emphasised that these powers should be delegated only to the RBI.
Noting that Section 11 of the Sebi Act authorises Sebi to regulate the securities market, including the debt market, the committee has suggested that the RBI be empowered through an amendment to regulate the debt markets.
Matters like listing should continue to remain under Sebi's purview, which, however, should act under the RBI's directions, the report adds.
According to the committee, the RBI should decide all regulatory aspects of money markets, primary as well as secondary. "Listing, trading, settlement and other operational aspects pertaining to negotiable instruments like commercial paper may be left to the respective exchanges, subject, however, to their conforming with the RBI guidelines," it says.
The panel feels even the private placement market in debt instruments should be under the RBI. "The RBI should be the regulator in respect of the amount raised, time of placement, maturity, tenure and interest payable," it has recommended. The committee has expressed the fear that inadequate rules governing the derivatives market may result in the development of a large `grey market'. It has called for identifying the regulator and introducing enabling regulations for developing the onshore derivatives market.
The committee has recommended that derivatives instruments relating to money, debt and forex markets be regulated by the RBI, while other equity-based derivatives be regulated by Sebi.
The committee also wants RBI regulations to apply to bonds issued by statutory institutions and companies falling outside the financial sector, particularly manufacturing companies. "The bonds and debentures issued by companies in the non-financial sector may be exempted from the purview of the Companies (Acceptance of Deposits) Rules," says the report.