Department of Economic Affairs : Capital Market Division

 

Mumbai a regional financial centre

The High Powered Expert Committee to make Mumbai a regional financial centre has submitted its report recently. I intend to place the report in the public domain and obtain feedback. It is my hope that we would be able to build a consensus on the key recommendations of the Committee, promote a world class financial centre in Mumbai, and realise the objective of making ‘financial services’ the next growth engine for India .

 

 

The Report of the High Powered Expert Committee released as a priced publication in the market on 2nd  April, 2007. The full text of the report has also been placed on the Ministry’s website http://www.finmin.nic.in/mifc.html inviting feedback from the public.

A presentation was made to the Hon’ble Prime Minister on August 24, 2007.  In the said meeting, it was decided to implement a few recommendations immediately. The recommendations identified for priority implementation in the meeting have been circulated to the concerned regulators/agencies for comments/views on process of implementing the recommendations.  An Action Plan is being drawn up.

Progress being monitored

Measures to strengthen capital markets

The capital market is an important instrument for intermediating financial resources. Recognising the strength of the Indian capital market, the International Organisation of Securities Commissions (IOSCO) has decided to hold its annual conference in Mumbai in April 2007. In line with measures announced every year to strengthen the market, I propose to:

·       make PAN the sole identification number for all participants in the securities market with an alpha-numeric prefix or suffix to distinguish a particular kind of account;

 

·       take forward the idea of Self Regulating Organisations (SRO) for different market participants under regulations that will be made by SEBI and, if necessary, supported by an enabling law;

 

·       promote the flow of investment to the infrastructure sector by permitting mutual funds to launch and operate dedicated infrastructure funds;

 

·       converge the different regulations that allow individuals and Indian mutual funds to invest in overseas securities by permitting individuals to invest through Indian mutual funds

 

·       allow short selling settled by delivery, and securities lending and borrowing to facilitate delivery, by institutions;

 

·       put in place an enabling mechanism to permit Indian companies to unlock a part of their holdings in group companies for meeting their financing requirements by issue of Exchangeable Bonds.

 

 

 

 

 

 

   

  •           SEBI has issued a circular on 27th April, 2007 making  PAN the sole identification number for all transactions, irrespective of amount, in the securities market.

Action Completed  

  •          Necessary action is being taken by SEBI to put the final proposal in place.   Process of amending SEBI SRO Regulations 2004 has been initiated and will be completed shortly.


  •          Committee set up by SEBI to consider permitting mutual funds to launch and operate dedicated infrastructure funds has submitted its Report, which is under consideration.

  •          SEBI has issued a circular on 26th September, 2007, expanding the investment avenues for mutual funds overseas, in fulfillment of this budget announcement. 

Action Completed

 

  •          Scheme is expected to be operational before the end of 2007-08. 

  •         Foreign Currency Exchangeable Bonds
            scheme has been  notified on 15th
            February, 2008. The CBDT has also issued a
            notification on 21st February, 2008
            subjecting the scheme to the provisions of
            Section 115AC of the Income Tax Act with
            regard to TDS on the bonds until the
            exchange option is exercised and tax on
            dividend on the exchanged portion of the
            bon    d.

Action Completed

Budget Para

 

Text of Budget Announcement

Action taken so far

 
 

97(i)

 

 

 

 

I intend to move forward by taking some more measures to expand the market for corporate bonds.

Hence, I propose to Take measures to develop the bond, currency and derivatives markets that will include launching exchange-traded currency and interest rate futures and developing a transparent credit derivatives market with appropriate safeguards

i. RBI’s Working Group’s Report on Currency Futures was received in November, 2007, on which DEA had given its comments.  RBI has been requested to introduce currency futures at an early date.

ii. RBI’s internal group on Interest Rates Futures has submitted its report in February, 2008 which has been forwarded by RBI for DEA’s comments.  The report has been examined and DEA’s comments sent to RBI with a request to launch IRFs by June, 2008.

iii. In May 2007, RBI had released draft guidelines on credit derivatives trading in India .  In the guidelines the RBI discussed its cautionary approach towards this nascent yet promising financial instrument market and its desire to introduce credit derivatives in a calibrated manner. These were examined in the DEA and comments sent to RBI in September, 2007. RBI has been requested to launch credit default swaps at an early date.

           

 

97(ii)

Enhance the tradability of domestic convertible bonds by putting in place a mechanism that will enable investors to separate the embedded equity option from the convertible bond and trade it separately; and

Action lies with SEBI

 

 

97(iii)

 

 

 

 

Encourage the development of a market-based system for classifying financial instruments based on their complexity and implicit risks.

Based on discussions with CM division CRISIL is launching “COMPLEXITY LEVELS” on 28th March, 2008, which would help investors determine the degree of sophistication and due diligence required to understand risk factors involved in an instrument, before making an investment decision.

 

 

 

98

 

 

The fear of the Permanent Account Number (PAN) has virtually disappeared. PAN is now the sole identification number for all participants in the securities market. I propose to extend the requirement of PAN to all transactions in the financial market subject, however, to suitable threshold exemption limits.

 

 The matter is being taken up with Department of Financial Services

 

99.

 

 

 

Our stock exchanges provide national electronic trading platforms for securities transactions. Yet, we do not have a seamless national market for securities because of differences among States on the scope and applicability of rates of stamp duty. Hence, I propose to request the Empowered Committee of State Finance Ministers to work with the Central Government to create a truly pan Indian market for securities that will expand the market base and enhance the revenues of the State Governments.

 

A concept note is being prepared which will be sent to DoR.