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U.K. Sinha Chairman, Securities and Exchange Board of India June 03, 2016

Stanford Annual Conference on Indian Economic Policy Reforms Presentation on Regulating the Financial Sector. U.K. Sinha Chairman, Securities and Exchange Board of India June 03, 2016. A Glimpse. Size of the economy (Nominal GDP 2015-16) > $ 2 Trillion

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U.K. Sinha Chairman, Securities and Exchange Board of India June 03, 2016

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  1. Stanford Annual Conference on Indian Economic Policy ReformsPresentation on Regulating the Financial Sector U.K. Sinha Chairman, Securities and Exchange Board of India June 03, 2016

  2. A Glimpse • Size of the economy (Nominal GDP 2015-16) > $ 2 Trillion • 9th largest in the world in terms of nominal GDP • 3rd largest on PPP basis • Projected to become 3rd largest in nominal GDP by 2030 • Consumption -2/3rd of GDP, growing @ 6.5% in last three years • Positive sovereign credit rating outlook  • Market Capitalization : $ 1.46 Trillion • Market Cap / GDP : 69% • MF AUM : $ 214 Billion • Last 3 Year MF AUM CAGR : 20.7% • AUM - Life Insurance : $ 373 Billion • Outstanding Credit by SCBs : $ 1.06 Trillion • Outstanding Corporate Bond : $ 300 Billion • FPI AUC : $ 332 Billion

  3. GDP Growth Projections Source: IMF World Economic Outlook Updates

  4. Existing Regulatory Landscape – Who does What? • A subject of the Union Government • Monetary policy • Banking / Non-banking Regulations • FOREX Market • Public debt Management • Securities Market • Commodities Market (w.e.f. Sept 28, 2015) • Insurance Market • Pension Funds Appellate Mechanism : Securities Appellate Tribunal

  5. Regulatory Landscape – Proposed Architecture by FSLRC Appellate Mechanism – FSAT *FMC merged with SEBI Part Consolidation/ Part Split

  6. FSDC Mechanism Set up by the Government as the apex level forum in December 2010 with the objective of- • Strengthening and institutionalizing the mechanism for maintaining financial stability • Enhancing inter-regulatory coordination and promoting financial sector development • Monitors macro prudential supervision of the economy, including functioning of large financial conglomerates • Guides financial literacy and financial inclusion initiatives • Coordinating lndia's international interface with FATF, FSB • Headed by Finance Minister, Sub Committee headed by RBI Governor • All regulators are members

  7. Indian Securities Market – Global Standing Among the top 10 countries in terms of market capitalisation No. of Equity Trades: NSE-Rank 4 and BSE-Rank 11 NSE Ranks 1 or 2 in no. of equity derivatives/ currency futures trades India, a favoured destination for FIIs SEBI, a Board member of International Organization of Securities Commission (IOSCO) and Member of Financial Stability Board (FSB) SEBI actively engaged in global standard setting through representations in important IOSCO policy committees Global standards guide SEBI regulation FSAP 2012 by WB-IMF: Fully/ Broadly compliant in 22 of 28 principles IOSCO-BIS Level1 Assessment of Implementation of FMI Principles : India 1 out of 6 jurisdictions globally with highest ratings on all eight parameters

  8. Market Returns-BRICS Nations * Time Period: November 15, 2015 to May 15, 2016 • CAGR of SENSEX since inception (April 1979 - 37 years) : 15.45%

  9. Net Investment by Foreign Portfolio Investors in India (USD Billion) (as on May 16, 2016)

  10. SEBI’s Mandate Investor Protection Market Development Market Regulation Legal Framework • SEBI Act, 1992 & Regulations • Depositories Act, 1996 & Regulations • Provisions of the Companies Act, 2013 • Securities Contracts (Regulation) Act, 1956 • Securities Contracts (Regulation) Rules, 1957 • Appellate Mechanism through SAT Uniqueness of SEBI’s Role • Legislative • Executive • Quasi-Judicial • Financially and Operationally Independent SEBI Registered Intermediaries

  11. New Insider Trading Regs, Start-Ups, e-IPO 2015 Investment Advisors, MPS Compliance 2014 Major Securities Market Reforms 2013 No Load in MFs, IRF, IDRs KYC Registration Agencies, SCORES 2012 REITs, InvITs, FPI, Securities Laws Amdt, CG Norms, Research Analysts 2011 Securities Market Training Institute, Foreign Investments in Indian SEs 2009-10 2007-08 2006 T+2 2005 Rolling Settlement, Index Derivatives AIF, E Voting, New Takeover Code KYC, Corp. bonds trading, Currency derivatives, ASBA 2003 2001 CRA Regs 2000 Stock Derivatives 1999 Automated, Screen based Trading, Novation through CC Demutualization, Corp. Gov., Gold ETFs 1998 Demat 1994 1992-93 Free Pricing, FIIs, Pvt. MFs

  12. Important SEBI Regulations • Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market (PFUTP) Regulations, 2003 • Prohibition of Insider Trading (PIT) Regulations, 2015 • Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011 • Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2009 • Listing Regulations, 2015 • Stock Exchanges and Clearing Corporation Regulations, 2012 • Transparent criteria for: • Shutting down trading in a scrip • Market wide circuit filters • Open interest position in derivatives • Short selling • Buying and selling by MFs • Buying and selling by promoters/ employees • Core Settlement Guarantee Fund

  13. Recent Developments • SEBI-FMC Merger • Corporate Governance Norms (ranked 8th in 2015 in a World Bank report) • Alternate Platforms / Frameworks – • SME platform • Platform for Start-ups • REITs & InvITs • Municipal Bonds • Use of Technology for Investment Processes e.g. e-IPO, e-KYC, e-Voting, etc. • Stringent Enforcement - • Proactive action against unregistered Collective Investment Schemes • Rationalization of Consent Mechanism • Strengthening Insider Trading Law • Opening up of Local Offices by SEBI – focus on investor education/ grievances redressal

  14. Corporate Governance Norms - US v/s. India(1/2)

  15. Corporate Governance Norms - US v/s. India (2/2)

  16. Enforcement - Process Flow • Sources: • Alerts generated by surveillance • Complaints • Media reports Preliminary Verification/Checking-up with entities Decision to launch formal investigation Approval of course of action by Whole Time Member Completion of enquiry/investigation Pending investigation interim orders (in deserving cases) • No action • Warning • Monetary Penalty • Cease & desist • Direction • Prosecution Enforcement Dept. prepares the case for various actions, including Settlement Presented before WTM/AO/Appellate Tribunal

  17. Settlement /Consent Mechanism Violation Categorized Consentable Non Consentable Mathematical Formula Rejection Internal Committee/ High Power Advisory Committee

  18. Major Challenges and Road Ahead • Managing Global shocks -Volatility due to huge Capital Inflows/Outflows • Newer challenges from technological advancements / commodity business • Further upgrading the surveillance systems and capabilities. • Risk Management in the context of Evolving Technology – HFT, Algo & Co-location. • Cyber Security • Efficient price discovery, risk management, increased participation and healthy growth incommodity derivatives • Ensuring wider penetration of Mutual Funds across the country. • Expanding financial literacy and investor awareness. • Deepening Corporate Bonds Market. • Independence of Auditors

  19. SEBI Registered Intermediaries / Institutions (1/2) Back To SEBI’s Mandate

  20. SEBI Registered Intermediaries / Institutions (2/2)

  21. Market Movements - India vis-à-vis Others (as on 17/05/2016)

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