In past couple of years the securities’ market regulator the Securities and Exchange Board of India (SEBI) has amended many rules and implemented some new ones to bring the functioning of Indian securities markets further closer to the international standards. Being a signatory of the International Organization of Securities Commissions (IOSCO), a global body of securities market regulators, SEBI is mandated to implement global standards of market regulations in India, especially in the area of investor protection, systemic safety, and prohibition of unethical and fraudulent market practices.
Some of the more discussed and criticized latest standards
introduced by SEBI are –
(a) Segregation of
financial intermediation and advisory functions. In line with the best global
practices, to avoid potential conflict of interest and bring objectivity in
advice, Investment Advisors have been prohibited from offering financial
intermediation (MF distribution, brokerage etc.)
(b) Tightening of
norms relating to margining of leveraged trades and financing of such trades.
This has been apparently done to minimize the systemic risk of markets; improve
financial stability and minimize the cases of risk taking beyond capacity by
traders and brokers.
It is important to note that in past 25years, in times of
crisis, Indian securities market functioning has been commendably stable.
To put this discussion in context, few readers have asked about
my views on the recent listings of couple of financial intermediaries. While as
usual I would refrain from commenting on individual stocks. However, I have
some strong views on this sector, which I would like to share with my readers:
1. The financial
intermediation sector is set to transform in next five years. The changes that
started a decade ago will accelerate at dramatic speed.
We shall see accelerated elimination of marginal and smaller
players and consolidation of mid-sized and larger intermediaries, as Technology
begins to overwhelm the manual execution and even advisory function.
2. The experience of
telecom sector will be replicated in securities’ market. The execution services
will become “free”, just like voice calls, and come as part of bundle of
services. The primary service will be “advisory” and “access” to global markets
and products.
3. Debt market will
become bigger than equity market with most of the development and innovation
happening in that segment.
So far the skills for debt trading are limited mostly to the
primary dealers, their associated entities and a handful of intermediaries
specializing in mobilization of corporate debt. The biggest opportunity for
intermediaries perhaps lies in this segment.
4. Financialization
of agri produce trade would be another large opportunity that will unfold on
next decade.
5. Mutual Fund Industry shall be dominated by low cost passive investing (ETFs). Index making and management services will become prominent and dominant (ala MSCI).