The Global Reset | From Regulation To Innovation: Fixing India's Market Rules | CNBC TV18 Prime

Added: 2026-05-19

[00:00:11]Welcome back. Uh you're with us here on CBC TV in Prime. You're watching the Global Reset. India's securities markets have come a long way. Deeper, more sophisticated, and far more central to household savings and capital formation than they were even a decade ago. That is why the draft securities markets code matters and not just uh it's not just a consolidation of old laws. It is an opportunity to think about how regulation itself should evolve. In his recent piece, Anand Narayan argues that effective regulation must do two things at once. Protect markets from failure but avoid becoming so honorous that it constrains innovation, liquidity and capital formation. He makes the case for more transparent consultation, deeper domain expertise inside institutions, better incentives for regulators, and greater credibility through real and perceived independence. He also raises important questions about Seby's proposed board structure, the role of government representation and potential conflicts within market infrastructure institutions. Anand, good to have you with us here back on this program.

[00:01:15]>> Thanks for having me, Prashant. Good to be here. So let me ask you first up you know why this piece now I mean a basic question before we jump into uh some of what you're saying. Well, there's no deep conspiracy here Prashant got tired about writing about currency markets and interest rate markets. I thought let's divert into something more important.

[00:01:35]But you know as you were rightly saying Prashant I think we should pat ourselves on the back whether it's the regulator the entire market ecosystem including yourselves. I think capital formation and capital markets in India have come a long way over the last three decades and that's a great job done and I also think the securities market quote is a good attempt at modernizing and consolidating all the previous old hacks and bringing it into a future ready kind of a situation. uh what I have offered in this piece is my own two bit thoughts on five separate things which I think will make our ecosystem much more future ready given the dramatic changes happening around us and very quickly those five things are one is of course transparent consultation said already does that I argue that even the government when it comes with things that impact the capital markets such as you know capital gains taxes etc should conduct transparent you know consultation I think that will benefit everybody. Second, I make the case for you know deep domain expertise. You know the breadth of what Sebi covers pashant is just immense and um we need depth as well in each of these domains. So while we have fantastic generalists in in sevi I think the case for allowing some part of the carter to develop into domain specialists including by having industry sbaticals you know foreign training and so on and so forth. there's a strong case for doing that. And the third point part point part point part point part point part point part point part point part point part point part point part point is about incentives. You know you could argue that regulators are more interested in ensuring that bad things don't happen that we don't have market failures and that the risk of regulations becoming too ownorous and coming in the way of capital formation is not that visible. It's a lot more insidious. So you have to adjust for that by ensuring that there is recognition of good regulatory officers who manage this professional balance between keeping risk low at the same time facilitating capital formation and making sure that they sort of reach the top echelons of SEBI. The fourth thing is about the board and uh I suspect that you know the as a hangover from the 1992 SEBI act we continue to try and keep the SEBI a lot more controlled uh compared to the global you know securities market regulators where there's a lot more of autonomy given the the expertise required given the the very very specular nature of markets and the need for credibility I suspect that we could come with a structure which allows a lot more autonomy to the specialist within the regulator given there are so many checks and balances and finally the last point I make is that we have this unique structure amongst our exchanges deposiitories and clearing corporations the market infrastructure institutions in that they you know they're commercial entities that actively compete with each other at the same time we expect them to risk manage you know conduct surveillance over and supervise their own paying members so there's always this question of you know perception of conflict of interest. I think there is a case to remove the regulatory risk management surveillance part out of the market infrastructure institutions. Let them be commercial but take out these regulatory aspects and put them into a separate vehicle which is a public utility not a commercially minded utility along the lines of the FINRA in the US. So these are the five broad points I make with them.

[00:04:58]>> No absolutely let's take it one by one.

[00:05:02]uh you know let's just I want to start with this uh the the uh the the the first one which you said uh consultation right and there I think it's pretty simple pretty straight straightforward the the what I'm going to get at which is taxes are you saying uh Anand that uh because it's such a hot topic here right now whether we need to sort of you know what can we do to incentivize more flows etc etc are you essentially saying that tax policy should be a in a way a capital market regulation issue I mean you know It's it's about domains and where it lies. So so just your uh perspective.

[00:05:36]>> So make no mistake Prashant, there are several elements of fiscal policy.

[00:05:41]>> Yeah.

[00:05:41]>> Which cannot be subject to you know open transparent kind of consultation. There is something called secrecy which is important in many aspects. My limited point is when you have areas which are not that much subject to secrecy. for instance, you know, what is the appropriate capital gains ecosystem that we should have concerning capital markets, right? So, which is a very spe specific uh issue which relates to capital market domain. The point I'm making is when we ask that SEBI should be very very transparent in its entire negot in its entire you know consultation process in what it intends to do on regulations. You can ask for a similar kind of transparency on such matters which are not necessarily state secrets where frankly there is so much of complexity because you know the the unintended consequences of trying to raise taxes on on savings behavior on capital formation on foreign capital flows and we've discussed this in the past Bashan can be quite large. So I think it's important that for specific issues such as this which impinge upon capital markets, it's fair to ask that maybe the government should consider coming out with white papers describing what their issue is, what the context as they see it is, what the alternatives as they see are and then having a debate open debate including with people such as yourselves such that we can refine these you know the the the concept and the suggestions and arrive at something which is more acceptable and understood by the marketplace rather than coming out with a surprise on 1st of February and then have everybody scramble to understand what really has happened. I think there is a there is a case to be made that not everything needs to be a state secret particularly if it impeses upon capital markets.

[00:07:21]>> Yeah. Yeah. You know you served uh at Sebi Anand I mean what was what was your experience?

[00:07:27]Um I'm biased Pashant because obviously I I I hold a card out for Sevi but I if you ask me the level of consultation and the quality of consultation that Sebi does is very very high.

[00:07:38]>> So if you see you know every single regulatory question SEI comes out with a very comprehensive you know consult okay >> where they describe what the problem is.

[00:07:53]they describe they discontext they go through I'm sorry it was a yeah I I was saying that you know the consultation that se comes out with the alternatives and the analysis and finally seek active participation and um and you know >> engagement >> you know and sorry it's it's a weaker I think it's a it's a signal issue we'll just try and fix that uh and because I want I want you to complete that point uh that you're making, we'll just have Anand back on in just a bit. An uh sorry, let's just give it a go. Uh please please finish that point.

[00:08:36]>> No, Prashant or is it still bad?

[00:08:38]>> Yeah. Yeah. Let's let's give it a try.

[00:08:40]>> Very quickly, I was saying that actually the the process the process that Sebi follows I think is pretty comprehensive.

[00:08:46]>> The consultation papers are comprehensive. They describe the you know the basic issue at hand the context the various alternatives the objectives and they conduct a you know pros and cons. No, my question my question to you was not so much about Seby's consultation papers but in the context of something like taxation right >> so I mean the feedback that seby's able to give the government I mean the you know that that back and forth and we've talked about this taxation issue is issue you know with you over the last uh before the two last budgets I mean you know so it's been a hot button issue >> so sebi does give its inputs to the government on what it thinks should happen in the in the finance bill and in the in the budget Um but my point is some of this requires a debate just beyond uh the regulators and and the and the government behind closed doors.

[00:09:34]>> It would benefit from a larger debate because a lot of the debates that you're conducting now frankly should have been conducted prior to the changes which have made and if nothing else even if the government is right the the understanding of what really is happening and why what they're doing is right would be a lot better if this was done a priori rather than defended postfactor.

[00:09:53]>> Yeah. Yeah. you know does it link to what you described as as one of the five things that you put out right seby's board structure uh basically you say that direct government representation is kind of unusual by global standards so is this in some ways linked as well I mean you know in terms of get the government getting honest uh uh sort of you know in that in in that sense feedback to some of what it wants to do with regards to things like capital markets equities taxation or other areas but in this case since we're talking about taxation yeah go Not not really Prashant. Um look um in 1992 when the SEBI act was passed at that time SEBI was a nent regulator.

[00:10:31]>> At that point of time it made sense for the board of sebi to be a little wider where you had exofficial you know membership from the government from the RBI and other members as well in in addition to the executive within SEBI.

[00:10:45]The point is since then we've had what 34 years now right and and both the markets and the regulator have come a long way. The point now is if you compare with the global standard so SEC for instance or any other markets regulator globally typically they have very leth mean you know kind of boards and commissions and typically the executive and the regulator is given a lot of autonomy in managing regulations and enforcement. I think there is now the time has come for us to consider moving in that direction uh moving away from the original part when we were a nent new regulator for two reasons. One is as I mentioned there is a lot of complexity in what sebi handles you know the breadth and the depth of what sebi handles across multiple areas. This is so complicated that it requires expertise of a professional regulator to go through and make sure you come out with a balanced outcome reducing risks as well as making sure capital formation happens and it's difficult for generalists to you know come into the fray and and and contribute to that maturity and the second part is around credibility. you know, there is nothing to suggest that things aren't credible right now, but I I suspect that if you had um you know, independence the way a central banker has uh in the in a professional setup of a regulator being allowed to manage the day-to-day regulations uh and the enforcement, I think it will do a lot for the professional credibility. In fact, this point Prashant is linked a little more to the point about trying to take away risk management, surveillance and supervision away from the exchanges and making it a independent non-commercial entity which oversees that. It's about giving it a a sliver of autonomy and independence. Now the fear can be that a regulator can go overboard but remember there are checks and balances. regulator as per the SMC is now enjoined to ensure there is transparent consultation and after all unlike the case of RBI sebi is also has the securities appalate tribunal which means if you don't like the enforcement done by sebi you always have a port of redressal at the sack >> yeah no absolutely absolutely you know you you you make a distinction just to switch topics between jaywalking and murder and enforcement in your in your experience uh Anand are we are we currently too inclined to treat sort of technical breaches and serious misconduct with with similar severity.

[00:13:04]>> I think we do a pretty good job pashant overall. So I don't really want to find fault with what is happening. There's always room for improvement.

[00:13:11]>> But the point I'm trying to make is I think the materiality of each infringement has to be studied very very closely. uh to the exact point that you're making. It shouldn't be a mechanical determination that this particular clause has been you know something has gone in violation of that and therefore the step has to be taken.

[00:13:28]You have to think about what was the impact of this what is the intent behind this the impact of this and therefore differentiate using that materiality metric that you that you should bring about to check whether you need to take strong action or not. I think the effectiveness of enforcement is enhanced dramatically if and when you're able to demonstrate that you're applying your mind and ensuring that materiality of the of the issue is is taken into consideration which is why I make the case that you know something like this determining materiality requires a lot of expertise unless you've been on the other side unless you've seen it through the eyes of the regulator you'll never be able to necessarily come out with an accurate you know measurement of what the materiality is. It's a journey. I think there's always hope for improvement. But I suspect if we have more specialists within the ranks of SEI along with the many generalists, we will get better at ensuring that we apply the standard of materiality on all our enforcement actions.

[00:14:24]>> Yeah. But but but you know that point about expertise uh in that sense I mean do we need to worry about uh you know in that sense excessive closeness to the industry? I mean I don't want to use regulatory capture but I mean you think those are things to be wary of as we as we as we do that >> we should 100% be wary of it but think of it this way Brashan >> people like me who come from the industry who who spent 25 years in in the sful sinful life of being a trader >> we're given a chance to be a regulator >> and you know there are now checks and balances available there are things to ensure that the conflict of interest are taken into account so I'm saying as long as you have transparency as long as you put sunlight on whatever is happening as long as you make things completely open allowing you know industry folks in the regulator to have stints in the industry to get a sense of what it is to be in the front line and actually be a part of the regulator rather than the regulator and if they then come back I think it'll do immense good in terms of giving them not just depth in terms of the domain but also the depth in terms of the perspectives from different perspectives right when you arrive at a balance pashant of of having to sip through what very very noisy consultations and arrive at what is the appropriate response to ensure minimal risk as well as regulations that are not too ownorous you have to wear multiple hats so I think that yes there is a trade-off in that you might have to worry about conflict of interest but I suspect with a lot of openness with a lot of good standards and you know office of ethics that has now been proposed I think those things can be made public and completely boxed and the net gain of having regulators who understand all perspectives will be much higher than the worries of about you know regulatory capture.

[00:16:09]>> Uh interesting and uh great conversation Anand as you said we should have much more of these varied conversations and it's part of that consultation that you're talking about. Well uh you began by saying well you got uh you know tired of writing about the rupee and whatnot.

[00:16:24]Well that problem has not gone away so we will invite you back on that at another date. But this was a great conversation. Thank you very much uh for joining us. Thank you.

[00:16:33]>> My my pleasure, Bashan. Thank you for having me.

[00:16:36]>> Well, uh insightful as always, Anandarin with the draft SMC regulations. Uh it's a wrap on this this edition of the global reset. Thank you very much for staying with us. More comes up on the other side.