Relevance of Market Infrastructure Institutions for economy and the need for their Regulation

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Last Updated27/02/2022

The National Stock Exchange (NSE) was fined for laxity in governance pertaining to actions taken during the tenure of its former MD and CEO
Markets regulator SEBI (Securities and Exchange Board of India) has passed a 190-page order sanctioning the NSE
However, the regulator too has come under a cloud for not acting quickly enough on the complaints it had received against the NSE management
SEBI noted that the NSE was a systemically important market infrastructure institution (MII) in setting the context for its order

The report of Bimal Jalan panel,2010 has defined it as fundamental facilities and systems serving the market
The well-functioning MIIs constitute the nucleus of the capital allocation system
Stock exchanges, depositories and clearing houses are Market Infrastructure Institutions
They constitute a key part of the nation's vital economic infrastructure.
These have a net positive effect on society like any other infrastructure institution

Due to phenomenal growth of these institutions in terms of market capitalisation of listed companies
The capital raised by them
Growth of number of investor accounts with brokers and depositories
The value of assets held in the depositories’ account
The number of MIIs are limited but they cater to the entire marketplace
The failure of such an institute could lead to bigger cataclysmic collapses
It may result in an overall economic downfall that could potentially extend beyond the boundaries of the securities market and the country

Domino effect: failure of an MII could have on the wider impact on market and economy, governance
Example: There was a technical glitch at the NSE early last year.
Investors were not able to trade for about four hours
Markets regulator SEBI later set out norms stipulating timelines within which an exchange has to take action if its technology fails
It includes rules for switchover to backup servers as part of the disaster recovery

Stock exchanges: SEBI has listed the BSE, the NSE, the Multi Commodity Exchange of India and the Metropolitan Stock Exchange of India as MIIs
Depositories: these are charged with the safekeeping of securities and enabling their trading and transfer
The Central Depository Services Ltd. and the National Securities Depository Ltd. are tagged as MIIs
Clearing houses: They help validate and finalise securities trades and ensure that both buyers and sellers honour their obligations.
Multi Commodity Exchange Clearing Corporation and six others are listed as MIIs in India