Bourses should not be listed: SEBI Chairman

Stock exchanges should not be listed; and while they may be profit making entities they cannot be profit maximising ones, said SEBI chairman, Mr C.B. Bhave at the general meeting of the Asia Pacific Securities Depository Group. Mr Bhave was endorsing the recent report of the Bimal Jalan committee on governance and ownership issues of market infrastructure entities.



Regulatory role

Mr Bhave emphasised the need for stock exchanges to be more than `mere trading engines' and play more of a regulatory role. "In our opinion, profit maximisation cannot be the goal of this infrastructure entity. Stock exchanges have certain regulatory functions embedded in them which cannot be segregated, (while the) world seems to be going in different direction," he said. "However, they ought to be profit-making companies and open to market competition. Therefore, what we need to do is find an in-between space for these organisations to be profit-making, but not profit-maximising entities." He added that linking salaries of the management heads to profit margins would also drive stock exchanges towards profit maximisation. "Management compensation cannot depend on profit margins as it will then drive these entities to profit maximisation defeating the purpose." The Jalan committee report, according to him, had held views and made recommendations which were different from the current world view. "This committee's recommendations are different from where the world is going in relation to the area of stock exchanges. In most of the jurisdictions, there is only one depository and one clearing entity." "To my mind it is worth deliberating whether the stock exchanges are not mere trading engines. If they were mere trading engines, it will be very easy to come to the conclusion that they are subject to free market forces. So we need to understand the consequence of free market forces on exchanges," said Mr Bhave. "Stock exchanges should not be listed. Suppose, if you are regulating brokers, lets say, and you find that a broker has done something wrong and he is the one giving you maximum volumes, what will you do? Will you take action against him? The profit maximisation motive says don't take action because he is your best person. But regulatory action says you need to take action. So there is a conflict. Therefore, profit maximisation is not a good thing for these infrastructure entities." he explained. – www.thehindubusinessline.com

Undiversifiable Risk

Risk which is common to an entire class of assets or liabilities. The value of investments may decline over a given time period simply because of economic changes or other events that impact large portions of the market. Asset allocation and diversification can protect against undiversifiable risk because different portions of the market tend to underperform at different times. also called systematic risk or market risk.

Risk Margin

A value that takes into account the potential movement of a stock in relation to its option position. A more volatile investment would have a higher risk margin, since the potential for large swings in price is greater than that of a more stable investment.Premium margin and risk margin are the two components comprising the margin requirement.

Weak Dollar

Dollar that can be exchanged for only a small or decreasing amount of foreign currency. A weak dollar means that the U.S. dollar cannot buy very much of another currency. The strength of the dollar has an impact on imports and exports because goods and services from a foreign nation are usually purchased in the currency of the producing nation. A weak dollar usually leads to high exports and low imports. opposite of strong dollar.

Marginal Cost of Capital

The cost associated with raising one additional rupee of capital. The marginal cost will vary according to the type of capital used. For example, raising funds through the use of unsecured or subordinated debt, or through debt that requires higher interest rates to offset risk, will be more expensive than debt that is backed by collateral, such as a secured bond.

Basis Swap

A specific type of interest rate swap, where the interest rates exchanged are based on different money markets or currencies.

Segregated Funds

An annuity offered by an insurance company which guarantees a specific percentage return on the investment upon maturity. It is similar to a mutual fund, and is offered by a insurance company. The term "segregated" is used because the funds are kept separate from the issuing company's other investment funds. Segregated funds also contain other beneficial provisions, including the exemption from certain fees, such as the probate fee that would normally be charged when funds are passed to a beneficiary.