Recently, SEBI noted that the NSE was a systemically important market infrastructure institution (MII).
What are market infrastructure institution (MII)?
- Stock exchanges, depositories and clearing houses are all Market Infrastructure Institutions and constitute a key part of the nation’s vital economic infrastructure.
- A panel set up under the chairmanship of former RBI Governor Bimal Jalan to examine issues arising from the ownership and governance of MIIs — in its 2010 report said:
- The term ‘infrastructure’ would mean the basic, underlying framework or features of a system; and the term ‘market infrastructure’ denotes such fundamental facilities and systems serving this market. The primary purpose of securities /capital market is to enable allocation/reallocation of capital/financial resources.
- Such movement, it pointed out, helped optimal use of money in the economy and fostered economic development.
- Well-functioning MIIs, constitute “the nucleus of (the) capital allocation system”, are indispensable for economic growth and have a net positive effect on society like any other infrastructure institution, the panel noted.
Why are they considered to be systemically important?
- Phenomenal growth of these institutions in terms of market capitalisation of listed companies,
- capital raised
- the number of investor accounts with brokers and depositories
- the value of assets held in the depositories’ account
- Unlike typical financial institutions, the number of stock exchanges, depositories and clearing corporations in an economy is limited due to the nature of its business, although they cater to the entire marketplace, the panel pointed out.
- Any failure of such an MII could lead to even bigger cataclysmic collapses that may result in an overall economic downfall that could potentially extend beyond the boundaries of the securities market and the country.
What are the specific institutions in India that qualify as MIIs?
- Among stock exchanges, the SEBI lists seven, including the BSE, the NSE, the Multi Commodity Exchange of India and the Metropolitan Stock Exchange of India.
- There are two depositories — charged with the safekeeping of securities and enabling their trading and transfer — that are tagged MIIs: the Central Depository Services Ltd. and the National Securities Depository Ltd.
- The regulator also lists seven clearing houses including the Multi Commodity Exchange Clearing Corporation.
- Clearing houses, for their part, help validate and finalise securities trades and ensure that both buyers and sellers honour their obligations.
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