Challenges of capital market before the high growth economy

Context

In 2022, 75 years of Indian independence will be fulfilled from the British rule. If the current growth rate remains intact then it is expected that India will then become the world's fourth largest economy. Indeed, our growth rate depends on the development of infrastructure, in return for which banks need a strong capital market. The Policy Commission has prepared a roadmap for development in the economic and social sectors, which will prove to be a milestone in achieving these goals.

Factors / Challenges affecting the direction of the markets 

• Following the global financial crisis, participants of the capital market are struggling with developing regulation, increasing operational requirements and regulatory costs. There is a possibility that in the next four to five years, the direction of the markets will mainly depend on the following factors -
• Structural changes, including consolidation, for the business model of participants in the current capital market.
• Non-traditional participants who challenge the status quo
• Participants will be interested in learning about the widespread use of key data including innovation, artificial intelligence (AI) and mechanization work and reducing costs and creation of competitive advantage. 
• Use of processing and distributed account and blockchain technology
• The pool of capital is in search of faster access to consumers, thereby reducing costs and increasing overall liquidity. Cloud sourcing and co-workers, real estate investment trusts and investment infrastructure are getting momentum through trust.
• Investment management is getting encouraging results through Robo Advice, Smart Contract and Electronic Business. It is worth mentioning that Robo Consultant is a category of Financial Advisor who provides online financial advice or investment management with minimal human intervention.
• Successful solution to the applications filed under Bankruptcy and Bankruptcy Code (IBC). 

'The Insolvency and Bankruptcy Code 2016' In the last year, the central government had passed a new bankruptcy code bill, taking steps towards economic reforms. Significantly, this new law repeals the 1909 'Presidency Town Insolvency Act' and 'Provincial Insolvency Act 1920' and makes amendments to several laws including the Company Act, Limited Liability Partnership Act and the 'Secuation Act'. Actually, the company or partnership firm can be bankrupt at any time due to loss in business. If an economic unit is bankrupt, then it means that it is unable to repay its loans on the basis of its resources. In such a situation, lack of clarity in the law lenders also suffer and the person or the firm himself has to go through various mental and other grievances. There were at least 12 laws related to bankruptcy so far in the country, some of which are more than 100 years old.

Potential solutions

• Regulators will have to answer these challenges, as well as the role of the facilitator, regulators will have to step forward in observing the potential areas for the development of the market and identifying them.
• In this context, an inter-regulatory working group established by the Reserve Bank of India has recommended that an appropriate framework should be developed for the regulatory sandbox / innovation center within the defined area and fixed period, providing necessary regulatory support to the financial sector regulators. Will do
• With the help of Indian regulatory authorities, the increase in efficiency, management of risks and new opportunities for consumers will be created.
• Significantly, the construction of such a structure would be important for the development of the market.
• In addition, the regulator will also need to focus on focusing on the deeper development of fixed income markets.
• It is notable that SEBI had proposed to make big borrowers compulsory to take 25% of their growing borrowing from the bond market.
• It can face regulatory challenges in implementing debenture redemption reserves and due to necessary structural issues to maintain liquid funds.
• At the same time many Indian borrowers are now in the scope of IBC and it can have far-reaching consequences for the market.

Developments affecting the rules 

• Two developments affecting the rules - Product relevance and data confidentiality.
• Product suitability requires a complete framework for which the products are required to grading according to their underlying risk and customers need to be classified based on their ability to take risks.
• It is notable that traditional participants and finitech units are largely dependent on technology. These organizations collect various personal and sensitive information and become the owners / guardians of such data.

Steps taken by SEBI 

• SEBI is committed to facilitating the ecosystem to check the aspects related to the privacy requirements and to encourage the use of new technologies in capital markets.
• On cyber security, the regulators will also have to take care of, which will be responsible for both new opportunities for the new regulation, audit and vulnerability assessment.
• For the above mentioned work, they will also need the market infrastructure institutions (MIIs) and in the event of cyber attack, continuity of business plans will be maintained for their timely operations.
• SEBI is planning a full-fledged cyber security review of MII, which includes a complete list of all the threat vectors including cyber security counseling.
• In addition, cyber security is being developed to assess cyber security and flexibility of MII.
• The second major challenge is the cost pressures and innovation to make maximum use of the outsourcing system by the participants of the attractive market. Regulators have to deal with the support risks of cross border outsourcing in particular.
• Regulators are also continuing to increase their knowledge as well as investor protection and investor education, in which corporate governance and advanced presentation will help in their efforts.
• Apart from this, they have to develop a comprehensive monitoring system based on AI.
• Regulators have started using technology drivers and new products to reduce time to raise funds through public issues. They are also making the Zurmana necessary for listed companies and market arbitrators.
• Along with this, there will be a thorough analysis of mostly offsite data, rather than visiting the site for inspection of market mediators.
• They will be linked with increasing reporting requirements, rich data feeds, and an integrated approach to the supervision of data flow of exchanges and depositors.

Conclusion

Integrating risk and regulation at the enterprise level is an important challenge and the success of the capital markets and its participants will also depend on this. Therefore, it is necessary that as the markets are growing and growing, regulatory inspection and supervision should also be developed simultaneously. Therefore, the Indian capital market will have to play an important role in working as a catalyst.

Source: Live Mint