Regulator aims to improve efficacy of liquidity enhancement measures, reviews existing framework
The Securities and Exchange Board of India (Sebi) is weighing on a proposal to introduce a framework to ascertain the incidents of technical glitches whereby compensation would be given to investors. The markets regulator is also looking to devise a methodology for computing the damages.
To improve the efficacy of liquidity enhancement measures such as market making, Liquidity Enhancement Scheme (LES) and call auction mechanism for illiquid securities, Sebi would review the existing framework.
“Sebi is actively considering a proposal to introduce a framework for ascertaining the incidents of technical glitches where compensation needs to be paid to the investor and to devise a methodology and calculation of compensation,” according to the regulator’s annual report for 2019-20.
The regulator is also considering a proposal to ascertain the optimum corpus for the Investor Protection Fund (IPF) of the stock exchanges on the basis of rigorous stress testing to ensure that the legitimate claims of the clients of defaulting members or brokers even in extreme times are met.
Sebi would also review the quantum of Settlement Guarantee Fund (SGF) of the Clearing Corporations based on the stress test to increase the resilience of the markets to possible risks posed by extreme volatility.
A well-documented framework at the depository level for orderly winding down of the depository operations is being developed in accordance with guidelines specified by Sebi.
Concerning market infrastructure institutions (MIIs), Sebi said such institutions rely heavily on technology for their various activities related to trading, clearing and settlement. Thus, it is pertinent to give more focus on system or technology during the inspection of MIIs.
“It is proposed to build an inspection manual that can be used as a single source of reference for conducting the inspections of MII. It is also proposed to build processes that can be automated and assist in a thorough inspection of the MIIs,” Sebi says.