|
Capital
markets are built on the principles of liquidity and transparency.
The risk element of operations in these markets is quite
high. This is reflected in the observation made by the Board
of Governors of the Federal Reserve, Washington in June
2000: "The potential risks and returns of equity business
far exceed those of banking operations". In India,
as the central bank of the country, the Reserve Bank of
India (RBI) has a well-defined regulatory role, which is
distinct from its supervisory role. Thus, a well-structured
regulatory and supervisory system has been established in
a business that reportedly carries lesser risks than the
capital market. As a corollary to the developments in the
banking system, the banks operating in the system are now
required to be backed up by adequate capital besides ensuring
internal control systems that are in place to have cognizance
of the risks inherent in their activities.
The
Board of Governors of the Federal Reserve, Washington, also
observed that it's primary objective is to identify material
risks and also to promote the safety and soundness of operations
in the banking system. Following this principle, besides
Federal Reserve, other central banks including RBI, devised
strategies for ensuring that their objectives both primary
and others are fulfilled. For this purpose, appropriate
supervisory strategies have been developed. The mechanism
of conducting "On-site inspection" and "Off-site
monitoring and surveillance" is firmly in place. In
this process such deficiencies observed by the central bank
in the banking operations are brought to the notice of the
top management of a bank. The central bank also ensures
that appropriate and prompt corrective action is taken to
effectively deal with the deficiencies. In this context,
the need for Securities and Exchange Board of India (Sebi)
to replicate and then improvise the aforementioned systems
for supervising capital market operations cannot be underestimated.
A
regulatory norm that is generally followed worldwide for
the company whose scrip is listed on the stock exchange
is that the said company should fulfill certain obligations
as per the listing agreements. Usually, listing requirements
take into account the business conducted by the company,
the market for its products and/or services, the credibility
of the top management, the company's past performance and
the industry environment. Significantly, these requirements
are not rigid. |
