Competition between The Stock Exchange Mumbai (BSE), the National Stock Exchange (NSE) and the Multi Commodity Exchange (MCX) blew up into full-fledged battles in the latter half of the past decade, but we also saw the beginning of turf wars between financial market regulators which seem certain to escalate as we head towards 2010. Consider these developments:
• The proposal to merge the Forward Markets Commission (FMC) with SEBI has been revived, now that agriculture minister Sharad Pawar is seen as a weaker political ally in the new government. The merger was all but finalised during the previous term of the UPA government, but was dropped abruptly after Mr Pawar vetoed the move. This time, the finance ministry and a major stock exchange are reportedly pushing the move to ensure greater regulatory capture.
• The pension fund regulator encroached on the insurance turf to recommend that the commission paid to agents should be scrapped. While insurance commissions are, indeed, considered obscenely high, a move to scrap commissions would have killed the livelihood of a massive three-million strong army of agents and probably killed the industry. Fortunately, the panic-stricken industry got a breather when the insurance regulator flexed its muscles and rejected the pension regulator’s suggestion.
• Recently, SEBI has questioned an HDFC insurance scheme that has been already cleared by the insurance regulator.
• The Reserve Bank of India (RBI) and SEBI have always had issues over each other’s regulatory turf as well as avoidance of responsibility. Although the RBI and SEBI jointly regulate currency derivatives bourses, it is common knowledge that turf issues between the two have prevented the development of a robust corporate bond market in India. Regulation of non-banking finance companies (NBFCs) is a grey area. They are regulated by RBI, but big chunks of their business are capital-market related. Both the RBI and SEBI tried to shirk responsibility for collective investment schemes after silently allowing the plantation company bubble of the 1990s to grow and burst. SEBI was then forced to accept responsibility but again failed to regulate art funds that have left investors in the lurch.
• The mother of all tussles will emerge if the finance ministrycontinues to push for SEBI to become a super-regulator of banking and capital markets in this decade. If the move gains momentum, we will see sparks flying among regulators instead of between bourses.