02 November 2009

Reserve Bank of India – legal risks

I was delighted and honoured to be invited to speak at the platinum jubilee celebrations of the Reserve Bank of India organised by the legal department of the central bank at Kochi on the 28th Oct. The other speakers were Mr. Deigo Devos, General Counsel of the Bank for International Settlements (BIS), Mr. Mikael Stenström, European Central Bank, M.R. Umarji, Indian Banks’ Association and Michael Held, Federal Reserve Bank of New York besides the inaugural address by Deputy Governor Shyamala Gopinath.

I primarily spoke of the need to move away from the regulatory philosophy of 1956 which viewed speculation with fatally suspicious eyes and has banned forwards and options in securities outside the exchange space. I also spoke of the increasing synthesis between securities law and macro-economic stability. For instance an important institution like the clearing corporation should be viewed closely not just by the securities regulatory but by the central bank for long term solvency. I also cautioned against the popular demand to shift all Over The Counter (OTC) trades to the exchanges because a) it’s impractical as OTC trades have a nominal value exceeding 10 times the GDP of the world b) such shifting would concentrate risk in one entity rather than the distributed crisis of today – making such a crisis more dangerous not less.

The excellent speech of the Deputy Governor is linked.

The press release of the symposium is also linked.

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