Market Infrastructure Institution

• 01 Mar 2022

For Prelims: Securities and Exchange Board of India (SEBI), National Stock Exchange (NSE), Market Infrastructure Institution (MII).

For Mains: Market Infrastructure Institution (MII), Capital Market, Mobilisation Of Resources.

Why in News?

Recently, Securities and Exchange Board of India (SEBI) noted that the National Stock Exchange (NSE), the country's largest equities and derivatives exchange is a systemically important market infrastructure institution (MII).

What is SEBI?

• The Securities and Exchange Board of India was established on 12^th April, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.
• Major Function:
  • To protect the interests of investors in securities.
  • To regulate the securities market.

What are MIIs?

• Stock exchanges, depositories and clearing houses are all Market Infrastructure Institutions and constitute a key part of the nation's vital economic infrastructure.
• According to a panel set up (in 2010) under the chairmanship of former Reserve Bank of India Governor Bimal Jalan, the term ‘market infrastructure’ denotes such fundamental facilities and systems serving this capital market.
  • The primary purpose of the securities /capital market is to enable allocation/reallocation of capital/financial resources.
• MIIs helps in optimal use of money in the economy and fostered economic development.
• They constitute the nucleus of the capital allocation system and are indispensable for economic growth and have a net positive effect on society like any other infrastructure institution.

What is the National Stock Exchange?

• The National Stock Exchange of India Limited (NSE) is India's largest financial market.
• Incorporated in 1992, the NSE has developed into a sophisticated, electronic market, which ranked fourth in the world by equity trading volume.
• NSE was the first exchange in India to provide modern, fully automated electronic trading.
  • The NSE is the largest private wide-area network in India.
• The NIFTY 50 is the flagship index on the National Stock Exchange of India Ltd. (NSE).
• The Index tracks the behaviour of a portfolio of blue chip companies, the largest and most liquid Indian securities. It includes 50 of the approximately 1600 companies listed on the NSE.

Why are they considered to be systemically important?

• MIIs are systemically important in India is clear from the phenomenal growth of these institutions in terms of market capitalization of listed companies, capital raised and the number of investor accounts and the value of assets held in the depositories’ account.
• Any failure of such an MII could lead to even bigger cataclysmic collapses that may result in an overall economic downfall that could potentially extend beyond the boundaries of the securities market and the country.
• Given the potential for a domino effect that a failure of an MII could have on the wider market and economy, governance and oversight are absolutely critical and need to be of the highest standards.

What are the specific institutions in India that qualify as MIIs?

• Among stock exchanges, the SEBI lists seven, including the BSE, the NSE, the Multi Commodity Exchange of India and the Metropolitan Stock Exchange of India.
• There are two depositories — charged with the safekeeping of securities and enabling their trading and transfer — that are tagged MIIs: the Central Depository Services Ltd. and the National Securities Depository Ltd.
• The regulator also lists seven clearing houses including the Multi Commodity Exchange Clearing Corporation.
  • Clearing houses, for their part, help validate and finalise securities trades and ensure that both buyers and sellers honour their obligations.

Source: TH