11 MAR, 2013, 07.17AM IST, ET BUREAU
Insider trading is rampant in India: Ravi Narain, MD, National Stock Exchange
Ravi Narain (58), MD & CEO, National Stock Exchange, hangs up his boots as chief executive this month end. During the two decades spent at the bourse, Narain has seen NSE becoming the world's largest exchange by the number of equity trades, the largest globally in currency trading and the second-largest globally in index options. But he will not be walking into the sunset; rather in a non-executive role as vice chairman, he will provide a helping hand to his successor Chitra Ramkrishna, now joint MD, if and when required. In an exclusive chat with ET, Narain, who became MD&CEO in mid-2000, talks about insider trading, taxing foreign investors and fat finger errors while welcoming the FM's announcement of setting up a committee to examine the global competitiveness of Indian financial markets. Excerpts:
The cut in STT must have come as a welcome development, but was there anything in particular about the Budget that grabbed your attention?
One piece of the Budget announcement that went relatively unnoticed was to set up a council that would look at international competitiveness of India's financial sector. I thought actually it went a little low key because of all the other announcements. This is hugely welcome in that it clearly has acquired attention in Delhi that we need to worry about the cost structure of India's financial sector.
We are seeing an export of Indian financial markets to destinations where cost of transaction is substantially lower.....
The export of markets is about many things - cost and the duties, and also about financial policies. All these are very neatly put in the terms of reference of the council. The larger point is that India is today a very large generator of demand for financial services of one kind or the other. We are potentially very competitive in the supply of those financial services. So, it's a very nice potential match but for that to happen we need to complete certain parameters and one of them is the cost structure. There are obviously other issues as well. For example, the really large deals very often can't be fully addressed within India because of balance sheet size. One is the sophistication end of products and services...we are gradually evolving towards that. But over a period of time the demand for financial services will continue to grow quite powerfully and given India's competitive advantage in this area it would be good for us to keep a very close eye on whatever we can do to make the supply side equally competitive....I am reading this is really what is behind the FM's announcement.
Some years ago, the Mistry Committee talked of making Mumbai an international financial centre. Why are we lagging?
There's some low hanging fruit in every report and there's some harder to do things. I mean if there's a legislative piece, that's going to find it's own path. So this is part of the problem that happened. And it's not just the Mistry report; the other was the Raghuram Rajan committee report. Even if one were to go back and revisit these two reports very carefully and look at them with a dispassionate, urgent eye I think one could do very significant things which will help to strengthen flows into the country.
How do you think the issue of taxing foreign flows can be resolved?
In all fairness this is not a tax haven issue in my view. This is a need to rethink the whole basis of taxation as being looked at in various parts of the world. This is about do you tax by residence or by source. It is not as if the investor is not paying tax anywhere in the world. There are some tax havens, agreed, but most of them are saying that there is a certain basis for their taxation that's applicable to them in terms of residence. Then if each country comes out with a different framework, and if some don't, it complicates life....It's more from their point of view to redress that they are taxable in one jurisdiction and if a second jurisdiction also applies tax it creates issues.
India needs dollars and it's tough for us to ask the US to change their tax laws...
It is a fact that much of the investible resources lie within the US and they are all flowing in different directions historically. But that is changing. Now you see fairly large investible funds in parts of the world other than the US. The world will gradually no longer remain largely US-centric for all global frameworks. There is no easy solution at this moment but it's time to start thinking about all this. It's a little longer term and complex problem but it has to be looked at in that framework otherwise this problem will repeat itself ad nauseum.
Over the past 20 years we have seen different kinds of inflows. One conspiracy theory that has survived is that a large part of these flows could be round-tripping. Are such concerns being blown out of proportion?
It's very hard to discount the possibility. But at the same time you don't want to end up with the tail wagging the dog. As a country of considerable substance India should create stable, consistent frameworks which will attract both domestic and foreign flows. If there is round tripping obviously we should have measures to go after those who are doing round tripping and not let it to subvert the larger policy framework. Having said that, I will add there is significant investor interest. Look at the number of countries interested in trading Nifty ETFs. That means there is significant broadbased interest.
Sebi is setting up a committee on insider trading regulations. What are the areas you think need to be fixed?
Insider trading is notoriously difficult to catch in just about any jurisdiction and what I have seen as a somewhat dispassionate observer of the larger markets is that they really go after the big guys. They have this clear ABC analysis that they will go after the really large attempts to do insider trading and smash those and so on and just ignore the little stuff. We've not always done that and I think if we tried that it would help control insider trading.
Second, of course is the ability to use technology to catch insider trading....We need to be a little more deft on that score and lot of that is not easy. For example, the ability to tap telephones, to tap emails. Ultimately if you see any cases which are cracked on insider trading that are big deals, they are all cracked because of this kind of surveillance. It's not about an exchange system catching them, it's really about tapping into networks and I think there has been some conversation around that. So that's the broad direction to catch insider trading. ........more.....
http://economictimes.indiatimes.com/opinion/interviews/Taxing-foreign-inflows-is-not-a-tax-haven-issue-Ravi-Narain-MD-National-Stock-Exchange/articleshow/18901702.cms
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