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Global Financial Conglomerates and Their Challenges- by Mitu Bhardwaj, NSE
This article highlights the different facets of Financial Conglomeration, helps in understanding the emergence and structure of the
conglomerates and draws attention to the different challenges posed by them. Financial conglomeration facilitated with
globalization and financial innovation in recent years can produce financial giants that reduce transaction costs significantly but can
also pose a threat to the financial stability. How can these institutions take risks in their business and how well they respond to those
risks will separate the leaders from the survivors or the failures.
SPOTLIGHT
Reduction in Transaction Charges on the NSE
⇒
With effect from October 01, 2009 the NSE has reduced the transaction charges in the ‘Capital Market’ and ‘Futures’ segment.
This would reduce the cost of trading at NSE.
R E G U L ATO RY C H A N G E S
Initiated by SEBI.
⇒
Stock exchanges to disclose complaints/arbitration/penal action against trading members/listed companies on their website to
ensure transparency in grievance redressal available in the stock exchanges.
⇒
Disclosure and Investor Protection Guidelines converted into regulations
⇒
Issues regarding applicability of SEBI Delisting Regulations clarified.
⇒
Audit of mutual funds by an independent Certified Information Systems Auditor/Certified Information Systems Manager
(CISA/CISM) qualified or equivalent auditor mandated.
⇒
Decisions taken regarding amendments to listing agreement and takeover regulations vide SEBI Board Meeting of September 22,
2009.
Initiated by RBI.
⇒ Draft guidelines on repo in corporate debt securities put out in public domain, for comments/views.
⇒
NBFCs are allowed to participate in interest rate futures market for the purpose of hedging their underlying exposures.
NSE NEWS
⇒
NSE waives transaction charges payable in respect of trades emanating from all segments of the Exchange from VSATs in certain
semi urban and rural locations.
⇒
NSE levies charges to deter system abuse in the F & O Segment.
⇒
The Index Maintenance Sub-Committee of NSE carried out certain changes in various indices, which would be effective from
October 20, 2009
NCFM NEWS
⇒
Introduction of fee discount scheme for a period of one year (October 01, 2009 to September 30, 2010)
⇒
A new module – 'Currency Derivatives: A Beginner's Module' has been launched.
I N T E R N AT I O N A L N E W S
⇒
Euroclear UK & Ireland reduces fees and improves tariff transparency
⇒
NYSE to form commission on corporate governance to examine U.S. corporate governance
⇒
IOSCO issues final regulatory recommendations on securitisation and CDS market
⇒
WFE Board urges consistent regulation and more transparency from G20 market reform efforts
HIGHLIGHTS OF NSE NEWSLETTER
October 2009
MARKET REVIEW
Nifty Movements vis-a-vis other International Indices Performance of select sectors vis-a-vis Nifty
(Rebased to 100 for March 31, 2009) (Rebased to 100 for March 31, 2009)
160 230
210
140 190
170
120 150
130
100
110
80 90
31-Mar-09 29-Apr-09 29-May-09 30-Jun-09 31-Jul-09 31-Aug-09 30-Sep-09 31-Mar-09 29-Apr-09 29-May-09 30-Jun-09 31-Jul-09 31-Aug-09 30-Sep-09
CNX IT CNX FMCG INDEX
Nifty Dow Jones NIKKIE Hang seng Nasdaq S&P CNX Finance S&P CNX Petrohemicals
S&P CNX Pharmaceuticals CNX Bank Nifty
CNX Infrastructure S&P CNX Nifty
Tradin g Valu e
4000 800
Trading Value
200 12000
3000 600
150 9000
2000 400
100 6000
Jul-09
Aug-09
Jan-09
Feb-09
Apr-09
Jun-09
Sep-09
Jul-09
Aug-09
Dec-08
Mar-09
Feb-09
Apr-09
Sep-09
Nov-08
May-09
Jan-09
Jun-09
May-09
Nov-08
Mar-09
Dec-08
Oct-08
Oct-08
50 600 30
800
Trading Value
Trading Value
500 25
40
600 400 20
30
400 300 15
20
200 10
200 10 100 5
0 0 0 0
Jul-09
Aug-09
Jan-09
Feb-09
Apr-09
Jun-09
Sep-09
Dec-08
Mar-09
Nov-08
May-09
Jul-09
Aug-09
Oct-08
Jan-09
Feb-09
Apr-09
Jun-09
Sep-09
Dec-08
Mar-09
Nov-08
May-09
Oct-08
Trading Value (Rs. hundred crore) Avg. Daily Trading Value (Rs. hundred crore)
rd
CM 365,063 0.03 18,253 5,353,880 Stock Index Futures 3
th
WDM 58,674 53.47 3,088 3,024,417 No. of Trades 4
th
F&O 1,388,378 -5.79 69,419 Market Capitalisation 12
CDS (Currency 107,789 19.24 5,673 Source : WFE (Rankings done for the period Jan- Jun 2009). Rankings
Futures) for single stock futures, stock index options and stock index futures
TOTAL 1,919,904 -2.41 8,378,297 is based on number of contracts traded.
Prepared by SBU-EDUCATION
National Stock Exchange of India Ltd.
Exchange Plaza, Bandra Kurla Complex, Bandra (E) Mumbai - 400051. Tel No: 022-26598163
For detailed NSE Newsletter, log on to www.nseindia.com>Press Room> NSE Newsletter.
For Market Data, refer to www.nseindia.com> Research> Datazone.
Oct 2009 1
N S E N E W S L E T T E R
A R T I C L E S
Introduction
During the last two decades, financial services industry has witnessed deregulation in the domestic market and globalization
at the same time. This has led to new ways of doing business as the providers of financial services have extended their
scope of activities. Earlier, a financial institution could easily be classified as a Bank, a Securities Company, or Insurance
Company. But today a new breed of financial services providers have emerged which provide a wide range of financial ser-
vices across a number of geographic locations. These are called Financial Conglomerates.
The Tripartite Group of Bank, Securities and Insurance regulators set up in 1993 at the initiative of Basel Committee on
Banking Supervision has defined financial conglomerate as "any group of companies under common control whose exclusive
or predominant activities consist of providing significant services in at least two different financial sectors (banking, securi-
ties, insurance).” However, as per the European Union, financial conglomerates refer to group of companies wherein at
least one of the entities in the group is in the insurance sector and at least one is in the banking or investment services sec-
tor.
Diversification of business lines in financial markets has been a rather unique phenomenon as opposed to a general trend of
consolidation in other industries. The emergence of financial conglomerates has been driven by competitive pressures in the
traditional banking sector and synergies across complementary financial services so as to capture economies of scale and
scope across business lines.
Economies of Scale: These economies are generated by higher operational efficiency and by innovation of products that
allow firms to offer ‘one-stop shopping’ to consumers. One source of higher operational efficiency is information advantage.
Information advantage arises from financial conglomerates’ ability to offer a broader set of financial services to the same
set of clients than offering restricted services to different sets of clients on stand-alone basis. For instance, when a bank or
an insurer establishes a relationship with a client it incurs costs in gathering information about the client. An institution
that combines these services can reduce these costs by using a common information system.
Economies of Scope: On the production side, these economies arise whenever costs can be shared across product lines.
E.g. common information system can be used across multiple product lines incurring the cost of gathering information only
once. On the consumption side, these economies emerge if buying financial services from the same institution benefits con-
sumers through reduced search, information and monitoring costs.
Stability in Revenues: A financial institution that combines different activities can be more stable than a specialized insti-
tution due to risk diversification. This is because the correlation between the return from different financial activities is
imperfect.
*The author is with NSE. Views expressed in the article are that of the author alone. 1
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N S E N E W S L E T T E R
There is no single structure of financial conglomerate that dominates across the world. The structure and type of fi-
nancial conglomerate primarily depends on the prevailing national laws and traditions. However, there are mainly
three structural forms into which financial conglomerates are organized.
Universal Bank Structure: A structure in which all operations are centralized within a single corporate entity, a Bank.
Parent-subsidiary Structure: A structure in which operations are conducted in subsidiaries of licensed parent compa-
nies which are usually banks.
Holding Company Structure: It is a structure under which businesses are conducted in legally distinct entities each
with separate management and capital, but owned by a (potentially unregulated) corporation.
Further, a financial conglomerate may be characterized primarily as securities, insurance or a banking structure de-
pending upon the sector represented at the holding company level and / or by the type of activity that constitutes the
major business of the conglomerate. Epithets such as “Bankassurance” (denoting a financial group in which banks pre-
dominate) and “Assurebanking” (insurance dominated financial group) apply to the new “Allfinanz” financial service
providers.
Given the breadth of services financial conglomerates offer, their myriad structural forms & their multiple jurisdictions
of operations, conglomeration does pose a number of challenges – To Management, To Regulators, and To Over-all Mar-
ket Stability & Discipline. Some of these challenges are,
A. Challenges to Management
a. Managing Multiple Regulatory Compliances: Global financial conglomerates have their operations spread across
various geographies. Even within each business line, they are subjected to laws, rules & regulations of multiple juris-
dictions.
b. Risk Concentration: In theory, the volatility of profits should decrease as the activities generating them become
more diverse. Hence, risk diversification should reduce the regulatory capital levels applied to financial conglomer-
ates. However, the silo-approach of looking separately at each entity neglects risk-concentration at the group level.
For example, an acceptable level of credit risk in a stand-alone institution’s banking book may become a concentration
of risks with high correlation if other institutions under the same roof have exposures to same counterparty in their
risk portfolio.
c. Contagion Risk: Contagion risk refers to the risk that problems in one part of financial establishment may spread to
another (healthy) part which could adversely impact the financial stability of the group as a whole and possibly even
on the markets in which the constituent parts operate. There are two distinct types of contagion - Psychological Conta-
gion, in which problems associated with one part of a conglomerate are transferred to other parts merely by market
reluctance to deal with a tainted group, and Contagion arising from Intra-group exposure.
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N S E N E W S L E T T E R
d. Large Exposures at Group Level: Combination of large exposures to the same counterparty in different parts of a
conglomerate can be dangerous to the group as a whole.
B. Regulatory Challenges:
a. Solo vs. Consolidated Supervision: Under the traditional solo approach individual components of a group are su-
pervised on a purely solo basis, whereas consolidated supervision focuses on the group as a whole, although individual
entities may continue to be supervised on a solo basis by the respective regulators.
Also, intensive cooperation among regulators for exchange of prudential information about various parts of conglom-
erate falling under different jurisdictions is very important. There is general support for the idea of appointing a lead
regulator or "convenor", which would be responsible for gathering the relevant information about the group as a
whole (including information on non-regulated entities).
b. Capital Adequacy: Banks, insurance companies and securities firms are subject to different prudential require-
ments, and accordingly regulators face a difficult problem in determining whether there is adequate capital coverage
at the group level. A difficult problem occurs when a group includes substantial non-regulated entities, either at the
ownership level or downstream. Capital leveraging or prevention of multiple gearing of own funds due to inappropri-
ate intra-group exposures is another challenge.
c. Intra--group Exposure: It is a form of direct and indirect claims which entities within financial conglomerates
typically hold on each other. The most transparent form of intra-group exposure is a line of credit which either the
parent grants to a subsidiary or one subsidiary makes available to another subsidiary. What sets intra--group expo-
sures apart from exposures to third parties in the context of a financial conglomerate is that they will not necessarily
be apparent to supervisors examining a consolidated balance sheet of the group as a whole (because the intra-group
exposures will be netted out). Another important difference between intra-group exposures and exposures to third
parties is that the former may be created on terms or under circumstances which parties operating at arms' length
would not countenance. Monitoring intra-group exposures so that failure of one Group Company (or its mere exis-
tence) doesn’t undermine the regulated entity is a regulatory challenge.
d. Shifting of Managerial Control: As the banking, insurance and securities businesses become more and more inte-
grated, it is possible that decision-making processes are shifted away from individually regulated entities to the par-
ent or holding company, enabling managers of other (perhaps unregulated) companies in the group to exercise control
over the regulated entity.
e. Complex Structures: Guarding against managerial and legal structures which impair adequate supervision is a
challenge for regulators.
The cross-sectoral consolidation of financial institutions has led to emergence of global financial behemoths. Failure
of such large institutions poses a huge systemic risk. Therefore, to prevent system-wide financial crisis, regulator
might be induced to extend the financial safety net for such institutions beyond the standard policy measures. This
particular form of inconsistency in financial regulation is called as Too-Big-To-Fail (TBTF) policy.
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The unintended consequence of such policy is the market perception that whenever a financial crisis hits an institu-
tion that qualifies as TBTF, the government will provide refinance regardless of the circumstances that led to the cri-
sis. Such implicit insurance system gives large institutions an advantage over small ones which is unrelated to their
ability to manage risk and thereby increasing the vulnerability of the entire financial system. The TBTF policies dimin-
ish the market discipline giving a competitive advantage to complex financial conglomerates over stand-alone institu-
tions.
Conclusion
The recent financial crisis has revealed the gap between financial innovation and regulation/risk management. Regu-
lators as well as industry players worldwide are endeavoring to bridge this gap by bringing-in newer and tougher laws
and regulations and more robust risk management systems. Financial conglomeration combined with globalization and
financial innovation is a potent combination capable of producing financial giants as well as annihilating them. How
well financial institutions appreciate the risks in their business and how they respond to them will separate the lead-
ers from mere survivors.
***
References:
1. Bank of Finland Discussion Papers on “Capital Adequacy Regulations and Financial Conglomerates” by Ville Malk-
onen (2004)
2. EU Directive 2002/87/EC
3. “Regulating Financial Conglomerates” by Xavier Freixas, Gyongyi Loranth and Alan D. Morrison (2005)
4. 1995 Report of the Tripartite Group of Bank, Securities and Insurance regulators set up at the initiative of Basle
Committee of Banking Supervision.
5. Economic and Policy Analysis Working Paper “The Repeal of Glass-Steagall and the Advent of Broad Banking” by
James R. Barth, R. Dan Brumbaugh Jr. and James A. Wilcox.
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S P O T L I G H T
The revision in transaction charges in capital Market segment has been from its present level (@ Rs.
3.5 per lakh i.e 0.00035 % of traded value on each side) to a slab based structure as given below -
Futures segment
The revisions in this segment are from its present level (@ Rs. 2/- per lakh i.e 0.002 % of the traded
value on each side) to a slab based structure as given below -
More than Rs. 7500 crores up to Rs. 15000 crores Rs. 1.80 each side
5
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R E G U L A T O R Y C H A N G E S
Initiated by SEBI
1. Stock exchanges to disclose complaints/arbitration/penal action against trading members/
listed companies on their website to ensure transparency in grievance redressal available in the
stock exchanges .
SEBI had been receiving feedback from investors and their associations to bring in more transparency
in the grievance redressal available in the Stock Exchanges. Transparency in grievance redressal is
identified as a key area to augment investor protection and will also improve the general functioning
of the market by providing investors the wherewithal to make informed choice.
Accordingly, SEBI has decided that, to start with, Stock Exchanges would be required to disclose the
details of complaints lodged by clients / investors against trading members and companies listed in
the exchange, on their website. The aforesaid disclosure would also include details pertaining to arbi-
tration and penal action against the trading members. A format for the report for the aforesaid dis-
closure has been put out by SEBI vide its circular dated September 03, 2009.
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R E G U L A T O R Y C H A N G E S ( c o n t d … )
5. Decisions taken regarding amendments to listing agreement and takeover regulations vide
SEBI Board Meeting of September 22, 2009
The Board took, inter-alia, the following decisions at its Board meeting held on September 22, 2009:
(I) Amendments to Listing Agreement/ ICDR Regulations
(a) Compliance with applicable Accounting Standards
A listed company undergoing corporate restructuring (merger, demerger or amalgamation) under a
scheme of arrangement would be required to submit an auditors’ certificate to the stock exchange to
the effect that the accounting treatment followed in respect of financials contained in the scheme is
in compliance with all the applicable accounting standards. This requirement will be prescribed
through amendments to listing agreement.
An unlisted company undergoing similar corporate restructuring and proposing to make an IPO should
make disclosures in the DRHP (Draft Red Herring Prospectus) in terms of AS 14. This will be mandated
through the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.
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R E G U L A T O R Y C H A N G E S ( c o n t d . . )
Initiated by RBI
6. Draft guidelines on repo in corporate debt securities put out in public domain, for comments/
views .
Vide press release dated September 17, 2009, The Reserve Bank of India has placed on its website
“Draft Guidelines on Repo in Corporate Debt Securities" for comments/views by October 05, 2009.
The Mid-Term Review of the Annual Policy for the year 2007-08 had indicated that the Reserve Bank
will permit market repo in corporate bonds once the corporate debt market develops and the Reserve
Bank is assured of the availability of fair prices, and an efficient and safe settlement system based on
delivery versus payment (DvP) III and Straight Through Processing (STP) is in place. In this regard, as
indicated in the Annual Policy Statement for the year 2009-10, the RBI, in consultation with SEBI, has
permitted the clearing houses of the exchanges to have a transitory pooling account facility with the
Reserve Bank for facilitating settlement of OTC corporate bond transactions on a DvP-I basis (i.e., on
a trade-by-trade basis).
With the necessary system being in place to ensure settlement of trades in corporate bonds on a DvP-
1 basis and STP, the RBI has formulated, in consultation with the market participants, guidelines for
repo in corporate bonds in corporate debt securities, the detailed guidelines for Eligible securities,
participants, Tenor, Trading etc are available in the press release.
7. NBFCs are allowed to participate in interest rate futures market for the purpose of hedging
their underlying exposures .
RBI vide its circular dated September 18, 2009 allowed NBFCs to participate in the designated inter-
est rate futures (IRF) exchanges recognized by SEBI, as clients, subject to RBI / SEBI guidelines in the
matter, for the purpose of hedging their underlying exposures.
Further RBI requires that NBFCs participating in IRF exchanges to submit the data in this regard half
yearly, in prescribed format to the Regional office of the Department of Non-Banking Supervision in
whose jurisdiction their company is registered, within a period of one month from the close of the
half year.
NSE NEWS
1. NSE waives transaction charges payable in respect of trades emanating from all segments of the
Exchange from VSATs in certain semi urban and rural locations
Various studies show that the equity investment penetration in India especially in semi urban and ru-
ral areas is low and therefore only a small percentage of the population uses equity or equity related
products as investment vehicle to park its savings; though over a period of time equity investment is
known to provide the best return. Moreover, it is seen that while the awareness in major cities is wide
spread the same is much lower in semi urban and rural areas. In order to facilitate investors from such
semi urban and rural areas and also to encourage trading members to set up trading terminals in
these areas at a feasible cost, it has been decided and communicated to trading members vide circu-
lar dated September 23, 2009 to waive the transaction charges payable in respect
8
Oct 2009 9
N S E N E W S L E T T E R
N S E N E W S ( c o n t d … )
of the trades emanating from all the segments of the Exchange; from the VSAT in these semi urban
and rural locations up to an amount equal to annual VSAT charges levied by the Exchange for the re-
spective year or part thereof with effect from 1st October, 2009. For this purpose NSE VSATs located
or to be located in towns other than the municipal limits of Mumbai (including Thane and Navi Mum-
bai), New Delhi (including Delhi, NOIDA and Gurgaon), Kolkatta, Chennai, Ahmedabad, Hyderabad
(including Secunderabad) and Bangalore would be considered eligible. (NSE circular dated September
23, 2009)
Of late, it is observed that the Order to Trade ratio in the F&O segment has been increasing signifi-
cantly. Based on the analysis of the same, it has been observed that some trading members have been
placing very large number of unproductive orders which rarely result into trades in this segment which
leads to increase in latency in order placement and execution for the other members. Such members
are observed to have very large order to trade ratio which is significantly higher than the market av-
erage. In order to prevent such system abuse and to ensure fair usage of the system by all the mem-
bers, NSE has, vide its circular dated September 7, 2009, decided to levy a charge to deter system
abuse in the F&O segment with effect form October 1, 2009 as per the slabs below.
(Member wise)
More than 100 up to 250 1 paisa
More than 250 up to 500 (on 2 paise
incremental basis)
More than 500 up to 1000 (on 3 paise
incremental basis)
More than 1000 (on incremental 4 paise
basis)
3. The Index Maintenance Sub-Committee of NSE carried out certain changes in various indices,
which would be effective from October 20, 2009
Exclusions
1 National Aluminium Co. Ltd. S&P CNX Nifty & CNX 100 Index
2 Tata Communications Ltd. S&P CNX Nifty & CNX 100 Index
3 Jaiprakash Associates Ltd. CNX Nifty Junior Index
4 Infrastructure Development Finance Co. Ltd. CNX Nifty Junior Index
5 Vijaya Bank CNX Nifty Junior & CNX 100 Index
6 Chennai Petroleum Corporation Ltd. CNX Nifty Junior & CNX 100 Index
7 Apollo Tyres Ltd. CNX Nifty Junior & CNX 100 Index
8 Raymond Ltd. CNX Nifty Junior & CNX 100 Index
9 Wockhardt Ltd. CNX Nifty Junior & CNX 100 Index
10 Parsvnath Developer Ltd. CNX Midcap Index
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N S E N E W S ( c o n t d … )
Inclusions
Sr. No. Company Name Index
3 Bajaj Auto Ltd. CNX Nifty Junior & CNX 100 Index
4 Crompton Greaves Ltd. CNX Nifty Junior & CNX 100 Index
5 United Phosphorous Ltd. CNX Nifty Junior & CNX 100 Index
6 Indiabulls Real Estate Ltd. CNX Nifty Junior & CNX 100 Index
7 Zee Entertainment Enterprises Ltd. CNX Nifty Junior & CNX 100 Index
8 Colgate Palmolive (India) Ltd. CNX Nifty Junior & CNX 100 Index
9 Federal Bank Ltd. CNX Nifty Junior & CNX 100 Index
10 Zee Entertainment Enterprises Ltd. CNX Midcap Index
11 Aditya Birla Nuvo Ltd. CNX Midcap Index
12 Torrent Power Ltd. CNX Midcap Index
13 Tech Mahindra Ltd CNX Midcap Index
14 Tulip Telecom Ltd. CNX IT Index
15 Emami Ltd. CNX FMCG Index
16 Reliance Power Ltd. CNX Service Sector Index
17 United Breweries Ltd. S&P CNX 500 Index
18 IFCI Ltd. S&P CNX 500 Index
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N S E N E W S ( c o n t d … )
NCFM NEWS
1. Introduction of fee discount scheme for a period of one year (October 01, 2009 to Sep-
tember 30, 2010)
Under the Fee Discount Scheme being started for a period of one year (from October 01, 2009 to Sep-
tember 30, 2010), after taking two tests in modules included in Table-1 between October 01, 2009
and March 31, 2010 (both days inclusive), a candidate would qualify for availing 50 percent discount
on all the subsequent tests provided such tests are: (a) for modules included in Table-1, and (b) taken
by September 30, 2010.
Table-1*
Sr No Module Name
1 Capital Market (Dealers) Module
2 Derivatives Market (Dealers) Module
3 FIMMDA-NSE Debt Market (Basic) Module
4 Securities Market (Basic) Module
5 Surveillance in Stock Exchanges Module
6 Compliance Officers(Brokers) Module
7 Compliance Officers(Corporates) Module
8 Options Trading Strategies Module
1. The scheme is valid only for tests taken in any of aforementioned modules.
2. To avail 50% fee discount on modules stated in Table-1, a candidate would have to:
a. First take two tests in any modules given in Table-1, between October 01, 2009 and March 31,
2010 (both days inclusive), paying full fees. The two modules may or may not be the same module
and
b. Take subsequent tests in any of the modules given in Table-1 by September 30, 2010. It is in
these tests that the candidate would get 50 percent discount.
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N S E N E W S L E T T E R
N S E N E W S ( c o n t d … )
[Two clarifications:
A) The discount can be availed for tests taken in any of the modules from Table-1 even before March
31, 2010. For example, if a candidate takes his first two tests in modules from Table-1 on October
01, 2009 and October 05, 2009 respectively, he can get 50 percent discount on all his subsequent
tests in modules from Table-1 up to September 30, 2010. He can thus get a discount even for a test
he takes on October 6, 2009.
B) Modules which qualify candidates for discount as well as the modules, in which the discount can be
availed during the course of the discount scheme, need not be distinct modules. For example, if a
candidate appears in Capital Market (Dealers) Module three times (say on October 01, 2009, October
10, 2009 and October 15, 2009) for whatever reason, he would have to pay full fees for first two at-
tempts and discounted fees for the third.]
This scheme is applicable only to candidates appearing in their individual capacity by making payment
of fees in their respective NCFM accounts. In other words, this scheme is NOT applicable to any corpo-
rate/organization making bulk payments for enrollments on behalf of that company/organization.
On September 23, 2009 “Currency Derivatives: A Beginner’s Module” was launched under NCFM with a
view to equip candidates to obtain basic information regarding the Exchange traded Currency Futures
Market, product definitions, application of currency futures for hedging, speculation and arbitrage,
order and trade management, clearing and settlement systems and risk management. This module test
would contain 50 questions to be answered in 60 minutes. The passing percentage would be 50% with
no negative marking. The fees for the module would be Rs. 750/- per test.
The registration, payment of fees and enrollment for this module can be done online on
www.nseindia.com under ‘NCFM Online’ link. On-line payment can be made by cash/credit card/debit
card/net banking. Alternatively, the prescribed registration form can also be collected from the near-
est NSE office or it can be downloaded from our website www.nseindia.com. In case of offline regis-
tration, mode of payment would be demand draft only, payable at respective NSE branch office and
drawn in favour of ‘National Stock Exchange of India Limited’.
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N S E N E W S L E T T E R
I N T E R N A T I O N A L N E W S
Euroclear UK & Ireland (EUI) will be implementing a new trade-netting tariff in November 2009. With
this revision clients would have to pay as little as GBP 0.005 (a half pence) per transaction to net
trades from the London Stock Exchange, Irish Stock Exchange and a growing number of multilateral
trading facilities. The average trade-netting fee will fall from 4.3p to 1.8p per transaction, with most
high-volume clients paying an average of 1p per transaction. In addition to this tariff reduction, EUI
will redesign its tariff schedule to improve transparency by charging separately for MiFID-related
transaction reporting and UK and Irish stamp duty assessments for relevant trades. Currently, these
two services and trade netting are priced on a combined basis.
NYSE Euronext (NYX) announced on September 1, 2009 that its subsidiary, the New York Stock Ex-
change, will form an independent advisory commission to examine U.S. corporate governance and the
overall proxy process. This advisory commission will take a comprehensive look at strengthening U.S.
best practices for corporate governance and the proxy process. The advisory commission will be
chaired by Larry W. Sonsini, Chairman of Wilson Sonsini Goodrich & Rosati.
The members will comprise experts in all aspects of corporate governance and the U.S. proxy system
so that a wide variety of perspectives can be collected, including those of public companies, share-
holders and institutional and individual investors. This advisory commission will work with policymak-
ers and other interested constituents to foster a comprehensive and constructive approach to corpo-
rate governance and proxy reform.
The Final Report recommends regulatory actions to assist financial market regulators in intro-
ducing greater transparency and oversight with respect to securitisation and credit default
swaps (CDS) markets, and improving investor confidence, and the quality of these markets.
The Task Force was formed in November 2008 in response to G-20 calls for a review of the
scope of financial markets and in particular unregulated financial market segments and prod-
ucts.
The IOSCO Committee acknowledged that financial innovation will always be a hallmark of a
vibrant financial system, however such innovation need not, and should not occur at the cost
of investor protection and market confidence. The recommendations contained in this Final
Report are aimed at restoring investor confidence and at improving the functioning, integrity
and oversight of unregulated financial market segments and products, such as securitisation
and credit default swaps, and international financial markets generally.
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4. WFE Board urges consistent regulation and more transparency from G20 market reform efforts
The World Federation of Exchanges (WFE) Board of Directors urged leaders of the G20 nations at their
summit in Pittsburgh, Pennsylvania (USA), to press for market reforms that enhance transparency and
create more uniform rules between exchange-traded and less-regulated markets. In a letter to the
G20 signed by WFE Chairman William J. Brodsky, the WFE Board applauded the efforts of the G20
leaders to improve unregulated markets and products by advocating the use of clearing houses and
exchanges where risks can be better managed and prices are transparently set. Specifically, the WFE
urged G20 leaders to focus on the following points:
Absence of a Level Playing Field: WFE recommends that the G20 leaders consult with investor or-
ganizations about how they would wish to see orders executed in the markets, and determine
whether alternative trading venues have reduced the total costs of transacting by investors. WFE also
asked G20 leaders to assure a level playing field for the responsibilities assumed by all securities mar-
ket order execution venues. This would remedy many capital markets uncertainties, assuring greater
transparency, greater fairness and a more level competitive field.
Reduced Market Transparency: Impact of Dark Pools The WFE Board requested that G20 also focus
on issues related to dark pools and take remedial action in those countries concerned.
WFE, the Financial Stability Board (FSB), and global financial standards bodies: the WFE Board ex-
pressed its support for many of the capital markets reforms being circulated by the Financial Stability
Board; WFE also supports the FSB objective of having independent financial standards bodies set ro-
bust norms for our global financial system.
Importantly WFE asked that the G20 should agree on ways to avoid regulatory arbitrage between na-
tional financial market regulations around the world.
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