financial regulation policies

8/9/2019 financial regulation policies

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FINANCIAL REGULATION POLICIES

CHAPTER 1 - INTRODUCTION

1.1 Financial Market

A financial market is a broad term describing any marketplace where buyers and sellers

participate in the trade of assets such as equities, bonds, currencies and derivatives.

Financial markets are typically defined by having transparent pricing, basic regulations

on trading, costs and fees, and market forces determining the prices of securities that

trade.

The financial markets act as a link between these two different groups. It facilitates this

function by Acting as an intermediary between the borrowers and lenders of money. So,financial market may be defined as A transmission mechanism between investors !or

lenders" and the borrowers !or users" through which transfer of funds is facilitated#.

Functions of financial market$

!a" It provides facilities for interaction between the investors and the borrowers.

!b" It provides pricing information resulting from the interaction between buyers and

sellers in the market when they trade the financial assets.

!c" It provides security to dealings in financial assets.

!d" It ensures liquidity by providing a mechanism for an investor to sell the financial

assets.

!e" It ensures low cost of transactions and information

1.2 Financial Regulation

Financial regulation is the supervision of financial markets and institutions. Financial

regulations necessitate financial institutions to certain requirements, restrictions and

guidelines. The primary purpose of a financial regulation is to maintain the integrity of

the financial system. Financial regulation protects investors, maintain orderly markets

and promote financial stability.

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FI%A%&IA'()*+'AT,(-

.,/I)S

(.I S).I I(/A F0&


Financial regulations aim to$

)nforce applicable laws

1rosecute cases of market misconduct

'icense providers of financial services

1rotect clients

Investigate complaints

0aintain confidence in the financial system.

1. Financial Regulator! "o#ie$ in In#ia

The financial system in India is regulated by independent regulators in the field of

banking, insurance, capital market, and commodities market. 2owever, *overnment of

India plays a significant role in controlling the financial system in India and influences

the role of such regulators at least to some e3tent.

The following are four ma4or financial regulatory bodies in India.

!A" Statutory odies via parliamentary enactments$

5. (eserve ank f India$ (eserve ank f India is the ape3 monetary Institution of

India. It is also called as the central bank of the country. The reserve bank of India

was established on April 5, 5678 in accordance with the provisions of the (eserve

ank of India act, 5679. The central office of the (eserve ank was initially

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established in &alcutta but was permanently moved to 0umbai in 567:.

The central office is where the *overnor sits and where policies are formulated.

Though originally privately owned, since nationali;ation in 5696, the (eserve

ank is fully owned by the *overnment of India. It acts as the ape3 monetary

authority of the country.


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CHAPTER 2 - RE%ER&E "AN' OF INDIA (R"I)

2.1 Intro#uction

(eserve ank of India is the ape3 monetary Institution of India. It is also called as the

central bank of the country. The (eserve ank of India was established on April 5, 5678

in accordance with the provisions of the (eserve ank of India Act, 5679. The &entral

ffice of the (eserve ank was initially established in &alcutta but was permanently

moved to 0umbai in 567:. The &entral ffice is where the *overnor sits and where

policies are formulated. Though originally privately owned, since nationali;ation in 5696,

the (eserve ank is fully owned by the *overnment of India.

2.2 Function$ o* R"I

Traditional functions

5. Issue of currency notes$ The ( I has the sole right or authority or monopoly of issuing currency notes e3cept one rupee note and coins of smaller denominations.

These currency notes are legal tender issued by the ( I. &urrently it is in

denominations of (s.


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7. anker to the *overnment$ The ( I being the ape3 monitory body has to work as

an agent of the central and state governments. It performs various banking

function such as to accept deposits, ta3es and make payments on behalf of thegovernment. It works as a representative of the government even at the

international level. It maintains government accounts, provides financial advice to

the government. It manages government public debts and maintains foreign

e3change reserves on behalf of the government. It provides overdraft facility to

the government when it faces financial crunch.

9. )3changes (ate 0anagement$ It is an essential function of the ( I. In order to

maintain stability in the e3ternal value of rupee, it has to prepare domestic

policies in that direction. Also it needs to prepare and implement the foreign

e3change rate policy which will help in attaining the e3change rate stability. In

order to maintain the e3change rate stability it has to bring demand and supply of

the foreign currency !+.S /ollar" close to each other.

8. &redit &ontrol Function$ &ommercial banks in the country create credit accordingto the demand in the economy. ut if this credit creation is unchecked or

unregulated then it leads the economy into inflationary cycles. n the other credit

creation is below the required limit then it harms the growth of the economy. As a

central bank of the nation the ( I has to look for growth with price stability. Thus

it regulates the credit creation capacity of commercial banks by using various

credit control tools.

B. Supervisory Function$ The ( I has been endowed with vast powers for

supervising the banking system in the country. It has powers to issue license for

setting up new banks, to open new branches, to decide minimum reserves, to

inspect functioning of commercial banks in India and abroad, and to guide and

direct the commercial banks in India. It can have periodical inspections an audit

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of the commercial banks in India.

/evelopmental C 1romotional Functions

5. /evelopment of the Financial System$ The financial system comprises the

financial institutions, financial markets and financial instruments. The sound and

efficient financial system is a precondition of the rapid economic development of

the nation. The ( I has encouraged establishment of main banking and non>

banking institution to cater to the credit requirements of diverse sectors of the

economy.


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8. &ollection of /ata$ eing the ape3 monetary authority of the country, the ( I

collects process and disseminates statistical data on several topics. It includes

interest rate, inflation, saving and investments etc. This data proves to be quite

useful for researchers and policy makers.

B. 1ublication of the (eports$ The (eserve ank has its separate publication

division. This division collects and publishes data on several sectors of the

economy. The reports and bulletins are regularly published by the ( I. It includes

( I weekly reports, ( I Annual (eport, (eport on Trend and 1rogress of

&ommercial anks India., etc. This information is made available to the public

also at cheaper rates.

:. 1romotion of anking 2abits$ As an ape3 organi;ation, the ( I always tries to

promote the banking habits in the country. It institutionali;es savings and takes

measures for an e3pansion of the banking network. It has set up many institutions

such as the /eposit Insurance &orporation> 56B 569, I/ I> 56B9,

%A A(/> 56= 56==, etc. these organi;ations develop and promote

banking habits among the people. /uring economic reforms it has taken many

initiatives for encouraging and promoting banking in India.

=. 1romotion of )3port through (efinance$ The ( I always tries to encourage the

facilities for providing finance for foreign trade especially e3ports from India. The

)3port>Import ank of India !)DI0 ank India" and the )3port &redit *uarantee

&orporation of India !)&*&" are supported by refinancing their lending for

e3port purpose.

Supervisory Functions of ( I

5. *ranting license to banks$ The ( I grants license to banks for carrying its

business. 'icense is also given for opening e3tension counters, new branches,

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even to close down e3isting branches.

ank Financial Institutions are not influenced by

the working of a monitory policy. 2owever ( I has a right to issue

directives to the % FIs from time to time regarding their functioning. Through

periodic inspection, it can control the % FIs.

9. Implementation of the /eposit Insurance Scheme$ The ( I has set up the/eposit Insurance *uarantee &orporation in order to protect the deposits of

small depositors. All bank deposits below (s. ne lakh are insured with this

corporation. The ( I work to implement the /eposit Insurance Scheme in

case of a bank failure.

2. Policie$ o* R"I

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Polic! o* R"I

Monetar! Polic!


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2.+ Monetar! Polic!

0onetary policy is a regulatory policy by which the central bank or monetary

authority of a country controls the supply of money, availability of bank credit and cost of money, that is, the rate of Interest. 0onetary policy C monetary management are regarded

as an important tool of economic management in India. ( I controls the supply of money

and bank credit.

The &entral bank has the duty to see that legitimate &redit requirements are met and at

the same credit is not used for unproductive and speculative purpose. ( I rightly calls its

credit policy as one of controlled e3pansion.

2., O ecti/e$ o* Monetar! Polic!

The main ob4ective of monetary policy in India is growth with stability . 0onetary

0anagement regulates availability, cost and use of money and credit. It also brings

institutional changes in the financial sector of the economy. Following are the main

ob4ectives of monetary policy in India.

5. *rowth with Stability$ Traditionally, ( I s monetary policy was focused on

controlling inflation through contraction of money supply and credit. This

resulted in poor growth performance. Thus, ( I has now adopted the policy of

*rowth with Stability . This means sufficient credit will be available for growing

needs of different sectors of economy and at the same time, inflation will be

controlled with in a certain limit.


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confidence in financial system through proper regulation and controls, without

sacrificing the ob4ective of growth.

Therefore, ( I is focusing on regulation, supervision and development of

financial system.

7. 1romoting 1riority Sector$ 1riority sector includes agriculture, e3port and small

scale enterprises and weaker section of population. ( I with the help of bank

provides timely and adequately credit at affordable cost of weaker sections and

low income groups. ( I, along with %A A(/, is focusing on microfinance

through the promotion of Self 2elp groups and other institutions.

9. *eneration of )mployment$ 0onetary policy helps in employment generation byinfluencing the rate of investment and allocation of investment among

various economic activities of different labor Intensities.

8. )3ternal Stability$ Gith the growth of imports and e3ports India s linkages with

global economy are getting stronger. )arlier, ( I controlled foreign e3change

market by determining e3change rate. %ow, ( I has only indirect control over

e3ternal stability through the mechanism of 0anaged Fle3ibility where it

influences e3change rate by buying and selling foreign currencies in market.

B. )ncouraging Savings and Investments$ ( I by offering attractive interest rate

encourages savings in the economy. A high rate of saving promotes investment.

Thus the monetary management by influencing rates of interest can influence

saving mobili;ation in the country.

:. (edistribution of income And Gealth$ y control of inflation and deployment of

credit to weaker sectors of society the monetary policy may redistribute

income and wealth favoring to weaker sections.

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In$tru0ent$o* Monetar!Polic!

1ualitati/eIn$tru0ent$

1uantitati/eIn$tru0ent$


=. (egulation of % FIs$ %on> anking Financial Institutions !% FIs", like +TI,

I/ I, and IF&I plays an important role in deployment of credit and mobili;ation

of savings. ( I does not have any direct control on the functioning of such

institutions. 2owever it can indirectly affects the policies and functions of

% FIs through its monetary policy.

2. In$tru0ent$ o* 0onetar! 3olic!

uantitati/e In$tru0ent$

ank (ate 1olicy

pen 0arket perations

&ash (eserve (atio

Statutory 'iquidity (atio

(epo and (everse (epo (ates

ualitati/e In$tru0ent$

&eiling on &redit

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0argin (equirements

/iscriminatory Interest (ate

/irectives

/irect Action

0oral Suasion

I. Huantitative Instruments

5. ank (ate 1olicy$ ank rate is the rate at which the &entral bank lends money to

the commercial banks for their liquidity requirements. ank rate is also called

discount rate. In other words bank rate is the rate at which the central bank

rediscounts eligible papers !like approved securities, bills of e3change,

commercial papers etc." held by commercial banks. ank rate is important

because it is the pace setter to other market rates of interest. ank rates have

been changed several times by ( I to control inflation and recession. y


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brought down from 58 in 5665 to :.8 in 0ay


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bank to grant advances against certain controlled securities.


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(epo (ate$ (educe the policy repo rate under the liquidity ad4ustment facility

!'AF" by


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9. /eregulation of Administered Interest (ate System$ )arlier lending rate of banks was

determined by ( I. Since 566?s this system has changed and lending rates are

determined by commercial banks on the basis of market forces.

8. /elinking f 0onetary 1olicy From udget /eficit$ In5669 government phased out

the use of adhoc treasury ills. These bills were used by government to borrow from

( I to finance fiscal deficit. Gith phasing out of ills, ( I would no longer lend to

government to meet fiscal deficit.

B. 'iquidity Ad4ustment Facility !'AF"$ 'AF allows banks to borrow money

through repurchase agreement 'AF was introduced by ( I during June,


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2.6 I03act o* 0onetar! 3olic! on econo0!

Econo0!7 An economy consists of the economic systems of a country or other areaK the

labour, capital, and land resourcesK and the manufacturing, production, trade, distribution,

and consumption of goods and services of that area. A given economy is the result of a

process that involves its technological evolution, history and social organisation, as well

as its geography, natural resource endowment, and ecology, as main factors. These factors

give conte3t, content, and set the conditions and parameters in which an economyfunctions.

In*lation7 In economics, inflation is a rise in the general level of prices of goods and

services in an economy over a period of time. Ghen the general price level rises, each

unit of currency buys fewer goods and services. &onsequently, inflation also reflects

erosion in the purchasing power of money .A loss of real value in the internal medium of

e3change and unit of account in the economy. A chief measure of price inflation is

the inflation rate, the annuali;ed percentage change in a general price inde3 !normallythe &onsumer 1rice Inde3" over time.

8ro$$ Do0e$tic Pro#uct (8DP)7 *ross domestic product !*/1" is the market value of

all officially recogni;ed final goods and services produced within a country in a given

period. */1 per capita is often considered an indicator of a country s standard of livingK

*/1 per capita is not a measure of personal income !See Standard of living and */1".

+nder economic theory, */1 per capita e3actly equals the gross domestic income !*/I"

per capita !See *ross domestic income".*/1 is related to national accounts, a sub4ect

in macroeconomics. */1 is not to be confused with *ross %ational 1roduct !*%1"

which allocates production based on ownership.

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Intere$t rate7 An interest rate is the rate at which interest is paid by a borrower for the

use of money that they borrow from a lender. Specifically, the interest rate !ICm" is a per

cent of principal !I" paid at some rate !m". For e3ample, a small company borrows capital

from a bank to buy new assets for their business, and in return the lender receives interest

at a predetermined interest rate for deferring the use of funds and instead lending it to the

borrower. Interest rates are normally e3pressed as a percentage of the principal for a

period of one year.

Mone! $u33l!7 In economics, the money supply or money stock is the total amount

of monetary assets available in an economy at a specific time. There are several ways to

define money,# but standard measures usually include currency in circulation

and demand deposits !depositors easily accessed assets on the books of financial

institutions".0oney supply data are recorded and published, usually by the government or

the central bank of the country. 1ublic and private sector analysts have long monitored

changes in money supply because of its possible effects on the price level, inflation,

the e3change rate and the business cycle.

9en#ing Rate7 1rime 'ending (ate !1'(" is the rate which the lender charges from the borrower of high credit standing. Gith effect from April 56,


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Relation et:een t:o /aria le$

In*lation an# econo0!7 Inflation affects the economy on three sides. ne, it is

directly linked to interest rates. The interest rates prevailing in an economy at any

point of time are nominal interest rates, i.e., real interest rates plus a premium for

e3pected inflation. /ue to inflation, there is a decrease in purchasing power of every

rupee earned on account of interest in the futureK therefore the interest rates must

include a premium for e3pected inflation. In the long run, other things being equal,

interest rates raise one for one with rise in inflation.

Intere$t rate$ ; in/e$t0ent$7 Interest rates L the bond prices are inversely related to

each other. Ghen interest rates move up, it causes the bond prices to fall L vice versa.

Say for e3ample, you have a bond, which is yielding 5? now. Suddenly, the interest

rates in the economy move up to 55 . %ow your bond is giving fewer yields than the

market return. bviously it price is going to fall in such a case. (everse is the case when

interest rates fall, the bond price will move up because it is giving more returns than the

market return. So movements in interest rates have serious implications for individual

investments.

Mone! $u33l! an# t5e econo0!7 0oney supply also affects the economy on threesides. ne, money supply is used to control the inflation in an economy. n the

demand side, whenever money supply in the economy increases, consumer>spending

increases immediately in the economy because of increased money in the system. ut

supply can t vary in the short term, so there is a temporary mismatch of demand L

supply in the economy which e3erts an upward pressure on inflation. This argument

assumes that demand drives supply, which is generally the case. n the supply side, due

to an increase in demand, supply can only be increased by capacity additions. This causes

the cost of production to rise L that is reflected in inflation.

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Two, money supply also has a direct relationship with the growth of an economy.

+ntil an economy reaches full employment level, the economy growth is the

difference between money supply growth rate L the inflation, other things being

equal. Ghen an economy reaches full employment level, the growth in money supply is

set off by a growth in inflation, other things being equal. This happens because output

can t rise after full employment L therefore inflation increases one for one with the

money supply.

Three, money supply also has a relationship with interest rates. ne variable can be used

to control the other. oth can t be controlled simultaneously. If the ( I wants to peg the

interest rate at a certain level, it has to supply whatever money is demanded at that level

of interest rate. If it wants to fi3 the money supply at a certain level, the demand L supply

of money will determine the interest rates. +sually it is easier for ( I to control the

interest rates through its open market operations ! 0 ". So, the money supply is

allowed to vary but ( I controls it by playing around with interest rates through its

0 .

Ca$5 Re$er/e Ratio (CRR) ; $tatutor! li


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The ( I fi3es the bank rate in this policy which forms the basis of the structure of

interest rates L the &(( L S'(, which determines the availability of credit L the level

of money supply in the economy. So it plays a very important role in the development of

an economy.

2.1= T5ir# uarter Re/ie: o* Monetar! Polic! 2=1 -1+

n the basis of an assessment of the current and evolving macroeconomic situation, it has

been decided to$

Increase the policy repo rate under the liquidity ad4ustment facility !'AF" by


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management of banks and financial institutions are efficient and dedicated. 0any

officials of banks and financial institutions are corrupt and inefficient which leads to

financial scams in this way overall economy is affected.

Unorgani>e# Mone! Market7 1resence of unorgani;ed sector of money market is one of

the main obstacles in effective working of the monetary policy. As ( I has no power

over the unorgani;ed sector of money market, its monetary policy becomes less effective.

9e$$ Accounta ilit!7 At present time, the goals of monetary policy in India are not set

out in specific terms and there is insufficient freedom in the use of instruments. In such a

setting, accountability tends to be weak as there is lack of clarity in the responsibility of

governments and ( I.

"lack Mone!7 There is a growing presence of black money in the economy. lack

money falls beyond the purview of banking control of ( I. It means large proposition of

total money Supply in a country remains outside the purview of ( IMs monetary

management.

Increa$e &olatilit!7 The integration of domestic and foreign e3change markets couldlead to increased volatility in the domestic market as the impact of e3ogenous factors

could be transmitted to domestic market. The widening of foreign e3change market and

development of rupee foreign e3change swap would reduce risks and volatility.

9ack o* Tran$3arenc!7 According to S. S. Tara pore, the monetary policy formulation,

in its present form in India, cannot be continued indefinitely. For a more effective policy,

it would be necessary to have greater transparency in the policy formulation and

transmission process and the ( I would need to be clearly demarcated.

2.12 E/aluation o* 0onetar! 3olic!

%5ort Ter0 9i


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stability in interest rate and e3change rate like 'AF, 0 and 0SS. ( I has also

managed its sterili;ation operations very well.

Financial %ta ilit!7 Gith the help of controls, regulation and supervision mechanism,

( I has been successful in maintaining financial stability. /uring the period of global

crisis it has also been able to maintain macroeconomic stability.

Financial Inclu$ion7 Along with %A A(/, ( I has made a great impact in the growth

of microfinance. ( I has supported Self 2elp *roup 0odel and promoted other

microfinance institutions.

A#a3ta ilit!7 In India monetary policy is fle3ible, as it changes with time. ( I has

developed new methods of credit control and shifted from monetary targeting to multiple

indicator approach.

Increa$e in 8ro:t57 To maintain the growth of economy ( I has used its instrumentsM

effectively. At present India has the second highest rate of */1 growth after &hina. Thus

monetary policy has played an important role.

Increa$e in "ank De3o$it$7 The increase in bank deposits over the years indicates trust

and confidence of people in banking sector. )ffective supervision of ( I over banks and

financial institutions is largely responsible for trust and confidence of public in banking

sector.

Co03etition a0ong "ank$7 The monetary policy of ( I has resulted in healthy

competition among banks in the country. The competition is due to deregulation of interest rates and other measures taken by ( I. %ow>a>days due to professionalism banks

provide better service to customers.

CHAPTER ? IN%URANCE RE8U9ATOR@ AND

DE&E9OPMENT AUTHORIT@ (IRDA)

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.1 Intro#uction

Insurance (egulatory and /evelopment Authority !I(/A" is an autonomous ape3

statutory body which regulates and develops the insurance industry in India. It was

constituted by a 1arliament of India act called Insurance (egulatory and /evelopment

Authority Act, 5666 and duly passed by the *overnment of India .

In India, insurance has a deep>rooted history. It finds mention in the writings of 0anu

!0anusmrithi", -agnavalkya !/harmasastra" and Eautilya !Arthasastra". 5=5= saw

the advent of life insurance business in India with the establishment of the riental 'ife

Insurance &ompany in &alcutta. The ombay 0utual !5=:5", riental !5=:9" and )mpire

of India !5=6:" were started in the ombay (esidency.

This era, however, was dominated by foreign insurance offices which did good business

in India. The Indian 'ife Assurance &ompanies Act, 565< was the first statutory measure

to regulate life business. In 56life

business transacted in India by Indian and foreign insurers including provident insurance

societies.

The Insurance Amendment Act of 568? abolished 1rincipal Agencies. An rdinance was

issued on 56 th January, 568B nationali;ing the 'ife Insurance sector and 'ife Insurance

&orporation came into e3istence in the same year. The 'I& absorbed 589 Indian, 5B non>

Indian insurers as also :8 provident societies>


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committee under the chairmanship of (% 0alhotra, former *overnor of ( I, to propose

recommendations for reforms in the insurance sector.

.2E$ta li$50ent o* IRDA

Following the recommendations of the 0alhotra &ommittee report, in 5666, the

Insurance (egulatory and /evelopment Authority !I(/A" was constituted as an

autonomous body to regulate and develop the insurance industry. The I(/A was

incorporated as a statutory body in April,


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To bring about speedy and orderly growth of the insurance industry !including

annuity and superannuation payments", for the benefit of the common man, and to

provide long term funds for accelerating growth of the economyK

To set, promote, monitor and enforce high standards of integrity, financial soundness,

fair dealing and competence of those it regulatesK

To ensure speedy settlement of genuine claims, to prevent insurance frauds and other

malpractices and put in place effective grievance redressal machineryK

To promote fairness, transparency and orderly conduct in financial markets dealing

with insurance and build a reliable management information system to enforce high

standards of financial soundness amongst market playersK

To take action where such standards are inadequate or ineffectively enforcedK To bring about optimum amount of self>regulation in day>to>day working of the

industry consistent with the requirements of prudential regulation.

.+ RO9E OF IRDA

5. To protect the interest of and secure fair treatment to policyholders.


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7. To set, promote, monitor and enforce high standards of !integrity", financial

soundness, fair dealing and competence of those it regulates.

9. To ensure that insurance customers receive precise, clear and correct

!information" about products and services and make them aware of their

responsibilities and duties in this regard.

8. To ensure speedy settlement of genuine !claims", to prevent insurance frauds and

other malpractices and put in place effective grievance redressed machinery.

B. To promote fairness, !transparency" and orderly conduct in financial markets

dealing with insurance and build a reliable management information system toenforce high standards of financial soundness amongst market players.

:. To take !action" where such standards are inadequate or ineffectively

enforced.=.To bring about optimum amount of !self>regulation"in day to day

working of the industry consistent with the requirements of prudential regulation.

., Dutie$ Po:er$ an# Function$ o* IRDA

I(/A Section 59 of I(/A Act, 5666 lays down the duties, powers and functions of

I(/A

!5" Sub4ect to the provisions of this Act and any other law for the time being in force, the

Authority shall have the duty to regulate, promote and ensure orderly growth of the

insurance business and re>insurance business.

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!insurance businessK

g" 'evying fees and other charges for carrying out the purposes of this ActK

h" calling for information from, undertaking inspection of, conducting enquiries and

investigations including audit of the insurers, intermediaries, insurance

intermediaries and other organi;ations connected with the insurance businessK

i" control and regulation of the rates, advantages, terms and conditions that may be

offered by insurers in respect of general insurance business not so controlled and

regulated by the Tariff Advisory &ommittee under section B9+ of the Insurance

Act, 567= !9 of 567="K

4" Specifying the form and manner in which books of account shall be maintained

and statement of accounts shall be rendered by insurers and other insurance

intermediariesK

k" (egulating investment of funds by insurance companiesK

l" (egulating maintenance of margin of solvencyK

m" Ad4udication of disputes between insurers and intermediaries or insurance

intermediariesK

n" Supervising the functioning of the Tariff Advisory &ommitteeK

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o" Specifying the percentage of premium income of the insurer to finance schemes

for promoting and regulating professional organi;ations referred to in clause !f"K

p" Specifying the percentage of life insurance business and general insurance

business to be undertaken by the insurer in the rural or social sectorK and

q" )3ercising such other powers as may be prescribed.

. 8ui#eline$ o* IRDA

8ui#eline$ on %tan#ar#i>ation in Healt5 In$urance

Re7 8ui#eline$ on %tan#ar#i>ation in Healt5 In$urance

2ealth insurance addresses a ma4or area of public concern. Although it is rapidly

growing, access to health insurance still remain slim ited and add to it complaints

especially due to variable interpretations of key policy term s are enormous. In order to

address the e3pectation of public more effectively, the Authority propose to stipulate the

following in respect of all health insurance policies issued by life and general insurers in

the country.

1. %tan#ar# De*inition *or + co0 0 onl! u$e# ter0 $ in 5ealt5 in$urance 3olicie$7

Standard terms would reduce ambiguity, enable all stakeholders to provide better servicesand enable customers to interact more effectively with insurers, T1A s and providers. All

insurers shall adhere to the stipulated definitions, anne3ed at Anne3ure I, while defining

these 9B core term s in all health insurance policies.

2. %tan#ar# No0enclature an# Proce#ure$ *or Critical Illne$$e$7

In view of resolving the differences in the definitions of term son &ritical Illnesses

adopted by the different insurers which are creating confusion in the minds of consumers

and the industry especially at the time when insurers and re>insurers have to arrive at a

point where lump sum payment is made, 55 &ritical Illness term s have been standardi;ed

to be adopted uniformly across industry, if offered under the product. All products

offering the 55 critical illness coverage shall ensure that definitions of the stated 55 term s

are in line with the stipulated definitions anne3ed at Anne3ure II.

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. %tan#ar# Pre-aut5ori>ation an# Clai0 *or07

A common industry wide pre>authori;ation and claim form will significantly stream line

processes at all stages. This will enhance the ability of providers to obtain a timely prior

authori;ation. y implementing it in an optical character recognition ! &(" format, the

ability to transfer data from a handwritten paper based form to IT system s has been

enhanced thus reducing the data entry issues for T1A s and insurers. )very company shall

attach set of claim forms along with policy term s and conditions to the policyholder. The

forms are attached at Anne3ure III.

+. %tan#ar# 9i$t o* EBclu#e# EB3en$e$ in Ho$3itali>ation In#e0nit! 3olicie$7

2ospitali;ation indemnity products are the commonest products in the Indian market andaccount for most of the health insurance sold in the country. The standard listing of 566

e3cluded items, an area which has otherwise been fairly variable in its interpretation and

implementation, has been finali;ed. The same is anne3ed at Anne3ure IN. 2owever,

Insurers may include these e3clusions, if the product design allows for, or if the insurer

wants to include these as part of hospitali;ation e3penses.

,. %tan#ar# File an# U$e A33lication For0 Data a$e %5eet an# Cu$to0er

In*or0ation %5eet7

The e3isting FL + form used by the non>life insurers is designed keeping in view largely

the characteristics of % on 'ife products other than 2ealth. Gith this, the essential

information like the sum insured the minim um and ma3im um age, term of the product

etc. that gets captured in the FL + form is very minim al. In order to capture the relevant

product design information, the modified File and +se Application form along with the

/atabase sheet and &ustomer information sheet as anne3ed in the Anne3ure$ N, NI and

Page 30


31/79


NII respectively shall be submitted under File and +se procedure by the insurers. This

circular supersedes all the e3isting circulars Cguidelines on File and +se 1rocedure for

health insurance products offered by life insurersCnon>life insurersChealth insurers. All the

insurers shall com ply with the File and +se procedure specified in this circular.

. %tan#ar# agree0ent et:een TPA ; In$urer an# Pro/i#er (Ho$3ital) ; In$urer7

The insurers enter into agreements with the T1A s for health services under health

insurance contracts and with the 1roviders !2ospitals" for health care services under

health insurance contracts. The Service 'evel Agreement shall include the minim um

standard clauses as anne3ed in Anne3ure$ N III and ID, as applicable. This is issued under

section 59!


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autonomous body in 566< and more powers were given through an ordinance. Since then

it regulates the market through its independent powers.

+.2 Pur3o$e an# Role o* %E"IS) I was set up with the main purpose of keeping a check on malpractices and protect

the interest of investors. It was set up to meet the needs of three groups.

1. I$$uer$7 For issuers it provides a market place in which they can raise finance fairly

and easily.

2. In/e$tor$7 For investors it provides protection and supply of accurate and correct

information.

. Inter0e#iarie$7 For intermediaries it provides a competitive

+. O ecti/e$ o* %E"I

The overall ob4ectives of S) I are to protect the interest of investors and to promote the

development of stock e3change and to regulate the activities of stock market. The

ob4ectives of S) I are$

5. To regulate the activities of stock e3change.

regulation of

business and its statutory regulations.

9. To regulate and develop a code of conduct for intermediaries such as brokers,

underwriters, etc.

+.+ Function$ o* %E"I

The S) I performs functions to meet its ob4ectives. To meet three ob4ectives S) I has

Page 32


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three important functions.

These are$

i. 1rotective functions

ii. /evelopmental functions

iii. (egulatory functions.

1. Protecti/e Function$7 These functions are performed by S) I to protect the

interest of investor and provide safety of investment.

A$ 3rotecti/e *unction$ %E"I 3er*or0$ *ollo:ing *unction$7

(i) It C5eck$ Price Rigging7 1rice rigging refers to manipulating the prices of securities

with the main ob4ective of inflating or depressing the market price of securities. S) I

prohibits such practice because this can defraud and cheat the investors.

(ii) It Pro5i it$ In$i#er tra#ing7 Insider is any person connected with the company such

as directors, promoters etc. These insiders have sensitive information which affects the

prices of the securities. This information is not available to people at large but the

insiders get this privileged information by working inside the company and if they usethis information to make profit, then it is known as insider trading, e.g., the directors of a

company may know that company will issue onus shares to its shareholders at the end

of year and they purchase shares from market to make profit with bonus issue. This is

known as insider trading. S) I keeps a strict check when insiders are buying securities of

the company and takes strict action on insider trading.

(iii) %E"I 3ro5i it$ *rau#ulent an# Un*air Tra#e Practice$7 S) I does not allow the

companies to make misleading statements which are likely to induce the sale or purchase

of securities by any other person.

(i/) S) I undertakes steps to educate investors so that they are able to evaluate the

securities of various companies and select the most profitable securities.

Page 33


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(/) S) I promotes fair practices and code of conduct in security market by taking

following steps$

a" S) I has issued guidelines to protect the interest of debenture>holders wherein

companies cannot change terms in midterm.

b" S) I is empowered to investigate cases of insider trading and has provisions for

stiff fine and imprisonment.

c" S) I has stopped the practice of making preferential allotment of shares

unrelated to market prices.

2. De/elo30ental Function$7

These functions are performed by the S) I to promote and develop activities in stock

e3change and increase the business in stock e3change. +nder developmental categories

following functions are performed by S) I$

!i" S) I promotes training of intermediaries of the securities market.

!ii" S) I tries to promote activities of stock e3change by adopting fle3ible and adoptable

approach in following way$

a" S) I has permitted internet trading through registered stock brokers.

b" S) I has made underwriting optional to reduce the cost of issue.

c" )ven initial public offer of primary market is permitted through stock e3change.

. Regulator! Function$7 These functions are performed by S) I to regulate the business in stock e3change. To regulate the activities of stock e3change following

functions are performed$

i. S) I has framed rules and regulations and a code of conduct to regulate the

intermediaries such as merchant bankers, brokers, underwriters, etc.

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ii. These intermediaries have been brought under the regulatory purview and private

placement has been made more restrictive.

iii. S) I registers and regulates the working of stock brokers, sub>brokers, share

transfer agents, trustees, merchant bankers and all those who are associated with

stock e3change in any manner.

iv. S) I registers and regulates the working of mutual funds etc.

v. S) I regulates takeover of the companies.

vi. S) I conducts inquiries and audit of stock e3changes.

+., Po:er$ o* %E"I

%E"I 5a$ een /e$te# :it5 t5e *ollo:ing 3o:er$ $

Page 35


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5. 1ower to call periodical returns from recogni;ed stock e3change.

laws of recogni;ed stock e3changes.

=. 1ower to make or amend bye>laws of recogni;ed stock e3changes.

6. 1ower to compel listing of securities by public companies.

5?. 1ower to declare applicability of Section 5: of the Securities &ontract

!(egulation" Act is any state or area to grant licenses to dealers in securities.

+. Polic! an# Progra00e$

Gith a view to keep the Indian securities market integrated with the worldwide regulatory

regime, incessant developments are essential while in harmony with the ob4ectives

enshrined in the S) I Act, 566


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Pri0ar! %ecuritie$ Market7

The primary market enables the government as well corporates in raising the capital that

is required to meet their requirements of capital e3penditure andCor discharge of other

obligations such as e3it opportunities for venture capitalistC1) firms. A well>developed

primary market is fundamental for an economy to prosper. In order to further refine the

primary market design and boost investor confidence, various measures have been

undertaken by S) I in


38/79


mechanism was made voluntary# as against the earlier provision of the same being

mandatory#.

C. Intro#uction o* 8eneral In*or0ation Docu0ent

The concept of *eneral Information /ocument !*I/" has been implemented.

*I/ shall contain information which is of generic nature !like issue and allotment

procedure" and not specific to the issuer, thereby eliminating the repetition of common

information in abridged prospectus. This is e3pected to bring down the si;e of the

abridged prospectus and ultimately reduce the cost of printing.

D. A0en#0ent$ to %E"I (I$$ue o* Ca3ital an# Di$clo$ure Rein for the

shares allotted in preferential issues, the following amendments were carried out to S) I

!Issue of &apital and /isclosure (equirements" (egulations,


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line with the revised Schedule NI of the &ompanies Act, 568B and Schedule III of the

newly enacted &ompanies Act,


40/79


has been decided to permit listing without an I1 and trading of specified securities of

small and medium enterprises !S0)s" including start>up companies on Institutional

Trading 1latform !IT1" in S0) )3changes.

". Allo:ing Mutual Fun# #i$tri utor$ to u$e %tock EBc5ange In*ra$tructure *or

Mutual *un# #i$tri ution

To enable the mutual fund distributors to leverage the stock e3change platform so as to

improve their reach, S) I, vide circular dated ctober ?9,


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b" Standard operating procedure !S 1" for suspension and revocation of suspension

of trading in the shares of such listed entities. The salient features of the circular

are as follows$

i. Imposition of fines !on per day basis" on the company for non>

compliance and delay in compliance with continuous listing

conditions such as submission of shareholding pattern, financial

results, corporate governance report etc.

ii. In case of non>compliance for two consecutive quarters, moving

the shares of non>compliant company to O# &ategory, where the

trades would settle on Trade for Trade basis.

iii. In case non>compliance continues, free;ing the shares of the

promoter and promoter group. This would be carried out beforesuspension of the trading of shares of the company.

iv. In order to provide e3it window for the non>promoters, after 58

days of suspension, trading in the shares of non>compliant entity

will be available on the Trade for Trade# basis, on the first

trading day of every week for B months.

D. EBc5ange Tra#e# Ca$5 %ettle# Intere$t Rate Future$ (IRF) on 1=-!ear

8o/ern0ent o* In#ia %ecurit!

S) I vide circular no. S) IC/%1/C&ir>9BC-ear *overnment of India !* I"

Security. In consultation with ( I, after taking into account feedback from market

participants and stock e3changes, S) I decided to permit stock e3changes to introduce

cash settled Interest (ate Futures on 5?>-ear *overnment of India Security.

E. Intro#uction o* Deri/ati/e$ on In#ia &I

S) I has permitted introduction of derivatives on India NID to %ational Stock

)3change !%S)" in January


42/79


contracts on India NID called %NID on February


43/79


c. Increase in the universe of strategic investors to include, Systemically

Important % F&s registered with ( I and foreign institutional investors

registered with S) I which are long term investors sub4ect to their e3isting

investment limits.

d. )3tension of the ma3imum new fund offer period and specified transaction

period to 98 days.

e. Allowed to increase the tenure of the scheme to two years sub4ect to approval

of two>thirds of the unit holders by value of their investment in the scheme.

f. The following categories of FIIs have been designated as long term investors

for the purpose of I/F$

@ Foreign &entral anks

@ *overnmental Agencies @ Sovereign Gealth Funds

@ InternationalC0ultilateral rgani;ationsC Agencies

@ Insurance Funds and 1ension Funds

Further, it was decided that regulated foreign feeder funds, having at all times, at least


44/79


D. Con#ition$ lai# #o:n *or a $3on$or to act a$ a cu$to#ian7 It has been decided that

the custodian in which the sponsor of a mutual fund or its associates, holding 8? per cent

or more of the voting rights of the share capital of the custodian, shall be allowed to act

as custodian sub4ect to fulfilling the following conditions i.e. !a" the sponsor should have

net worth of at least P


45/79


Gith effect from June 5


46/79


A. Ne: Co03an!7 Anew company is one, which has not completed5< month s

commercial production and does not have audited results. And the promoters do

not have a track record. These companies have to issue shares only at 3ar.

. Ne: Co03an! $et-u3 ! EBi$ting Co03an!7 Ghen a new company is being set

up by e3isting companies with a five year track record of consistent profitability

and a contribution of at least 8? in the equity of new company, it can issue its

shares at 3re0iu0.

&. Pri/ate an# clo$el! 5el# co03anie$7 These having a track record of consistent

profitability for at least three years, shall be permitted to 3rice t5eir i$$ue$ *reel!.

The issue price shall be determined only by the issues in consultation with leadmanagers ton the issue.

/. EBi$ting 9i$te# co03anie$7 It will be allowed to raise fresh capital by freely

pricing e3panded capital provided the promoter s contribution is 8? on first

(s.5??crores of issue, 9? on ne3t (s.


47/79


"roker$

5. (egistration of brokers and sub>brokers is made compulsory.

client

relationship, S) I has made it mandatory for brokers to disclose transaction price

and brokerage separately in the contract notes issued to client.

8. %o broker is allowed to underwrite more than 8 of public issue.

. Foreign In$titutional In/e$tor$ (FII)

5. Foreign institutional investors have been allowed to invest in all securities traded

in primary and secondary markets.


48/79


,. 8ui#eline$ *or Rig5t$ I$$ue

Ghere composite issues are made by listed companies, they can be issued at different

prices. *aps between the clearance dates of right issues and public issues should not

e3ceed 7? days. If right issues of listed companies e3ceed (s.8? lakhs, issue should be

managed by an authori;ed merchant banker.

5. +nderwriting of right issues is not mandatory but as per S) I (ules right issues

can be underwritten.


49/79


8. /ebentures issued to public have to be secured and registered

B. credit rating is compulsory for all the debentures e3cept those issued by public

sector companies

4. 8ui#eline$ *or 3rotection o* t5e De enture Hol#er$

5. Servicing of /ebentures


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Forward 0arkets &ommission !F0&" headquartered at 0umbai, is a regulatory authority

for &ommodity futures market in India. It is a statutory body set up under Forward

&ontracts !(egulation" Act 568


51/79


9. To make recommendations generally with a view to improving the organi;ation

and working of forward marketsK

8. To undertake the inspection of the accounts and other documents of any

recogni;ed association or registered association or any member of such

association whenever it considers it necessary.

,. Po:er$ o* FMC

5. The &ommission shall, in the performance of its functions, have all the powers of a

civil court. +nder the &ode of &ivil 1rocedure, 56?= !8 of 56?=", while trying a suit in

respect of the

Following matters, namely$

A. Summoning and enforcing the attendance of any person and e3amining him on

oath.

. (equiring the discovery and production of any document.

&. (eceiving evidence on affidavits.

/. (equisitioning any public record or copy thereof from any office.

). Any other matters which may be prescribed.


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7. The &ommission shall be deemed to be a civil court and when any offence described in

Sections. 5:8, 5:=, 5:6, 5=? or Sec.


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A. The role of Forward 0arkets &ommission is to communicate the information

relating to offences under the Act to the police authorities and assist such

authorities in their work such as accompanying the police in conducting searches

for documents etc.

. The offences under the Act are technical in nature and it is difficult to prove the

charges in accordance with the rules of evidence contained in the )vidence Act.

So, the Forward 0arkets &ommission periodically conducts training programs,

Seminars, Gorkshops etc. for the benefit of 1olice fficersC 1rosecutors and also

Judicial 0agistrates First &lassC0etropolitan 0agistrates.

Rule$ go/erning illegal *or:ar# contract$

A. wner of a place which is used for performing illegal forward contracts, with the

Enowledge of such owner.

. A person who, without permission of the &entral *overnment, organi;es illegal

forward contract.

&. Any person who will fully misrepresents or induces any person to believe that he

is a member of a recogni;ed association or that forward contract can be performed

through him.

/. Any person who is not a member of a recogni;ed association canvasses,

advertises or touts in any business connected with forward contracts in

contravention of the Forward &ontracts !(egulation" Act, 568laws of the recogni;ed associations for

making bids or offers or for entering into illegal forward contracts.

Page 53


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F. Any person who makes publishes or circulates any statement or information,

which is false and which he knows to be false, affecting or tending to affect the

course of business in forward contracts in permitted commodities.

,., Initiati/e$ o* t5e co00i$$ion in 2=1 - 1+

Investor 1rotection Fund> Investor 1rotection Fund has been operationali;ed and

all the )3changes have transferred a total of (s:6.=6 &r. to this Fund. This has

been a very significant contribution to protection of investors in this market which

would increase their confidence and hence their participation in the market.

Staggered /elivery 0echanism> To limit e3cessive speculation especially in the

near month contracts and make the threat of delivery in the near month credible,

the &ommission approved the introduction of staggered delivery system. +nder

this system, the sellers can indicate their delivery intentions on any day during the

last 58 days of the contract which is allocated to the buyers in a random manner.

This system has already yielded good results in terms of reducing the e3cess

speculation and price volatility in the near month and showing a more mature

trading pattern in the concerned commodity contracts. This has also led to greater

liquidity in the far month contracts.

S0S and )>mail alerts to clients> To reduce the instances of unauthori;ed trade

and empower the client with information, a system of sending e>mail alerts and

sms to all the clients by close of business everyday regarding trades e3ecuted in

their account has been put in place. A penalty of (s. 8??C> per client per trade is

applicable on member for trades e3ecuted without S0S alert facility with effectfrom 5st April


55/79


interests of investors in commodity market and to promote the orderly

development and regulation of the commodity futures market.

ase 0inimum &apital (equirements>&ommission prescribed ase 0inimum

&apital requirement for members of %ational )3changes. %o e3posure is given by

)3changes on base minimum capital. These funds would be used only towards

settlement of claims by the client, arbitration awards against the member, if any.

0ore disclosures by %ational )3changes>To ensure transparency in the trading

practices, the e3changes now display members data, trading activity during life

cycle of a contract, details of percentage of proprietaryCclient trading including

details of 2FT and also trading on their websites.

Formation of Advisory &ommittee>*overnment has constituted an Advisory

&ommittee to deliberate on various issues of concern to the futures trading in

various commodities. The first meeting of the &ommittee was held in 0umbai in

ctober


56/79


A. ption trading prohibited

. Functions as a *overnment department with limited autonomy with respect to$

a. (ecognition C de>recognition of e3changes

b. (egulation of intermediaries

c. Financial and administrative autonomy.

&. 0arket e3pansion has put heavy pressure on the F0& s coping capacity

I$$ue$ an# C5allenge$

5. Strengthening of and Autonomy for the (egulator$ &urrently, the commission is

an arm functioning under the 0inistry of &onsumer Affairs and it looks after the

working of futures e3changes also. +nlike IndiaMs autonomous stock market

regulator, the commodities regulator i.e. Forward 0arket &ommission !F0&", is

controlled by the &onsumer Affairs 0inistry and needs to seek government

permission for many decisions. As per the latest news, the Forward 0arket

&ommission will be given autonomy through an ordinance to strengthen the legal

and regulatory framework with stiffer punishment for violators and stringent

provisions for preventing misuse of insider information.

According to F0& chairman & Ehatua, strengthening the regulator wouldlikely enable banks and financial institutions to enter commodities bourses and

deepen trading. The changes would also help the introduction of options trading in

commodities. The strength of the F0& would be raised from the present four

members to nine, including a &hairman and up to three whole>time members.


57/79


7. Improving the *overnance of )3changes and Intermediaries$ 1ossible way to

improve this can be stricter enforcement of legal and regulatory provisions and

improvement in competencies and transparency.

@ Standardisation of contract designs and quality parameters across the

market.

@ (emoval of interstate tariff and non>tariff barriers Q0arket integration.

@ &apacity uilding$ F0&, )3changes, Garehouses, Assayers.

@ ( and / in &ommodity market governance and structural issues.

@ Sensitisation of policy makersCopinion makers with respect to the benefits

of the commodity futures market.

a! For:ar#

The following are under implementation

5. Amendment of Forward &ontracts !(egulation" Act, 568


58/79


,.4 8ui#eline$ o* FMC

Re/i$e# Nor0$ *or Con$titution o* t5e "oar# o* Director$ Co00ittee$ No0ination

an# Role o* In#e3en#ent Director$ A33oint0ent o* Managing Director C5ie* EBecuti/e$ etc at t5e Nation:i#e Multi Co00o#it! EBc5ange$.

1. "OARD OF DIRECTOR%7

The oard shall include$

!a" Shareholder directorsK

!b" Independent directorsK and,

!c" 0anaging /irector.

The composition of the oard of /irectors shall be as under$

5. %ot less than 8? !one>half" of the strength of the oard of /irectors shall be

Independent /irectors of whom$>

I. Independent /irectors shall be appointed by the Forward 0arkets

&ommission !henceforth called the &ommission" uCs B!


59/79


9. The &hairperson of the oard of /irectors of the )3change shall be an

Independent /irector and shall be appointed with the prior approval of the

&ommission.

8. %o trading member or clearing member or their associates and agents shall be on

the oard.

B. Foreign Institutional InvestorC Foreign 1ortfolio Investor as defined in Securities

and )3change oard of India !Foreign 1ortfolio Investors" (egulations,


60/79



61/79


d" 1ersons who are regular traders C speculators in the market will not be eligible to be

considered for such nomination.

7.7. The Tenure and terms L conditions for appointment of Independent /irector at the

oard of /irectors shall be as follows>$

@ The term of an Independent /irector shall be normally three years. 2owever, the

&ommission may approve the appointment of Independent /irector for a term of

less than 7 years as deemed fit. The appointment of the Independent /irector can

be terminated by the &ommission at any point of time before the e3piry of hisCher

tenure.

@ The Independent /irectors shall have a ma3imum of < terms of 7 years each.

@ A person shall not act as Independent /irector on more than one &ommodity

)3change simultaneously.

@ The (emuneration payable to Independent /irectors shall be as per the provisions

of Section>56: of the &ompanies Act,


62/79


oardC&ommittee or any other matter which they would like bring to the attention

of the &ommission.

@ If any issue arises as to whether an assignment or position of an independent

director is in conflict with his role, the &ommission s decision shall be final.

@ In case of e3tension of the term of the independent director or appointment of a

new independent director, the )3change shall apply to the &ommission two

months before the e3piry of the term. In addition to the other requirements

prescribed herein, the application for e3tension of term of the independent

director shall be accompanied with, hisCher attendance details on meetings of

various mandatory committees and on the oard of /irectors of the )3change.

@ The independent director shall not be sub4ect to retirement by rotation.

@ The e3isting independent director shall continue holding the post, till a new

independent director is appointed in his place.

+. %HAREHO9DER DIRECTOR%7

9.5 The names of persons to be appointed as shareholder directors shall first be approved

by the oard of /irectors of the )3change, followed by shareholders approval before

submitting the same to the &ommission for approval.

9.< The manner of election, appointment, tenure, resignation, vacation etc. of Shareholder

/irectors shall be governed by the &ompanies Act,


63/79


64/79


c. 2old any position concurrently in the subsidiary of a recognised commodity

e3change or in any other entity associated with a recognised commodity

e3change. 1rovided that the 0anaging /irector of a recognised commodity

e3change may be appointed on the oard of /irectors, but not as 0anaging

/irector, of the subsidiary of a recogni;ed commodity e3change as the case may

be.

8.B. The )3change shall constitute a &ommittee for the selection of the 0anaging

/irector C &hief )3ecutive, as the case may be. The 0anaging /irector shall be selected

through open advertisement in all editions of at least one national daily from amongst

persons qualified in the fields of commodity marketCcapital marketC financeC management

and possessing sufficient e3perience. In case the )3change proposes reappointmentC

e3tension or fresh appointment, the &ommission should get a proposal from the

)3change for the appointment of 0anaging /irectorC&hief )3ecutive two months prior to

the last working day of such 0anaging /irector. The )3change shall submit an

undertaking that the necessary due diligence has been carried out by them with respect to

the verification of antecedents, credentials and e3perience of the proposed personCs. The

proposal seeking approval of the &ommission for the appointment C termination of services of 0anaging /irectorC&hief )3ecutive shall be submitted to the &ommission

only with the prior approval of the oard of /irectors of the )3change.

8.:. The Selection &ommittee shall comprise of five persons i.e., two independent

directors, two shareholder directors and one independent e3ternal person. Further, the

)3changes shall ensure that one independent director shall be part of the Selection

&ommittee and the meetings of such &ommittee at all times.

8.=. At the time of seeking approval of the &ommission for the appointment of the

0anaging /irectorC&hief )3ecutive, the )3change shall also seek approval for the

remuneration and terms and conditions of the 0anaging /irector C&hief )3ecutive from

Page 64


65/79


the &ommission. Ghile recommending the remuneration for the 0anaging /irector

C&hief )3ecutive, the )3change shall take into consideration the following$

i. (ole and responsibilities of the 0anaging /irector C&hief )3ecutive 1age B of :

ii. Financial condition C health of the )3change

iii. &omparability to the industry standards

iv. (evenues, net profit of the )3change

v. The )3change shall ensure that the variable component of the remuneration of

0anaging /irector C&hief )3ecutive does not e3ceed one third of the totalremuneration.

vi. %o incentives are provided for e3cessive risks in the short term.

vii. The variable component of the remuneration is paid only after the audited annual

accounts for the year are approved by the oard of /irectors.

viii. Any change in the remuneration or conditions of service of 0anaging

/irectorC&hief )3ecutive will also require prior approval of the &ommission.

i3. The remuneration of 0anaging /irectorC&hief )3ecutive of an )3change already

appointed with the approval of the &ommission shall also be in accordance with

the above norms. The points at !a" to !g" shall be considered by the commodity

e3change while fi3ing the remuneration of the Eey 0anagement 1ersonnel. The

definition of Eey 0anagement 1ersonnel will be as per Section


66/79


8.6. The 0anaging /irector C &hief )3ecutive of the )3change should be a person of high

calibre, integrity and e3pertise and should have sufficient authority to manage the affairs

of the )3change.

8.5?. It shall be the duty of the 0anaging /irectorC&hief )3ecutive of the )3change to

ensure that at least once in a quarter, the oard of /irectors is informed about the various

directions of &entral *overnmentCForward 0arkets &ommission relating to )3change

and the status of their compliance.

8.55. It shall be the duty of the 0anaging /irector C &hief )3ecutive to give effect to the

directives, guidelines, orders, circulars issued by the Forward 0arkets &ommission C

*overnment of India in order to implement the applicable provisions of law, rules, and

regulations as also the (ules, (egulations, yelaws and 0emorandum and Articles of Association of the )3change. Any failure in this regard will make the 0anaging

/irectorC&hief )3ecutive liable for removal from or termination of service by the oard

of /irectors of the )3change with the prior approval of the Forward 0arkets

&ommission, or on receipt of directions to that effect from the Forward 0arkets

&ommission, sub4ect to the 0anaging /irectorC&hief )3ecutive being given an

opportunity of being heard against such termination or removal.

8.5I.

1age : of :

8.57. The &ommission may suomotu remove or terminate the appointment of the

0anaging /irector of the %ational )3change if deemed fit in public interest provided that

no 0anaging /irector shall be removed unless he has been given a reasonable

opportunity of being heard.

8.59. The aforesaid provisions shall also be applicable if the )3change appoints a &hief

)3ecutive fficer who is not a 0anaging /irector.

Page 66


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. CODE OF CONDUCT FOR DIRECTOR% AND 'E@ MANA8EMENT

PER%ONNE9.

B.5. )very director of a recognised )3change shall abide by the &ode of &onduct

specified under Anne3ure>IN. In addition, an Independent /irector will also abide by the

&ode of &onduct as specifically laid down in Schedule IN of the &ompanies Act,


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CHAPTER - %UR&E@ ANA9@%I%

5" B? people feel that interest rate have an effect on economy and 9? feel itwon t have any effect.

0%

10%

20%

30%

40%

50%

60%

70%

RBI


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7" 8? people feel that monetary policy can affect share price of the company and

9: people feels it won t affect the share price of the company.

45%

46%

47%

48%

49%

50%

51%

RBI

9" 7? people feel that the central bank leads or follow the financial markets and

:? people say no that it doesn t lead or follow.

0%

10%

20%

30%

40%

50%

60%

70%80%

RBI

Page 69


70/79


8" 97 say yes that the central bank use derivatives in the conduct of monetary

policy and 8: say that no that they don t use derivatives

0%

10%

20%

30%

40%

50%

60%

RBI

B" 5?? people say that the central bank also regulates andCor supervise banks.

0%

20%

40%

60%

80%

100%

120%

RBI

Page 70


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:" :6 of the people say yes the monetary policy has lost its credibility and

effectiveness in tackling inflation and the management of the e3change rate while


72/79


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

RBI

6" 6B of the people know the current inflation rate is :.


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5?" 5?? of the people know the current &(( rate is 9

0%

20%

40%

60%

80%

100%

120%

RBI

55" 5?? of the people know that the current S'( rate is


74/79


0%

20%

40%

60%

80%

100%

120%

RBI

5


75/79


0%

20%

40%

60%

80%

100%

120%

RBI

CHAPTER 4 - CONC9U%ION

Page 75


76/79


Financial (egulation means supervision of financial markets and institutions. Financial

regulations necessitate financial institutions to certain requirements, restrictions and

guidelines. The primary purpose of a financial regulation is to maintain the integrity of

the financial system. Financial regulation protects investors, maintain orderly markets

and promote financial stability. There are four ma4or regulatory bodies in India > (eserve

ank of India !( I", Insurance (egulatory and /evelopment Authority !I(/A",

Securities and )3change oard of India !S) I", Forward 0arket &ommission !F0&".

The main aim of ( I is to regulate the banking system in India and to control money

flow in the market. ( I issues monetary policy and fiscal policy to control the money

flow in the market. Ghereas, I(/A is the regulator of insurance company and itsob4ective is to regulate and develop the insurance companies. I(/A issues various

guidelines to the insurance sector.

The main purpose of S) I is to meet the need of following three categories$

I$$uer$7 For issuers it provides a market place in which they can raise finance fairly and

easily.

In/e$tor$7 For investors it provides protection and supply of accurate and correct

information.

Inter0e#iarie$7 For intermediaries it provides a competitive

S) I issues various guidelines, policies and programmes to the securities market.

The main role of F0& is to regulate commodity market. F0& issues various guidelines

to the commodity market. The main ob4ective of Financial (egulation 1olicies is to

provide various policies and guidelines through (egulatory odies to the financial

markets, banking institutions, insurance sector, and commodity markets.

AnneBure

Page 76


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ue$tionnaire

5. /o you think that the increasing interest rates will have effect on the economyV

-es or %o


78/79


5?. Ghat is the current &(( rateV

B or 9

55. Ghat is the current S'( rateV


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