restrictions regarding participation of various economic entities in the currency and interest rate markets and the related derivatives. yes, there indeed these markets are tightly regulated. but what is the underlying philosophy behind these regulations? instead of talking about market regulation in abstractions, it would be useful to understand what it actually entails. bis central bankers ’ speeches 12. let us take currency markets. the markets have traditionally been otc, seeking to cater to the genuine hedging needs of the entities. given the capital account management framework, obviously there are guidelines of who can participate in what kind of products. these guidelines have been significantly liberalized over the years and newer products have been introduced on the exchanges. now, the question here is at what stage do we move to a completely open capital account which would, in turn, result in freeing up the restrictions on participation in these markets. the latter follows from the first, not the other way round. this is institutional - structure agnostic. 13. another structural factor with regard to an efficient bcd nexus is the nature of institutional market. in a bank - centric financial system, it has been the experience that even the task of developing non - bank channels, particularly through market - based mechanisms, falls ultimately on the banks themselves. whether it is expecting banks to provide credit enhancement for bond markets or acting as market - makers in various market segments, the role of banks becomes critical. this reflects the underlying structural makeup of the financial system and implies that any attempt at relaxing market regulation ultimately comes unstuck at the altar of prudential regulation. the same, to a lesser extent, applies to other regulated entities as well, such as, insurance companies, pension funds, etc. which are seen as natural participants in some market segments, such as, corporate bonds, interest rate derivatives, credit default swaps but the prudential regulatory framework, perhaps for very valid reasons, is more conservative. again, it is a matter of regulatory philosophy than the institutional structure. 14. as regard debt markets, the regulations essentially entail specification of broad product features and participation norms. while the considerations behind regulating interest rate markets are different form exchange rate markets, the objective still remains systemic stability. large sovereign borrowings impact the yield curve through the expectation channel. apart from direct balance sheet effects on the financial sector, interest rate volatility has a critical bearing on sovereign balance sheet which could translate onto financial sector balance sheets. it, therefore, becomes imperative to be watchful of

market infrastructure like reporting platform for corporate bonds, repo in corporate bonds, cps and cds. further, fimmda has been appointed as the accrediting body for brokers in the otc interest rate derivatives market. in the immediate future, fimmda will have a greater role to play in the rollout of cds in india. this has widened the scope and responsibility of fimmda and it has been successful, so far, in fulfilling these responsibilities. now it is time to reflect upon the past achievements and have a vision for the future. one such vision could be conferring sro status to fimmda. 55. changing nature of financial markets necessitate that organisations that are not from traditional regulatory structure participate in bringing orderliness in activities. selfregulation is an important part of the regulatory structure of securities markets. selfregulation and self - regulatory organizations ( sros ) are considered important in improving the effectiveness of securities regulation and market integrity. use of sros may lead to more efficient financial markets, thus enhancing businesses ’ access to public equity and debt markets for accessing capital at a reasonable cost, which supports business expansion and economic development. the regulators designate sro as a ‘ competent authority ’, to implement certain rules and regulations. 56. sros exercise certain regulatory authority over an industry or profession, which could be in addition to existing government regulations or fill the vacuum of absence of regulations. fimmda was created as a voluntary body for the interest rate market, and is a not - for - profit organization. the activities of fimmda and its role in the underlying market clearly indicate its self - regulatory role in the concerned markets and it could be termed as a “ quasi - sro ”. certain activities typical of a sro like prescription of code of conduct for members, oversight over brokers, and arbitration of disputes ( in a limited way ) are already being carried out by fimmda. presently fimmda, through the financial benchmarks india bis central bankers ’ speeches ltd ( fbil ), is also part of benchmark administration which is vital to market integrity. there is, however, an urgent need for fimmda to strengthen itself and broaden its mission to carry out tasks commensurate with the developments in the market and the role envisaged by the reserve bank of india. in this regard, there is a need for active participation from all the members of fimmda, especially the public