intensified. on their part, to promote integrity of the markets, fimmda and pdai need to establish a comprehensive code of conduct and best practices in securities transactions and also have a mechanism to enforce such codes. the rbi can play a supportive role here ”. there has been a recent review ( december 2004 ) of the recommendations of the advisory groups constituted by the standing committee on international financial standards and codes published in january 2005 rbi bulletin. an extract from this “ report on the progress and agenda ahead ” is useful, though, as the disclaimer says, it is an assessment by the professional staff of the rbi and not necessarily the view of the reserve bank : “ the proposal to accord legal status as an sro to fimmda has been examined in detail by rbi and was not found feasible at present. however, fimmda has established a code of conduct and undertaken related responsibilities appropriate to an industrial body. according self - regulatory status to pdai is a non - issue since all pdai members are also members of fimmda ”. there are several concepts which are addressed in the reports cited, in particular, ` industry body ’ ; ` self regulatory organisation ’ and ` legal status as sro ’. there is considerable merit in debating these concepts and their relevance to fimmda, keeping in view the way forward that is being contemplated in the conference today. self - regulation has a long history of working effectively. some of the earliest signs of self - regulation were evident in the utterance of the hippocratic oath by the medical professionals at the time of their graduation. almost a thousand years ago, maghribi traders had probably one of the first self - regulatory schemes based on market incentives for regulating their trade. the maghribi were jewish traders who lived in the abbasasid caliphate ( centered in baghdad ) until the first half of the tenth century, when they emigrated to north africa. they operated through business associates to handle some of their business dealings abroad. merchants could never be sure that agents actually handed over the entire proceeds of business done abroad on their behalf. courts were generally unable to verify agents ’ claims and actions or track down an agent who absconded with the merchant ’ s money. the maghribi traders solved the problem by organizing themselves into a coalition that served as a grapevine for information on honest and dishonest agents. any agents who treated a member unfairly could never hope to do business again with other members. in europe, in

the eleventh and twelfth centuries, as more and more rural folk moved to towns and cities, a new class of merchants emerged to meet the demands of the growing urban population. it was during this period that the basic concepts and institutions of modern western mercantile law ( lex mercatoria ) were formed. the self - regulation has evolved significantly since then and linkages with regulatory authorities, often on a sound legal basis, were established mainly in the financial sector. self - regulation generally imposes lower cost than official regulation whenever a shift is feasible. sros possess the flexibility to adapt to regulatory requirements of rapidly changing business environment. they provide an intimate knowledge of the markets and products. self - regulation, typically involving a unique combination of private interests with government or regulatory oversight over them, is an effective and efficient form of regulation for the complex, dynamic and ever - changing financial services industry. the role of selfregulation and, indeed, its very existence, differs from country to country, across market sectors and across the developed and emerging markets. in its most complete form, self - regulation encompasses the authority to create, amend, implement and enforce rules of conduct with respect to the entities subject to the sro ’ s jurisdiction, and to resolve disputes through arbitration or other means. the advantages of self - regulation are very clear, especially in terms of minimising the cost of regulation as well as cost of compliance of regulation in the financial sector, while improving the quality of regulation. however, there are a number of issues particularly in the financial sector which are often cited. for instance, there is a well - known observation about the “ regulatory capture ”, that is, the regulated entities, in the organised form, have a tendency to capture the regulator to protect their own interests. it is also argued that the sros protect the interests of the members if they are in conflict with interests of the system. in this regard, i find that the model for effective regulation, brought out in the report of the sro consultative committee of the international organization of securities commissions in may 2000, is useful. perhaps these issues will also be addressed in this conference as part of the way forward. let me again thank the organisers for giving me this opportunity and wish the conference all success.