Market Infrastructure Institution

March 2, 2022

Syllabus: General Studies Paper 3

Context

The Securities and Exchange Board of India (SEBI) has said that the National Stock Exchange (NSE), which is the country’s largest equities and derivatives exchange, is a systemically significant market infrastructure institution that should be protected (MII).

Market Infrastructure Institution

Institutions like stock exchanges, depositories, and clearing houses are all examples of Market Infrastructure Institutions, and they all play an important role in the nation’s economic infrastructure.
Market infrastructure, according to a panel established (in 2010) under the supervision of former Reserve Bank of India Governor Bimal Jalan, refers to the essential facilities and mechanisms that support the Indian capital market.
The basic function of the securities and capital markets is to facilitate the allocation and reallocation of money and financial resources.
MIIs contribute to the efficient use of money in the economy and the promotion of economic growth.
It is they who provide the foundation of the capital allocation system, and they are essential for economic progress. They also have a net beneficial impact on society, just like any other infrastructural organisation would do.

Systematic Importance

As evidenced by the extraordinary growth experienced by these institutions in terms of market capitalization of listed businesses, capital raised, investor accounts, and the value of assets kept in their depositories’ account, MIIs are considered systemically significant in India.
Any failure of such a MII might result in even more catastrophic breakdowns, which could result in an entire economic downturn that could conceivably extend beyond the borders of the securities market and the country itself.
In light of the potential for a domino effect that a collapse of a MII might have on the broader market and economy, governance and supervision are extremely important, and they must be of the greatest possible quality.

Indian institutions that qualify as MIIs

The SEBI lists seven stock exchanges, including the Bombay Stock Exchange, the National Stock Exchange, the Multi Commodity Exchange of India, and the Metropolitan Stock Exchange of India.
There are two depositories that have been designated as MIIs: the Central Depository Services Ltd. and the National Securities Depository Ltd., both of which are tasked with the safeguarding of securities as well as the facilitation of their trading and transfer.
There are seven clearing houses listed on the regulator’s website, including the Multi Commodity Exchange Clearing Corporation.
Clearing houses, on the other hand, assist in the validation and finalisation of securities deals, as well as ensuring that both buyers and sellers adhere to their contractual commitments.

The Hindu link

Question- Write a short note on Market Infrastructure Institutions and their importance.