Market regulator Securities and Exchange Board of India (Sebi) has recently put forward a host of proposals in order to enhance the risk management system. The regulator believes that such strategies will make the stock markets safe for the investors.
In one of its discussion papers, Sebi has expressed its thoughts that state that the present system in India, despite being advanced, is still vulnerable to various risks.
The paper therefore highlights measures like incentivizing internet-based trading models, mitigation of risks of clients losing their collateral and implementing T+1 settlement as a measure to reduce the overall risk level in the system.
"The extant system of risk management could be fine-tuned for more efficient use of capital and enhancing safety of investors," said the regulator.
Apart from this, Sebi has also proposed a model that it states is in line with internet-based trading (IBT) where there is no settlement risk as the funds or securities of clients are upfront blocked at the time of order itself.
The excerpts from the discussion paper also stated that the regulator has shown faith in margining framework that has evolved for mitigation of risk to the clearing corporation (CC).
Moreover, the regulator said that as overall risk in the system is dependent on the number of ever-rippling trades in the system at any point of time, a brief settlement cycle can go a long way in reducing the risks.