Issues in Assessing Effectiveness of Indian Securities Market regulations vis-à-vis mature and emerging market economies

Regulatory effectiveness is linked to how well regulators meet the objectives of market development, surveillance of intermediation and investors protection. With varying degrees of stringency in regulatory enforcement and increasing financial integration, limiting regulatory arbitrage with improving regulatory coordination to enhance effectiveness pose a public policy challenge. Therefore, it is essential from the perspective of regulatory reforms to quantify and identify the effectiveness issues in securities market in India.
Objectives of the study:
To identify and classify the developments in global financial standards and codes and assess its applicability to and adherence in the Indian financial system.
To develop a measure of effectiveness and compare the levels of effectiveness of regulation in India vis-à-vis mature and emerging market economies.
Hypotheses:
The degree of effectiveness is greater for unified regulator than multiple regulators.
Effectiveness of statutory regulators is greater than Self Regulatory Organisations.
Proposed Methodology:
A framework to study the dynamic interaction between regulators and securities markets for India would be developed. The evolution over time and the current regulatory practices of select mature and emerging economies would be studied from the secondary data collected from country sources, International Organization of Securities Commissions (IOSCO) and Organization for Cooperation and Economic Development (OECD). Regulatory Impact Assessment (RIA) as a tool, widely used in mature market economies, would be adopted to measure the effectiveness of regulations and quantify how well the regulators meet its objectives. Further, primary data would be collected in the form of questionnaires to capture the responses of domestic and foreign market participants and regulatory bodies in select mature and emerging economies, with special reference to India to quantify the degree of effectiveness of regulations in the context of public policymaking, involving support network. This information would be analysed using simple statistical tools, diagrammatic presentations and regression analyses. Based on the econometric analyses, relevant regulatory effectiveness indicators would be identified for India. These would help in identifying early-warnings of a crisis and help in having better preparedness by way of effective regulations.
Issues in Assessing Effectiveness of Indian Securities Market regulations vis-à-vis mature and emerging market economies

I Purpose, scope and significance of the study

The securities market serves the key functions of (a) price discovery, (b) liquidity creation and (c) minimization of search and information cost. Oftentimes, markets fail to deliver these basic functions and regulatory interventions become essential to restore stability, market development and investor protection. Regulators design the market structure with a view to contain information asymmetry and systemic risks. Regulatory actions that evolve over time include laws, rules, subordinate rules, regulations, orders and sanctions by government, designated regulators, its appellate authorities and self regulatory organizations (SROs) which have been delegated with regulatory responsibilities by the government or the designated regulators. These measures are meant to correct market failures and ensure smooth functioning of markets. Thus, regulations are measures that help the market to attain depth, instill confidence among all stake holders to ensure continuous creation and sustenance of ‘trust’ in the system (Posner, 1976).

The fundamental principle of Indian Constitution is separation of power between legislature executive and judiciary. In a regulatory institution, all these powers are vested with a single entity and hence it is crucial that these entities function effectively in delivering its mandate. The OECD (2005) has developed thirty guiding principles for regulatory quality and performance. According to OECD, indicators of an efficient Regulatory Management System (OECD, 2007) are:

Broad political acceptance of regulatory reform programmes to lay out clear objectives and frameworks for implementation
Systematic impact assessment of regulations and consequential review process to ensure intended objectives are met effectively and efficiently in changing and complex economic and social environment
Ensuring regulations, regulatory institutions are accountable for implementation and make the regulatory processes transparent and non-discriminatory
Review and strengthen the scope, effectiveness an enforcement of competition policy
Designing regulations to stimulate competition and efficiency in all sectors of the economy to serve public interest
Elimination of regulatory barriers to trade and investment via competition and liberalization so as to enhance better integration to market openness throughout the regulatory process
Identification of linkages with other policy objectives and design policies to achieve those objectives to support regulatory reforms.

Effectiveness of regulation cannot be delinked from the objectives of the regulator. A bird’s eye view of regulatory architecture of various countries presents an interesting finding. Firstly, there are some common objectives that all regulators try to fulfil. However, though the stated objectives remain similar for all the regulators, the path chosen by different regulators are different. Some countries choose principle based regulation, while others prefer rule based regulations or a mix of the two. Again, some countries practice entity based regulations while others practice activity based regulations. There is another category of countries that believe unified regulation is most effective. A brief survey (Exhibit 1) indicates that there are some objectives like market development, surveillance of intermediation, and investor protection, that are common to all financial regulators worldwide, but they vary in stating underlying principles to address such objectives.

The countries with explicit regulatory objectives seem to have made sustained progress than the countries without clear regulatory objectives. Given the variety of constitutional, administrative and political environments across the countries the main elements in effective regulatory management tries to answer the following:
From instruments to policy:
How do we know that a sound RIA produces better regulations?
From policy to regulatory output:
How do we know that ‘better regulation policy’ produce better regulatory output?
From regulatory output to final economic outcome:
What is the causal chain from good regulation to real-world economic outcome? How robust is it?


II Statement of problem, review of literature and theoretical underpinning
Several factors usually emerge from markets, preventing a regulator from functioning effectively as declared in its mandate. The boundaries among various segments of the financial markets are fast dissolving and becoming blurred. With the emergence of more and more financial supermarkets and growing complexity of financial transactions, there are increasing instances of a market intermediary coming under the ambits of multiple regulatory bodies. The introduction of sophisticated financial products that cut across regulatory jurisdictions has added to such complexities. These factors have raised the potential for regulatory gaps as well as overlaps, thereby underlining the need for greater cooperation among various regulators. There is, thus, a need for harmonization of standards and laws across countries to limit regulatory arbitrage. For instance, prevalence of multiple accounting standards results in regulatory shopping.

Further, domestic and international financial markets are getting increasingly integrated. Thus, regulatory intervention or its absence in one market tends to have more serious and more widespread repercussions in other markets than in the past. For instance, the genesis of the sub-prime crisis was in USA due to laxity in checking credit worthiness of borrowers, but the impacts were felt all over the world, notwithstanding stringent and orthodox regulatory regime in some of the affected countries. So the possibility of regulators arbitrage across geographies can pose to be a problem in assessing effectiveness of a regulator in any jurisdiction.

Recognizing this, the international standards-setting bodies have moved in a significant way in making available a host of standards and codes for financial markets and identifying principles for sound and stable policies. While the International Monetary Fund has prescribed the standards and codes for monetary and financial policies and fiscal transparency and the Bank for International Settlements (BIS, 1997, 2006) has prescribed the Basle Core Principles for strengthening bank supervision, the Objectives and Principles of Securities Regulations (IOSCO, 2008) has outlined the standards and codes for securities markets participants and regulators.

Regulations historically lag behind the regulated entities’ creativity and innovation. In such a situation, regulation becomes effective only through the participation of or consultations with regulated entities, giving rise to problems of regulatory capture (or alignment of interest of the regulated entities with that of the regulator arising out of information asymmetry.) Given the gravity of information asymmetry and the easiness of maneuverability there evolved two clear strands with respect to regulatory approach. The rules-based regulation necessitates codifying detailed rules and regulations that define all financial products and markets whereas principles-based regulation broadly identify the framework and the goals to be achieved with the burden of achieving goals shifted to the regulated entities. In the former, financial innovations are suppressed, as one cannot anticipate every future innovation. Whereas, in the latter, financial innovations are promoted with its inherent flexibility.

The globally evolving regulatory framework for securities markets has two clear strands. One emerges directly from the statutes, where Government directly or through regulatory agencies influence market outcomes by designing rules and supervision. Otherwise, self-regulations can be introduced, so that market players independently monitor, adjust quickly to the markets needs and utilise their expertise effectively. The self regulations are often found to be incentive compatible as to the securities market needs to maintain its integrity and protect its reputation. The self-regulations can pre-empt or even avoid statutory regulations and it may evolve standards to be adopted by statutory regulations. But, the dangers of the self-regulation are it can pose entry barriers for new market participants or could lead to exploit the investors in terms of transaction costs. Most countries, take self-regulation as a complement to the statutory regulations.

There is a need to relook at the issue of whether regulation should be institution based (regulator may regulate banks, even as banks may involve themselves in other acts such as capital markets intermediation), or function based (capital market regulator may regulate all activities related to public issue or trade in securities irrespective of whether the functions are performed by banks or non banks), or product (all institutions which take public deposits may be regulated by one regulator) or market oriented (regulation in terms of markets, say government securities, money market or foreign exchange). It is important to curb regulatory arbitrage and improve regulatory coordination eliminating regulatory gap.

As an alternative to regulatory separation, it is equally important to look into the feasibility of regulatory integration as a policy option and empirically investigate into the regulatory effectiveness issues. It is worth exploring whether unified regulatory approach would be cost effective. This is important in the context of emergence of financial conglomerates whose activities straddle across the financial universe rendering traditional barriers among banking, insurance and Securities Companies.

Review of Literature
In the early days of evolution of regulation, it was assumed that a regulation becomes necessary to overcome the market failures. It is mostly termed as the normative or positive theories of regulation (Viscusi, Vernon and Harrington 2000) and more often referred to as ‘public interest’ theory of regulation (Noll, 1989). The public interest theory suggests there is a regulation to fix market failures; and market failures involves significant transaction cost. In such a situation, the transaction costs for negotiation could be very high so that regulation becomes a better alternative. This assumes in the efficiency of regulations. Similarly, there could be a number of interest group or organisation of interest groups. In case there are equally sized group, it entails more efficiency. For an organisation of interest groups to exist there must be homogeneity in their preferences. The interest group theory focuses on the principal-agent relationship between interest groups and regulators (Noll, 1989). Interest groups help to overcome information problems. There could be a situation where some groups are dominant enough to ‘capture’ the regulator and extract rents. The capture theory implies that the regulators get ‘captured’ by the industry they are supposed to regulate, and end up serving that industry's interests. The claim of public interest theory is the regulation doesn't always respond to market failures, and regulations often found not to improve social welfare. Often times, it imposes net costs for society. On the other hand, the capture theory asks more intriguing questions like: Why do we have regulations that do not resolve market failures? Why are some regulations actually public-spirited?

The initial works (Stigler, 1971) formulated a simple model of regulation. There is a fundamental asset controlled by the state is the power to coerce. A regulator faces pressures from interest group and electoral pressure from consumers. The special interest pressure is usually more ‘persuasive’, so that the regulatory outcome almost always favours producers. A regulator can extend direct subsidy or create protection. The producers’ gains from subsidies are temporary as it encourages more players in the market. Hence, the interest group seeks protectionism too. Therefore, the protective regulatory policies like tariffs, occupational licensing and fees are passed only for the benefit of the large farms representing the interest group, not for the benefit or protection of consumers. The size of the player matters in persuasion, as big players lobby for more protections. The smaller firms do not usually organise because of collective action problems and low potential benefits. An interest group can seek to avail support from the coercive powers of the state. But these efforts are costly and have to be organised. The consumers usually do not organise because the costs could outweigh the benefits and they choose to remain ignorant, rationally.

Viscusi et al. (2000) summarizes a study of bank deregulation that is a good test of all the theories. The deregulation spanned over two decades or three. The authors tried to capture the idea that large banks favour deregulation while the smaller banks oppose. The samples were taken from small banks and small firms in each state. The small firms would favour deregulation so as to get cheaper credit. The large firms are more homogeneous and little difficulties in organised collective action for persuasive gains.

In asymmetric information set up a regulator acts as a principal who seeks to maximise social welfare subject to incentive constraints arising from the informational advantages enjoyed by the agents (regulated entities) and their strategic behaviour. (Laffont, 1994). Following the tradition of mechanism design literature, the new economics of regulation seeks to evolve the characteristics of optimal regulations.

Regulatory Framework in India
A prime feature of the regulatory superstructure in the Indian financial sector is the multiplicity of regulators (Exhibit 2) anchored to rule based regulations emanating from a plethora of Acts. For example, the SEBI Act 1992, Securities Contract Regulation Act (SCRA, 1956), Forward Contracts Regulation Act (FCRA,1952 ) Indian Contracts Act (1872), Companies Act (1956), Public Debt Act( 1944), the RBI Act, 1934 and the Banking Regulation Act. Some acts came into being to create regulatory institutions (SEBI Act, 1992 and RBI Act, 1934), some of these, to regulate contracts (FCRA, 1956 and Indian Contracts Act, 1872) and yet others to regulate the issue of securities (Public Debt Act, 1944). Although the scope of these acts is well defined, problems of interpretation have led to confusion and complexities in operations. In this context the question arises whether regulation should be institution based, function based, product based or market oriented. More importantly, it is worth exploring whether a unified regulatory approach would be cost effective.

The regulatory responsibility of the securities market is vested in the SEBI, the RBI, Ministry of Corporate Affairs and Ministry of Finance. Investigative agencies such as Economic Offences Wing, Financial Intelligence Unit-India and Intelligence Bureau of the government and consumer and investors grievance redressal forums also play a role.
The RBI, on the other hand, is responsible for regulation of a certain well-defined segments of the securities market. As the manager of public debt, the RBI is responsible for primary issues of Government Securities. The RBI's mandate also includes the regulation of all contracts in government securities, gold related securities, and money market securities and securities derived from these securities. To foster consistency of the regulatory processes, the SEBI is mandated to regulate the trading of these securities on recognized stock exchanges in line with the guidelines issued by RBI. Although there is a clear division of regulatory responsibilities between RBI and SEBI, and efforts have been made to make the regulatory process consistent, the distribution of regulatory responsibilities among a number of institutions can potentially create confusion among the regulated as to which body is responsible for a particular area of regulation. Such a regulatory separation has many times generated regulatory conflicts in policy directions and regulatory coordination becomes essential. As a coordination mechanism among these regulators, a High Level Coordination Committee of Financial and Capital Markets (HLCCFCM) are in place under aegis of Ministry of Finance.


Such an elaborate regulatory architecture has a noticeable limitation of the regulations being entity based. There are concerns that the same financial product is regulated differently by different regulators, for one or more activities. At the same time some financial products are not clearly falling in any regulatory domain. Certainly, there is a case for studying the financial sector in terms of the functions performed by the regulators rather than the nomenclatures associated with the regulatory agencies. There has been suggestion to consolidate the four financial regulators, one each for banking, capital markets, pensions and insurance. Alternative proposition was to have a single unified regulation in line with Financial Services Authority (FSA) in UK. The debate has been continuing for quite some time with no final clarity as to what is the best model. Mere structural changes are unlikely to meet adequately the requirements of effective and efficient supervision of financial sector.

The empirical literature has delved into the issues of regulatory integration versus regulatory separation and noted mixed findings (Willenborg, 2000, Mc Shame and Cox, 2007) in US life insurance industry against regulatory capture. Such a quantification and empirics based policy formulation needs to rely on regulatory impact assessments. But, there is no legislation that compels the regulatory agencies in the financial sector to undertake comprehensive regulatory impact assessments.


Besides regulation, the responsibilities of SEBI, which is the apex regulatory body for the securities market, includes ensuring investor protection and promotion of orderly growth of the securities market. Surprisingly there are two funds for investor protection one under the Ministry of Corporate affairs instituted under Section 205C of the Companies Act, 1956 (Investor Education and Protection Fund (IEPF) with effect from 1998) and another under the SEBI’ Act called Investor Protection and Education Fund (IPEF) by an administrative order dated July 23, 2007.

III Objectives of the study and the analytical framework

Given the issues surrounding regulations in securities market, the broad objective of this research includes:

a. To identify and classify the developments in global financial standards and codes and assess its applicability and adherence in the Indian financial system
b. To develop a measure of effectiveness and compare the levels of effectiveness of regulation in India vis-à-vis mature and emerging market economies

The research questions being addressed here are
The Desirability of SROs in terms of their regulatory impact- whether it is cost effective and efficient.
Pros and cons of unified regulator vs. multiple regulators.
Pros and cons of rules based regulation over principle based regulation.
Whether regulation should be institution based, function based, product based or market oriented.

Hypotheses:
The degree of effectiveness is greater in unified regulator than multiple regulators.
Effectiveness of statutory regulators is greater than Self Regulatory Organisations.

The methods used by policymakers to reach decisions on regulation can be classified into five categories:

1. Expert – the decision is made by a trusted expert, perhaps an appointed regulator, who uses professional judgement to decide what should be done.

2. Consensus – the decision is reached by a group of stakeholders who reach a common position that balances their interest.

3. Political – the decision is reached by political representatives based on partisan issues of importance to the political process.

4. Benchmarking – the decision is based on reliance on an outside model, such as international regulation.

5. Empirical – the decision is based on fact-finding and analysis that defines the parameters of action according to established criteria.

Regulatory Impact Analysis (RIA) is an empirical tool generally employed to assess the effectiveness of regulation in attaining their objectives. This can be used for existing as well as new regulations. The process involves evaluation of benefits and costs of the concerned regulations to different markets and instruments and participants. The assessment exercise involves identification of various policy options available to the regulator for achieving an intended outcome. This is followed by consultations with the stakeholders to refine the options and define the consequences. A benefit cost evaluation of the preferred option is then carried out. Finally the proposal is implemented and a review is conducted. This requires, inter alia, skill in analyzing qualitative and quantitative data, generating alternative policy options and developing the criteria for assessing the policy options.

RIA facilitates understanding of the impact of regulatory actions and enables integration of multiple policy objectives, improves transparency and consultation, and enhances accountability of governments and regulators. In particular, RIA meets the following criteria for sound policy-making:

1. Improve understanding of benefits and costs of regulatory action: RIA is an evidence-based approach to decision-making, and often draws on economic empirical evidence in assessing benefits and costs.

2. Integrate multiple policy objectives: RIA can be used as an integrating framework to identify and compare the linkages and impacts between economic, social and environmental regulatory changes.

3. Improve transparency and consultation: RIA is closely linked to processes of public consultation, which enhances the transparency of the RIA process, provides quality control for impact analysis, and improves the information provided to decision-makers.

4. Improve government/regulators’ accountability: RIA can improve the involvement and accountability of decision-makers by reporting on the information used in decision-making and demonstrating how the decision impacts on society.

RIA is also a methodology for designing precise, targeted regulations that achieve legitimate policy aims with the minimum burden on those affected. It is a technique for improving the empirical basis for regulatory decisions. It does this by systematically and consistently examining potential impacts arising from government action and communicating this information to decision makers. The potential impacts are identified as being positive (benefits) and negative (costs), and the information is conveyed to decision-makers in a way that allows them to consider the full range of benefits and costs that will be associated with the proposed regulatory change.

Each RIA exercise results in preparation of a Regulatory Impact Assessment Statement (RIAS) which is written at the end of the policy analysis and development process and is a summary of the analysis done. The various components of a RIAS are:

1. Description: This section outlines the regulations, defines the problem and shows why action is necessary. All problems are detected, defined and described; each is fully analyzed to understand nature and implications and government/regulatory action is justified.

2. Alternatives: Here all the options regulatory, non-regulatory and status quo are considered. These are examined in detail to demonstrate that new or revised regulations will help solve the problem. Solutions are considered based on performance requirements as alternative to prescriptive standards.

3. Benefits and Costs: This section quantifies the impact of different options. Attempt is made to address direct and indirect benefits and costs and impacts on environment, government, business, workers, consumers, etc. and also look at impacts on sustainable development and balance societal and economic goals. An analysis of regulatory burden of all alternatives is done to recommend solutions which impose least costly information and administrative burden.

4. Consultation: This part of the statement shows the results of consultation done with all the interested parties in coming up with a policy solution

5. Compliance and enforcement explains the policy on conformity to the regulations and tools to ensure it is adhered to. It identifies and informs those responsible for specific regulatory actions. The document, in this section, sets out the compliance objectives, operational plans and budgets and also established redressal mechanisms.

Some more issues which need to be examined are how to measure the effectiveness regulations which have non-monetary consequences. Further, what is the constitution of RIA units worldwide? Who are their members? What are their qualifications? The RIA guidelines are used in several countries including Canada, Mexico, USA, UK, Australia, Denmark, France, Germany and the Netherlands. In the light of the experiences of various countries, the guiding principles for a successful RIA regime are identified to include an arms length relationship with Government for objective assessment, public accountability, embedding RIA requirement in legislation and clear guidelines to ensure that the benefits accruing from RIA exceed the cost of doing RIA.

Juxtaposing these in the Indian scenario necessitates consistency of the broad contours of the regulatory architecture of the Indian financial sector with multiple regulators and ‘rules based regulation’. The critical issue in the Indian context is which entity is the appropriate agency for implementing RIA. Given the array of regulators, the issue of deciding on a suitable agency to carry out RIA is a complicated one. If every individual regulator is empowered to carry out RIA with respect to regulations under its own ambit, the objectivity of such an exercise may be contaminated by conflicts of interest. So the entity needs to be at an arm’s length from the regulator to provide an unbiased assessment.


IV Methodology and the sources of data with sampling techniques, the tools of data collection and analysis

To measure effectiveness of regulations we need to identify the role of different stakeholders and institutional contexts in terms design, activity-output, and real-world outcome. We may need to focus on the four tools that the regulators follow towards formulating effective regulation programmes; these are Regulatory Impact Analysis, simplification of procedures, enhancing access to the regulator and consultations with the stakeholders.

A cost analysis seeks to quantify as to how the regulated entities changes their behaviour in response to the regulations. This may involve a estimating the direct cost of compliance or through the indirect costs via the ripple effects throughout the economy. The various types of information gathering techniques may be employed, such as, public consultation, survey design and econometric methods. A public consultation is the most inexpensive but directly gathers information from the market participants.

For measuring regulatory effectiveness questionnaires need to be designed and to be sent to support network. A questionnaire would be framed to quantify the degree of effectiveness of regulations in the context of public policy involving regulators, resources, instruments and decision making structure.

Survey of regulators intends to get their perspectives on the policy formulation process, impediments in reaching the first best solution and ending up with sub optimal solutions, reasons for delays in policy formulation and implementation, feedback mechanisms, hurdles in representing the preferences of the stakeholders etc.

Survey of the regulated entities and other stake holders intends to generate a view on the presence and effectiveness of consultation processes, perceptions on regulatory uncertainty and temporal improvements in regulation and why adherence to rules /regulations is difficult.

In order to improve regulatory decision, it is essential to design guiding principles on how to locate, organise and use data. It is feasible to get the relevant data and other information, leveraging on the proximity and accessibility to regulators and the market players.

Illustrative Cases
The recent trends indicate that regulators in the Indian financial sectors are emphasizing on consultative process with the industry participants while framing regulations. Seemingly, there is an absence of an appropriate framework for enlisting the views of all the stakeholders in formulating subordinate legislations that affects them. This is often a serious hindrance to good regulatory process. Some of the stakeholders may face unintended consequential of the process. Thus it is suitable to introduce adequate regulatory review through better, broad based and timely consultations while enacting subordinate legislations. An illustration may be taken up at this stage to demonstrate the lacunae in the consultative process of regulations.

The problems faced with respect to SEBI (Intermediaries) Regulations, 2008 included, multiple regulations regulating intermediaries, overlap in content of multiple regulations, separate application if more than one category of registration, compliance costs were high with numerous and overlapping regulatory requirements, time and red tape consumed for such compliances and opportunity costs for such time and money spent. The preferred option was to replace the existing relevant regulations with a set of shortened regulations. The proposed common regulation was SEBI (Intermediaries) Regulations, 2008. The main impacts of regulatory changes are renewal of registration are not required as registration is made permanent, simplified compliance without compromising or diluting the standard, Multiple Forms simplified - shortened regulations to replace existing regulations, Information dissemination to aid informed decision making. The Appendix 3a and 3b and Appendix 4 summarises a few consultation outcomes, separately for accepted and rejected proposals. The regulator has cited reasons for rejection of the proposals and also incorporated the steps and modifications in the regulation. It may be examined with survey design method that how the accepted changes in regulation had improved the market operations and what would be the impact if rejected proposals are incorporated in the regulations.

V The potential intellectual contribution of the research study to the discipline and its social, economic and developmental relevance

Analysing the possible benefits and effects of multiple regulations specific to the financial sector would be of policy interest to regulators, investors and certainly to the financial sector. The High Powered Expert Committee on Making Mumbai an International Financial Centre (HPEC on MIFC), which submitted its report to the Government in February 2007, has, among other things, recommended that the Government of India should conduct-using independent, impartial interlocutors, including regulators from other International Financial Centers- a periodic RIA of the financial regulatory regime. The report discusses the various aspects of financial regime in India and argues for undertaking RIA in the financial sector in India. Assessing the effectiveness of regulators is a complex issue and can be judged by benchmarking their activities against the objectives for which they were created. The RIA would aim to evaluate, using enhanced cost-benefit methodology, how efficient and cost effective extant regulation is in meeting the main regulatory objectives, and to understand what modifications are needed to improve it.

The Government and regulators need to decide on how to go about implementing this recommendation. It may perhaps be better if the impact assessment is integrated into the decision-making process from the stage of formulation of policies, acts and regulations, instead of later in the process simply to comply with externally imposed requirements. Among other things, integration would help the earlier consideration of alternative solutions and help weigh each ones cost and benefits. Europe, UK, Denmark and Netherlands are the forerunners in the introduction of RIA. India is contemplating initiating the process. A critical question in this regard is how RIA will be mandated. India needs to examine the extent of quantification attempted internationally and its suitability judged. The dynamic impact of regulation on innovation, investment and productivity needs to be assessed.

VI Selected Bibliography:

Binder, John J, 1985. Measuring the Effects of Regulation with Stock Price Data, The Rand Journal of Economics, Vol. 16, No. 2 (Summer, 1985), pp. 167-183

HPEC-MIFC, 2007, Government of India, High Powered Expert Committee on Making Mumbai an International Financial Centre, Sage Publications

IOSCO,2008, Objectives and Principles of Securities Regulations, International Organization of Securities Commissions, http://www.iosco.org/

Laffont, Jean-Jacques, 1994. The New Economics of Regulation Ten Years After, Econometrica, Vol. 62, No.3 (May, 1994), pp. 507-537.

McShame, Michael K. And Cox Larry A, 2007, Benefits of Multi- Jurisdictional Regulation of the Life Insurance Industry: Fact or Fiction? University of Mississippi.

Noll, R 1989. Economics perspectives on the politics of regulation. In Handbook of Industrial Organization, eds. RD Willig and R Schmalensee. Vol 2: 1254-1287.

OECD, 2005 Guiding Principles for Regulatory Quality and Performance, http://www.oecd.org/document/38/0,3343,en_2649_34141_2753254_1_1_1_1,00.html

OECD, 2007 Indicators of Regulatory Management Systems, Working Paper No. 4, http://www.oecd.org/document/3/0,3343,en_2649_34141_34061123_1_1_1_37421,00.html

Parker, David, 2001. Economic Regulation: A preliminary literature review and summary of Research questions arising, Working Paper, University of Aston, http://idpm.man.ac.uk/crc

Petersen, H. Craig 1975. An Empirical Test of Regulatory Effects .The Bell Journal of Economics, Vol. 6, No. 1 (Spring, 1975), pp. 111-126

Posner, Richard, A 1976. ‘Theories of Economic Regulation’ Bell journal of Economics and management Science, vol.5, pp. 335-58

Securities Contracts (Regulation) Act, 1956

Stigler, George. 1971. The theory of economic regulation. Bell Journal of Economics and Management Science 2 (spring): 3-21.

Viscusi, Vernon, and Harrington. 2000. Economics of Regulation and Antitrust. Cambridge: MIT Press, 3d edition, pages 297-336.

Willenborg, Michael, 2000, Regulatory Separation as a Mechanism to curb capture: A study of the Decision to Act against Distressed Insures, Journal of Risk and Insurance, Vol. 67., No. 4 (Dec., 2000) pp. 593-616.