Market infrastructure institution (MII) – UPSC GS3

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Context: SEBI noted that the National Stock Exchange (NSE) is a systemically important market infrastructure institution (MII).
What are Market infrastructure institutions (MII)?
  • Stock exchanges, depositories and clearing houses are together called Market Infrastructure Institutions and play a key role in the country’s economic infrastructure.
  • The Bimal Jalan Committee in its 2010 report said,
    • The term “infrastructure” means the basic, underlying framework or features of a system.
    • The term “market infrastructure” denotes such fundamental facilities and systems serving the market.
    • The primary purpose of the securities /capital market is to enable allocation of capital/financial resources.
Institutions in India that qualify as MIIs:
  • Stock Exchanges: SEBI lists seven stock exchanges including the BSE, the NSE, the Multi Commodity Exchange of India and the Metropolitan Stock Exchange of India.
  • Depositories:
    • Depositories are responsible for safekeeping of securities and enabling their trading and transfer.
    • 2 depositories are tagged MIIs; they are the Central Depository Services Ltd. and the National Securities Depository Ltd.
  • Clearing Houses:
    • Clearing Houses help validate and finalise securities trades and ensure that both buyers and sellers honour their obligations.
    • The regulator lists seven clearing houses including the Multi Commodity Exchange Clearing Corporation.
Significance of MIIs:
  • Well-functioning MIIs form the core of the capital allocation system and are crucial for economic growth as they have a net positive effect on society like any other infrastructure institution.
  • MIIs are systemically important in India as they have seen extraordinary growth in terms of market capitalisation, capital raised and the number of investor accounts.
  • As the number of stock exchanges, depositories and clearing corporations in an economy is limited, any failure of such MIIs could lead to bigger collapses that may result in an overall economic downfall potentially extending beyond the boundaries of the securities market and the country.
Need for norms to regulate MIIs:
  • A technical glitch in the NSE in 2021 resulted in Investors not being able to trade for about four hours.
  • The Finance Minister stated that the loss for the country was ‘immense’ due to the delay in the resumption of trading on the platform.
  • Markets regulator SEBI set out norms stipulating timelines within which exchange has to take action if its technology fails, including rules for switchover to backup servers as part of the disaster recovery in an institution that enables transactions running into thousands of crores of rupees daily.
  • The average daily turnover at the NSE in January 2022 was about ₹64,178 crore.
  • Former of CEO of NSE is being investigated for irregularities.
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