Business Daily from THE HINDU group of publications
Tuesday, Oct 21, 2008
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Business Daily from THE HINDU group of publications Tuesday, Oct 21, 2008 ePaper | Mobile/PDA Version | Audio | Blogs |
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Stock Markets Markets - Regulatory Bodies & Rulings Our Bureau Mumbai , Oct. 20 The lesson that has emerged from the current market crisis worldwide is that two factors define people’s irrationality, and those are fear and greed, said Mr C.B. Bhave, Chairman, SEBI. No regulator can control the greed and fear of investors, he said while speaking at the 60th anniversary of the founding of a Gujarati newspaper, Vyapar. Greed gives rise to people taking undue risk. It is when big institutions take risks that others also suffer, said Mr Bhave. In such cases risk containment becomes important. Regulators try to control leverage, he said. Bull and bear phases would come and go, he said. When the markets are up, people project even higher estimates and when they are down, they project even lower estimates, he said. Citing the case of US, he said that the five big institutions that went under did overtrading. “What we have to learn is to keep an eye on where over-leveraging is happening in the system.” Another technical yet important lesson from the crisis is that there hasn’t been a single failure of a product being settled through any clearing corporation. It is the over-the-counter markets, which do not mark their derivatives in a safe manner and collect adequate margins. Under the clearing system, there is no worry of settlement failure as they collect margins, he said. He said regulators should focus on clearing corporations, and cited that all through the world not a single clearing corporation has failed, while the OTC markets have got into trouble. To investors, he said do not invest in what you do not understand. More Stories on : Stock Markets | Regulatory Bodies & Rulings
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