Index Performance for the year 2010.

	Table 1 : Summary Statistics
	DJIA	HANG SENG	NIKKIE	S&P500	EURONEXT	KOSPI	NIFTY	STRAIT TIMES
Holding Period	9.39%	5.55%	-4.00%	11.00%	-0.89%	20.92%	17.25%	10.21%
Mean Return	8.66%	5.22%	-3.94%	10.08%	-0.86%	18.34%	15.36%	9.39%
SD	15.82%	17.67%	20.28%	17.68%	20.70%	14.74%	15.97%	13.22%
Sharpe Ratio	0.55	0.30	-0.19	0.57	-0.04	1.24	0.96	0.71

     Holding period return for the year 2010 calculated based on how much return you can get if you had been invested 4th January 2010 to Dec 31 2010. Mean Return is estimated as annualized average daily log return of the stock price. Standard Deviation is measured using daily data and it is annualized by assuming 252 trading days in year.  Sharpe Ration is defined as Mean divided by SD for the comparing the performance of different indices for the year 2010. (Data Source : Reuters)

	Table 2 : Correlation
	DJIA	HANG SENG	NIKKIE	S&P500	EURONEXT	KOSPI	NIFTY	STRAIT TIMES
DJIA	1.00
HANG SENG	0.25	1.00
NIKKIE	0.24	0.55	1.00
S&P500	0.98	0.25	0.22	1.00
EURONEXT	0.69	0.44	0.36	0.69	1.00
KOSPI	0.28	0.63	0.67	0.26	0.39	1.00
NIFTY	0.31	0.56	0.36	0.30	0.54	0.47	1.00
STRAIT TIMES	0.32	0.69	0.51	0.32	0.51	0.57	0.63	1.00

Data source : Reuters 

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Views on Bimal Jalan Committee's report about the ownership and governance of MIIs

The recommendations of the Bimal Jalan Committee report on the ownership and governance of Market Infrastructure Institutions (MIIs) and its impact on the Indian Capital Market

(An independent review by Dr.Srinivasa Rao Gangadharan[1] and  Surenderrao Komera[2] )

The views expressed here are our own and not that of IFMR. Of the 10, we propose to comment on 7 recommendations of the BJC report.

Recommendation of the Committee	Comment with rationale
Not in favour of permitting listing of MIIs. (Page 61).	v  From the point of view of BJC, self listing affects the credibility of exchanges that play dual role as a regulator as well as business entity. They belief that there will be a conflict of interest on the price management and regulatory role of the exchanges. v  As against the above argument, many people are in favour of listing as the share price is not the sole criteria for trading activity on the exchange, the quality and the brand image of the exchange matters more. v  We are far behind in implementing the state of the art of technology of many developed exchanges. It is only in the last few years we are able to cope up with them.  Towards this many exchanges have incurred huge expenditure on this. Non- listing will affect their financial autonomy that will jeopardize their expansion activity. v  A large number of investors have already invested huge amount in various stock exchanges in the country. Many foreign investors have picked up equity in the Bombay Stock Exchange.  Non-listing will create panic among the investors since a more transparent and scientific exit is not available to them. This will compel them to undersell their investment. In the absence of such exit options that happens to be one of the important pre-requisites for the investors to invest in equity investment, it is not possible for the exchanges to attract investors if they are not allowed to be listed.
Support Anchor Domestic Institutional Investors (Public Financial Institutions and Banks   registered in India with a net worth of Rs.1000 crore). (Page 39 – 43)	v  The domestic financial institutions as permitted by the BJC to act as anchor investor has raised the eyebrows as it has been felt that these institutions core activity is not related to exchange management so they lack expertise that will hamper the growth of the exchanges.
Net worth requirement for a clearing corporation may be fixed at Rs.300 crore. (Page 63)	v  This recommendation lacks justification as new entrant in exchange business will find it difficult to compete with the established ones with a mere net worth of Rs.300 crore.  As it requires more than Rs.1000 crores to set up the state of art in infrastructure, hence there is no rationale to fix such a low net worth limits.
Holding of stock exchanges in depositories may be restricted at 24%. (Page 47 – 48)	v  This would keep the private corporate entities out of the capital market space. v  This recommendation will force the BSE to reduce its recently increased stake in Central Depository Services Ltd (CDSL) from 54% to 24%. This will again affect BSE's valuation.
“The MIIs, while being self-financing, should not be permitted to make unreasonable profits”. (Page – 19) “The MII being a public utility should endeavour to earn only reasonable profits and at par with average earnings of corporate sector in India” (Page 63)	v  Though the exact definition of super normal profits has not been provided in the report and all over the world profit alone drives investments and provides funds for innovation and technology. v  When market grows, the infrastructure required will also grow sequel to these changes. A cap on profits would prevent new investors from investing in the exchange stunting its growth.
“It is desirable to ensure that fair competition is available to avoid perverse monopoly. At the same time the committee is of the opinion that the  optimal number of exchanges required in India cannot be arrived at with any degree of precision.(Page – 39)	v  Here, BJC considered stability as the core issue rather than monotonous competition. Though there are no restrictions, all over the world, on the number of stock exchanges, increasing it could lead to greater fragmentation. But the current market expectation is more competition and Corporate Governance in MIIs that will drive the growth of industry where the economy is set to develop rather than less competition and outsourced regulation.
Incentive structures for key management personnel need to be regulated by specifying certain broad parameters/ guidelines. (Page – 29)	v  Remuneration should not be subjected to cap but be linked to profit. As this would bring the best of talent to man these institutions. However there could be set regulations in line with the existing practices as emanating in PSU Banks. v  There is not much rationale for not having variable component in the BJC report.

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[1] Faculty, Institute for Financial Management and Research (IFMR), Chennai – 34

[2] Research Student, Institute for Financial Management and Research (IFMR), Chennai – 34