Monday, Dec 22, 2014

Market regulators seek to prevent May 17, 2004 redux on May 16, 2014

Excessive volatility in the stock and currency markets on May 16 could create a headache for the new government on assuming office. Excessive volatility in the stock and currency markets on May 16 could create a headache for the new government on assuming office.
New Delhi | Posted: May 3, 2014 9:09 am

FINANCIAL sector regulators are planning to put in place a stiff set of measures to prevent excessive volatility in the stock and currency markets on May 16 — the day of the Lok Sabha election results — that could create a headache for the new government on assuming office.

The finance ministry has called a meeting of the Financial Stability and Development Council on May 13 as reports are coming in of a build-up in positions in the stock, currency and commodity markets. The meeting will be chaired by finance minister P Chidambaram.

Wiser after the huge fall in the markets on May 17, 2004, when the NDA government made way for the UPA, a coordination strategy for keeping the stock and other markets from going out of control will be hammered out at the meeting by Securities and Exchange Board of India (Sebi) chief UK Sinha, RBI Governor Raghuram Rajan and top finance ministry officials.

Insurance, commodity and pension regulators will also attend the meeting, an official said.

“Financial markets are keeping a close watch on election results. In case the results are unpredictable, it can lead to a crisis like situation akin to that in 2004,” the official said.

Meanwhile, the stock market regulator is understood to have decided not to allow a special trading session on May 17 despite requests from several brokerages.

“There has already been a currency crisis last year and the current account deficit is just under control. We want to be ready for all eventualities,” said another official.

Among the measures being planned are lower triggers for circuit filters in the stock markets and ensuring the stock and commodity exchanges insist on adequate margins from brokers so that there is no run on liquidity.

Banks are also expected to ask their trading departments not to take very long positions as a precautionary measure.

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