IFS Note 6

1. Some major scams in Indian Financial Markets 2. Indian Financial System a Part of Global Financial System
* (*Acknowledgement: From relevant internet sites)

Some major scams in Indian Financial Markets I. Securities market [Harshad Mehta] scam 1992 II. M S shoes scam 1995 III. CRB scam 1996 IV. Ketan Parekh [K-10] scam 1999 V. DSQ Software scam 2000 VI. US64 scam 2001 VII. IPO scam 2006
I.Securities market [Harshad Mehta] scam 1992:
Modus of Harshad Mehta scam 1992 Harshad Mehta [HM] was a broker who used to extensively deal in the share market. He was also brokers for the bank to carry out the RF deals between the banks. He had the following objectives in mind: Get the RF deal's money into the share market Create a bull run for some shares in the market Sell out at a profit Return the money of RF deal to the bank

What is Ready Forward Deal [RF]? Ready Forward deal [or repo or RF] is a short term (15 days) loan given by banks to other banks against G- secs. Legally the borrower sells the securities to the lending bank for cash with the stipulation that at the end of the borrowing term it will buy back the securities These loans are used to cover the SLR [statutory liquidity ratio is the portion that banks need to invest in the form of cash, gold or government approved securities. The quantum is specified as some percentage of the total demand and time liabilities of the bank and is set by the RBI] in the bank. A bank would go for a RF deal when it has low SLR In return for the loan a Bank receipt [BR] is issued

 A BR is a promissory note that shows that money transaction has happened between the bank and that the bank would return the money to the lender bank in the stipulated time period. HM exploited the loopholes in: Inter bank RF deal market The lack of checks, controls and reconciliation amongst banks The lack of regulatory oversight He got in touch with small banks like Bank of Karad and asked them to give BR so as to get the money of the deal. He then used to go to big banks like SBI and then would in return of the BR would take out money on the name of Bank of Karad. He used to invest this money in the share market ( the money was of tune of 500 to 600 crores), create a bull run, book profit and then would return the money to Bank of Karad. This turned out to be good in the aftermath 1991 reforms when the market was doing good. The matter came to light inter-alia, due to fall in share price and loss in the share market. At one point of time HM was not able to return the money and SBI was left with fake BR of worth 4000 crores.

II. M S Shoes [MSS] Scam 1995

CBI [Central Bureau of Investigation] investigations have revealed that SEBI permitted M S Shoes to collect 50% of the application money on subscription, though the minimum stipulated amount was only 25 %. SEBI officials did not take any precaution to prevent this, nor did they instruct the Delhi Stock Exchange not to release the public issue funds to the company before the rights issue was complete. It was also alleged that Pavan Sachdeva [MD of MSS], also misled investors and rigged the market to prop up his share prices. The CBI sought government sanction to prosecute certain officials of SBI & SEBI and MD of MSS in the Rs 6.99 billion scam. The scam had closed down Bombay Stock Exchange for three days

III. CRB scam 1996

In 1996,C K Bhansali,Chairman of CRB Capital Markets Ltd was accused of siphoning off Rs.12 billion in the CRB scam. CRB ran fixed deposits and mutual fund schemes and with licenses which were not adequately scrutinized by SEBI and the RBI due to supervisory lethargy. Armed with above and favorable credit ratings and audit reports, CRB created a pyramid based on high cost financing which finally collapsed CRB was accused of using its State Bank of India's accounts to siphon off the bank funds by encashing interest warrants and refund warrants. Millions of investors lost through investments in fixed deposits and mutual funds of CRB.

 The Unit Trust of India and Gujarat government also incurred heavy losses The CRB collapse caused a run on other finance companies causing a huge systemic problem and further losses to investors.

IV. Ketan Parekh K-10 scam 1999

Companies when raising money in stock market roped in brokers to ramp up share price Ketan Parekh [KP] formed a network of brokers from smaller exchanges like the Allahabad Stock Exchange and the Calcutta Stock Exchange for the above KP also used benami or share purchase in the name of poor people living in the shanty towns of Mumbai. KP relied primarily on the shares of ten companies for his dealings ( known infamously as the K-10 scrips namely BPL, Sterlite,Videocon,GTB,Zee Telefilm, Lupin, Aftek, Padmini Polymer, etc). KP had large borrowings from Global Trust Bank [GTB], whose shares he was ramping up (so that he could get a good deal at the time of its merger with UTI Bank) He got Rs 250 crore loan from GTB and his associates got another Rs 1,000 crore from the Madhavpura Mercantile Co-operative Bank [MMCB] despite the fact that RBI regulations ruled that the maximum a broker could have got as a loan was Rs 15 crore. KPs modus operandi was clearly to ramp up shares of select firms in collusion with the promoters with the money provided by company managements and to get funding from them to do this Soon after discovery of this scam, the prices of these stocks came down to the fraction of the values at which they were bought Largely due to this rigging, innocent investors who bought such shares thinking the market as genuine, were at loss When the scam burst and the rigged shares came down so heavily that quite a few people in India lost their savings. At this time a group of traders (known as the bear cartel-Shankar Sharma, Anand Rathi, Nirmal Bang) relied on the global meltdown of stocks to make their profits. At the time of the year 2000 Financial Budget this cartel placed sell orders on the K-10 stocks and crushed their inflated prices. All the borrowing of KPs could not rescue K-10 scrips. Some banks including Bank of India lost money heavily. GTB and MMCB went bust because the money they had lent to Ketan had sunk with his K-10 stocks Financial institutions namely IDBI & IFCI had extended loans of Rs 1,400-odd crore to companies known to be close to broker KP also lost money.

V. DSQ Software Scam 2000

Dinesh Dalmia, Managing Director of DSQ Software was accused of dubious acquisitions and biased allotment in the year 2000 and 2001.The amount involved in the Scam was Rs.595 Crores Dalmias group included DSQ Holdings Ltd, Hulda Properties and Trades Ltd, and Powerflow Holding and Trading Pvt Ltd

 Dalmia resorted to illegal ways to make money through the partly paid shares of DSQ Software Ltd, in the name of New Vision Investment Ltd, UK, and unallotted shares in the name of Dinesh Dalmia Technology Trust Investigation showed that 1.30 crore (13 million) shares of DSQ Software Ltd had not been listed on any stock exchange.

VI. UTIs US64 scam 2001: Genesis

In 1998, the situation in US64 scheme reached crisis point as the reserves of the fund went below par The negative trend began earlier (in 1994), but it was only revealed to the public in 1998 During the above period the scheme was happily paying dividends in excess of income, and bought back units at a hefty premium to the NAV. In 1999, after much noise and public outcry, the government appointed a committee to suggest a way out Finance Ministry gave several sops to help out UTI, most significant the one exempting payment of dividend tax Subsequently, the government took Rs. 2700 crores worth of PSU shares off the books of UTI, and forced promoters like IDBI, LIC, SBI etc. to chip in with more equity capital The fund managers and other officials of UTI who goofed up along the years got away scot-free Notwithstanding the bail-out the bail-out UTI in a much-publicized portfolio revamp portfolio, aggressively went after new economy stocks (unwittingly aiding Ketan Parekh in his scam) UTI was to move US64 to an NAV based system by 2002 which did not happen till the rescue package was implemented If the US 64 scheme had given annual dividend yield of 8-9% (ie dividend rate of 14-15% of the face value of the units), and lowered the sale and repurchase prices, then there would have been no problem Instead, UTI year after year gave very high dividends and some times dividends exceeding 20% of face value made possible by drawing down on reserves with a consequent fall in the sale and repurchase price But UTI did not allow the sale/repurchase to fall and isolated the real returns from the selling and buying of US 64 units may be on the premise that the stock market would improve and the problem would vanish. But the sharp fall in the market after the Pokhran II nuclear tests put paid to this hope US64 issue: How this problem was solved The problem was solved an agency outside by Government of India [GOI] agreeing to make good the difference between the NAV and the sale/repurchase price and fund the gap. The GOI was extremely concerned about the problems of US 64 as any failure would shake the faith of people in the banking sector and the government.

 And this in turn could have led to a run on the UTI and other mutual funds (and perhaps banks also) further depressing the share market and compounding the problem. Hence, the GOI came out with open declarations of support and assurances that investors need not worry about their investments The GOI also appointed a committee of capital market experts under the chairmanship of financial expert, Mr. Deepak Parekh, the chairman of HDFC, IL&FS and other bodies. The Deepak Parekh committee in its report presented in 1998 made following recommendations of a structural nature: That the proportion of equities be reduced and the scheme be made debt oriented in line with the objectives of the scheme. That UTI move towards a system of NAV based pricing of US 64 so that such problems do not recur again in the future. That dividends be in line with market forces. That the concept of "assured" returns in any form be done away with, both for US 64 and for any other schemes. UTI I should take charge of US-64 and other closed ended/assured return Schemes and gradually wind-up all such schemes UTI- 11 [UTI Mutual Fund] be created to take charge of all open ended schemes and manage it like any other Private Mutual Fund The Government worked out a bailout package for US 64 based on above

VIII. IPO scam 2006 When the SEBI started scanning an entire spectrum of IPOs launched over 2003-05, it ended discovering a major IPO scam and in the follow-up probably prevented a larger conspiracy to hijack the market The IPO scam involved manipulation of the primary market by financiers and market players by using fictitious or benaami demat accounts While investigating the Yes Bank scam, Sebi found that certain entities had illegally obtained IPO shares reserved for retail applicants through thousands of benaami demat accounts They then transferred the shares to financiers, who sold on the first day of listing, making windfall gains from the price difference between the IPO price and the listing price Roopalben Panchal, of Ahmedabad, had allegedly opened several fake demat accounts and subsequently raised finances on the shares allotted to her through Bharat Overseas Bank branch This time, fraudsters targeted the primary market to make a quick buck at the expense of the gullible small investors. Direct Participants (DPs) used retail applicants shares for reaping benefits in the stock market. SEBI after proper investigation disgorged the funds from the unscrupulous players and distributed the money the affected retail investors

Indian Financial System a Part of Global Financial System

Foreign Capital inflow to India Foreign Collaboration by way of portfolio investment by FIIs Foreign direct investment [FDI] External commercial borrowings (ECBs),Foreign Currency Convertible Bonds [FCCB] & Foreign Currency Exchangeable Bonds [FCEB] Indian investment abroad Issues affecting Indian Financial System being a part of Global Financial System Effects of Global Financial Crisis on India and remedies thereof. International best practices and preparedness of Indian Financial System to adopt them
Portfolio investments by foreign institutional investors [FIIs]

India's exceptional growth story and its booming economy have made the country a favorite destination with FIIs FII holdings in Indian markets reached US$ 88 billion in December 2008, according to the BSE India has continued to attract FIIs investment despite the Satyam nongovernance issue and the global economic contagion impact on Indian markets FIIs are the largest institutional investors in India with holdings valued at over US$ 751.14 billion as on December 31, 2008 FIIs determine the direction of the market and are also the most successful portfolio investors in India with 102 per cent appreciation since September 30, 2003 SEBIs data indicate the FII investments in equities as on March 17, 2009 stood at US$ 50950 million and in debts, equaled US$ 6541 million As per SEBI, number of registered FIIs stood at 1626 and number of registered sub-accounts stood at 4972 as on March 17, 2009. Majority of FIIs are from the US and Europe. some are based out of Mauritius Canada, the UAE, Japan, Australia, Taiwan and Singapore, etc

 FIIs that have registered till 2009, inter-alia, include pension & insurance funds, mutual funds, investment trust, university funds, institutional portfolio managers, trustees, banks, asset management companies, power of attorney holders The FIIs sub-account which is not a foreign individual/ corporate can individually invest up to 10%. The limit for each foreign corporate/ individual is 5%. These limits are within the overall limit of 24% / 49% or the sectoral caps as the case may be Subject to operational guidelines as specified by SEBI/RBI/various regulatory authorities FII/sub-accounts can trade in derivatives The government doubled the ceiling on FIIs investment in corporate debt to $6 billion in Oct08 and further to $15 bln in Jan09 & can invest up to $5 bln in government of India securities to give boost to debt market and also increase forex inflows SEBI regulation on FIIs As per Regulation 6 of SEBI (FII) Regulations,1995, Foreign Institutional Investors are required to fulfill the following conditions to qualify for grant of registration: Applicant should have track record, professional competence, financial soundness, experience, general reputation of fairness and integrity; The applicant should be regulated by an appropriate foreign regulatory authority in the same capacity/category where registration is sought from SEBI. Registration with authorities, which are responsible for incorporation, is not adequate to qualify as Foreign Institutional Investor. The applicant is required to have the permission under the provisions of the Foreign Exchange Management Act, 1999 from the Reserve Bank of India. Applicant must be legally permitted to invest in securities outside the country or its in-corporation / establishment. The applicant must be a "fit and proper" person. The applicant has to appoint a local custodian and enter into an agreement with the custodian. Besides it also has to appoint a designated bank to route its transactions. Payment of registration fee of US $ 5,000

 Foreign direct investment [FDI] in India

FDI Policy in India-An Overview: FDI permitted in almost all activities Up-to 100% FDI allowed in manufacturing Most FDI allowed on the automatic route- only to inform RBI within 30 days of remittances Liberal policy for foreign technology collaboration Policy supported by a legal framework National treatment to investment Ceilings and routes for investment being constantly reviewed and liberalized Indian FDI policy regime assessed independently to be liberal and progressive FDI is permitted as under the following forms of investments: Through financial collaborations Through joint ventures and technical collaborations Through capital markets via Euro issues Through private placements or preferential allotments

FDI Policy has been liberalized in a phased manner as depicted below:

 Policy framework for FDI investment in India is as depicted below:

 India has attracted FDI inflows of ~ 88 bln during 2000-2008 External commercial borrowings [ECB] ECBs are defined to include: Commercial bank loans Buyers credit Suppliers credit Securitized instruments such as floating rate notes, fixed rate bonds etc Credit from official export credit agencies Commercial borrowings from the private sector window of multilateral financial institutions such as IFC, ADB, AFIC, CDC etc Investment by FIIs in dedicated debt funds Applicants are free to raise ECB from any internationally recognized source like: Banks Export credit agencies Suppliers of equipment Foreign collaborations Foreign equity holders, international capital markets etc

 REGULATOR: The department of Economic Affairs, Ministry of Finance, Government of India with support of Reserve Bank of India, monitors and regulates Indian firms access to global capital markets. From time to time, they announce guidelines on policies and procedures for ECB and Euro- issues The important aspect of ECB policy is to provide flexibility in borrowings by Indian corporate, at the same time maintaining prudent limits for total external borrowings The guiding principles for ECB Policy are to keep: Maturities long Costs low Encourage infrastructure and export sector financing which are crucial for overall growth of the economy The ECB policy focuses on three aspects: Eligibility criteria for accessing external markets The total volume of borrowings to be raised and their maturity structure End use of the funds raised

Basic features of ECB ECB can be accessed under two routes, Automatic Route ( for investment in real sector -industrial sector, especially infrastructure sector-in India), Approval Route (RBI/Govt approval Route. Latest RBI circular in this regard is dated January 2,2009) Salient features of ECB guidelines: Recognized Lenders under ECB, inter- alia, include Foreign Equity Holders Under the Automatic Route Foreign Equity holder would require minimum equity holding in the borrowers company which are: For ECB up to USD 5 Mln minimum equity of 25% directly held by the lender For ECB more than USD 5 Mln - minimum equity of 25% directly held by the lender and debt: equity ratio not exceeding 4:1 Amount and Maturity: Amount up to USD 20 Mln with minimum average maturity of 3 yrs Amount over USD 20 Mln and up to USD 500 Mln with minimum average maturity of 5 yrs ECB up to USD 500 Mln per borrower per financial year permitted for rupee/foreign currency expenditure for permissible end uses under automatic route

All in cost ceilings : For 3yrs up to 5 yrs 300 bps over 6 month Libor More than 5 yrs 500 bps over 6 month Libor The above ceilings dispensed wef June 2009

Foreign currency convertible bonds [FCCB] A type of convertible bond issued in a currency different than the issuer's domestic currency The money being raised by the issuing company is in the form of foreign currency A convertible bond is a mix between a debt and equity instrument It acts like a bond by making regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock These types of bonds are attractive to both investors and issuers The investors receive the safety of guaranteed payments on the bond and are also able to take advantage of any large price appreciation in the company's stock Bondholders take advantage of this appreciation by means warrants attached to the bonds, which are activated when the price of the stock reaches a certain point Due to the equity side of the bond, which adds value the coupon payments on the bond are lower for the Company there by reducing its debt financing costs Foreign Currency Exchange Bonds [FCEB] RBI announced the FCEB Scheme, 2008, as an enabling mechanism to permit Indian companies to unlock a part of holding in group companies for meeting their financing requirements. The norms are similar to those extant for FCCBs but theres a crucial difference: a holding company can issue bonds tied to the shares of a smaller company FCEBs are financial instruments similar to FCCB in nature and allow corporate to raise money from overseas markets by issuing bonds Unlike FCCBs, where bonds can be converted into equity shares of the issuing company, in the case of FCEBs, the bonds can be converted into shares of a group company of the issuer Indian corporate looking at raising capital abroad will get one more tool of doing so. Presently, they have the options of ECBs & FCCBs The bonds can be converted into shares after a minimum of five years from the date of issue

 The issuer company should be part of the same group and must own shares of the entity that is floating bonds to raise cash FCEB gives companies the opportunity to use the future upside potential of stocks The investors can monetize it within five years but a company can also decide a put and call option which can be exercised before five years According to the government's notification, any Indian company which is not eligible to raise funds from the domestic security market shall not be eligible to issue FCEBs The rate of interest payable on FCEB bonds and the issue expenses incurred in foreign currency shall be within the cost ceiling as specified by RBI under the ECB policy While funds raised through FCEBs cannot be invested in capital markets and real estates in the domestic market, corporate will be able to use the funds for their operations overseas and in joint ventures

Indian Investments Abroad [Flows out of India]

Key Measures of RBI: Rupee made fully convertible on trade and current accounts and partly convertible on capital accounts thus permitting free flow out of India for authorized purposes on trade, current and capital accounts [subject to limits under FEMA and/or RBI regulations from time to time] Individuals can invest overseas up to $ 200,000 annually ECB repayment limit raised to $ 500 mln from $ 400 mln Indian companies can invest up to 400% of their Net Worth in overseas joint ventures [overseas investments by Indian corporate thru FDI route is expected to be over $15 bln thus surpassing FDI inflows into India Mutual Funds registered with SEBI can invest overseas up to $ 7 bln [previous limit $ 5 bln]. Qualified MFs can invest up to $ 1 bln in overseas ETF subject SEBI guidelines

Effect of global financial crisis [year 2008] on India

The contagion effect of global financial crisis has spread to India through all following channels: The financial channel The real channel, and The confidence channel (importantly this happens in all financial crises) Impact on the financial channel: o India's financial markets equity markets, money markets, forex markets and credit markets came under pressure from a number of directions

o As a consequence of the global liquidity squeeze, Indian banks and corporate found their overseas financing drying up, forcing corporate to shift their credit demand to the domestic banking sector o In their frantic search for substitute financing, corporate withdrew their investments from domestic money market mutual funds putting redemption pressure on the MFs and down the line on nonbanking financial companies (NBFCs) where the MFs had invested a significant portion of their funds. o Substitution of overseas financing by domestic financing brought both money markets and credit markets under pressure o The forex market came under pressure because of reversal of capital flows as part of the global deleveraging process o Simultaneously, corporates were converting the funds raised locally into foreign currency to meet their external obligations. o The above factors put downward pressure on the rupee o The Reserve Bank's intervention in the forex market to manage the volatility in the rupee further added to liquidity tightening Impact on the real channel: The transmission of the global crisis to the domestic economy has been quite straight forward through the slump in demand for exports [especially from the United States, European Union and the Middle East which account for three quarters of India's goods and services trade o Service export growth slowed in the near term as the recession deepened and financial services firms traditionally large users of outsourcing services were restructured o Remittances from NRI workers too slowed as the Middle East adjusted to lower crude prices and advanced economies go into a recession. Impact on the confidence channel: Beyond the financial and real channels of transmission as above, the crisis also spread through the confidence channel In sharp contrast to global financial markets, which went into a seizure on account of a crisis of confidence, Indian financial markets continued to function in an orderly manner but the confidence in the share market and credit market was badly shaken Further the tightened global liquidity situation since Sep08 together with a down turn in the credit cycle, increased the risk aversion of the financial system and made banks cautious about lending thus impacting confidence of corporate and individuals

 Though not being part of the financial sector problem, India has been affected by the crisis through the pernicious feedback loops between external shocks and domestic vulnerabilities by way of the financial, real and confidence channels

How India responded to the challenge?

Both the Government [GOI] and the Reserve Bank [RBI] of India responded to the challenge in close coordination and consultation The main plank of the GOIs response was fiscal stimulus while the RBIs action comprised monetary accommodation and counter cyclical regulatory forbearance Monetary policy response: The RBIs policy response was aimed at containing the contagion from the outside - to keep the domestic money and credit markets functioning normally and see that the liquidity stress did not trigger solvency cascades In particular RBI targeted three objectives: To maintain a comfortable rupee liquidity position To augment foreign exchange liquidity To maintain a policy framework that would keep credit delivery on track so as to arrest the moderation in growth RBIs measures to meet the above objectives came in several policy packages starting mid-September 2008, on occasion in response to unanticipated global developments and at other times in anticipation of the impact of potential global developments on the Indian markets RBIs monetary policy response packages included, like in the case of other central banks, both conventional and unconventional measures On the conventional side RBI: Reduced the policy interest rates aggressively and rapidly [reduction in Repo rates] Reduced the quantum of bank reserves impounded by the central bank [reduction in CRR & SLR] and Expanded and liberalized the refinance facilities for export credit. Measures aimed at managing forex liquidity included: An upward adjustment of the interest rate ceiling on the foreign currency deposits by non-resident Indians [FCNR deposits] Substantially relaxing the ECB regime for corporates, and allowing NBFCs and housing finance companies [HFCs] access to foreign borrowing The important unconventional measures taken by the RBI inter-alia are: A rupee-dollar swap facility for Indian banks to give them comfort in managing their short-term foreign funding requirements An exclusive refinance window as also a special purpose vehicle for supporting NBFCs and expanding the lendable resources available to apex

finance institutions for refinancing credit extended to small industries, housing and exports. Government's fiscal stimulus Recognizing the depth and extraordinary impact of global financial crisis, the GOI invoked the emergency provisions of the FRBM (fiscal responsibility management) Act to seek relaxation from the fiscal targets and launched two fiscal stimulus packages in December 2008 and January 2009 These fiscal stimulus packages, together amounting to about 3 per cent of GDP, included: Additional public spending particularly capital expenditure Government guaranteed funds for infrastructure spending Cuts in indirect taxes [Cenvat] Expanded guarantee cover for credit to micro and small enterprises, Additional support to exporters Structural factors that came to the aid of India?

There are also several structural factors that have come to India's aid:
Notwithstanding the severity and multiplicity of the adverse shocks, India's financial markets have shown admirable resilience. This is in large part because India's banking system remains sound, healthy, well capitalized and prudently regulated Indias comfortable reserve position provides confidence to overseas investors Since a large majority of Indians do not participate in equity and asset markets, the negative impact of the wealth loss effect that is plaguing the advanced economies should be quite muted. Consequently, consumption demand should hold up well Because of India's mandated priority sector lending, institutional credit for agriculture will be unaffected by the credit squeeze The farm loan waiver package implemented by the Government should further insulate the agriculture sector from the crisis Over the years, India has built an extensive network of social safety-net programmes, including the flagship rural employment guarantee programme, which should protect the poor and the returning migrant workers from the extreme impact of the global crisis

 Positives Impact of Indias alignment with global financial systems

Banking and financial sector reforms [inter-alia - prudential norms, capital adequacy and transparency] Reforms in the insurance and pension fund sectors Increased flow of foreign currency. There is massive movements of funds to and fro India Strengthening and structural changes in composition of forex reserves [Fx reserves touched $ 315 bln (in 2008) & (in May10) it is ~ $ 280 bln] Implementation of Basel-II norms and risk management practices Implementation of best practices in trading, settlement and payment systems Indian stock exchanges NSE and BSE emerging as best players and enter into tie-up with foreign counterparts Rise of specialized agencies to provide financial services to borrowers and lenders across the borders i.e. financial intermediation at the global level Inventions of various methods or techniques of lending and borrowing across the national borders with minimum risks Increased stature and participation of India in IMF and other global financial forums

Indias target areas for best practices

Negative impact of alignment with global financial systems Increased participation by FIIs, hedge funds and others leading to continuous volatility and higher risk taking by local players Heightened forex flows in and out resulting in higher volatility in forex markets with consequent impact on money market, capital market and credit market Though not fully integrated contagion impact any financial crisis is felt in the financial and real sectors Indian financial institutions and corporate dealing in unrelated/unwanted financial derivatives thereby increasing the risk for all players in the market Implementation of financial accounting standards [IFRS, IAS,etc] and the MtM provisions resulting in higher costs and higher volatility in the earnings [ at least in the initial years]