Remarks by Michael Owen, U.S. Consul General in Mumbai at The Securities and Exchange Board of India’s “Workshop on Inspection” Valedictory Session, Mumbai

November 10, 2006

Chairman Damodaran and colleagues, I am very pleased to join you here at the conclusion of your two-day workshop on inspections. I applaud you and all the participants from around the country for your efforts in building a transparent and efficient securities market oversight regime. As India's economic growth attracts the world's attention, investors around the world look to you to incorporate international best practices into India's financial markets.

There is a saying that an ounce of prevention is worth a pound of cure. We have all witnessed the damage that results from disturbances in financial markets, from the Great Depression of the 1930s to the collapse of Enron more recently. Thousands, even millions, can lose their jobs, their pensions, their savings and security. Such disruptions hurt not just one country, but often whole regions and the whole world.

Since early 1990s, when the economic reform began, India’s capital markets have made impressive progress. India now has a trading, clearing and settlement infrastructure that is comparable to the best in the world. Liquidity is very high for the largest companies and the transaction costs in secondary market trading are some of the lowest in the world. It is no wonder that foreign institutional investors, including some of the largest pension funds such as CALPERS, have shown strong confidence in the robustness of India’s securities market regulatory and operating infrastructure as reflected in their total cumulative investments of over $45 billion.

The market has become highly competitive. The private sector share of mutual fund assets has more than tripled over the past five years. India’s financial derivatives market has truly come of age since derivatives trading started five years ago. In terms of futures trading volume, the National Stock Exchange (NSE) has moved from 21st rank in 2003 to 13th in 2006. These are achievements that a regulator anywhere in the world will be proud of. I congratulate SEBI for these achievements. The U.S. Government feels privileged to have been associated with this momentous change that has taken place in India’s capital market in the last ten years.

All of us face challenges to manage financial markets effectively to ensure stability and growth. I know that you are working on some of India's particular challenges:

• expanding the reach of the market, including mutual funds, beyond large cities;
• developing corporate bond markets; and
• encouraging households to invest their considerable savings in equities and mutual funds to dramatically increase the amount of capital available for development.

Convincing those with savings to invest in financial markets requires their trust and confidence in the markets fairness and the rights of minority shareholders. Your work here over the last two days, as you explore techniques for inspections that will help establish that kind of trust, contributes to the stability of India's financial markets, and that benefits not just India, but the rest of the world as well.

SEBI's leadership, through its enforcement actions, has sent the message to investors that Indian markets are effectively regulated and that they are safe and free from manipulation.

Inspections or examinations of market entities will boost SEBI's effectiveness by spotting market irregularities or potential market failures before they occur. That ounce of prevention is worth a pound of cure, catching a problem BEFORE the damage has been done and investor confidence shaken.

An improved inspections program can also improve the way that industry operates and provide critical inputs to rule writing. This is critical to understand the market; it is also the best place to understand market wrongdoings.

The markets are evolving with new technologies and new products. Regulators have to upgrade their skills to keep pace with market changes. We are pleased that the U.S. Agency for International Development (USAID) through its financial reform efforts has been able to collaborate with SEBI in these areas. USAID support is helping SEBI put together a comprehensive market surveillance system. It is also developing enforcement policy and procedures that are consistent with international best practices.

I hope that this workshop has provided you with useful lessons learned from the United States on how the investigations of market manipulation, financial statement fraud and insider trading are carried out. As you put theory into practice by incorporating international best practices in enforcement and market surveillance programs in India, you will build the investor confidence that will help fuel India's growth. I wish you well in your efforts.

I would like to extend my thanks to Mr. M. Damodaran, the Chairman of SEBI, for the opportunity to be with you here today.

Thank you.