As we meet here today, I think we recognize that there can be nothing more topical than discussing where Asia is going in the 21^st century. Increasingly the world over there is recognition that this century belongs to Asia and Asia alone. Recent developments in the economic sphere, in the political sphere, and I dare say even in the sports arena point to the emerging supremacy of Asia and Asians worldwide. And it is in that context that we meet here today to look at where the Asian markets are headed in the 21^st century. I must compliment the organizers for picking a topic that is clearly the flavor of this season and hopefully several seasons going forward. 

I come to you with a regulator’s perspective … Clearly our markets are growing; growing faster than they grew before and keeping pace with our economies. At no time in recent history have countries shown the kind of growth rates Asian economies, especially the larger economies of Asia have shown in recent times. What is most interesting and commendable is the fact that there is clear evidence of these growth rates being sustainable growth rates…Asian markets are big. Asian markets are growing. Asian markets are markets in which investors from the world over have shown increasing interest in recent times. But these are also markets in which I believe we need to see far more disclosures than what we have seen until now. We need to see far more attention paid to reducing asymmetry of information and that is where I believe researchers and analysts come in. We need to see clearly, regulation that is moving towards principles, moving away from the rigidity of the written rule, and yet not sacrificing the detail that market practitioners need to have to ensure that their conduct remains on the right side of law, of rule, of regulation. That is something which the regulatory community world wide is working on: the mix, the balance, between principles-based regulation and rules-based regulation. That clearly is work-in-progress for Asian regulators.

We need also to recognize that while we take great pride in the resilience of our markets, that resilience is largely because global economic integration has not been as comprehensive as it might have been. And had it been a little more than it is at this point of time, problems that took place elsewhere would clearly have impacted us. We also need to recognize that given our strengths, given our experience, given our ability to learn from success and failure, both ours and the experience world wide, we have to put in place systems, we have to put in place risk management systems, we have to put in place practices that are better suited for our markets than we have at present. And the reason I state this is that in good times it is possible that we overlook systemic deficiencies. Good times are the best time in which we need to focus on what could go wrong with systems in bad times. If we don’t do that … it is entirely likely that should things go wrong as they sometimes will, we might find that we did not put in place the measures that we needed to address some of our problems …

One of the problems that we need to recognize is that there are categories of investors from the mature markets who today find that those markets are not giving them the type of returns that they got in the past and therefore in search of greener pastures they have ended up in our backyards … Clearly these are people that will abandon our markets if our markets don’t continue to give them the kind of returns that they have given in recent times. Clearly that will impact on volatility in our markets. Clearly that will impact on ability to cope with inflows that are large and sometimes outflows that are larger. We need to focus on regulatory capabilities. We need to focus on building within our own organizations, within our own jurisdictions, functionally autonomous regulators that recognize the need for clarity in the regulatory process, even handedness in the regulatory process, natural justice in the regulatory process, more importantly, continuity in the regulatory process. We can not have knee-jerk responses by way of regulations to practices that might take us by surprise… Regulators can no longer afford in our markets to play black pieces in the game of chess. You need to anticipate, you need to occasionally make the first move as people with white pieces do. You need to put in place your systems anticipating problems rather than respond to them inadequately and in delayed fashion after the problems have overtaken you.

We need to address an area that all of you are familiar with, namely, conflicts of interest. Conflict of interest is a very interesting phenomenon. The world over no one spoke of conflicts of interest till they actually exploded in our face. And we saw all manner of conflicts of interest … But closer to where you and I are today, there is a conflict of interest that people in your profession, in the profession of analysts have to deal with … Critical to this is the identification and elimination, avoidance, management, or disclosure of conflicts of interests faced by analysts: the integrity of analysts and their research, the education of investors concerning the actual and potential conflicts of interests that analysts face.  Today, investors in many of our markets are blissfully unaware of what conflicts of interests can hurt them. And it is expected that those that are in the business of putting out recommendations will clearly state where they come from, what their interests are, what if anything conflicts them in putting out recommendations that are objective and fair. And I believe that many in your profession, much as I hate to say this in a forum like this, can not put their hands on their hearts and state that the recommendations that go out are entirely objective, entirely transparent, seek to communicate with adequate clarity what the intended audience needs to know. There are occasions when language has been used to conceal thought, not to express it; when truth has been hidden behind jargon; when disclaimers and disclosures have represented the two extremities between which the truth lay, and no one was ever the wiser because they looked at the disclaimers and disclosures and never got to where the truth was. How long can investors put up with this? The danger is that if investors continue to be taken up the garden path, there will come a time when the profession of analysts might become irrelevant to the investors’ process of making informed investor decisions. And recognizing that danger, recognizing that problem, recognizing that possibility, I would urge that collectively this profession must address the need for research that is objective, that is clear, that seeks to communicate, that does not mislead intentionally or unintendedly, and which also does a bit of soul searching, a bit of introspection to see who are those in the profession that aren’t exactly measuring up and how to deal with those persons.  Self regulation, peer evaluation, an analysis of who the bad apples are in the profession and why they need to be weeded out in the interest of those that are in the profession,  is something that I believe analysts need to do. Work alongside regulators, who are addressing the same concerns that investors have and the same concerns that you and everyone else in the market ought to have, because I believe all of us have one shared interest and that is an orderly market, a market that grows at a pace that is sustainable, a market that has value for everyone who is in it no matter what his or her assigned role is in that particular market. Are we doing enough in that direction? I am not even attempting to answer the question; I believe this conference will take us closer to what we need to do by way of ensuring that investors get the kind of recommendations, the kind of advice they need. And while doing all of this, we must recognize that … there are jurisdictional variations … We also need I think to recognize that there is a limit to what regulators, to what government can do. And therefore there must be industry codes, there must be self-regulation and all of this must be well thought out and applied uniformly.  

Our markets also need to have - moving away from what you do and moving closer to what I am expected to do - much better enforcement practices and procedures. It has been felt over time that some of our markets are great play fields where insider information is disproportionately present and used, where adequate effort is not being made to deal with problems of insider information, with market manipulation and things of that kind.  And therefore we need to arm ourselves, both with the expertise that is needed and the attitude that will take us to a quick, effective and speedy resolution of some of these problems. Enforcement action in our markets has to be much better, much quicker than it is at this point of time. Some of us must move away from our old thinking which is that everything ought to be proved beyond doubt. That is criminal jurisprudence. In our area of work, preponderance of probability is good enough. And yet you will find several jurisdictions where enforcement does not reach the final stage because we are grappling with ultimate truths. The market can not afford that luxury. We must quickly identify the mischief makers and deal with them on the basis of preponderance of probability rather than proving matters beyond the last trace of doubt.  

We need to ensure that investor education is undertaken in our jurisdictions at a level consistent with the size of our markets. The world over, investors have not been given the kind of attention that they need even though they are critical to the markets. Regulators, governments, market intermediaries have chosen to focus on what the interests of issuers are and what the interests of intermediaries are. And I think it is critical to recognize that without investors there can be no markets and that we need to do much more by way of creating a large body of informed investors, informed domestic investors, who can and should be the backbone of our markets if these markets are to continue to grow over time in a sustainable manner. We haven’t done enough. In India we have decided that calendar year 2008 will be the year in which the government and the regulator will give the maximum emphasis to investor education. This is going to be agenda item number one in the twelve months starting January 2008 and we have already put in place what we need to do to get started with this particular process. I believe some markets elsewhere have done the same thing but I would urge you to persuade your jurisdictions not to look at investor weeks, investor fortnights or investor months. The problem with investor weeks and investor fortnights is that for every other week and fortnight in the year you tend to forget them. They remain center stage in our thought process only during that week or that fortnight. We don’t really bother about them for the rest of the year. Let us have year after year investor years if our markets are to progress. We are getting started on that in India and I would urge you to impress on your jurisdictions that you should do much the same thing if our markets are to remain the important markets world wide.

There are some core measures that I wanted to mention ... And the first is the rules that have to be put in place to prohibit or regulate analysts from trading in securities or related derivatives of an issuer that they review in a manner contrary to their outstanding recommendations … Disclosures by those seeking to make recommendations are a major problem that we have to deal with … I think what we need to see increasingly in markets is the recognition by everyone… that the long term soundness, safety and stability of the market is the one thing in which all of us need to invest. If we think we are in it for the short term, we will destroy markets and more often than not destroy ourselves in the process. Because sooner rather than later, enforcement will catch up with you, regulation will catch up with you, the law will catch up with you. Therefore I would urge you, advantageously positioned as you are, that alongside your specific recommendations, you must also get the message across that the best investment is an investment in the soundness of the market and that everyone that is associated with the market must contribute to that soundness in the manner relatable to his or her role. Where will Asian markets go in the future? We believe that they will continue to be the markets that will most interest investors world wide. But without sitting back, without resting on our oars … systems need to be looked at critically to see whether there is any tweaking, any refinements that needs to be done. And if that happens, not just the 21^st century but every century thereafter will be Asia’s.

I want to close with one observation that I heard a couple of months ago in the United States. I was in a forum in which most of the participants were from the developed or matured markets … And in that forum one person representing a multilateral organization made a comment which captured some of what happened in the past and what ought not to happen in the future. He said, when the emerging markets have a problem, you have diagnosis in the morning, prescription in the afternoon and treatment by evening; when mature markets have a problem, even the diagnosis seems to be taking not years but decades and we seem to be telling ourselves: we don’t know what went wrong, we don’t know why things went wrong, we don’t know who contributed to the wrongdoing, we don’t know whether we have seen the problem in its entirety or how it will play out, and we don’t know what if anything we as regulators ought to do to deal with this problem. That kind of helplessness that exists in some parts of the world following problems that have recently arisen in their backyards, is not the kind of helplessness that should inform our decision making processes as we go forward. And if we have to guarantee ourselves that that does not happen in our backyards, we need to address what we need to do at this point of time. Therefore while there is hope, there is optimism, there is every indication that this will be our century, that we will provide the leadership roles going forward, we need to see that this is the time that we build on our strengths rather than sit back.

I want to give you just one number and close. In the year 1820 … India and China accounted for nearly half of the world’s output. By 2050, there is an expectation that these will become the first and the third largest economies of the world. 1820 to 2050; we are nearly there; because from 1820 to 2007 is much the longer part of that journey, 2007 to 2050 is much the shorter part. We might not have half the world’s trade but we’ll clearly be two of the more important economies, and alongside Japan, which is already the second largest economy in the world, I believe Asia will present the dominant face of economies world wide.