On day one, the discussion covered topics such as aSecuritization as an SPV for Packaging Cash Flowsa and the aImportance of Regulation in the Equity and Debt Markets.a The students were provided food for thought regarding the topics discussed and question-answer session. Day two chiefly concentrated on the technical issues of Exotic Derivative Products.

The event began with, Dr Subir Gokarn, Chief Economist, Standards & Poor’s Asia Pacific and Mr Pranab Kumar Choudhury, Vice Chairman, ICRA Online Ltd, sharing the stage. Mr. Subir educated the audience about the various debt products, and the evolution of debt markets in India. He then led the discussion on markets, its characteristics and the various roles it plays. The analogy of RBI monetary policies being the hand brake (Repo rates) and the foot-brake (CRR) of the Indian monetary vehicle provided an insight on their operation and impact on liquidity in a calculated manner. In another such observation he compared a mobile phone to an ideal financial supermarket where the attributes within a debt instrument would satisfy the needs of many people a just like a cell phone that caters to consumers with its various features like camera, music and internet. He also talked about the idea of a standard rating basis for credit rating agencies across the world.

Mr Choudhury carried the talk forward, examining the role of a rating agency in the current market scenario. He asked the listeners to put away any misconceptions they had about ratings being a science. According to him, it was no science, but history. He then went on to substantiate his point by quoting real life examples and situations that he had been in.

The rationale for an efficiently regulated and volume driven debt market was explained by Mr. TC Nair, a whole time member of SEBI. He apprised the students of the bullish view that global investors have of India and that they are constantly on the lookout for investment opportunities to get on the Indian Inc. bandwagon. He also mentioned that according to the reports from Goldman Sachs, World Bank and the City of London report the Indian bond market as having the potential of growing to the brilliant value of a trillion dollars. Mr Nair further explained how crisis at different intervals shaped the present stock markets in India viz. the Harshad Mehta scam, the Ketan Parekh scam and the debt crisis of 1991 taught priceless lessons to the Indian policy making. It actually allowed the market evolution to leapfrog e.g. the integrated surveillance system – a work of art and one of the most advanced systems in the world was conceived and implemented after considering the conspicuous shortcomings.

Mr Arun Kumar Gupta, Senior Manager, Structured Finance Division, CRISIL, then took the floor. He talked about the latest buzz regarding securitization. The students were informed about the concept of packaging cash flows through SPV together with giving the Indian market overview and the growth factors. Further, he elaborated upon how CRISIL addresses ratings and issues relating to the instrument like credit risks on part of the originator, the assets underlying the instrument, legal issues like valid sale and bankruptcy remoteness, market risks like interest rate and contemporary issues like commingling.

Mr Ambuj Jain from Jubilant Organosys inaugurated day two by explaining the prevalent corporate structure of currency derivatives. The use of derivatives, the risks connected with knock-outs, currency swaps and improper use of such instruments was highlighted. He also stressed upon the lessons learnt from the currency movements in USD-Re, USD-CHF and USD-Yen scenario and propagated that the worst case scenario should be available at the time of decision-making i.e. a pre-defined stop-loss should be identifiable and capable of execution.

The next speaker, Mr Mann Digvijay Singh, Associate Director Standard Chartered Bank and an IIM alumnus, addressed the students and asked them specific questions. Based on the queries, he talked about derivatives types and the position of exotic derivatives in the market. He explained exotic derivatives from the point of view of the seller/banks that design such derivatives and float them to the corporates. aExotica means anot-understooda in the Indian context and as per his evaluation, Indian firms usually doesnat probe into the leverage behind a contract. Eventually, with a poor understanding of the risks they are exposed to, they end up making mistakes and incur huge losses in exotic derivatives like snowball, ratchets, multiple knock-ins and knock-outs. Issues like bank capital models, corporate problems and whether the derivatives are at fault were pointed out by him.

An important and increasingly indispensable part of complex derivatives market that enables firms to monitor and control their risk exposures viz. derivatives, was taken up by Mr. Patrick Maes, Principal, Investment and Transactional banking, HCL Technologies. He started off by drawing a parallel with respect to events in the history of derivatives. He focused on two major events: 1993 Bankas Trust- Proctor & Gamble debacle and 2007 Sub-prime induced credit crunch to bring out the situations in which derivatives are ineffective i.e. use of derivatives in un-hedged positions, dilution of connection with underlying asset .etc. The session concluded with Mr. Mann Digvijay Singh encouraging students to live life to the fullest, take risks, be on a lookout for opportunities, and be ready to do different things.

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