IASbaba's Daily Current Affairs Analysis, IASbaba's Daily Current Affairs June 2015, International, National, UPSC
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50 nations in, AIIB takes shape
India to have 7.5 per cent voting share, and China 26 per cent
What is AIIB?
- The Asian Infrastructure Investment Bank (AIIB) is an international financial institution proposed by the government of China. The purpose of the multilateral development bank is to provide finance to infrastructure projects in the Asia region.
- AIIB is regarded by some as a rival for the IMF, the World Bank and the Asian Development Bank (ADB), which are regarded as dominated by developed countries like the United States.
Who Constitute AIIB?
- There are 57 Prospective Founding Members (PFM).Hong Kong joins the delegation of China in the negotiations. India and 49 other founding members of the Asian Infrastructure Investment Bank (AIIB) have signed articles that determine each country’s share and the lender’s initial capital.
- The remaining seven founding members can sign the agreement before December 2015.
Vision and Mission of AIIB
- The AIIB is expected to focus on infrastructure development in Asia, and unlike the existing International Monetary Fund and World Bank, is unlikely to restrict lending on political considerations. The Bank’s foundation will be built on international best practices and the lessons and experiences of existing multilateral development banks and the private sector
Will AIIB bridge infrastructure financing gap in Asia?
- China-led $100 billion Asian Infrastructure Investment Bank (AIIB) will become an important forum to bridge an infrastructure financing gap in Asia to help regional economies achieve stable and sustainable growth.
- The bank estimated that Asia will need $8 trillion from 2010 to 2020 for infrastructure investment in fields such as energy, transportation, telecommunication, water and sanitation, but the region is facing a gap between great demand and inadequate capital supply.
Connecting the dots:
- Why the Chinese economy is deeply integrated with the global economy and forms an important driving force of the economy of Asia and even the world at large?
- Advantage of AIIB to India?
- What is the Importance of Infrastructure driven Economic Development Framework?
A model for India – Section 377 of the Indian Penal Code
- The Supreme Court’s December 2013 judgment upholding Section 377 of the Indian Penal Code, which seeks to punish “carnal intercourse against the order of nature”, continues to hold the field.
- The pious observation by the two-judge Bench that it was up to Parliament to decide whether to retain, amend or delete the section has not been acted upon by the political leadership.
Why does not mean much for LGBT rights in India?
- In India, gay marriage is a distant dream since our own Supreme Court had ruled on December 11, 2013 , that Section 377 which criminalises homosexual acts was still legal.
- The Supreme Court of India said courts are not the appropriate authority to strike down Section 377 and it is the Parliament which has to legislate upon the matter.
- An earlier judgement by the Delhi High Court had deemed Section 377 illegal, giving hope to the LGBT community in India.
What is the US stand on LGBT?
- The US Supreme Court ruled that right to marriage was a Constitutional Right and that same-sex marriage was a part of this. Celebrating pride on Facebook might be a way to show support. But in India being gay is hardly something you can announce with pride.
Connecting the dots:
- Is it the time for the debate on (Section) 377 to reflect what the Constitution guarantees for every Indian — which is equality?
- Do India need to consider the abolishing of Section 377 of the Indian Penal Code that criminalises gay liaisons and the legalisation of same-sex marriages?
Concerns over risk in Algorithm trading
- Algo trading was introduced in India in April 2008 with the advent of direct market access (DMA).Financial regulators are alarmed by the increasing clout of algorithm trading or high frequency trading (HFT) and fear that it could result in a systemic failure.
- The Financial Stability Report (FSR) June 2015, aired serious concerns on algorithm trading or algo trading leading to stock price manipulation as well as alienate retail or small investor from stock markets.
What is Algorithm Trading?
- Algorithmic trading (automated trading, black-box trading, or simply algo-trading) is the process of using computers programmed to follow a defined set of instructions for placing a trade in order to generate profits at a speed and frequency that is impossible for a human trader.
- The defined sets of rules are based on timing, price, quantity or any mathematical model. Apart from profit opportunities for the trader, algo-trading makes markets more liquid and makes trading more systematic by ruling out emotional human impacts on trading activities.
Benefits of Algo-Trading
- Trades executed at the best possible prices
- Instant and accurate trade order placement (thereby high chances of execution at desired levels)
- Trades timed correctly and instantly, to avoid significant price changes
- Reduced transaction costs (see the implementation shortfall example below)
- Simultaneous automated checks on multiple market conditions
- Reduced risk of manual errors in placing the trades
- Back-test the algorithm, based on available historical and real time data
- Reduced possibility of mistakes by human traders based on emotional and psychological factors
What Algo-Trading Report says?
- The report is a collective assessment of a sub-committee of the Financial Stability and Development Council, which includes all financial market regulators. Interestingly, the reports in the past have also emphasised the risks involved with HFT.
- While volumes have increased sharply in the cash segment of stock markets in India, there is a concern whether markets could be rigged through these trades. Algo trading has undergone a substantial change with the development in information processing and communications technologies over the last two to three decades.
Role of SEBI in Algo-Trading?
- Though these trades are monitored by the Securities and Exchange Board of India (SEBI), which is mandated to protect the interests of small investors, the FSR report expressed apprehensions that they could result in market manipulation.
- SEBI keeps a close watch on the developments to formulate appropriate policies based on recommendation by the Senior Supervisors Group (SSG), a group of 10 supervisors which issued a report on April 30, 2015 that assesses risks associated with algorithmic trading.
Connecting the dots:
- Do you think that the key is to check whether the system is being abused as a manipulative device or an innovation?
- Are Indian markets are matured enough to embrace algo or high frequency trades?