Speaking to The Financial Express on the recommendations made by him to the finance minister, Patil said that a clearing corporation, which guarantees settlements, is the most critical safety mechanism for any exchange, be it equity, forex, commodity or futures. "It has to bear a lot of risk in ensuring that there is safety for investors. In taking this risk, it ensures that market integrity is maintained," said Patil.

According to Patil, trade guarantee funds which have been set up by stock exchanges are exempt from paying tax on income generated by them. "So why must a clearingcorporation which is established as a commercial entity be made to pay tax?" he said. "Moreover, these trade guarantee funds do not provide for counter-party risk, which a clearing corporation does. We feel this entity should be exempted from tax to encourage the setting up of more clearing corporations," said Patil.

He said that the concept is a fairly new one even globally. "Futures and cash markets the world over have been successful only because they had a clearing corporation. The forex markets have not taken off only because they lack a sound clearing corporation to guarantee the settlements," said Patil.

"The tax relief provided to the clearing corporation would, needless to say, not lead to a revenue outflow, as the exempted amount would only become part of the existing corpus thus, beefing it up further. Since the concept is new in India, it should be encouraged. To start with, a five-year tax holiday should be accorded on the income of a clearing corporation. As it is a new concept there is noquestion of the government incurring any fresh losses owing to the tax rebates," said Patil.

The second demand put forth by Patil was towards removing stamp duty charges on debt instruments which are in the paperless mode as is the case with equity instruments. This would give a major boost to the debt market.

He has also called for steps to see that government securities are retailed efficiently by banks and other institutions. Effective market-making techniques should be put into place to make the government securities market more active and broadbased.

As regards introduction of equity futures in India, Patil pointed out that the margins paid by a dealer on the losses incurred by him on March 31 should be treated as losses on that day. Derivatives is a zero-sum game, and if one person has suffered losses another has made gains. There are daily settlements in derivatives. As per the existing system, the margins paid up by a member on the last day may not be treated as losses and this might affect histax calculations, feels Patil.