UNIT-V

Regulatory Institutions

5.1 Regulatory Institutions: RBI – Role and Functions

RBI is the governing body of India's monetary policy. They control the flow of money to the market through various means of monetary policy. This helps the RBI manage inflation and liquidity in the economy. Let's take a look at the monetary policy tools used by the RBI.

Reserve Bank of India

RBI is the Central Bank of India. It was founded in 1935 under the special law of Parliament. The RBI is a major authority on national monetary policy. The main function of the RBI is to maintain economic stability and the required level of liquidity.

RBI also controls and regulates the monetary system of our economy. This is the only banknote issuer in India. RBI is the central bank that manages all other commercial banks, financial institutions, financial companies and more. The RBI oversees the country's entire financial sector.

The Reserve Bank of India is Japan's principal financial institution. The Reserve Bank of India is the top of the united states's monetary machine, entrusted with administrative, supervisory, facilitating, growing and making plans tasks. The Reserve Bank of India became mounted on April 1, 1935 according with the Reserve Bank of India Act of 1935. However, the Reserve Bank of India became nationalized through the authorities after independence. It have become a public area financial institution from January 1, 1949. Therefore, the Reserve Bank of India became mounted according with the 1935 Act, and delegation of authority became performed below the Banking Regulation Act of 1949.

The Reserve Bank of India is the queen bee of the Indian monetary machine, which affects the control of industrial banks in more than one ways. The Reserve Bank of India affects the control of industrial banks thru numerous rules, guidelines and regulations. Its function in financial institution control may be very unique. In fact, the Reserve Bank of India has 4 primary capabilities of control: making plans, organizing, overseeing and managing, in laying a robust basis for the functioning of industrial banks. The Reserve Bank of India essentially has 4 nearby committees withinside the north, south, east and west. Delhi, Chennai, Calcutta and Mumbai.

Purpose of the Reserve Bank of India

The preamble to the Reserve Bank of India Act of 1934 explains the reason of the Reserve Bank as follows: The countrywide credit score machine for its benefits. "

Prior to the status quo of the Reserve Bank, India's monetary machine became absolutely insufficient because of the twin manipulate of the foreign money through the principal authorities and the inherent weak spot of credit score through the Imperial Bank of India. Therefore, the Hilton Young Commission has said that the dichotomy and department of duties for foreign money and credit score control, and the unique rules on this regard, have to be terminated through the status quo of a principal financial institution referred to as the Reserve Bank of India. Recommended. This will adjust economic coverage and expand banking centers nationwide. Therefore, the World Bank became mounted with this number one reason in mind.

Another reason of the Reserve Bank became to be loose from political affect and to perform correctly to keep monetary balance and credibility. The primary reason of the Reserve Bank of India is to behave in simple terms as a principal financial institution withinside the Indian monetary markets, this is, to behave as a bond issuer, a banker's financial institution, a banker to the authorities, within. To sell monetary growth. A well-known authorities monetary coverage framework this is constant with the want to keep rate balance.

A crucial reason of the Reserve Bank of India became additionally to help the deliberate method of improvement of the Indian economy. In addition to the conventional principal financial institution function, the Reserve Bank of India has released 5-12 months plan withinside the United States and has performed many improvement and advertising capabilities, which can be generally past the scope of the conventional principal financial institution.

Monetary policy means

Monetary policy is the way the RBI manages the money supply in the economy. Therefore, these credit policies help control inflation and thus help the country's economic growth and development. Let's take a look at the various monetary policy tools that RBI has at its disposal.

1] Open market operations

Open market operations are the direct involvement of the RBI in buying and selling short-term securities in the open market. This is a direct and effective way to increase or decrease the money supply in the market. It also has a direct impact on the market's ongoing interest rates.

Let's say the market is in equilibrium. The RBI then decides to sell the short-term securities in the market. The money supply in the market will decrease. And after that, the demand for credit lines will increase. Therefore, interest rates will rise accordingly.

On the other hand, if RBI buys securities from the open market, it has the opposite effect. The money supply to the market will increase. As a result, the demand for credits declines and interest rates fall.

2] Bank interest rates

One of the most effective means of monetary policy is bank interest rates. Bank interest rates are basically the interest rates at which RBI lends funds to commercial banks with or without collateral. This is also the standard rate at which RBI purchases or discounts bills of exchange and other such products.

Therefore, if RBI raises bank interest rates, commercial banks also need to raise lending rates. And this helps manage the money supply in the market. And vice versa will obviously increase the money supply in the market.

3] Variable reserve requirements

This monetary policy instrument has two components: the cash reserve ratio (CLR) and the statutory liquidity ratio (SLR). Let's understand both.

The Cash Reserve Rate (CRR) is part of a commercial bank deposit that must be deposited with the RBI. Therefore, CRR is the percentage of deposits that a commercial bank must hold in RBI. The RBI adjusts the above percentages to control the money supply available at the bank. Therefore, the loans offered by banks will be cheaper or more expensive. CRR is a great tool for controlling inflation.

The statutory liquidity ratio (SLR) is the percentage of total deposits that a commercial bank must hold in the form of cash reserves or gold. Therefore, increasing SLR means that banks provide less money as loans and control the money supply in the economy and vice versa.

4] Liquidity adjustment facility

The Liquidity Adjustment Facility (LAF) is an indirect means of managing currencies. Control the flow of funds through repo rates and reverse repo rates. Repo rates are actually the rates at which commercial banks and other institutions obtain short-term loans from central banks.

Reverse repo rate is the rate at which RBI deposits funds in a commercial bank in a short period of time. Therefore, RBI constantly changes these rates to control the flow of funds in the market according to economic conditions.

5] Moral appeal

This is an informal method of money management. The RBI is the central bank of the country and therefore enjoys a supervisory position in the banking system. If necessary, banks can be encouraged to exercise credit control from time to time in order to maintain a balance of funds in the market. This method is actually very effective, as banks tend to follow the policies set by the RBI.

The role of the RBI is broadly divided into two parts, namely traditional functions and development functions.

Traditional Functions:

Check out the functions that are common to any or all central banks within the world. The normal functions of the financial organisation embrace the following:

(a) Issuing bank: Has the exclusive right to issue banknotes (currency) in all countries of the world. In the early years of banking, all banks enjoyed the right to issue promissory notes. However, this led to a number of problems, such as excessive banknote issuance and disorganization of the monetary system. Therefore, the governments of different countries authorized the central banks to issue banknotes. The issuance of notes by a bank has resulted in uniformity in the circulation of notes and the equilibrium of the money supply.

(b)Banker, agent and consultant to the govt: It implies that a financial organization performs totally different functions for the government. As a banker, the financial organization performs banking functions for the govt even as industrial banks do for the general public by acceptive government deposits and creating loans to the govt. As agent, the financial organization manages the general public debt, assumes the payment of the interest on this debt and provides all different debt-related services. As associate consultant, the financial organization advises the govt on matters of policy, securities industry, capital markets, and government loans. Except for this, the financial organization formulates and implements business enterprise and financial policies to {control} the money provides within the market and control inflation.

(c) Steward of the money reserves of economic banks: Government banker, agent and consultant: It implies that a financial organization performs totally different functions for the government. As a banker, the finance organization performs banking functions for the government, just as industrial banks do for the general public, by accepting deposits from the government and creating loans for the government. As an agent, the financial institution manages the general public debt, assumes the payment of interest on this debt and provides all the different services related to the debt. As an associate consultant, the finance organization advises the government on policy, securities industry, capital markets, and government loans. Except for this, the finance organization formulates and implements business and financial policies to {control} the money provided within the market and to control inflation.

(d) Manager of the money reserves of economic banks: It implicit that the central bank keeps a minimum deposit of international currency. The main objective of this reserve is to meet emergency foreign exchange requirements and overcome adverse deficit requirements in the balance of payments

(e)Rediscount bank: Meet the money wants of people and firms by rediscounting bills of exchange through business banks. This can be associate indirect manner of loaning cash to business banks by the financial organization. Discounting a bill of exchange implies deed the bill by shopping for it for a add but its face price. Rediscount involves discounting a antecedental discounted bill of exchange. Once house owners of bills of exchange want money, they approach the banking concern to discount these bills. If the business banks themselves want money, they approach the financial organization to rediscount the bills.

(f) investor of last resort: see the foremost crucial role of the financial organization. The financial organization conjointly lends cash to business banks. Rather than rediscounting bills, the financial organization makes loans against treasury bills, government securities, and bills of exchange.

(g)Central clearing, settlement and transfer bank: It implies that the central bank helps to settle the mutual indebtedness between commercial banks. Bank depositors deliver checks and money orders from other banks. In such a case, it is not possible for banks to approach each other for clearing, settlement or transfer of deposits. The central bank facilitates this process by establishing a clearinghouse under its responsibility. The clearinghouse acts as an institution where mutual indebtedness between banks is settled. Representatives of different banks meet at the clearinghouse to settle interbank payments. This helps the central bank to know the liquidity status of commercial banks.

(h) Credit controller: It implies that the central bank has the power to regulate the creation of credit by commercial banks. Credit creation depends on the amount of deposits, cash reserves, and interest rate given by commercial banks. All of these are controlled directly or indirectly by the central bank. For example, the central bank can influence commercial bank deposits by conducting open market operations and making changes to the CRR to control various economic conditions.

(b) Developmental Functions:

Refer to the functions related to the promotion of the banking system and the economic development of the country. These are not mandatory functions of the central bank. These are treated as follows:

(i) Development of specialized financial institutions: See the main functions of the central bank for the economic development of a country. The central bank establishes institutions that serve the credit needs of the agricultural sector and other rural businesses. Some of these financial institutions include the Industrial Development Bank of India (IDBI) and the National Bank for Agriculture and Rural Development (NABARD). They are called specialized institutions because they serve specific sectors of the economy.

(ii) Influence the money market and the capital market: It implies that the central bank helps to control the financial markets. Money market operations in short-term credit and capital market operations in long-term credit. The central bank maintains the economic growth of the country by controlling the activities of these markets.

(iii) Compilation of statistical data: It compiles and analyzes data related to the banking, monetary and exchange position of a country. The data is very useful for researchers, politicians and economists. For example, the Reserve Bank of India publishes a magazine called the Reserve Bank of India Bulletin, whose data is useful for formulating different policies and making decisions at the macro level.

7 Important Promotional Functions of Reserve Bank of India

Reserve Bank of India promotion function

The various promotional features implemented by the Federal Reserve Bank of India are listed below.

1. Promote banking habits

The Federal Reserve Bank of India helps mobilize people's savings for investment. We've expanded our banking industry nationwide by establishing various institutions like UTI, IDBI, IRCI and NABARD. This promoted people's banking habits.

2. Offering refinancing for export

The Federal Reserve Bank of India offers refinancing to market exports. Credit and Guarantee Corporation (ECGC) and Export Import Bank were originally established by the Federal Reserve Bank of India to fund India's foreign trade. They lend to foreign trade the shape of insurance covers, long-term loans and foreign currency-denominated credit. However, it's currently working individually.

3. Granting credit to agriculture

The Federal Reserve Bank of India has institutional arrangements for rural or agricultural finance. For instance, banks have found out special agricultural credit cells. It promoted local regional banks with the assistance of economic banks. NABARD is additionally promoted.

4. Providing credit to small industrial units

Commercial banks lend to the tiny industrial sector in accordance with the occasional directive issued by the Federal Reserve Bank of India. The Federal Reserve Bank of India encourages commercial banks to supply guarantee services to the tiny industry sector also. The Federal Reserve Bank of India considers the progress given to the tiny sector as progress within the priority sector. He also instructed commercial banks to open specialized branches to supply adequate financial and technical assistance to the tiny industrial sector.

5. Providing indirect finance to the co-operative sector

The RBI has instructed NABARD to lend to the state co-operative banks, which are lending to the co-operative sector. Therefore, the Federal Reserve Bank of India provides indirect financing to the Indian co-operative sector.

6. Exercise control over the national financial and banking industry

The Federal Reserve Bank of India has enormous and broad authority over the supervision and control of economic banks, co-operative banks, and non-bank institutions that receive deposits. Banking Regulations provide a minimum of a good range of requirements for paid-in capital, reserves, cash reserves and current assets.

Bank operations, management, mergers, reconstructions, liquidations, etc. are thoroughly overseen by Federal Reserve Bank of India staff. All planned banks are required to submit a weekly report back to the Federal Reserve Bank showing key items of India's liabilities and assets.

7. Creating an industrial agreement for industrial finance

The Federal Reserve Bank of India has institutional arrangements for industrial finance. For instance, several development banks are created to supply long-term finance to industry, like the economic Finance Corporation of India and therefore the Industrial Development Bank of India.

Role of Reserve Bank of India in Credit Control

Reserve Ratio

Banks need to secure a certain percentage of cash reserves or RBI-approved assets. There are two types of reserve rates.

Reserve requirement ratio (CRR) – Banks must secure this portion in cash with the RBI. Banks cannot lend it to anyone or earn interest or profits on CRR.

Legal Liquidity Ratio (SLR) – Banks must reserve this portion in current assets such as gold or RBI-approved securities such as government securities. Banks can earn interest on these securities, but that is very low.

Open Market Operations (OMO):

To manage the money supply, RBI buys and sells government bonds on the open market. These operations performed by the central bank in the open market are called open market operations.

Liquidity is sucked from the market when RBI sells government bonds, and the opposite happens when RBI buys securities. The latter is done to control inflation. The purpose of OMO is to check for temporary market liquidity mismatches due to the flow of foreign capital.

Qualitative tools:

1. Unlike quantitative tools that directly affect the money supply of the economy as a whole, qualitative tools are selective tools that affect the money supply of a particular sector of the economy.
2. Margin Requirements – The RBI provides a certain amount of margin for collateral, which affects a client's borrowing habits. When RBI raises margin requirements, clients are less likely to borrow.
3. Moral Persuasion-By persuading, the RBI persuades banks to deposit money in government securities rather than in specific sectors.
4. Selective Credit Management –   Manage credit by not lending to selective industries or speculative businesses.
5. Marketplace Stabilization Scheme (MSS)

Policy rate:

Bank interest rates – The interest rate at which the RBI lends long-term funds to a bank is called the bank interest rate. However, RBI does not currently have full control over the money supply through bank interest rates. We use the liquidity adjustment facility (LAF), which is a repo, as one of the key tools for establishing the management of the money supply.

Bank rates are used to penalize banks if they do not maintain a prescribed SLR or CRR.

Liquidity Adjustment Facility (LAF) – RBI uses LAF as a means of adjusting liquidity and the money supply. The following types of LAF are:

Repo rate: Repo rate is the rate at which a bank borrows from RBI for a repo contract in the short term. Under this policy, banks are required to provide government securities as collateral and buy them back after a predefined time.

Reverse repo rate: The opposite of repo rate. That is, this is the rate that RBI pays the bank to hold additional funds in RBI. It is linked to the repo rate in the following ways:

Reverse repo rate = repo rate – 1

Marginal Permanent Facility (MSF) Rate: The MSF rate is the penalty rate at which the central bank lends money to the bank and exceeds the rate available in the contact policy. Banks using MSF rates can use up to 1% of SLR securities.

MSF rate = repo rate +1

Reserve Bank of India's role in Money markets

RBI is the maximum crucial aspect of the cash marketplace. The cash marketplace is at once in the guidelines of the Reserve Bank of India. The Reserve Bank of India affects liquidity and hobby prices thru many funding units which includes CRR, open marketplace operations, repo transactions and changes.

Bank hobby prices, etc. The RBI has taken numerous steps to expand India's cash marketplace. A committee become mounted in 1985 to check the workings of the financial device beneath the chair of Sukhamoy Chakravorty. It emphasised the want to expand cash marketplace merchandise. As a follow-up, the RBI has installation an operating organization at the cash marketplace beneath the chair of N. Vaghul. The Commission submitted a record in 1987. This committee has set a blueprint for the status quo of a cash marketplace. Based on that recommendation, the RBI has taken the subsequent steps:

1. DFHI, as a monetary marketplace group mutually through RBI, public area banks, and monetary establishments in 1988 to offer liquidity to monetary marketplace commodities and guide the improvement of secondary markets for such commodities. It became mounted.
2. Money marketplace merchandise which includes 182 days T-invoice, CDs and interbank participation certificate had been brought in 1988-89. CP become brought in January 1990.
3. To allow rate discovery, the hobby charge cap on name cash become regularly lifted from October 1988. As a primary step, DFHI's operation withinside the name / notification cash marketplace become lifted from the hobby charge cap in 1988. Interbank time period cash caps, business invoice re-discounts, and risk-loose interbank participation had been withdrawn in May 1989. All cash marketplace hobby prices are typically decided through the energy of the marketplace.

In August 1991, RBI become M. Under the chair of Narasimham (Narasimham Committee), a high-stage committee become mounted to don't forget all elements associated with the structure, organization, characteristic and method of the monetary device. The Commission has made a few pointers for the improvement of cash markets. Based on that recommendation, the RBI has taken the subsequent steps:

4.     The Indian Securities Trading Corporation become mounted in June 1994 to offer an energetic secondary marketplace for authority’s securities.

5.     Barriers to access are (a) taking flight guidelines which includes financial institution ensures through putting in a number one provider device in 1995 and a satellite tv for pc provider device in 1999 to inject liquidity into the marketplace. Gradually mitigated through permitting marketplace valuation of associated risks. Increase the variety of contributors with appreciate to CP and (c) through permitting overseas institutional traders to enter.

6.     Several monetary improvements had been brought in approach and methods. Various adulthood T-invoice and RBI repos had been brought. The auctioned T-invoice become brought, main to marketplace-decided hobby prices.

7.     The marketplace improvement of short-time period budget at marketplace-decided prices has been facilitated through the slow transfer from coins credit score structures to loan-primarily based totally structures.

8.     Ad-hook and on-faucet 91-day T-invoice has been discontinued.

9.     The Liquidity Adjustment Facility (LAF) become brought in June 2000.

10. The minimal lock-in duration for cash marketplace merchandise has been decreased to 7 days.

11. RBI has released repo transactions at each auctions and stuck prices for liquidity management.

12. In 1999, new cash marketplace derivatives which includes ahead charge agreements and hobby charge swaps had been brought.

13. Money marketplace merchandise which includes CDs and CPs are freely reachable to non-financial institution contributors.

14. Introduced the Negotiation Trading System (NDS) in February 2002, mounted the Clearing Corporation of India Ltd. (CCIL) in April 2002, and April 2004.

15. Collateral borrowing and lending responsibilities had been controlled as cash marketplace merchandise thru CCIL in June 2003.

The fundamental motive of cash marketplace reforms in latest years has been to facilitate the advent of recent merchandise and their right pricing. RBI has endeavoured to expand marketplace segments that solely address unique property and liabilities in addition to contributors. Therefore, the name / notification cash marketplace is now a natural interbank marketplace. Permanent liquidity guide from centers to banks for RBI and amazing liquidity guide has been streamlined. Various segments of the cash marketplace are incorporated with a hit implementation and implementation of LAF. NDS and CCIL have stepped forward the capability of the cash marketplace. Therefore, RBI has been looking to expand the Indian cash marketplace. RBI performs a crucial position withinside the improvement of India's cash marketplace.

Key takeaways:

1. RBI is the governing body of India's monetary policy. They control the flow of money to the market through various means of monetary policy.
2. Monetary policy is the way the RBI manages the money supply in the economy.
3. Therefore, these credit policies help control inflation and thus help the country's economic growth and development.
4. Open market operations are the direct involvement of the RBI in buying and selling short-term securities in the open market.
5. The Liquidity Adjustment Facility (LAF) is an indirect means of managing currencies.
6. Meet the money wants of people and firms by rediscounting bills of exchange through business banks. This can be associate indirect manner of loaning cash to business banks by the financial organization.
7. The Federal Reserve Bank of India helps mobilize people's savings for investment.
8. The RBI has instructed NABARD to lend to the state co-operative banks, which are lending to the co-operative sector.
9. Monetary policy is a policy developed by the Central Bank, the RBI (Reserve Bank of India), and is related to national financial issues.
10. While the main objectives of monetary policy are economic growth and price and exchange rate stability, there are other aspects in which it can be useful.
11. To curb inflation, the Reserve Bank of India needs to reduce its money supply or increase the cost of funding in order to continue to curb demand for goods and services.
12. RBI makes money, Money by creating credits, which are also treated as credit creation. Commercial banks generate credit in the form of secondary deposits.
13. Credit creation means being influenced by the cyclical nature of the economy.

5.2 The Securities and Exchange Board of India-objectives-function-powers-SEBI guidelines for primary and secondary market

The Securities and Exchange Commission of India (SEBI) is a node frame that regulates Indian capital markets and different associated problems. Established as an administrative business enterprise in 1988, it acquired statutory approval in January 1992 primarily based totally at the SEBI Act that got here into impact on January 30,1992. Prior to that, the 1947 Capital Issues (Management) Act became abolished. SEBI is made from regulations of America Securities and Exchange Commission. SEBI has a chair and 8 participants (one member representing the Reserve Bank of India, participants from critical authorities’ officers, and 5 different officers appointed through the critical authorities from numerous disciplines. It consists of representative). The Securities and Exchange Commission of India has performed an energetic position withinside the Indian capital markets to gain the goals set out withinside the Securities and Exchange Commission Act of 1992.

The most important cause of SEBI may be summarized as follows:

1. To offer traders with a few protections, shield their rights and make certain that the marketplace has a solid glide of budget.
2. Facilitate truthful transactions through securities issuers and stable markets wherein they could increase budget at quite low costs.
3. Regulate and broaden codes of behavior for economic intermediaries and cause them to aggressive and professional.
4. To offer subjects associated with or incidental to the above.

Section 11 of the SEBI Act treats SEBI authority and capability as follows:

1. It is the obligation of the Board of Directors to shield the pastimes of traders in securities and to sell and modify the improvement of the securities marketplace thru measures deemed appropriate.
2. To gain the above, the Board might also additionally take the subsequent steps:

a)       Regulation of enterprise at the inventory exchange.

b)      Register and modify the sports of inventory brokers, sub-brokers, inventory switch agents, bankers, service provider bankers, underwriters and portfolio managers on problems.

c)       Registration and law of deposit agencies, contributors and credit score agencies.

d)      Register and modify the operation of collective funding schemes, along with undertaking capital budget and mutual budget.

e)       Prohibit fraudulent and unfair buying and selling practices associated with the securities marketplace.

f)         Promote investor training and education for securities marketplace intermediaries.

g)      Prohibit insider buying and selling of securities.

h)       Regulate major acquisitions of stocks and acquisitions of groups. When

i)         Request for facts from the enterprise, inspections, end queries and audits of inventory exchanges, funding trusts, securities marketplace intermediaries and others associated with securities marketplace self-regulatory bodies.

To gain those goals, the Securities and Exchange Commission of India problems tips, guidelines and guidelines from time to time. The maximum vital of those is the SEBI (Disclosure and Investor Protection) Guidelines, 2000. The provisions of those 2000 tips are aimed toward protective the pastimes of traders in securities.

The Guidelines, 2000 deals the subsequent areas:

1. Eligibility standards for groups issuing securities,
2. Securities pricing through groups,
3. Promoter contributions and lock-in requirements,
4. Pre-issuance responsibilities of service provider bunker,
5. Prospectus / Prospectus Summary Letter Content,
6. Post-issuance responsibilities of service provider bunker,
7. Green shoe option,
8. Advertising tips,
9. Guidelines for issuing debt certificates,
10. Book constructing technique tips
11. Guidelines for public supplying through the Stock Exchange On-Aine System,
12. Guidelines for issuing capital through economic institutions,
13. Guidelines for preferential issuance of securities,
14. Bonus trouble tips,
15. Other operational and different subjects.

SEBI has issued numerous guidelines and guidelines to modify and manage service provider bankers, different contributors withinside the capital markets, and different subjects associated with buying and selling securities and to offer a code of behavior. These are bankers, securities repurchase, collective funding schemes, securities delisting, depositors, derivatives, worker inventory options, overseas institutional traders (FII), insider buying and selling, lead managers, marketplace makers, etc. Merchant Bankers, Mutually Related Funds, Ombuzmen, Portfolio Managers, Registrar and Equity Transfer Agents, Securities Lending Schemes, Sweat Equity, Equity Brokers and Sub brokers, Acquisition Regulations, Equity Transfers, Underwriters, Unfair Trading Practices, Venture capital budget, annual reports, etc.

SEBI's role in Primary Markets

The primary market is under the control of the Securities and Exchange Commission of India. The Securities and Exchange Commission of India plays an important role in keeping the primary market healthy and efficient. We have taken some steps to develop India's primary market. Meanwhile, it seeks to protect the interests of investors. We issue guidelines for the issuance of new securities in the primary market. The role played by the Securities and Exchange Commission of India in the primary market can be understood from the following points.

1. The main purpose of establishing the Securities and Exchange Commission of India was to protect the interests of securities investors, promote and regulate the development of the securities market.
2. The Securities and Exchange Commission Act of India came into effect on January 30, 1992. With its enactment, all public issues will be governed by the rules and regulations issued by the Securities and Exchange Commission of India.
3. The Indian Securities and Exchange Commission promotes fair trading of securities issuance and ensures that capital markets function efficiently, transparently and economically for the benefit of both issuers and investors. It was established.
4. Promoters need to be able to raise funds at a relatively low cost. At the same time, investors must be protected from unethical practices. Their rights need to be protected so that savings can flow quickly into the market. In order for an intermediary to be competitive and professional, there must be appropriate regulations and codes of conduct, and fair practices by the intermediary. These are processed by the Securities and Exchange Commission of India.
5. Since its establishment, the Securities and Exchange Commission of India has been committed to increasing the transparency of capital issues. Under the umbrella of the Securities and Exchange Commission of India, companies issuing shares are free to modify their premiums as long as appropriate disclosure is made in the offer document. The Securities and Exchange Commission of India has become a vigilant watcher with a focus on investor protection.
6. The Securities and Exchange Commission of India introduced the concept of anchor investors on June 18, 2009 to enhance the ability of issuers to sell issues, to give confidence to individual investors and the issuance process. Improved price discovery anchor investors are institutional investors who are eligible to buy large amounts of stock the day before the IPO begins. They help reach the right benchmark prices for stock sales and create trust in individual investors. An individual investor is an investor who can bid on books and issues and apply for securities at a value less than or equal to Rs. 1,00,000.

SEBI Primary Market Reform:

The Securities and Exchange Commission of India (SEBI) has introduced various guidelines and regulatory measures on capital issues for the sound and efficient functioning of Indian capital markets. The issuer must make important disclosures in the offer document about the risk factors and rate the debt certificate. Measures have been taken to ensure continued disclosure by companies so that investors can compare promises with performance. Merchant bankers are now more accountable in the offer documentation and publishing process. The lead manager's due diligence certificate for disclosures made in the offer document is part of the offer document itself to increase the lead manager's accountability and transparency.

New reforms by the Securities and Exchange Commission of India in the primary markets include improving disclosure standards. Introducing soundness standards and simplifying issuance procedures. Companies now need to disclose all important facts and specific risk factors related to the project when raising public issues. SEBI has also introduced code to promote public issues to ensure a fair and true picture. To reduce issuance costs, underwriting issuance is optional, provided that if the subscription is less than 90% of the amount offered, the full amount collected will be refunded to the investor.

A book building process in the primary market was introduced with the aim of further strengthening the price-fixing process. Indian companies are allowed to raise funds from overseas by issuing ADR / GDR / FCCB.

The role of SEBI in the Secondary Market

Since its inception, the Securities and Exchange Commission of India has played an active role in making the secondary market healthy and efficient. We publish guidelines for the proper functioning of the secondary market. It has the power to call for regular returns from the stock exchange. You have the authority to regulate the maintenance of certain documents by the stock exchange. We may ask the stock exchange or member to provide explanations or information about the business of the stock exchange or member.

Recent trends in the secondary market (measures taken by SEBI and the government to reform the secondary market)

In recent years, several steps have been taken to reform the secondary market with the aim of improving the efficiency and effectiveness of the secondary market. Some of the developments in this direction are:

1. Intermediary Regulations: Capital market intermediaries are under strict control to improve their functioning. Brokers such as merchant bankers, underwriters, brokers and sub-brokers must register with the Securities and Exchange Commission of India. The capital adequacy standard has been revised to improve financial relevance.

2.     Claims for high quality securities: The Indian Stock Exchange Commission has announced recently revised standards for companies accessing capital markets so that only high-quality securities are listed and traded on the stock exchange. In addition, capital participation of financial institutions is indispensable for entry into the capital market.

3.     Prohibition of Insider Trading: In 2002, the Indian Securities and Exchange Commission (Insider Trading) Amendment Regulations were enacted, giving the Indian Securities and Exchange Commission the authority to curb insider trading. Insiders are prohibited from trading securities of listed companies based on undisclosed price sensitive information.

4.     Accounting Practice Transparency: Greater efforts are being made to achieve transaction and accounting practice transparency to ensure correct pricing and widespread participation. Brokers are required to display prices, brokerage, service taxes, etc. separately on their contracts and accounts.

5.     Strict supervision of stock market operations: The Stock Exchange Commission of the Ministry of Finance of India has very strict supervision of stock exchange operations. The Indian Stock Exchange Commission closely monitors the operation of the stock exchange to ensure that transactions are conducted in the best interests of the overall financial environment.

The country in general, especially investors. There are strict rules regarding stock exchange approval, membership, management, account maintenance, etc. Again, the stock exchange will be inspected from time to time by officers of the Indian Stock Exchange.

6.     Blocking operations: The Indian Stock Exchange Commission has taken all steps to prevent price fixing on all stock exchanges. We instruct all stock exchanges to maintain a special margin in addition to the normal margin of scrips that are affected by significant price fluctuations. The Securities and Exchange Commission of India itself demands a special margin of at least 25% (in addition to the regular margin) for the purchase of scrips, which can skyrocket in price. All stock exchanges suspend trading on that stock exchange in case any stock exchange suspends trading on that stock exchange for more than a day due to price manipulation or fluctuations. You are instructed to stop.

7.     Price-fixing: To control price-fixing, by the Securities and Exchange Commission of India under the 1995 Securities and Exchange Commission of India (Prohibition of Fraud and Unfair Trading Practices Related to Securities Markets) Great authority has been granted.

8.     Protecting Investor Interests: Stock exchanges are instructed to take timely action to remedy investor dissatisfaction. To this end, the Securities and Exchange Commission of India issues the Investor Guidance Service to guide and educate investors on available complaints and remedies. It also provides information on various investment options, their benefits, and available tax incentives. Each stock exchange has a disciplinary action committee to handle complaints against companies and brokers. In addition, each stock exchange has a legal obligation to create an investor protection fund.

9.     Free pricing of securities: Now any company is free to enter the capital markets and get the capital they need at the price they want. Recently, the Securities and Exchange Commission of India has allowed companies to issue shares below par Rs. 10 and liberalized early norms Open call for participants.

10. Interest rate release: In August 1991, interest rates on corporate and PSU bonds were released with the aim of raising funds from the capital markets at attractive interest rates according to credit ratings.

11. Establishment of credit rating agencies: Credit rating agencies have been established to give credit ratings to money market products, debt products, deposits and stocks. Currently, all debt certificates must be credit-rated by credit rating agencies to prevent investors from being fooled by financially unhealthy businesses.

12. Introduction of electronic trading: OTCEI has started trading business via electronic media. Similarly, BSE switched to an electronic trading system called BOLT in 1995. Again, NSE has moved to screen-based transactions with its national network.

13. Establishment of OTC / OTCEI / NSE: OTC / OTCEI and NSE were established to overcome delays, price fixing, manipulation, etc. The OTC market is a fully automated exchange that trades through a nationwide network of telephones / computers / counters.

14. Introducing a deposit system: The deposit system was approved by Parliament on July 23, 1996 to avoid poor delivery, counterfeiting, theft and delays in settlement and to expedite the transfer of securities.

15. Repurchase of own shares: Companies are currently allowed to repurchase their own shares.

16. Withdrawal of PSU shares: To overthrow the government. An investment withdrawal program was implemented to maintain and promote the privatization process. An investment withdrawal committee was established for this purpose.

17. Stock Surveillance System: The Securities and Exchange Commission of India has introduced a new stock surveillance system to track down the causes of unwanted trades in the market. The stock watch system acts as a mathematical model that constantly monitors market movements.

18. Derivatives trading: L.C. The Gupta Commission, which was considering the introduction of derivative trading, recommends that index futures trading be introduced first, and then options trading be introduced. Recently, future funds have also been allowed to trade derivatives.

19. Stock Lending Mechanism: A stock lending scheme was introduced by the Securities and Exchange Commission of India to stimulate the capital markets by making idle stocks work.

20. International Listing: A major event in the history of Indian capital markets is the share of listed companies on the US Stock Exchange.

21. Rolling Settlement: In July 2001, the Securities and Exchange Commission of India mandated a T + 5 cycle rolling settlement of 414 shares, and the remaining shares must be followed from January 2002. Introduced in all securities.

22. Margin Trading: Another development in the secondary market is the introduction of margin trading.

Distribution market reform by SEBI:

Since the establishment of the Indian Stock Exchange (SEBI) in 1992, the trading system on the stock exchange 10 years ago has been reviewed. The main drawbacks of this system are found in two areas: (i) the stock exchange clearing and settlement system where the seller physically delivers the shares and the buyer pays, and (ii) the share transfer procedure. Rice field. The name of the purchaser by the company. This procedure involved a lot of paperwork, late payments, transaction costs and lack of price transparency. The widespread use of the "badra" system was often identified as a factor encouraging speculative activity. The "Badra" system was discontinued in December 1993 as part of the process of establishing transparent rules for transactions. The Indian Stock Exchange has instructed the Mumbai, Kolkata, Delhi and Armadabad Stock Exchanges to ensure all securities trading. It is concluded by delivery and payment and does not allow the carry-over of transactions.

The floor-based open outcry system has been replaced by an online electronic system. The term payment system has been superseded by the rolling payment system. The physical stock certificate system has become obsolete due to the electronic deposit system. Risk management systems have become more comprehensive with the introduction of different types of margins. FII is allowed to participate in the capital markets. Strict measures have been taken to check insider trading. The interests of minority shareholders are protected by introducing an acquisition code. Several types of derivative instalments have been introduced for hedging.

As a result of government and regulatory reforms / initiatives, the market structure has been refined and modernized. Investors' investment options have also expanded. From April 1, 2003, the securities market has shifted from the T + 3 settlement period to the T + 2 rolling settlement. In addition, straight-through processing is mandatory for all institutional transactions conducted on the stock exchange. Real-time gross settlement was also introduced by RBI to settle interbank transactions in online real-time mode.

Key takeaways:

1. Listed companies or public limited companies that will issue shares of rights and notify shareholders by July 31, 2020 may do this by means other than registered mail, speed mail, and courier services, SEBI Circular. Is not considered a violation of.
2. SEBI plays an important role in regulating all players operating in the Indian capital markets.
3. SEBI may be a statutory regulatory body established on April 12, 1992. It monitors and regulates the New Delhi and securities markets while protecting the interests of investors and developing regulations and guidelines. SEBI is headquartered in the Bandraculla Complex in Mumbai.
4. SEBI was established primarily to protect the interests of investors in the securities market.
5. Promote the development of the securities market and regulate the business.
6. SEBI allows stock brokers, sub-brokers, portfolio managers, investment advisors, stock transfer agents, bankers, merchant bankers, trust trustees, registration agencies, underwriters, and other related people to register and regulate their jobs. Provides a platform for
7. It regulates the operations of depository agencies, participants, securities managers, foreign portfolio investors, and credit rating agencies.
8. We prohibit insider trading, that is, fraudulent and unfair trading practices related to the securities market.
9. It ensures that investors are educated about brokers in the securities market.
10. Monitor significant acquisitions of shares and acquisitions of companies.
11. SEBI conducts research and development to ensure that the securities market is always efficient.
12. New companies that have not completed 12 months of commercial activity will not be able to issue shares at a premium.
13. If an existing company with a consistent profitability of 5 years is promoting a new company, you can price the issue.
14. The draft prospectus must be submitted to SEBI before publication.
15. The shares of the new company must be listed on OTCEI or other stock exchanges.
16. Companies entering the capital markets must issue a statement on the use of funds in the previous issue.
17. Brokers must meet capital adequacy criteria so that member firms can maintain adequate capital for open positions.
18. Stock exchange authorities need to amend the Articles of Incorporation regarding capital adequacy standards.

References:

1. Kohn, Meir: Financial Institutions and Markets, Tata McGraw Hill.
2. Bhole L.M: Financial Institutions and Markets, Tata McGraw Hill.
3. Desai, Vasantha: The Indian Financial System, Himalaya Publishing House.
4. Machiraju.R.H: Indian Financial System, Vikas Publishing House.
5. Khan M.Y: Indian Financial System, Tata McGraw Hill.
6. Varshney, P.N., & D K Mittal, D.K.: Indian Financial System, Sultan Chand & Sons