Capital Market Regulation

Overview

In keeping with the broad thrust of the ongoing programmes of economic reform, the mechanism of administrative controls over capital issues has been dismantled and pricing of capital issues is now essentially market determined. Regulation of the capital markets and protection of investor's interest is now primarily the resposibility of the Securities and Exchange Board of India (SEBI), which is located in Bombay.

Accordingly, SEBI's functions include:

• Regulating the business in stock exchange and any other securities markets
• Registering and regulating the working of collective investment schemes, including mutual funds.
• Prohibiting fraudulent and unfair trade practices relating to securities markets.
• Promoting investor's education and training of intermediaries of securities markets.
• Prohibiting insider trading in securities, with the imposition of monetary penalties, on erring market intermediaries.
• Regulating substantial acquisition of shares and takeover of companies.
• Calling for information from, carrying out inspection, conducting inquiries and audits of the stock exchanges and intermediaries and self regulatory organisations in the securities market.

Keeping this in view, SEBI has issued a new set of comprehensive guidelines governing issue of shares and other financial instruments, and has laid down detailed norms for stock-brokers and sub-brokers, merchant bankers, porfolio managers and mutual funds.

On the recommendations of the Patel Committee report, SEBI on 27th July 1995, permited carry forward deals. Some pf the major features of the revised carry-forward transactions as directed by SEBI are:

• Carry forward deals permitted only on stock exchanges wchich have screen based trading system.
• Transactions carried forward cannot exceed 25% of a broker's total transactions on any one day.
• 90-day limit for carry forward and squaring off allowed only till the 75th day(or the end of the fifth settlement).
• Daily margins to rise progressively from 20% in the first settlement to 50% in the fifth.

On 26th January,1995, the government promulgated an ordinance amending the SEBI Act, 1992, and the Securities Contracts (Regulation) Act, 1956.

In accordance with the amendment adjudicating mechanism will be created within SEBI and any appeal against this adjudicating authority will have to be made to the Securities Appelate Tribunal, which is to be separately constituted. These appeals will be heard only at the High Courts.

Related Topics

• Capital Issue Guidelines
• Credit Rating
• Stock Exchanges
• Term Loans
• Venture Capital
• Leasing
• Deferred Credit and Other Facilities
• Working Capital Finance
• Term Deposits
• Commercial Paper
• Factoring
• Bill Discounting
• Export Finance
• Foreign Exchange Transactions
• Merchant Banking Services
• Custodial Services
• Mutual Funds
• Capital Market Instruments
• Foreign Investment in Capital Markets
• Foreign Brokerages, etc.

The main features of the amendment to the Securities Contract (Regulation) Act, 1956, are:

• The ban on the system of options in trading has been lifted.
• The time limit of six months, in which stock exchanges could amend their bye-laws has been reduced to two months.
• Additional trading floors on the stock exchanges can be established only with prior permission from SEBI.
• Any company seeking listing on stock exchanges would have to comply with the listing agreements of stock exchanges, and the failure to comply with these, or their violation is punishable.

Centre for Monitoring Indian Economy, Bombay
Contact Addresses for More Information
Last updated: May 1995.