Capital Market Regulation
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
- Registering and regulating the working of collective investment
schemes, including mutual funds.
- Prohibiting fraudulent and unfair trade practices relating to
- Promoting investor's education and training of intermediaries of
- Prohibiting insider trading in securities, with the imposition of
monetary penalties, on erring market intermediaries.
- Regulating substantial acquisition of shares and takeover of
- 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.
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.