Stocks and Commodity Market Operations (MBA 826) Lecture 4 and Lecture 5 Securities Market in India: Functions and Regulatory Framework January 23, 2015 by Vandana Srivastava

What are the functions of Security Market?  help finance growing, or sometimes new, corporations A securities market finances directly when its principals or members invest or lend their own funds provides industry with new capital, and help investors and lenders to locate securities which meet their objectives provides liquidity of different degrees, for the securities traded within its exchange. Full liquidity means the ease of sale and purchase of any reasonable quantity of a particular security at or near its latest current market price http://fee.org/freeman/detail/the-role-of-the-securities-market.

Regulators in Security Market! absence of conditions for perfect competition in the securities market makes the role of the regulator extremely important regulator ensures that the market participants behave in a certain manner so that: the securities markets continue to be a major source of finance for the corporate sector and the government protect the interests of investors In India, the responsibility for regulating the securities market is shared by the: Department of Economic Affairs (DEA) the Ministry of Corporate Affairs (MCA) Reserve Bank of India (RBI) Securities and Exchange Board of India (SEBI) orders of SEBI under the securities laws are appealable before a Securities Appellate Tribunal (SAT)

Regulator 1: Department of Economic Affairs (DEA)

Function of DEA formulate economic policies for the country monitors the economic life of the country, for example Stock Exchange looks after Foreign Direct Investments (FDI) in Indian economy consists of several divisions “CAPITAL MARKET DIVISION” takes care of the financial market all matters related to Primary Market, Secondary Market and External Markets Establishment related matters of SEBI, SAT and SUUTI Financial Stability Board Financial Sector Assessment Program (FSAP) Interactions with financial analysts and economists http://finmin.nic.in/the_ministry/dept_eco_affairs/capital_market_div/cm_div.asp

Regulator 2: Ministry of Corporate Affairs (MCA)

Ministry of Corporate Affairs (MCA) regulates corporate affairs in India through the Companies Act, 1956, 2013 and other allied Acts, Bills and Rules protects investors and offers many important services to stakeholders http://www.mca.gov.in/

Regulator 3: Reserve Bank of India (RBI)

History established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934 Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937 Central Office is where the Governor sits and where policies are formulated originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India http://www.rbi.org.in/commonman/English/scripts/organisation.aspx

RBI Central Board Constitution: RBI’s affairs are governed by a central board of directors board is appointed by the Government of India in keeping with the Reserve Bank of India Act Appointed/nominated for a period of four years Constitution: Official Directors Full-time : Governor and not more than four Deputy Governors Non-Official Directors Nominated by Government: ten Directors from various fields and two government Officials Others: four Directors - one each from four local boards (Mumbai, Calcutta, Chennai and New Delhi) Functions : General superintendence and direction of the Bank''s affairs http://www.rbi.org.in/commonman/English/scripts/organisation.aspx

Local Boards One each for the four regions of the country in Mumbai, Calcutta, Chennai and New Delhi Membership: consist of five members each appointed by the Central Government for a term of four years Functions To advise the Central Board on local matters represent territorial and economic interests of local cooperative and indigenous banks to perform such other functions as delegated by Central Board from time to time http://www.rbi.org.in/commonman/English/scripts/organisation.aspx

Regulatory work of RBI RBI takes care of the following regulations: contracts for sale and purchase of securities gold-related securities money market securities securities derived from these securities ready forward contracts in debt securities

Securities and Exchange Board of India The Securities and Exchange Board of India was enacted on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992. http://www.sebi.gov.in/sebiweb/stpages/about_sebi.jsp

Functions of SEBI protect the interests of investors in securities promote the development of, and to regulate the securities market, by measures that it thinks fit regulating the business in stock exchanges and any other securities markets registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities markets in any manner registering and regulating the working of the depositories, participants, custodians of securities, foreign institutional investors, credit http://www.sebi.gov.in/cms/sebi_data/about_us/act15ac.html#ch4

Functions of SEBI rating agencies and such other (c) registering and regulating the working of [15] [venture capital funds and collective investment schemes],including mutual funds;  (d) promoting and regulating self-regulatory organisations;  (e) prohibiting fraudulent and unfair trade practices relating to securities markets;  (f) promoting investors' education and training of intermediaries of securities markets;  (g) prohibiting insider trading in securities;  (h) regulating substantial acquisition of shares and take-over of companies;  (i) calling for information from, undertaking inspection, conducting inquiries and audits of the [16] [ stock exchanges, mutual funds, other persons associated with the securities market] intermediaries and self- regulatory organizations in the securities market;  calling for information and record from any bank or any other authority or board or corporation in respect of any transaction in securities which is under investigation or inquiry by the Board