30-07-2014, 03:06 PM
S.K.SOMAIYA DEGREE COLLEGE OF ARTS, SCIENCE AND COMMERCE
VIDYAVIHAR
S.K.SOMAIYA DEGREE.docx (Size: 93 KB / Downloads: 10)
INTRODUCTION
The capital market is a market for long –term funds both equity and debt- and funds raised within and outside of the country. The primary market refers to the long –term flow of funds from the surplus sector to the government and corporate sector (through primary issues) and to banks and non-banks financial intermediaries (through secondary issues). A primary issue of the corporate sector leads to capital information (creation of net fixed assets and incremental change in inventories).
The secondary market is a market for outstanding securities. Unlike primary issues in the primary market which result in capital information, the secondary market facilitates only liquidity and marketability of outstanding debt and equity instruments. The history of the capital market in India dates back to the 18th century when East India company securities were traded in the country. It has been a long journey for the Indian capital market. Now the capital market is organized, fairly integrated, mature, more global and modernized. The Indian equity market is one of the best in the world in terms of technology as well as value- cum-volume of business. On 31stAugust, 2010 our Indian equity stocks total market capitalization value was over Rs.70 lakh crores.
THE SECURITIES AND EXCHANGE BORAD OF INDIA (S.E.B.I)
With the announcement of the reforms package in 1991, the volume of business in both the primary and secondary segment of the capital market has been increased enormously till now. A multicrore securities scam rocked the Indian financial system in 1992(Harshad Mehta scam). The then existing regulatory framework was found to be fragmented and inadequate and hence, a need for an autonomous, statutory, and integrated organization to ensure the smooth functioning of capital market was felt. To fulfill this need, the Securities and Exchange Board of India (S.E.B.I), which was already in existence since April 1988, was conferred statutory powers to regulate the capital market. The SEBI got legal teeth through an ordinance issued on 30 January 1992. The ordinance conferred wide- ranging powers on the SEBI, including the authority to prohibit insider trading’ and regulate substantial acquisition of shares’ and takeover of business‘. The function of market development includes containing risk, board basing, maintaining market integrity and promoting long-term investment. The SEBI Act, 1992 which establishes the SEBI with four-fold objectives of protection of the interests of investors in securities, development of the securities market, regulation of the securities market and matters connected therewith and incidental thereto. The capital market, i.e., the market for equity and debt securities is regulated by the Securities and Exchange Board of India (SEBI). The SEBI has full autonomy and authority to regulate and develop the capital market. The government has framed rules under the securities contracts (regulation) Act (SCRA), the SEBI Act and the Depositories Act.
The SEBI has framed regulations under the SEBI Act and the Depositories Act for registration and regulation of all market intermediaries, for prevention of unfair trade practices, and insider trading. As everyone could know that these i.e. the Government and the SEBI issue notifications, guidelines and circulars which need to be complied with by market participants. All the rules and regulations are administered by the SEBI.
EXCHANGE MANAGEMENT:
In view of the less than satisfactory quality, of administration of broker-managed exchanges, the finance minister in March 2001 proposed demutualization of exchanges by which ownership, management and trading membership would be segregated from each other. The regulators are working towards implementing this. Of the 23 stock exchanges in India, two stock exchanges viz., OTCEI and NSE are already demutualised. Board of directors, which do not include trading members, manages these. Theses are purest form of demutualised exchanges, where ownership, management and trading are in the hands of three sets of people. The concept of demutualization completely eliminates any conflict of interest and helps the exchange to pursue market efficiency and investors interest aggressively.
ROLE OF SEBI
The SEBI, that is, the Securities and the Exchange Board of India, is the national regulatory body for the securities market, set up under the securities and Exchange Board of India act, 1992, to “protect the interest of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith and incidental too.”
SEBI has its head office in Mumbai and it has now set up regional offices in the metropolitan cities of Kolkata, Delhi, and Chennai. The Board of SEBI comprises a Chairman, two members from the central government representing the ministries of finance and law, one member from the Reserve Bank of India and two other members appointed by the central government.
As per the SEBI act, 1992, the power and functions of the Board encompass the regulation of Stock Exchanges and other securities markets; registration and regulation of the working stock brokers, sub-brokers, bankers to an issue (a public offer of capital), trustees of trust deeds, registrars to an issues, merchant bankers, under writers, portfolio managers, investment advisors and such other intermediaries who may be associated with the stock market in any way; registration and regulations of mutual funds; promotion and regulation of self- regulatory organizations; prohibiting Fraudulent and unfair trade practices and insider trading in securities markets; regulating substantial acquisition of shares and takeover of companies; calling for information from, undertaking inspection, conducting inquiries and audits of stock exchanges, intermediaries and self- regulatory organizations of the securities market; performing such functions and exercising such powers as contained in the provisions of the Capital Issues (Control) Act,1947 and the Securities Contracts (Regulation) Act, 1956, levying various fees and other charges, conducting necessary research for above purposes and performing such other functions as may be prescribes from time to time.
SEBI as the watchdog of the industry has an important and crucial role in the market in ensuring that the market participants perform their duties in accordance with the regulatory norms. The Stock Exchange as a responsible Self Regulatory Organization (SRO) function to regulate the market and its prices as per the prevalent regulations. SEBI and the Exchange play complimentary roles to enhance the investor protection and the overall quality of the market.
TRADING MECHANISM:
All stock exchanges in India follow screen-based trading system. NSE was the first stock exchange in the country to provide nation-wide order-driven, screen-based trading system. NSE model was gradually emulated by all other stock exchanges in the country. The trading system at NSE known as the National Exchange for Automated Trading (NEAT) system is an anonymous order-driven system and operates on a strict price/time priority. It enables members from across the countries to trade simultaneously with enormous ease and efficiency. NEAT has lent considerable depth in the market by enabling large number of members all over the country to trade simultaneously and consequently narrowed the spreads significantly. A single consolidated order book for each stock displays, on a real time basis, buy and sell orders originating from all over the country. The bookstores only limit orders, which are orders to buy or sell shares at a stated quantity and stated price. The limit order is executed only if the price quantity conditions match. Thus, the NEAT system provides an open electronic consolidated limit order book (OECLOB). The trading system provides tremendous flexibility to the users in terms of kinds of orders that can be placed on the system. Several time-related (Good-Till-Cancelled, Good-Till Day, Immediate-or-Cancel), price related (buy/sell limit and stop-loss orders) or volume related (All-or-None, Minimum Fill, etc.) conditions van be easily built into an order. Orders are sorted and match automatically by the computer keeping the system transparent, objective and fair. The trading system also provides complete market information on-line, which is updated on real time basis. The trading platform of the CM segment of NSE is accessed not only from the computer terminals from the premises of brokers spread over 420 cities, but also from the personal computers in the homes of investors through the internet and from the hand-held devices through WAP. The trading platform of BSE is also accessible from 400 cities.
Internet trading is available on NSE and BSE, as of now. SEBI has approved the use of Internet as an order routing system, for communicating clients’ orders to the exchanges through brokers. SEBI- registered brokers can introduce internet-based trading after obtaining permission from the respective Stock Exchanges. SEBI has stipulated the minimum conditions to be fulfilled by trading members to start internet-based trading and services.
DEMAT TRADING:
A depository holds securities in dematerialized form. It maintains ownership records of securities in a book entry form and also effects transfer of ownership through book entry. SEBI has introduced some degree of compulsion in trading and settlement of securities in dematerialized form. While the investors have a right to hold securities in either physical or demat form, SEBI has mandated compulsory trading and settlement of securities in dematerialized form. This was initially introduced for institutional investors and was later extended to all investors. Starting with 12 scrips on January 15, 1998, all investors are required to mandatorily trade in dematerialized form in respect of 2,335 securities as at end-June, 2001.
Since the introduction of the depository system, dematerialization has progressed at a fast pace and has gained acceptance among the participants in the market. All actively traded scrips are held, traded and settled in demat form. The details of progress in dematerialization in two depositories, viz., NSDL and CDSL., are presented as below:
In a SEBI working paper titled ‘Dematerialization: A Silent Revolution in the Indian Capital Market’ released in April 2000, it has been observed that India has achieved a very high level of dematerialization in less than three years’ time, and currently more than 99%of trades settle in demand form. Competition and regulatory developments facilitated reduction in custodial charges and improvements in qualities of service standards. The paper observes that one imminent and apparent immediate benefit of competition between the two depositories is fall in settlement and other charges. Competition has been driving improvement in service standards. Depository facility has effected changes in stock market microstructure. Breadth and depth of investment culture has further got extended to interior areas of the country faster. Explicit transaction cost has been falling due to dematerialization. Dematerialization substantially contributed to the increased growth in the turnover. Dematerialization growth in India is the quickest among all emerging markets and also among developed markets excepting for the U.K and Hong Kong.
CONCLUSION
The SEBI is a regulatory body which is eighteen years old and the capital market system is more than 100 years old. This matured capital market system requires monitoring rather than over-regulation. The SEBI should supervise this capital market system in such a manner that all sub-systems become self-regulatory organizations (SROs) gradually. The SEBI should lay down the boundaries within which these sub-systems should operate. Moreover, the fundamental infrastructure for regulation, disclosure, surveillance and trading are all in place. Hence, the SEBI should stop being pre-occupied with day-to-day regulations and become more of a visionary. The SEBI can ensure a free and fair market and take India into league of major global capital markets in the next round of reforms. To enable this, it has to thoroughly review its structure and functioning. The SEBI has to balance between the costs of regulation and market development. There should be cross-border cooperation between various regulators and between regulators and industry.