Securities Market in India

Investment Laws
Contact Programme- Class I

Securities Market in India
………………..Prof. S.Krishnaswamy
• What and Why of Securities Market?
In every economic System, some units

which may be individual or Institution are
surplus-generating while others are deficit-
generating.
• Surplus-Generating Units are called Savers
while Deficit-generating units are called
spenders.
• Households are surplus-generating and
Corporates and Government are deficit
generators.
• By placing the surplus funds in Financial claims
or Financial securities the Spending community
gets funds at a cost and saving community gets
various benefits like interest, dividend, capital
appreciation, Bonus etc.
• The Surplus generating units (Savers) are
investors and Deficit generating units
(spenders) are issuers.
• These investors and issuers of financial
securities constitute two important
elements of the securities markets.
• The third critical element of markets is the
intermediaries who act as conduits
between the investors and issuers.
• Regulatory bodies, which regulate the
functioning of the securities markets,
constitute the last but very significant
element of securities markets.
• Thus the four important elements of
securities markets are:
• Investors
• Issuers
• Intermediaries
• Regulators
Securities Can be
• Government or Industrial
• Long-term or short-term
• Primary Market or Secondary Market
Primary Market is the segment in which new
issues are made whereas secondary
market is the segment in which
outstanding issues are traded. It is for this
reason that the Primary Market is called
the New issues Market and the secondary
market is called Stock Market.
History of Indian Stock Market
• From Scattered and small beginning in the 19th Century,
India’s stock market has risen to great heights.
• By 1990, we had 19 stock exchanges in the country.
• There were around 6,000 listed companies and the
investors population stood around 15 Million.
Role & Functions of Stock Exchange
In Union of India Vs. Allied International
Products Ltd. [ (1971) 41 Comp Cas 127
SC]: (1970) 3 SCC 5941), the Supreme
Court of India has enunciated the role of
the Stock Exchanges in these words:
“ A Stock Exchange fulfills a vital function in
the economic development of a nation: its
main function is to ‘liquify’ capital by
enabling a person who has invested
money in, say a factory or railway, to
convert it into cash by disposing off his
shares in the enterprise to someone else.
……contd
Investment in Joint stock companies is attractive to
the public, because the value of the shares is
announced day after day in the stock
exchanges, and shares quoted on the
exchanges are capable of almost immediate
conversion into money. In modern days a
company stands little chance of inducing the
public to subscribe to its capital,
………..contd
unless its shares are quoted in an approved
stock exchange. All public companies are
anxious to obtain permission from reputed
exchanges for securing quotations of their
shares and the management of a company is
anxious to inform the investing public that the
shares of the company will be quoted on the
stock exchange”.
The stock exchange is really an

essential pillar of the private sector
corporate economy. It discharges three
essential functions:
First, the stock exchange provides a

market place for purchase and sale of
securities viz. shares, bonds, debentures
etc. It, therefore, ensures the free
transferability of securities which is the
essential basis for the joint stock
enterprise system.
Secondly, the stock exchange provides the

linkage between the savings in the household
sector and the investment in the corporate
economy. It mobilizes savings, channelises them
as securities into these enterprises which are
favoured by the investors on the basis of such
criteria as future growth prospects, good returns
and appreciation of capital.
Thirdly, by providing a market quotation

of the prices of shares and bonds- a sort
of collective judgment simultaneously
reached by many buyers and sellers in the
market- the stock exchange serves the
role of a barometer, not only of the state of
health of individual companies, but also of
the nation’s economy as a whole.
Regulation of Stock Market
Since the savings of the investing

community namely, public, needs to be
protected from various kinds of
malpractices, frauds, defaults etc., it was
obligatory on the part of the Governing
system to establish Regulatory bodies.
Regulation of Stock Markets
UK and USA had long back created separate boards for the
regulation of the securities market. U.K has the Securities and
Investment Board (SIB) and U.S. has the Securities and Exchange
Commission (SEC). The Indian Government’s intention to set up a
separate board for the regulation and orderly functioning of the
capital market was first declared in the Budget speech by Shri. Rajiv
Gandhi, the then Prime Minister and Minister of Finance, while
presenting the Budget for the year 1987-88. He stated:
“ The Capital Markets in India have shown tremendous growth in the

last few years. Approvals for capital issues have exceeded Rs.5,000
crores in 1986-87. They were only about Rs.500 Crores in 1980-81.
For a healthy growth of capital markets, investors must be fully
protected. Trading malpractices must be prevented. Government
have decided to set up a separate board for the regulation and
orderly functioning of stock exchange and the securities industry”.
By a notification issued on 12th April’1988, Securities and

Exchange Board of India (SEBI) was constituted as an
interim administrative body to function under the overall
administrative control of the Ministry of Finance of the
Central Government.
In July 1988, the SEBI, constituted as a foresaid,

published an approach paper on comprehensive
legislation for securities market.
The SEBI was given a statutory status on 30th January,1992 by an

ordinance to provide for the establishment of SEBI. A Bill to replace
the Ordinance was introduced in parliament on 3rd march, 1992 and
was passed y both houses of parliament on 1st April’1992. The Bill
became an act on 4th April’1992 the date on which it is received the
President’s assent. However, as provided for in section 1(3), this
act is to be deemed to have come into force on 30th January, 1992,
i.e. the date on which the SEBI ordinance was promulgated.
FUNCTIONS OF SEBI
Section 11 of the SEBI Act

Organisation Structure of SEBI
-a Chairman( to be appointed by Central Govt.)

- two members from amongst the officials of the
Ministries of the C.Govt. dealing with Finance and Law.
- One Member from RBI
- two members to be appointed by Central Govt.
Activities of SEBI
-Rules regarding registration of intermediaries

- Guidelines and Code of Conduct for Merchant Bankers
- Categorisation of Merchant Bankers
- Guidelines for Portfolio Management Services
- Ciruclars on various issues (Periodical)
- Guidelines for Leadmanagers
Activities of SEBI
-Regulation for Registrars and Share-Transfer agents

-Guidelines for IPO’s, Debt. Instruments
- Regulation on Insider trading
- Guidelines for Mutual funds
- Regulation on take overs
- Code for Corporate Governance
Activities of SEBI
-Consultative Paper on free market pricing of Capital

Issues.
- Advisory committees for Primary and Secondary Market
reviews
-Investor Protection guidelines
- Guidelines on SRO’s for Merchant Bankers
- Regulation of Futures and Options, Index Market
- Informal Guidance

Securities Market in India

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Securities Market in India

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Investment Laws

Contact Programme- Class I

In every economic System, some units

The stock exchange is really an

First, the stock exchange provides a

Secondly, the stock exchange provides the

Thirdly, by providing a market quotation

Regulation of Stock Market

Since the savings of the investing

Regulation of Stock Markets

Regulation of Stock Markets

“ The Capital Markets in India have shown tremendous growth in the

Regulation of Stock Markets

By a notification issued on 12th April’1988, Securities and

Regulation of Stock Markets

In July 1988, the SEBI, constituted as a foresaid,

Regulation of Stock Markets

The SEBI was given a statutory status on 30th January,1992 by an

Section 11 of the SEBI Act

Organisation Structure of SEBI

-a Chairman( to be appointed by Central Govt.)

-Rules regarding registration of intermediaries

-Regulation for Registrars and Share-Transfer agents

-Consultative Paper on free market pricing of Capital

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