Semester 1 Introduction to Financial

Markets – Session 4 – Regulators and

Regulations
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Recap of Session 3

• List alternative investment schemes

• List Other Investment Products

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Session Objectives

• Describe Regulators and their role

• List Various Regulations of Securities Markets

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Discussion

• What would happen if there was no regulation

on securities markets, if there were no
regulators like SEBI, RBI, etc.? How would
securities transactions take place? Have a
lively discussion on this.

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Regulators of Securities Markets

• The DEA and DCA are regulators from the

Govt. under the Finance Ministry
• Securities and Exchange Board of India
(SEBI)
• Reserve Bank of India (RBI)
• Stock Exchanges

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Other Regulatory Bodies

• Indian Financial system governed by various

regulatory bodies which come under the
purview of the DEA and DCA which are given
empowerment under SCRA
• RBI
• IRDA
• PFRDA
• FMC
• FSDC
• Stock Exchanges
• AMFI
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Regulatory Structure

Govt of India

Ministry of Finance

Dept of Company Affairs Dept of economic Affairs

RBI SEBI IRDA PFRDA FERA/ FEMA FMC

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SEBI
• SEBI is the chief regulator of securities
markets in India
• Apex controller and regulator
• To protect the interests of investors, to
develop securities markets and to regulate
securities markets
• SEBI Act, 1992 gives full power to SEBI.
• SEBI is also the regulator under SCRA,
Depositories Act and Companies Act, where
relevant

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SEBI

• SEBI act passed on April 4,1992.

Functions of SEBI as stated in the preamble
to SEBI Act
• To protect the interest of investors
• To promote the development of & regulate
the securities market.

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Role of SEBI

• Regulate the Business in SE’s

• Register & Regulate intermediaries, collective
investment schemes (incl. MF’s)
• Promote & regulate SRO’s
• Prohibit unfair & fraudulent trade practices
• Promote investor education & Training
• Prohibit Insider trading

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Role of SEBI……. Contd.

• Regulate substantial acquisition of shares &

take over of companies
• Inspection/Audit of intermediaries & SRO’s
• Any other function as provided under the
SCRA 1956, as delegated by the govt.

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Powers of SEBI

• Discovery and production of books of accounts

and other documents as may be specified by
sebi
• Summoning and enforcing the attendance of
persons and examining them on oath
• Inspection of any books, registers, and other
documents

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RBI

• Reserve Bank of India

• Apex body for regulation of Banking Sector
• Controls money supply in India
• Banker to Government and banker to banks
• Responsible for monetary and fiscal policy
• Regulates the debt securities of Government
and forex markets

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IRDA

• IRDA – Insurance Regulatory Development

Authority
• Controls the Insurance sector
• Investor benefited as fair practices came into
being

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PFRDA

• The Pension Fund Regulatory & Development

Authority Act was passed on 19th September,
2013 and the same was notified on 1st
February, 2014.
• PFRDA is regulating NPS, subscribed by
employees of Govt. of India, State
Governments and by employees of private
institutions/organizations & unorganized
sectors.

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FMC

• Forward Market Commission

• Regulates Commodities exchanges in India
• Investigates events like price rigging etc.
• Proposed to be merged with SEBI in the
budget on 28th February 2015

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FDSC

• FSDC – Financial Stability Development

Council
• Chairman is Finance Minister Himself
• It solves the Inter-Regulatory Tussle between
the various bodies

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Stock Exchanges as first level regulators

• To promote develop & maintain a well regulated

market for dealing in securities
• To safe guard interest of members & investing public
having dealings on SE
• Promote industrial development through efficient
resource mobilization by way of investment in
corporate securities
• Establish & promote honourable & just practices in
securities transactions.

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AMFI

• AMFI – Association of Mutual Funds of India

• Advisory body for mutual funds
• Represents MF industry before the
Government
• All AMCs are members of AMFI
• Gives information about all schemes on its
website
• Like an SRO
• Has framed code of conduct and ethics for
AMCs
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Regulatory Framework

• Broad and Comprehensive

• Various Acts Enacted
• Govt. and SEBI issue notifications, guidelines,
etc.
• SROs

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Key Regulations

• SCRA
• Depositories Act
• Companies Act limited to certain parts like
issue of securities, mergers and
amalgamations, etc.
• Prevention of Money Laundering Act
• SEBI Act

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SCRA, 1956

• Provides for direct and indirect control of

virtually all aspects of securities trading and
running of stock exchanges
• Aims to prevent undesirable transactions in
securities
• Gives SEBI regulatory jurisdiction over:
 Stock exchanges
 Contracts in securities
 Listing of securities

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SCRA, 1956, contd.

• Stock exchanges have to make application to

SEBI for recognition
• If SEBI and Central Govt. are satisfied,
recognition is granted
• Can also revoke recognition if it is interest of
trade or public interest
• Stock exchanges to provide periodical returns
to SEBI
• Stock exchanges can make bye-laws
• Bye-laws to be within scope of law
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SCRA, 1956, Contd.

• SEBI can suspend governing body of stock

exchange with written notice
• SEBI can also suspend business on a stock
exchange for a period of upto 7 days.
• This has to be notified in the Official Gazette
• Only brokers can transact on the stock
exchanges
• SEBI can prohibit contracts in certain cases
like speculation, etc.

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Companies Act, 1956

• Deals with issue, allotment and transfer of

securities and various aspects relating to
company management
• Recent Companies Act, 2013, has
substantially revamped the original Act and
made it more comprehensive
• Act gives details about types of companies –
public and private
• Types of share capital like equity and
preference

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Companies Act, 1956 contd.

• Contains provisions for voting rights and

dividends and IEPF
• Gives the particulars with respect to AGMs
• All details of directors like remunerations,
minimum number, meetings of the board, etc.
• Prescribes rules for shareholder meetings,
postal ballot, etc.
• Governs what should go into annual reports,
directors, report, books of account, final
accounts, etc.

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Companies Act, 1956

• Governs details regarding public deposits

• Declaration of dividend
• Public issue
• Auditors
• Merger and Demerger
• Reduction of capital
• Buy back of shares

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Depositories Act, 1996

• Provided for establishment of Depositories

• For dematerialisation of securities
• Can be done by surrender of physical
certificate to depository
• CDSL and NSDL are the two depositories
• Act through their agents called DPs
• Function of Depository
• Surrender of physical certificate to depository
• Registration of transfer of securities with
depository
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Depositories Act, 1996

• Option to receive certificates or hold security

with depository
• Holding of securities by depository
• Rights of depository and beneficial owner
• Pledging of Securities held with depository
• Furnishing of information by depository
• Option to opt out in respect of any security
• Indemnification of loss by depository in certain
cases

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PMLA Act, 2002

• Prevent money laundering and confiscation of

property derived from or involved in money
laundering
• Money laundering
• Punishment for offence
• Obligation on intermediaries

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SEBI Act, 1992

• Most important legislation

• Land mark Act enacted after liberalisation in
1990s
• Gave SEBI statutory powers
• Regulatory jurisdiction extends over
corporates in issue of capital and transfer of
securities and all persons associated with
securities markets
• Gives details to become member on stock
exchanges

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SEBI Act, 1992, contd.

• Conditions for corporate membership of stock

exchange
• Constitution of SEBI
• Function of SEBI
• Powers of SEBI
• Penalties are provided for violation of Act
• SEBI can frame rules for efficient function of
securities markets

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Penalties provided under SEBI act

• Suspension or cancellation of certificate of

registration
• Monetary penalty to be imposed
• Any person aggrieved by the order of SAT
(securities appellate tribunal) may file and
appeal in the high court

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Regulations under SEBI Act

• SEBI Stock Brokers and Sub-Brokers

Regulations, 1992
• SEBI Insider Trading Regulations, 1992
• SEBI Prohibition of Fraudulent and Unfair
Trade Practices Relating to Securities Markets
Regulations, 1995

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SEBI (Stock Brokers & Sub Brokers)
Regulations, 1992

• Capital Adequacy Norms

• Conditions for Grant of Certificate
• Definition of small investor
• Registration of Stock and Sub-Broker
• Eligibility Criteria
• Code of Conduct
• Fees Payable
• Suspension of Registration
• Maintenance of proper books of accounts

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SEBI (Stock Brokers & Sub Brokers)
Regulations, 1992

• Procedure for inspection to be followed by

SEBI
• Imposition of penalty
• Fees to be paid

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SEBI Insider Trading Regulations, 1992

• Insider Trading
• Code of Conduct
• Dealing in Securities
• Definition of Insider
• Connected Person
• Unpublished Price Sensitive Information
• Investigative Powers vested in SEBI

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FUTP Regulations, 2003

• Frauds
• SEBI Investigations
• Duties of persons being investigated
• Working of the Investigating officer
• Actions that SEBI can take

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Recap

• Describe Regulators and their role

• List Various Regulations of Securities Markets

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 Exercise
1) Go to the websites of RBI, PFRDA and IRDA. List their functions
and aims and objectives. Submit it as a report.

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 Quiz
• Question 1: What are the objectives of SEBI?
• Question 2: Name 3 rules framed under SEBI Act.
• Question 3: Over whom does regulatory jurisdiction of SEBI extend
under SEBI Act?
• Question 4: Which Act gives power to DEA and DCA?
• Question 5: What is the main aim of stock exchanges?

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 Thank you
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