SECONDARY MARKET:

‘The secondary market is the market in which existing securities are resold or
traded.’ It is also known as Stock market

In India the secondary market consists of stock exchanges operating under rules,
by-laws, and regulations duly approved by the govt.

Secondary Market refers to a market where securities are traded after being
initially offered to the public in the primary market and/or listed on the Stock
Exchange. Majority of the trading is done in the secondary market. Secondary
market comprises of equity markets and the debt markets.

Function of Secondary Market

To facilitates the liquidity and marketability of outstanding equity and debt

instrument

To contribute to economic growth through allocation of funds

To provide instant valuation of securities by changes in internal environment.

To ensure a measure of safety and fair dealing to protect investors’ interest

Participants in Secondary Market

Broker-dealer:

It is a natural person, a company or other organization that trades securities for its
own account or on behalf of its customers.

Although many broker-dealers are "independent" firms solely involved in broker-

dealer services, many others are business units or subsidiaries of commercial
banks, investment banks or investment companies.
When executing trade orders on behalf of a customer, the institution is said to be
acting as a broker. When executing trades for its own account, the institution is
said to be acting as a dealer.

Floor broker:

A floor broker is an independent member of an exchange who can act as a broker

for other members who become overloaded with orders, as an agent on the floor of
the exchange. The floor broker receives an order via Teletype machine from his
firm's trading department and then proceeds to the appropriate trading post on the
exchange floor. There he joins other brokers and the specialist in the security being
bought or sold and executes the trade at the best competitive price available.

Floor trader:

A floor trader is a member of a stock or commodities exchange who trades on the

floor of that exchange for his or her own account. The floor trader must abide by
trading rules similar to those of the exchange specialists who trade on behalf of
others. The term should not be confused with floor broker. Floor traders are
occasionally referred to as registered competitive traders, individual liquidity
providers or locals.

Market maker:

A market maker is a company, or an individual, that quotes both a buy and a sell
price in a financial instrument or commodity held in inventory, hoping to make a
profit on the bid-offer spread, or turn.

Proprietary trader:

Proprietary trading (also "prop trading" or PPT) occurs when a firm trades stocks,
bonds, currencies, commodities, their derivatives, or other financial instruments,
with the firm's own money as opposed to its customers' money, so as to make a
profit for itself.

Quantitative analyst:
 A quantitative analyst is a person who works in finance using numerical or
quantitative techniques. Similar work is done in most other modern industries, but
the work is not always called quantitative analysis. In the investment industry,
people who perform quantitative analysis are frequently called quants.

Stock trader:

A stock trader refers to a person or entity engaging in the trading of equity

securities, in the capacity of agent, hedger, arbitrageur, speculator, or investor. The
majority of stock traders are technically stock speculators, synonym stockjobbers .

A stock investor is an individual or firm who puts money to use by the purchase of
equity securities, offering potential profitable returns, as interest, income, or
appreciation in value (capital gains).

Investor:

An investor is someone who allocates capital with the expectation of a financial

return. The types of investments include, — gambling and speculation, equity, debt
securities, real estate, currency, commodity, derivatives such as put and call
options, etc. This definition makes no distinction between those in the primary and
secondary markets. That is, someone who provides a business with capital and
someone who buys a stock are both investors. Since those in the secondary market
are considered investors, speculators are also investors.
A market that serves as a link between the savers and borrowers by transferring the
capital or money from those who have a surplus amount of money to those who are
in need of money or investment is known as Financial Market. Simply put,
Financial Market is a market that creates and exchanges financial assets. In
general, the investors are known as the surplus units and business enterprises are
known as the deficit units. Hence, a financial market acts as a link between surplus
units and deficit units and brings the borrowers and lenders together.

The Securities Contract and Regulation Act defines a stock exchange as, “An
organization or body of individuals, whether incorporated or not established for the
purpose of assisting, regulating, and controlling of business in buying, selling, and
dealing in securities.”

This comes under treasury sector, which provides service to stock brokers &
traders to trade stocks ,bonds and securities. Stock exchanges helps the companies
to raise their fund. Therefore the companies needs to list themselves on the Stock
Exchange. There are 23 stock exchanges in India like BSE, NSE, Bangalore stock
exchange, Cochin stock exchange, Delhi stock exchange, Kolkata stock exchange
& many others.

Functions of Stock Exchange/Secondary Market

The functions of stock exchange are as follows:
1. Economic Barometer
A stock exchange is a reliable barometer that helps in the measurement of
economic conditions of a country. If there is a major change in a country and
economy, it is reflected through the price of shares. In other words, a rise or fall in
the price of shares indicates the boom or recession cycle of the economy. As the
stock exchange reflects the economic conditions of a country, it is also known as a
Pulse of Economy or Economic Mirror.

2. Pricing of Securities
The stock market helps in valuing securities based on the demand and supply
factors. The demand for the securities of profitable and growth-oriented companies
is more; therefore, they are valued higher. This valuation of securities is essential
for the government, investors, and creditors. With this, the government can impose
taxes on the value of securities, investors can know the value of their investment in
securities, and the creditors can value the creditworthiness of the company.
3. Safety of Transactions
Only the listed securities are traded in the stock market. Besides, the stock
exchange authorities consist of the company’s names in the trade list only after
they have verified the soundness of the company. The companies listed in the stock
exchange have to operate within the strict rules and regulations laid down by the
authority, as it helps in ensuring the safety of dealing through stock exchange.
4. Contributes to Economic Growth
Securities of various companies are bought and sold on a stock exchange. This
process of disinvestment and reinvestment in securities helps a trader invest in the
most productive investment proposal. This result leads to capital formation and
economic growth of a country.
5. Spreading of Equity Cult
Stock exchange regulates new issues, provides better trading practices, and
educates the public about the investment to encourage people to invest in the
ownership securities.
6. Providing Scope for Speculation
The stock exchange permits health speculation of securities so that it can ensure
liquidity and demand of supply of securities.
7. Liquidity
The main function of stock market is provision of ready market for the sale and
purchase of securities. The presence of stock exchange market assures the
investors that they can convert their investment into cash whenever they want.
Because of the stock exchange, investors can without hesitating, invest in long-
term investment projects. Besides, with the help of stock exchange, investors can
convert their long-term investments into short-term and medium-term investments.
8. Better Allocation of Capital
The shares of a profit-making company are quoted at a higher price and are traded
actively so that the companies can easily raise fresh capital from the stock market.
As the general public hesitates while investing in securities of a loss-making
company, the stock exchange helps by facilitating the allocation of investor’s funds
to profitable channels.
9. Promotes the habits of Savings and Investment
To promote the habit of savings and investment among people, the stock market
offers attractive opportunities for investment in different securities to them. With
these opportunities, people save more and invest in the securities of the corporate
sector rather than investing in unproductive assets like silver, gold, etc.
Trading Procedure on a Stock Exchange

Before the companies start selling the securities through stock exchange, they have
to first get their securities listed in the stock exchange. The name of the company
is included in listed securities only when the authorities of stock exchange are
satisfied with the financial soundness and various other aspects of the company.

Earlier, the buying and selling of securities were done on the trading floor of stock
exchange. However, in present times, it is done through computers and consists of
the following steps:

1. Selection of Broker
One can buy and sell securities only through the brokers registered under SEBI and
who are members of the stock exchange. A broker can be a partnership firm, an
individual, or a corporate body. Hence, the first step of the trading procedure is
selection of a broker who will buy/sell securities on the behalf of a speculator or
investor. Before placing an order to the registered broker, the investor has to
provide some information including PAN Number, Date of Birth and Address,
Educational Qualification and Occupation, Residential Status (Indian/NRI), Bank
Account Details, Depository A/c details, Name of any other brokers with whom
they have registered, and Client code number in client registration form. After
getting information regarding all the said things, the broker opens a trading account
in the name of the investor.
2. Opening Demat Account with Depository
An account which must be opened with the Depository Participant (including
stock brokers or banks) by an Indian citizen for trading in the listed securities in
electronic form is known as Demat (Dematerialised) Account or Beneficial
Owner (BO) Account.
The second step of trading procedure is opening a Demat Account. The Depository
holds the securities in electronic form. A Depository is an organisation or
institution which holds securities like bonds, shares, debentures, etc. At present
there are two Depositories; namely, NSDL (National Securities Depository Ltd.)
and CDSL (Central Depository Securities Ltd.). The Depository and the investor
do not have direct contact with each other and interact with each other through
Depository Participants only. The Depository Participant will have to maintain the
securities account balances of the investor and intimate investor from time to time
about the status of their holdings.
3. Placing the Order
The next step after opening a Demat Account is placing of an order by the investor.
The investor can place the order to the broker either personally or through email,
phone, etc. The investor must make sure that the order placed clearly specifies the
range or price at which the securities can be sold or bought. For example, an order
placed by Kashish is, “Buy 200 equity shares of Nestle for not more than ₹200 per
share.”
4. Match the Share and Best Price
The broker after receiving an order from the investor will have to then go online
and connect to the main stock exchange to match the share and best price available.
5. Executing Order
When the shares can be bought or sold at the price mentioned by the investor, it
will be communicated to the broker terminal and then the order will be executed
electronically. Once the order has been executed, the broker will issue a trade
confirmation slip to the investors.
6. Issue of Contract Note
Once the trade has been executed within 24 hours, the broker will issue a contract
note. A contract note consists of the details of the number of shares bought or sold,
the date, time of deal, price of securities, and brokerage charges. A contract note is
an essential legal document. It helps in settling disputes claims between the
investors and the brokers. A contract note also consists of a printed unique order
code number assigned to each transaction by the Stock Exchange.
7. Delivery of Share and making Payment
In the next step, the investor has to deliver the shares sold or has to pay cash for the
shares bought. The investor has to do so immediately after receiving the contract
note or before the day when the broker shall make delivery of shares to the
exchange or make payment. This is known as Pay in Day.
8. Settlement Cycle
The payment of securities in cash or delivery of securities is done on Pay in Day,
which is before T+2 Day. It is because the settlement cycle is T+2 days on w.e.f
April 2003 rolling settlement basis. For example, if the transaction took place on
Tuesday, then the payment must be done before Thursday, i.e., T+2 days
(Transaction plus two more days).
9. Delivery of Shares or Making Payment
On the T+2 Day, the Stock Exchange will then deliver the share or make payment
to the other broker. This is known as Pay out Day. Once the shares have been
delivered of payment has been made, the broker has to make payment to investor
within 24 hours of the payout day as he/she has already received payment from the
exchange.
10. Delivery of Shares in Demat Form
The last step of the trading procedure is making delivery or shares in Demat form
by the broker directly to the Demat Account of the investor. The investor is
obligated to give details of his Demat Account and instruct his Depository
Participant (DP) for taking delivery of securities directly in his beneficial owner
account.

Trading Procedure on a Stock Exchange

A market that serves as a link between the savers and borrowers by transferring the
capital or money from those who have a surplus amount of money to those who are
in need of money or investment is known as Financial Market. Simply put,
Financial Market is a market that creates and exchanges financial assets. In
general, the investors are known as the surplus units and business enterprises are
known as the deficit units. Hence, a financial market acts as a link between surplus
units and deficit units, and brings the borrowers and lenders together.

Regulation of stock exchanges

The Stock Market in India is regulated by the central government under the
Securities Exchange Board of India which provides:
 · Recognition of stock exchange
· Supervision & control of stock exchange
· Regulation of contracts in securities
· Listing of securities
· Transfer of securities

And many other related function

The National Stock Exchange of India (NSEI or NSE) is a leading stock exchange
in India that allows people all over the country to trade securities of all types. It
was incorporated in 1992 and started its operations in 1994. The NSE also
launched a capital market segment in 1994 along with the futures and options
segment in 2000 for different derivative instruments. The NSE was set up by the
leading financial institutions, banks, insurance companies, and other financial
intermediaries, and is managed by eminent professionals and senior executives
from promoter institutions. These people directly or indirectly trade on exchange.
With the help of National Stock Exchange of India, the investors, sell and purchase
securities through the trading members.
Objectives of National Stock Exchange of India (NSE)
The objectives of NSE are as follows:
1. It was set up to establish a trading facility all over the country for all types of
securities.
2. It was set up to accomplish international standards and benchmarks.
3. Ensuring equal access to investors nationwide through an appropriate
communication network.
4. Enabling shorter settlement cycles and book entry settlements.
5. Lastly, the objective of NSE is to provide traders with a fair, efficient, and
transparent securities market through an electronic trading system.
NSE has successfully achieved its objectives for which it was set within a
period of ten years. It has successfully been able to provide the following
things to the traders or investors throughout India:
1. It has provided traders with a nationwide screen-based automated trading
system.
2. It has given equal access to investors across the country and even at the lowest
cost.
3. NSE has provided a high degree of transparency in trading.
4. Ultimately, it has fulfilled international standards through technological
advancements.
Market Segments of National Stock Exchange of India (NSEI)
The National Stock Exchange of India (NSEI) provides trading in two securities
segments; viz., the Whole Sale Debt Market Segment and Capital Market
Segment.

1. Whole Sale Debt Market Segment

The first segment of NSE is Whole Sale Debt Market Segment which provides the
traders with a trading platform to trade a wide range of fixed income securities.
These securities include Certificate of Deposit, Bonds, Treasury Bills, Central
Government Securities, Commercial Paper, etc.
2. Capital Market Segment
The second segment of NSE is Capital Market Segment which provides traders
with a trading platform for securities like debentures, equity shares, preference
shares, exchange-traded funds and retail Government securities.
Clearing and Settlement Operations of National Stock Exchange of India
· The settlement cycle of the National Stock Exchange of India is T+2 days.
Here, T is the day of trading and 2 stands for the days within which the
settlement of securities takes place.
· The clearing house handles the shares.
· The National Stock Exchange of India takes responsibility of the short
deliveries and other objections.
· The NSE also assures the traders with a legal guarantee of all transactions
and settlements.
 · A wholly owned subsidiary, NSCCL (National Securities Clearance
Corporation Ltd.) manages the clearing and settlement operations of the
country.
· To guarantee settlement, the National Stock Exchange of India has set up a
settlement guarantee fund with an initial corpus of ₹300 crores.

The National Stock Exchange of India (NSEI) is similar to Over the Counter
Exchange of India (OTCEI). The common features between them are as
follows:

1. Incorporate Entities: The National Stock Exchange of India and Over the
Counter Exchange of India, both have been established as companies which
are promoted by the leading banks, financial institutions, insurance
companies, and other financial intermediaries.

2. Transparent Market: As the transactions taking place are screen-based, both

NSE and OTCEI provide the traders with a transparent market. Besides, the
investors can check the exact price of the securities at which the transaction has
taken place.
3. Nationwide Coverage: The NSEI and OTCEI, both have nationwide coverage.
It means that there are no geographical and distance barriers in the National Stock
Exchange of India and Over the Counter Exchange of India.

4. No Trading Floor: The NSEI and OTCEI both don’t have a trading floor. In
other words, the trading in both exchanges takes place through a computer
network.

5. Screen-Based Trading: The transactions under NSEI and OTCEI are conducted
electronically through computers by using a satellite link.

Over the Counter Exchange of India (OTCEI) is an organisation which was

incorporated in 1990 under the Companies Act 1956. The trading in OCTEI
commenced in 1992 and is a fully computerised, single window, and transparent
exchange. OTC Market or Over the Counter can be defined as a place where
sellers seek buyers and buyers seek sellers, and then tries to arrange some terms
and conditions for the sale and purchase which is acceptable to both parties.

The two basic purposes behind the setting up of OTCEI are as follows:
· For providing access of capital market to small and medium companies, so
they can raise finance in a cost-effective manner.
· For providing the investors with a convenient, efficient, and transparent
avenue for capital market investment.

Trading through Over the Counter does not take place from a specific
geographical location. Instead, the trading Procedure of OTC (Over the
Counter) includes the following three steps:
1. Go to an OTC (Over the Counter) Counter.
2. Look for the quotes on the computer screen.
3. Lastly, make a sale or purchase, if the price shown meets the target.
Over the Counter Exchange of India (OTCEI) is established on the lines of the
National Association of Securities Dealers Automated Quotations (NASDAQ).
NASDAQ is the OTC exchange in the USA and has been promoted by ICICI,
IDBI, LIC, SBI, IFCI, GIC Capital Markets and Bank Financial Services.
Objectives of Over the Counter Exchange of India (OTCEI)
The objectives of OTCEI are as follows:
1. Provide quicker liquidity to the securities at a fair and fixed price.
2. Provide easy and cheaper means to the traders to make public sale of new issues.
3. Provide liquidity for the less traded securities or the securities of small
companies.
4. Provide a simple process of buying and selling to the traders.
Advantages of Over-the-Counter Market
1. The OTC Market provides the smaller and less liquid companies with a trading
platform. This platform cannot be listed on a regular stock exchange.
2. The OTC Market helps family concerns and closely held companies to go public
through it.
3. Investors, with the help of the OTC Market can freely choose stocks by dealers
for market making in primary as well as secondary markets.
4. OTC Market is cheaper because the cost of issuing securities and the expenses
of servicing the investors of the country through it is much less.
5. The dealers can also freely operate in new issues as well as a secondary market.
6. The OTC Market provides traders with transparent trading without any problem
of short or bad deliveries.
7. It also gives an advantage of free flow of information between the market
makers and customers because of the close contact between them.
Over the Counter Exchange of India (OTCEI) is similar to the National Stock
Exchange of India (NSEI). The common features between them are as follows:

1. Incorporate Entities: The National Stock Exchange of India and Over the
Counter Exchange of India, both have been established as companies which are
promoted by the leading banks, financial institutions, insurance companies, and
other financial intermediaries.
2. Transparent Market: As the transactions taking place are screen-based, both
NSE and OTCEI provide the traders with a transparent market. Besides, the
investors can check the exact price of the securities at which the transaction has
taken place.

3.Nationwide Coverage: The NSEI and OTCEI, both have nationwide coverage.
It means that there are no geographical and distance barriers in the National Stock
Exchange of India and the Over the Counter Exchange of India.

4. No Trading Floor: The NSEI and OTCEI both don’t have a trading floor. In
other words, the trading in both exchanges takes place through a computer
network.

5. Screen-Based Trading: The transactions under NSEI and OTCEI are conducted
electronically through computers by using a satellite link.
Dematerialisation of Securities (Demat Account): Benefits and Working
A process where the securities held by an investor in physical form are cancelled
and an electronic number or entry is given to the investor so that he/she can hold
the securities as an electronic balance in their account is known as
Dematerialisation. Simply put, Dematerialisation means the holding of securities
in electronic form. For Dematerialisation, the investor has to open a Demat
Account. In present times, all IPOs (Initial Public Offers) are issued in
dematerialised form and more than 90% of a company’s turnover is settled by
delivery in Demat Account. As per SEBI, it is compulsory for traders to trade in
Demat form for some selected securities only.
Benefits of Dematerialisation
1. Holding shares in Demat form is just like a bank account, which makes it a
convenient process of holding shares.
2. It reduces paperwork as the shares are held by the investors in electronic form.
3. Under Dematerialisation, a trader can convert the physical shares into electronic
form, and shares in electronic form can be converted back into physical form.
4. One can even pledge or mortgage the Demat securities to get loans.
5. As the share certificate is in electronic form, there is no danger of theft, loss, or
forgery.
6. It is the responsibility of a broker to credit the correct number of shares in the
investor’s account.
7. One can hold securities of different companies in one Demat Account.
Working of Demat System
1. The investors have to select a Depository Participant before opening a Demat
Account with depositories. A Depository Participant is an agent of Depository. A
Depository Participant may be a broker, bank, or financial service company.
2. The next step is to fill out an account opening form, along with PAN card
details, a photograph, etc.
3. The third step involves giving the physical share certificate to the Depository
Participant along with a request form for Dematerialisation.
4. Now, if the investors have applied shares in IPO, then they have to give simple
details of Demat Account and Depository Participant. The allotment of shares
would be automatically credited to Demat Account.
5. If the investors want to sell shares through a broker, then they must instruct the
Depository Participant to debit the account with the number of shares sold.
6. In the next step, the broker has to give instructions to his Depository Participant
for the delivery of shares to the stock exchange.
7. After that, the broker receives payment and pays the person for the shares sold to
him/her.
8. Lastly, it is crucial to complete all these transactions within 2 days, i.e., delivery
of shares. Besides, the payment received from buyers as settlement period is T+2
days since April 2003.

Demutualisation
The separation of ownership and control of stock exchanges from the trading
rights of members is known as Demutualisation. Earlier the ownership and
control of stock exchanges were in the hands of a broker, which often led to a
conflict of interest between the brokers and their clients. To solve this issue,
Demutualisation of the Stock Exchange was done by the Government.
Demutualisation has helped in two ways:
· First of all, it has reduced conflicts of interest between brokers and their
clients.
· Secondly, it has reduced the chances of brokers using the stock exchange for
their personal gain.

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

The SEBI was constituted on 12th April,1988 under a resolution of the

Government of India. The SEBI is the regulatory authority .
The Securities and exchange board of India Act, 1992 provides for the
establishment of SEBI to protect investor’s interest in securities and promote and
regulate the security market

Powers of SEBI
· Promoting education, and training of intermediaries of securities market
· Prohibiting fraudulent and unfair trade practices relating to securities
market.
· Power to grant license to any person for the purpose of dealing in certain
areas.
· Issues and transfer of securities
· Power to inspect the books of accounts

BOMBAY STOCK EXCHANGE (BSE)

BOMBAY STOCK EXCHANGE is the oldest and first stock exchange of India
established in the year First it was started under banyan tree opposite to town hall
of Bombay over 22 stock brokers.

Category of shares at BSE

A group, B1 Group (medium Sized, Inconsistent profit, less liquidity), B2 Group

(Small companies, very low trading, poor in profit generation), Z Group (non
compliance, poor companies), F Group (debt Market)

Index of 30 stocks representing 12 major sectors

World's number 1 exchange in terms of the number of listed companies.

World's 5th in transaction numbers.

More than 4,700 listed companies. Classified into A, B1, B2, F and Z groups.

SENSEX
BSE Sensex: BSE-SENSEX, short form of the BSE-Sensitive Index, is an index of
30 stocks representing a sample of large, well-established and financially sound
companies. It is the oldest index in India and has acquired a unique place in the
collective consciousness of investors. The index is widely used to measure the
performance of the Indian stock markets. BSE-SENSEX is considered to be the
pulse of the Indian stock markets as it represents the underlying universe of listed
stocks at The Stock Exchange, Mumbai.

BSE Indices : Sensex , BSE-100 , BSE-200 , BSE-500 ,BSE Midcap , BSE Small
cap

NATIONAL STOCK EXCHANGE OF INDIA

The NSE of India is the leading stock exchange of India, covering 370 cities and
towns in the country. It was established in 1994 as a TAX company. It was
established by 21 leading financial institutions and banks like the
IDBI,ICICI,IFCI,LIC,SBI,etc.
· Professionalization in trading-It brings professionalism in its functions
· Transparency-The use of computer screen for trading makes the dealings
insecurities transparent.
· Screen-based trading -Trading in this stock exchange is done electronically.
· Ring less - It has no ring or trading floor
· Nation wide coverage - Investors from all over country

Nifty - NIFTY is an indicator to checkout in NSE

S&P CNX Nifty is a well-diversified 50 stock index accounting for 23 sectors of

the economy. It is used for a variety of purposes such as benchmarking fund
portfolios, index based derivatives and index funds. S&P CNX Nifty is owned and
managed by India Index Services and Products Ltd. (IISL), which is a joint venture
between NSE and CRISIL.IISL is India's first specialized company focused upon
the index as a core product. IISL have a consulting and licensing agreement with
Standard &Poors (S&P), who are world leaders in index services.
• NSE Indices : S&P CNX Nifty , CNX Nifty Junior-100 second rang of growth
stocks , CNX Mid Cap , CNX IT Sector Index , CNX PSE Index -20 PSE stocks ,
CNX MNC Index -15 listed companies

OVER-THE-COUNTER EXCHANGE OF INDIA(OTCEI)

The OTCEI is a national, ring less and computerized stock exchange.

It was established in october,1990. It started its operation in september,1992.

Advantages of OTCEI.

1. It helps the investors to have easy and direct access to the stock exchange

2. It helps investors to get fair prices for their securities

3. It provide safety to the investors

4. To provide computerized trading system

5. To provide investors a convenient,effcient and transparent mode of investment

Stock Exchange is an organized marketplace, corporation or mutual organization,

where members of the exchange gather to trade company stocks and other
securities. The members may act either as agents for their customers, or as
principals for their own accounts.

After issue of securities (shares, bonds, debentures etc.) of companies, the same
have to be listed on a stock exchange (for their subsequent trading purpose).

There is a central computerised record keeping of all trades between members of a

stock exchange, who are linked to the central server of the exchange through
communication links.

SEBI
The Securities and Exchange Board of India (SEBI) was established on April 12,
1992 in accordance with the provisions of the Securities and Exchange Board of
India Act, 1992.

The Preamble of the SEBI Act, 1992 describes the basic functions of the SEBI as
follows: -

“…..to protect the interests of investors in securities and to promote the

development of, and to regulate the securities market and for matters connected
therewith or incidental thereto”

The establishment of SEBI was a landmark government measure to monitor and

regulate capital market activities and to promote healthy development of the
market.

SEBI is also empowered to issue such directions as may be appropriate to certain

person or class of persons or company, intermediary or other persons referred in
the Act in the interest of investors.

Functions (Regulatory mechanism) of SEBI

To protect the interests of investors in securities and to promote the development

of the securities market.

To regulate the operations of the securities markets.

To register and regulate the working of stock brokers, sub-brokers, share transfer
agents, portfolio managers, investment advisers and such other intermediaries who
may be associated with securities markets in any manner.

To register and regulate the working of venture capital funds and collective
investment schemes including mutual funds.

To prohibit fraudulent and unfair trade practices relating to securities markets.

To promote investors' education and training of intermediaries in securities

markets.
To monitor and regulate substantial acquisition of shares and take-over of
companies.

To call for information from a company / person(s), inspect, conduct inquiries and
audits of the stock exchanges, mutual funds, other persons associated with the
securities market.

Capital market reforms in India-An introduction

The functioning of stock exchanges in India has shown many weaknesses – long
delays, lack of transparency, price rigging and insider trading etc. To counter these
shortcomings and to regulate the capital market, the Govt. of India set up the
Securities Exchange Board of India (SEBI) in 1988 initially as a non-statutory
body, and as a statutory body, 1992 onwards.

Also in 1991, upon the recommendations of the Narasimham Committee on

Financial Sector Reforms, the government abolished the ‘Controller of Capital
Issues’ (CCI), and assigned its regulatory functions to SEBI.

Post 1991, Capital market reforms in primary and secondary markets in India:
· Free pricing of IPOs;
· Disclosure of all material facts & specific risks to investors;
· Issuers to give information regarding basis of calculation of premium to
investors;
· Introduction of a code of advertisement for public issues by SEBI;
· Introduction of electronic trading;
· Dematerialisation of securities;
· Allowing Buy-back of shares (companies allowed to buy-back their own
shares from market).

Capital market reforms (continued) –Introduction of book building in IPOs;

Introduction of newer instruments (F&O etc.) and market participants (allowing

private Mutual funds and Foreign Institutional Investors to operate);
Registration of market intermediaries (brokers, merchant bankers etc.) by SEBI;

Shortening of clearing and settlement procedures;

Introduction of circuit breakers in trading;

Enhanced informational flows;

Emphasis on fair trading practices - insider trading made a punishable offence

under SEBI Act;

Allowing Indian cos. to raise money abroad (GDRs).

SEBI Meaning
· SEBI full form is Securities and Exchange Board of India
· SEBI is a statutory regulatory body established by the Government of India
to regulate the securities market in India and protect the interests of investors
in securities.
· It also regulates the functioning of the stock market, mutual funds, etc.

What is SEBI and its functions?

The Securities and Exchange Board of India (Sebi) is a statutory regulatory body
established by the Government of India in 1992 to regulate the securities market in
India and protect the interests of investors in securities.
SEBI has the power to regulate and perform functions such as check the books of
accounts of stock exchanges and call for periodical returns, approve by-laws of
stock exchanges, inspect the books of financial intermediaries such as banks,
compel certain companies to get listed on one or more stock exchanges, and handle
the registration of brokers.
SEBI stands for Securities and Exchange Board of India. It is a statutory regulatory
body that was established by the Government of India in 1992 for protecting the
interests of investors investing in securities along with regulating the securities
market. SEBI also regulates how the stock market and mutual funds function.
The fundamental objective of SEBI is to safeguard the interest of all the parties
involved in trading. It also regulates the functioning of the stock market. SEBI’s
objectives are:
· To monitor the activities of the stock exchange.
· To safeguard the rights of the investors
· To curb fraudulent practices by maintaining a balance between statutory
regulations and self-regulation.
· To define the code of conduct for the brokers, underwriters, and other
intermediaries.

Objectives of SEBI
Following are some of the objectives of the SEBI:

1. Investor Protection: This is one of the most important objectives of setting up

SEBI. It involves protecting the interests of investors by providing guidance and
ensuring that the investment done is safe.

2. Preventing the fraudulent practices and malpractices which are related to trading
and regulation of the activities of the stock exchange

3. To develop a code of conduct for the financial intermediaries such as

underwriters, brokers, etc.

4. To maintain a balance between statutory regulations and self regulation.

Purpose of SEBI
The purpose for which SEBI was setup was to provide an environment that paves
the way for mobilisation and allocation of resources. It provides practices,
framework and infrastructure to meet the growing demand. SEBI was established
to keep a check on unfair and malpractices and protect the investors from such
malpractices. The organization was created to meet the requirements of the
following three groups:
It meets the needs of the following groups:

· 1. Issuer: For issuers, SEBI provides a marketplace that can utilised for
raising funds. SEBI works toward providing a marketplace to the investors
where they can efficiently and fairly raise their funds.
·
· 2. Investors: It provides protection and supply of accurate information that is
maintained on a regular basis. SEBI protects and supplies accurate
information to investors.
·
· 3. Intermediaries: It provides a competitive market for the intermediaries by
arranging for proper infrastructure. SEBI works towards providing a
professional and competitive market to the intermediaries

Functions of SEBI
SEBI has the following functions

1. Protective Function

2. Regulatory Function

3. Development Function

The following functions will be discussed in detail

Functions of Securities and Exchange Board of India (SEBI)

To meet the three objectives SEBI performs the three main functions; namely,
Protective Functions, Developmental Functions, and Regulatory Functions.
1. Protective Functions
The functions performed by SEBI to protect the interest of investors and provide
safety of investment are protective functions. The functions performed by SEBI as
protective functions are as follows:
i) Check a Price Rigging
Manipulation of price of securities to inflate or depress the market price of
securities is known as Price Rigging. SEBI through protective functions prohibits
these kinds of practices as it can cheat and defraud the investors.
ii) Prohibits Insider Trading
Any person who is connected with the company such as promoters, directors, etc.,
is an insider. They have all the sensitive information about the company which can
affect the price of the securities. However, this sensitive information is not
available to the people at large, and if the insiders use this privileged information
to make profit, it is known as Insider Trading. SEBI to protect the interest of
investors, keep a strict check on the insiders when they buy securities of the
company and takes strict actions against them on insider trading.
For example, the directors of a company know that the company will be issuing
Bonus Shares to the shareholders at the end of the financial year and they use this
information to make profit by purchasing shares from the market. This purchase of
shares by the directors will be considered insider trading.
iii) SEBI prohibits fraudulent and unfair trade practices
SEBI does not allow the companies to make any statement that can mislead the
people and induce the sale or purchase of securities by any other person.
iv) Educate Investors
SEBI undertakes various steps to educate the investors so that they can easily
evaluate the securities of different companies and select the most profitable
security.
v) SEBI under protective functions, promotes fair practices and code of conduct
in the security market.
To do so, SEBI takes the following steps:
· It has issued guidelines for the protection of the interest of debenture holders
wherein the company cannot change the terms in the mid-term.
· It empowers investigating cases of insider trading and also has provisions
for imprisonment and a stiff fine.
· It has also stopped the practice of making preferential allotments of shares
that are unrelated to market prices.
2. Developmental Functions
SEBI performs developmental functions to promote and develop the activities in
stock exchange and to increase the business in stock exchange. The functions
performed by SEBI under developmental functions are as follows:
i) It promotes the training of intermediaries of the securities market.
ii) It tries to promote the activities of the stock exchange. To do so, it adopts a
flexible and adaptable approach in the following ways:
· SEBI has given permission for internet trading through registered stock
brokers.
· In order to reduce the cost of issue, SEBI has also made underwriting
optional.
· Lastly, it has permitted initial public offer of primary market through stock
exchange.
3. Regulatory Functions
SEBI performs regulatory functions to regulate the business in stock exchange.
The functions performed by SEBI under regulatory functions are as follows:
· To regulate the intermediaries like underwriters, brokers, etc., SEBI has
framed a set of rules and regulations and a code of conduct.
· It also conducts inquiries and audits of stock exchanges.
· SEBI registers and regulates the working of mutual funds, etc.
· SEBI has brought the intermediaries under the regulatory purview and has
made private placement more restrictive.
· SEBI regulates the takeover of companies.
· Ultimately, it registers and regulates the working of stock brokers, share
transfer agents, sub-brokers, merchant brokers, trustees, and everyone who is
associated with the stock exchange in any manner.

https://www.geeksforgeeks.org/securities-and-exchange-board-of-india-sebi-
objectives-and-functions/
Protective Function: The protective function implies the role that SEBI plays in
protecting the investor interest and also that of other financial participants. The
protective function includes the following activities.

a. Prohibits insider trading: Insider trading is the act of buying or selling of the
securities by the insiders of a company, which includes the directors, employees
and promoters. To prevent such trading SEBI has barred the companies to purchase
their own shares from the secondary market.

b. Check price rigging: Price rigging is the act of causing unnatural fluctuations in
the price of securities by either increasing or decreasing the market price of the
stocks that leads to unexpected losses for the investors. SEBI maintains strict
watch in order to prevent such malpractices.

c. Promoting fair practices: SEBI promotes fair trade practice and works towards
prohibiting fraudulent activities related to trading of securities.

d. Financial education provider: SEBI educates the investors by conducting online

and offline sessions that provide information related to market insights and also on
money management.

Regulatory Function: Regulatory functions involve establishment of rules and

regulations for the financial intermediaries along with corporates that helps in
efficient management of the market.

The following are some of the regulatory functions.

a. SEBI has defined the rules and regulations and formed guidelines and code of
conduct that should be followed by the corporates as well as the financial
intermediaries.

b. Regulating the process of taking over of a company.

c. Conducting inquiries and audit of stock exchanges.

d. Regulates the working of stock brokers, merchant brokers.

Developmental Function: Developmental function refers to the steps taken by
SEBI in order to provide the investors with a knowledge of the trading and market
function. The following activities are included as part of developmental function.

1. Training of intermediaries who are a part of the security market.

2. Introduction of trading through electronic means or through the internet by the

help of registered stock brokers.

3. By making the underwriting an optional system in order to reduce cost of issue.

Powers of SEBI
SEBI carries out the following tasks to meet its objectives: Protective functions,
Regulatory functions, and developmental functions.
Functions that SEBI performs as a part of its protective functions are:
· It checks price manipulation
· It bans Insider trading
· It prohibits unfair and fraudulent trade practices
· It promotes a fair code of conduct in the security market
· It takes efforts to educate the investors regarding ways to evaluate the investment
options better
As a part of its regulatory functions, SEBI performs the following role:
· It has designed a code of conduct, rules, and regulations to regulate the brokers,
underwriters, and other intermediaries.
· SEBI also governs a company’s takeover.
· It regulates and registers the workings of share transfer agents, stockbrokers,
merchant bankers, trustees, and others who are linked with the stock exchange.
· It regulates and registers the mutual funds as well.
· It conducts audits and inquiries of stock exchanges.
As a part of its developmental functions, SEBI performs the following role:
· It facilitates the training of the intermediaries.
· It aims at promoting activities of the stock exchange by having an adoptable and
flexible approach.

Structure of SEBI
The Board of SEBI comprises of nine members. The Board is an aggregate of the
following:
1. One Chairman of the board – appointed by the Central Government of India
2. One Board member – appointed by the Central Bank, that is, the RBI
3. Two Board members – hailing from the Union Ministry of Finance
4. Five Board members – elected by the Central Government of India
The Chairman of SEBI, in addition to overseeing the Board, also looks over the
Communications, Vigilance, and Internal Inspection Department.
There are four whole-time members in the organizational structure. The whole-
time members are allocated a number of departments that they have to oversee.
Each department is individually headed by an executive director. The executive
directors report to specific whole-time members.
The organizational structure of SEBI consists of more than 25 departments, such as
Foreign Portfolio Investors and Custodians (FPI&C), Corporation Finance
Department (CFD), Information Technology Department (ITD), Department of
Economic and Policy Analysis (DEPA-I,II, & III), Investment Management
Department, Legal Affair Department, Treasury and Accounts Divisions (T&A),
and National Institute of Securities Market (NISM)

Powers of SEBI

There are three main powers of SEBI, including the following:

· Quasi-Judicial: In case there are any financial frauds committed in the
security market, SEBI has the authority to rule out judgments. This is to
ensure transparency, fairness, and accountability within the securities
market.
· Quasi-legislative: SEBI also holds the power to protect its investors by
managing rules to prevent malpractices within the securities market. These
 rules are related to insider reading, essential disclosure requirements, and
listing obligations.
· Quasi-executive: SEBI holds the power to examine and gather critical
financial documents as evidence against violations. Based on the
investigation, SEBI can impose rules, take legal actions and pass judgment
as and when required.

Functions (Regulatory mechanism) of SEBI

· To protect the interests of investors in securities and to promote the
development of the securities market.
· To regulate the operations of the securities markets.
· To register and regulate the working of stock brokers, sub-brokers, share
transfer agents, portfolio managers, investment advisers and such other
intermediaries who may be associated with securities markets in any
manner.
· To register and regulate the working of venture capital funds and collective
investment schemes including mutual funds.
· To prohibit fraudulent and unfair trade practices relating to securities
markets.
· To promote investors' education and training of intermediaries in securities
markets.
· To monitor and regulate substantial acquisition of shares and take-over of
companies.
· To call for information from a company / person(s), inspect, conduct
inquiries and audits of the stock exchanges, mutual funds, other persons
associated with the securities market.

SEBI Act and SEBI Guidelines

In 1988, SEBI was founded as a non-statutory organization with the responsibility
of monitoring stock market activity. The SEBI Act of 1922 made SEBI a statutory
body with independent jurisdiction. The Act gave SEBI the power to oversee and
actively enforce regulations governing the capital markets.
The SEBI Act 1992 covers the following areas:
 · Composition and actions of the SEBI Board members
· Powers and Functions of the Board
· Fund sources of SEBI, as in grants made available by the Union Government
· Rules on Penalties and legal pathways
· Defines the judicial authority of SEBI
· The extent of powers of the Union Government to supersede SEBI
SEBI also has to adhere to a list of SEBI guidelines, pertaining to areas such as:
· Employee Stock Option schemes
· Disclosure and Investor Protection norms
· Legal Proceedings
· Anti-money laundering norms
· Listing and delisting of securities
· Opening of trading terminals overseas

SEBI LODR regulations 2015

Listing Obligations and Disclosure Requirements (LODR) regulations for SEBI
form one of the most important mandates. The regulation covers the extent of
transparency and disclosures that listed companies have to abide by. In addition to
the compulsory disclosure norms, the regulation also refines the listing agreement,
which has to be entered between the stock exchange and the companies being
listed.
The agreement consists of terms and conditions on governance, disclosures, and
terms to maintain the listing status of the company. However, the new regulation in
2015 on LODR intends to consolidate all the previous amendments into one single
document, making the document uniform across different segments of the capital
market.
The SEBI (LODR) Regulations, 2015 entails the following:
· Disclosures and obligations that have to be acknowledged by the compliance
officers of the listed company
· Listing down obligations uniform to all listed companies
· Distinct obligations for certain types of securities
· Segregating initial issuance and post-IPO norms
 · Communication of the companies’ fundraising activities
· Establishing timelines for notifying the exchanges of certain events
· Bringing SMEs under the ambit of the SEBI (LODR) Regulations
For a complete list of regulations that govern the market regulator, click here.

SEBI New Margin Rules

In September 2020, SEBI implemented new rules on margin pledge. The rule is
expected to bring transparency and prevent misuse of clients’ securities by
brokerage firms. The new margin rules were directed to come into effect from June
1, but were delayed due to pandemic pushing the implementation date to
September 1.

In this entire exercise of the peak margin system, SEBI’s primary goal was to curb
market speculation in order to prevent losses for individual investors in volatile
markets.
The new margin rules by SEBI mandate the following:
· The stock, being pledged, is to remain in the investor’s de-mat account. As
the stock is not changing accounts, the benefits from corporate events accrue
directly to the investors
· Upfront collection of margins by brokers for any purchase or sale of
securities, penalizing any sort of failure to do so. Clients could meet the
margin requirements by the end of the day, which is now changed to the
beginning of the day
· Power of Attorney (POA) cannot be assigned in the favor of the brokers for
pledging. As under the old system, brokers could demand POA from the
investors to execute decisions on their behalf
· Margin pledge created separately for investors requiring margin
· Buy Today Sell Tomorrow (BTST) not allowed anymore for shares bought
on margin. Investors are required to honor the delivery of share (T+2 days is
the usual settlement period). Typically, investors would use intraday realized
profits to meet the margin requirements, which is now amended by the new
regulations. For a BTST trade, it can be initiated only if the net available
margin is equal to or greater than 20 percent of the transaction value.
Policies and Programmes
This Annual Report of the Securities and Exchange Board of India (SEBI) reviews
the policies and programmes of SEBI and its working and operations for the fiscal
year 1996-97. It describes the manner in which SEBI has been carrying out its
functions and exercising its powers in terms of the Securities and Exchange Board
of India Act, 1992; the Securities Contracts (Regulation) Act, 1956; the Companies
Act, 1956 and the Depositories Act, 1996. The Report also gives details of
developments in Indian securities markets in 1996-97, and their bearing on and
relation to the work of SEBI. The Report has been prepared in accordance with the
format prescribed in the Securities and Exchange Board of India (Annual Report)
Rules, 1994, notified in the Official Gazette on April 7, 1994.
During 1996-97 SEBI continued its operations and initiatives in regulating and
developing the Indian securities markets in fulfilment of the twin objectives of
investor protection and market development set forth in the SEBI Act, 1992.
Throughout its five year existence as a statutory body, SEBI has sought to balance
the two objectives by constantly reviewing and reappraising its existing policies
and programmes, formulating new policies and crafting new regulations in areas
hitherto unregulated to foster development in these areas and implementing them
to ensure growth of the markets with efficiency, integrity and protection of
investors' interest. The developments and reforms in Indian securities markets
since January 1992, when SEBI was given statutory powers are given in the box
below.
Securities Markets Reforms and Development January 1992 to March 1996
1. The Securities and Exchange Board of India, set up in 1988 under an
administrative arrangement, given statutory powers with the enactment of
the SEBI Act, 1992
2. Capital Issues(Control) Act, 1947 repealed and the Office of Controller of
Capital Issues abolished; control over price and premium of shares removed.
Companies now free to raise funds from securities markets after filing letter
of offer with SEBI
3. SEBI introduces regulations for primary and secondary market
intermediaries, bringing them within the regulatory framework
4. New reforms by SEBI in the primary market include improved disclosure
standards, introduction of prudential norms and simplification of issue
 procedures. Companies required to disclose all material facts and specific
risk factors associated with their projects while making public issues.
5. Disclosure norms further strengthened by introducing cash flow statements
6. Listing agreements of stock exchanges amended to require listed companies
to furnish annual statement to the stock exchanges showing variations
between financial projections and projected utilisation of funds in the offer
document and at actuals, to enable shareholders to make comparisons
between performance and promises
7. New issue procedures introduced - partial book building for institutional
investors - aimed at reducing costs of issue
8. SEBI introduces a code of advertisement for public issues for ensuring fair
and truthful disclosures
9. The power to regulate stock exchanges delegated to SEBI by the government
10.SEBI reconstitutes the governing boards of the stock exchanges, introduces
capital adequacy norms for brokers and issues rules for making the
client/broker relationship more transparent, in particular, segregating client
and broker accounts
11.Over the Counter Exchange of India (OTC) set up with computerised on line
screen based nation-wide electronic trading and rolling settlement
12.National Stock Exchange of India (NSE) set up as a stock exchange with
computerised on line screen based nation- wide electronic trading
13.The Stock Exchange, Mumbai (BSE) introduces on line screen based trading
14.Capital adequacy requirement for brokers introduced
15.System of mark to market margins introduced on the stock exchanges
16."Revised carry forward" system introduced in place of "badla"
17.National Securities Clearing Corporation Limited set up by the NSE
18.SEBI frames regulations for mutual funds. Private mutual funds permitted
and several such funds have already been set up. All mutual funds allowed
to apply for firm allotment in public issues - also aimed at reducing issue
costs
19.SEBI introduces regulations governing substantial acquisition of shares and
take-overs and lays down the conditions under which disclosures and
mandatory public offers are to be made to the shareholders
20.Indian companies permitted to access international capital markets through
Euroissues
21.Foreign Direct Investment allowed in stock broking, asset management
companies, merchant banking and other non- bank finance companies
 22.Foreign Institutional Investors (FIIs) allowed to access to Indian capital
markets on registration with SEBI
23.Guidelines for Offshore Venture Capital Funds announced by the
government
24.SEBI strengthens surveillance mechanisms in SEBI and directs all stock
exchanges to have separate surveillance departments
25.SEBI strengthens enforcement of its regulations. Begins the process of
prosecuting companies for mis-statements, issues show cause notices to
merchant bankers, ensures refunds of application money in several issues on
account of mis-statements in the prospectus

1996-97 has been another eventful and challenging year for SEBI. At the same
time as carrying on its day-to-day work in setting standards, in supervision and
enforcement, SEBI introduced an array of reforms in the primary and secondary
markets and catalysed modernisation of the market infrastructure to prepare the
markets for the new century. Enforcement and surveillance remained a major
priority for SEBI. SEBI continued to use its powers to the full and instituted a
number of enforcement actions against a wide range of securities law violations.
The past year marked an important turning point in primary market regulation,
which helped in further streamlining and simplifying the issue procedure, imparted
greater flexibility to the issue process and strengthened the criteria for accessing
the securities market. In the secondary market, reforms aimed at improving the
market efficiency, transparency and integrity. Trading infrastructure was
modernised with majority of the stock exchanges replacing the open outcry system
by computerised on line screen based trading systems. Improvements were made in
the clearance and settlement systems which still form a weak link in the securities
markets.
A major step in this direction was taken with the establishment of a depository -
the National Securities Depository Limited (NSDL). The development of mutual
funds which are important investment vehicles in a mature securities market, was
given a major impetus, with the revision of the mutual fund regulations which now
provide greater operational flexibility to the fund managers and increase their
accountability and supervision. Far reaching changes were made to the SEBI
regulations for substantial acquisition of shares and take- overs. The take-over
regulations were revised based on the recommendations of the committee
appointed by SEBI under the chairmanship of Justice P N Bhagwati, former Chief
Justice of India. The new regulations, while enhancing the level of investor
protection and transparency recognise the new freedom in the corporate sector as
an outcome of the reforms. The regulations for the Foreign Institutional Investors
(FIIs) were liberalised to provide greater flexibility and widening the scope of their
investment in Indian securities markets.
Five new regulations were notified by SEBI, during the year. These were the SEBI
(Custodian of Securities) Regulations, 1996 notified on May 16, 1996; the SEBI
(Depository and Participants) Regulations, 1996 notified on May 16, 1996; the
SEBI (Venture Capital Funds) Regulations, 1996 notified on December 4, 1996;
the revised SEBI (Mutual Funds) Regulations, 1996 notified on December 9, 1996;
and the revised SEBI (Substantial Acquisitions of Shares and Take- overs)
Regulations, 1997 notified on February 20, 1997. Besides, the regulations for
Foreign Institutional Investors were also amended to give effect to the
liberalisation in policy on foreign portfolio investment. Changes were also made to
the SEBI (Merchant Bankers) Regulations, 1992 and the SEBI (Underwriters)
Regulations, 1993. A list of all rules and regulations notified under the SEBI Act is
given as an Annexure to this Report.
While introducing these and other reforms and policy changes, SEBI has followed
an open, transparent, consultative and participative approach. SEBI has kept in
close touch with investors, market participants and professionals. This feedback, as
well as expert advice has helped SEBI formulate regulations which have
conceptual underpinnings and address market needs.
https://www.sebi.gov.in/sebi_data/commondocs/pt01_h.html

Redressal of Investor Grievances

SEBI has instituted a process for redressing investor grievances arising from the
issue procedure, from investor dealings with brokers and sub-brokers and against
mutual funds. The largest number of investor grievances are caused as part of the
issue process.

Investor grievance redressal and guidance - policies and programmes

Compliance officer
 ·
1. will liase with SEBI in matters related to investor grievance
2. will ensure implementation of the various laws, rules, regulations and
other directives of SEBI by companies
3. will report to the board of the company on the status of investor
complaints received through various sources - directly, stock
exchanges, investor associations, SEBI and Department of Company
Affairs
In order to build up investor confidence and trust and to protect the investors, SEBI
advised listed companies in July 1996 to appoint compliance officers. As of March
31, 1997, 1,431 companies reported appointment of compliance officers. These
officers:

NRI Cell

·
1.Non receipt of refund orders/ allotment letters/ stock invest
2.Non receipt of dividend
3.Non receipt of share certificates/ bonus shares
4.Non receipt of debenture certificates/ interest/ redemption amount/
interest on delayed payment of interest on debentures
5. Non receipt of rights forms/ interest on delayed receipt of refund order
Keeping in view the objective of investor protection and also the importance of
investment by NRIs, the SEBI created with effect from January 1, 1997, a separate
"NRI cell" at SEBI Head Office, Mumbai to attend to the grievances that the NRI
investors may have. SEBI has taken this step to give a more focused attention to
and speedy redressal of the problems faced by the NRI investors in their dealings
in the securities markets. The following is an illustrative list of
complaints/grievances that an NRI investor may have against a listed company
which they can take up with the NRI cell of SEBI for appropriate redressal

Decentralisation of processing of investor grievances

SEBI has set a mechanism for redressal of investor grievances arising from the
issue process. Investors may send their complaints by mail or may give them in
person. It was observed that several investors would travel from outside Mumbai to
submit their complaints in person or to obtain guidance from SEBI staff. In order
to mitigate the difficulties of the investors in approaching SEBI at its Head Office,
Mumbai, the work relating to attending to investor grievances has, with effect from
January 1997, been delegated to the Regional offices of SEBI at Calcutta, Chennai
and New Delhi.

Issue of NOC for release of the 1% security deposit placed with the regional stock
exchange

As a measure of protecting investors' interest, SEBI had advised all stock

exchanges in August 1994 that the 1% security deposit kept with them by
companies who bring out the issue of securities will be released only after the
companies concerned obtain a "No Objection Certificate" from SEBI. In July
1996, the criteria based on which the NOC is released were tightened to include
satisfactory redressal of complaints received at SEBI against the company and the
paying of underwriting/brokerage commission as well as registrars and lead
managers fees. SEBI has also decentralised its operations relating to processing of
requests for issue of the "No Objection Certificate" Accordingly, the Regional
Offices of SEBI situated at Delhi, Calcutta and Chennai, with effect from January
1997, process applications for the issuing of the "No Objection Certificate" for
companies which fall under their territorial jurisdiction. The SEBI Head Office at
Mumbai continues to process such applications from companies which fall in the
Western Region.

Defaulting companies

Companies with whom SEBI takes up investor grievances generally respond to and
take effective steps to redress the grievances. However, certain companies either
do not respond despite reminders that their grievance redressal is unsatisfactory.
During the year 1996-97, SEBI charted an action programme to make these
companies more compliant. According to this, SEBI holds meeting with the
officials of such companies and during the meetings, the need for immediate
corrective action by the companies is insisted upon. Such meetings are held
periodically until the redressal status becomes satisfactory. Further issue of
securities by these companies are subjected to their satisfactory redressal of the
outstanding investor grievances.
Investor associations

As a part of the Investor Education programme and with a view to create a greater
degree of awareness among the investors throughout the country, SEBI has been
registering investors associations. At the end of 1996-97, there were 8 such
registered associations. SEBI is reviewing the policy of granting registration/
renewing the registration with a view to encouraging formation of more and
effective investor associations.

Investor education/guidance

SEBI undertakes several measures to educate and assist the investors. SEBI
provides "walk-in" service at its Head Office at Mumbai and at its regional offices
at New Delhi, Chennai and Calcutta on all working days. Investors can meet the
officials and get guidance relating to the grievances that they may have against
issuers. Investors can also meet the higher officials of SEBI on specified working
days. As a part of the Investor education, SEBI had issued pamphlets under
Investor Guidance Series. These are being updated.

Investor grievance redressal and guidance - review of working

Grievance redressal

The grievance redressal rate of SEBI has been increasing through the years as can
be seen from Table 35 and Table 36 The reasons for the improvement in the rate of
investor grievance redressal in the current year are effective follow up with the
companies, tightening of the procedure for issuing No Objection Certificate for
release of the 1% security deposits kept by the companies with the stock exchanges
and periodic meetings held with the recalcitrant companies. The grievances
received during the year 1996-97 were substantially lower than those received in
the earlier years. The average receipts has consequently declined to around 600 per
day.

Co-ordination committee
During the year 1996-97, a meeting of the co-ordination committee on investor
grievance redressal comprising of representatives of DCA, NIC, BSE and DSE
besides SEBI was held in September 1996. It was decided in the meeting to
develop a common software for these agencies to help better management of
investor complaints.
Co-ordination with Overseas Regulators
SEBI is a member of the International Organisation of Securities Commissions
(IOSCO), and participated in its meetings at Montreal, Canada; and Warsaw,
Poland. SEBI is also a member of the Development Committee of IOSCO. In
1996- 97, SEBI was elected to the chairmanship of the Asia Pacific Regional
Committee of IOSCO and becomes a member of the Executive Committee of
IOSCO, its highest policy making body. SEBI also liases with IOSCO in
enforcement matters and in 1996-97 participated in the IOSCO Technical
Committee Working Party No. 4 on Enforcement Matters and also in the Asia
Pacific Enforcement Meeting.
SEBI is committed to working with overseas regulators on issues related to entities
which act as intermediaries or investors in different jurisdictions, and maintains
close contact with them. An agenda has been set within IOSCO for achieving a
given standard of disclosure norms, capital adequacy and compliance standards for
different markets. SEBI remains committed to implementation of this agenda for
ensuring that the fairness, integrity and transparency of Indian securities markets
remain comparable to markets abroad. During 1996-97, SEBI initiated the process
of entering into a Memorandum of Understanding with the United States Securities
and Exchange Commission.
https://www.sebi.gov.in/sebi_data/commondocs/pt3l_h.html

https://www.geeksforgeeks.org/what-is-stock-exchange/

https://tavaga.com/tavagapedia/sebi/

https://www.shiksha.com/online-courses/articles/objectives-of-sebi/

https://www.geeksforgeeks.org/what-is-over-the-counter-exchange-of-india-otcei/

https://www.geeksforgeeks.org/dematerialisation-of-securities-demat-account-
benefits-and-working/
https://www.geeksforgeeks.org/trading-procedure-on-a-stock-exchange/

Primary Market (New Issue Market)

A market in which the securities are sold for the first time is known as a Primary
Market. It means that under the primary market, new securities are issued from the
company. Another name for the primary market is New Issue Market. This
market contributes directly to the capital formation of a company, as the company
directly goes to investors and uses the funds for investment in machines, land,
building, equipment, etc.

A market that serves as a link between the savers and borrowers by transferring the
capital or money from those who have a surplus amount of money to those who are
in need of money or investment is known as Financial Market. Simply put,
Financial Market is a market that creates and exchanges financial assets. In
general, the investors are known as the surplus units and business enterprises are
known as the deficit units. Hence, a financial market acts as a link between
surplus units and deficit units and brings the borrowers and lenders together. The
financial market can be classified into two broad categories; namely, Capital
Market (Primary Market and Secondary Market) and Money Market.

Method of Floatation of Securities in Primary Market

One can issue the securities in the primary market with the help of the following
methods:
1. Public Issue through Prospectus
The first method of floatation of securities in a primary market is ‘Public Issue
through Prospectus’. Under this method, a company issues a prospectus to inform
the general public and attract them to invest in the company. The prospectus of a
company contains information regarding the purpose for which it wants to raise
funds, its past financial performance, its background, and future prospects. The
information provided in the prospectus helps the general public, get to know about
the earning potential of the company and the risks involved in investing in the
company. Based on this information, the public decides whether or not they want
to invest in the company. With the help of an IPO, a company can easily approach
a large number of persons and can approach the public at large. Sometimes under
this method, the companies take help of the intermediaries like underwriters,
brokers, and bankers for raising capital from the general public.

2. Offer for Sale

The second method is ‘Offer for Sale’, and under this method, the new securities
are offered to the general public not by the company directly, but by an
intermediary who has bought a whole lot of securities from the company. These
intermediaries are generally the firms of brokers. As the intermediaries offer the
new securities to the general public, the company is saved from the complexities
and formalities of issuing the securities directly to the public.
The sale of securities through Offer for Sale takes place in two steps:
· Firstly, when the company issues the new securities to the intermediary at
face value.
· Secondly, when the intermediaries issue securities to the general public at a
higher price with the motive of earning profit.

3. Private Placement

It is a method in which a company sells securities to an intermediary at a fixed

price, and then the intermediaries sell these securities to selected clients at a higher
price instead of the general public. The company issuing securities issues a
prospectus providing details about the objective and future prospects of the
company so that the reputed clients will prefer to purchase the securities from the
intermediary. The selected clients to whom securities are issued by the
intermediaries are LIC, UTI, General Insurance, etc. As the company does not
have to incur expenses on manager fees, brokerage, underwriter fees, the listing of
the company’s name on the stock exchange, agent’s commission, etc., it is
considered as a cost-saving method. This method is preferred by small-scale
companies and new companies that cannot afford to raise funds from the general
public.
4. Right Issue (For Existing Companies)

Under this method, new shares are issued to the existing shareholders of a
company. It is known as the right issue because it is the pre-emptive right of the
shareholders that the company must offer them the new issue of shares before
subscribing them to outsiders. The existing shareholders have the right to subscribe
to the new shares in the proportion of the shares they already hold.
The Companies Act, 1956 states that it is compulsory for a company to issue a
Right Issue to the existing shareholders. It means that the stock exchange does not
allow a company to issue new shares in the market before giving the pre-emptive
rights to the existing shareholders. It is because if the company directly issues the
new issue to the new subscribers, then the existing shareholders of the company
may lose their share in the capital of the company and cannot have control over the
company.

5. e-IPOs (Electronic Initial Public Offer)

A new method of issuing securities in which an online system of stock exchange is

used is known as e-IPO. Under this method, a company appoints registered
brokers to accept applications and place orders. The company which is issuing the
security has to apply for the listing of its securities on any exchange. However, it
cannot be the same exchange where it has earlier offered its securities. For this
method, the manager coordinates the activities with the help of various
intermediaries connected with the Issue.

A marketer including all institutions, organisations, and instruments providing

medium and long-term funds is known as a Capital Market. It does not include
institutions and instruments providing finance for a short term; i.e., up to one year.
Some of the common instruments of a capital market are debentures, shares, bonds,
public deposits, mutual funds, etc. A capital market is of two types; namely,
Primary Market and Secondary Market.
What is Primary Market?
A market in which securities are sold for the first time is known as a Primary
Market. It means that under the primary market, new securities are issued from the
company. Another name for the primary market is New Issue Market. This
market contributes directly to the capital formation of a company, as the company
directly goes to investors and uses the funds for investment in machines, land,
building, equipment, etc.

What is Secondary Market?

A market in which the sale and purchase of newly issued securities and second-
hand securities are made is known as a Secondary Market. In this market, a
company does not directly issue its securities to investors. Instead, the existing
investors of the company sell the securities to other investors. The investor who
wants to sell the securities and the one who wants to purchase meet each other in
the secondary market and exchange the securities for cash with the help of an
intermediary, a broker, is done.

Difference between Primary Market and Secondary Market

Basis Primary Market Secondary Market

A market in which the

A market in which
securities are sold for the
Meaning
first time is known as a
Primary Market.
sale and purchase of
newly issued securities
and second-hand
securities are made is
known as a Secondary
Market.

In the secondary market,

In the primary market,
the sale and purchase of
Types of Securities the sale of new securities
existing or second-hand
takes place.
securities take place.

Issued by In the primary market, In the secondary market,

the securities are directly the securities are
 transferred between the
issued by companies.
investors only.

A secondary market
A primary market
indirectly contributes to
directly contributes to
the capital of a company
the capital of a company
Capital Formation as it involves an
as it involves the transfer
exchange of funds
of funds from surplus
between surplus units
units to deficit units.
only.

The companies enter a The securities of listed

primary market for companies only are
Entry
raising capital for their bought and sold in this
operations. market.

There is no fixed
There is a fixed
geographical location of
geographical location of
a primary market. Every
Geographical Location a secondary market and
bank, institution, foreign
it also has fixed working
investor, etc., contribute
hours.
to this market.

The price of securities in The price of securities in

a primary market is a secondary market is
Price fixed by the fixed by the demand and
management of the supply of the stock
company issuing them. exchange market.

SECONDARY MARKET:
‘The secondary market is the market in which existing securities are resold or
traded.’ It is also known as Stock market

In India the secondary market consists of stock exchanges operating under rules,
by-laws, and regulations duly approved by the govt.

Secondary Market refers to a market where securities are traded after being
initially offered to the public in the primary market and/or listed on the Stock
Exchange. Majority of the trading is done in the secondary market. Secondary
market comprises of equity markets and the debt markets.

The following are the financial products/instruments which the secondary market
deals with:

Equity Shares

Rights Issue

Rights Shares

Bonus Shares

Treasury Bills

Coupons

Commercial Paper

Debentures

Convertible Bond

Zero Coupon Bond

Bond
Participating Preference Share

Cumulative Convertible Preference Shares

Cumulative Preference Shares

Preferred Stock/ Preference shares

Function of Secondary Market

To facilitates the liquidity and marketability of outstanding equity and debt

instrument

To contribute to economic growth through allocation of funds

To provide instant valuation of securities by changes in internal environment.

To ensure a measure of safety and fair dealing to protect investors’ interest

Difference between the primary market and the secondary market

In the primary market, securities are offered to public for subscription for the
purpose of raising capital or fund. Secondary market is an equity trading avenue in
which already existing/pre- issued securities are traded amongst investors.

Secondary market could be either auction or dealer market. While stock exchange
is the part of an auction market, Over-the-Counter (OTC) is a part of the dealer
market.

Participants in Secondary Market

Broker-dealer:
It is a natural person, a company or other organization that trades securities for its
own account or on behalf of its customers.

Although many broker-dealers are "independent" firms solely involved in broker-

dealer services, many others are business units or subsidiaries of commercial
banks, investment banks or investment companies.

When executing trade orders on behalf of a customer, the institution is said to be

acting as a broker. When executing trades for its own account, the institution is
said to be acting as a dealer.

Floor broker:

A floor broker is an independent member of an exchange who can act as a broker

for other members who become overloaded with orders, as an agent on the floor of
the exchange. The floor broker receives an order via Teletype machine from his
firm's trading department and then proceeds to the appropriate trading post on the
exchange floor. There he joins other brokers and the specialist in the security being
bought or sold and executes the trade at the best competitive price available.

Floor trader: Market maker:

A floor trader is a member of a stock or commodities exchange who trades on the

floor of that exchange for his or her own account. The floor trader must abide by
trading rules similar to those of the exchange specialists who trade on behalf of
others. The term should not be confused with floor broker. Floor traders are
occasionally referred to as registered competitive traders, individual liquidity
providers or locals.

Market maker:

A market maker is a company, or an individual, that quotes both a buy and a sell
price in a financial instrument or commodity held in inventory, hoping to make a
profit on the bid-offer spread, or turn.

Proprietary trader:
Proprietary trading (also "prop trading" or PPT) occurs when a firm trades stocks,
bonds, currencies, commodities, their derivatives, or other financial instruments,
with the firm's own money as opposed to its customers' money, so as to make a
profit for itself.

Quantitative analyst:

A quantitative analyst is a person who works in finance using numerical or

quantitative techniques. Similar work is done in most other modern industries, but
the work is not always called quantitative analysis. In the investment industry,
people who perform quantitative analysis are frequently called quants.

Stock trader:

A stock trader refers to a person or entity engaging in the trading of equity

securities, in the capacity of agent, hedger, arbitrageur, speculator, or investor. The
majority of stock traders are technically stock speculators, synonym stockjobbers .

A stock investor is an individual or firm who puts money to use by the purchase of
equity securities, offering potential profitable returns, as interest, income, or
appreciation in value (capital gains).

Investor:

An investor is someone who allocates capital with the expectation of a financial

return. The types of investments include, — gambling and speculation, equity, debt
securities, real estate, currency, commodity, derivatives such as put and call
options, etc. This definition makes no distinction between those in the primary and
secondary markets. That is, someone who provides a business with capital and
someone who buys a stock are both investors. Since those in the secondary market
are considered investors, speculators are also investors.
A market that serves as a link between the savers and borrowers by transferring the
capital or money from those who have a surplus amount of money to those who are
in need of money or investment is known as Financial Market. Simply put,
Financial Market is a market that creates and exchanges financial assets. In
general, the investors are known as the surplus units and business enterprises are
known as the deficit units. Hence, a financial market acts as a link between surplus
units and deficit units and brings the borrowers and lenders together.

Stock Exchange

The Securities Contract and Regulation Act defines a stock exchange as, “An
organisation or body of individuals, whether incorporated or not established for the
purpose of assisting, regulating, and controlling of business in buying, selling, and
dealing in securities.”

This comes under treasury sector, which provides service to stock brokers &
traders to trade stocks ,bonds and securities.

Stock exchanges helps the companies to raise their fund. Therefore the companies
needs to list themselves on the Stock Exchange

There are 23 stock exchanges in India like BSE, NSE, Bangalore stock exchange,
Cochin stock exchange, Delhi stock exchange, Kolkata stock exchange & many
others.
Functions of Stock Exchange/Secondary Market
The functions of stock exchange are as follows:
1. Economic Barometer
A stock exchange is a reliable barometer that helps in the measurement of
economic conditions of a country. If there is a major change in a country and
economy, it is reflected through the price of shares. In other words, a rise or fall in
the price of shares indicates the boom or recession cycle of the economy. As the
stock exchange reflects the economic conditions of a country, it is also known as a
Pulse of Economy or Economic Mirror.

2. Pricing of Securities
The stock market helps in valuing securities based on the demand and supply
factors. The demand for the securities of profitable and growth-oriented companies
is more; therefore, they are valued higher. This valuation of securities is essential
for the government, investors, and creditors. With this, the government can impose
taxes on the value of securities, investors can know the value of their investment in
securities, and the creditors can value the creditworthiness of the company.
3. Safety of Transactions
Only the listed securities are traded in the stock market. Besides, the stock
exchange authorities consist of the company’s names in the trade list only after
they have verified the soundness of the company. The companies listed in the stock
exchange have to operate within the strict rules and regulations laid down by the
authority, as it helps in ensuring the safety of dealing through stock exchange.
4. Contributes to Economic Growth
Securities of various companies are bought and sold on a stock exchange. This
process of disinvestment and reinvestment in securities helps a trader invest in the
most productive investment proposal. This result leads to capital formation and
economic growth of a country.
5. Spreading of Equity Cult
Stock exchange regulates new issues, provides better trading practices, and
educates the public about the investment to encourage people to invest in the
ownership securities.
6. Providing Scope for Speculation
The stock exchange permits health speculation of securities so that it can ensure
liquidity and demand of supply of securities.
7. Liquidity
The main function of stock market is provision of ready market for the sale and
purchase of securities. The presence of stock exchange market assures the
investors that they can convert their investment into cash whenever they want.
Because of the stock exchange, investors can without hesitating, invest in long-
term investment projects. Besides, with the help of stock exchange, investors can
convert their long-term investments into short-term and medium-term investments.
8. Better Allocation of Capital
The shares of a profit-making company are quoted at a higher price and are traded
actively so that the companies can easily raise fresh capital from the stock market.
As the general public hesitates while investing in securities of a loss-making
company, the stock exchange helps by facilitating the allocation of investor’s funds
to profitable channels.
9. Promotes the habits of Savings and Investment
To promote the habit of savings and investment among people, the stock market
offers attractive opportunities for investment in different securities to them. With
these opportunities, people save more and invest in the securities of the corporate
sector rather than investing in unproductive assets like silver, gold, etc.
Trading Procedure on a Stock Exchange

Before the companies start selling the securities through stock exchange, they have
to first get their securities listed in the stock exchange. The name of the company
is included in listed securities only when the authorities of stock exchange are
satisfied with the financial soundness and various other aspects of the company.

Earlier, the buying and selling of securities were done on the trading floor of stock
exchange. However, in present times, it is done through computers and consists of
the following steps:

1. Selection of Broker
One can buy and sell securities only through the brokers registered under SEBI and
who are members of the stock exchange. A broker can be a partnership firm, an
individual, or a corporate body. Hence, the first step of the trading procedure is
selection of a broker who will buy/sell securities on the behalf of a speculator or
investor. Before placing an order to the registered broker, the investor has to
provide some information including PAN Number, Date of Birth and Address,
Educational Qualification and Occupation, Residential Status (Indian/NRI), Bank
Account Details, Depository A/c details, Name of any other brokers with whom
they have registered, and Client code number in client registration form. After
getting information regarding all the said things, the broker opens a trading account
in the name of the investor.
2. Opening Demat Account with Depository
An account which must be opened with the Depository Participant (including
stock brokers or banks) by an Indian citizen for trading in the listed securities in
electronic form is known as Demat (Dematerialised) Account or Beneficial
Owner (BO) Account.
The second step of trading procedure is opening a Demat Account. The Depository
holds the securities in electronic form. A Depository is an organisation or
institution which holds securities like bonds, shares, debentures, etc. At present
there are two Depositories; namely, NSDL (National Securities Depository Ltd.)
and CDSL (Central Depository Securities Ltd.). The Depository and the investor
do not have direct contact with each other and interact with each other through
Depository Participants only. The Depository Participant will have to maintain the
securities account balances of the investor and intimate investor from time to time
about the status of their holdings.
3. Placing the Order
The next step after opening a Demat Account is placing of an order by the investor.
The investor can place the order to the broker either personally or through email,
phone, etc. The investor must make sure that the order placed clearly specifies the
range or price at which the securities can be sold or bought. For example, an order
placed by Kashish is, “Buy 200 equity shares of Nestle for not more than ₹200 per
share.”
4. Match the Share and Best Price
The broker after receiving an order from the investor will have to then go online
and connect to the main stock exchange to match the share and best price available.
5. Executing Order
When the shares can be bought or sold at the price mentioned by the investor, it
will be communicated to the broker terminal and then the order will be executed
electronically. Once the order has been executed, the broker will issue a trade
confirmation slip to the investors.
6. Issue of Contract Note
Once the trade has been executed within 24 hours, the broker will issue a contract
note. A contract note consists of the details of the number of shares bought or sold,
the date, time of deal, price of securities, and brokerage charges. A contract note is
an essential legal document. It helps in settling disputes claims between the
investors and the brokers. A contract note also consists of a printed unique order
code number assigned to each transaction by the Stock Exchange.
7. Delivery of Share and making Payment
In the next step, the investor has to deliver the shares sold or has to pay cash for the
shares bought. The investor has to do so immediately after receiving the contract
note or before the day when the broker shall make delivery of shares to the
exchange or make payment. This is known as Pay in Day.

8. Settlement Cycle
The payment of securities in cash or delivery of securities is done on Pay in Day,
which is before T+2 Day. It is because the settlement cycle is T+2 days on w.e.f
April 2003 rolling settlement basis. For example, if the transaction took place on
Tuesday, then the payment must be done before Thursday, i.e., T+2 days
(Transaction plus two more days).
9. Delivery of Shares or Making Payment
On the T+2 Day, the Stock Exchange will then deliver the share or make payment
to the other broker. This is known as Pay out Day. Once the shares have been
delivered of payment has been made, the broker has to make payment to investor
within 24 hours of the payout day as he/she has already received payment from the
exchange.
10. Delivery of Shares in Demat Form
The last step of the trading procedure is making delivery or shares in Demat form
by the broker directly to the Demat Account of the investor. The investor is
obligated to give details of his Demat Account and instruct his Depository
Participant (DP) for taking delivery of securities directly in his beneficial owner
account.

Trading Procedure on a Stock Exchange

A market that serves as a link between the savers and borrowers by transferring the
capital or money from those who have a surplus amount of money to those who are
in need of money or investment is known as Financial Market. Simply put,
Financial Market is a market that creates and exchanges financial assets. In
general, the investors are known as the surplus units and business enterprises are
known as the deficit units. Hence, a financial market acts as a link between surplus
units and deficit units, and brings the borrowers and lenders together.
Regulation of stock exchanges

The Stock Market in India is regulated by the central government under the
Securities Exchange Board of India which provides:
· Recognition of stock exchange
· Supervision & control of stock exchange
· Regulation of contracts in securities
· Listing of securities
· Transfer of securities

And many other related function

The National Stock Exchange of India (NSEI or NSE) is a leading stock exchange
in India that allows people all over the country to trade securities of all types. It
was incorporated in 1992 and started its operations in 1994. The NSE also
launched a capital market segment in 1994 along with the futures and options
segment in 2000 for different derivative instruments. The NSE was set up by the
leading financial institutions, banks, insurance companies, and other financial
intermediaries, and is managed by eminent professionals and senior executives
from promoter institutions. These people directly or indirectly trade on exchange.
With the help of National Stock Exchange of India, the investors, sell and purchase
securities through the trading members.
Objectives of National Stock Exchange of India (NSE)
The objectives of NSE are as follows:
1. It was set up to establish a trading facility all over the country for all types of
securities.
2. It was set up to accomplish international standards and benchmarks.
3. Ensuring equal access to investors nationwide through an appropriate
communication network.
4. Enabling shorter settlement cycles and book entry settlements.
5. Lastly, the objective of NSE is to provide traders with a fair, efficient, and
transparent securities market through an electronic trading system.
NSE has successfully achieved its objectives for which it was set within a
period of ten years. It has successfully been able to provide the following
things to the traders or investors throughout India:
1. It has provided traders with a nationwide screen-based automated trading
system.
2. It has given equal access to investors across the country and even at the lowest
cost.
3. NSE has provided a high degree of transparency in trading.
4. Ultimately, it has fulfilled international standards through technological
advancements.
Market Segments of National Stock Exchange of India (NSEI)
The National Stock Exchange of India (NSEI) provides trading in two securities
segments; viz., the Whole Sale Debt Market Segment and Capital Market
Segment.

1. Whole Sale Debt Market Segment

The first segment of NSE is Whole Sale Debt Market Segment which provides the
traders with a trading platform to trade a wide range of fixed income securities.
These securities include Certificate of Deposit, Bonds, Treasury Bills, Central
Government Securities, Commercial Paper, etc.
2. Capital Market Segment
The second segment of NSE is Capital Market Segment which provides traders
with a trading platform for securities like debentures, equity shares, preference
shares, exchange-traded funds and retail Government securities.
Clearing and Settlement Operations of National Stock Exchange of India
· The settlement cycle of the National Stock Exchange of India is T+2 days.
Here, T is the day of trading and 2 stands for the days within which the
settlement of securities takes place.
· The clearing house handles the shares.
 · The National Stock Exchange of India takes responsibility of the short
deliveries and other objections.
· The NSE also assures the traders with a legal guarantee of all transactions
and settlements.
· A wholly owned subsidiary, NSCCL (National Securities Clearance
Corporation Ltd.) manages the clearing and settlement operations of the
country.
· To guarantee settlement, the National Stock Exchange of India has set up a
settlement guarantee fund with an initial corpus of ₹300 crores.

The National Stock Exchange of India (NSEI) is similar to Over the Counter
Exchange of India (OTCEI). The common features between them are as
follows:

1. Incorporate Entities: The National Stock Exchange of India and Over the
Counter Exchange of India, both have been established as companies which
are promoted by the leading banks, financial institutions, insurance
companies, and other financial intermediaries.

2. Transparent Market: As the transactions taking place are screen-based, both

NSE and OTCEI provide the traders with a transparent market. Besides, the
investors can check the exact price of the securities at which the transaction has
taken place.
3. Nationwide Coverage: The NSEI and OTCEI, both have nationwide coverage.
It means that there are no geographical and distance barriers in the National Stock
Exchange of India and Over the Counter Exchange of India.

4. No Trading Floor: The NSEI and OTCEI both don’t have a trading floor. In
other words, the trading in both exchanges takes place through a computer
network.

5. Screen-Based Trading: The transactions under NSEI and OTCEI are conducted
electronically through computers by using a satellite link.
Over the Counter Exchange of India (OTCEI) is an organisation which was
incorporated in 1990 under the Companies Act 1956. The trading in OCTEI
commenced in 1992 and is a fully computerised, single window, and transparent
exchange. OTC Market or Over the Counter can be defined as a place where
sellers seek buyers and buyers seek sellers, and then tries to arrange some terms
and conditions for the sale and purchase which is acceptable to both parties.

The two basic purposes behind the setting up of OTCEI are as follows:
· For providing access of capital market to small and medium companies, so
they can raise finance in a cost-effective manner.
· For providing the investors with a convenient, efficient, and transparent
avenue for capital market investment.

Trading through Over the Counter does not take place from a specific
geographical location. Instead, the trading Procedure of OTC (Over the
Counter) includes the following three steps:
1. Go to an OTC (Over the Counter) Counter.
2. Look for the quotes on the computer screen.
3. Lastly, make a sale or purchase, if the price shown meets the target.
Over the Counter Exchange of India (OTCEI) is established on the lines of the
National Association of Securities Dealers Automated Quotations (NASDAQ).
NASDAQ is the OTC exchange in the USA and has been promoted by ICICI,
IDBI, LIC, SBI, IFCI, GIC Capital Markets and Bank Financial Services.
Objectives of Over the Counter Exchange of India (OTCEI)
The objectives of OTCEI are as follows:
1. Provide quicker liquidity to the securities at a fair and fixed price.
2. Provide easy and cheaper means to the traders to make public sale of new issues.
3. Provide liquidity for the less traded securities or the securities of small
companies.
4. Provide a simple process of buying and selling to the traders.
Advantages of Over-the-Counter Market
1. The OTC Market provides the smaller and less liquid companies with a trading
platform. This platform cannot be listed on a regular stock exchange.
2. The OTC Market helps family concerns and closely held companies to go public
through it.
3. Investors, with the help of the OTC Market can freely choose stocks by dealers
for market making in primary as well as secondary markets.
4. OTC Market is cheaper because the cost of issuing securities and the expenses
of servicing the investors of the country through it is much less.
5. The dealers can also freely operate in new issues as well as a secondary market.
6. The OTC Market provides traders with transparent trading without any problem
of short or bad deliveries.
7. It also gives an advantage of free flow of information between the market
makers and customers because of the close contact between them.
Over the Counter Exchange of India (OTCEI) is similar to the National Stock
Exchange of India (NSEI). The common features between them are as follows:

1. Incorporate Entities: The National Stock Exchange of India and Over the
Counter Exchange of India, both have been established as companies which are
promoted by the leading banks, financial institutions, insurance companies, and
other financial intermediaries.
2. Transparent Market: As the transactions taking place are screen-based, both
NSE and OTCEI provide the traders with a transparent market. Besides, the
investors can check the exact price of the securities at which the transaction has
taken place.

3.Nationwide Coverage: The NSEI and OTCEI, both have nationwide coverage.
It means that there are no geographical and distance barriers in the National Stock
Exchange of India and the Over the Counter Exchange of India.
4. No Trading Floor: The NSEI and OTCEI both don’t have a trading floor. In
other words, the trading in both exchanges takes place through a computer
network.

5. Screen-Based Trading: The transactions under NSEI and OTCEI are conducted
electronically through computers by using a satellite link.

Dematerialisation of Securities (Demat Account): Benefits and Working

A process where the securities held by an investor in physical form are cancelled
and an electronic number or entry is given to the investor so that he/she can hold
the securities as an electronic balance in their account is known as
Dematerialisation. Simply put, Dematerialisation means the holding of securities
in electronic form. For Dematerialisation, the investor has to open a Demat
Account. In present times, all IPOs (Initial Public Offers) are issued in
dematerialised form and more than 90% of a company’s turnover is settled by
delivery in Demat Account. As per SEBI, it is compulsory for traders to trade in
Demat form for some selected securities only.
Benefits of Dematerialisation
1. Holding shares in Demat form is just like a bank account, which makes it a
convenient process of holding shares.
2. It reduces paperwork as the shares are held by the investors in electronic form.
3. Under Dematerialisation, a trader can convert the physical shares into electronic
form, and shares in electronic form can be converted back into physical form.
4. One can even pledge or mortgage the Demat securities to get loans.
5. As the share certificate is in electronic form, there is no danger of theft, loss, or
forgery.
6. It is the responsibility of a broker to credit the correct number of shares in the
investor’s account.
7. One can hold securities of different companies in one Demat Account.
Working of Demat System
1. The investors have to select a Depository Participant before opening a Demat
Account with depositories. A Depository Participant is an agent of Depository. A
Depository Participant may be a broker, bank, or financial service company.
2. The next step is to fill out an account opening form, along with PAN card
details, a photograph, etc.
3. The third step involves giving the physical share certificate to the Depository
Participant along with a request form for Dematerialisation.
4. Now, if the investors have applied shares in IPO, then they have to give simple
details of Demat Account and Depository Participant. The allotment of shares
would be automatically credited to Demat Account.
5. If the investors want to sell shares through a broker, then they must instruct the
Depository Participant to debit the account with the number of shares sold.
6. In the next step, the broker has to give instructions to his Depository Participant
for the delivery of shares to the stock exchange.
7. After that, the broker receives payment and pays the person for the shares sold to
him/her.
8. Lastly, it is crucial to complete all these transactions within 2 days, i.e., delivery
of shares. Besides, the payment received from buyers as settlement period is T+2
days since April 2003.

Demutualisation
The separation of ownership and control of stock exchanges from the trading
rights of members is known as Demutualisation. Earlier the ownership and
control of stock exchanges were in the hands of a broker, which often led to a
conflict of interest between the brokers and their clients. To solve this issue,
Demutualisation of the Stock Exchange was done by the Government.
Demutualisation has helped in two ways:
· First of all, it has reduced conflicts of interest between brokers and their
clients.
 · Secondly, it has reduced the chances of brokers using the stock exchange for
their personal gain.

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

The SEBI was constituted on 12th April,1988 under a resolution of the

Government of India. The SEBI is the regulatory authority .

The Securities and exchange board of India Act, 1992 provides for the
establishment of SEBI to protect investor’s interest in securities and promote and
regulate the security market

Powers of SEBI
· Promoting education, and training of intermediaries of securities market
· Prohibiting fraudulent and unfair trade practices relating to securities
market.
· Power to grant license to any person for the purpose of dealing in certain
areas.
· Issues and transfer of securities
· Power to inspect the books of accounts

BOMBAY STOCK EXCHANGE (BSE)

BOMBAY STOCK EXCHANGE is the oldest and first stock exchange of India
established in the year First it was started under banyan tree opposite to town hall
of Bombay over 22 stock brokers.

Category of shares at BSE

A group, B1 Group (medium Sized, Inconsistent profit, less liquidity), B2 Group

(Small companies, very low trading, poor in profit generation), Z Group (non
compliance, poor companies), F Group (debt Market)

Index of 30 stocks representing 12 major sectors

World's number 1 exchange in terms of the number of listed companies.

World's 5th in transaction numbers.

More than 4,700 listed companies. Classified into A, B1, B2, F and Z groups.

SENSEX

BSE Sensex: BSE-SENSEX, short form of the BSE-Sensitive Index, is an index of

30 stocks representing a sample of large, well-established and financially sound
companies. It is the oldest index in India and has acquired a unique place in the
collective consciousness of investors. The index is widely used to measure the
performance of the Indian stock markets. BSE-SENSEX is considered to be the
pulse of the Indian stock markets as it represents the underlying universe of listed
stocks at The Stock Exchange, Mumbai.

BSE Indices : Sensex , BSE-100 , BSE-200 , BSE-500 ,BSE Midcap , BSE Small
cap

NATIONAL STOCK EXCHANGE OF INDIA

The NSE of India is the leading stock exchange of India, covering 370 cities and
towns in the country. It was established in 1994 as a TAX company. It was
established by 21 leading financial institutions and banks like the
IDBI,ICICI,IFCI,LIC,SBI,etc.
· Professionalization in trading-It brings professionalism in its functions
· Transparency-The use of computer screen for trading makes the dealings
insecurities transparent.
· Screen-based trading -Trading in this stock exchange is done electronically.
· Ring less - It has no ring or trading floor
· Nation wide coverage - Investors from all over country
Nifty - NIFTY is an indicator to checkout in NSE

S&P CNX Nifty is a well-diversified 50 stock index accounting for 23 sectors of

the economy. It is used for a variety of purposes such as benchmarking fund
portfolios, index based derivatives and index funds. S&P CNX Nifty is owned and
managed by India Index Services and Products Ltd. (IISL), which is a joint venture
between NSE and CRISIL.IISL is India's first specialized company focused upon
the index as a core product. IISL have a consulting and licensing agreement with
Standard &Poors (S&P), who are world leaders in index services.

• NSE Indices : S&P CNX Nifty , CNX Nifty Junior-100 second rang of growth
stocks , CNX Mid Cap , CNX IT Sector Index , CNX PSE Index -20 PSE stocks ,
CNX MNC Index -15 listed companies

OVER-THE-COUNTER EXCHANGE OF INDIA(OTCEI)

The OTCEI is a national, ring less and computerized stock exchange.

It was established in october,1990. It started its operation in september,1992.

Advantages of OTCEI.

1. It helps the investors to have easy and direct access to the stock exchange

2. It helps investors to get fair prices for their securities

3. It provide safety to the investors

4. To provide computerized trading system

5. To provide investors a convenient,effcient and transparent mode of investment

Stock Exchange is an organized marketplace, corporation or mutual organization,

where members of the exchange gather to trade company stocks and other
securities. The members may act either as agents for their customers, or as
principals for their own accounts.

After issue of securities (shares, bonds, debentures etc.) of companies, the same
have to be listed on a stock exchange (for their subsequent trading purpose).

There is a central computerised record keeping of all trades between members of a

stock exchange, who are linked to the central server of the exchange through
communication links.

SEBI

The Securities and Exchange Board of India (SEBI) was established on April 12,
1992 in accordance with the provisions of the Securities and Exchange Board of
India Act, 1992.

The Preamble of the SEBI Act, 1992 describes the basic functions of the SEBI as
follows: -

“…..to protect the interests of investors in securities and to promote the

development of, and to regulate the securities market and for matters connected
therewith or incidental thereto”

The establishment of SEBI was a landmark government measure to monitor and

regulate capital market activities and to promote healthy development of the
market.

SEBI is also empowered to issue such directions as may be appropriate to certain

person or class of persons or company, intermediary or other persons referred in
the Act in the interest of investors.

Functions (Regulatory mechanism) of SEBI

To protect the interests of investors in securities and to promote the development

of the securities market.

To regulate the operations of the securities markets.

To register and regulate the working of stock brokers, sub-brokers, share transfer
agents, portfolio managers, investment advisers and such other intermediaries who
may be associated with securities markets in any manner.

To register and regulate the working of venture capital funds and collective
investment schemes including mutual funds.

To prohibit fraudulent and unfair trade practices relating to securities markets.

To promote investors' education and training of intermediaries in securities

markets.

To monitor and regulate substantial acquisition of shares and take-over of

companies.

To call for information from a company / person(s), inspect, conduct inquiries and
audits of the stock exchanges, mutual funds, other persons associated with the
securities market.

Capital market reforms in India-An introduction

The functioning of stock exchanges in India has shown many weaknesses – long
delays, lack of transparency, price rigging and insider trading etc. To counter these
shortcomings and to regulate the capital market, the Govt. of India set up the
Securities Exchange Board of India (SEBI) in 1988 initially as a non-statutory
body, and as a statutory body, 1992 onwards.

Also in 1991, upon the recommendations of the Narasimham Committee on

Financial Sector Reforms, the government abolished the ‘Controller of Capital
Issues’ (CCI), and assigned its regulatory functions to SEBI.

Post 1991, Capital market reforms in primary and secondary markets in India:
· Free pricing of IPOs;
· Disclosure of all material facts & specific risks to investors;
· Issuers to give information regarding basis of calculation of premium to
investors;
 · Introduction of a code of advertisement for public issues by SEBI;
· Introduction of electronic trading;
· Dematerialisation of securities;
· Allowing Buy-back of shares (companies allowed to buy-back their own
shares from market).

Capital market reforms (continued) –Introduction of book building in IPOs;

Introduction of newer instruments (F&O etc.) and market participants (allowing

private Mutual funds and Foreign Institutional Investors to operate);

Registration of market intermediaries (brokers, merchant bankers etc.) by SEBI;

Shortening of clearing and settlement procedures;

Introduction of circuit breakers in trading;

Enhanced informational flows;

Emphasis on fair trading practices - insider trading made a punishable offence

under SEBI Act;

Allowing Indian cos. to raise money abroad (GDRs).

SEBI Meaning
· SEBI full form is Securities and Exchange Board of India
· SEBI is a statutory regulatory body established by the Government of India
to regulate the securities market in India and protect the interests of investors
in securities.
· It also regulates the functioning of the stock market, mutual funds, etc.

What is SEBI and its functions?

The Securities and Exchange Board of India (Sebi) is a statutory regulatory body
established by the Government of India in 1992 to regulate the securities market in
India and protect the interests of investors in securities.
SEBI has the power to regulate and perform functions such as check the books of
accounts of stock exchanges and call for periodical returns, approve by-laws of
stock exchanges, inspect the books of financial intermediaries such as banks,
compel certain companies to get listed on one or more stock exchanges, and handle
the registration of brokers.
SEBI stands for Securities and Exchange Board of India. It is a statutory regulatory
body that was established by the Government of India in 1992 for protecting the
interests of investors investing in securities along with regulating the securities
market. SEBI also regulates how the stock market and mutual funds function.

The fundamental objective of SEBI is to safeguard the interest of all the parties
involved in trading. It also regulates the functioning of the stock market. SEBI’s
objectives are:
· To monitor the activities of the stock exchange.
· To safeguard the rights of the investors
· To curb fraudulent practices by maintaining a balance between statutory
regulations and self-regulation.
· To define the code of conduct for the brokers, underwriters, and other
intermediaries.

Objectives of SEBI
Following are some of the objectives of the SEBI:

1. Investor Protection: This is one of the most important objectives of setting up

SEBI. It involves protecting the interests of investors by providing guidance and
ensuring that the investment done is safe.

2. Preventing the fraudulent practices and malpractices which are related to trading
and regulation of the activities of the stock exchange
3. To develop a code of conduct for the financial intermediaries such as
underwriters, brokers, etc.

4. To maintain a balance between statutory regulations and self regulation.

Purpose of SEBI
The purpose for which SEBI was setup was to provide an environment that paves
the way for mobilisation and allocation of resources. It provides practices,
framework and infrastructure to meet the growing demand. SEBI was established
to keep a check on unfair and malpractices and protect the investors from such
malpractices. The organization was created to meet the requirements of the
following three groups:

It meets the needs of the following groups:

· 1. Issuer: For issuers, SEBI provides a marketplace that can utilised for
raising funds. SEBI works toward providing a marketplace to the investors
where they can efficiently and fairly raise their funds.
·
· 2. Investors: It provides protection and supply of accurate information that is
maintained on a regular basis. SEBI protects and supplies accurate
information to investors.
·
· 3. Intermediaries: It provides a competitive market for the intermediaries by
arranging for proper infrastructure. SEBI works towards providing a
professional and competitive market to the intermediaries

Functions of SEBI
SEBI has the following functions

1. Protective Function

2. Regulatory Function

3. Development Function
The following functions will be discussed in detail

Functions of Securities and Exchange Board of India (SEBI)

To meet the three objectives SEBI performs the three main functions; namely,
Protective Functions, Developmental Functions, and Regulatory Functions.
1. Protective Functions
The functions performed by SEBI to protect the interest of investors and provide
safety of investment are protective functions. The functions performed by SEBI as
protective functions are as follows:
i) Check a Price Rigging
Manipulation of price of securities to inflate or depress the market price of
securities is known as Price Rigging. SEBI through protective functions prohibits
these kinds of practices as it can cheat and defraud the investors.
ii) Prohibits Insider Trading
Any person who is connected with the company such as promoters, directors, etc.,
is an insider. They have all the sensitive information about the company which can
affect the price of the securities. However, this sensitive information is not
available to the people at large, and if the insiders use this privileged information
to make profit, it is known as Insider Trading. SEBI to protect the interest of
investors, keep a strict check on the insiders when they buy securities of the
company and takes strict actions against them on insider trading.
For example, the directors of a company know that the company will be issuing
Bonus Shares to the shareholders at the end of the financial year and they use this
information to make profit by purchasing shares from the market. This purchase of
shares by the directors will be considered insider trading.
iii) SEBI prohibits fraudulent and unfair trade practices
SEBI does not allow the companies to make any statement that can mislead the
people and induce the sale or purchase of securities by any other person.
iv) Educate Investors
SEBI undertakes various steps to educate the investors so that they can easily
evaluate the securities of different companies and select the most profitable
security.
v) SEBI under protective functions, promotes fair practices and code of conduct
in the security market.
To do so, SEBI takes the following steps:
· It has issued guidelines for the protection of the interest of debenture holders
wherein the company cannot change the terms in the mid-term.
· It empowers investigating cases of insider trading and also has provisions
for imprisonment and a stiff fine.
· It has also stopped the practice of making preferential allotments of shares
that are unrelated to market prices.
2. Developmental Functions
SEBI performs developmental functions to promote and develop the activities in
stock exchange and to increase the business in stock exchange. The functions
performed by SEBI under developmental functions are as follows:
i) It promotes the training of intermediaries of the securities market.
ii) It tries to promote the activities of the stock exchange. To do so, it adopts a
flexible and adaptable approach in the following ways:
· SEBI has given permission for internet trading through registered stock
brokers.
· In order to reduce the cost of issue, SEBI has also made underwriting
optional.
· Lastly, it has permitted initial public offer of primary market through stock
exchange.
3. Regulatory Functions
SEBI performs regulatory functions to regulate the business in stock exchange.
The functions performed by SEBI under regulatory functions are as follows:
· To regulate the intermediaries like underwriters, brokers, etc., SEBI has
framed a set of rules and regulations and a code of conduct.
· It also conducts inquiries and audits of stock exchanges.
· SEBI registers and regulates the working of mutual funds, etc.
· SEBI has brought the intermediaries under the regulatory purview and has
made private placement more restrictive.
· SEBI regulates the takeover of companies.
 · Ultimately, it registers and regulates the working of stock brokers, share
transfer agents, sub-brokers, merchant brokers, trustees, and everyone who is
associated with the stock exchange in any manner.

https://www.geeksforgeeks.org/securities-and-exchange-board-of-india-sebi-
objectives-and-functions/

Protective Function: The protective function implies the role that SEBI plays in
protecting the investor interest and also that of other financial participants. The
protective function includes the following activities.

a. Prohibits insider trading: Insider trading is the act of buying or selling of the
securities by the insiders of a company, which includes the directors, employees
and promoters. To prevent such trading SEBI has barred the companies to purchase
their own shares from the secondary market.

b. Check price rigging: Price rigging is the act of causing unnatural fluctuations in
the price of securities by either increasing or decreasing the market price of the
stocks that leads to unexpected losses for the investors. SEBI maintains strict
watch in order to prevent such malpractices.

c. Promoting fair practices: SEBI promotes fair trade practice and works towards
prohibiting fraudulent activities related to trading of securities.

d. Financial education provider: SEBI educates the investors by conducting online

and offline sessions that provide information related to market insights and also on
money management.

Regulatory Function: Regulatory functions involve establishment of rules and

regulations for the financial intermediaries along with corporates that helps in
efficient management of the market.

The following are some of the regulatory functions.

a. SEBI has defined the rules and regulations and formed guidelines and code of
conduct that should be followed by the corporates as well as the financial
intermediaries.

b. Regulating the process of taking over of a company.

c. Conducting inquiries and audit of stock exchanges.

d. Regulates the working of stock brokers, merchant brokers.

Developmental Function: Developmental function refers to the steps taken by

SEBI in order to provide the investors with a knowledge of the trading and market
function. The following activities are included as part of developmental function.

1. Training of intermediaries who are a part of the security market.

2. Introduction of trading through electronic means or through the internet by the

help of registered stock brokers.

3. By making the underwriting an optional system in order to reduce cost of issue.

Powers of SEBI
SEBI carries out the following tasks to meet its objectives: Protective functions,
Regulatory functions, and developmental functions.
Functions that SEBI performs as a part of its protective functions are:
· It checks price manipulation
· It bans Insider trading
· It prohibits unfair and fraudulent trade practices
· It promotes a fair code of conduct in the security market
· It takes efforts to educate the investors regarding ways to evaluate the investment
options better
As a part of its regulatory functions, SEBI performs the following role:
· It has designed a code of conduct, rules, and regulations to regulate the brokers,
underwriters, and other intermediaries.
· SEBI also governs a company’s takeover.
· It regulates and registers the workings of share transfer agents, stockbrokers,
merchant bankers, trustees, and others who are linked with the stock exchange.
· It regulates and registers the mutual funds as well.
· It conducts audits and inquiries of stock exchanges.
As a part of its developmental functions, SEBI performs the following role:
· It facilitates the training of the intermediaries.
· It aims at promoting activities of the stock exchange by having an adoptable and
flexible approach.

Structure of SEBI
The Board of SEBI comprises of nine members. The Board is an aggregate of the
following:
1. One Chairman of the board – appointed by the Central Government of India
2. One Board member – appointed by the Central Bank, that is, the RBI
3. Two Board members – hailing from the Union Ministry of Finance
4. Five Board members – elected by the Central Government of India
The Chairman of SEBI, in addition to overseeing the Board, also looks over the
Communications, Vigilance, and Internal Inspection Department.
There are four whole-time members in the organizational structure. The whole-
time members are allocated a number of departments that they have to oversee.
Each department is individually headed by an executive director. The executive
directors report to specific whole-time members.
The organizational structure of SEBI consists of more than 25 departments, such as
Foreign Portfolio Investors and Custodians (FPI&C), Corporation Finance
Department (CFD), Information Technology Department (ITD), Department of
Economic and Policy Analysis (DEPA-I,II, & III), Investment Management
Department, Legal Affair Department, Treasury and Accounts Divisions (T&A),
and National Institute of Securities Market (NISM)

Powers of SEBI

There are three main powers of SEBI, including the following:

· Quasi-Judicial: In case there are any financial frauds committed in the
security market, SEBI has the authority to rule out judgments. This is to
ensure transparency, fairness, and accountability within the securities
market.
· Quasi-legislative: SEBI also holds the power to protect its investors by
managing rules to prevent malpractices within the securities market. These
rules are related to insider reading, essential disclosure requirements, and
listing obligations.
· Quasi-executive: SEBI holds the power to examine and gather critical
financial documents as evidence against violations. Based on the
investigation, SEBI can impose rules, take legal actions and pass judgment
as and when required.

Functions (Regulatory mechanism) of SEBI

· To protect the interests of investors in securities and to promote the
development of the securities market.
· To regulate the operations of the securities markets.
· To register and regulate the working of stock brokers, sub-brokers, share
transfer agents, portfolio managers, investment advisers and such other
intermediaries who may be associated with securities markets in any
manner.
· To register and regulate the working of venture capital funds and collective
investment schemes including mutual funds.
· To prohibit fraudulent and unfair trade practices relating to securities
markets.
· To promote investors' education and training of intermediaries in securities
markets.
 · To monitor and regulate substantial acquisition of shares and take-over of
companies.
· To call for information from a company / person(s), inspect, conduct
inquiries and audits of the stock exchanges, mutual funds, other persons
associated with the securities market.

SEBI Act and SEBI Guidelines

In 1988, SEBI was founded as a non-statutory organization with the responsibility
of monitoring stock market activity. The SEBI Act of 1922 made SEBI a statutory
body with independent jurisdiction. The Act gave SEBI the power to oversee and
actively enforce regulations governing the capital markets.
The SEBI Act 1992 covers the following areas:
· Composition and actions of the SEBI Board members
· Powers and Functions of the Board
· Fund sources of SEBI, as in grants made available by the Union Government
· Rules on Penalties and legal pathways
· Defines the judicial authority of SEBI
· The extent of powers of the Union Government to supersede SEBI
SEBI also has to adhere to a list of SEBI guidelines, pertaining to areas such as:
· Employee Stock Option schemes
· Disclosure and Investor Protection norms
· Legal Proceedings
· Anti-money laundering norms
· Listing and delisting of securities
· Opening of trading terminals overseas

SEBI LODR regulations 2015

Listing Obligations and Disclosure Requirements (LODR) regulations for SEBI
form one of the most important mandates. The regulation covers the extent of
transparency and disclosures that listed companies have to abide by. In addition to
the compulsory disclosure norms, the regulation also refines the listing agreement,
which has to be entered between the stock exchange and the companies being
listed.
The agreement consists of terms and conditions on governance, disclosures, and
terms to maintain the listing status of the company. However, the new regulation in
2015 on LODR intends to consolidate all the previous amendments into one single
document, making the document uniform across different segments of the capital
market.
The SEBI (LODR) Regulations, 2015 entails the following:
· Disclosures and obligations that have to be acknowledged by the compliance
officers of the listed company
· Listing down obligations uniform to all listed companies
· Distinct obligations for certain types of securities
· Segregating initial issuance and post-IPO norms
· Communication of the companies’ fundraising activities
· Establishing timelines for notifying the exchanges of certain events
· Bringing SMEs under the ambit of the SEBI (LODR) Regulations
For a complete list of regulations that govern the market regulator, click here.

SEBI New Margin Rules

In September 2020, SEBI implemented new rules on margin pledge. The rule is
expected to bring transparency and prevent misuse of clients’ securities by
brokerage firms. The new margin rules were directed to come into effect from June
1, but were delayed due to pandemic pushing the implementation date to
September 1.

In this entire exercise of the peak margin system, SEBI’s primary goal was to curb
market speculation in order to prevent losses for individual investors in volatile
markets.
The new margin rules by SEBI mandate the following:
· The stock, being pledged, is to remain in the investor’s de-mat account. As
the stock is not changing accounts, the benefits from corporate events accrue
directly to the investors
 · Upfront collection of margins by brokers for any purchase or sale of
securities, penalizing any sort of failure to do so. Clients could meet the
margin requirements by the end of the day, which is now changed to the
beginning of the day
· Power of Attorney (POA) cannot be assigned in the favor of the brokers for
pledging. As under the old system, brokers could demand POA from the
investors to execute decisions on their behalf
· Margin pledge created separately for investors requiring margin
· Buy Today Sell Tomorrow (BTST) not allowed anymore for shares bought
on margin. Investors are required to honor the delivery of share (T+2 days is
the usual settlement period). Typically, investors would use intraday realized
profits to meet the margin requirements, which is now amended by the new
regulations. For a BTST trade, it can be initiated only if the net available
margin is equal to or greater than 20 percent of the transaction value.
Policies and Programmes
This Annual Report of the Securities and Exchange Board of India (SEBI) reviews
the policies and programmes of SEBI and its working and operations for the fiscal
year 1996-97. It describes the manner in which SEBI has been carrying out its
functions and exercising its powers in terms of the Securities and Exchange Board
of India Act, 1992; the Securities Contracts (Regulation) Act, 1956; the Companies
Act, 1956 and the Depositories Act, 1996. The Report also gives details of
developments in Indian securities markets in 1996-97, and their bearing on and
relation to the work of SEBI. The Report has been prepared in accordance with the
format prescribed in the Securities and Exchange Board of India (Annual Report)
Rules, 1994, notified in the Official Gazette on April 7, 1994.
During 1996-97 SEBI continued its operations and initiatives in regulating and
developing the Indian securities markets in fulfilment of the twin objectives of
investor protection and market development set forth in the SEBI Act, 1992.
Throughout its five year existence as a statutory body, SEBI has sought to balance
the two objectives by constantly reviewing and reappraising its existing policies
and programmes, formulating new policies and crafting new regulations in areas
hitherto unregulated to foster development in these areas and implementing them
to ensure growth of the markets with efficiency, integrity and protection of
investors' interest. The developments and reforms in Indian securities markets
since January 1992, when SEBI was given statutory powers are given in the box
below.
Securities Markets Reforms and Development January 1992 to March 1996
1. The Securities and Exchange Board of India, set up in 1988 under an
administrative arrangement, given statutory powers with the enactment of
the SEBI Act, 1992
2. Capital Issues(Control) Act, 1947 repealed and the Office of Controller of
Capital Issues abolished; control over price and premium of shares removed.
Companies now free to raise funds from securities markets after filing letter
of offer with SEBI
3. SEBI introduces regulations for primary and secondary market
intermediaries, bringing them within the regulatory framework
4. New reforms by SEBI in the primary market include improved disclosure
standards, introduction of prudential norms and simplification of issue
procedures. Companies required to disclose all material facts and specific
risk factors associated with their projects while making public issues.
5. Disclosure norms further strengthened by introducing cash flow statements
6. Listing agreements of stock exchanges amended to require listed companies
to furnish annual statement to the stock exchanges showing variations
between financial projections and projected utilisation of funds in the offer
document and at actuals, to enable shareholders to make comparisons
between performance and promises
7. New issue procedures introduced - partial book building for institutional
investors - aimed at reducing costs of issue
8. SEBI introduces a code of advertisement for public issues for ensuring fair
and truthful disclosures
9. The power to regulate stock exchanges delegated to SEBI by the government
10.SEBI reconstitutes the governing boards of the stock exchanges, introduces
capital adequacy norms for brokers and issues rules for making the
client/broker relationship more transparent, in particular, segregating client
and broker accounts
11.Over the Counter Exchange of India (OTC) set up with computerised on line
screen based nation-wide electronic trading and rolling settlement
12.National Stock Exchange of India (NSE) set up as a stock exchange with
computerised on line screen based nation- wide electronic trading
13.The Stock Exchange, Mumbai (BSE) introduces on line screen based trading
 14.Capital adequacy requirement for brokers introduced
15.System of mark to market margins introduced on the stock exchanges
16."Revised carry forward" system introduced in place of "badla"
17.National Securities Clearing Corporation Limited set up by the NSE
18.SEBI frames regulations for mutual funds. Private mutual funds permitted
and several such funds have already been set up. All mutual funds allowed
to apply for firm allotment in public issues - also aimed at reducing issue
costs
19.SEBI introduces regulations governing substantial acquisition of shares and
take-overs and lays down the conditions under which disclosures and
mandatory public offers are to be made to the shareholders
20.Indian companies permitted to access international capital markets through
Euroissues
21.Foreign Direct Investment allowed in stock broking, asset management
companies, merchant banking and other non- bank finance companies
22.Foreign Institutional Investors (FIIs) allowed to access to Indian capital
markets on registration with SEBI
23.Guidelines for Offshore Venture Capital Funds announced by the
government
24.SEBI strengthens surveillance mechanisms in SEBI and directs all stock
exchanges to have separate surveillance departments
25.SEBI strengthens enforcement of its regulations. Begins the process of
prosecuting companies for mis-statements, issues show cause notices to
merchant bankers, ensures refunds of application money in several issues on
account of mis-statements in the prospectus

1996-97 has been another eventful and challenging year for SEBI. At the same
time as carrying on its day-to-day work in setting standards, in supervision and
enforcement, SEBI introduced an array of reforms in the primary and secondary
markets and catalysed modernisation of the market infrastructure to prepare the
markets for the new century. Enforcement and surveillance remained a major
priority for SEBI. SEBI continued to use its powers to the full and instituted a
number of enforcement actions against a wide range of securities law violations.
The past year marked an important turning point in primary market regulation,
which helped in further streamlining and simplifying the issue procedure, imparted
greater flexibility to the issue process and strengthened the criteria for accessing
the securities market. In the secondary market, reforms aimed at improving the
market efficiency, transparency and integrity. Trading infrastructure was
modernised with majority of the stock exchanges replacing the open outcry system
by computerised on line screen based trading systems. Improvements were made in
the clearance and settlement systems which still form a weak link in the securities
markets.
A major step in this direction was taken with the establishment of a depository -
the National Securities Depository Limited (NSDL). The development of mutual
funds which are important investment vehicles in a mature securities market, was
given a major impetus, with the revision of the mutual fund regulations which now
provide greater operational flexibility to the fund managers and increase their
accountability and supervision. Far reaching changes were made to the SEBI
regulations for substantial acquisition of shares and take- overs. The take-over
regulations were revised based on the recommendations of the committee
appointed by SEBI under the chairmanship of Justice P N Bhagwati, former Chief
Justice of India. The new regulations, while enhancing the level of investor
protection and transparency recognise the new freedom in the corporate sector as
an outcome of the reforms. The regulations for the Foreign Institutional Investors
(FIIs) were liberalised to provide greater flexibility and widening the scope of their
investment in Indian securities markets.
Five new regulations were notified by SEBI, during the year. These were the SEBI
(Custodian of Securities) Regulations, 1996 notified on May 16, 1996; the SEBI
(Depository and Participants) Regulations, 1996 notified on May 16, 1996; the
SEBI (Venture Capital Funds) Regulations, 1996 notified on December 4, 1996;
the revised SEBI (Mutual Funds) Regulations, 1996 notified on December 9, 1996;
and the revised SEBI (Substantial Acquisitions of Shares and Take- overs)
Regulations, 1997 notified on February 20, 1997. Besides, the regulations for
Foreign Institutional Investors were also amended to give effect to the
liberalisation in policy on foreign portfolio investment. Changes were also made to
the SEBI (Merchant Bankers) Regulations, 1992 and the SEBI (Underwriters)
Regulations, 1993. A list of all rules and regulations notified under the SEBI Act is
given as an Annexure to this Report.
While introducing these and other reforms and policy changes, SEBI has followed
an open, transparent, consultative and participative approach. SEBI has kept in
close touch with investors, market participants and professionals. This feedback, as
well as expert advice has helped SEBI formulate regulations which have
conceptual underpinnings and address market needs.
https://www.sebi.gov.in/sebi_data/commondocs/pt01_h.html

Redressal of Investor Grievances

SEBI has instituted a process for redressing investor grievances arising from the
issue procedure, from investor dealings with brokers and sub-brokers and against
mutual funds. The largest number of investor grievances are caused as part of the
issue process.

Investor grievance redressal and guidance - policies and programmes

Compliance officer

·
1. will liase with SEBI in matters related to investor grievance
2. will ensure implementation of the various laws, rules, regulations and
other directives of SEBI by companies
3. will report to the board of the company on the status of investor
complaints received through various sources - directly, stock
exchanges, investor associations, SEBI and Department of Company
Affairs
In order to build up investor confidence and trust and to protect the investors, SEBI
advised listed companies in July 1996 to appoint compliance officers. As of March
31, 1997, 1,431 companies reported appointment of compliance officers. These
officers:

NRI Cell

·
1. Non receipt of refund orders/ allotment letters/ stock invest
2. Non receipt of dividend
3. Non receipt of share certificates/ bonus shares
4. Non receipt of debenture certificates/ interest/ redemption amount/
interest on delayed payment of interest on debentures
 5. Non receipt of rights forms/ interest on delayed receipt of refund order
Keeping in view the objective of investor protection and also the importance of
investment by NRIs, the SEBI created with effect from January 1, 1997, a separate
"NRI cell" at SEBI Head Office, Mumbai to attend to the grievances that the NRI
investors may have. SEBI has taken this step to give a more focused attention to
and speedy redressal of the problems faced by the NRI investors in their dealings
in the securities markets. The following is an illustrative list of
complaints/grievances that an NRI investor may have against a listed company
which they can take up with the NRI cell of SEBI for appropriate redressal

Decentralisation of processing of investor grievances

SEBI has set a mechanism for redressal of investor grievances arising from the
issue process. Investors may send their complaints by mail or may give them in
person. It was observed that several investors would travel from outside Mumbai to
submit their complaints in person or to obtain guidance from SEBI staff. In order
to mitigate the difficulties of the investors in approaching SEBI at its Head Office,
Mumbai, the work relating to attending to investor grievances has, with effect from
January 1997, been delegated to the Regional offices of SEBI at Calcutta, Chennai
and New Delhi.

Issue of NOC for release of the 1% security deposit placed with the regional stock
exchange

As a measure of protecting investors' interest, SEBI had advised all stock

exchanges in August 1994 that the 1% security deposit kept with them by
companies who bring out the issue of securities will be released only after the
companies concerned obtain a "No Objection Certificate" from SEBI. In July
1996, the criteria based on which the NOC is released were tightened to include
satisfactory redressal of complaints received at SEBI against the company and the
paying of underwriting/brokerage commission as well as registrars and lead
managers fees. SEBI has also decentralised its operations relating to processing of
requests for issue of the "No Objection Certificate" Accordingly, the Regional
Offices of SEBI situated at Delhi, Calcutta and Chennai, with effect from January
1997, process applications for the issuing of the "No Objection Certificate" for
companies which fall under their territorial jurisdiction. The SEBI Head Office at
Mumbai continues to process such applications from companies which fall in the
Western Region.

Defaulting companies

Companies with whom SEBI takes up investor grievances generally respond to and
take effective steps to redress the grievances. However, certain companies either
do not respond despite reminders that their grievance redressal is unsatisfactory.
During the year 1996-97, SEBI charted an action programme to make these
companies more compliant. According to this, SEBI holds meeting with the
officials of such companies and during the meetings, the need for immediate
corrective action by the companies is insisted upon. Such meetings are held
periodically until the redressal status becomes satisfactory. Further issue of
securities by these companies are subjected to their satisfactory redressal of the
outstanding investor grievances.

Investor associations

As a part of the Investor Education programme and with a view to create a greater
degree of awareness among the investors throughout the country, SEBI has been
registering investors associations. At the end of 1996-97, there were 8 such
registered associations. SEBI is reviewing the policy of granting registration/
renewing the registration with a view to encouraging formation of more and
effective investor associations.

Investor education/guidance

SEBI undertakes several measures to educate and assist the investors. SEBI
provides "walk-in" service at its Head Office at Mumbai and at its regional offices
at New Delhi, Chennai and Calcutta on all working days. Investors can meet the
officials and get guidance relating to the grievances that they may have against
issuers. Investors can also meet the higher officials of SEBI on specified working
days. As a part of the Investor education, SEBI had issued pamphlets under
Investor Guidance Series. These are being updated.

Investor grievance redressal and guidance - review of working

Grievance redressal
The grievance redressal rate of SEBI has been increasing through the years as can
be seen from Table 35 and Table 36 The reasons for the improvement in the rate of
investor grievance redressal in the current year are effective follow up with the
companies, tightening of the procedure for issuing No Objection Certificate for
release of the 1% security deposits kept by the companies with the stock exchanges
and periodic meetings held with the recalcitrant companies. The grievances
received during the year 1996-97 were substantially lower than those received in
the earlier years. The average receipts has consequently declined to around 600 per
day.

Co-ordination committee
During the year 1996-97, a meeting of the co-ordination committee on investor
grievance redressal comprising of representatives of DCA, NIC, BSE and DSE
besides SEBI was held in September 1996. It was decided in the meeting to
develop a common software for these agencies to help better management of
investor complaints.
Co-ordination with Overseas Regulators
SEBI is a member of the International Organisation of Securities Commissions
(IOSCO), and participated in its meetings at Montreal, Canada; and Warsaw,
Poland. SEBI is also a member of the Development Committee of IOSCO. In
1996- 97, SEBI was elected to the chairmanship of the Asia Pacific Regional
Committee of IOSCO and becomes a member of the Executive Committee of
IOSCO, its highest policy making body. SEBI also liases with IOSCO in
enforcement matters and in 1996-97 participated in the IOSCO Technical
Committee Working Party No. 4 on Enforcement Matters and also in the Asia
Pacific Enforcement Meeting.
SEBI is committed to working with overseas regulators on issues related to entities
which act as intermediaries or investors in different jurisdictions, and maintains
close contact with them. An agenda has been set within IOSCO for achieving a
given standard of disclosure norms, capital adequacy and compliance standards for
different markets. SEBI remains committed to implementation of this agenda for
ensuring that the fairness, integrity and transparency of Indian securities markets
remain comparable to markets abroad. During 1996-97, SEBI initiated the process
of entering into a Memorandum of Understanding with the United States Securities
and Exchange Commission.
https://www.sebi.gov.in/sebi_data/commondocs/pt3l_h.html

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