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Chapter 24

Financial Regulation

Indian Financial System, 5e

By: Bharati V. Pathak
 Chapter Objectives

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To understand:

1. Regulation of the capital market

2. Role and functions of the SEBI
3. Role and functions of the Reserve Bank of India

Indian Financial System, 5e

By: Bharati V. Pathak
Regulation of the Capital Market

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 The securities market is regulated by
various agencies such as the Department of
Economics Affairs (DEA), the Department of
Company Affairs (DCA), the Reserve Bank
of India (RBI), and the SEBI.
 The capital market, i.e., the market for
equity and debt securities is regulated by
the Securities and Exchange Board of India
(SEBI).

Indian Financial System, 5e

By: Bharati V. Pathak
 The Securities and Exchange
Board of India (SEBI)

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SEBI protects the interests of investors in securities and
promotes the development of securities market.

Indian Financial System, 5e

By: Bharati V. Pathak
 Objectives of SEBI

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 Protect the interest of the investor in securities.

 Promote the development of securities market.

 Regulating the securities market.

Indian Financial System, 5e

By: Bharati V. Pathak
 Powers and Functions of the
SEBI

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 Regulating the business in stock exchanges and any other securities
markets;
 Registering and regulating the working of stock brokers, sub—brokers,
share transfer agents, bankers to an issue, trustees of trust deeds,
registrars to an issue, merchant bankers, underwriters, portfolio
managers, investment advisers and such other intermediaries who may
be associated with securities markets in any manner;
 Registering and regulating the working of the depositories, participants,
custodians of securities, foreign institutional investors, credit rating
agencies and such other intermediaries as the Board may, by notification,
specify in this behalf;
Indian Financial System, 5e
By: Bharati V. Pathak
 Powers and Functions of the
SEBI

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 Promoting and regulating self-regulatory
organizations;
 Prohibiting fraudulent and unfair trade practices
relating to securities markets;
 Promoting investors’ education and training of
intermediaries of securities markets;
 Prohibiting insider trading in securities;
 Regulating substantial acquisition of shares and
takeover of companies;
 Levying fees or other charges for carrying out the
purposes of this section;
 Conducting research for the above purposes;

Indian Financial System, 5e

By: Bharati V. Pathak
 Supervision of Securities Market

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 The SEBI supervises the securities market
through on-site and off-site inspections,
enforcement, enquiry against violation of rules
and regulations, and prosecutions.
 It undertakes inspection of the books and
records of depository participants and registrar
to an issue.
 It also issues show cause notices to companies
on the basis of reports submitted by the
depositories.

Indian Financial System, 5e

By: Bharati V. Pathak
 Self Regulatory Organizations
(SROs)

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 An SRO is the first level capital market regulator which is a
non-government body, having statutory responsibility to
regulate its own members for fair and efficient practices.
 SROs are expected to share the responsibility with the
regulator in framing and administering regulations.
 The activities generally undertaken by the SRO are—
registering members, establishing rules and regulations for
its members to effectively promote market integrity and
market efficiency, ensuring compliance of such rules and
regulations by imparting training to members, conducting
examinations, conducting inspections of members, enhancing
the level of investor protection, and also mediating in broker-
investor disputes.
Indian Financial System, 5e
By: Bharati V. Pathak
 SEBI

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 Investor Protection Measures
 Investors’ Education
 Investors’ Grievances Redressal
 Investors’ Grievances Redressal

Indian Financial System, 5e

By: Bharati V. Pathak
 The Reserve Bank of India

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 The Reserve Bank of India was established by legislation in
1934 through the Reserve Bank of India Act, 1934.

 It started functioning from April 1, 1935. Its central office

is at Mumbai since 1937.

 Though originally privately owned, since nationalization in

1949, it is fully owned by the Government of India.

 The Reserve Bank of India is the central bank of our

country.

Indian Financial System, 5e

By: Bharati V. Pathak
 Objectives of the Reserve
Bank

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The preamble prescribes the objectives as:
(i)to secure monetary stability within the country;
(ii)to operate the currency and credit system to
the advantage of the country;

Indian Financial System, 5e

By: Bharati V. Pathak
 Organization of the Reserve Bank

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 Central board: The central board is
appointed/nominated by the central
government for a period of four years.
 Official directors: The governor and not more
than four deputy governors.
 Non-official directors: They are fifteen in
number.
 Local boards: There are four local boards.

Indian Financial System, 5e

By: Bharati V. Pathak
 Subsidiaries of RBI

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The Reserve Bank has fully owned three
subsidiaries:
National Housing Bank (NHB)
The Deposit Insurance and Credit Guarantee
Corporation of India (DICGC)
Bharatiya Reserve Bank Note Mudran Private
Limited (BRBNMPL).
The Reserve Bank has a majority stake in the
NABARD.

Indian Financial System, 5e

By: Bharati V. Pathak
 Role of the Reserve Bank of India

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 Monetary Authority of the Country
 Regulator and Supervisor of the Financial System
 Banker to the Government
 Manager of Exchange Control
 Issuer of Currency
 Developmental Role
 Banker to the Banks
Indian Financial System, 5e
By: Bharati V. Pathak