CHAPTER III INDIAN CAPITAL MARKETS AN OVERVIEW INTRODUCTION

Transcription

1 CHAPTER III INDIAN CAPITAL MARKETS AN OVERVIEW INTRODUCTION Chapter three gives brief account of capital market developments in India under various heads like Indian capital market before 1990 s, Indian capital market after 1990 s, primary market developments, secondary market developments, SEBI registered market intermediaries, mutual funds, derivatives, foreign institutional investments, screen based trading system, depositories, clearing, processing and settlement system, risk management system, margin trading facility, Regulatory frame work for investor protection, security Regulations in force, security guidelines in force, grievances redressal mechanism, investor education, recent initiatives and Indian capital market future road map. Capital market is the backbone of any country s economy. It is an engine for economic growth, providing an efficient means of resource mobilisation and allocation. The literature is full of theoretical and empirical evidence that have established robust, statistically significant two-way relationship between the developments in the securities market and economic growth. Levine and Zervos (1998) argue that well developed stock markets may be able to offer financial services of different kind that may provide a different kind of impetus to the economic development 1. In India, Agarwall s (1999), study clearly supports the Levine and Zervos s argument and proves that the two main parameters of capital market development namely, size and liquidity, are found statistically significant to explain the economic activity. 2 The Indian capital market is one of the oldest capital markets in the world. It dates back to the 18 th century when the securities of the East India Company were traded in Mumbai and Kolkata. However, the orderly growth of the capital market began with the setting up of The Stock Exchange of Bombay in July 1875 and Ahmedabad Stock Exchange in Eventually 19 other Stock Exchanges sprang up in various parts of the country. 3 In this chapter an attempt has been made by the 73

2 researcher to review the Capital Market Developments that has taken place in India in two phases such as: i. Indian Capital Market Before 1990 s ii. Indian Capital Market After 1990 s 3.2. INDIAN CAPITAL MARKET Before 1990 s India s Capital Market was dormant till the mid 1980 s. 4 The long term financing needs of the corporate sector were met by the Development Financial Institutions (DFI s) namely IDBI, IFCI, ICICI as well as by other investment institutions like LIC, UTI, GIC etc. Working capital needs were met by the Commercial Banks through an elaborate network of bank branches spread all over the country. Capital Market activities were limited mainly due to the easy availability of loans from banks and financial institutions and administered structure of interest rates. However, three important legislations namely Capital Issues (control) Act 1947: Securities Contracts (Regulation) Act, 1956; and Companies Act, 1956 were enacted to provide suitable legal framework for the development of capital market in India. The pricing of the primary issues was decided by the Office of the Controller of Capital Issues. A few stock exchanges, dominated by Bombay Stock Exchange (BSE) provided the trading platforms for the secondary market transactions under an open outcry system. As of 1992, the Bombay Stock Exchange (BSE) was a monopoly. 5 It was an association of brokers, and imposed entry barriers; leading to elevated costs of intermediation. Membership was limited to individuals; limited liability firms could not become brokerage firms. Trading took place by open outcry on the trading floor, which was inaccessible to users. It was routine for brokers to charge the investor a price that was different from what is actually transacted at. Retail investors and particularly users of the market outside Bombay, accessed market liquidity through a chain of intermediaries called sub brokers. Each sub broker in the chain introduced a mark-up in the price, in the absence of unbundling of professional fees from the trade price. It was common for investors in small towns to face four intermediaries before their order reached the BSE floor, and to face mark-ups in excess of 10% as compared with the actual trade price. The 74

3 market used futures style settlement with fortnightly settlement. A peculiar market practice called badla allowed brokers to carry positions across settlement periods. In other words, even open positions at the end of the fortnight did not always have to be settled. The efficiencies of the exchange clearing house only applied for the largest 100 stocks. For other stocks, clearing and settlement were done bilaterally, which introduced further inefficiencies and costs. The final leg of the trade was physical settlement, where the share certificates were printed on paper. This was intrinsically vulnerable to theft, counterfeiting, inaccurate signature verification, administrative inefficiencies, and a variety of other malpractice. Involuntary and deliberate delays in settlement could take place both at the BSE and at the firm. Many firms used the power of delaying settlement as a tool to support manipulation of their own stock. The problems were somewhat simpler for investors in Bombay, who could physically visit the BSE broker, the BSE clearinghouse, or the company s Registrar, and accelerates transfer. For investors outside Bombay, who lacked this recourse and were crippled by the exorbitantly expensive telephone system, delays of six months between purchasing a stock and the transfer of legal title were common. If stock splits, rights issues, or dividend pay-outs took place during this period, it was common for the purchaser not to obtain the benefits. Floor based trading, the inefficiencies in clearing and settlement entry barriers into brokerage, and the low standards of technology and organisational complexity that accompanied the ban upon corporate membership of the BSE led to an environment where order execution was unreliable and costly. 6 These factors led to an extremely poor functioning of the capital markets till INDIAN CAPITAL MARKET After 1990 s The Indian capital markets have witnessed a major transformation and structural change during the past one and half decades, since the early 1990 s. 7 The Financial Sector Reforms in general and the Capital Market Reforms in particular were initiated in India in a big way since These reforms have been aimed at improving market efficiency, enhancing transparency, checking unfair trade practices and bringing the Indian capital market up to the International 75

4 Standards. The Capital Issues (control) Act, 1947 was repealed in May 1992 and the office of the Controller of Capital Issues was abolished in the same year. The National Stock Exchange (NSE) was incorporated in 1992 and was given recognition as a Stock Exchange in April 1993, which has been playing a lead role as a change agent in transforming the Indian Capital Market to its present form. 8 The Securities and Exchange Board of India (SEBI) was set up in 1988 and acquired the statutory status in Since 1992, SEBI has emerged as an autonomous and independent statutory body with definite mandate such as: (a) to protect the interests of investors in securities, (b) to promote the development of securities market and (c) to regulate the securities market. In order to achieve these objectives, SEBI has been exercising power under: (a) Securities and Exchange Board of India Act, 1992, (b) Securities Contracts (Regulation) Act, 1956, (c) Depositories Act, 1996 and delegated powers under the (d) Companies Act, Indian Capital Market has made commendable progress since the inception of SEBI and has been transformed into one of the dynamic capital markets of the world. 9 The statistics on International equity Markets as on December 31, 2009 given in Table-1 clearly highlights this. Table 3.1 International Equity markets (End December 2010) 10 Exchange Americans American SE Lima SE Mexican Exchange Nasdaq NYSE Santiago SE Sao Paulo SE Market Capitalisation (US $ Million) No. of Listed Companies Value of Share trading (US $ Million) No. of trading days

5 Europe-Africa Middle East Athens Exchange Copenhagen SE Deutsche Borse Euronext Irish SE JSE South Africa Ljubljana SE London SE Luxembourg SE Oslo Bors Swiss Exchange Warsaw SE Wiener Borse Asia Pacific Australian SE BSE the SE Mumbai Bursa Malaysia Colombo SE Hong Kong Exchanges Jakarta SE Korea Exchange National SE of India New Zealand Exchange Osaka SE Philippine SE Shanghai SE Shenzhen SE Singapore Exchange Taiwan SE Corp. Thailand SE Tokyo SE Source: World Federation of Exchanges. The milestones achieved during the past one and half decades are discussed below: 77

6 3.3.1 Primary Market Developments The 1990 s witnessed the emergence of the Capital Market as a major source of finance for trade and industry in India. A growing number of companies have been accessing the Capital Market rather than depending on loans from financial institutions. 11 Tremendous developments have taken place in the primary market where the corporates issue fresh securities through public issues as well as private placements. Huge amount of resources have been mobilised by the corporates from the primary market which is shown in Table-2 below: - Table 3.2 Resources Mobilised from the Primary Market 12 (Rs. in Crores) Instrument Wise Year Total Amount Equities CCPS Bonds Others Source: SEBI As on March 31, 2011, Rs. 14,720 crores has been mobilised from the Primary market, out of which Rs. 14,272 crores has been raised through equities and Rs. 448 crores through bonds capital market instruments. Since the early 1990 s, there has been a paradigm shift from merit based regulated regime to disclosure based regime. Comprehensive guidelines on 78

7 disclosures and investor protection were issued and were amended by SEBI from time to time. The companies accessing the capital market through public issues have to comply with adequate disclosure norms on initial as well as continuous basis. India s disclosure norms are considered as one of the best in the world and are often cited as benchmark for the global standards. 13 Indian accounting standards are principle based and aligned to international accounting standards. In terms of consolidation segmental reporting, deferred tax accounting and related party transactions, the gap between India and the US is minimal. In addition to sound accounting standards, the issues relating to corporate governance have been pursued in right earnest consistent with the best international practices. In a deregulated regime, the market determines the price of the public issues, i.e., either by the issuer through fixed price or by the investors through bookbuilding process. A fair system of proportionate allotment of shares has been put in place. The share of retail investors in the allotment of book-built issues has been increased to 35 percent. 14 Discretionary allotment to the Qualified Institutional Buyers (QIBs) has been withdrawn. Companies are allowed to issue ADRs/ GDRs and also raise funds through external commercial borrowing. The ADR / GDR s have two way functionality. The Foreign Institutional Investors have been allowed to invest in primary issues within the sectoral limits set by the Government Secondary Market Developments The securities issued in the Primary Market are traded in the Secondary Market. Exchanges in India offer screen based, electronic trading. The trading system is connected using the VSAT technology from around 201 cities. There are 8652 trading members registered with SEBI at the end of March Enormous amount of developments have taken place in the secondary market during the last one decade. The selected indicators in Table-3 below clearly indicate this. 79

8 Table 3.3 Secondary Markets Selected Indicators 15 Year No. of Brokers No. of Listed Companies S & P CNX Nifty Capital Market Segment of Stock Exchanges Sensex Market Capitalisation Market Capitalisation Ratio (%) Turnover (Amount in Rs. mn) Turnover Ratio (%) ,476 9, ,722, ,273, ,867 9, ,883, ,461, ,005 9, ,898, ,086, ,069 9, ,740, ,233, ,192 9, ,926, ,670, ,782 9, ,688, ,809, ,687 9, ,492, ,958, ,519 9, ,319, ,689, , ,187, ,204, , ,984, ,668, , ,221, ,901, , ,488, ,014, , ,497, ,308, , ,929, ,520, Source: SEBI & NSE. 73

9 Market capitalization as percentage to GDP in India reached nearly 58 percent in and still further on a fluctuating trend. The rate of growth in market capitalisation and turnover over the period indicates that more companies have started using the trading platform of the Stock Exchanges. Although there are 22 stock exchanges, the National Stock Exchange (NSE) and the BSE together account for more than 99 percent of the total turnover. Recently, a separate trading platform, namely BSE Indonext, has been set up jointly by BSE and the Federation of Indian Stock Exchanges to facilitate transactions of shares exclusively relating to the small and medium enterprises SEBI Registered Market Intermediaries Various institutions / intermediaries associated with primary as well as secondary markets such as merchant bankers, registrars to issues, portfolio managers, underwriters, bankers to issues, stock exchanges, brokers and subbrokers, share transfer agents, depositories, FIIs, custodians, credit rating agencies, venture capital funds, collective investment schemes including mutual funds have to register with SEBI and operate within the guidelines issued from time to time. SEBI also promotes self-regulatory organizations. SEBI registered market intermediaries from 1996 which are listed below in Table-4. 74

10 Table 3.4 SEBI Registered Market Intermediaries 17 Market Intermediaries As on 31 st March Stock Exchanges (Cash Market) Stock Exchanges (Derivatives Market) Brokers (Cash Segment) Corporate Brokers (Cash Segment) Sub Brokers (Cash Segment)

11 Brokers (Derivative) Foreign Institutional Investors Custodians Depositories Depository Participants Merchant Bankers Bankers to an issue Underwriters Debenture Trustees Credit Rating Agencies Venture Capital Funds Foreign Venture Capital investors

12 Registrars to an Issue & Share Transfer Agents Portfolio Managers Mutual Funds Collective investment Schemes Approved Intermediaries(Stock Lending Schemes) Source: SEBI 77

13 As on March 31, 2009, there were 19 Stock Exchanges, 8635 Brokers (cash segment) and 62,471 Sub-brokers, over 9,000 Listed Companies, 2 Depositories, 714 Depository Participants, 134 Merchant Bankers, 19 Underwriters, 5 Credit Rating Agencies and 1635 Foreign Institutional Investors in India Mutual Funds In order to develop the security cult and also to encourage indirect participation of households in the Indian Securities Market, Mutual Funds have been encouraged, both in the public and private sectors. Huge resources have been mobilised through Mutual Funds. The trend in resource mobilisation by Mutual Funds is indicated in Table-5 below: - Table 3.5 Trends in Resource Mobilisation by Mutual Funds 18 (Rs. in Crores) Year Gross Mobilisation Redemption Net Inflow Assets at the end of the period Source: SEBI 77

14 Currently, there are 44 Mutual Funds including foreign mutual funds, offering more than 400 schemes to the investors.the cumulative Assets Under Management (AUM) of all the Mutual Funds which were Rs. 3,26,292 crores as on March 31, 2007 and has increased to Rs.5,05,152 crores by March 31, At the end of March 2009 there is a sudden decrease when compared to end of March For an orderly growth of the mutual funds, prudential regulations have been put in place keeping in view the interest of the investors Derivatives Introduction of securities related derivatives in India is another milestone which provides an important avenue to the investors, mainly for hedging. The securities contract (Regulation) Act, 1956 was amended in December 1999 to expand the definition of securities to include derivatives so that the entire regulatory framework governing trading of securities could apply to trading in derivatives. Derivatives trading began in India with the launch of index futures in June 2000 followed by index options, single stock options and single stock futures in Interest rate futures were introduced in June The derivative products have a monthly maturity cycle. From September 13 th, 2004 weekly stock and index option was launched on the derivative segment of BSE.Two premier stock exchanges, namely BSE and NSE, provide trading platforms for derivative transactions. Table-6. The growth of the derivatives segment at BSE and NSE is indicated below in 78

15 Table 3.6 Derivatives Segment at BSE and NSE 20 Year No. of Trading Days No. of Contracts Turnover (Rs.Crore) BSE NSE Jun-00 tomar Source: BSE & NSE Bulk of the derivative trading is done in the NSE. The combined turnover in derivatives on BSE and NSE surpassed the combined turnover in the cash segments since early During , the turnover in the derivative segments of NSE was 223 percent of its cash segment turnover. Similar to international trend, single stock futures emerged as the most popular derivative product, followed by index futures, stock options and index options. NSE ranks first in terms of number of contracts traded in the single stock futures, second in Asia in terms of number of contracts traded in equity derivatives instrument

16 Foreign Institutional Investments The Foreign Institutional Investors (FIIs) were allowed to invest in India in 1992 under the portfolio investment scheme. They are also allowed to participate in the public issues of debt and equities within the sectoral limits set for equities and the overall limit fixed for the debt instruments by the Government. India has been a centre of attraction for the FIIS. The growth in foreign investment inflows is indicated in below in Table-7. Table 3.7 Foreign Investment Inflows 22 Year A. Direct Investment B. Portfolio Investment (Rs. Crore) (Us $ Million) (Rs. Crore) (US $ Million) Total (A +B) (Rs. Crore) (US $ Million) Source: RBl Bulletin 80

17 Foreign investment inflows both by direct investment and portfolio investment amounted to Rs crores and US $ million as on March 31, FIIs have been bullish on the Indian securities. Their net investment every year was positive ever since they were allowed to invest in India except in & as shown in Table-8 below: Table 3.8 Trends in FII Investment 23 Year Gross Purchases Gross Sales (Rs. Crore) Net Investment (Rs. Crore) Net Investment (US $ mn) Cumulative Net Investment (US $ mn)

18 Source: RBI Bulletin. The cumulative net investment by FIIs, which stood at US $ 52,477 million at the end of March 2010, further increased to US $ 68,919 million by the end of March At the end of March 2009 there is a sudden decrease when compared to end of March Net investment by FIIs to the tune of roughly US $ 10 billion each for the last two consecutive years vindicated the growth story of the subcontinent. As on March 31, 2010, the number of FIIs registered with SEBI stood at 1319 which further increased to 1635 by the end of March About 41 percent of total FIIs originate from the USA, followed by the UK (18 percent). During the last two and half years, the FIIs have identified India as a preferred destination. Strong macro economic fundamentals, favorable tax treatment, attractive valuation of shares and encouraging corporate results have been cited as underlying causes of large portfolio investment by the FIIs in India Screen Based Trading System The screen based trading system is a landmark achievement of the Indian capital market. 25 The NSE introduced the screen-based trading since its inception followed by other stock exchanges. The screen-based trading enables the participants for online, electronic, anonymous and order-driven transaction with the help of over 10,000 terminals spread over 400 cities in India and abroad. This is perhaps the biggest trading network in any country of the world. The order matching is done strictly on price/ time priority. The screen-based trading is transparent and provides equal access to all investors irrespective of their geographical locations. Screen-based trading has significantly improved depth and liquidity of the market. 82

19 Depositories Depositories Act, 1996 was another landmark development in the history of India s capital market. 26 Thereafter two depositories namely, Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL) were set up. NSDL and CDSL have been successful in the dematerialisation of securities to the extent of 99 percent of the total market capitalisation. Currently the transfer of ownership is mostly done through book-entry form. This has tremendously improved the speed, accuracy and security of the settlement system. About 99.9 percent of trades in BSE and 100 percent of trades in NSE as shown in Table-9 below are currently settled through delivery, which is possible only due to dematerialisation of scrip by the two depositories. 83

20 No. of Trades Traded Quantity (Lakhs) Delivered Quantity (Lakhs) % of Delivered Quantity To Traded Quantity Turnover (Rs.crore) Delivered Value (Rs. Crore) % of Delivered Value to Total Turnover Delivered Quantity In Demat Mode (Lakh) % of Demat Delivered Quantity to Total Delivered Quantity Table 3.9 Settlement Statistics for Cash Segment of BSE and NSE 27 Year BSE

21 NSE Nov 94 Mar Source: BSE & NSE 85

22 Clearing, Processing and Settlement System The setting of the Clearing Houses / Clearing Corporations (CCs) has been a critical institutional arrangement to improve the market microstructure of the Indian stock market. NSE has a dedicated subsidiary namely, National Securities Clearing Corporation Limited (NSCCL) which performs the role of a central counterparty. The CCs provide full innovation with multilateral netting. Trade and Settlement Guarantee Funds have been set up to guarantee settlement in case of default by brokers. There is also a system of security lending and borrowing to obviate settlement risk.as CCs provide guaranteed settlement, there is no counterparty risk in India. Moreover, India is one of the few countries of the world to implement full- fledged Straight Through Processing (STP). The STP has been made mandatory for all institutional trades. 28 Another notable achievement has been the short ending of the settlement cycle and adoption of the rolling settlement. The settlement cycle was as high as 14 days for specified scrips and 30days for others. The settlement risk was very high as many things can happen between the transaction and the settlement. Initially, the settlement cycle was reduced to a week. There after the settlement vehicle was further reduced to T+3 from April 2002 and to T+2 from April Efforts are being made to reduce the settlement cycle further to T+1 basis. India s settlement cycle is one of the best in the world Risk Management System SEBI has put in place a comprehensive risk management system. The major features of the dynamic risk management system include, interalia, capital adequacy norms, trading and exposure limits, margin requirement based or mark to market and Var based margins, market-wide circuit filters, on-line position monitoring and automatic disablement of broker s terminals. 30 Indian capital market remained insulated against the South-East Asian meltdown in the late 90s. The May 17, 2004, crash of the stock market in India was short-lived due to comprehensive risk management system. The T+2 trading cycle, settlement guarantee funds, guaranteed settlement by CCs together with risk management system have significantly reduced the risk perception of the Indian stock market. 86

23 Margin Trading Facility SEBI has allowed the member brokers to provide margin trading facility to their clients in the cash segment since April 1, Securities with mean impact cost of less than or equal to one and traded at least 80 per cent of the days during the previous 18 months would be eligible for margin trading. Only corporate brokers with net-worth of at least Rs. 3 crore would be eligible to offer this facility after obtaining prior permission from the exchanges Regulatory Framework for Investor Protection Investors are the major stakeholders in the securities market. It is mandatory for SEBI to protect the interests of the investors. As a matter of fact, protection of investors interest is pursued by the securities market regulators throughout the world. Although the objective is more or less the same for most of the regulators, the means to achieve it varies from one jurisdiction to another. In India, one of the major achievements has been to shift from merit-based regime to disclosure-based regime. SEBI issued Disclosure and Investor Protection (DIP) Guidelines in 2000 and amended the same from time to time keeping in view the investors interest. The disclosure norms in India are considered as one of the best in the world. 32 Listed companies have to comply with the disclosure norms on an initial as well as on a continuous basis. The major objectives of the disclosure norms have been to ensure transparency and provide adequate protection to the investors. Pricing of the public issues has been deregulated since the early 1990s. In a deregulated regime, disclosures play a crucial role for the investors to take informed decisions about their investment. Nevertheless, many companies, which flooded the primary market in the early 1990s, have vanished. Hence, the disclosure norms have been tightened from time to time. Disclosure ought to be done on the stock exchange in addition to filing of regular returns to stock exchange where it is listed, as well as to the Registrar of Companies. Any price sensitive information about the company disclosed elsewhere attracts penal action. 87

24 Moreover, unfair trade practices, including insider trading, is prohibited in India in order to provide a level playing field to all investors. If any person indulges in fraudulent and unfair practices, he shall be liable to a maximum penalty of Rs. 25 crore or three times the amount of profits made out of such practices, whichever is higher. 33 There is a system of proportional allotment of public issues in India. In case of fixed price public issues, 50 per cent shares are being allotted to the retail investors. In case of book-built issues, the share of allotment for the retail investors has been raised from 25 per cent to 35 per cent. Keeping in view the possible misuse, the discretionary allotment to the Qualified Institutional Buyers (QIBs) has been withdrawn. In a move towards providing a level playing field, QIBs have been asked to deposit 10 per cent of the bid amount. 34 SEBI has given in-principle approval for the introduction of IPO grading at the option of the issuer. 35 IPO grading would be done by credit rating agencies registered with SEBI. The grading is intended to be an independent and unbiased opinion of the concerned agency. It would be a one time exercise and would focus on assisting the investor, particularly the retail investors, for taking informed investment decision, SEBI will not certify the assessment made by the rating agency. An issuer, who has opted for IPO grading, has to disclose all gradings in the offer document. Cost of IPO grading can be met by stock exchanges or out of the corpus maintained for Investor Education and Protection Funds. It has been recognised the world over that investors protection can be strengthened by adhering to high corporate governance standards. Corporate governance standards prescribed in India are based on international best practices. 36 Following recommendations of the expert committees, SEBI prescribed several governance standards to be achieved by the companies by December 31, 2005, under the revised Clause 49 of the Listing Agreement with the stock exchanges. Violation of this would now attract penalty under the Listing Agreement. Corporate governance needs to be seen not as compliance, but as a way of life. In this context, the quality of compliance assumes significance. High corporate governance standards are not only desirable within the economy, but also helpful for companies accessing the international capital market. SEBI 88

25 gives utmost importance to the corporate governance including mandatory induction of independent directors. The governance standards of the stock exchanges are also being improved through the process called Corporatisation and Demutualisation (C & D) of stock exchanges. 37 The stock exchanges world over have been generally formed as mutual organisations. The ownership, trading rights and management are often vested with the same set of persons. This leads to conflicting interest between ownership and management. In order to segregate the management function from the ownership and trading rights, there is a need for demutualisation of stock exchanges. Moreover, stock exchanges should function as body corporate similar to any other for-profit corporate entity. In India, NSE has been a corporate entity while NSE and OTCEI have been demutualised from their inception. Corporatisation and Demutualisation of stock exchanges is a priority item in the SEBI agenda. The oldest stock exchange of the country, namely, the Bombay Stock Exchange became a limited company on August 19, The Corporatisation and Demutualisation process has been notified for most of the remaining Regional Stock Exchanges (RSEs). The future of the RSEs postdemutualisation is being worked out so that the viable among them can actively participate in the mainstream market, besides catering to the regional requirements. A professionally managed stock exchange with at least 50 per cent non-broking shareholders is expected to play an important role for investor protection. Security Regulations in Force 38 The various security regulations in force are:- 1. SEBI (Stock Broker and Sub Broker) Regulations, SEBI (Prohibition of Insider Trading) Regulation, SEBI (Merchant Bankers) Regulations, SEBI (Portfolio Managers) Regulations, SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, SEBI (Underwriters) Regulations, SEBI (Debenture Trustees) Regulations,

26 8. SEBI (Bankers to an Issue) Regulations, SEBI (Foreign Institutional Investors) Regulations, SEBI (Custodian of Securities) Regulations, SEBI (Depositories and Participants) Regulations, SEBI (Venture Capital Funds) Regulations, SEBI (Mutual Funds) Regulations, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, SEBI (Buy- Back of Securities) Regulations, SEBI (Credit Rating Agencies) Regulations, SEBI (Collective Investment Schemes) Regulations, SEBI (Foreign Venture Capital Investors) Regulations, SEBI (Procedure for Board Meeting) Regulations, SEBI (Issues of Sweat Equity) Regulations, SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, SEBI (Central Listing Authority) Regulations, SEBI (Ombudsman) Regulations, SEBI (Central Database of Market Participants) Regulations, SEBI (Criteria for Fit and Proper Person) Regulations, SEBI (Self Regulatory Organisations) Regulations, SEBI (Regulatory Fee on stock exchanges) Regulations, SEBI (Certification of Associated persons in the securities market) Regulations,

27 30. SEBI (Issue and listing of debt securities) Regulations, SEBI (Intermediaries) Regulations, SEBI (Delisting of Equity Shares) Regulations, SEBI (Issue of Capital and Disclosure Requirements), Security Guidelines in Force The various security guidelines in force are: 1. SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, Guidelines for Opening of Trading Terminals Abroad (Issued in 1999). 3. SEBI (Disclosure & Investor Protection) Guidelines, SEBI (Delisting of Securities) Guidelines, SEBI (STP Centralized Hub and STP Service Providers) Guidelines, Comprehensive Guidelines for Investor Protection Fund / Customer protection Fund at Stock Exchanges (Issued in 2004). Security Schemes in Force The various security schemes in force are: 1. Securities Lending Scheme, SEBI (Informal Guidance) Scheme, 2003) Grievances Redressal Mechanism There is a comprehensive investor grievances redressal mechanism at its head office as well as at the regional offices of SEBI. The Office of Investor Assistance and Education (OIAE) is the single window interface through which SEBI interacts with investors. SEBI takes up investor complaints with companies and registered intermediaries on a regular basis. In order to file complaints, there is a standardised format which is available at all SEBI offices and on the SEBI website for the 91

28 convenience of investors. SEBI has a simple and efficient internet based response system for investor complaints. A system generated acknowledgement letter is issued to the investors as soon as a complaint is received electronically. Investors have the option of filing the complaints online or submitting the same on plain paper. Investors who visit the SEBI offices or access the investor helpline are guided regarding the appropriate authority to lodge their complaints which are outside the jurisdiction of SEBI. An account of receipt and redressal of investor grievances by SEBI is highlighted in Table-10 below:- Table 3.10 Receipt and Redressal of Investor Grievances 39 Year Grievances Received Grievances Redressed Cumulative During the Cumulative During the Cumulative Redressal period period Rate (%) Source: SEBI 92

29 During the period to , the SEBI received 30, 19,560 grievances from the investors of which a total of 28, 48,566 grievances were redressed by the respective entities, indicating a redressal rate of 94.3 per cent. In case the companies fail to redress complaints in spite of repeated reminders by SEBI, regulatory actions are initiated under section 11B (debarring companies form accessing the capital markets) and 15C (imposing of monetary penalty) of the SEBI Act, Up to March 31, 2009, 33 companies have been referred for adjudication proceedings under Section 15C of the SEBI Act, Prohibitory orders have also been passed under Section 11B of the SEBI Act, 1992 against errant companies which did not redress the investor grievances. Such orders have been passed against 12 companies and 62 directors till March 31, Moreover, SEBI also issues the status of investor grievances every fortnight for public information and uploads the same on SEBI Website Investor Education 41 Investor education plays a crucial role for the securities market awareness, particularly for the retail investors. A major initiative in this regard during the recent past has been launching of a comprehensive Securities Market Awareness Campaign (SMAC) on January 17, The campaign includes workshops, audio-visual clippings, and distribution of educative materials in English, Hindi and also in regional languages. There is a dedicated investor website which archives the booklets / pamphlets / FAQs etc. SEBI, in co-ordination with other agencies, conducted about 2188 workshops throughout the country till date under the SMAC. (Tamilnadu-134) SEBI recognises investor associations and extends financial support for conducting investor education programmes. SEBI has recognised 24 investor associations up to November There has been a long-standing request from the financial journalists of the print and electronic media to have an interface with SEBI on issues relating to the capital market. As financial journalists play a critical role for investors education, SEBI decided 93

30 to conduct a one-day workshop on capital market for the financial journalists at different centres. The objective of the programme is to provide adequate inputs to the financial journalists for balanced reporting of financial events and shoulder the responsibility of accurate dissemination of information on the developments that are taking place on a day-to-day basis in the securities market. This programme was organised at New Delhi and Chennai during At both the places, the programme was inaugurated by Shri M. Damodaran, Chairman, SEBI. A few outside experts, including professors and practitioners were invited for an interface with the participants in addition to presentations given by the senior officers of SEBI. As the response was encouraging, SEBI is contemplating to conduct the same programme in other centres during RECENT INITIATIVES 42 SEBI introduced the Application Supported by Blocked Amount (ASBA) as a new mode of payment in public issue. In this kind of mechanism the application money remains blocked in the bank account of the applicant till the allotment is finalized. Direct Market Access facility was introduced for institutional investors in April 2008 by SEBI. In an endeavour to strengthen the risk management framework, margining for institutional trades was made mandatory by SEBI. Reduction in time for Right Issues was reduced from 16 weeks to 6 weeks. A change in Securities Lending and Borrowing (SLB) Scheme was introduced in April Currency Futures were launched on USD-INR pair in India in August 2008 by NSE, and October 2008 by BSE and MCX. Removal of Quantitative restrictions imposed on the Overseas Derivatives Instruments (ODIs) for FII. 94

31 Exit Option to Regional Stock Exchanges (RSEs). Listing of close-ended schemes launched on or after December 12, 2008 along with daily computation of NAV was made compulsory. SEBI permitted NSE to launch Interest Rate Futures on August 31, INDIAN CAPITAL MARKET FUTURE ROAD MAP 43 SEBI may go in for fresh investor survey at the earliest to understand the investment behaviour of the households during the more recent period. Hon ble Union Finance Minister has proposed to set up an investor protection fund under the aegis of SEBI which would be funded by fines and penalties recovered by SEBI. SEBI would continue to nurture the Mutual Fund Industry and thereby attract more and more household participation in the capital market. Gold Exchange Traded Fund (GETF) has been introduced in India and in addition, SEBI is also working for the introduction of the Real Estate Mutual Fund, which is likely to mitigate the housing requirement of many households. SEBI has been authorized to set up a National Institute of Securities Markets (NISM) for teaching and training intermediaries in the securities market and promoting research SUMMARY Thus the Indian Capital Market is in transition. There has been a revolutionary change over a period of time. In fact, on almost all the operational and systematic risk management parameters, settlement system, disclosures, accounting standards, the Indian Capital Market is at par with the global standards. The goal of SEBI is to make the Indian Capital Market truly world class, competitive, transparent and efficient. A 95

32 perception is steadily growing about the Indian Capital Market, as a dynamic market, among the international community. Let us dream to make our Indian Capital Market a benchmark for the rest of the world. REFERENCES 1. Levine, Ross and S. Zervos, Stock Market Development and Economic Growth, The World Bank Economic Review, Vol.1012, PP , Agarwal R.N, Financial Liberalization in India: Banking system and stock Markets, Delhi: D.K. Publishers, Bajpai G.N., Developments of capital Markets in India, cited at London School of Economics on 2 nd October 2009, 4. Fama E, Efficient Capital Markets: II, Journal of Finance, Vol. XLVI(5), PP Shah. A and Thomas., S, Developing the Indian Capital Markets in J.A. Hanson and S.Kasthuria, eds, A Financial sector for the Twenty first century, India, : Oxford University Press, Chapter 71, PP Ibid., P Shirin Rathore, Muneesh Kumar, Amitabh Gupta, Indian Capital Market An Empirical Study, New Delhi: Anmol publications Pvt. Ltd., Cover page. 8. NSE-Fact book: 2009, 9. Damodharan.M, Capital Market in India: A country Profile, SEBI bulletin, Vol.3, No.11, Nov2009,P SEBI, Handbook of Statistics on the Indian Securities Market: 2009, PP

33 11. Indian Securities Market A Review: 2005, National Stock Exchange publication, Vol.VIII, P SEBI, Handbook of Statistics on the Indian Securities Market: 2009, PP Sachdeva, Emerging Securities Market Challenges and Prospects, Chartered Financial Analyst, Feb 2005, PP Ibid., pp Indian Securities Market A Review: 2011, National Stock Exchange publication, PP Damodharan.M, Capital Market in India: A country Profile, SEBI bulletin, PP SEBI, Handbook of Statistics on the Indian Securities Market:2009, PP Ibid., PP NSE-Fact book: 2011, PP SEBI, Handbook of Statistics on the Indian Securities Market: 2009, PP Indian Securities Market A Review: 2011, National Stock Exchange publication, PP Ibid., PP Ibid., PP Ibid., PP.3. 97

34 25. Damodharan.M, Capital Market in India: A country Profile, SEBI bulletin, Vol.3, No.11, Nov2010 PP Ibid., pp SEBI, Handbook of Statistics on the Indian Securities Market:2009, PP Damodharan.M, Capital Market in India: A country Profile, SEBI bulletin, Vol.3, No.11, Nov Ibid., 30. Ibid., PP Indian Securities Market A Review: 2005, National Stock Exchange publication, Vol.VIII, PP: Chopra V.K, Investor Protection: An Indian Perspective, SEBI bulletin, Nov 2006, 33. Chopra V.K. Capital Market Reforms in India: Recent Initiatives, SEBI bulletin Nov 2011, 34. Ibid.,pp Chopra V.K, Investor Protection: An Indian Perspective, SEBI bulletin, Nov 2010, 36. Ibid.,pp Chopra V.K. Capital Market Reforms in India: Recent Initiatives, SEBI bulletin Nov Security Regulations, Guidelines, Schemes in Force, SEBI bulletin, Vol.3, No.11, Nov 2010, PP.13 98