Regulatory systems for equity Markets

Securities & Exchange Board of India (SEBI)

The Securities & Exchange Board of India (SEBI) Act, 1992 regulates the functioning of SEBI. SEBI is the apex body governing the Indian stock exchanges.

The primary functions of SEBI are as follows:

Protective Functions

1. It checks Price rigging
2. Prohibits insider trading
3. Prohibits fraudulent and Unfair Trade Practices

Development Functions

1. SEBI promotes training of intermediaries of the securities market.
2. SEBI tries to promote activities of stock exchange by adopting a flexible and adaptable approach

Regulatory Functions

1. SEBI has framed rules and regulations and a code of conduct to regulate the intermediaries such as merchant bankers, brokers, underwriters, etc.
2. These intermediaries have been brought under the regulatory purview and private placement has been made more restrictive.
3. SEBI registers and regulates the working of stock brokers, sub-brokers, share-transfer agents, trustees, merchant bankers and all those who are associated with stock exchange in any manner
4. SEBI registers and regulates the working of mutual funds etc.
5. SEBI regulates takeover of the companies
6. SEBI conducts inquiries and audit of stock exchanges.

The participation in the Indian Stock Market of both the domestic or foreign financial intermediaries are governed by the regulations framed by SEBI. Additionally, Foreign Portfolio Investors (FPIs) can participate in Indian Stock Market after registering them with an authorized Depository Participant.

National Stock Exchange of India (NSE)

NSE is responsible for formulating and implementing the rules pertaining to:

• Registration of Members
• Listing of Securities
• Monitoring of Transactions
• Compliance
• Other additional functions related to the above functions

NSE itself is regulated by SEBI and is under regular vigilance for all regulatory compliances.

Stock Exchange

In simple terms, a Stock Market is a platform where people buy and sell stocks, prices of which are set according to the prevalent demand and supply situation. It is very similar to a marketplace where traders buy and sell goods, quoting prices on the basis of the demand for the good and the availability or supply of it.

The term trade, in the context of the bourses, means the transfer of money from the seller to the buyer in exchange for a security/ share. The price at which the seller sells or the buyer buys is listed on the stock exchange. You can easily trade through a trading member registered on a Stock Exchange.

As per National Securities Clearing Corporation Limited “A Trading Member means any person admitted as a member in any exchange in accordance with the Rules, Bye-laws and Regulations of that Exchange.”

The Stock Market doesn’t differentiate between any citizen of the country. Outside investments were only permitted in the 1990s and can take place through either Foreign Direct Investments (FDIs) or Foreign Portfolio Investments (FPIs). Thus, the Stock Market participants range from small individual investors to Insurance Companies, Banks, Mutual Fund companies, Manufacturing companies etc.

However, the rules and regulations formulated by SEBI remain the same for all types of market participants and everybody is obligated to abide by such rules and mandates.