NEED FOR

REGULATING

SECURITIES
MARKETS IN INDIA

RISING IMPORTANCE OF SECURITIES

MARKET

The role of securities market increased globally

Securities market offer an alternative source of intermediation

Securities markets reduce cost of capital, increase savings and

investment
Investor confidence is the key in securities market

Securities Regulation address this through regulation of issuer

disclosure and accounting and audit standards

Thus the rising importance of securities market and in order to

increase the faith of the investors REGULATION of this market
is essential

WHAT IS REGULATION?
Regulation is controlling human or societal behavior
by rules or restrictions.
Regulation can take many forms:
Legal restrictions promulgated by government
Self-regulation by an industry such as through a trade
association .
Social regulations
Co-regulation
Market regulation

REGULATING FINANCIAL MARKETS

The financial regulatory bodies control the stock

markets, bond markets, foreign exchange markets,
and various other segments of financial markets.
The financial regulations are laid out for the purpose
of creating a fair and customer-friendly environment
in the financial market of a particular country, which
is conducive for economic growth.
Some of the examples of financial regulatory bodies
are the Federal Reserve Bank (US), RBI, SEBI, the
Financial Services Authority (FSA) in UK, the
Securities and Exchange Commission (SEC) in the
US and many others

NEED AND OBJECTIVES OF

REGULATION
1.

Market confidence:
Sustaining confidence in the financial markets is one of the
most important objectives of the Financial regulatory
bodies.

2.

Consumer protection:
Ensuring the most suitable level of consumer protection.

3.

Public awareness:
Encouraging public awareness about the financial markets
through imparting educational programs.

4.

Eliminating financial crime:

The financial regulations are designed for the purpose of
reducing financial crimes and frauds.

BENEFITS OF REGULATION
Regulations, like any other form of coercive action, have costs for
some and benefits for others. Efficient regulations are defined as
those where the total benefits to some people exceed the total
costs to others.

Markets failures:
Regulation due to inefficiency. Intervention due to a classical
economics argument to market failure.
a) Risk of monopoly

b) Collective actions, or public good

c) Inadequate information
d) Unseen externalizations

Collective desires:
Regulation about collective desires or considered judgments on
the part of a significant segments of society

Diverse experiences:
Regulation with a with a view of eliminating or enhancing
opportunities for the formation of diverse preferences and beliefs

Social subordination:

Regulation aimed to increase or reduce social subordination of

various social groups

Endogenous preferences:
Regulations purpose is to affect the development of certain
preferences on an aggregate level

Irreversibility :
Regulation that deals with the problem of irreversibility the
problem which is a certain type of conduct from current
generations results in outcomes from which the future
generations may not recover from at all.

Interest group transfers :

Regulation that results from efforts by self-interest groups

redistribute wealth in their favor, which may disguise itself as
one or more of the justifications above.

REGULATED (CONTROLLED) MARKETS

A regulated market or controlled market is the provision of goods or
services that is regulated by a government appointed body.

In a regulatory market, the government regulatory agency may

legislate regulations that privilege special interests, known as
regulatory capture.
AIMS of Regulation:
The aims of financial regulators are usually:

To enforce applicable laws

To prosecute cases of market misconduct, such as insider trading
To license providers of financial services
To protect clients, and investigate complaints
To maintain confidence in the financial system.

CONCLUSION
The above slides thus highlight the need for
regulation not only in the markets but also the
aims and objectives of the regulatory bodies
regulating these markets.

I.

II.

III.

IV.

A retail investor is an individual who purchases securities

for his or her own personal account rather than for an
organization.
Retail investors typically trade in much smaller amounts
than institutional investors such as mutual funds, pension
or university endowments.
With 60%-80% of the capital of the companies are in the
hands of few hundreds, it is not difficult to understand why
the majority of the PR effort is directed towards this group.
We often hear the terms retail investor and institutional
investor in the global stock markets.

Cumbersome
procedures

Malpractices by
brokers

Unrealistic and hyped

presentations by
investment firms

Lack of investor
protection measures

Lack of adequate
regulations

Lack of market
awareness

I.

II.

III.

IV.

Retail investors are the back-bone of the Indian Capital

market and yet a systematic study of their concerns and
attempts to protect them has been of relatively of recent
origin.
Due to lack of proper investor protection, the capital
market in the country has experienced a stream of market
irregularities and scandals in 1990s.
India has 8% retail participation in market investments as
against 20-33% in South Korea and China. We have huge
work to do to increase retail participation,
Presently only 2.6% of Indias total savings come to capital
market, and 85% of total trading is from only 5 cities.

I.
II.

III.

IV.

There is a need to spread the ownership of equity.

A well informed investor is a well protected investor.
The nature of Indian markets is unique with a large retail
investor population that saves money worth over $300
billion but allocates less than 5% to financial market
instruments other than bank deposits.
Despite a long history and maturity of Indian stock
markets, the penetration level remains very low.

I.
II.

III.

IV.

Low depth in equity markets,

Low retail equity ownership,
Today, India is experiencing rapid econoic growth. If we
want to share this prosperity with a cross-section of our
society, we must ensure that the ownership of equity is
spread as widely as possible
Higher costs per trade

Any listed company, which raised

money through IPO but, stopped
operations, did not file return either with
the RoC or SEBI and did not exist on the
registered premises was termed as
vanishing.

Liberalize
the market
Companies
misused
funds

No
supervision
of DCA or
SEBI

Controller
of capital
issue
Investors
allege SEBI
and DCA

Raised
money at
fancy
premium

SEBI

IPO
Promoters
took
advantage

1992-2001- Around 238 companies vanished.

Over 7983 plantation companies were
vanished.
Many companies had raised money from the
market during the capital boom period.
Most of them were located in Maharashtra and
West Bengal.

Failed to file return with RoC for a period of

2years.
Failed to file returns with Stock Exchange for a
period of 2years
Not maintaining companys registered office at
notified address.
None of its directors are traceable.
Mis-statement and fraudulent prospectus and
Balance sheet

Prosecutions have been filed in 110 case for

violation of various provision of the companies
act,1956.
FIRs have been filed in 112 cases under the
Indian Penal Code. (IPC)
SEBI has debarred 100 companies and 378
directors u/s 11B of the SEBI ACT from
entering capital market for a period of five
years.

Issuer company IPO Process Initialization.

Lead managers Pre Issue Role. Part-1
SEBI Prospectus Review.
Lead manager Pre issue role. Part-2
Investor Bidding for the public issue.
Lead manager Price Fixing.
Registrar Processing IPO Application.
Lead manager Stock Listing.

Alps Motor Finance Ltd.

Arrow Securities Ltd.
Efcon securities Ltd.
Front Line Financial Services Ltd.
Hitesh Textiles Mills Ltd.
Kalyani Finance Ltd.
Vipul Securities Ltd.