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General Studies 3 >> Economy

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STOCK MARKET IN INDIA

STOCK MARKET IN INDIA

1. Context

The Supreme Court asked the Securities and Exchange Board of India (SEBI) and the government to produce the existing regulatory framework in place to protect investors from share market volatility.

2. About Stock Market

It is a place where publicly traded companies’ stocks are bought and sold, allowing investors to buy shares of a company’s stock and take ownership of a small piece of that company. It is a key indicator of the overall health of the economy, as the performance of companies listed on the stock market reflects the current economic conditions.

3. Regulation of security markets in India

  • The Companies Act, 2013: It regulates the incorporation of a company, responsibilities of a company, directors, and dissolution of a company.
  • The Securities and Exchange Board of India Act, 1992: It empowers SEBI to register intermediaries like stock brokers, merchant bankers, and portfolio managers, regulate their functioning, impose penalties including suspending/cancelling the registration
  • The Securities Contracts (Regulation) Act, 1956 (SCRA): It empowers SEBI to recognise (and derecognise) stock exchanges, prescribe rules and bye-laws for their functioning, and regulate trading, clearing and settlement on stock exchanges.
  • The Depositories Act, 1996: It introduced and legitimised the concept of dematerialised securities being held in an electronic form. SEBI set up the infrastructure for doing this by registering depositories and depository participants.

4. Securities and Exchange Board of India (SEBI)

  • It is mandated to oversee the secondary and primary markets in India since 1988 when the Government of India established it as the regulatory body of stock markets.
  • SEBI became an autonomous body through the SEBI Act of 1992.
  • SEBI has the responsibility of both development and regulation of the market.
  • It regularly comes out with comprehensive regulatory measures aimed at ensuring that end investors benefit from safe and transparent dealings in securities.
objectives
  • Protecting the interests of investors in stocks
  • Promoting the development of the stock market
  • Regulating the stock market

5. Can SEBI step in to curb market volatility?

  • While SEBI does not interfere to prevent market volatility, exchanges have circuit filters (upper and lower) to prevent excessive volatility. But SEBI can issue directions to stock exchanges to stop trading, totally or selectively.
  • It can also prohibit entities or persons from buying, selling or dealing in securities, or from raising funds from the market.

6. What are the guidelines for fundraising?

  • The Companies Act has delegated the authority to enforce some of its provisions to SEBI, including the regulation of raising capital, corporate governance, resolution of investor grievances, etc.
  • As a result, SEBI issued guidelines such as the Issue of Capital and Disclosure Requirement Regulations, the Listing Obligations and Disclosure Requirements Regulations (2015), etc.

7. Safeguards against Fraud

  • Fraud undermines regulation and prevents a market from being fair and transparent.
  • SEBI notified the Prohibition of Fraudulent and Unfair Trade Practices Regulations in 1995 and the Prohibition of Insider Trading Regulations in 1992 to prevent the two key forms of fraud, market manipulation, and insider trading.
  • These regulations, read with provisions of the SEBI Act, define species of fraud, who is an insider and prohibit such fraudulent activity and provide for penalties including disgorgement of ill-gotten gains.
  • It must be noted that violation of these regulations are predicate offences that can lead to a deemed violation of the Prevention of Money Laundering Act.
  • SEBI has been given the powers of a civil court to summon persons, seize documents and records, attach bank accounts and property, and to carry out investigations.
  • Using these powers, SEBI has acted against entities and individuals like Satyam, Sahara India, Ketan Parekh and Vijay Mallya.

For Prelims & Mains

For Prelims: The Companies Act, 2013, The Securities and Exchange Board of India Act, 1992, The Securities Contracts (Regulation) Act, 1956 (SCRA), The Depositories Act, 1996, Securities exanchange board of India (SEBI).
For Mains: 1. Explain how stock market is regulated in India and discuss the objectives of SEBI?
 
Source: The Hindu

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