REGULATORS OF INDIAN SECURITIES MARKETS
Securities and Exchange Board of India (SEBI)
The Securities and Exchange Board of India (SEBI), a statutory body appointed by an Act of Parliament (SEBI Act, 1992), is the chief regulator of securities markets in India. SEBI functions under the Ministry of Finance.
The main objective of SEBI is to facilitate growth and development of the capital markets and to ensure that the interests of investors are protected.
Purpose and Role of SEBI
Protecting investor interests, fostering stock exchange development and maintaining a check on malpractices were the primary goals behind SEBI’s establishment. It meets the requirements of following groups:
Issuers: SEBI offers issuers a platform where they can simply and fairly raise capital.
Investors:Accurate and correct information is supplied by SEBI, and investors are protected.
Intermediaries: SEBI offers intermediaries access to a professional, competitive market.
Functions of Securities and Exchange Board of India (SEBI)
• Protective Functions
Protective functions are those carried out by SEBI to safeguard investor interests and guarantee investment security.
• Examine Price Rigging: Price Rigging is the practice of manipulating the price of securities in order to raise or lower their market value.
• Prohibits Insider Trading: An insider is anyone
who has a relationship to the company, including directors, promoters and others. They possess all of the confidential information about the business that could influence the securities’ price. Insider trading occurs when someone from the company uses their access to confidential information to profit; this type of information is not available to the general public.
• Prohibit Fraudulent and unfair trade practises: Companies are not permitted to make any statements that could mislead the public or persuade someone else to buy or sell securities.
• Educate Investors: In order to enable investors to quickly assess the securities of various companies and choose the most lucrative security, SEBI takes a number of educational initiatives.
• Fair practices and a code of conduct: They are promoted by SEBI under its protective functions in the securities market.
• Developmental Functions
In order to advance and expand stock exchange activities and boost stock exchange business, SEBI carries out developmental tasks.
• It encourages the securities market intermediaries to receive training.
• It makes an effort to publicise stock exchange operations.
• Innovations and Technological use has been done as given below:
• Online trading via registered stock brokers is permitted by SEBI.
What are government securities?
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SEBI has also made underwriting optional in an effort to lower the cost of issue.
• Finally, it has approved the primary market’s initial public offering via a stock exchange.
• Regulatory Functions
SEBI carries out regulatory duties to control the stock exchange industry.
• In order to govern intermediaries such as brokers and underwriters, SEBI has established a code of conduct in addition to a set of rules.
• It also performs stock exchange audits and investigations.
• Mutual fund operations are regulated by SEBI, which also registers them.
• SEBI has tightened restrictions on private placement and placed intermediaries under regulatory control.
• SEBI controls corporate acquisitions.
• In the end, it registers and oversees the activities of share transfer agents, sub brokers, merchant brokers, trustees, stock brokers, and everyone else connected in any way to the stock exchange.
The Reserve Bank of India (RBI)
The Reserve Bank of India regulates the money market segment of the securities market.
As the manager of the government’s borrowing program, RBI is the issue manager for the government. It controls and regulates the government securities market.
Government-issued debt instruments are known as government securities, or G-Secs. Both the Indian central government and the state governments are able to issue these securities.
Treasury bills (T-bills)
• The only entity that issues Treasury bills, or T-bills, in India is the central government.
• Since their maturity period is less than a year, they are short-term money market instruments.
There are currently three different maturity periods for Treasury bills that can be issued: 91 days, 182 days and 364 days.
The majority of financial products offer interest on investments. Conversely, zero-coupon securities are what are commonly referred to as Treasury bills. There is no interest paid on investments made in these securities. On the maturity date, they are redeemed at face value, but they are issued at a discount.
Cash Management Bills (CMBs)
In 2010, the Reserve Bank of India and the Indian government introduced them.
Similar to Treasury bills, CMBs are zero-coupon securities as well. The only significant distinction between the two categories of government securities is the maturity period.
Cash Management Bills (CMBs) represent an extremely short-term investment option because they are issued with maturities shorter than 91 days.
The Indian government strategically uses CMBs to cover any short-term cash flow needs.
Dated G-Secs
G-Secs are long-term money market instruments with a broad range of tenures, ranging from 5 years to 40 years, in contrast to T-bills and CMBs which are shorter term.
The interest rate, or coupon rate, associated with these instruments can be either fixed or variable.
Interest is paid to you every six months based on the coupon rate, which is applied to the face value of your investment.
• Mostly, commercial banks and other institutions invest in and hold these securities, the former in the form of Statutory Liquidity Ratio (SLR).
• These securities are also tradeable in the stock market. They can be used as collateral to borrow under market repo or even under the Liquid Adjustment Facility (LAF) of the RBI.
• The secondary market for dated government securities is also quite liquid and vibrant. These securities can be traded on the RBI’s Negotiated Dealing System Order Matching system, commonly known as the NDS-OM, NDS-OM Web and Stock exchanges and Over the counter.
State Development Loans (SDLs)
As the name suggests, SDLs are exclusively granted by India’s state governments in order to support their operations and meet their financial requirements.
Dated G-Secs and SDLs are identical except for the fact that the central government issues the former while the state governments of India issue the latter.
Derivatives
A two party contract that has an underlying asset as its basis for price or value is called a derivative.
Initially, an underlying corpus is created, which can consist of a single security or a combination of securities.
The underlying asset’s value will inevitably vary since underlying asset values are dynamic.
For example, any derivative based on gold would adjust to reflect the change in value.
The prices of the derivatives fluctuate according to the value of the underlying asset, in this example, gold.
Derivatives are used for a number of reasons, such as price discovery, leverage, and risk hedging.
The most common types of derivatives are:
Futures Contracts: A futures contract is an agreement between two parties to buy or sell an asset at a predetermined price on a specific future date. These underlying assets can encompass a broad spectrum, including commodities like oil or agricultural products, financial instruments, and even indexes.
Options Contracts: An options contract gives the holder the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a specified price (strike price) on or before a predetermined expiration date.
Swaps: Swaps are agreements between two parties to exchange cash flows based on specific financial variables. Common types of swaps include interest rate swaps, currency swaps, and commodity swaps. Swaps are often used to manage interest rate risks, currency risks, or to change the nature of a debt obligation.
Forwards: Although they are not standardised or traded on exchanges, forwards are comparable to futures contracts.
They are customized agreements between two parties to buy or sell an asset at a specified price on a future date.