Financial Regulatory Bodies In India:

The financial system in India is regulated by independent regulators in the field of banking,

insurance, capital market, commodities market, and pension funds.   However, Government of

India plays a significant role in controlling the financial system in India and influences the roles

of such regulators at least to some extent.

 The following are five major financial regulatory bodies in India:

(A) Statutory Bodies via parliamentary enactments:

1.  Reserve Bank of India :  Reserve Bank of India is the apex monetary Institution of

India. It is also called as the central bank of the country. 

The Reserve Bank of India was established on April 1, 1935 in accordance with the

provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank

was initially established in Calcutta but was permanently moved to Mumbai in 1937. The

Central Office is where the Governor sits and where policies are formulated.   Though

originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by

the Government of India. 

It acts as the apex monetary authority of the country. The Central Office is where the

Governor sits and is where policies are formulated. Though originally privately owned, since

nationalization in 1949, the Reserve Bank is fully owned by the Government of India.    The

preamble of the reserve bank of India is as follows:

 "to regulate the issue of Bank Notes and keeping of reserves with a view to securing

monetary stability in India and generally to operate the currency and credit system of the

country to its advantage."   

2. Securities and Exchange Board of India   :  SEBI Act, 1992 : Securities and Exchange

Board of India (SEBI) was first established in the year 1988 as a non-statutory body for

regulating the securities market. It became an autonomous body in 1992 and more powers

were given through an ordinance. Since then it regulates the market through its

independent powers.

3. Insurance Regulatory and Development Authority : The Insurance Regulatory and

Development Authority (IRDA) is a national agency of the Government of India and is 

based in Hyderabad (Andhra Pradesh).  It was formed by an Act of Indian Parliament

known as IRDA Act 1999, which was amended in 2002 to incorporate some emerging

requirements. Mission of IRDA as stated in the act is "to protect the interests of the

policyholders, to regulate, promote and ensure orderly growth of the insurance industry

and for matters connected therewith or incidental thereto.

       4. Forward Market Commission India (FMC) : Forward Markets Commission (FMC)

headquartered at Mumbai, is a regulatory authority which is overseen by the Ministry of

Consumer Affairs, Food and Public Distribution, Govt. of India. It is a statutory body set up in

1953 under the Forward Contracts (Regulation) Act, 1952  This Commission allows commodity

trading in 22 exchanges in India, out of which three are national level.

4. PFRDA under the Finance Ministry :  Pension Fund Regulatory and Development

Authority  : PFRDA was established by Government of India on 23rd August, 2003.  The

Government has, through an executive order dated 10th October 2003, mandated PFRDA

to act as a regulator for the pension sector. The mandate of PFRDA is development and

regulation of pension sector in India.

INTRODUCTION:

The Securities and Exchange Board of India (SEBI) is the regulatory authority in India

established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of

Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting the

interests of investors in securities (b) promoting the development of the securities market and (c)

regulating the securities market. Its regulatory jurisdiction extends over corporates in the

issuance of capital and transfer of securities, in addition to all intermediaries and persons

associated with securities market. SEBI has been obligated to perform the aforesaid functions by

such measures as it thinks fit. In particular, it has powers for:

Regulating the business in stock exchanges and any other securities markets

Registering and regulating the working of stock brokers, sub-brokers etc.

Promoting and regulating self-regulatory organizations

Prohibiting fraudulent and unfair trade practices Calling for information from,

undertaking inspection, conducting inquiries and audits of the stock exchanges,

intermediaries, self - regulatory organizations, mutual funds and other persons associated

with the securities market.

The SEBI is managed by six members, i.e. by the chairman who is nominated by central

government & two members, i.e. officers of central ministry, one member from the RBI & the

remaining two are nominated by the central government. The office of SEBI is situated at

Mumbai with its regional offices at Kolkata, Delhi & Chennai.

Role or Functions of SEBI as Regulatory Authority:

The role or functions of SEBI are discussed below.

1. To protect the interests of investors through proper education and guidance as regards

their investment in securities. For this, SEBI has made rules and regulation to be followed

by the financial intermediaries such as brokers, etc. SEBI looks after the complaints

received from investors for fair settlement. It also issues booklets for the guidance and

protection of small investors.

2. To regulate and control the business on stock exchanges and other security markets. For

this, SEBI keeps supervision on brokers. Registration of brokers and sub-brokers is made

compulsory and they are expected to follow certain rules and regulations. Effective

control is also maintained by SEBI on the working of stock exchanges.

3. To make registration and to regulate the functioning of intermediaries such as stock

brokers, sub-brokers, share transfer agents, merchant bankers and other intermediaries

operating on the securities market. In addition, to provide suitable training to

intermediaries. This function is useful for healthy atmosphere on the stock exchange and

for the protection of small investors.

4. To register and regulate the working of mutual funds including UTI (Unit Trust of India).

SEBI has made rules and regulations to be followed by mutual funds. The purpose is to

maintain effective supervision on their operations & avoid their unfair and anti-investor

activities.

5. To promote self-regulatory organization of intermediaries. SEBI is given wide statutory

powers. However, self-regulation is better than external regulation. Here, the function of

SEBI is to encourage intermediaries to form their professional associations and control

undesirable activities of their members. SEBI can also use its powers when required for

protection of small investors.

6. To regulate mergers, takeovers and acquisitions of companies in order to protect the

interest of investors. For this, SEBI has issued suitable guidelines so that such mergers

and takeovers will not be at the cost of small investors.

7. To prohibit fraudulent and unfair practices of intermediaries operating on securities

markets. SEBI is not for interfering in the normal working of these intermediaries. Its

function is to regulate and control their objectional practices which may harm the

investors and healthy growth of capital market.

8. To issue guidelines to companies regarding capital issues. Separate guidelines are

prepared for first public issue of new companies, for public issue by existing listed

companies and for first public issue by existing private companies. SEBI is expected to

conduct research and publish information useful to all market players (i.e. all buyers and

sellers).

9. To conduct inspection, inquiries & audits of stock exchanges, intermediaries and self-

regulating organizations and to take suitable remedial measures wherever necessary. This

function is undertaken for orderly working of stock exchanges & intermediaries.

10. To restrict insider trading activity through suitable measures. This function is useful for

avoiding undesirable activities of brokers and securities scams.

ROLE OF SEBI IN INDIAN CAPITAL MARKET:

SEBI is regulator to control Indian capital market. Since its establishment in 1992, it is doing

hard work for protecting the interests of Indian investors. SEBI gets education from past cheating

with naive investors of India. Now, SEBI is more strict with those who commit frauds in capital

market.

The role of security exchange board of India (SEBI) in regulating Indian capital market is very

important because government of India can only open or take decision to open new stock

exchange in India after getting advice from SEBI.

1. Power to make rules for controlling stock exchange :

SEBI has power to make new rules for controlling stock exchange in India. For example, SEBI

fixed the time of  trading 9 AM and 5 PM in stock market.

2. To provide license to dealers and brokers :

SEBI has power to provide license to dealers and brokers of capital market. If SEBI sees that any

financial product is of capital nature, then SEBI can also control to that product and its dealers.

One of main example is ULIPs case. SEBI said, " It is just like mutual funds and all banks and

financial and insurance companies who want to issue it, must take permission from SEBI."

3. To Stop fraud in Capital Market :

SEBI has many powers for stopping fraud in capital market

It can ban on the trading of those brokers who are involved in fraudulent and unfair trade

practices relating to stock market.

It can impose the penalties on capital market intermediaries if they involve in insider

trading.

4. To Control the Merge, Acquisition and Takeover the companies :

Many big companies in India want to create monopoly in capital market. So, these

companies buy all other companies or deal of merging. SEBI sees whether this merge or

acquisition is for development of business or to harm capital market.

5. To audit the performance of stock market :

SEBI uses his powers to audit the performance of different Indian stock exchange for

bringing transparency in the working of stock exchanges.

6. To make new rules on carry - forward transactions :

Share trading transactions carry forward cannot exceed 25% of broker's total transactions

90 day limit for carry forward.

7. To create relationship with ICAI :

ICAI is the authority for making new auditors of companies. SEBI creates good

relationship with ICAI for bringing more transparency in the auditing work of company

accounts because audited financial statements are mirror to see the real face of company

and after this investors can decide to invest or not to invest. Moreover, investors of India

can easily trust on audited financial reports. After Satyam Scam, SEBI is investigating

with ICAI, whether CAs are doing their duty by ethical way or not.

8. Introduction of derivative contracts on Volatility Index :

1. For reducing the risk of investors, SEBI has now been decided to permit Stock

Exchanges to introduce derivative contracts on Volatility Index, subject to the condition

that;

a. The underlying Volatility Index has a track record of at least one year.

b. The Exchange has in place the appropriate risk management framework for such

derivative contracts.

2. Before introduction of such contracts, the Stock Exchanges shall submit the following:

i. Contract specifications

ii. Position and Exercise Limits

iii. Margins

iv. The economic purpose it is intended to serve

v. Likely contribution to market development

vi. The safeguards and the risk protection mechanism adopted by the exchange to ensure

market integrity, protection of investors and smooth and orderly trading.

vii. The infrastructure of the exchange and the surveillance system to effectively monitor

trading in such contracts, and

viii. Details of settlement procedures & systems

ix. Details of back testing of the margin calculation for a period of one year considering a

call and a put option on the underlying with a delta of 0.25 & -0.25 respectively and

actual value of the underlying.

9. To Require report of Portfolio Management Activities :

SEBI has also power to require report of portfolio management to check the capital

market performance. Recently, SEBI sent the letter to all Registered Portfolio Managers

of India for demanding report.

10.  To educate the investors :

Time to time, SEBI arranges scheduled workshops to educate the investors. On 22 may

2010 SEBI imposed workshop.

INTRODUCTION: Capital market is one of the most important segments of the Indian

financial system. It is the market available to the companies for meeting their requirements of the

long-term funds. It refers to all the facilities and the institutional arrangements for borrowing and

lending funds. In other words, it is concerned with the raising of money capital for purposes of

making long-term investments. The market consists of a number of individuals and institutions

(including the Government) that canalise the supply and demand for long -term capital and

claims on it. The demand for long term capital comes predominantly from private sector

manufacturing industries, agriculture sector, trade and the Government agencies. While, the

supply of funds for the capital market comes largely from individual and corporate savings,

banks, insurance companies, specialised financing agencies and the surplus of Governments.

The Indian capital market is broadly divided into the gilt-edged market and the industrial

securities market.

The gilt-edged market refers to the market for Government and semi-government

securities, backed by the Reserve Bank of India (RBI). Government securities are

tradable debt instruments issued by the Government for meeting its financial

requirements. The term gilt-edged means 'of the best quality'. This is because the

Government securities do not suffer from risk of default and are highly liquid (as they

can be easily sold in the market at their current price). The open market operations of the

RBI are also conducted in such securities.

The industrial securities market refers to the market which deals in equities and

debentures of the corporate. It is further divided into primary market and secondary

market.

Primary market (new issue market): deals with 'new securities', that is, securities

which were not previously available and are offered to the investing public for the first

time. It is the market for raising fresh capital in the form of shares and debentures. It

provides the issuing company with additional funds for starting a new enterprise or for

either expansion or diversification of an existing one, and thus its contribution to

company financing is direct. The new offerings by the companies are made either as an

initial public offering (IPO) or rights issue.

Secondary market/ stock market (old issues market or stock exchange): is the market

for buying and selling securities of the existing companies. Under this, securities are

traded after being initially offered to the public in the primary market and/or listed on the

stock exchange. The stock exchanges are the exclusive centres for trading of securities. It

is a sensitive barometer and reflects the trends in the economy through fluctuations in the

prices of various securities. It been defined as, "a body of individuals, whether

incorporated or not, constituted for the purpose of assisting, regulating and controlling the

business of buying, selling and dealing in securities". Listing on stock exchanges enables

the shareholders to monitor the movement of the share prices in an effective manner. This

assist them to take prudent decisions on whether to retain their holdings or sell off or

even accumulate further. However, to list the securities on a stock exchange, the issuing

company has to go through set norms and procedures.

Regulatory Framework of Capital Markets:

In India, the capital market is regulated by the Capital Markets Division of the Department of

Economic Affairs, Ministry of Finance. The division is responsible for formulating the policies

related to the orderly growth and development of the securities markets (i.e. share, debt and

derivatives) as well as protecting the interest of the investors. In particular, it is responsible for

(i) institutional reforms in the securities markets, (ii) building regulatory and market institutions,

(iii) strengthening investor protection mechanism, and (iv) providing efficient legislative

framework for securities markets, such as Securities and Exchange Board of India Act, 1992

(SEBI Act 1992); Securities Contracts (Regulation) Act, 1956; and the Depositories Act,

1996. The division administers these legislations and the rules framed thereunder.

The Securities and Exchange Board of India (SEBI) is the regulatory authority established

under the SEBI Act 1992, in order to protect the interests of the investors in securities as well as

promote the development of the capital market. It involves regulating the business in stock

exchanges; supervising the working of stock brokers, share transfer agents, merchant bankers,

underwriters, etc; as well as prohibiting unfair trade practices in the securities market. The

following departments of SEBI take care of the activities in the secondary market:

Market Intermediaries Registration and Supervision Department (MIRSD) :

concerned with the registration, supervision, compliance monitoring and inspections of

all market intermediaries in respect of all segments of the markets, such as equity, equity

derivatives, debt and debt related derivatives.

Market Regulation Department (MRD) :concerned with formulation of new policies as

well as supervising the functioning and operations (except relating to derivatives) of

securities exchanges, their subsidiaries, and market institutions such as Clearing and

settlement organizations and Depositories.

Derivatives and New Products Departments (DNPD) : concerned with supervising

trading at derivatives segments of stock exchanges, introducing new products to be traded

and consequent policy changes.

Role of capital market in increasing investor protection:

Capital Markets play a key role in the development of every economy, and as a result,

governments in various countries deem it necessary to regulate these markets. And

Financial markets have only one asset that really matters and that asset is PUBLIC

CONFIDENCE.

In order for capital markets to thrive, there must be adequate safeguards, which will

enhance public confidence in the markets.

These safeguards are usually the investor protection roles and functions of regulatory

bodies of the capital markets.

Investor protection is intended to enhance investors’ confidence in the capital markets.

Confidence in any capital market, is perhaps the single most important pre-requisite for

its sustenance and growth.

For a market to foster business development it must be attractive to prospective investors looking

for investment opportunities. In order for a market to be attractive to potential investors, it must

have earned investor confidence, which in turn is achieved through the imposition and effective

enforcement of rules which ensure the market is operated efficiently and fairly.

Principles of Regulation in capital market:

Key to a successful securities trading system is that all investors share equally in the risks and

opportunities of investment. A number of principles have been developed in securities regulation

to ensure fairness in the market. In the market, the fundamental principle which ensures equal

opportunity is that all trading in securities must take place in an environment where there has

been full, true and plain disclosure of all material facts. This is brought about through a set of

rules which impose significant disclosure requirements upon businesses, which seek to raise

finances from the public through the capital market, as well as their controllers and insiders, and

rules which ensure fair trading practices among all those who trade in the market. While it is

never possible for there to be perfect information available to investors, it is the objective of

securities regulation to ensure that sufficient information is always available to permit buyers

and sellers of securities to make informed decisions. Issuers are faced with obligations for full

and timely disclosure of any information about the issuer, as well as its key shareholders, where

the timing of access to such information can have a significant impact on investors.

The regulation of securities in market has also been designed to ensure that trading is conducted

fairly, and that issuers and those that deal in securities on their behalf, provide fair treatment to

investors.

There are two primary means used to promote public confidence in securities traded on

markets. These are;

a) full disclosure at the time of the initial offering,

b) continuous disclosure requirements and

a. Prospectus Disclosure:

Before an issuer is permitted to distribute its securities through an exchange, there are substantial

disclosure requirements that must be fulfilled. Although each jurisdiction in market is

responsible for establishing its own disclosure criteria, the prescribed level of disclosure is

consistent among the provinces. The levels of disclosure required to make an informed

investment decision are, of course, substantially different as between an established business

with a well known history, and a new venture capital enterprise.

A business listing for the first time on an exchange is subject to substantial disclosure

requirements. Disclosure on the following major topics is required in the prospectus which is

filed with the securities commission as the initiation of the application process:

Description and general development of the business

summary and analysis of the financial objectives

business objectives milestones (i.e. significant events required to meet the stated business

objectives)

material acquisitions and dispositions

management experience and expertise

organizational structure

products developed or to be developed with the proceeds of the distribution

proprietary protection

operation (i.e. method of production)

market by segment and specific geographic location

marketing plans and strategies

administration costs

b. Continuous Disclosure:

While the disclosure of an issuer through the prospectus filed in support of its initial public

offering provides investors with access to important information.

It includes a summary of any significant event or transaction which occurred during the reporting

period. Specifically:

the issuer is required to reconcile previously disclosed “intended use of proceeds” with actual

use

details of significant transactions, including consideration received or paid, with related parties

must be disclosed

details of investor relations activity undertaken by the issuer during the reporting period must

be disclosed

the report must include details of other significant events or transactions

discussion of details relating to the acquisition or disposition of any material capital asset must

be included

material expenditures, including discussion of their nature, must be included

details of significant events or transactions previously disseminated through material change

reports during the reporting period should also be included

where the has been a breach of any corporate, securities or other laws, or of the issuers listing

agreement with an exchange, disclosure is required

where there has been a change in any of the material assumptions used in the preparation of

future oriented financial information, that information must be updated in accordance with the

change.

These financial statements must be filed with the commission by all reporting issuers.

And the are three Core objectives of capital regulation to increase investor protection:

Investor protection

Ensuring that market are fair efficient and transparent

The reduction of systemic risk.

Investor Protection:

o Protection against misleading, manipulative or fraudulent practices, including

insider trading, and the misuse of client assets

o Full disclosure of information which is material to investors’ decisions .

o Quality of disclosure should be disclosed

o Only duly licensed or authorized persons should be permitted to hold themselves

out to the public as market operators

o Supervision of market participants at all the time.

Ensuring that markets are fair, efficient and transparent

o The regulator’s approval of exchange and trading system operators and of trading

rules helps to ensure fair markets.

o Dissemination of relevant information is timely and widespread and is reflected in

the price formation process

o Information about trading in the market is to be made publicly available on a

real-time basis

The reduction of systemic risk

o Reduce the risk of failure (through measures including capital and internal control

requirements)

o Respond to market disruptions through facilitation of stable domestic and global

cooperation and information sharing.

o Ensure that capital and other prudential requirements are sufficient to address

appropriate risk taking.

SEC’S (Securities and Exchange Commission) ROLE IN INCREASING INVESTOR

PROTECTION:

To maintain surveillance over activities in securities to ensure fair, orderly and equitable

dealings in securities.

To license, authorize and regulate stock exchanges, dealers, investment advisors, other

operators and their representatives.

To license, authorize and regulate collective investment schemes such as unit trusts and

mutual funds.

To maintain proper standards of conduct and acceptable practices in the industry and

monitor the solvency of license holders.

To protect the integrity of the market against any abuses arising from the practice of

insider trading.

To adopt measures to minimize and supervise any conflict of interests that may arise for

dealers.

 To formulate principles for the guidance of the securities industry.

To review, approve and regulate takeovers, mergers and acquisitions and all forms of

business combinations.

Legal and Enforcement

o The Enforcement Department is responsible for investigating breaches of the

securities laws.

o It is charged to initiate investigations on complaints and evidence of possible

violations of the securities laws.

Market Surveillance:

o Responsible for establishing and maintaining standards for the fair, orderly,

and efficient operation of the securities market.

o It is also responsible for licensing operators, monitoring their operations to

ensure compliance with the securities laws.

Corporate Finance

o Responsible for overseeing the disclosure of material information to the

investing public by issuers of securities.

o Ascertaining whether the disclosures meet with the disclosure requirements

and standards required by law.

Investment Management

o Responsible for supervising and regulating all aspects of the operations of

collective investment schemes such as unit trusts and mutual funds.

o It administers the securities laws applicable with a view to improving

disclosure and minimizing risk for investors without imposing undue costs on

regulated entities.

Market Development

o Undertaking market-related research activities to assist the Commission in

creating the necessary atmosphere for the orderly growth and development of

the securities industry.

o Formulating and implementing the market development and investor/Public

education strategies of the Commission.

o Advising the Ministry of Finance on all matters relating to the securities

industry.

Policy Measures and Initiatives of capital markets for increasing Investor Protection :

A number of initiatives have been undertaken by the Government, from time to time, so as to

provide financial and regulatory reforms in the primary and secondary market segments of the

capital market.

These measures broadly aim to sustain the confidence of investors (both domestic and foreign)

in the country’s capital market.

The policy initiatives that have been undertaken in the primary market during 2006-07 include:

SEBI has notified the disclosures and other related requirements for companies desirous

of issuing Indian depository receipts in India. It has been mandated that:

(i) the issuer must be listed in its home country; (ii) it must not have been barred by any

regulatory body; and (iii) it should have a good track record of compliance of securities

market regulations.

As a condition of continuous listing, listed companies have to maintain a minimum level

of public shareholding at 25 per cent of the total shares issued. The exemptions include:

(i) companies which are required to maintain more than 10 per cent, but less than 25 per

cent in accordance with the Securities Contracts (Regulation) Rules, 1957; and (ii)

companies that have two crore or more of listed shares and Rs. 1,000 crore or more of

market capitalisation.

SEBI has specified that shareholding pattern will be indicated by listed companies under

three categories, namely, 'shares held by promoter and promoter group'; 'shares held by

public' and 'shares held by custodians and against which depository receipts have been

issued'.

In accordance with the guidelines issued by SEBI, the issuers are required to state on the

cover page of the offer document whether they have opted for an IPO (Initial Public

Offering) grading from the rating agencies. In case the issuers opt for a grading, they are

required to disclose the grades including the unaccepted grades in the prospectus.

SEBI has facilitated a quick and cost effective method of raising funds, termed as

'Qualified Institutional Placement (QIP)' from the Indian securities market by way of

private placement of securities or convertible bonds with the Qualified Institutional

Buyers.

SEBI has stipulated that the benefit of ‘no lock-in’ on the pre-issue shares of an unlisted

company making an IPO, currently available to the shares held by Venture Capital Funds

(VCFs)/Foreign Venture Capital Investors (FVCIs), shall be limited to:- (i) the shares

held by VCFs or FVCIs registered with SEBI for a period of at least one year as on the

date of filing draft prospectus with SEBI; and (ii) the shares issued to SEBI registered

VCFs/FVCIs upon conversion of convertible instruments during the period of one year

prior to the date of filing draft prospectus with SEBI.

In order to regulate pre-issue publicity by companies which are planning to make an issue

of securities, SEBI has amended the 'Disclosure and Investor Protection Guidelines' to

introduce 'Restrictions on Pre-issue Publicity'. The restrictions, inter alia, require an

issuer company to ensure that its publicity is consistent with its past practices, does not

contain projections/ estimates/ any information extraneous to the offer document filed

with SEBI.

Similarly, the policy initiatives that have been undertaken in the secondary market during 2006-

07 include:

In continuation of the comprehensive risk management system put in place since May

2005 in T+2 rolling settlement scenario for the cash market, the stock exchanges have

been advised to update the applicable Value at Risk (VaR) margin at least 5 times in a

day by taking the closing price of the previous day at the start of trading and the prices at

11:00 a.m., 12:30 p.m., 2:00 p.m. and at the end of the trading session. This has been

done to align the risk management framework across the cash and derivative markets.

In order to strengthen the ‘Know Your Client’ norms and to have sound audit trail of the

transactions in the securities market, 'Permanent Account Number (PAN)' has been made

mandatory with effect from January 1, 2007 for operating a beneficiary owner account

and for trading in the cash segment.

In order to implement the proposal on creation of a unified platform for trading of

corporate bonds, SEBI has stipulated that the BSE Limited would set up and maintain the

corporate bond reporting platform. The reporting shall be made for all trades in listed

debt securities issued by all institutions such as banks, public sector undertakings,

municipal corporations, corporate bodies and companies.

In line with the Government of India’s policy on foreign investments in infrastructure

companies in the Indian securities market, the limits for foreign investment in stock

exchanges, depositories and clearing corporations, have been specified as follows:- (i)

foreign investment up to 49 per cent will be allowed in these companies with a separate

Foreign Direct Investment (FDI) cap of 26 per cent and cap of 23 per cent on Foreign

institutional investment (FII); (ii) FDI will be allowed with specific prior approval of

Foreign Investment Promotion Board (FIPB); (iii) FII will be allowed only through

purchases in the secondary market; and (iv) FII shall not seek and will not get

representation on the board of directors.

The application process of FII investment has been simplified and new categories of

investment (insurance and reinsurance companies, foreign central banks, investment

managers, international organizations) have been included under FII.

Initial issue expenses and dividend distribution procedure for mutual funds have been

rationalised.

Mutual funds have been permitted to introduce Gold Exchange Traded Funds.

In the Government securities market, the RBI has ceased to participate in primary issues

of Central Government securities, in line with the provisions of Fiscal Responsibility and

Budget Management Act (FRBM Act).

Foreign institutional investors have been allowed to invest in security receipts.

CONCLUSION:

Thus, the capital market plays a vital role in fostering economic growth of the country, as

it augments the quantities of real savings; increases the net capital inflow from abroad;

raises the productivity of investments by improving allocation of investible funds; and

reduces the cost of capital in the economy. Thus the capital markets safeguarding, public

confidence in the markets.

These safeguards are usually the investor protection roles and functions of regulatory

bodies of the capital markets.

Thus the Investor protection is intended to enhance investors’ confidence in the capital

markets.

Confidence in any capital market, is perhaps the single most important pre-requisite for

its sustenance and growth.