Investment Laws Contact Programme Class I

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Investment LawsContact Programme- Class I

• Securities Market in India
• ..Prof. S.Krishnaswamy

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Securities Market in India

• What and Why of Securities Market?
• In every economic System, some units which may
  be individual or Institution are
  surplus-generating while others are
  deficit-generating.

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Securities Market in India

• Surplus-Generating Units are called Savers while
  Deficit-generating units are called spenders.
• Households are surplus-generating and Corporates
  and Government are deficit generators.
• By placing the surplus funds in Financial claims
  or Financial securities the Spending community
  gets funds at a cost and saving community gets
  various benefits like interest, dividend, capital
  appreciation, Bonus etc.

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Securities Market in India

• The Surplus generating units (Savers) are
  investors and Deficit generating units (spenders)
  are issuers.
• These investors and issuers of financial
  securities constitute two important elements of
  the securities markets.

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Securities Market in India

• The third critical element of markets is the
  intermediaries who act as conduits between the
  investors and issuers.
• Regulatory bodies, which regulate the functioning
  of the securities markets, constitute the last
  but very significant element of securities
  markets.

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Securities Market in India

• Thus the four important elements of securities
  markets are
• Investors
• Issuers
• Intermediaries
• Regulators

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Securities Market in India

• Securities Can be
• Government or Industrial
• Long-term or short-term
• Primary Market or Secondary Market

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Securities Market in India

• Primary Market is the segment in which new issues
  are made whereas secondary market is the segment
  in which outstanding issues are traded. It is for
  this reason that the Primary Market is called the
  New issues Market and the secondary market is
  called Stock Market.

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Securities Market in India

• History of Indian Stock Market
• From Scattered and small beginning in the 19th
  Century, Indias stock market has risen to great
  heights.
• By 1990, we had 19 stock exchanges in the
  country.
• There were around 6,000 listed companies and the
  investors population stood around 15 Million.

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Securities Market in India

• Role Functions of Stock Exchange
• In Union of India Vs. Allied International
  Products Ltd. (1971) 41 Comp Cas 127 SC
  (1970) 3 SCC 5941), the Supreme Court of India
  has enunciated the role of the Stock Exchanges in
  these words

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Securities Market in India

• Role Functions of Stock Exchange
• A Stock Exchange fulfills a vital function in
  the economic development of a nation its main
  function is to liquify capital by enabling a
  person who has invested money in, say a factory
  or railway, to convert it into cash by disposing
  off his shares in the enterprise to someone else.
• contd

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Securities Market in India

• Role Functions of Stock Exchange
• Investment in Joint stock companies is attractive
  to the public, because the value of the shares is
  announced day after day in the stock exchanges,
  and shares quoted on the exchanges are capable of
  almost immediate conversion into money. In modern
  days a company stands little chance of inducing
  the public to subscribe to its capital,
• ..contd

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Securities Market in India

• Role Functions of Stock Exchange
• unless its shares are quoted in an approved
  stock exchange. All public companies are anxious
  to obtain permission from reputed exchanges for
  securing quotations of their shares and the
  management of a company is anxious to inform the
  investing public that the shares of the company
  will be quoted on the stock exchange.

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Securities Market in India

• The stock exchange is really an essential
  pillar of the private sector corporate economy.
  It discharges three essential functions

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Securities Market in India

• First, the stock exchange provides a market
  place for purchase and sale of securities viz.
  shares, bonds, debentures etc. It, therefore,
  ensures the free transferability of securities
  which is the essential basis for the joint stock
  enterprise system.

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Securities Market in India

• Secondly, the stock exchange provides the
  linkage between the savings in the household
  sector and the investment in the corporate
  economy. It mobilizes savings, channelises them
  as securities into these enterprises which are
  favoured by the investors on the basis of such
  criteria as future growth prospects, good returns
  and appreciation of capital.

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Securities Market in India

• Thirdly, by providing a market quotation of
  the prices of shares and bonds- a sort of
  collective judgment simultaneously reached by
  many buyers and sellers in the market- the stock
  exchange serves the role of a barometer, not only
  of the state of health of individual companies,
  but also of the nations economy as a whole.

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Securities Market in India

• Regulation of Stock Market
• Since the savings of the investing community
  namely, public, needs to be protected from
  various kinds of malpractices, frauds, defaults
  etc., it was obligatory on the part of the
  Governing system to establish Regulatory bodies.

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Securities Market in India

• Regulation of Stock Markets
• UK and USA had long back created separate
  boards for the regulation of the securities
  market. U.K has the Securities and Investment
  Board (SIB) and U.S. has the Securities and
  Exchange Commission (SEC). The Indian
  Governments intention to set up a separate board
  for the regulation and orderly functioning of the
  capital market was first declared in the Budget
  speech by Shri. Rajiv Gandhi, the then Prime
  Minister and Minister of Finance, while
  presenting the Budget for the year 1987-88. He
  stated

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Securities Market in India

• Regulation of Stock Markets
• The Capital Markets in India have shown
  tremendous growth in the last few years.
  Approvals for capital issues have exceeded
  Rs.5,000 crores in 1986-87. They were only about
  Rs.500 Crores in 1980-81. For a healthy growth of
  capital markets, investors must be fully
  protected. Trading malpractices must be
  prevented. Government have decided to set up a
  separate board for the regulation and orderly
  functioning of stock exchange and the securities
  industry.

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Securities Market in India

• Regulation of Stock Markets
• By a notification issued on 12th April1988,
  Securities and Exchange Board of India (SEBI) was
  constituted as an interim administrative body to
  function under the overall administrative control
  of the Ministry of Finance of the Central
  Government.

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Securities Market in India

• Regulation of Stock Markets
• In July 1988, the SEBI, constituted as a
  foresaid, published an approach paper on
  comprehensive legislation for securities market.

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Securities Market in India

• Regulation of Stock Markets
• The SEBI was given a statutory status on 30th
  January,1992 by an ordinance to provide for the
  establishment of SEBI. A Bill to replace the
  Ordinance was introduced in parliament on 3rd
  march, 1992 and was passed y both houses of
  parliament on 1st April1992. The Bill became an
  act on 4th April1992 the date on which it is
  received the Presidents assent. However, as
  provided for in section 1(3), this act is to be
  deemed to have come into force on 30th January,
  1992, i.e. the date on which the SEBI ordinance
  was promulgated.

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Securities Market in India

• FUNCTIONS OF SEBI
• Section 11 of the SEBI Act

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Securities Market in India

• Organisation Structure of SEBI
• -a Chairman( to be appointed by Central
  Govt.)
• - two members from amongst the officials of
  the Ministries of the C.Govt. dealing with
  Finance and Law.
• - One Member from RBI
• - two members to be appointed by Central
  Govt.

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Securities Market in India

• Activities of SEBI
• -Rules regarding registration of intermediaries
• - Guidelines and Code of Conduct for Merchant
  Bankers
• - Categorisation of Merchant Bankers
• - Guidelines for Portfolio Management Services
• - Ciruclars on various issues (Periodical)
• - Guidelines for Leadmanagers

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Securities Market in India

• Activities of SEBI
• -Regulation for Registrars and Share-Transfer
  agents
• -Guidelines for IPOs, Debt. Instruments
• - Regulation on Insider trading
• - Guidelines for Mutual funds
• - Regulation on take overs
• - Code for Corporate Governance

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Securities Market in India

• Activities of SEBI
• -Consultative Paper on free market pricing of
  Capital Issues.
• - Advisory committees for Primary and Secondary
  Market reviews
• -Investor Protection guidelines
• Guidelines on SROs for Merchant Bankers
• Regulation of Futures and Options, Index Market
• - Informal Guidance