SEBI has brought in reforms in the form of improved disclosure standards, introduction of prudential norms, simplified issue procedures, transparency by way of disclosure of all material facts and risk factors etc.
SEBI amended the Listing agreement of the stock exchanges to require listed companies to furnish annual statement to the stock exchanges showing variations between the financial projections and projected utilization of funds in offer documents.
It has introduced code of conduct for advertisements for the public issues. This ensures fair and truthful disclosures by the issuing companies
SEBI has started the process of prosecuting companies for misstatements. It has directed a few companies to refund the application money also.
It has also introduced a system of penalty points for Merchant Bankers for defaults committed by them. This ensures prompt/proper conduct of the Merchant Bankers too.
SEBI permitted private mutual funds to be established and many such mutual funds have been set up.
Capital adequacy requirements for brokers have been introduced
SEBI has advised all stock exchanges to develop surveillance system by advising all stock exchanges to have their own surveillance departments.
SEBI made electronic trading possible in 1994, and Demat accounts were introduced from 1996.
Brokers were brought within the regulatory frame work in 1995, by the concept of dual registration, compulsory audit of books and compulsory filing of the audit report with SEBI.
Insider trading was totally prohibited. It is made a criminal offence punishable under SEBI Act.
SEBI can take penal action directly against any member of the stock exchange for violation of SEBI Act.
SEBI introduced T+2 rolling settlement cycle to push the Indian bourses ahead of most developed markets vis a vis trading and settlement system.
Elimination of leverage trading on the stock market (2001) and introduction of derivative products are some other reforms.
In case of violation of SEBI (Disclosure and Investor Protection) guidelines, 2000 and in the interest of the investors SEBI may,
Direct the persons concerned to refund any money collected under issues to the investors
Direct the persons concerned not to access capital markets for a particular period
Direct the stock exchanges not to list or permit trading
Direct stock exchanges to forfeit the security deposit
Initiate action including suspension or cancellation of certificate of registration of any intermediary who fails to exercise due diligence or who is alleged to have violated SEBI guidelines
The debt market in India can be classified into Government Securities market and Corporate debt market. The Govt. debt market is dominated by the debt issued by the Central Govt. The outstanding issuance of marketable central Govt. debt as on 31 Aug 2003 stood at Rs.7,60,000 crores and that of state Governments stood at Rs. 1,65,000 crores. Reliable information on corporate debt market is not available. However, it is estimated at Rs.2,00,000 crores, which is mostly issued by private placements, which by its nature is unregulated. The corporate debt securities are issued by top rated corporate entities, public financial institutions, banks and by state owned enterprises/entities issuing guaranteed bonds. The primary debt market is dominated by Central Govt. securities. In the secondary market also, volumes traded on Govt. Securities on a typical day would be around Rs.8000-8500 crores, while that in the Corporate debt would range from Rs. 500-600 crores. The common instruments in the debt market are: Corporate Fully Convertible Debentures(FCDs)/Party Convertible Debentures (PCDs)/Non Convertible Debentures (NCDs)/PSU Bonds/Zero Coupon Bonds/Deep Discount Bonds and Gilt Edged Securities etc.
Regulations in Debt Market:
The Public Debt Act 1944 provides the framework under which government securities can be issued and serviced. Under the Act and as also under the RBI Act, 1934, RBI is the sole manager of Govt. Debt. As a debt manager for both Central and State Govts, RBI deals with the issue, servicing and repayment of the Govt. Debt.
SEBI regulates the corporate debt securities, while private placements, which are made under Section 67(3) of the Companies Act, 1956 are largely unregulated. The amendment to the Securities Contract Regulation Act 2000 clearly delineates the division of regulatory responsibility between RBI and SEBI.
Secondary market trading in government securities is mostly over telephone. Banks, Primary Dealers and FIs are allowed to use only BSE,NSE and OTCEI members as brokers for dealing in government securities as per RBI guidelines. Forward trading in government securities is not permitted, however, repos in government securities are allowed as per RBI guidelines as long as repos are between entities having SGL account with RBI and the trades are settled through such accounts . Of course, this includes settlements through the Clearing Corporation of India Ltd (CCIL). Uniform accounting norms were introduced for repo transactions which ensure (i) that the legal character of repo under the current law, viz., as outright purchase and outright sale transactions will be kept intact and (ii) the book value of the securities remain unchanged post repo. RBI guidelines require banks to actually hold the securities in their accounts before they can sell the securities. Hence same day sale of purchased securities is not allowed except those allotted in the primary auction. Where SGL facility is available, settlement has to be only through SGL account and no brokers are allowed to be used in the settlement.
Regulation of Investments by Banks:
RBI regulations for investments by banks is furnished below:
1. Investment Policy: Banks are expected to frame and implement a suitable investment policy to ensure that their operations in securities are conducted in accordance with sound and acceptable business practices. While framing the investment policy, the banks should bear the following aspects in mind:
i) It should not hold oversold position in any security
ii) All transactions put through by a bank should be settled on the same day or on the next day unless the transaction is through a NSE broker in which case the settlement is T+2. All transactions on the bank’s own account should be settled through SGL.
iii) Return of SGL form for want of sufficient balance in the account must be avoided. Three times SGL bouncing in a quarter makes them liable for stoppage of SGL facility.