Role of SEBI in Capital Market: Developments and Challenges

CAPITAL MARKET

The capital market is a market for longterm funds both equity and debt-and funds raised within and outside of the country. The primary market refers to the longterm flow of funds from the surplus sector to the government and corporate sector (through primary issues) and to banks and non-banks financial intermediaries (through secondary issues). A primary issue of the corporate sector leads to capital information (creation of net fixed assets and incremental change in inventories).

The secondary market is a market for outstanding securities. Unlike primary issues in the primary market which result in capital information, the secondary market facilitates only liquidity and marketability of outstanding debt and equity instruments.

ROLE OF SEBI IN THE CAPITAL MARKET

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 UPIL™S 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 Merger, 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 can not exceed 25% of brokers 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. 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. If you are investor, you can get education through SEBI leaders by getting update information on this page.