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In this article we will discuss about the roles and achievements of SEBI.
1. Primary Market Reforms:
SEBI has successfully taken up primary market reforms in order to remove the inadequacies and deficiencies in the issue procedures of new shares and debentures. There is now transparency in fixing price and premium of a share. Issuing companies are required to disclose all material facts and risk factors in the prospectus.
2. Secondary Market Reforms:
To bring efficiency in the working of the secondary market, SEBI has laid down specific rules and regulations for intermediaries in the secondary market. Such intermediaries are merchant bankers, portfolio managers, underwriters, registrars, brokers and sub-brokers, and share transfer agents.
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They are required to adhere to specific capital adequacy norms, meet certain eligibility criteria and follow a code of conduct towards investors. They are penalized by SEBI in case of default.
3. Help in Institutional and Market Development:
SEBI has helped in the process of institutional and market development in the secondary market. It approves ‘market makers’ on the recommendations of stock exchanges. By dealing in scrips, market makers impart liquidity in them and reduce volatile movements in share prices.
SEBI has encouraged the participation of foreign institutional investors (FIIs) in the Indian capital market. It has simplified the procedure for their registration and operation in the stock exchanges. FIIs have been permitted to repatriate capital, capital gains, dividends and interest on shares and debentures.
SEBI issues guidelines to various stock exchanges including the National Stock Exchange of India (NSEI) for their efficient operation in order to improve their working and make them safe and friendly for investors.
4. Regulating Working of Institutions:
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SEBI regulates the working of such institutions as mutual funds, money market mutual funds, merchant bankers, portfolio managers, etc. By regulating their working, SEBI has tried to improve the working of primary and secondary capital markets in India,
5. Modernisation of Stock Exchanges:
SEBI has modernized the entire operations of stock exchanges in India. All stock exchanges are computerised. The stock market trading is 100% computerised and is on-line. In many developed countries of the world, including America and Japan, the trading is not fully computerised and a large part of their trade is still on-the-floor. This is a big achievement of SEBI. The introduction of electronic trading in all the 23 stock exchanges has reduced transaction costs.
6. Dematerialisation of Shares:
The Government introduced the depository system in 1996 by establishing the National Securities Depository Ltd. (NSDL) and a number of depository participants. The aim was to start “paperless” transactions in stock exchanges. But its progress had been slow.
So SEBI introduced an element of compulsion by making dematerialisation of shares compulsory for trading. This has been done in phases for shares being traded daily on a large scale. At present more than 50% of the trade in stock exchanges is in the demat form. Dematerialisation of shares has encouraged trading especially by FIIs because it removes the fear of fake or forged shares and bad deliveries. It has also eliminated transfer problems.
7. Internet Trading:
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SEBI has allowed internet trading under Order Routing System (ORS) through registered stock brokers on behalf of clients. It has thus facilitated investors to buy and sell shares through the internet on their computers. It is a major advancement in trading shares at stock exchanges in India.
8. Derivatives Trading:
With the introduction of derivatives trading in securities, the secondary market has been modernised. There is the cash market, the forward market and the badla system.
9. Solving Investors’ Complaints:
SEBI has set up a separate cell where complaints received from the investors are attended to. According to SEBI, more than 2 lakh investors complain against companies every year regarding transfers, non-receipt of share certificates, dividend, interest on debentures, etc. It is able to solve about 90% of them. SEBI hopes to remove such complaints with more shares coming under the demat form.
10. Safety Measures:
SEBI has adopted a number of measures to safeguard the interests of investors. Companies have been directed to call for the bank account number of a share/debenture holder and mention it on the dividend/ interest certificate or deposit it direct in his bank account.
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It has guided stock exchanges in setting up Investor Protection Fund and Trade Guarantee Fund to safeguard the interests of investors. Further, it has set up the Clearing Corporation for Trade Settlements. Further, it has made it obligatory for the broker to make the payment within 21 days even if there is a bad delivery. Thus an investor cannot lose his money.
11. Circuit-Breaker System:
SEBI has introduced a circuit-breaker system based on the market volatility of individual stocks. According to this system, if market volatility in a stock crosses a certain limit, the trading in this stock is stopped for a few days so that speculators may not take undue advantage.
This is a better system than the American circuit- breaker system which is related to the index of stocks. The New York Stock Exchange is closed even for half- an-hour or more whenever the market volatility crosses the index limit. Thus SEBI has developed a better circuit-breaker system whereby there is no need to close the stock exchange.
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