Securities Market in India – Overview

In this article, I will give an overview of Securities Market in India.

Securities Market in India is very well developed and this is largely due to several policy initiatives since 2000, which have created a vibrant environment for all types of investors. Today, India is second only to the United States in terms of number of listed companies.

The present capital market scenario features

  • an advanced regulatory environment
  • steadily increasing market capitalisation
  • better allocation and mobilisation of resources
  • a rapidly developing derivatives market
  • a robust mutual fund industry
  • increased issuer transparency.

A major step has been the implementation of the decision to separate ownership, management and operation of stock exchanges – also known as demutualisation and corporatisation. This has ensured that SEBI, the market regulator is more effective.

Demutualisation is the process through which any member-owned organisation becomes a shareholder-owned company.

Securities

As per the Securities Contracts (Regulation) Act, 1956, securities include

  • shares
  • bonds
  • scrips
  • stocks
  • other marketable securities of like nature in or of any incorporate company or body corporate
  • government securities
  • derivatives of securities
  • units of collective investment scheme
  • interest and rights in securities
  • security receipt
  • any other instruments so declared by the central government.

As per NISM, securities are financial instruments issued to raise funds. The primary function of the securities markets is to enable to flow of capital from those that have it to those that need it.  Securities market help in transfer of resources from those with idle resources to others who have a productive need for them. Securities markets provide channels for allocation of savings to investments and thereby decouple these two activities. As a result, the savers and investors are not constrained by their individual abilities, but by the economy’s abilities to invest and save respectively, which inevitably enhances savings and investment in the economy.

Participants

Securities Market in India has three participants

  1. issuers of securities
  2. investors in securities
  3. intermediaries

History of Securities Market in India

1947
Capital Issues (Control) Act, 1947

1956
Securities Contracts (Regulation) Act, 1956
Companies Act, 1956

1992
Repeal of Capital Issues (Control) Act, 1992

SEBI Act, 1992 to:
a. protect interest of investors
b. promote development of securities market
c. regulate the securities market

SEBI has powers
a. to investigate and examine companies
b. to visit their premises
c. to inspect records and personnel and
d. to impose penalties that are commensurate with any misconduct.

1993
National Stock Exchange was set-up. Today, the National Stock Exchange of India Limited is the third largest exchange in the world in terms of the number of equity transactions, after the New York Stock Exchange and NASDAQ.

1996
Depositories Act, 1996

2001

  • Rolling settlement on a T + 5 basis was introduced
  • Trading in index options commencement
  • Launch of future contracts on individual stocks

2002

2003
Rolling settlement on a T + 2 basis was introduced
Futures and options on individual securities

Market Participants in Securities Market in India

  • Securities Appellate Tribunal
  • Regulators – SEBI, RBI, DCA, DEA
  • Depositories
  • Stock Exchanges
  • Brokers
  • Corporate Brokers
  • Sub-broker
  • FIIs
  • Portfolio Manager
  • Custodians
  • Share Transfer Agent
  • Primary Dealers
  • Merchant Bankers
  • Bankers to an Issue
  • Debenture Trustee
  • Underwriters
  • Venture Capital Funds
  • Foreign Venture Capital Investors
  • Mutual Funds
  • Collective Investment Schemes

Important Concepts in Securities Market in India

It is important that we be aware of some of the Important Concepts as relates to Securities Market in India. These will be discussed in details in future.

  • Legal Framework
  • Trade Confirmation
  • Settlement Cycle
  • Central Counter-parties
  • Securities Lending
  • Central Securities Depositories
  • Delivery versus Payment (DvP)
  • Timing of Settlement Finality
  • CSD risk controls to address participant’s failures to settle
  • Cash settlement Assets
  • Operational Reliability
  • Protection of Customers’ securities
  • Governance
  • Access
  • Efficiency
  • Communications Procedures and Standards
  • Transparency
  • Regulation and Oversight
  • Risks in cross-border links

You may also like

External Reads

An Overview of the Indian Securities Market

NSE – Securities Market

A Few Last Words

Before making any investment decision, please contact your financial adviser. I have provided this article for educational purpose only.

I hope you found this article on Securities Market in India – Overview. If you have something to add please leave a comment in the post. Please feel free to contact me.

Subhodeep Mukhopadhyay

I am a Management Consultant in the Education Sector. In my previous corporate career, I have worked in Banking, Private Equity and Software industry. I am an MBA in Finance/ Computer Engineer and enjoy doing equity research and financial analysis in my free time.

2 thoughts on “Securities Market in India – Overview

  • December 27, 2015 at 8:32 pm
    Permalink

    SEBI has introduced several mandatory rules for the benefit of individual investors. Consequently, fraudulent activities have lowered as common people have become aware of their rights. Thanks for presenting a comprehensive overview of Securities market in India…

    Reply
    • March 27, 2016 at 3:17 pm
      Permalink

      Hi Maniparna,
      Thank you very much for a very valuable comment you have made. India is among the most sophisticated security markets today.
      And my sincere apology for the late reply. Going forward shall try to respond ASAP.
      Regards, Subhodeep

      Reply

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