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.
As per the Securities Contracts (Regulation) Act, 1956, securities include
- 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.
Securities Market in India has three participants
- issuers of securities
- investors in securities
History of Securities Market in India
Securities Contracts (Regulation) Act, 1956
Companies Act, 1956
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.
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.
- Rolling settlement on a T + 5 basis was introduced
- Trading in index options commencement
- Launch of future contracts on individual stocks
- Rolling settlement on a T + 3 basis was introduced
- Negotiated Dealing System (NDS) and Clearing Corporation of India Limited (CCIL) commenced operations
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
- Stock Exchanges
- Corporate Brokers
- Portfolio Manager
- Share Transfer Agent
- Primary Dealers
- Merchant Bankers
- Bankers to an Issue
- Debenture Trustee
- 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
- Communications Procedures and Standards
- Regulation and Oversight
- Risks in cross-border links
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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.