The Indian stock market has been the most significant marketplace in the world, and its activity forms a part of the country’s overall economic development. Hence, this activity in the Indian stock market requires a well-defined governance and regulation framework for investor confidence as well as for smooth working of the market.
Some of the self regulatory agencies in regulating Indian financial markets include independent bodies as well as agencies of the Government. This sometimes among others could include a requirement that the markets be open, efficient, and fair to participants, such as investors, traders or firms.
The article below lists a few important **regulatory bodies** and **market governance mechanisms**, which comprises the body of regulators governing the Indian stock market and its participants thereto.
1. Securities and Exchange Board of India (SEBI)
The most crucial self-regulatory institution in India is SEBI, which regulates and enforces the security market. When established in 1988, SEBI received further statutory status in 1992; it has been actively involved in the process of regulating and overseeing all the stock exchanges, brokers, mutual funds, and other intermediaries in the market. Two vital functions that it performs are provision for a fair market without manipulation thus stopping exploitation by the investors.
Main Activities of SEBI:
These are:
Regulation of Stock Exchanges and Market Intermediaries :SEBI regulates the exchanges consisting of the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), while all the trading has to be done as per the rules and regulations of SEBI. Other intermediaries include the stockbroker, merchant banker, and portfolio manager on which SEBI also keeps a watch.
SEBI has protected the investors as a custodian while doing one of the major roles: saving the investors from fraudulent practices, misstatements, and many more. The regulator applies disclosure requirements for the listed companies so that investors receive valid and actual information.
Prevents manipulation of the market: It declares itself to be fair and likes the market to be absolutely free from illegal practices like insider trading, front running, price-rigging, and false or misleading disclosures. It uses systems of surveillance that monitor trades to detect abnormal market activity.
It regulates the investment of the mutual fund working SEBI while exercising proper management based on set norms, thus protecting the interest of various investors accounts wherein their funds are invested.
-SEBI wishes to educate further and even raise public awareness about all other programmes and campaigns which encourage safe investment and informed decision making.
This is due to rules and regulation by SEBI, which offers a very high level of confidence in the Indian market. In addition to that, extreme judgments with giving punishments are offered by SEBI rules to those people who do not practice fair trade practices in any type of activity in the market.
2. RBI Reserve Bank of India
RBI is the Central bank of India. It aims and strives for financial stability in India. Most importantly, monetary policy, regulation of banking, and currency management are significant engagements of RBI. However, its role in market governance, particularly capital markets assumes considerable importance.
The primary roles of RBI in regulating the market:
Supervision of NBFCs Reserve Bank supervises the capital market, which deals with the solvency of NBFCs and makes sure that those are sound and healthy.
The monetary policy is therefore going to have direct effects on capital markets because the factors above are all going to have some kind of effects on the profitability of the corporate sector, sentiments of investors, and market liquidity.
It also takes care of the foreign exchange. It helps in keeping the foreign exchange reserves intact along with the stable Indian rupee. It controls cross border transaction and investments by Foreign Exchange Management Act (FEMA) END.
The collective efforts of SEBI towards wide macroeconomic stability are further complemented by RBI’s supervisory watch which, in theory encourages welfare in the capital markets.
3. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE)
The SEBI is the regulator of the stock-exchange mechanism. Therefore, in practice, it is the two key self-regulatory organizations, namely, the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), which actually regulate the trading operations of stock exchanges directly. While the constitution of such an exchange empowers it to formulate the rules and regulations of the market, this power is not exclusive but susceptible to the general regulatory powers granted by SEBI.
Major Functions of NSE and BSE:
Market Supervision:
the exchanges over-watch all the trades taking place so that they can very sure that the trades are fair, and the members-the brokers and the traders-pay much respect to the guidelines which are prescribed. They have an independent surveillance system that can trace any market anomaly or irregular trading. Listing and Disclosure Requirements: The listing requirements on NSE and BSE allow the companies wishing to list their shares and securities at the exchange. It also ensures that the listed firms conform to conditions on continuous disclosures of reported financial results, practice of governance, and material events. Market Conduct: The exchange itself is having an important role in the giving of smoothness of the market. They provide a trading practice by investigating complaint against a participant of the market found guilty of bad conduct and by imposing penalties. NSE and BSE contribute immensely to the transparency, liquidity, and protection of investors operating within wider guidelines set by SEBI. 4. Insurance Regulatory and Development Authority of India (IRDAI).
Whereas, the body controlling the insurance sector of India is known as the Insurance Regulatory and Development Authority of India (IRDAI). IRDAI was incorporated in the year 1999 ensuring orderly growth of the insurance sector. The IRDAI ensures safeguard of interest of the policyholder. Some of the important functions of IRDAI are given below:
IRDAI issues licenses for and regulates all the insurance companies operating in India. Pluses of adequate base capital, strength of capital to sustain the risk profile, and sound financial health form the prerequisites on which a license is issued.
In this manner, the IRDAI offers all the investors as well as policy holders protection through fair practices integrated with appropriate disclosure from the side of the products and claims. Capital markets also serve the above objective by providing investment products, such as ULIPs-or unit-linked insurance plans and other saving-based insurance products. 5. Pension Fund Regulatory and Development Authority PFRDA Pension Fund Regulatory and Development Authority, PFRDA was created in the year 2003 with the purpose of regulating and developing pension funds in the country. This is really saving for retirement in very structured ways. PFRDA governs the National Pension Scheme (NPS). The NPS is a government-sponsored pension scheme designed to establish a goal for retirement income for workers in the formal sector.
Main Functions of PFRDA:
Pension Fund Regulation: PFRDA regulates pension fund transactions for dealing in pension funds in fair and transparent manners. Investor Protection: PFRDA protects the interest of subscribers as pension funds are made in accordance with guidelines put forth by the authority. The Ministry of Finance: As it is regarded as the apex body of the government, it plays a superordinate role in framing policies concerning the financial markets of India. There is an important point-the Ministry of Finance exercises regulatory supervisions over all the other agencies, including SEBI, RBI, PFRDA; and the Ministry of Finance writes down the laws and formulates the regulations under which it promotes financial stability. Corporate Affairs Ministry : This ministry is responsible for the company law and the corporate governance of the Indian economy. It supervises incorporation, financial disclosure, and accounts of the companies. –
Competition Commission of India (CCI):
The CCI functions to achieve fair competition in markets through regulation against anti-competitive practices such as cartels and monopolies distorting the market. Conclusion: Quest for Investment Confidence: Building Market Regulation Institutionalized regulation is only possible in a financial market and economic growth. In the context, one finds that the actions by different entities such as self-regulatory organizations, independent bodies and government agencies are harmonized for the fairly, transparently and orderly conduct of capital markets. All these efforts by SEBI, RBI, exchanges like NSE and BSE and all the regulatory body would definitely throw a super robust platform where investors may participate in the stock market with comfort. Thus, healthy governance of the market would stimulate foreign investments along with financial inclusion but also for the long term Indian economy. Hence, it has got momentum in the wake of such a dynamic market scenario so as to make the Indian stock market a secure and efficient investment-cum-capital-formation platform.