Stock Exchanges
and Regulations of
Capital Market
Anagha Rajan
9th Semester, BBA LLB (A)
Roll no: 10
Stock Exchange
A stock exchange is an important factor in the capital market. It is a secure place
where trading is done in a systematic way. Here, the securities are bought and sold
as per well-structured rules and regulations. Securities mentioned here includes
debenture and share issued by a public company that is correctly listed at the stock
exchange, debenture and bonds issued by the government bodies, municipal and
public bodies.
Typically bonds are traded Over-the-Counter (OTC), but a few corporate bonds are
sold in a stock exchange. It can enforce rules and regulation on the brokers and
firms that are enrolled with them. In other words, a stock exchange is a forum where
securities like bonds and stocks are purchased and traded. This can be both an
online trading platform and offline (physical location).
Features of Stock Exchange
A market for securities
Second-hand securities
Regulate trade in securities
Dealings only in registered securities
Transaction
Recognition
Measuring device
Operates as per rules
India’s two main stock exchanges are the Bombay Stock Exchange (BSE) and
National Stock Exchange (NSE). These two are among Asia’s largest stock
exchange surpassed only by the stock exchanges of Japan and China
The Bombay Stock Exchange is one of Asia’s oldest stock exchange,
beginning operations on July 9, 1875, as “The Native Share & Stock Brokers
Association”.
The National Stock Exchange is India’s biggest stock exchange in terms of
market capitalization. Its operation beginning in 1992, it was the first
exchange to bring in fully automated trading to India.
CAPITAL MARKET
Capital markets are where savings and investments are
channeled between suppliers and those in need. Suppliers
are people or institutions with capital to lend or invest and
typically include banks and investors. Those who seek capital
in this market are businesses, governments, and individuals.
Capital markets are composed of primary and secondary
markets. The most common capital markets are the stock
market and the bond market. They seek to improve
transactional efficiencies by bringing suppliers together with
those seeking capital and providing a place where they can
exchange securities.
REGULATIONS OF CAPITAL MARKET
The Ministry of Finance (MoF), the Securities & Exchange Board of India (SEBI), and the
Reserve Bank of India (RBI) are the three regulatory authorities governing Indian capital
market regulators.
Ministry of Finance (MoF)
The Department of Economic affairs directly manages the Capital Markets segment under
the directions of MoF. This segment formulates the rules for the efficient growth of the
Stock Market which includes derivatives, debt, and equity. It also formulates regulations
for safeguarding the interest of the investors.
This segment regulates the Indian Capital Market regulators through the following laws:
Depositories Act, 1996
Securities Contract (Regulation) Act, 1956
Securities and Exchange Board of India Act, 1992
Reserve Bank of India (RBI)
The Reserve Bank of India Act, 1934 governs policies framed by the
Reserve Bank of India. The functions of RBI in this regard are as follows:
Implementation of Monetary and Credit policies
Issuance of Currency Notes
Government’s Banker
Banking System Regulator
Foreign Exchange through Foreign Exchange Management Act, 1999
Managing payment & settlement system
Apart from the above functions, RBI is also actively involved in developing
the financial market.
Securities & Exchange Board of India (SEBI)
The Securities & Exchange Board of India (SEBI) Act, 1992 regulates the
functioning of SEBI. SEBI is the apex body governing the Indian stock
exchanges.
The primary functions of SEBI are as follows:
Protective Functions
I. It checks Price rigging
II. Prohibits insider trading
III. prohibits fraudulent and Unfair Trade Practices
Development Functions
I. SEBI promotes the training of intermediaries of the securities
market.
II. SEBI tries to promote activities of stock exchange by adopting a
flexible and adaptable approach
Regulatory Functions
I. SEBI has framed rules and regulations and a code of conduct to
regulate the intermediaries such as merchant bankers, brokers,
underwriters, etc.
II. These intermediaries have been brought under the regulatory
purview and private placement has been made more restrictive.
Development Functions
I. SEBI promotes the training of intermediaries of the
securities market.
II. SEBI tries to promote activities of stock exchange by
adopting a flexible and adaptable approach
Regulatory Functions
I. SEBI has framed rules and regulations and a code of
conduct to regulate the intermediaries such as merchant
bankers, brokers, underwriters, etc.
II. These intermediaries have been brought under the
regulatory purview and private placement has been made
more restrictive.
III. SEBI registers and regulates the working of stockbrokers, sub-
brokers, share transfer agents, trustees, merchant bankers, and all those
who are associated with the stock exchange in any manner
IV. SEBI registers and regulates the working of mutual funds etc.
V. SEBI regulates takeover of the companies
VI. SEBI conducts inquiries and audits of stock exchanges.
The participation in the Indian Stock Market of both the domestic or
foreign financial intermediaries is governed by the regulations framed by
SEBI. Additionally, Foreign Portfolio Investors (FPIs) can participate in the
Indian Stock Market after registering them with an authorized Depository
Participant.
