Capital Markets and Regulations in India

Welcome to the world of capital market and their regulatory landscape in India. If you are a budding businessman, seasoned investor, or simply someone who is looking to know about the financial market’s dynamics, then you are at a right place, where you can explore about the complexities of India’s capital markets, and their regulations can be rewarding and daunting at the same time. The article of Legal Window, will explain you about the fundamentals of Capital Markets Regulations in India along with the essential insights you need to know the crucial aspect of the Indian economy.

Overview on Capital Market

A Capital market means a financial market where equity-backed securities or long-term debt are sold and bought. It gives a platform for governments and companies to increase funds by issuing bonds, stocks, and other financial tools to investors. Capital markets are different from money markets that deal with short term debt tools with maturities generally less than a year. In essence, the capital market offers the capital flow from investors who have raised funds to businesses, which require financing for several reasons like development of infrastructure, expansion of business, or government assignments. On the other side the capital markets instruments are for long-term investments, generally spending several years and even decades. 

Types of Capital Market

The main elements of Indian capital market are:

• Money Market: It is a short-term liquidity.
• Commodity market: This section of the capital market handles with the primary items. There are certain Hard commodities like mined such as gold, rubber, gold, oil, etc. Soft commodities such as agricultural items like cocoa, wheat, coffee, sugar, etc. 
• Insurance market: Insurance transfers the loss risk from one business to another equitably in payment exchange in the insurance market. It is a type of management of risk primarily utilized to hedge against the uncertain losses, contingent risk. 
• Capital market: These are the places where equity and debt tools are sold and bought. It is served as savings conduit and investments between capital givers like corporations, persons, governments, and capital users like institutional and retail investors. 
• Foreign exchange market: It is a world decentralized market where the main participants are the larger international bank. 

Trading can be done on both exchanges such as NSE and BSE:

• Currency derivatives
• Derivatives market- Futures and options
• Capital markets – equity shares
• Debt markets- Debt securities.

Capital Market Regulation and legislation

There are several Capital Markets Regulations in India and legislation, which we will discuss here. First, we need to understand the demand for long-term capital comes centrally from, agriculture, private sector manufacturers, government agencies, and trade. The supply side includes banks, persons, corporate savings, specialized financing agencies, insurance savings, and surplus of governments. Regulating these affairs is significant to make sure about the investor’s confidence and transparency both internationally and domestically.

Generally, India’s capital markets regulations are run and managed by:

• Reserve Bank of India;
• Department of economic affairs, Government of India, Ministry of Finance;
• Securities & Exchange Board of India (SEBI); and
• Ministry of Corporate Affairs.

The significant statutes and regulations of capital market governing the securities market are:

• Securities & Exchange Board of India Act, 1992 (SEBI Act): SEBI is given with statutory powers for:
• Encouraging the enhancement of the securities market;
• Encouraging awareness among investors;
• Encouraging the investors interests in the securities market;
• Training of intermediaries regarding the market safety;
• Legislation the securities market like transfer of securities, issue, futures and options trading, insider trading, etc. to protect interests of investors.

and all cases connected to the parameters above. The aim is to SEBI have been given in the SEBI Act preamble.

• The Companies Act, 2013: All the companies listed on an identified stock exchange shall comply with the provisions given under the said act. Corporate governance includes auditing standards, shareholder’s decision-making procedure, etc. These norms make sure about the transparency for investors in their performances. The statute handles with allotments, issues, security transfers and several other concepts about the company management. The provision having standard disclosures relating the public offering of capital, general projects, and company’s management, detail about other listed companies access by the similar management, and factors of risk perceived by the management.
• The Depositories Act, 1996: The provision gives for the share’s dematerialization, risks eliminating associated with physical certificates. It permits the electronic transfer of shares from one depository member to another without altering ownership rights over them. The primary objective of the Depositories Act is:
• Giving for ownership maintenance records in a book entry form;
• Creating securities freely transferable, subject to certain exceptions; whole securities are transferable in the depository’s mode, restricting the right of companies to use its discretion in effecting the securities transfer; and
• Dematerialization of the securities in the mode of depository.
• Securities Contracts (Regulation) Act, 1956 (SCRA): This regulation virtually manages all terms of securities trading and controlling the stock exchanges. The purpose of the SCRA is to prevent securities of undesirable transactions. Stock exchange has their own listing regulations in conformity with the least listing eligibility established in the Securities Contract (Regulation) Rules, 1957. The Act provides the SEBI regulatory and Central government jurisdiction over:
• Securities contracts;
• Stock exchanges by a procedure of identification and continued supervision, and
• Listing of securities on stock exchanges.
• The Reserve Bank of India Act, 1934 (RBI Act): The said act performs concurrent authority over contracts pertaining to purchase and sale of securities, money market securities, gold-related securities, ready forward contracts in debt securities, and securities derived from the same.

• Prevention of Money Laundering Act, 2002 (PMLA): It is regulatory by parliament to prevent money laundering. The said act is having statutes for property’s confiscation derived from money laundering. Anti-money laundering is an established process, regulations, or laws formed to stop the practice of obtaining income by illegal performances and criminal activities like terrorist funding, trafficking drugs, or involving in procedure, which create the transaction illegal. 

• Banking Regulation Act, 1949: The regulation is for managing over banking infrastructure in India. The said act’s purpose is to safeguard the interests of the depositors by provisions such as withdrawals and deposits, closing/opening of accounts, among other things.

Conclusion

Navigating the Capital Markets Regulations in India needs a blend knowledge, prudent decision making and foresight. By this article, we have explored into the foundational of capital markets, several investment avenues, and dissected the regulatory structure shaped to foster integrity, investor protection and transparency. Furthermore, always prioritize risk management and look professional advice when required. For additional information please contact with the Legal Window team.