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Indian Financial System

Notes Thus, it is evident from the above discussions that in its endeavour to achieve its objectives, the
SEBI took several incredible measures with commendable zeal and dexterity leading to the
creation of enabling regulatory structure for the securities market and its development. It has
taken significant reformatory measures to modernize the stock exchanges and improve their
operational efficiency. Through introduction of disclosure norms, and automated working
procedures, creation of depository system, installation of hassle free settlement system,
strengthening of the surveillance system in stock exchanges, installation of grievance redressal
system and prescribing prudent code of governance in listed companies, the SEBI tried to foster
interests of the investors and inspire their confidence in the working of the stock exchanges. To
cope with the rapid changes in the sphere of global financial markets, the SEBI took a host of
initiatives for the faster integration of the Indian securities market with the rest of the world.
However, a peep into its working may lead one to conclude that the SEBI is overstepping its
role. The manner in which guidelines and notifications are being issued by the SEBI from time
to time, one may notice that the SEBI has become a body now to exercise control over capital
issues and also in pricing which was not expected of it. A plethora of rules prescribed by the SEBI
and revising them from time-to-time has not only complicated the operations of the market but
also increased uncertainty and confusion. Ineffectiveness of the SEBI in monitoring the operations
of stock exchanges and brokers and taking deterrent action against the wrongdoers is evidenced
by the occurrence of several major scams. The regulatory ineffectiveness of the SEBI in certain
cases has been due to its concentration on symptoms rather than the root causes. The existing
settlement or delivery system leaves ample scope for manipulative operations and unhealthy
speculation. Finally, the system of handling complaints of investors has not been friendly
particularly to smaller shareholders. Periodic surveys conducted by experts from time to time
confirm that the investors have suffered because of weak investor protection system.
Role ambiguity among market intermediaries is posing regulatory hurdles to smooth functioning
of the securities market. Worse, regulatory action taken by the SEBI against market intermediaries
for allegedly not playing the gate keeper's role despite the regulatory framework not providing
for such a role, has led to regulatory fear among intermediaries, which in turn, leads to an acute
state of indecisiveness in their administration. The SEBI would do well to review the specific
issue of the role of gatekeepers and ensure that designated horses along run designated courses.
Thus, the SEBI still needs to take initiatives to render the market friendly to small investors and
improve further customers' grievances procedures. It is also important to note that the SEBI has
been acting at the behest of Ministry of Finance and not as an independent body. The government
has overwhelming powers over the management of the SEBI and its working. This needs to be
corrected to make the SEBI more efficacious and effective in its operations.
Self Assessment

Fill in the blanks:
1. In India ……………….. and …………………..are the main regulators of financial institutions.
2. Regulation of ……………………….is very important for a structured growth of a country.
3. The SEBI is empowered to regulate the business of ………………………..so as to prohibit
fraudulent and unfair trade practices in securities market.
4. Companies making their first public issue are eligible to do only if they have
………………years of dividend paying track record preceding an issue.
5. Periodic surveys conducted by experts from time to time confirm that the investors have
suffered because of ………………investor protection system.

6. ………………………among market intermediaries is posing regulatory hurdles to smooth
functioning of the securities market.

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