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Unit 2: Securities Market: An Overview

2.3.3 Reforms Since 1990s Notes

Corporate Securities Market
With the objectives of improving market efficiency, enhancing transparency, preventing unfair
trade practices and bringing the Indian market up to international standards, a package of
reforms consisting of measures to liberalise, regulate and develop the securities market was
introduced. The practice of allocation of resources among different competing entities as well as
its terms by a central authority was discontinued. The issuers complying with the eligibility
criteria were allowed freedom to issue the securities at market determined rates. The secondary
market overcame the geographical barriers by moving to screen based trading. Trades enjoyed
counter-party guarantee. The trading cycle shortened to a day and trades are settled within two
working days, while all deferral products were banned. Physical security certificates almost
disappeared. A variety of derivative products were permitted. The following paragraphs discuss
the principal reform measures undertaken since 1992.
SEBI Act, 1992: It created a regulator (SEBI), empowered it adequately and assigned it with the
responsibility for (a) protecting the interests of investors in securities, (b) promoting the
development of the securities market, and (c) regulating the securities market. Its regulatory
jurisdiction extends over corporates in the issuance of capital and transfer of securities, in addition
to all intermediaries and persons associated with securities market. All market intermediaries
are registered and regulated by SEBI. They are also required to appoint a compliance officer who
is responsible for monitoring compliance with securities laws and for redressal of investor
grievances. The courts have upheld the powers of SEBI to impose monetary penalties and to levy
fees from market intermediaries.
Enactment of SEBI Act is the first attempt towards integrated regulation of the securities market.
SEBI was given full authority and jurisdiction over the securities market under the Act, and was
given concurrent/delegated powers for various provisions under the Companies Act and the
SC(R)A. Many provisions in the Companies Act having a bearing on securities market are
administered by SEBI. The Depositories Act, 1996 is also administered by SEBI.
SEBI Issue of Capital and Disclosure Requirements (ICDR) Regulations 2009: The SEBI (Issue of
Capital and Disclosure Requirements) Regulation, 2009 are applicable for public issue; rights
issue, preferential issue; an issue of bonus shares by a listed issuer; qualified institutions placement
by a listed issuer and issue of Indian Depository Receipts.

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Caution The issuer should appoint one or more merchant bankers, at least one of whom
should be a lead merchant banker.
The issuer should also appoint other intermediaries, in consultation with the lead merchant
banker, to carry out the obligations relating to the issue. The issuer should in consultation with
the lead merchant banker, appoint only those intermediaries which are registered with SEBI.
Where the issue is managed by more than one merchant banker; the rights, obligations and
responsibilities, relating inter alia to disclosures, allotment, refund and underwriting obligations,
if any, of each merchant banker should be predetermined and disclosed in the offer document.
The issuer determines the price of the equity shares and convertible securities in consultation
with the lead merchant banker or through the book building process. In case of debt instruments,
the issuer determines the coupon rate and conversion price of the convertible debt instruments
in consultation with the lead merchant banker or through the book building process.

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