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Unit 14: Regulation and Securities Markets in India

of SEBI and RBI. Although the SEBI and the RBI are operationally independent, the government Notes
can issue directions to both in policy matters.

14.2.1 Components of Security Market
The major components of the securities market are listed below:

Securities - Shares, Bonds, Debentures, Futures, Options, Mutual Fund Units
Intermediaries - Brokers, Sub brokers, Custodians, Share transfer agents, Merchant Bankers

Issuers of securities - Companies, Bodies corporate, Government, Financial Institutions,
Mutual funds, Banks
Investors - Individuals, Companies, Mutual funds, Financial Institutions, Foreign
Institutional Investors

Market Regulators - SEBI, RBI (to some extent), Department of Company Affairs Enforcement
of Securities Regulation
The SEBI has powers to carry out routine inspections of market intermediaries to ensure
compliance with prescribed standards. It also has investigation powers similar to that of a civil
court in terms of summoning persons and obtaining information relevant to its enquiry. Action
is taken on the basis of investigation. The enforcement powers of SEBI include issuance of
directions, imposition of monetary penalties, cancellation of registration and even prosecution
of market intermediaries. To ensure effective and credible use of enforcement powers, the SEBI
has adopted measures such as development of a stock watch system, uniform price bands and
establishment of a Market Surveillance Division.
While SEBI has powers of direct surveillance of the stock exchanges, members of stock exchanges
and other market intermediaries registered with it, SEBI has no powers over listed companies.
Further, the present penalty levels in many cases are not high enough to effectively deter
market players from regulatory violations. In particular, the amount of monetary penalty for
non-compliance with respect to disclosure, information requirements, insider trading and market
manipulation is very inadequate.

Example: A maximum monetary penalty of only ` 1,000 can be imposed in case of failure
to comply with the provisions of listing agreement. Similarly, under the SEBI Act the penalty for
insider trading and non-disclosure of acquisition of shares and takeovers is only ` 5 lakh. The
Group believes that there is a need to allow SEBI enhanced authority and powers to impose
penalty commensurate with the gravity of the violation (i.e., disgorgement powers).
An additional problem relates to delays in taking action against those who commit frauds. A
number of companies, which had collected funds in the past through public issues, cannot even
be traced. To take action against such companies and bring their Directors to book, a number of
initiatives have been taken including the establishment of Central Coordination and Monitoring
Committee (CCMC), with Secretary, DCA and Chairman, SEBI as its co-chairmen. However,
only limited success has been achieved. Clearly, the enforcement procedures are cumbersome,
time-consuming and involve too many agencies. There is a need to streamline the procedures to
quickly detect frauds and take appropriate remedial measures.

In addition to the problem stated above, the slow response in case of frauds results from long
delays arising from the obligation to follow due process.

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Caution As a regulatory body has to be accountable for its action, by implication, it gives
the alleged institution an opportunity to show why action should not be taken.

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