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Unit 14: Regulation and Securities Markets in India

because the members of stock exchange governing boards have access to valuable information Notes
about market participants. Elimination of such conflict of interest through demutualisation,
which implies separation of ownership of exchange from the right to trade on it, can promote
fairness and reinforce investor protection.
Further, the slow evolution of the Association of Mutual Funds of India (AMFI) as a SRO has
meant continuation of substantial regulatory burden on SEBI. In this regard, the Group suggests
that SEBI assist the AMFI to develop into a full-fledged SRO. Similarly, in money and government
securities markets, Fixed Income Money Market and Derivatives Association of India (FIMMDA)
and Primary Dealers Association of India (PDAI) are operating as industry level associations,
who are gradually taking on the role of SROs. There is as yet no regulatory oversight of the RBI
over these emerging SROs. However, to facilitate these associations to emerge as full-fledged
SROs, the RBI is engaging them in a consultative process, which needs to be further intensified.
On their part, to promote integrity of the markets, FIMMDA and PDAI need to establish a
comprehensive code of conduct and best practices in securities transactions and also have a
mechanism to enforce such codes. The RBI can play a supportive role here.

Caselet Structure and Trends of the Indian Securities Markets

in 2010-2011

he securities market has essentially three categories of participants—the issuer of
the securities, the investors in the securities, and the intermediaries. The issuers are
Tthe borrowers or deficit savers, who issue securities to raise funds. The investors,
who are surplus savers, deploy their savings by subscribing to these securities. The
intermediaries are the agents who match the needs of the users and the suppliers of funds
for a commission. These intermediaries function to help both the issuers and the investors
to achieve their respective goals. There are a large variety and number of intermediaries
providing various services in the Indian securities market (Table 1). This process of
mobilising the resources is carried out under the supervision and overview of the regulators.
The regulators develop fair market practices and regulate the conduct of the issuers of
securities and the intermediaries. They are also in charge of protecting the interests of the
investors. The regulator ensures a high service standard from the intermediaries, as well
as the supply of quality securities and non-manipulated demand for them in the market.
Table 1: Market Participants in the Indian Securities Market

Market Participants FY 2010 FY 2011 As on Sep 30, 2011
Securities Appellate Tribunal (SAT) 1 1 1
Regulators* 4 4 4
Depositories 2 2 2
Stock Exchanges
With Equities Trading 19 19 19
With Debt Market Segment 2 2 2
With Derivative Trading 2 2 2
With Currency Derivatives 4 4 4
Brokers (Cash Segment)** 9,772 10,203 10,248
Corporate Brokers (Cash Segment) 4,197 4,774 4,833
Contd....

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