Regulators of Financial Markets
1. Ministry of Finance
The Ministry of Finance through its Department of Financial Services regulates and overseas the activities of the banking system, insurance and pension sectors. The Department of Economic Affairs regulates the capital markets and its participants. The ministry initiates discussions on reforms and overseas the implementation of law.
2. Ministry of Corporate Affairs
The Ministry of Corporate Affairs regulates the functioning of the corporate sector. The Companies Act, 2013 is the primary regulation which defines the setting up of companies, their functioning and audit and control. The issuance of securities by companies is also subject to provisions of the Companies Act.
3. Registrar of Companies The Registrar of Companies (RoC) is the authority appointed under the Companies Act to register companies and to ensure that they comply with the provisions of the law.
4. The Reserve Bank of India (RBI)
The Reserve Bank of India regulates the money market segment of securities market. As the manager of the governmentís borrowing program, RBI is the issue manager for the government. It controls and regulates the government securities market. RBI is also the regulator of the Indian banking system and ensures that banks follow prudential norms in their operations. RBI also conducts the monetary, forex and credit policies, and its actions in these markets influences the supply of money and credit in the system, which in turn impact the interest rates and borrowing costs of banks, government and other issuers of debt securities.
5. Securities and Exchange Board of India (SEBI) The Securities and Exchange Board of India (SEBI), a statutory body appointed by an Act of Parliament (SEBI Act, 1992), is the chief regulator of securities markets in India. The main objective of SEBI is to facilitate growth and development of the capital markets and to ensure that the interests of investors are protected. SEBI has codified and notified regulations that cover all activities and intermediaries in the securities markets including stock brokers and sub brokers, merchant bankers, registrars to an issue, share transfer agents, underwriters, portfolio managers, depository participants, custodians, investment advisers and others. SEBI also register and regulate the working of institutions such as depositories, credit rating agencies, foreign institutional investors, mutual funds, venture capital funds, self-regulatory organisations and others.
The Securities Contracts Regulation Act, 1956 and the Depositories Act, 1996 is administered by SEBI. SEBI also oversees the functioning of primary markets. Eligibility norms and rules to be followed for a public issue of securities are detailed in the SEBI (Issuance of Capital Disclosures and Requirements) Regulations, 2009.
SEBI has been assigned the powers of recognizing and regulating the functions of stock exchanges. The requirements for granting recognition to a stock exchange include representation of SEBI on the board of the stock exchange and an undertaking to make and amend their rules only with the prior approval of SEBI. Stock exchanges have to furnish periodic reports to the regulator and submit bye-laws for SEBIís approval. Stock exchanges are required to send monitoring reports daily and for every settlement. SEBI has set up surveillance mechanisms, both internal and at stock exchanges, to monitor the activities of stock exchanges, brokers, depository, R&T agents, custodians and clearing agents and identify unfair trade practices.
SEBI has laid down regulations to prohibit insider trading i.e. trading by persons connected with a company having material information that is not publicly available. SEBI Regulations require companies to have a comprehensive code of conduct to prevent insider trading. This includes appointing a compliance officer to enforce regulations, ensuring periodic disclosure of holding by all persons considered as insiders and ensuring data confidentiality and adherence to the requirements of the listing agreement on flow of price sensitive information. If an insider trading charge is proved through SEBIís investigations, the penalties include monetary penalties, criminal prosecution, prohibiting persons from securities markets and declaring transactions as void.
6. Insurance Regulatory and Development Authority (IRDA)
IRDA regulates the insurance sector in India in accordance with the terms of the IRDA Act of 1999. IRDA is the licensing authority for insurance companies and defines the capital and net worth requirements for insurance companies. It ensure the adherence of insurance products to the rules laid down and defines the rules for the terms and conditions of insurance contracts such as sum assured, surrender value, settlement of claims, nomination and assignment, insurable interest and others. It regulates the distribution of insurance products by laying down the qualification and training requirements of intermediaries and the payment of commission to distributors. IRDA supervises the functioning of the Tariff Advisory Committee that determines the rates for general insurance products. It also lays down the modalities for investment of funds by insurance companies.
7. Pension Fund Regulatory and Development Authority (PFRDA) The PFRDA is the authority entrusted to act as a regulator of the pension sector in India under the PFRDA Act, 2013. The PFRDA has been assigned the responsibility of designing the structure of funds and constituents in the National Pension System (NPS). It is responsible for registering the various entities such as the fund managers, custodians, RTA, Central record keeping agency and trustee banks and to define the parameters of their roles and responsibilities.
8. Forward Markets Commission (FMC)
Note : FMC merged with SEBI in 2014
AS Chakravarthy NCFM Hyderabad : Stock Market Training Institute