: Explain the role of capital market in the economic development of a nation?

Ans: SIGNIFICANCE OF CAPITAL MARKETS IN INDIA *INTRODUCTION: ~ Capital market is the market for leading and borrowing of medium and long term funds. ~ The demand for long-term funds comes from industry, trade, agriculture and government (central and state). ~ The supply for funds comes from individual savers, corporate savings, banks, insurance companies, specialized financial institutions and government. ~ Capital market has three different categories:i) Government securities market: ^ It is also called Gilt-edged market. ^ It deals in interest bearing and dated government securities. ^ This market is regulated by the RBI. ii) Corporate Debt Market This market deals in : ^ Binds floated by public sector units, nationalised banks and financial institutions. ^ Debentures floated by corporates. iii) The Equity Market: ^ Corporates raise preference / equity share capital in this market. ^ These shares can be sold / purchased and thus provide liquidity

to markets. *SIGNIFICANCE: ~ A sound and efficient capital market is extremely vital for the economic development of a nation. ~ So, the significance of capital market has increased. ~ The following points clearly bring out the role and significance of capital market in India. i)CAPITAL FORMATION: ~ Capital market encourages capital formation as it ensures speedy economic development. The process of capital formation includes collection of saving effective mobilisation of these savings for productive investment. ~ Thus three distinctive inter-related activities i.e. collection of savings, mobilisation of savings and investment lead to capital formation in the country. ~ The volume of capital formation depend s on the efficiency and intensity with which these activities are carried on. ii) ECONOMIC GROWTH: ~ Capital market plays a vital role in the growth and development of an economy by channelising funds in developmental and productive investments. ~ The financial intermediaries channel funds into those investments that are more important for economic development. iii) INDUSTRIAL DEVELOPMENT: ~ Capital market promotes industrial development and motivates industrial entrepreneurship.

~ It provides cheap, adequate and diversified funds for industrial purposes such as expansion, modernisation, technological upgradation, establishment of new units, etc. ~ It also provides services like provision of underwriting facilities, participation in equity capital, credit-rating, consultancy services, etc. vi) MODERNISATION AND REHABILITATION OF INDUSTRIES: ~ Capital markets also contribute towards modernisation and rehabilitation of industries. ~ Developmental financial institutions like IDBI, IFCI, ICICI, etc provide finance to industries to adopt modern techniques and new upgraded machinery. ~ They also participate in the equity capital of industries. v) RIVIVAL OF SICK UNITS: ~ Commercial and financial institutions provide adequate funds to viable sick unit to overcome their industrial sickness. ~ Bank and FIs may also write off a part of the loan or re-schedule the loan to offer payment flexibility to weak units. vi) TECHNICAL ASSISTANCE: ~ The financial intermediaries in the capital market stimulate industrial entrepreneurship by providing technical and advisory services like preparation of feasibility reports, identifying growth potential, and training entrepreneurs in project management. ~ This promotes industrial investment and leads to economic development. vii) DEVELOPMENT OF BACKWARD AREAS: ~ Capital markets provide funds for projects in backward area

and facilitate their economic development. ~ Long-term funds are also provided for development projects in backward / rural areas. viii) EMPLOYMENT GENERATION: ~ Capital markets provide Direct Employment in capital market related activities like stock markets, banks and financial institutions. ~ Indirect Employment is provided in all the sectors of the economy through various funds disbursed for developmental projects. ix) FOREIGN CAPITAL: ~ Capital markets make it possible to generate foreign capital by enabling Indian firms to raise capital from overseas market through bonds and other securities. ~ Such foreign exchange funds have a great impact on the economic development of the nation. ~ Moreover, foreign direct investments (FDIs) also bring in foreign capital as well as foreign technology that leads to greater economic development. x) DEVELOPMENT OF STOCK MARKETS: ~ Capital markets lead to development of stock markets by encouraging investors to invest in shares and debentures and to trade in stocks. ~ FIIs are also allowed to deal in Indian stock exchange. xi) FINANCIAL INSTITUTIONS: ~ Financial institutions play a major role in capital markets.

~ They provide medium / long term loan to industrial and other sectors and also undertake project feasibility studies and surveys. ~ They refinance commercial banks and rediscount their bills of exchange. ~ They provide merchant banking services. ~ They subscribe to equity capital of the firms. xii) INVESTMENT OPPORTUNITY: ~ Capital markets provide various alternative sources of investment to the people. ~ People can invest in shares and debentures of public companies and earn good returns. xiii) INVESTMENT IN INDUSTRIAL SECURITIES: ~ Secondary market in securities encourage investors to invest in industrial securities by providing facilities for continuous, regular and ready buying and selling of these securities. ~ This facilitates industries to raise substantial funds from various sectors of the economy. xiv) RELIABLE GUIDE TO PERFORMANCE: ~ Capital market serves as a reliable guide to the performance of corporate institutions. ~ It values companies accurately and thus promotes efficiency. ~ This leads to efficient resource allocation and economic development. *CONCLUSION: ~ Thus we can say that capital markets play a crucial role in the

economic development of a nation. ~ A sound and efficient capital market is one of the most instrumental factors in the development of a nation. Q2: Explain the structure of Capital Market in India? Ans: STRUCTURE OF CAPITAL MARKET IN INDIA. *INTRODUCTION: ~ Capital market is the market for lending and borrowing of medium term and long term funds. ~ A sound and efficient capital market can bring about speedy economic development of a nation. *STRUCTURE: ~ Indian Capital Market is broadly composed of: i) Gild Edged Market / Government Securities Market. ii) Corporate / industrial Securities market. iii) Long Term Loans market / Developmental Financial Institutions. iv) Financial Intermediaries. i)GILD-EDGED MARKET: ~ This market deals in government and semi government securities and so it is also called Government securities market'. ~ This market deals with securities such as bonds issued by Central / State Government and these securities carry fixed interest rates. ~ The investors in government securities are mainly financial institutions like commercial banks, IFCI, LIC, GIC, SFC, SIDC,

Provident funds, RBI and individuals. These institutions are often compelled by the law to invest a certain % of their funds in government securities. ~ RBI plays a very important role in this market. ii) CORPORATE / INDUSTRIAL SECURITIES MARKET; ~ The Corporate Security Market provides long term funds to the companies. ~ It deals with shares and debentures of old and new companies. ~ This market is further divided into: ^ Primary market (new issues market) ^ Secondary Market (old issues market). # PRIMARY MARKET: ^ It is a market for new issues. It deals with those securities that are issued to the public for the first time. So, it is also called New Issues Market. ^ It deals with the raising of fresh capital in the form of equity shares, preference shares, debentures, bonus, right issues, deposits, etc. ^ It includes all institutions dealing in the issue of fresh claims. ^ Resources in equity market can be raised / mobilised through: Equity Issues (domestic and external) Debt issues (domestic and external) ^ Domestic equity issues include equity shares, preference shares, right issues and units of mutual funds in the country. ^ External equity issues include equity shares through the issue

of Global Depository Receipts (GDR) and American Depository Receipts (ADR). ^ Domestic debt issues include fixed deposits, bonds, debentures (convertible and non-convertible) ^ External debt issues are funds mobilised in the form of debt from overseas. # SECONDARY MARKET: ^ The secondary market deals with securities that are already issued by companies. ^ It facilitates trading in securities and operates through stock exchanges. ^ The secondary market helps to provide liquidity and marketability to the outstanding equity and debt instruments. ^ It provides immediate valuation of securities and thus induces company to perform efficiently. ^ The secondary market has three types of stock exchanges that provide liquidity to the investor through trading transactions (buying and selling of securities) with the help of brokers and other financial intermediaries. The 3 types of stock exchanges are: Regional Stock Exchange. : National Stock Exchange. : Over the Counter Exchange of India. ^ Out of the 23 recognised stock exchanges in India, The National Stock Exchange (NSE) and The Bombay Stock Exchange (BSE) are the two premier stock exchanges. ^ They operate under the rules and regulations of the Government and SEBI.

^ Thus, the secondary market in India deals in scrips of a large number of listed companies and provides a world class trading due to wide range of product availability with a fast growing derivatives market. iii) LONG TERM LOANS MARKET / DEVELOPMENT FINANCIAL INSTITUTIONS: ~ Developmental financial institutions were established to provide medium term / long term loans to the industrial sector. ~ These institutions include Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (ICICI), Industrial Development Bank of India (IDBI), Industrial Investment Bank of India (IIBI), The Export and Import Bank of India (EXIM BANK), State Finance Corporations (SFCs), state Industrial Corporations (SIDCs), etc. ~ The long term loans obtained from these institutions can be used for expansion and modernisation ~ These institutions also subscribe to shares and debentures of new /old companies and underwrite new issues. ~ These institutions raise funds by way of term deposits, Certificates of deposits and borrowings. ~ Long term loans can be classified into: Term Loans Market : Mortgages Market : Financial Guarantees Market. *Term loans market: Developmental financial institutions provide term loans for a period of 1 year. ^ Thus, they encourage new entrepreneurs, help in identifying investment opportunities and support modernisation efforts. *Mortgages market: financial institutions provide loans against

security of immovable assets such as land and building. ^ The transfer of interest in an immovable property to the lender is called mortgage'. *Financial guarantee market: Financial Institutions provide financial guarantee on behalf of their clients. ^ Incase the client does not perform the contract appropriately; a penalty is imposed on the client. If the client fails to pay the imposed penalty the financial institution issuing the guarantee is held liable. iv) FINANCIAL INTERMEDIARIES: ~ They comprise of merchant banks, mutual funds, leasing companies, venture capital companies, etc. ~ Merchant banks manage and underwrite new issues, and advise corporate on various financial aspects. ~ Leasing companies provide funds for purchasing plant and machinery. ~ Mutual funds mobilise savings of the people and invest them in stock markets. ~ Venture capital companies provide financial support to new ideas and technology. *CONCLUSION: ~ Thus the capital market structure in India is complex and covers wide range of activities. ~ Through provision of long term loans, the capital market brings about effective functioning of various sectors of the economy. This is very instrumental for the economic development of a nation.

Q3) Which factors are responsible for the growth of capital markets in India? Ans: FACTORS RESPOSIBLE FOR THE GROWTH OF CAPITAL MARKRTS IN INDIA. *INTRODUCTION: ~ Capital markets deal in lending and borrowing of long term and medium term funds. ~ So, capital markets play a significant role in the economic development of a nation. ~ Capital markets in India have grown considerably over the years and this has been very crucial for the nation's economic development. ~ Various factors are responsible for the growth of capital markets in India. *FACTORS RESPONSIBLE L,DNKLFOR THE GROWTH OF CAPITAL MARKETS IN INDIA: i)GROWTH OF STOCK EXCHANGES IN INDIA: ~ Capital Markets originated with the setting up of Bombay Stock Exchange, followed by the formation of stock exchanges in Ahmedabad, Calcutta and Madras. ~ At present, there about 24 stock exchanges in India recognized by the Government, The National Stock Exchange (NSE) being the largest in the country, followed by the Bombay Stock Exchange (BSE). ~ The stock exchanges lead to growth of capital markets as they make it possible to: List the shares of public companies trade in share. ii) GROWTH OF FINANCIAL INSTITUTIONS:

~ Growth of developmental financial institutions in India has given a boost to capital markets. ~ Developmental financial institutions raise funds by way of bonds and securities and then lend such funds to corporate firms. ~ They also subscribe to the issue of shares and debentures in the primary markets and trade in secondary markets. ~ These institutions include Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (ICICI), Industrial Development Bank of India (IDBI), Industrial Investment Bank of India (IIBI), The Export and Import Bank of India (EXIM BANK), State Finance Corporations (SFCs), state Industrial Corporations (SIDCs), etc. iii) GROWTH OF MUTUAL FUNDS: ~ The investment by mutual funds has also enhanced the capital markets in India. ~ The first mutual fund to be set up in India was the Unit Trust of India (UTI) in 1964. ~ Mutual funds collect funds from the people and invest them in primary / secondary markets. iv) GROWTH OF MERCHANT BANKING IN INDIA:~ Merchant Banking plays an important role in the capital market. ~ It provides a number of services like capital issue market, provision of consultancy services, corporate restructuring etc. ~ Merchant Bank services were first initiated in India by the Grindlays Bank (1967) followed by the Citibank (1970). v) DEVELOPMENT OF CREDIT RATING AGENCIES: ~ The development of Credit rating agency in India was CRISIL.

~ Other credit rating agencies are CARE, ICRA, etc. ~ Investment in companies depend on the credit rating of the company. vi) DEVELOPMENT OF VENTURE CAPITAL FUNDS: ~ Venture Capital is the investment made in a highly risky project with a view to earn a high rate of return. ~ Venture Capital proved profitable for those firms who find in difficult to raise funds from primary market or obtain medium / long term loans from banks or financial institution. vii) SETTING UP OF SEBI: ~ SEBI (The Securities and Exchange Board of India) was set up by the Government of India to regulate the activities connected with the marketing of securities and investments in the capital market. ~ The main objective of the SEBI is to protect the interest of the investors in the primary and secondary capital markets. ~ this has helped the growth of capital market in India. viii) THE NATIONAL SECURITIES CLEARING CORPORATION LTD (NSCL): ~ The NSCL was setup to guarantee all trades on the NSE (National Stock Exchange). ~ NSCL interposes between parties to the trade to ensure that every trade on the NSE is freed from the risk of counterparty defaulting. ~ This helps to avoid the risk of payment crisis on the NSE. ix) GENERAL AWARENESS:

~ There is a general awareness about the capital market among the people. ~ Massive publicity campaigns and public issue of shares and debentures has created this awareness among the people. ~ Thus, more and more people are investing money in the primary and secondary capital markets and also in the bonds issued by FIs and other organizations. x) CORPORATE GOVERNANCE: ~ Corporate Governance has been very conducive to the growth of capital market in India. ~ It ensures proper governance on the part of Board of Directors and good management by the companies to protect the interest of its stakeholders. ~ The code of corporate governance has been divided into mandatory and non-mandatory requirement on the part of the companies listed on the stock exchange. xi) GROWTH OF MULTI-NATIONAL COMPANIES (MNCs): ~ Post liberalization a lot of MNCs have evolved in India. ~ MNCs need long-term / medium term funds for setting up new projects or for expansion and modernisation. ~ They collect these funds through capital markets by issue of shares and debentures or through loans from banks and financial institutions. xii) PUBLIC CONFIDENCE: ~ A good number of the members of the public have started developing confidence and trust in the capital market. ~ They purchase bonds issued by financial institutions and also

invest in primary and secondary capital markets. xiii) GROWTH OF ENTREPRENEURS: ~ The growth of entrepreneurs has resulted in more demand for short-term and long-term funds. ~ Financial institutions, banks and stock markets enable entrepreneurs to raise the funds required by them. ~ This has also led to the growth of capital markets in India. Q4: Write a note on Capital Market Reforms? Ans: CAPITAL MARKET REFORMS: *INTRODUCTION: ~ Capital market is the market for borrowing and lending of medium term / long term loans. ~ A sound an efficient capital market act as a catalyst in the process of economic development of a nation. ~ So, the Government of India and the SEBI introduced various reforms in the capital market to strengthen it and make it more effective. *REFORMS: ~ The reforms in the capital market can be explained with respect to: Primary market reforms. : Secondary market reforms # PRIMARY MARKET REFORMS: ~ The following reforms were taken to develop and strengthen primary capital market in India:i) ABOLITION OF CONTROLLER OF CAPITAL ISSUE:

~ The Capital Issues (Control) Act, 1947 governed capital issue in India. ~ The Narshimam Committee recommended the abolition of the Controller of Capital issues and induced SEBI to take over the regulatory and administrative functions of the CCI. ~ Thus, companies are allowed to approach the capital market without prior consent of the Government, provided all documents are cleared by SEBI. ii) SETTING UP OF SEBI: ~ Securities And Exchange Board Of India (SEBI) became a statutory body and was given wide regulatory powers. ~ SEBI has become an important part of the financial regulatory system in the country. iii) DISCLOSURE STANDARDS: ~ It is mandatory for companies to disclose all material facts and specific risk factors associated with their projects. ~ SEBI has also introduced a code of advertisement for public issues for ensuring fair and truthful disclosures. iv) FREEDOM TO DETERMINE THE PAR VALUE OF SHARES: ~ SEBI has permitted companies to determine the par value of shares issued by them. ~ Thus, companies can issue IPOs through "book building" process. v) UNDERWRITING MADE OPTIONAL: ~ In India, underwriting of shares is made optional to reduce the cost of public issue.

~ However, if the issue is not underwritten and the issuer fails to collect 90% of the amount offered to the public, the entire amount collected should be refunded to investors. vi) ENTRY OF FOREIGN INSTITUTIONAL INVESTORS: (FIIs) ~ SEBI has permitted the foreign institutional investors to invest in the Indian Capital Markets. ~ FIIs such as mutual funds and pension funds can invest in equity shares and debt market as well as in dated Government Securities and treasury bills. vii) ACCESS TO GLOBAL MARKET FUNDS: ~ With the introduction of the Foreign Exchange Management Act 1999, Indian companies can raise funds from global finance markets and benefit from the lower cost of funds. ~ Indian companies can issue American Depository Receipts (ADRs), Global Depository Receipts (GDRs) , Foreign Currency Convertible Bonds (FCCBs) and External Commercial Borrowings. (ECBs) ~ They can list their shares on Foreign Stock Exchanges. ~ Also, Indian financial system is opened up for investment of foreign funds through NRIs, FIIs and OCBs (Overseas Corporate Bodies). viii) BAN ON MERCHANT BANKING CARRYING FUND BASED ACTIVITIES: ~ Merchant Bankers are prohibited from undertaking funds based activities other than those related exclusively to the capital market. ~ The activities undertaken by Non-Banking Finance Companies (NBFCs) such as accepting deposits, leasing, bill discounting, etc cannot be carried out by merchant bankers.

ix) INTERMEDIARIES UNDER SEBI's REGULATION: ~ Financial Intermediaries have been brought under the purview of the SEBI. ~ These include merchant bankers, mutual funds, portfolio managers, underwriting agents, share transfer agents, registrars to an issue, bankers to an issue, debenture trustees, custodian of securities and venture capital funds. x) CREDIT-RATING AGENCIES: ~ Various credit rating agencies such as Credit Rating and Information Services of India Ltd. (CRISIL), Investment Information and Credit Rating Agency (ICRA), Credit Analysis and Research Ltd (CARE), etc were set up by the Government to meet the emerging needs of the growing capital markets. ~ Credit Rating Agencies provide rating to the issue of securities in the primary markets. ~ This imposes a healthy discipline on the borrowers and provides guidance to the investors. ~ They also help financial intermediaries in discharging their functions related to debt issues. # SECONDARY MARKET REFORMS: ~ A number of reforms were initiated by the Government and the SEBI for the growth of secondary capital market in India. ~ The following are the important reforms: i) SETTING UP OF NATIONAL STOCK EXCHANGE (NSE): ~ The National Stock Exchange was set up in 1992 and it started its operations in 1994. ~ It was sponsored by the IDBI. The co-sponsorers were other

developmental financial institutions, LIC, GIC, Commercial Banks, SBI, Stock Holding Corporation of India LTD, etc ~ The NSE was set up to provide a nation-wide trading facility in equities, debt, instruments and hybrids. ~ It also facilitated equal access to investors across the country by providing a fair, efficient and transparent securities trading system. ~ It also offered shorter settlement cycles and book entry settlement system. ~ These measures brought the Indian Stock market at par with international markets. ~ At present, the NSE has spread its business in 200 cities with more than 1000 terminals and its ranks 3rd among the biggest exchange in the world. ii) OVER THE COUNTER EXCHANGE OF INDIA (OTCEI): ~ Over the Counter Exchange of India was set up in 1992 by a consortium of leading financial institutions in India like IDBI, ICICI, LIC, UTI, IFCI, etc. ~ It is an electronic national stock exchange that lists entirely new set companies which will not be listed on other Stock exchanges i.e. the companies listed on OTCEI cannot be listed on any other stock exchanges. ~ Companies with issued capital from Rs 30 lakhs to Rs 25 crores. ~ OTCEI gives an access to small and medium sized companies to capital market as well as a convenient mode of investment to investors. ~ It eliminates the problem of illiquid securities, delayed settlements and unfair prices faced by investors.

iii) DISCLOSURE AND INVESTOR PROTECTION (DIP) GUIDELINES FOR NEW ISSUES: ~ SEBI has given DIP guidelines to govern the new issue activities so as to remove the systematic deficiencies and to protect the interests of investors. ~ Companies issuing capital in the primary market are now required to disclose all material facts and specify risk factors with their projects. ~ If the company issues IPO through book-building', it will have to disclose the price, the issue size and number of securities to be offered to the public. iv) SCREEN BASED TRADING: ~ The Indian Stock Exchanges underwent modernisation with computerised Screen Based Trading System (SBTS). ~ It electronically matches orders on a strict price / time priority. ~ It considerably reduces time, cost, risk of error and fraud and thereby improves operational efficiency. ~ This trading system also provides complete on line market information and thus increases the depth and liquidity of the market. v) CORPORATION AND DEMUTUALISATION OF STOCK EXCHANGES: # Corporatisation: ^ BSE has ceased to be an Association of persons and became a company under the Companies Act. ^ This leads to segregation of ownership, management and trading rights from each other.

^ The change in ownership is expected to make BSE a modern, professionally managed, transparent, competitive and an efficient stock exchange. # Demutualisation:^ Demutualisation of BSE is in process whereby the BSE will be converted into a join stock company. ^ It will change from not-for-profit' organisation to a for profit' organisation. This will clearly strengthen the capital markets. vi) DEPOSITORY SYSTEM: ~ A major reform in the Indian Stock Market has been the introduction of depository system and scripless trading mechanism. ~ This system overcomes problems based on physical transfer of securities like inordinate delays, bad deliveries, counterfeit scrips, forged certificates, wrong signatures, etc. ~ Depository is an organisation that holds the securities of shareholders in electronic form, transfers securities between account holders, facilitates transfer of ownership without handling securities, etc. ~ Dematerialisation of share certificates through depositories is an essential aspect of securities with speed, accuracy and security. ~ National Securities Depositories LTD. (NSDL) and Central Depositories Services LTD ( CDSL) have been established for this purpose. vii) ROLLING SETTLEMENT: ~ Rolling Settlement' is an important measure to improve the integrity and efficiency of the securities market.

~ The shift from the traditional settlement to rolling settlement is a welcome change in the stock market. ~ Under the rolling system all trades executed on a trading day (T) have to be settled after certain days (N). ~ This is called T+N' rolling settlement. ~ In April 2003, the NSE introduced T+2 rolling settlement. ~ This has considerably reduced undue speculation in the market. viii) INVESTOR PROTECTION MEASURES: ~ The SEBI has introduced an automated complaints handling system to deal with investor complaints. ~ It spreads awareness among the investors on various issues related to the securities market and their rights and remedies. ~ The Government has also set up the IEPF (Investor Education and protection fund) that will be utilized for promotion of awareness amongst investors and protection of their interest. ix) THE NATIONAL SECURITIES CLEARING CORPORATION LTD (NSCL): ~ The NSCL was set up in 1996 to guarantee all trades in NSE. ~ The NSCL is responsible for post-trade activities of the NSE like clearing and settlement of trades and risk management. ~ It interposes between parties to trade on the NSE. ~ It, thus, avoids the risk of payment crisis on the NSE. x) DERIVATIVE TRADING: ~ Derivatives are contracts between counterparties whose value is derived from the value of the underlying asset like equity,

forex, etc. ~ Financial markets are highly volatile due to fluctuations in asset prices. ~ So the investors resort to derivative trading whereby they lockin asset prices and reduce the price risks. ~ At present, there are four equity derivative products in India: ^ Stock options ^ Stock futures ^ Index options ^ Index futures. ~ Derivatives trading is permitted only on the NSE and the BSE. xi) TRADING IN CENTRAL GOVERNMENT SECURITIES: ~ Trading in Central Government Securities has been introduced since Jan 2003 so as to encourage wider participation of all classes of investors, including retail investors. ~ Trade in government securities can be carried out throughout the country through screen-based trading system of stock exchanges. ~ Retail investors can now buy and sell govt- securities participation in retail market is open to individuals, firms, companies, corporate bodies, institutions, or any other entity approved by the RBI. xii) ENTRY OF FIIs: ~ Foreign Institutional Investors (pension funds, mutual funds, investment trust, portfolio management companies, etc.) have been allowed to invest in Indian capital markets.

~ However, they have to be registered with the SEBI. xiii) PAN MADE MANDATORY: ~ PAN has been made mandatory since Jan 2007 so as to strengthen the know your client' norms and to facilitate sound auditing in the securities market. ~ It is mandatory for operating a beneficiary Owner Account and for trading in cash segments. xiv) REGULATION OF MUTUAL FUNDS: ~ Emergence of diversified mutual funds is an important development of Indian Capital Market. ~ It mobilises the savings of the general public and invests them in stock market securities. ~ Thus, they have emerged as significant avenues for finance and a notable intermediary in the Indian capital market. ~ SEBI supervises and regulates the working of mutual funds. xv) STOCK EXCHANGES PERMITTED TO SET TRADING HOURS: ~ Stock Exchanges have been permitted to set trading hours (in cash and derivative segments). ~ However, the trading hours should be between 9.00a.m to 5.00p.m. ~ Corporate Governance and buy back of shares are other secondary market reforms. *CONCLUSION:~ Thus, the reforms in the capital market have been conducive to its growth and development.

~ Also, it has made the capital markets have shown greater efficiency and now provide world class trading and settlement systems. ~ This leads to speedy development of an economy. Q5: Write a note on SEBI? Ans: SECURITIES AND EXCHANGE BOARD OF INDIA *INTRODUCTION: ~ The Securities and Exchange Board of India (SEBI) was established as a non-statutory organisation but it received its statutory status in January 1992. ~ SEBI has wide regulatory powers and is a very important constituent of the financial regulatory network of India. ~ In fact, it is under the overall control of the Finance Ministry of the country. ~ SEBI aims at protecting the interest of investor, brining professionalism in the working of intermediaries in the capital markets and creating a good financial environment in the markets. *ROLE OF SEBI: i)PROMOTION AND DEVELOPMENT OF CAPITAL MARKET: ~ The promotion and development of the capital market is one of the most important roles of SEBI. ~ It regulates the business in stock exchanges and other securities market and prevents trading malpractices. ~ It creates a healthy financial environment for the development of capital markets.

ii) GUIDELINES ON CAPITAL ISSUES: ~ As a part of its regulatory role, SEBI issues guidelines in respect of matters related to the issue of capital. ~ These include information disclosures, operational transparency and investor protection, development of financial institutions, pricing of issues, preferential issues, etc. iii) REGULATES WORKING OF MUTUAL FUNDS: ~ In order to regulate the working of mutual funds, SEBI has laid down rules and regulations. ~ All mutual have to comply with the regulations paid down by the SEBI. ~ Necessary modifications are made in the regulations from time to time. iv) REGULATES MARCHANT BANKING: ~ SEBI has laid down regulations on merchant banking activities in India. ~ They are in respect of registration, code of conduct, submission of half yearly results, etc. v) REGULATES STOCK BROKERS ACTIVITIES: ~ SEBI regulates the activities of brokers and sub-brokers. ~ No broker / sub-broker is allowed to buy, sell or trade in securities without registration with the SEBI. vi) PORTFOLIO MANAGEMENT: ~ SEBI also regulates the working of portfolio managers. ~ No person / institution can operate as a portfolio manager

without registration with the SEBI. ~ They have to follow relevant regulations. vii) REGULATES TAKE-OVER / MERGERS: ~ SEBI has issued guidelines to be followed by corporations at the time of mergers / take overs. ~ These guidelines protect the interest of investors in case of take-overs or mergers. viii) RESTRICTION ON INSIDER TRADING: ~ SEBI prohibit insider trading in order to prevent price manipulations. ~ SEBI has also banned negotiated and cross deals to ensure greater market transparency. ix) PROTECTION OF INTEREST OF INVESTORS: ~ SEBI aims at protecting the interest of investors in securities and it has taken various measures for the same. ~ It spreads awareness among investors and provides them a high degree of protection of their rights and interests through adequate, accurate and authentic information on a continuous basis. x) INVESTOR'S EDUCATION: ~ SEBI educates investors about securities market. ~ It spreads awareness among investors on various issue related to securities market and on their rights and remedies. xi) INVESTOR'S GRIEVANCES REDRESSAL: ~ SEBI has introduced automated complaints handling system to

deal with investor complaints. ~ The Investor Grievances Redressal and Guidance Division of SEBI helps investors who want to make complaints to SEBI against listed companies. xii) PRIMARY MARKET POLICY: ~ SEBI looks after all the policy matters and regulatory issues related to primary markets. ~ These include vetting of prospectuses and letters of offer for public and right issues, co-ordinating with primary market policy, registration, regulation and monitoring issue related intermediaries. xiii) SECONDARY MARKET POLICY: ~ SEBI is responsible for all policy and regulatory issues for secondary market. ~ It is also responsible for registering and monitoring of members of stock exchanges. ~ It also inspects all stock exchanges and regulates non-member intermediaries such as sub-brokers. xiv) INSTITUTIONAL INVESTMENT POLICY: ~ SEBI registers, regulates and monitors FIIs and domestic mutual funds. xv) MOBILISATION OF RESOURCES: ~ SEBI facilitates efficient mobilisation and allocation of resources through the securities market. ~ It stimulates competition and encourages innovations. *POLICY MEASURES BY SEBI:

i) It prohibits fraudulent and unfair trade practise relating to securities. ii) It imposes penal margins on net undelivered portion at the end of the settlement. iii) It has issued guidelines to tighten entry norms for companies accessing capital market. iv) SEBI has allowed stock exchanges to expand their on-line screen based trading terminals. v) It has notified Custodian of Securities Regulations' and Depositories and Participant Regulators' to contain prudential norms. vi) It has taken various investor protection measures. vii) It has tightened norms for share transfer. viii) It has prohibited insider trading' and badla'. ix) It has taken various steps to improve corporate Governance. x) It has allowed companies to raise funds from abroad through ADRs, GDRs, FCCBs and ECBs, xi) It registers and regulates the intermediaries associated with the capital market. xii) It has issued guidelines for Anti Money Laundering measures. *CONCLUSION: ~ Thus, the SEBI's task is challenging and complex SEBI has taken various measures to bring sufficiency in the capital markets leading to growth and development of the economy