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In 1988 the
Securities and Exchange Board of India (SEBI) was established by the
Government of India through an executive resolution, and was
subsequently upgraded as a fully autonomous body (a statutory Board) in
the year 1992 with the passing of the Securities and Exchange Board of
India Act (SEBI Act) on 30th January 1992. In place of Government
Control, a statutory and autonomous regulatory board with defined
responsibilities, to cover both development & regulation of the
market, and independent powers have been set up. Paradoxically this is a
positive outcome of the Securities Scam of 1990-91.
The basic objectives of the Board were identified as:
- to protect the interests of
investors in securities;
- to promote the development of
Securities Market;
- to regulate the securities market
and
- for matters connected therewith or
incidental thereto.
Since its inception SEBI has been
working targetting the securities and is attending to the fulfillment of
its objectives with commendable zeal and dexterity. The improvements in
the securities markets like capitalization requirements, margining,
establishment of clearing corporations etc. reduced the risk of credit
and also reduced the market.
SEBI has introduced the comprehensive regulatory measures, prescribed
registration norms, the eligibility criteria, the code of obligations
and the code of conduct for different intermediaries like, bankers to
issue, merchant bankers, brokers and sub-brokers, registrars, portfolio
managers, credit rating agencies, underwriters and others. It has framed
bye-laws, risk identification and risk management systems for Clearing
houses of stock exchanges, surveillance system etc. which has made
dealing in securities both safe and transparent to the end investor.
Another significant event is the approval of trading in stock indices
(like S&P CNX Nifty & Sensex) in 2000. A market Index is a
convenient and effective product because of the following reasons:
- It acts as a barometer for market
behavior;
- It is used to benchmark portfolio
performance;
- It is used in derivative
instruments like index futures and index options;
- It can be used for passive fund
management as in case of Index Funds.
Two broad approaches of SEBI is to
integrate the securities market at the national level, and also to
diversify the trading products, so that there is an increase in number
of traders including banks, financial institutions, insurance companies,
mutual funds, primary dealers etc. to transact through the Exchanges. In
this context the introduction of derivatives trading through Indian
Stock Exchanges permitted by SEBI in 2000 AD is a real landmark.
SEBI appointed the L. C.
Gupta Committee in 1998 to recommend the regulatory framework
for derivatives trading and suggest bye-laws for Regulation and Control
of Trading and Settlement of Derivatives Contracts. The Board of SEBI in
its meeting held on May 11, 1998 accepted the recommendations of the
committee and approved the phased introduction of derivatives trading in
India beginning with Stock Index Futures. The Board also approved the "Suggestive
Bye-laws" as recommended by the Dr LC Gupta Committee for
Regulation and Control of Trading and Settlement of Derivatives
Contracts.
SEBI then appointed the J.
R. Verma Committee to recommend Risk Containment Measures
(RCM) in the Indian Stock Index Futures Market. The report was submitted
in november 1998.
However the Securities Contracts (Regulation) Act, 1956 (SCRA) required
amendment to include "derivatives" in the definition of
securities to enable SEBI to introduce trading in derivatives. The
necessary amendment was then carried out by the Government in 1999. The
Securities Laws (Amendment) Bill, 1999 was introduced. In December 1999
the new framework was approved.
Derivatives have been accorded the status of `Securities'. The ban
imposed on trading in derivatives in 1969 under a notification issued by
the Central Government was revoked. Thereafter SEBI formulated the
necessary regulations/bye-laws and intimated the Stock Exchanges in the
year 2000. The derivative trading started in India at NSE in 2000 and
BSE started trading in the year 2001.
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