SECURITIES MARKET REFORMS & REGULATORY MEASURES TO PROMOTE INVESTOR CONFIDENCE :

SEBI has come a long way since its inception as an institution regulating the Indian Capital Markets. It has initiated a lot of reforms to make the market more safer for investors. The following are the major policy initiatives taken by SEBI since its inception.

– Control over Issue of Capital: A major initiative of liberalisation was the repeal of the Capital Issues (Control) Act, 1947 in May 1992. In the interest of investors, SEBI issued Disclosure and Investor Protection (DIP) guidelines. The guidelines allow issuers, complying with the eligibility criteria, to issue securities the securities at market determined rates. The market moved from merit based to disclosure based regulation.

– Establishment of Regulator: A major initiative of regulation was, establishment of a statutory autonomous agency, called SEBI, to provide reassurance that it is safe to undertake transactions in securities.

– Screen Based Trading: A major developmental initiative was a nation-wide on-line fully-automated screen based trading system (SBTS) where a member can punch into the computer quantities of securities and the prices at which he likes to transact and the transaction is executed as soon as it finds a matching sale or buy order from a counter party.

– Risk management: A number of measures were taken to manage the risks in the market so that the participants are safe and market integrity is protected. The trading cycle varied from 14 days for specified securities to 30 days for others and settlement took another fortnight. Rolling settlement on T+5 basis was introduced in phases. All scrips moved to rolling settlement from December 2001. T+5 gave way to T+3 from April 2002 and T+2 from April 2003.

– Depositories Act: The earlier settlement system gave rise to settlement risk. This was due to the time taken for settlement and due to the physical movement of paper. Further, the transfer of shares in favour of the purchaser by the company also consumed considerable amount of time. To obviate these problems, the Depositories Act, 1996 was passed to provide for the establishment of depositories in securities.

– Derivatives: To assist market participants to manage risks better through hedging, speculation and arbitrage, SC(R)A was amended in 1995 to lift the ban on options in securities.

– Settlement Guarantee: A variety of measures were taken to address the risk in the market. Clearing corporations emerged to assume counter party risk. Trade and settlement guarantee funds were set upto guarantee settlement of trades irrespective of default by brokers. These funds provide full novation and work as central counter party. The Exchanges /clearing corporations monitor the positions of the brokers on real time basis. The securities market moved from T+3 settlement period to T+2 rolling settlement with effect from April 1, 2003. Further, straight through processing has been made mandatory for all institutional trades executed on the stock exchange.

– Securities Market Awareness: In January 2003, SEBI launched a nation-wide Securities Market Awareness Campaign that aims at educating investors about the risks associated with the market as well as the rights and obligations of investors.

– Green Shoe Option- As a stabilization tool for post listing price of newly issued shares, SEBI has introduced the green shoe option facility in IPOs.

– Securities Lending and Borrowing- A clearing corporation/clearing house, after registration with SEBI, under the SEBI scheme for Securities Lending and Borrowing, as an approved intermediary, may borrow securities for meeting shortfalls in settlement, on behalf of the members.

– Corporate Governance – To improve the standards of corporate governance, SEBI amended Clause 49 of the Listing Agreement. The major changes in the new Clause 49 include amendments/additions to provisions relating to definition of independent directors, strengthening the responsibilities of audit committees, improving quality of financial disclosures, including those pertaining to related party transactions and proceeds from public/rights/preferential issues, requiring Boards to adopt formal code of conduct, requiring CEO/CFO certification of financial statements and improving disclosures to shareholders. Certain non-mandatory clauses like whistle blower policy and restriction of the term of independent directors have also been included.

– Debt Listing Agreement- In order to further develop the corporate debt market, SEBI prescribed a model debenture listing agreement for all debenture securities issued by an issuer irrespective of the mode of issuance.

– Gold Exchange Traded Funds in India- Pursuant to the announcement made by the Honourable Finance Minister in his Budget Speech for 2005-06, SEBI appointed a Committee for the introduction of Gold Exchange Traded Fund (GETF) in India. Based on the recommendations of the said Committee, the SEBI (Mutual Funds) Regulations, 1996 were amended and notification was issued on January 12, 2006 permitting mutual funds to introduce GETFs in India subject to certain investment restrictions.

– Guidelines for Issue of Indian Depository Receipts (IDRs)- SEBI issued Guidelines on disclosures and related requirements for companies desirous of issuing IDRs in India. SEBI also prescribed the listing agreement for entities issuing IDRs.

– Grading of Initial Public offerings (IPOs)- Grading of all IPOs was made mandatory. The grading would be done by credit rating agencies, registered with SEBI. It would be mandatory to obtain grading from at least one credit rating agency. The grading would be disclosed in the prospectus, abridged prospectus and in every advertisement for IPOs.

– Introduction of Fast Track Issuances- To enable compliant listed companies to access Indian primary market in a time effective manner through follow-on public offerings and rights issues, SEBI introduced fast track issue mechanism. To make the issuance process fast, the earlier requirement of filing draft offer documents was amended and the need to file draft offer documents with SEBI and the stock exchanges was done away with.

– Mandatory Requirement of Permanent Account Number (PAN) for All Transactions in the Securities Market- SEBI stipulated that PAN would be the sole identification number for all participants in the securities market, irrespective of the amount of transaction with effect from July 02, 2007. The objective was to strengthen the ‘Know Your Client’ (KYC) norms through a single identification number for all participants in the securities market for facilitating sound audit trail.

– Corporate Debt Market- In order to develop a sound corporate debt market in India, SEBI took a number of policy initiatives with respect to the following areas: (i) setting up of reporting platforms for corporate bonds, (ii) setting up of trading platform for corporate bonds, (iii) issues pertaining to trading in corporate bonds, (iv) making amendments to the listing agreement for debentures, (v) issuing securitised debt instruments regulations, (vi) evolving policy guidelines on debenture trustees, (vii) introducing Repos in corporate bonds, (viii) facilitating setting up of quote dissemination platforms, (ix) simplifying corporate bond issuance norms and (x) framing of draft issue and listing regulations for corporate bonds.

– Setting up of SME Exchange- SEBI decided to put in place a framework for setting up of new exchange or separate platform of existing stock exchange having nationwide terminals for SME. In order to operationalise the said framework, necessary changes have been made to applicable regulations, circulars etc. As per the framework, market making has been made mandatory in respect of all scrips listed and traded on SME exchange.

– SEBI made ASBA bid-cum application forms available for download and printing, from websites of the Stock Exchanges which provide electronic interface for ASBA facility i.e. Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The ASBA forms so downloaded should have a unique application number and can be used for making ASBA applications in public issues.

– In order to develop the primary market for securitized debt instruments in India, SEBI notified the Securities
and Exchange Board of India (Public offer and Listing of Securitised Debt Instruments) Regulations,
2008. The regulations provide for a framework for issuance and listing of securitized debt instruments
by a Special Purpose Distinct Entity (SPDE).

– SEBI has commenced processing of investor grievances against the intermediaries in a centralized
web-based complaints redressal system, ‘SCORES’ at http://scores.gov.in/Admin.

– Facilty of e-voting by shareholders enabled on July 13, 2012.

– Business Responsibility Reports- SEBI inserted Clause 55 in the Equity Listing Agreement, mandating inclusion of Business Responsibility Reports (“BR reports”) as part of the Annual Reports for listed entities in line with the ‘National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business’ issued by the Ministry of Corporate Affairs.

– SEBI notified the SEBI (Foreign Portfolio Investors) Regulations 2014 (FPI Regulations) on January 07, 2014 to simplify compliance requirements and have uniform guidelines for various categories of Foreign Portfolio Investors (FPIs) like Foreign Institutional Investors (FIIs) including their sub-accounts, if any and Qualified Foreign Investors (QFIs).

– SEBI (Real Estate Investment Trusts) Regulations, 2014 and SEBI (Infrastructure Investment Trusts) Regulations, 2014 were notified on 26 September, 2014.

– SEBI (Share Based Employee Benefits) Regulations, 2014 were notified.

– Consolidated circular was issued on redressal of investor grievances through SCORES platform.

– SEBI (Depositories and Participants) Regulations were amended providing single and permanent registration of DP through any depository.

– SEBI revised the mechanism of index based market-wide circuit breaker.

– On basis of recommendation of Depository Systems Review Committee, SEBI issued risk management policy framework for the Depositories.

– SEBI (Prohibition of Insider Trading) Regulations, 2015 were notified.

– With a view to increase participation, resident individual investors were allowed to open a trading account and demat account by filling up a simplified Saral Account Opening Form.

– Amendments were carried out to the provisions of SEBI (ICDR) Regulations, 2009 in respect of investment in partly paid shares and warrants.

– SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) were notified on 02 September, 2015.

– Shri Arun Jaitley, Hon’ble Union Finance Minister, unveiled the historic merger of Forward Markets Commission (FMC) with SEBI at an event in Mumbai, on September 28, 2015.