Regulation in the Indian Stock Market

The Bombay Stock Exchange(BSE) was established in 1875 and is the oldest stock exchange in Asia. Even after 132 years of existence, the number of retail investors who participate in the stock markets directly or indirectly is very less when compared to developed countries like USA,UK, France. This skepticism by the retail investors to invest their hard earned savings in the market can be partly attributed to the numerous scams that have occurred periodically in the stock market. And every time a scam happens, the retail investor is the one who is worst affected. To make the stock market a more friendly place for investors, especially small, SEBI(Securities and Exchange Board of India) was established as a non statutory body in 1988 and was later made autonomous in 1992 with more powers after the infamous "Harshad Mehta" scam.

Functions of the SEBI
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The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as
“…..to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto”
To elaborate, the important functions of SEBI can be listed down as follows

1)Supervision of functioning of stock exchanges.

2)Registering and regulating market participants like Stock brokers, sub brokers, merchant bankers, portfolio managers, Foreign Institutional Investors(FII's) and other entities who participate in stock markets.

3)Prohibiting fraud and unfair trade practices related to securities markets.

4)Prohibiting insider trading and circular trading in securities.

5)Curbing Volatility(Circuit Breakers) and investigating unusual movement in stock prices.

6)Regulating substantial acquisition and take over of companies.

7)Promoting investor's education in securities markets.

8)Suspending trading in any company that violates the regulations to be listed in the exchange.

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. One of the major reforms taken by SEBI is the introduction of electronic trading. This has helped in making markets more efficient when compared to trading shares in physical form. Also, SEBI has made PAN(Permanent Account Number) mandatory for all the investors to make market more transparent. But still there have been lot of questions raised on the effectiveness of SEBI because of the scams that have taken place quite regularly in the Indian Markets. The prominent ones being the Harshad Mehta Scam, Ketan Parekh Scam and the IPO scam which involved cornering of large number of shares by opening multiple fake demat accounts. In spite of its ups and downs SEBI still plays and will continue to play a major role in regulating and initiating new reforms in the Indian capital markets. SEBI needs to be proactive in restructuring the Indian markets in a way that it becomes a safe place for investors both domestic and foreign and preventing any scams from happening in the markets. SEBI can play a pivotal role in bringing more and more retail investors to the market.