Module I

Financial Markets
Prof. Savitha Kulkarni
savitha@klsimer.edu
KLS’s Institute of Management Education and
Research,
Hindwadi, Belgaum
 Financial System
• “Financial system", implies a set of complex and closely connected or
interlined institutions, agents, practices, markets, transactions, claims, and
liabilities in the economy”.
• A financial system is a complex , well integrated set of sub systems of
financial institutions, markets, instruments & services which facilitates
the transfer and allocation of funds efficiently & effectively
• It is the system that allows the transfer of money between savers (and
investors) and borrowers.
• It is the set of Financial Intermediaries, Financial Markets and Financial
Assets.
• It helps in the formation of capital.
• It meets the short term and long term capital needs of households,
corporate houses, Govt. and foreigners.
• It’s responsibility is to mobilize the savings in the form of money and
invest them in the productive manner.
Indian Financial System

• The Indian financial system is a complex network of

financial institutions, markets, instruments, and services that
facilitate the flow of funds between savers and investors. It
comprises various entities such as banks, non-banking
financial companies (NBFCs), insurance companies, stock
exchanges, mutual funds, pension funds, and other financial
intermediaries.
• The Indian Financial System plays a crucial role in
mobilizing savings, allocating capital, and facilitating
economic growth and development in the country.
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Flow Of Funds In The Financial System
 Functions of the Financial system
• To link the savers & investors.
• To inspire the operators to monitor the performance of their
investment.
• To achieve optimum allocation of risk
• To make available price - related information.
• To help promote the process of financial deepening and
broadening
 Organization / Structure of financial system

Financial
system

Financial Financial Financial

Intermediaries Markets Assets
 Financial Intermediaries
• Financial intermediaries are firms that collect the funds from lenders
and channel those funds to borrowers (Mishkin)
• Financial intermediaries are firms whose primary business is to
provide customers with financial products and services that can not be
obtained more efficiently by transacting directly in securities markets
(Z.Bodie &Merton)
• There are roughly three classes of financial intermediaries:
1. Depository institutions accept deposits from savers and transform
them into loans (Commercial banks, savings and loan associations,
mutual savings banks and credit unions)
2. Contractual savings institutions acquire funds at periodic
intervals on a contractual basis (insurance and pension funds)
3. Investment intermediaries serve different forms of finance. They
include finance companies, mutual funds and money market
mutual funds.
 Function of Financial Intermediaries
• Lower transaction costs
• Economies of scale
• Liquidity services
• Since transaction costs are reduced, financial intermediaries are able to
provide customers with additional liquidity services, such as checking
accounts which can be used as methods of payment or deposits which can
be liquidated any time while still bearing some interest.
• Reduce Risk
• Risk Sharing (Asset Transformation)
• Diversification
• Through the process of asset transformation not only maturities, but also the
risk of an asset can change: A financial intermediary uses funds it acquires
(e.g. through deposits) and often turns them into a more risky asset (e.g. a
larger loan).
• The risk then is spread out between various borrowers and the financial
intermediary itself.
• The process of risk sharing is further augmented through diversification of
assets (portfolio-choice), which involves spreading out funds over a
portfolio of assets with different types of risk.
 Function of Financial Intermediaries
• Reduce Asymmetric Information
• Asymmetric Information in financial markets - one party often does not
know enough about the other party to make accurate decisions.
• Adverse Selection (before the transaction)—more likely to select risky
borrower
• Moral Hazard (after the transaction)—less likely borrower will repay
loan
• Financial intermediaries are important in the production of information.
They help reduce informational asymmetries about some unobservable
quality of the borrower for example through screening, monitoring or
rating of borrowers, Net worth and collateral.
• Finally, some financial intermediaries specialize on services such as
management of payments for their customers or insurance contracts
against loss of supplied funds.
• Through all of these channels financial intermediaries increase market
efficiency from an economic point of view.
 Commercial Banks

Savings and Loans

Associations (S&L)
Depository
Institutions Credit Unions

Specialized Banks

Financial Contractual
Insurance Companies
Intermediaries savings
Institutions
Pension Funds

Finance Companies
Investment
intermediaries
Mutual Funds
(Investment Funds)
 Depository institutions
• Depository institutions accept deposits from surplus units and provide
credit to deficit units
• Depository institutions are popular because:
1. Deposits are liquid
2. They customize loans
3. They accept the risk of loans
4. They have expertise in evaluating creditworthiness
5. They diversify their loans
The Depository institutions are
• Commercial Banks
• Savings institutions
• Credit unions
• Specialized Banks
 Commercial banks
• A commercial bank is a financial institution which performs the functions of accepting
deposits from the general public and giving loans for investment with the aim of
earning profit.
• The two most distinctive features of a commercial bank are borrowing and lending, i.e.,
acceptance of deposits and lending of money to projects to earn Interest (profit)
• Primary Functions
1. It accepts deposits- Current account deposits, Fixed deposits, and Savings account
deposits
2. It gives Loans and Advances- Cash credit, Demand Loan, Short term Loans
• Secondary Functions
1. Discounting bills of exchange
2. Overdraft facility
3. Agency functions- Transfer of funds, Collection of funds, Payments of various item,
Purchase and sale of shares and securities,
4. Performing general utility services
(i) Traveller’s cheques .
(ii) Locker facility.
(iii) Underwriting securities issued by government, public or private bodies.
(iv) Purchase and sale of foreign exchange (currency).
 Significance of Commercial banks:
(i) They promote savings and accelerate the rate of capital formation.
(ii) They are source of finance and credit for trade and industry.
(iii) They promote balanced regional development by opening branches
in backward areas.
(iv) Bank credit enables entrepreneurs to innovate and invest which
accelerates the process of economic development.
(v) They help in promoting large-scale production and growth of priority
sectors such as agriculture, small-scale industry, retail trade and export.
(vi) They create credit in the sense that they are able to give more loans
and advances than the cash position of the depositor’s permits.
(vii)They help commerce and industry to expand their field of operation.
(viii) Thus, they make optimum utilization of resources possible.
 Savings institutions
• Savings institutions, sometimes called thrift institutions, are
banks that serve a local community.
• They take the deposits of local residents and lend the money
back in the form of consumer loans, mortgages, and small
business loans.
• Include savings and loan associations (S&Ls) and savings
banks
• They are mostly owned by depositors (mutual)
• Concentrate on residential mortgage loans
 Credit Unions
• Banks and credit unions work similarly but Credit unions are unique
because they’re member-owned.
• When you deposit money in a credit union account, you become an
owner-member of the credit union. You’re both a customer and an
owner.
• The credit union uses the money that you and other members deposit
to make loans to other credit union members, much like a bank.
• Since a credit union’s main goal is to serve their members, they take
the money that would have been profit and instead use it to help
credit union members.
• Credit unions often do this by offering better rates on savings
products and lower interest rates on loan products. Credit unions may
also offer lower fees, too
 Specialized Banks
• The specialized banks are defined as those banks that are banking
operations that serve a specific type of economic activity, such as
industrial activity or agricultural or real estate, in accordance with the
resolutions of their establishment, which does not have to accept
demand deposits of the main aspects of its activities.
• These banks are specialized in financing specific economic sectors
such as agricultural, industrial, real estate, mortgage, rural
development etc
• It is the institutions that does not rely on financial resources on
deposits of individuals, as in the case of commercial banks, but
depends on the capital and issue the bonds.
• Export Import Bank of India (EXIM)
• Small Industries Development Bank of India (SIDBI)
• National Bank for Agricultural and Rural Development (NABARD)
• Industrial Development Bank of India (IDBI)
• Industrial finance Corporation of India (IFCI)
 Insurance companies
• Provide insurance policies to individuals and firms for death, illness,
and damage to property
• Charge premiums
• Invest in stocks or bonds issued by corporations
• They invest the savings of their policy holders in exchange promise them
a specified sum at a later stage or upon the happening of a certain event.
• Provide the combination of savings and protection
• Through the contractual payment of premium creates the desire in people
to save.
 Pension funds
• Pension funds are investment pools that pay for workers'
retirements. Funds are paid for by either employees,
employers, or both. Corporations and all levels of
government provide pensions.
• Offered by most corporations and government agencies
• They manage funds until they are withdrawn from the
retirement account
• Invest in stocks or bonds issued by corporations or in bonds
issued by the government
 Types of Financial intermediaries

Financial
Intermediaries

Insurance
Banks NBFCs Mutual Funds Organizations
 Types of Financial intermediaries
1. Commercial banks
• Collect savings primarily in the form of deposits and traditionally
finance working capital requirement of corporates
• With the emerging needs of economic and financial system banks have
entered in to:
Term lending business particularly in the infrastructure sector,
Capital market directly and indirectly,
Retail finance such as housing finance, consumer finance……
Enlarged geographical and functional coverage
 2. Non-banking finance companies (NBFC)
• A Non-Banking Financial Company (NBFC) is a company registered
under the Companies Act, 1956 engaged in the business of loans and
advances, acquisition of shares/stocks/ bonds/debentures/securities
issued by Government or local authority or other marketable
securities . They provide services likes, leasing, hire-purchase,
insurance business, etc.
• Provide variety of fund/asset-based and non-fund based/advisory
services.
• Their funds are raised in the form of public deposits ranging between
1 to 7 years maturity.
 Non-banking finance companies (NBFC)
• Depending upon the nature and type of service provided, they are
categorised into:
Asset finance companies
Housing finance companies
Venture capital funds
Merchant banking organisations
Credit rating agencies
Factoring and forfaiting organisations
Housing finance companies
Stock brokering firms
Depositories
 3. Mutual funds
• A mutual fund is a company that pools money from many investors
and invests in well diversified portfolio of sound investment.
• issues securities (units) to the investors (unit holders) in accordance
with the quantum of money invested by them.
• profit shared by the investors in proportion to their investments.
• set up in the form of trust and has a sponsor, trustee, asset
management company and custodian
• advantages in terms of convenience, lower risk, expert management
and reduced transaction cost.
Mutual Fund Operation
Flow Chart
 4. Insurance organizations
• They invest the savings of their policy holders in exchange
promise them a specified sum at a later stage or upon the
happening of a certain event.
• Provide the combination of savings and protection
• Through the contractual payment of premium creates the desire
in people to save
 Financial Markets
• It is a place where funds from surplus units are transferred to deficit
units.
• It is a market for creation and exchange of financial assets
• They are not the source of finance but link between savers and
investors.
• Corporations, financial institutions, individuals and governments
trade in financial products on this market either directly or indirectly.
• Financial markets perform the essential function of channeling funds
from economic players that have saved surplus funds to those that
have a shortage of funds.
• At any point in time in an economy, there are individuals or
organizations with excess amounts of funds, and others with a lack of
funds they need for example to consume or to invest.
• Exchange between these two groups of agents is settled in financial
markets
• The first group is commonly referred to as lenders, the second group
is commonly referred to as the borrowers of funds.
 Functions of Financial markets
• Borrowing and Lending
• Financial markets channel funds from households, firms,
governments and foreigners that have saved surplus funds to
those who encounter a shortage of funds (for purposes of
consumption and investment)
• Price Determination
• Financial markets determine the prices of financial assets.
The secondary market herein plays an important role in
determining the prices for newly issued assets
• Coordination and Provision of Information
• The exchange of funds is characterized by a high amount of
incomplete and asymmetric information. Financial markets
collect and provide much information to facilitate this
exchange.
 Functions of Financial markets
• Risk Sharing
• Trade in financial markets is partly motivated by the transfer of
risk from borrowers to lenders who use the obtained funds to
invest
• Liquidity
• The existence of financial markets enables the owners of assets
to buy and resell these assets. Generally this leads to an increase
in the liquidity of these financial instruments
• Efficiency
• The facilitation of financial transactions through financial
markets lead to a decrease in informational cost and transaction
costs, which from an economic point of view leads to an
increase in efficiency.
 Structure of Financial Markets
• Financial markets can be categorized as follows:
1. Debt vs Equity markets
2. Primary vs Secondary markets
3. Exchange vs Over the Counter (OTC)
4. Money vs Capital Markets
 Debt Market or Bond Market
• Financial markets are split into debt and equity markets.
• Debt Securities are the most commonly traded securities. In these
arrangements, the issuer of the Securities (borrower) earns some
initial amount of money (such as the price of a bond) and the holder
(lender) subsequently receives a fixed amount of payments over a
specified period of time, known as the maturity of a debt securities.
• Debt Securities can be issued on short term (maturity < 1 yr.), long
term (maturity >10 yrs.) and intermediate terms (1 yr. < maturity < 10
yrs.).
• The holder of a debt Securities does not have ownership of the
borrower’s enterprise.
• Common debt Securities are bonds and Debentures
 Equity Market or Stock Market
• Equity shares are somewhat different from bonds. The most common
equity shares is (common) stock. First and foremost, an equity
instruments makes its buyer (lender) an owner of the borrower’s
enterprise.
• Formally this entitles the holder of an equity instrument to earn a
share of the borrower’s enterprise’s income, but only some firms
actually pay (more or less) periodic payments to their equity holders
known as dividends. Often these titles, thus, are held primarily to be
sold and resold.
• Equity shares do not expire and their maturity is, thus, infinite.
Hence they are considered long term securities
 Primary/new issue market
• A market for new issues i.e. a market for fresh capital.
• Primary markets are markets in which financial instruments
are newly issued by borrowers.
• It provides the channel for sale of new securities, not
previously available.
• It gives an opportunity to issuers of securities; government as
well as corporates to raise capital
• It helps businesses raise capital to meet their requirements of
investment and/or discharge some obligation.
• It performs triple-service function: origination, underwriting
and distribution.
 Secondary market
• Secondary market refers to a market where securities are traded
after being initially offered to the public in the primary market
and/or listed on the Stock Exchange.
• The secondary market enables participants who hold securities to
adjust their holdings in response to changes in their assessment
of risk and return. They also sell securities for cash to meet their
liquidity needs.
• Majority of the trading is done in the secondary market.
• Secondary market comprises of equity markets and the debt
markets.
• Secondary markets are markets in which financial instruments
already in existence are traded among lenders.
• Secondary markets can be organized as exchanges, in which
titles are traded in a central location, such as a stock exchange, or
alternatively as over-the-counter markets in which titles are sold
in several locations.
 OTC (Over the Counter) vs Exchange
• OTC (over the counter) market and exchange are the terms that are used in
the secondary market where issued securities and financial instruments are
traded. OTC is the market that is operated through a dealer and is largely
disorganized whereas exchange refers to an organized and established trade
system where stocks are traded with defined rules and regulations.
• Exchange is the intricate network where there is constant surveillance on
the action of the participant so that there is no obligation of rules by the
participants whereas OTC is a decentralized market that happens through a
dealer therefore there are no rigid rules and obligations.
• The difference between OTC and Exchange is over the counter refers to a
process of how securities are traded for companies without following any
formal obligations whereas Exchange is the marketplace for the trading of
commodities, derivatives with a centralized method to ensure fair and
efficient trading.
• The OTC trading happens through the involvement of the mediator know
as the dealer whereas exchange is a formal network where trading follows
varied rules and norms.
 Difference between OTC and Exchange
Parameters of
Comparison
OTC Exchange

Definition OTC or over the counter is Exchange is the method of

the method of trading for trading commodities and
the companies that are derivatives for the well-
not listed formally. established companies in an
organized manner.
Operated by Securities that are traded The exchange is the
over the counter are centralized system of trading
traded through the dealer. with a well-organized network
of people to ensure fair
trading.
Formality status OTC is the decentralized Exchange is an absolute
and informal setting for formal setting of trading done
trading which is usually by well-established companies
used by small companies to keep constant supervision
and businessmen. on the action.
Work hours It can be operated at any This works according to the
time because it is done exchange timings and not the
through the dealer. entire day because it is the
intricate network.
Defined Location For trading through OTC Exchange is the formal setting
one can make use of that has a physical location to
 Money Markets Vs Capital Market
• The money market and the capital market are not single institutions but two
broad components of the global financial system. Together, the money market
and the capital market comprise a large portion of what is known as the
financial market
• Money Market
• The money market is the trade in short-term debt. It is a constant flow of cash
between governments, corporations, banks, and financial institutions,
borrowing and lending for a term as short as overnight and no longer than a
year.
• It is market for short term debt instruments.
• A highly liquid market.
• E.g. Call money market, certificates of deposits, commercial paper and treasury
bills
• Capital Market
• It is a market for long-term securities like equity or debt
• The capital market encompasses the trade in both stocks and bonds. These are
long-term assets bought by financial institutions, professional brokers, and
individual investors.
Difference between Money Markets & Capital Market
Parameters Money Markets Capital Market

Definition The money market is a good place The capital market is where
for individuals, banks, other stocks and bonds are traded.
companies, and governments to park Its movements from hour to
cash for a short period of time, hour are constantly monitored
usually one year or less. It exists so and analyzed for clues to the
that businesses and governments health of the economy at
that need cash to operate can get it large, the status of every
quickly at a reasonable cost, and so industry in it, and the
that businesses that have more cash consensus for the short-term
than they need can put it to use future..
Market Money markets are informal in Capital markets are formal in
Nature nature. nature.

Instruments Commercial Papers, Treasury Bonds, Debentures, Shares,

involved Certificate of Deposit, Bills, Trade Asset Securitization, Retained
Credit, etc. Earnings, Euro Issues, etc

Investor Commercial banks, non-financial Stockbrokers, insurance

Types institutions, central bank, chit funds companies, Commercial
etc banks, underwriters etc

Market Money markets are highly liquid. Capital markets are

Liquidity comparatively less liquid
Difference between Money Markets & Capital Market
Parameters Money Markets Capital Market

Risk Money markets have low risk. Capital markets are riskier in
Involved comparison to money
markets.
Maturity of Instruments mature within a year. Instruments take longer time
Instruments to attain maturity

Purpose To achieve short term credit To achieve long term credit

served requirements of the trade requirements of the trade

Functions Increasing liquidity of funds in the Stabilizing economy by

served economy Increase in savings

Return on ROI is usually low in money market ROI is comparatively high in

investment capital market
achieved
COMPONENTS OF FINANCIAL
MARKET
Financial
Market

Capital/
Money Securities
Market Market

Primary
Market

Secondary/
Stock Market
 Money markets

• A market for dealing in monetary assets of short term nature, less than
one year.
• enables raising up of short term funds for meeting temporary shortage
of fund and obligations and temporary deployment of excess fund.
• Major participant are: RBI and Commercial Banks
• Major objectives:
equilibrium mechanism for evening out short term surpluses and
deficits
focal point for influencing liquidity in economy
access to users of short term funds at reasonable cost
COMPONENTS OF MONEY MARKET

Money
Market

Call T-bills Bills CP CD Repo

Market Market Market Market Market Market
 Capital market
• A market for long term funds
• focus on financing of fixed investments
• Main participants are mutual funds, insurance organizations,
foreign institutional investors, corporate and individuals.
• two segments: Primary market and secondary market
 Primary/new issue market
• A market for new issues i.e. a market for fresh capital.
• It provides the channel for sale of new securities, not previously
available.
• It provides opportunity to issuers of securities; government as well as
corporates to raise resources to meet their requirements of investment
and/or discharge some obligation.
• It does not have any organizational setup
• It performs triple-service function: origination, underwriting and
distribution.
 Secondary market/ stock market
• It is a market for old/existing securities.
• It is a place where buyers and sellers of securities can enter into transactions
to purchase and sell shares, bonds, debentures etc.
• It enables corporates, entrepreneurs to raise resources for their companies and
business ventures through public issues.
• It has physical existence.
• It’s vital functions are:
nexus between savings and investments
liquidity to investors
continuous price formation
 Financial Instruments
Financial instruments : the commodities that are traded in financial
market are financial assets/securities or instruments

Financial
Instruments

Primary Securities Indirect Securities Derivatives

 PRIMARY SECURITIES
Securities issued by the non-financial economic units
• Equity Shares: An equity share are the ownership securities.
They bear the risk and enjoy the rewards of ownership.
• Preference Shares: Holders enjoy preferential right as to:
(a) payment of dividend at a fixed rate during the life time of
the Company; and (b) the return of capital on winding up of
the Company
• Debentures: An creditorship security. Holders are entitled to
predetermined interest and claim on the assets of the
company.
• Innovative Debt instruments: A variety of debt innovative
instruments emerges with the growth of financial system to
make them more attractive.
Participative Debentures: participate in the excess profits
of the company after the payment of dividend.
Convertible debentures with options:
Third party convertible debentures: entitle the holder to
subscribe to the equity of another firm at a preferential price.
Convertible debenture redeemable at premium: issued at
face value with option to sell at premium.
Debt equity swap: offers to swap debentures for equity.
Zero coupon convertible notes : convertible in to shares and
all the accrued /unpaid interest is forgone.
Warrants: entitles the holder to purchase specified number of
shares at a stated price before a stated date. Issued with shares or
debentures.
Secured premium notes with detachable warrants:
 redeemable after lock-in period
 warrants entitle the holder to receive shares after the SPN is
fully paid
 no interest during lock-in period
 option to sell back SPN to company at par after lock-in.
 no interest/ premium on redemption if option exercised
 right to receive principal+interest in instalments, in case of
redemption after expiry of the term
 detachable required to be converted in to shares within specified
period.
Non -Convertible debenture with detachable equity
warrants: option to buy a specified no. of share at a specified
price and time.
Zero interest Fully Convertible debentures: carries no
interest and convertible in to shares after lock-in period.
Secured zero interest partly convertible debentures with
detachable and separately tradable warrants:
 Having two parts
 Part A convertible at a fixed amount on the date of allotment
 Part B redeemable at par after specified period from date of
allotment.
 Carries warrants of equity shares at a price to be determined by
company
Fully convertible debentures with
interest(optional):
 No interest for short period
 After that option to apply for equities at
premium without paying for premium.
 Interest is made from first conversion date to the
second/final conversion date
 INDIRECT SECURITIES/ FINANCIAL
ASSETS:
• Issued by financial intermediaries.
• such as units of mutual funds, policies of
insurance companies, deposits of banks, etc.
• Better suited to small investors
• Benefits of pooling of funds by intermediaries
• Convenience, lower risk and expert
management.
 DERIVATIVES
Derivative is a product whose value is derived from the value of one
or more basic variables called base, in a contractual manner
The underlying asset can be equity/FOREX or any other assets.
The Securities Contracts (Regulation) Act, 1956 (SCIA) defined
derivative to include-
1. A security derived from a debt instrument, share, loan whether
secured or unsecured, risk instrument or contract for differences or
any other form of security.
2. A contract which derives its value from the prices, or index of prices,
of underlying securities.
 DERIVATIVES

Derivative
s

Forward Indirect
Securities Options
Contract
 Forward contract
• is a customized contract between two entities, where settlement
takes place on a specific date in the future at today's pre-agreed
price.
• At the end offsetting is done by paying the difference in the
price.
 Future Contract
• is an agreement between two parties to buy or sell an asset at a
certain time in the future at a certain price.
• They are special types of forward contracts which are
standardized exchange-traded contracts.
 Options
• Contracts that give the buyer the right to buy or sell securities at a
predetermined price within/at the end of a specified period.
• Two types - calls and puts.
• Calls give the buyer the right but not the obligation to buy a given
quantity of the underlying asset, at a given price on or before a given
future date.
• Puts give the buyer the right, but not the obligation to sell a given
quantity of the underlying asset at a given price on or before a given
date.
 Role And Need Of Financial Markets
• The Financial Markets enforces securities, financial reporting, and
company law as they apply to financial services and markets.
• They also regulate securities exchanges, financial advisers and
brokers, trustees, issuers including issuers of Kiwi Saver and
superannuation schemes, and auditors of issuers.
• Efficient financial markets are critical to achieving economic and
social goals. They ensure investment finance reaches productive
firms - helping them to grow, and create employment and wealth.
• Efficient financial markets also offer investors the opportunity to
create diversified portfolios that can achieve their personal financial
goals, including a comfortable retirement. FM's role is not to direct
investors' capital or remove risk from investing.
• No regulator can prevent all loss, however, financial markets
promote investment markets that are fair, efficient and transparent.
 Financial Engineering
• Financial engineering is the use of mathematical techniques to solve
financial problems.
• Financial engineering uses tools and knowledge from the fields of
computer science, statistics, economics and applied mathematics to
address current financial issues as well as to devise new and innovative
financial products.
• Financial engineering is sometimes referred to as quantitative analysis
and is used by regular commercial banks, investment banks, insurance
agencies and hedge funds.
• These businesses apply the methods of financial engineering to such
problems as new product development, derivative securities valuation,
portfolio structuring, risk management, and scenario simulation.
• Quantitative analysis has brought innovation, efficiency and rigor to
financial markets and to the investment process.
• As the pace of financial innovation accelerates, the need for highly
qualified people with specific training in financial engineering continues
to grow in all market environments
Regulatory Bodies - SEBI

• Securities and Exchange Board of India (SEBI)

• Overview
• Establishment: SEBI was established in 1988 and given statutory
powers through the SEBI Act, 1992.

• Objective: SEBI aims to protect the interests of investors in securities

and to promote the development and regulation of the securities
market.
 SEBI Functions and Powers contd..

• Regulatory Role: SEBI regulates stock exchanges, securities

transactions, and intermediaries in the securities market.
• Investor Protection: It ensures the protection of investors by
enforcing regulations to prevent malpractices.
• Market Development: SEBI promotes and monitors the development
of the securities market.
• Intermediary Regulation: SEBI licenses and regulates brokers,
underwriters, and other market intermediaries.
• Corporate Governance: It enforces rules on corporate governance to
ensure transparency and accountability in companies.
Key Regulations

• SEBI Act, 1992: This act gives SEBI the authority to regulate the
securities market.
• Securities Contracts (Regulation) Act, 1956 (SCRA): Governs the
trading of securities.
• Depositories Act, 1996: Regulates depositories in securities markets.
• SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015: Imposes disclosure requirements on listed
companies.
Registrar of Companies (ROC)

• Overview
• Establishment: The ROC operates under the Ministry of Corporate
Affairs (MCA) and is governed by the Companies Act, 2013.
• Objective: The ROC is responsible for the administration of company
laws in India.
Registrar of Companies (ROC) - Functions and
Powers

• Company Registration: The ROC facilitates the incorporation of

companies and ensures compliance with statutory requirements.
• Compliance Monitoring: It monitors compliance with the
Companies Act and other relevant laws.
• Information Maintenance: Maintains a registry of records related to
companies, which is available to the public.
• Inspections and Investigations: The ROC conducts inspections and
investigations into the affairs of companies.
• Company Striking Off: It has the authority to strike off the names of
defunct companies from the register.
Key Regulations

• Companies Act, 2013: The primary legislation governing companies

in India, covering incorporation, responsibilities, and dissolution of
companies.
• Companies (Amendment) Act, 2017: Amends various provisions of
the Companies Act, 2013, to improve corporate governance and
compliance.
• Corporate Social Responsibility (CSR): Mandates companies
meeting certain criteria to spend a percentage of profits on social
initiatives.
Legal Framework

• Key Legislations
• Companies Act, 2013: A comprehensive statute governing the
incorporation, regulation, and dissolution of companies in India.
• SEBI Act, 1992: Establishes SEBI and empowers it to regulate the
securities market.
• Securities Contracts (Regulation) Act, 1956 (SCRA): Regulates
stock exchanges and securities contracts.
• Depositories Act, 1996: Provides for the regulation of depositories in
the securities market.
• Insolvency and Bankruptcy Code, 2016: Consolidates laws related
to reorganization and insolvency resolution of corporate persons,
partnership firms, and individuals.
Compliance Requirements

• Corporate Governance: Companies must adhere to norms of

transparency, accountability, and ethical conduct.
• Disclosure and Reporting: Regular filing of financial statements,
annual returns, and other documents with SEBI and ROC.
• Audit and Financial Controls: Statutory audits to ensure financial
statements are true and fair
 SEBI (ESTABLISMENT)
• In 1988 the Securities And Exchange Board of India
was established by government of India through an
executive resolution and was subsequently upgraded
as a fully autonomous body (a statutory body) in the
year 1992 with the passing of securities and exchange
board of India act (SEBI act) on 30th January 1992
• SEBI promotes orderly and healthy development in
the stock market. It was left as a watch dog to observe
the activities but was found ineffective in regulating
and
• controlling them. As a result in May 1992, SEBI was
granted legal status. SEBI is a body
• corporate having a separate legal existence and
perpetual succession.
 Objectives of SEBI
The primary objective of SEBI is to promote healthy and
orderly growth of the securities market and secure investor
protection. The objective of SEBI are as follows:-
• To protect the interest of investors, so that , there is a steady
flow of savings into to the capital market.
• To regulate the securities market and ensure fair practices.
• To promote efficient services by brokers , merchant bankers
and financial intermediaries, so that, they become
competitive and professional.
 Functions of SEBI

The SEBI act 1992 has entrusted with two functions they
are
1. Regulatory functions and
2. Developmental functions
 Regulatory functions
• Regulation of stock exchanges and self regulatory
organizations.
• Registration and regulation of stock brokers , sub-brokers ,
registrars of all issues, merchant bankers, underwriters,
portfolio managers..etc
• Registration and regulation of the working of collective
investment schemes including mutual funds.
• Prohibition of fraudulent and unfair trade practices relating
to securities market.
• Prohibiting of insider trading.
• Regulating substantial acquisition of shares and takeovers of
the company.
 Developmental functions
• Promoting investors education.
• Training of intermediaries.
• Conducting research and publishing information useful to all
market participants.
• Promoting of fair practices.
• Promotion of self regulatory organisations.
 Structure of SEBI
• The board shall consists of following members:-
1. Chairman
2. Two members, one from amongst the officials of the
central government dealing with finance and another from
the administration of companies act of 1956.
3. One members from amongst the officials of the reserve
bank of india.
4. five other members of whom atleast three shall be the
whole-time members to be appointed by the central
government.
 Investor grievance
• Investor grievance are usually due to delays in dispatch of
allotment letters, refund orders, misleading statements in
advertisements or in the prospectus, delay in transfer of
securities, non-payment of interest or dividend.
• These grievance are dealt with either SEBI or department of
company affairs.
• https://
www.sebi.gov.in/legal/regulations/sep-2006/sebi-registrars-to-an-issu
e-and-share-transfer-agents-amendment-regulations-2006_15075.html
References