The Indian securities market and its regulatory architecture
Who regulates what
India's securities market rests on four statutes: the Securities Contracts (Regulation) Act, 1956 (exchanges and contracts), the SEBI Act, 1992 (which creates SEBI's statutory powers of regulation, investigation and adjudication), the Depositories Act, 1996 and the Companies Act, 2013 (issuance, listing, governance). After the merger of the Forward Markets Commission into SEBI in 2015, commodity derivatives are also regulated by SEBI.
Know the market structure: primary market (public issues, rights, preferential allotment, debt issuance) versus secondary market (exchange-traded and OTC). Know the institutions: stock exchanges (NSE, BSE), clearing corporations, depositories (NSDL, CDSL), registrar and transfer agents, merchant bankers, brokers, portfolio managers, mutual funds, AIFs, REITs/InvITs. Know the rulebook by name: SEBI (Intermediaries) Regulations, 2008; SEBI (Investment Advisers) Regulations, 2013; SEBI (Research Analysts) Regulations, 2014; SEBI (Prohibition of Fraudulent and Unfair Trade Practices), 2003; SEBI (Prohibition of Insider Trading), 2015; SEBI (Listing Obligations and Disclosure Requirements), 2015.
Traps question-setters love
- Treating the Financial Stability and Development Council (FSDC) - a coordinating body chaired by the Union Finance Minister - as a regulator. It is not.
- Mixing up jurisdictions: RBI handles money market, banking and forex; IRDAI insurance; PFRDA pensions; SEBI securities. G-Secs are issued by the government and market activity is anchored with RBI, which confuses candidates.
- Believing a stock exchange or AMFI is a statutory regulator. Exchanges and AMFI are front-line/self-regulatory in character; the statutory power is SEBI's.
Rule of thumb
When asked "who regulates this activity?", ask: is the instrument a security? If yes, SEBI, even if the product looks like a deposit or a commodity.