Regulatory measures of SEBI for Secondary Market reforms in India
SEBI has introduced a wide range of reforms in the secondary market. These can be discussed under the headings, namely, Governing Body of the stock exchange. Infrastructure Development of the stock exchange, Settlement and Clearing, Debt Market Segment, Price Stabilization, Delisting, Brokers; and insider trading.
Governing Body of the stock exchange
1. The Board of directors of stock exchange has to be reconstituted so as to include non-members, public representatives, government representatives to the extent of 50% of total number of members.
2. Capital adequacy norms should be complied with regard to members of various stock exchanges on the basis of their turnover of trade.
3. Working hours of stock exchanges should be from 12 noon to 3 p.m.
4. All recognized stock exchanges should report about their transactions within 24 hours.
Infrastructure Development of Stock Exchange
Sufficient infrastructure should be available in any stock exchange to facilitate trade. For example, National Stock Exchange, (NSE) was set up with sophisticated screen-based trading.
SEBI will grant recognition only to those new stock exchanges which have online screen-based trading facility.
Settlement and Clearing
SEBI has withdrawn carry forward transactions and introduced certain modified regulations. All stock exchanges should follow the practice of weekly settlement.
Apart from this, SEBI has instructed all stock exchanges to set up clearing houses, clearing corporations or settlement guarantee fund for ensuring prompt settlement of the transactions.
SEBI has allowed institutional investors, foreign investments, stock brokers to avail the facility of warehousing of trade.
Debt Market Segment
NSE has a wholesale debt market segment to enable the traders to trade in debt instruments. SEBI has allowed the listing of debt instruments of those companies which have not even listed their equity shares previously. Foreign institutional investors have been permitted to invest up to 100 percent of the funds in debt instruments of Indian companies.
SEBI keeps a constant watch over the unusual fluctuations in prices. It has instructed the stock exchanges to monitor the prices of newly listed securities. When there is an abnormal price variation in newly listed securities, SEBI would impose additional margin on purchase of such securities. SEBI has also introduced adequate measures to prevent price rigging and circular trading.
SEBI has streamlined the norms for delisting of securities from stock exchanges. In case of voluntary delisting from regional stock exchanges, the company would offer to buy the shares from shareholders of the region. Moreover, it also stipulates that the listing fee for three years be paid by the company concerned at the time of delisting.
SEBI has regulated the functioning of brokers through the following measures.
1. Each broker and sub-broker should get their names registered with the stock exchange.
2. Capital adequacy norms have been fixed for the brokers in order to ensure their professional competence, financial solvency, etc.
3. A code of conduct has been laid down for their discharge of duties, resulting in the
execution of orders,
issue of contract note,
breach of trust,
being fair to clients; and
rendering investment advice.
4. Audit of the books of brokers and filing of audit report with SEBI have been made compulsory.
5. Brokers should preserve the books of accounts and other records for a minimum period of five years. SEBI has the right to inspect the books, records and documents of the brokers.
6. Brokers should disclose transaction price and brokerage separately in the contract notes issued to their clients to ensure transparency in the broker-client relationship.
7. Brokers cannot underwrite more than 5% of public issue.
SEBI has also devised various regulatory measures to control Insider trading. To prevent insider. trading, SEBI has introduced SEBI Insider Trading Regulation Act, 1992. This article enlightens a lot on this topic : Insider Trading | Meaning | Who is an Insider?