Additionally, you must be aware of the guidelines and norms that govern the Indian markets. After all, your financial decisions and investment strategies are heavily influenced by the policies designed by these financial regulators to keep the market and investor activity in check.
Enforcement of proper rules and regulations by the concerned authorities help the financial markets function seamlessly. The Ministry of Finance, the Reserve Bank of India (RBI), and the Securities and Exchange Board of India (SEBI) are the three primary financial regulators in India. Let us understand their roles in detail.
The Ministry of Finance (MoF)
Following the directions issued by the Ministry of Finance, the Department of Economic Affairs manages the segment adhered to the Capital Markets directly. This segment focuses upon the efficient growth of the Indian Stock Market, including debt, derivatives, and equity.
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The Ministry formulates rules and regulations required for the functioning of the capital markets. It also develops laws necessary for safeguarding the interests of the investors in the stock market. The following laws help the Ministry monitor the Indian Stock Market:
- Securities Contract (Regulation) Act, 1956
- Depositories Act, 1996
- Securities and Exchange Board of India Act, 1992
Moving on, let us understand the role and the functioning of SEBI.
Securities and Exchange Board of India (SEBI)
The Securities and Exchange Board of India (SEBI) is the primary regulatory body in India that governs the stock market. It was established on 12 April 1988. It was given statutory powers on 30 January. 1992 through the Securities and Exchange Board of India (SEBI) Act, 1992. The following is the structure of SEBI:The Securities and Exchange Board of India (SEBI)
plays an integral role in the uninterrupted functioning of the markets. Its primary roles include protective, regulatory, and development functions. These are detailed as follows:
The rules and regulations set up by SEBI have to be adhered to by all players in the market, including investors, companies listed on the stock exchanges, brokers, and traders. Any deviation from these rules can lead to heavy penalties and even debarring from the stock exchange. For example, SEBI imposes a Rs. 25 crore fine on fraudulent and unfair trade practices.TejiMandiis aSebi-Registered Research Analystthat follows all SEBI norms with utmost attention to compliance while making sure that the investors get the most out of their buck.
Finally, the third key regulatory body is the country’s central bank, the Reserve Bank of India.
The Reserve Bank of India (RBI)
The Reserve Bank of India is responsible for regulating the financial activities in the Indian economy. It monitors the capital market and keeps a close tab on the exchange rates. The monetary policy designed by the Reserve Bank of India affects the equity markets directly. It controls the interest rates, which, when lowered, reduces the cost of debt, and consecutively, the cost of equity is brought down. The future cash flows are now valued with a relatively lower discount rate. This, in turn, enhances the value of the stock.
The trading of stocks takes place on the stock exchanges, one of which is the National Stock Exchange. Let us see how it regulates trading on a daily basis.
The National Stock Exchange (NSE)
The National Stock Exchange of India (NSE) is responsible for formulating and maintaining the rules and regulations pertaining to compliance issues, listing securities, monitoring transactions, and registering members.
Interestingly, the National Stock Exchange of India(NSE) is monitored by the Securities and Exchange Board of India (SEBI).
The takeaway
The regulatory bodies in India play an important role in stabilizing the stock prices and, in turn, contribute to the growth of the Indian economy. The financial regulators in India also encourage people to save more and invest in stock platforms. The regulators improve the trust of investors in the market by safeguarding their investments.
These bodies help accelerate the economic development of the nation as they boost the formation of capital. The financial regulators also provide services like loan consultancy both in the medium-term and the long-term.
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