What are the achievement of Stock Exchange of India


SEBI is Formed by the government of India in 1988, the Securities and Exchange Board of India (Sebi) got statutory powers after the Sebi Act was passed by Parliament in 1992, the year in which the ₹ 5,000 crore Harshad Mehta securities scam hit Indian stock markets.

 Here’s a look at the top five achievements of the capital market regulator in the 25 years

Top 5 Achievements of Stock exchange of India in last 25 Year.

  1. Dematerialisation of shares
  2. Faster settlement process
  3. Fostering mutual fund industry
  4. Foreign institutional investors
  5. Enforcement processes

Dematerialisation of shares

The market regulator introduced dematerialised holding of shares and securities after the Depositories Act was passed in 1996, which did away with physical certificates that were prone to postal delays, theft and forgery, apart from making the settlement process slow and cumbersome. 

This also prevented the issue of fake share certificates floating in the market. It enabled electronic trading, with investors and traders even able to work from home.

Faster settlement process 

Sebi is credited with quickly moving from a T+5 settlement cycle in 2001 to T+2 in 2003, or two days between the trade and shares being credited to the buyers’ account, down from five. “Pushing for market development is one of Sebi’s biggest achievements. 

Demat, T+2 settlement and the development of electronic markets are major achievements and we were ahead of several markets in all these fronts. With T+2, we are still ahead of the Western markets," said Sandeep Parekh, founder, Finsec Law Advisors. The regulator is currently looking at reducing the settlement cycle to T+1, enabling investors and traders to take positions faster.

Stronger and clearer regulations, orders: In the early years, powerful brokers’ lobbies controlled share price movements and could afford to ignore Sebi, according to analysts. That this is no longer the case is, in large part, because the quality of orders passed by Sebi and the mechanism of drafting new regulations have improved substantially, legal experts said.

The era of cynicism has been truly buried. Sebi has created fear and respect in the market, both among domestic and international market intermediaries. The quality of orders has improved materially over the past 25 years. 

Though Sebi may have more lessons to learn on being objective and just, in the journey of 25 years, this is definitely an area of achievement," said Somasekhar Sundaresan, partner, J Sagar Associates. 

Recent instances of this include the orders against two Saharagroup entities that were upheld in the Securities Appellate Tribunal and the Supreme Court and the case of front running by HDFC mutual fund. Parekh of Finsec Law Advisors said the practice of inviting public comments has helped the regulator in forming better regulations.

Fostering mutual fund industry

While the Indian mutual fund industry has grown manifold from being a monopoly until the early 1990s—when Unit Trust of India, set up in 1964, was the only game in town—their reach remains low outside India’s top 20 cities. The market regulator has taken several steps to increase the popularity of mutual fund products and prevent mis-selling of products by distributors.

Some of the initiatives include relaxing know your customer (KYC) norms for small investors and widening the distribution network in rural India by roping in postal agents.

By banning entry loads for mutual fund schemes in 2009, Sebi curbed mis-selling of mutual fund products as investors would now only voluntarily pay the distributor for advisory services. “Sebi has dramatically curbed mis-selling in mutual funds," said Parekh of Finsec Law Advisors.

Foreign institutional investors

The Indian equity markets were opened to foreign institutional investors, or FIIs, in 1993 and they are now the key driving force behind stock movements. 

The FII investment ceiling was raised to 49% in March 2001 while the dual approval process for FII registration, by the Reserve Bank of India and Sebi, was scrapped in 2003, when they came under the remit of the capital market regulator. 

Since 2004, Sebi has been consistently revising the FII investment limit in both corporate as well as government debt.

While the chunk of foreign money came in through offshore derivative instruments such as participatory notes (P-notes) where the identity of the end beneficiary is not traceable, Sebi has been consistently pushing to encourage holders of such securities to enter the market as registered FIIs.

Though further issues of P-notes were banned in 2007 by then Sebi chief M. Damodaran (February 2005-February 2008) and firms were asked to reduce their holdings through these instruments, the ban was lifted by his successor C.B. Bhave (February 2008 to February 2011) to protect a falling rupee. Vyas Mohan

Enforcement processes: 

Despite statutory powers on par with a civil court, Sebi hasn’t made much headway when it comes to enforcement. The regulator needs to engender greater confidence among investors and display greater consistency when it comes to enforcement of laws, experts said.

Some violations are ignored or go unnoticed due to the regulator’s limited access, insufficient resources or government intervention. “It must complete the processes, particularly those relating to investigation and enforcement action, in a time-bound manner," said M.S. Sahoo, lawyer and former whole-time member of Sebi.

“Shed the image that big fish are spared and only small fish are caught. This is the worst allegation against Sebi. This does not mean catch big fish without any case and ultimately lose in SAT (Securities Appellate Tribunal)," said J.N. Gupta, founder of proxy advisory firm SES Governance and former executive director of Sebi. 

The regulator should “strengthen surveillance and investigation and enforcement functions". Somasekhar Sundaresan, partner, J Sagar Associates, said Sebi needs a transparent policy on when it would use what power.

In recent months, the regulator has been seeking to strengthen insider trading norms, expand its presence through branch offices, work with police and local enforcement agencies, improve corporate governance norms and boost control over deposit-taking firms. “Sebi should focus on clarity… Regulations on investment advisors and collective investment schemes are very vague even in their fundamental scope and coverage," said Sundaresan.

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