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SEBI's Regulation of the Indian Securities Market: A Critical Review of the Major Developments

Since the empowerment of the Securities and Exchange Board of India (SEBI) through an Act of Parliament in 1992, SEBI has come up with a number of initiatives aimed at regulating and developing the Indian securities market and improving its safety and efficiency. These initiatives have made an impact on nearly every aspect of the market. Some of those initiatives have transformed the market fundamentally. Particularly noteworthy is the growth in the following: Market capitalization Number of listed firms Trading volumes and turnover both in the spot and futures markets. There is a growing network of financial intermediaries that operate in a highly competitive environment while being governed by a tight set of norms. India has one of the most sophisticated new equity issuance markets. Disclosure requirements and the accounting policies followed by listed companies for producing financial information are comparable to the best regimes in the world. The Indian securities market is among the safest and the most efficient trading destinations internationally. The Indian corporate governance code is compared to the Sarbanes Oxley Act of the USA. India has one of the fastest growing and well-developed asset management businesses in the world, with state-owned as well as private sector players. That said, the Indian market is often hostage to some scam or the other from time to time. Effective enforcement of compliance is cited as one of the reasons for these unsavoury episodes. The role that SEBI's initiatives have played in bringing about this transformation of the market has not been researched comprehensively so far. Literature that has analysed the efficiency and the design of the Indian securities market has examined the role of certain specific regulatory provisions on the functioning of the securities market. So also the various annual reports of SEBI discuss the regulatory and other institutional developments that took place during the year under review. However, no attempt seems to have been made to take stock of all the various initiatives of SEBI so far and assess its impact on the activity in the securities market. This paper identifies some of the major interventions of SEBI relating to each of these aspects of the market and critically examines the economic consequences of the same. Such a stock-taking will enable a well-rounded and objective review of SEBI's performance. It is also likely to suggest interesting areas for further research.