Abstract
India has evolved from a lightly controlled securities market to essentially one of structured and well-regulated markets. The work explores the history, development, and most importantly the reforms of the securities laws in India through historical sources (e.g. economic shift), landmark law (irreformulation) and institutional formation (financial irregularities).
Page Contents
1. Introduction
The financial structure of any country depends heavily on the securities market. As India develops, the legal and regulatory frameworks in place are being reinforcated to ensure investor safety; maintain market accountability; and facilitate efficient capital mobilisation. These laws have been designed to be responsive to crises and forward-looking.
2. Historical Overview
India’s capital markets were relatively unregulated during the pre-independence era. Under the framework of the Companies Act of 1956, securities were issued without a central authority, which resulted in widespread manipulation and lack of transparency.
- Early milestones:
- The 1920s-1930s witnessed unregulated stock trading.
- The Companies Act was enacted in 1956 to supervise corporate fundraising.
- SEBI was established as a non-statutory watchdog in 1988.
- The Harshad Mehta scam in 1992 led to SEBI being granted statutory authority.
3. Major Legislative Developments
SEBI Act, 1992
SEBI was given the authority to monitor the securities market, enforce fairness, and protect investor interests by preventing practices like insider trading and fraud. This Act has been extended.
Securities Contracts (Regulation) Act, 1956
The Regulations on Securities Exchanges (SCRA) provide a regulatory framework for stock exchanges that are recognized and regulate the listing, trading, and operation of securities.
Depositories Act, 1996
The act enabled the digitalization of securities through dematerialization, leading to the establishment of significant institutions like NSDL and CDSL for secure trading without paper.
Companies Act, 2013
The Act was modified to replace the 1956 law and concentrated on enhancing corporate transparency and disclosures to investors, particularly in public and private placement matters (Sections 23 to 42).
4. Regulatory Structure
Multiple organizations operate in India’s capital market:
- The central government that creates laws, supervises intermediaries, and enforces them (SEBI).
- The Ministry of Finance is accountable for managing the comprehensive financial policies and guiding strategic decisions.
- The NSE and BSE are institutions that are under the supervision of SEBI, which ensures efficient and just trading.
5. Key Reforms and Progress
Post-1992 Overhaul
The securities fraud of 1992 prompted extensive reforms, including the granting of complete legal authority to SEBI, the strengthening of disclosure and transparency regulations, and the requirement for market participants to register with SEBI.
Technology-Driven Developments (2000s)
Under the revamped FPI rules, online trading became a common practice, compulsory dematerialization was introduced and foreign investment saw re-valuate.
Contemporary Changes
The SEBI (LODR) Regulations, 2015 established standardization for entities that are listed. A proposed Securities Market Code aims to consolidate the major securities laws into a single, comprehensive code. ESG compliance and green finance are becoming more prevalent.
Ongoing Challenges
The legal system’s mature state still entails several challenges: Insider trading remains challenging to monitor, regulators across different jurisdictions overlap, and investors are not fully informed or knowledgeable about financial matters.
7. Conclusion
India’s law on securities is developing due to a convergence of market demands, regulatory perspectives, and fraud prevention measures. Despite the fact that the framework has become more robust, it is still essential to implement ongoing reform and investor-focused policies to ensure integrity and inclusive growth in the financial markets.
8. References
- SEBI Act, 1992.
- Securities Contracts (Regulation) Act, 1956.
- Depositories Act, 1996.
- Companies Act, 2013.
- SEBI Annual Reports.
- Sahoo, M. (2012). Regulatory Development of the Indian Securities Market.
- Ministry of Finance Publications.
- Jain, N.L. (2020). Securities and corporate law in India. LexisNexis.
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