Recent trends in Indian Capital Market
The Securities and Exchange Board of India (SEBI) was established in 1988 to regulate the security market, to protect the interest of investors, control the mutual fund companies, promote stock exchange activities etc. Extensive Capital Market Reforms were undertaken during the 1990s encompassing legislative regulatory and institutional reforms. The liberalization policy of India 1991 boosts up the Indian Capital Market. Statutory market regulator, which was created in 1992, was suitably empowered to regulate the collective investment schemes and plantation schemes through an amendment in 1999. Further, the power of SEBI have been empowered with compliance and enforcement powers including search and seizure powers through an amendment in SEBI Act in 2002. The following are the recent trends in Indian capital market.
1. Technology and capital market.
[IT and Telecommunication Revolution- automatic and electronic trading platform- real time information passing – screen based trading help to make transactions anywhere - internet trading- mobile trading- Electronic clearing and settlement-
RTGS in 2004(Real Time Gross Settlement, which can be defined as the continuous (real-time) settlement of funds transfers individually on an order. The minimum amount to be remitted through RTGS is ` 2 lakh. There is no upper ceiling for RTGS transactions. Under normal circumstances the beneficiary branches are expected to receive the funds in real time as soon as funds are transferred by the remitting bank. The beneficiary bank has to credit the beneficiary's account within 30 minutes of receiving the funds transfer message.
Straight Through Processing (STP) will completely automate the process of order flow and clearing and settlement on the stock exchanges.
2. Mobile Based Trading
Shorter trade cycles. [adopted ‘rolling settlement’ has been introduced in 1/4/2003 instead of ‘account period settlement’. Rolling Settlement is a mechanism of settling trades done on a stock exchange on T + 1/2/3/4/5 days basis. The netting (settling of obligation between two parties) of trades is done only for the day and not for multiple days.
This contrasts with account settlement, in which all trades are settled once in a set period of days, regardless of when the trade took place. It took between one to two weeks for the investor for settlement.]
3. Dematerialisation of securities.
4. Introduction of Risk Management System [An efficient clearing and settlement system. Risk containment measures include capital adequacy requirements of members, monitoring of member performance and track record, stringent margin requirements, position limits based on capital, online monitoring of member positions and automatic disablement from trading when limits are breached, etc.]
5. The Credit Rating Information Services of India Ltd (CRISIL, 1988), Investment Information and Crdit Rating Agency of India Ltd (ICRA 1991) etc were set up to assess the financial position of institutions.
6. Merchant banking was started by many banks to provide financial services.
A bank that deals mostly in international finance, long-term loans for companies and underwriting. Merchant banks do not provide regular banking services to the general public.
7. NSDL and CDSL
Depositories like NSDL and CDSL were set up to give free transferability of securities, electronic transfer and also scruples trading on stock exchange.
A depository is an organization that holds securities of investors in an electronic format at the request of an investor through a registered Depository Participant. It assists in the allotment and transfer of securities and securities lendingThis system is governed under the Depositories Act by the government. The enactment of this act paved the way for the establishment of NSDL and CDSL.
NSDL stands for ‘National Securities Depository’, whereas CDSL stands for ‘Central Depository Securities’ Limited. They hold various securities like shares in electronic form.
8. Introduction and growth of Derivative market (Since 2000)
9. Trading in commodities has been started by setting up Multi Commodity Exchange (MCX)
10. Insurance Regulatory and Development Authority (IRDA) was set up in 2000 which helped the entry of private insurance companies in India. Many public sector banks, foreign banks, financial institutions have launched many new mutual funds that has helped the investors to have wide choices.
11. Launch of Currency Futures
12. Growth of Debt/Bond/G-Secs Markets
13. Active participation of FIIs
14. Increased investment from Retail Investors
15. New payment option for investors
16. IPO Boom
17. E-IPO
18. Entry of Qualified Foreign Investors
19. Qualified Foreign Investors
The Qualified Foreign Investor (QFI) is sub-category of Foreign Portfolio Investor and refers to any foreign individuals, groups or associations, or resident, however, restricted to those from a country that is a member of Financial Action Task Force (FATF).
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