The Evolution Of Securities Regulation In India

Towards the closing decade of the 20th century, the regulatory perception of the securities market took an optimistic turn and set a number of crucial developments into motion. These series of reforms were chiefly motivated by the need to create an efficient securities market to ensure proper resource allocation and give way to the forces of liberalisation, which were rapidly gaining ground in the 1990s.

This ultimately led to the establishment of the current statutory regulator, the Securities and Exchange Board of India in 1992 (though formed in 1988 as an administrative body), to protect the interests of the investors and regulate the securities market, as opposed to controlling it—a function that was earlier performed by the Controller of Capital Issues to the detriment of the market, investors and new companies.

All in all, the idea behind setting up SEBI was to create a free-and-fair securities market in India. What followed as a natural consequence was the withdrawal of prior government approval for public issuances in the securities market, essentially empowering issuers to freely raise capital from the primary market, subject to making satisfactory disclosures in the offer documents.

Fairness and integrity of the securities market was intended to be ensured by mandating the disclosure of specified categories of information to secure parity among investors, backed by extensive liability for inaccuracy or misrepresentation.

Through this, it was observed that the control that the government once exercised over the securities market was sought to be vested in the hands of the public, by empowering them to make decisions on the basis of accurate, consistent and relevant information.

The disclosure requirements were further supplemented by necessitating strong corporate governance practices and principle-based accounting standards, to consolidate India’s position as a preferred investment destination with a reliable and efficient securities market.

The Indian securities market, which was once completely insulated from foreign investment, was now headed for integration with the international capital markets through the recognition of foreign portfolio investors who could invest with few, if any, restrictions on investments or repatriation.

While the introduction of SEBI marked a steady step towards progress, the 1990s were also known for multiple instances of market manipulation and fraud, which took the securities market by storm and caused disillusionment in the eyes of the public. These instances triggered a host of reforms and profound changes to the structure and design of the securities market.

In-person trading and the traditional out-cry system assumed the nature of electronic screen-based trading, and represented one of the initial yet commendable attempts at technological integration in the securities market.