This document provides information on financial markets and regulatory frameworks in India. It discusses key concepts like money markets, capital markets, and the distinction between primary and secondary markets. It also outlines various money market instruments like treasury bills, commercial papers, certificates of deposit, and trade bills. The roles of the Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI) in regulating financial markets are summarized. RBI oversees banks and money markets while SEBI regulates capital markets and issues related to shares, stocks, and corporate bonds.

1. Subject:- BFS
Class:- SYBMS
Professor:- Yuti Nandu
Financial Market
&
Regulatory Framework

2. FINANCIAL MARKET
A financial market is the place where financial assets
are created or transferred. It can be broadly
categorized into money markets and capital
markets. Money market handles short-term financial
assets (less than a year) whereas capital markets
take care of those financial assets that have maturity
period of more than a year

3. CLASSIFICATIONS OF
MARKET
Classification
Organized
Capital Market
Primary Market
Secondary
Market
Money Market
Unorganized
Money Lenders,
Indigenous
bankers

4. USERS OF
FUNDS
(CORPORATES)
UNDERWRITING
WITH
INVESTMENT
BANK
IPO AND
PRIMARY ISSUE
FINANCIAL
MARKETS
SECURITIES
BROKERS
OTHER
SUPPLIER
OF FUNDS

5. DISTINCTION BETWEEN PRIMARY & SECONDARY
POINTS PRIMARY SEONDARY
Functions Raise long term funds
through fresh issue of
securities
Providing constant and
ready market for existing
long-term securities
Participants Financial Institutions,
Mutual funds, underwriters,
Individual investors
Stock brokers
Listing Requirements No listing required Only listed securities can
be traded
Determination of Prices Single mindedly decided by
the management along
with due compliance of
SEBI requirements for
fresh issues
Prices of securities are
determined by market
forces of demand and
supply

6. MONEY MARKET INSTRUMENTS
Call Money
Treasury Bills
Commercial Paper
Certificate of deposit
Trade Bill

7. CALL MONEY
 Money loaned by a bank or other institution which is
repayable on demand.
 Call money is any type of short-term, interest-earning
financial loan that the borrower has to pay back immediately
whenever the lender demands it.
 Call money allows banks to earn interest, known as
the call loan rate, on their surplus funds.
 Call money is typically used by brokerage firms for short-term
funding needs.

8. TREASURY BILL
 These are government bonds or debt securities with maturity of less than
a year. Description: T- bills are issued to meet short-term mismatches in
receipts and expenditure.
 Highly Liquid in nature, The Holder of T-Bill can get it discounted anytime
By RBI
 Normally issued at price below their face value and redeemed at face
value
 Difference between the issue price and and Face value is denoted as
interest on investment
 Secured type of investment, issued for period not extending 364 days.
 Banks, Financial Institutions and corporation plays a major role in the T-
Bills market.

9. COMMERCIAL PAPERS
Popular instrument which helps in financing the
Working capital requirements of companies.
Unsecured instrument issued in the arrangement of
promissory note.
Introduced in 1990 so as to enable corporate
borrowers to raise short term funds.
15 days to a year
Transferrable by endorsement

10. CERTIFICATE OF
DEPOSITCDs are short-term instruments issued by
Commercial banks and Special Financial Institutions
Freely transferable from one person to another.
91 days to one year.
Can be Issued to individuals, co-operatives and
companies.

11. TRADE BILL
On daily basis, the traders buy goods from
wholesalers or manufacturing units on credit.
The sellers get payment at the end of the credit
period.
Negotiable instrument.
Can be discounted from Bank
before the maturity period.

12. DISTINCTION BETWEEN MONEY AND
CAPITAL MARKET
MONEY MARKET CAPITAL MARKET
Related to short term funds Related to long term funds
Deals in securities like Treasury bills,
commercial papers, trade bills, deposit
certificate
Deals in Shares, debentures, bonds and
government securities.
Participants are RBI, Commercial banks,
non-banking financial companies
Participants are Stockbrokers,
underwriters, mutual funds, individual
investors, financial institutions
Regulated by RBI (Reserve Bank of India) Regulated by SEBI (Securities Exchange
Board of India)

13. ROLE OF CAPITAL MARKET
MOBILIZATION OF
SAVINGS
CAPITAL
FORMATION
ECONOMIC
DEVELOPMENT
INTEGRATES
DIFFERENT PARTS
OF THE FINANCIAL
SYSTEM
PROMOTION OF
STOCK MARKET
FOREIGN CAPITAL
ECONOMIC
WELFARE

14. FACTORS RESPONSIBLE FOR
GROWTH OF CAPITAL MARKETS IN
INDIA
Growth Of
Financial
Institutions
Merchant
Banking
Services
Growth Of
Multinational
General
Awareness
Growing
Population
Legislative
Measures
Growth Of
Underwriting
Business
Growing Public
Confidence

15. FACTORS AFFECTING CAPITAL MARKE
Price Rigging
Regulatory actions
RBI Monetary Policies
Market Sentiments
Company announcements
Global Incidents
Weather
Natural Disasters
Political Situations
Government Policies

16. REGULATORY FRAMEWORK FOR
FINANCIAL MARKETS
 Financial System comprises of Financial Institutions, Financial markets, Financial instruments and
Financial Services all being regulated by regulators like Ministry of Finance, The Company Law of
Board, RBI, SEBI, IRDA etc.
 The Two main regulatory and promotional body in India are Reserve Bank Of India (RBI) and
Securities Exchange Board of India (SEBI).
 Both RBI and SEBI administer, legislate, supervise, monitor, control and discipline the entire
financial system.
RBI
• (Controls Banks)
SEBI
• (Controls Financial Institutions)

17. RESERVE BANK OF INDIA
 The RESERVE BANK OF INDIA is the CENTRAL BANK of our
country
 Making it an apex financial institutions of the country’s financial
system
 Assigned with the task of control, supervision, promotion,
development and planning.
 Came into existence on 1st April 1935 as per the Reserve Bank
of India Act, 1935.
 In 1949 it was nationalised.
 Became Public Sector Bank from 1st January 1949.
 Queen bee of Indian Financial system which Influences
commercial bank’s management in more than one way.
 RBI Effects the Management of commercial banks through its
various policies, directions and regulations.
 Organises for training colleges to the banks employees and
officers.

18.  The fundamental object of the Reserve bank of India is to discharge purely central banking
functions in the Indian Money Market, i.e. to act as Note Issuing authority, Banker’s
Bank, Banker to Government and to Promote growth of economy within the framework
of the general economic policy of the Government.
 Supports the planned process of development of Indian economy.
 The most note worthy provision of the Banking Regulation Act is provision and Regulation
of Banks. Section 35 of the act says that RBI can inspect any branch of Indian Bank
located in or outside the country. Later on, it also issued licensing for the banks and can
establish new branches to maintain regional balance in the country.
 The RBI is empowered to buy and sell government securities from the public and
financial institutions.
 The RBI is empowered to buy and sell government securities, treasury bills and other
approved securities.
 The central bank uses this weapon to overcome seasonal stringency in funds during
the slack season.
 The money market comes within the direct purview RBI
 RBI influences liquidity and interest rates through a number of operating instruments
such as CRR ,Open market operations, repo rate, reverse repo rate, changes in bank rates
etc…

19. ROLE OF RESERVE BANK OF INDIA
 To manage adequate money and credit in the country.
 To maintain the stability of rupee internally and externally.
 Balanced and well managed banking development in the country.
 To develop well organized money market.
 To provide adequate agriculture credit.
 To manage public debt.
 To seek international monetary co-operation.
 Centralization of cash reserves of commercial banks.
 To set up Government banks.

20. FUNCTIONS OF RBI
PROMOTIONAL
ROLE
SUPERVISORY
FUNCTIONS
TRADITIONAL
FUNCTIONS

21. Traditional/
Monetary
Functions
Currency
issue
Banker Bank
Banker to
Government
Custodian of
foreign
exchange
reserves
Bank of Central
Clearance,
settlement and
Transfer
Lender of last
resort
Controller of
credit

22. SUPERVISORY FUNCTIONS
Granting License
to Banks
Functions of
Inspection and
Enquiry
Controls the Non-
Banking Financial
Corporations

23. PROMOTIONAL ROLE
PROMOTION
OF BANKING
HABITS
PROVIDES
REFINANCE
FOR EXPORT
PROMOTION
FACILITIES
FOR
AGRICULTURE
FACILITIES
FOR SMALL
SCALE
INDUSTRIES
PROVISIONS
OF TRAINING
COLLECTION
OF DATA
PUBLICATION
OF THE
REPORTS

24. FINANCIAL MARKET INFRASTRUCTURE
REGULATED BY RBI
RTGS
• The acronym 'RTGS'
stands for real-time
gross settlement.
The Reserve Bank of
India (India's Central
Bank) maintains this
payment network.
Real-time gross
settlement is a funds
transfer mechanism
where transfer of
money takes place
from one bank to
another on a 'real
time' and on 'gross'
basis.
SSS
• Securities Settlement
Systems (SSS): The
Public Debt Office
(PDO) of the RBI,
Mumbai manages
and operates the
Securities Settlement
Systems for the
Government
securities, both for
outright and repo
transactions
conducted in the
secondary market.
CCIL
• Clearing Corporation
of India Ltd
(CCIL): CCIL is a
Central Counterparty
(CCP) which was set
up in April 2001 to
provide clearing and
settlement for
transactions in
Government
securities, foreign
exchange and
money markets in
the country.

25. SECURITIES EXCHANGE BOARD OF INDIA
(SEBI)
Securities and Exchange
Board of India (SEBI) is a
statutory regulatory body
entrusted with the
responsibility to regulate
the Indian capital markets.

26. More About SEBI……
 It monitors and regulates the securities market and protects the interests of the
investors by enforcing certain rules and regulations.
 SEBI was founded on April 12, 1992, under the SEBI Act, 1992.
 Headquartered in Mumbai, India, SEBI has regional offices in New Delhi, Chennai,
Kolkata and Ahmedabad along with other local regional offices across prominent cities
in India.
 The objective of SEBI is to ensure that the Indian capital market works in a systematic
manner and provide investors with a transparent environment for their investment.
 To put it simply, the primary reason for setting up SEBI was to prevent malpractices in
the capital market of India and promote the development of the capital markets.

27. OBJECTIVES OF SEBI
To provide a degree of
protection to the
investors and
safeguard their rights
and to ensure that
there is a steady flow
of funds in the market.
To promote fair
dealings by the issuer
of securities and
ensure a market where
they can raise funds at
a relatively low cost.
To regulate and
develop a code of
conduct for the
financial intermediaries
and to make them
competitive and
professional.
To provide for the
matters connecting
with or incidental to the
above.

28. COMPOSITION OF SEBI
 Section 4(1) of SEBI Act provides that the SEBI Board shall consist of following members,
namely:
a) Chairman
b) Two members from amongst the officials of the ministry of the Central Government dealing
with Finance and administration of the Companies Act,2013
c) One member from amongst the officials of the Reserve Bank
d) Five other members of whom at least three shall be the whole time members, to be
appointed by the Central Government.
The Chairman and other members shall be persons of ability, integrity and
standing who have shown capacity in dealing with problems relating to securities market or
have special knowledge or experience of law, finance, economics, accountancy,
administrations or any other discipline which in the opinion of the Central Government, shall
be useful to SEBI.

29. POWERS AND FUNCTIONS OF
SEBI Section 11 of the SEBI Act deals with the powers and functions of the SEBI as
follows:
i. It shall be the duty of board to protect the interests of the investors in securities and
to promote the development of and to regulate the securities market by measures as
deemed fit.
ii. Promoting investors education and training of intermediaries of securities markets.
iii. Prohibiting insider trading in securities.
iv. Regulating substantial acquisition of shares and take over of companies.
v. Registering and regulating the working stock brokers, sub-brokers, share transfer
agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant
bankers, underwriters, portfolio managers, investment advisors and such other
intermediaries who may be associated with securities markets in any manner.

30. vi. Calling for information from undertaking, inspection,
concluding inquires and audits of the stock exchanges,
mutual funds, other persons associated with the securities
market intermediaries and self-regulatory organizations in the
securities market.
vii.SEBI has to also concentrate on:
a) Eligibility norms for companies issuing securities.
b) Pricing of securities by companies.
c) Promote contribution and lock in requirements.
d) Pre-issue obligations of the merchant bankers.
e) Guidelines on advertisements, issue of debt instruments, book building
process, public offer through stock exchange, issue of capital by financial
institutions, preferential issues of securities, bonus issues, Other
operational and miscellaneous matters.

31. ACHIEVEMENTS OF SEBI
Dematerialisation of Shares
Rolling Settlement Process
Regulating Working of
Institutions
Fostering Mutual Fund Industry
Derivatives Trading
Transparency
M&A
Investor Education
Merchant Banking
Circuit-breaker System

32. SECURITIES CONTRACTS ACT,1956
Prior to the establishment of SEBI stock exchange were under the
administrative control of the Stock Exchange Division of DEA. The stock
exchange division was responsible for the administration of the Securities
Contract Regulation Act,1956. Which governed the business of buying, selling
and dealing in securities. “An Act to prevent undesirable transactions in
securities by regulating the business of dealing therein, by providing for certain
other matters connected therewith.
 This Act may be called the Securities Contracts Act,1956.
 It extends to the whole of India.
In this Act, unless the context otherwise requires:
a) “Contract” means a contract for or relating to the purchase or sale of securities.

33. b) “Corporatisation” means the succession of a recognised stock exchange,
being a body of individuals or a society registered under the Societies
Registration Act,1860(21 of 1860), by another stock exchange, being a
company incorporated for the purpose of assisting, regulating or
controlling the business of buying, selling or dealing in securities carried
on by such individuals or society.
c) “demutualisation” means the segregation of ownership and management
from the trading rights of the members of a recognised stock exchange in
accordance with a scheme approved by the Securities and Exchange
Board of India.
d) “Derivative“ includes :
i) a security derived from a debt instrument, share, loan whether secured
or unsecured, Risk instrument or contract for differences or any other form
of security.
ii) a contract which derives its value from the prices, or index of prices of
underlying securities.

34. ORGANISATIONS REGULATING
SECURITIES MARKETS IN INDIA
Five agencies have a significant regulatory influence, directly or indirectly, over the securities
markets in India currently:
1. The Company Law Board (CLB) which is a quasi-judicial and judicial powers under the Act
previously exercised by the High Court and the Central Government.
2. The Reserve Bank of India (RBI) which is primarily responsible inter alia (among other things) for
the supervision of banks and money markets.
3. Securities Exchange Board of India (SEBI) which is responsible for the regulation of capital
markets and the various participants and activities therein.
4. Department of Economic Affairs (DEA) which is responsible for the economic management of the
country and is the arm of the government that is concerned with the orderly functioning of the
financial markets as a whole.
5. Ministry of Corporate Affairs(MCA) which is at the apex of a three tier structure that has
responsibility for the registration and oversight of incorporated entities which fall under the
regulatory purview of the companies Act.