1. Financial Regulatory Bodies In India:
The financial system in India is regulated by independent regulators in the field of banking,
insurance, capital market, commodities market, and pension funds. However, Government of
India plays a significant role in controlling the financial system in India and influences the roles
of such regulators at least to some extent.
The following are five major financial regulatory bodies in India:
(A) Statutory Bodies via parliamentary enactments:
1. Reserve Bank of India : Reserve Bank of India is the apex monetary Institution of
India. It is also called as the central bank of the country.
The Reserve Bank of India was established on April 1, 1935 in accordance with the
provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank
was initially established in Calcutta but was permanently moved to Mumbai in 1937. The
Central Office is where the Governor sits and where policies are formulated. Though
originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by
the Government of India.
It acts as the apex monetary authority of the country. The Central Office is where the
Governor sits and is where policies are formulated. Though originally privately owned, since
nationalization in 1949, the Reserve Bank is fully owned by the Government of India. The
preamble of the reserve bank of India is as follows:
"to regulate the issue of Bank Notes and keeping of reserves with a view to securing
monetary stability in India and generally to operate the currency and credit system of the
country to its advantage."
2. Securities and Exchange Board of India : SEBI Act, 1992 : Securities and Exchange
Board of India (SEBI) was first established in the year 1988 as a non-statutory body for
regulating the securities market. It became an autonomous body in 1992 and more powers
were given through an ordinance. Since then it regulates the market through its
independent powers.

2. 3. Insurance Regulatory and Development Authority : The Insurance Regulatory and
Development Authority (IRDA) is a national agency of the Government of India and is
based in Hyderabad (Andhra Pradesh). It was formed by an Act of Indian Parliament
known as IRDA Act 1999, which was amended in 2002 to incorporate some emerging
requirements. Mission of IRDA as stated in the act is "to protect the interests of the
policyholders, to regulate, promote and ensure orderly growth of the insurance industry
and for matters connected therewith or incidental thereto.
4. Forward Market Commission India (FMC) : Forward Markets Commission (FMC)
headquartered at Mumbai, is a regulatory authority which is overseen by the Ministry of
Consumer Affairs, Food and Public Distribution, Govt. of India. It is a statutory body set up in
1953 under the Forward Contracts (Regulation) Act, 1952 This Commission allows commodity
trading in 22 exchanges in India, out of which three are national level.
4. PFRDA under the Finance Ministry : Pension Fund Regulatory and Development
Authority : PFRDA was established by Government of India on 23rd August, 2003. The
Government has, through an executive order dated 10th October 2003, mandated PFRDA
to act as a regulator for the pension sector. The mandate of PFRDA is development and
regulation of pension sector in India.

3. INTRODUCTION:
The Securities and Exchange Board of India (SEBI) is the regulatory authority in India
established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of
Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting the
interests of investors in securities (b) promoting the development of the securities market and (c)
regulating the securities market. Its regulatory jurisdiction extends over corporates in the
issuance of capital and transfer of securities, in addition to all intermediaries and persons
associated with securities market. SEBI has been obligated to perform the aforesaid functions by
such measures as it thinks fit. In particular, it has powers for:
Regulating the business in stock exchanges and any other securities markets
Registering and regulating the working of stock brokers, sub-brokers etc.
Promoting and regulating self-regulatory organizations
Prohibiting fraudulent and unfair trade practices Calling for information from,
undertaking inspection, conducting inquiries and audits of the stock exchanges,
intermediaries, self - regulatory organizations, mutual funds and other persons associated
with the securities market.
The SEBI is managed by six members, i.e. by the chairman who is nominated by central
government & two members, i.e. officers of central ministry, one member from the RBI & the
remaining two are nominated by the central government. The office of SEBI is situated at
Mumbai with its regional offices at Kolkata, Delhi & Chennai.

4. Role or Functions of SEBI as Regulatory Authority:
The role or functions of SEBI are discussed below.
1. To protect the interests of investors through proper education and guidance as regards
their investment in securities. For this, SEBI has made rules and regulation to be followed
by the financial intermediaries such as brokers, etc. SEBI looks after the complaints
received from investors for fair settlement. It also issues booklets for the guidance and
protection of small investors.
2. To regulate and control the business on stock exchanges and other security markets. For
this, SEBI keeps supervision on brokers. Registration of brokers and sub-brokers is made
compulsory and they are expected to follow certain rules and regulations. Effective
control is also maintained by SEBI on the working of stock exchanges.
3. To make registration and to regulate the functioning of intermediaries such as stock
brokers, sub-brokers, share transfer agents, merchant bankers and other intermediaries
operating on the securities market. In addition, to provide suitable training to
intermediaries. This function is useful for healthy atmosphere on the stock exchange and
for the protection of small investors.
4. To register and regulate the working of mutual funds including UTI (Unit Trust of India).
SEBI has made rules and regulations to be followed by mutual funds. The purpose is to
maintain effective supervision on their operations & avoid their unfair and anti-investor
activities.
5. To promote self-regulatory organization of intermediaries. SEBI is given wide statutory
powers. However, self-regulation is better than external regulation. Here, the function of
SEBI is to encourage intermediaries to form their professional associations and control
undesirable activities of their members. SEBI can also use its powers when required for
protection of small investors.
6. To regulate mergers, takeovers and acquisitions of companies in order to protect the
interest of investors. For this, SEBI has issued suitable guidelines so that such mergers
and takeovers will not be at the cost of small investors.

5. 7. To prohibit fraudulent and unfair practices of intermediaries operating on securities
markets. SEBI is not for interfering in the normal working of these intermediaries. Its
function is to regulate and control their objectional practices which may harm the
investors and healthy growth of capital market.
8. To issue guidelines to companies regarding capital issues. Separate guidelines are
prepared for first public issue of new companies, for public issue by existing listed
companies and for first public issue by existing private companies. SEBI is expected to
conduct research and publish information useful to all market players (i.e. all buyers and
sellers).
9. To conduct inspection, inquiries & audits of stock exchanges, intermediaries and self-
regulating organizations and to take suitable remedial measures wherever necessary. This
function is undertaken for orderly working of stock exchanges & intermediaries.
10. To restrict insider trading activity through suitable measures. This function is useful for
avoiding undesirable activities of brokers and securities scams.
ROLE OF SEBI IN INDIAN CAPITAL MARKET:
SEBI is regulator to control Indian capital market. Since its establishment in 1992, it is doing
hard work for protecting the interests of Indian investors. SEBI gets education from past cheating
with naive investors of India. Now, SEBI is more strict with those who commit frauds in capital
market.
The role of security exchange board of India (SEBI) in regulating Indian capital market is very
important because government of India can only open or take decision to open new stock
exchange in India after getting advice from SEBI.
1. Power to make rules for controlling stock exchange :
SEBI has power to make new rules for controlling stock exchange in India. For example, SEBI
fixed the time of trading 9 AM and 5 PM in stock market.
2. To provide license to dealers and brokers :
SEBI has power to provide license to dealers and brokers of capital market. If SEBI sees that any

6. financial product is of capital nature, then SEBI can also control to that product and its dealers.
One of main example is ULIPs case. SEBI said, " It is just like mutual funds and all banks and
financial and insurance companies who want to issue it, must take permission from SEBI."
3. To Stop fraud in Capital Market :
SEBI has many powers for stopping fraud in capital market
It can ban on the trading of those brokers who are involved in fraudulent and unfair trade
practices relating to stock market.
It can impose the penalties on capital market intermediaries if they involve in insider
trading.
4. To Control the Merge, Acquisition and Takeover the companies :
Many big companies in India want to create monopoly in capital market. So, these
companies buy all other companies or deal of merging. SEBI sees whether this merge or
acquisition is for development of business or to harm capital market.
5. To audit the performance of stock market :
SEBI uses his powers to audit the performance of different Indian stock exchange for
bringing transparency in the working of stock exchanges.
6. To make new rules on carry - forward transactions :
Share trading transactions carry forward cannot exceed 25% of broker's total transactions
90 day limit for carry forward.
7. To create relationship with ICAI :
ICAI is the authority for making new auditors of companies. SEBI creates good
relationship with ICAI for bringing more transparency in the auditing work of company
accounts because audited financial statements are mirror to see the real face of company
and after this investors can decide to invest or not to invest. Moreover, investors of India
can easily trust on audited financial reports. After Satyam Scam, SEBI is investigating
with ICAI, whether CAs are doing their duty by ethical way or not.

7. 8. Introduction of derivative contracts on Volatility Index :
1. For reducing the risk of investors, SEBI has now been decided to permit Stock
Exchanges to introduce derivative contracts on Volatility Index, subject to the condition
that;
a. The underlying Volatility Index has a track record of at least one year.
b. The Exchange has in place the appropriate risk management framework for such
derivative contracts.
2. Before introduction of such contracts, the Stock Exchanges shall submit the following:
i. Contract specifications
ii. Position and Exercise Limits
iii. Margins
iv. The economic purpose it is intended to serve
v. Likely contribution to market development
vi. The safeguards and the risk protection mechanism adopted by the exchange to ensure
market integrity, protection of investors and smooth and orderly trading.
vii. The infrastructure of the exchange and the surveillance system to effectively monitor
trading in such contracts, and
viii. Details of settlement procedures & systems
ix. Details of back testing of the margin calculation for a period of one year considering a
call and a put option on the underlying with a delta of 0.25 & -0.25 respectively and
actual value of the underlying.
9. To Require report of Portfolio Management Activities :
SEBI has also power to require report of portfolio management to check the capital
market performance. Recently, SEBI sent the letter to all Registered Portfolio Managers
of India for demanding report.
10. To educate the investors :
Time to time, SEBI arranges scheduled workshops to educate the investors. On 22 may
2010 SEBI imposed workshop.

8. INTRODUCTION: Capital market is one of the most important segments of the Indian
financial system. It is the market available to the companies for meeting their requirements of the
long-term funds. It refers to all the facilities and the institutional arrangements for borrowing and
lending funds. In other words, it is concerned with the raising of money capital for purposes of
making long-term investments. The market consists of a number of individuals and institutions
(including the Government) that canalise the supply and demand for long -term capital and
claims on it. The demand for long term capital comes predominantly from private sector
manufacturing industries, agriculture sector, trade and the Government agencies. While, the
supply of funds for the capital market comes largely from individual and corporate savings,
banks, insurance companies, specialised financing agencies and the surplus of Governments.
The Indian capital market is broadly divided into the gilt-edged market and the industrial
securities market.
 The gilt-edged market refers to the market for Government and semi-government
securities, backed by the Reserve Bank of India (RBI). Government securities are
tradable debt instruments issued by the Government for meeting its financial
requirements. The term gilt-edged means 'of the best quality'. This is because the
Government securities do not suffer from risk of default and are highly liquid (as they can
be easily sold in the market at their current price). The open market operations of the RBI
are also conducted in such securities.
 The industrial securities market refers to the market which deals in equities and
debentures of the corporate. It is further divided into primary market and secondary
market.
 Primary market (new issue market): deals with 'new securities', that is, securities which
were not previously available and are offered to the investing public for the first time. It is
the market for raising fresh capital in the form of shares and debentures. It provides the
issuing company with additional funds for starting a new enterprise or for either
expansion or diversification of an existing one, and thus its contribution to company
financing is direct. The new offerings by the companies are made either as an initial

9. public offering (IPO) or rights issue.
 Secondary market/ stock market (old issues market or stock exchange): is the market
for buying and selling securities of the existing companies. Under this, securities are
traded after being initially offered to the public in the primary market and/or listed on the
stock exchange. The stock exchanges are the exclusive centres for trading of securities. It
is a sensitive barometer and reflects the trends in the economy through fluctuations in the
prices of various securities. It been defined as, "a body of individuals, whether
incorporated or not, constituted for the purpose of assisting, regulating and controlling the
business of buying, selling and dealing in securities". Listing on stock exchanges enables
the shareholders to monitor the movement of the share prices in an effective manner. This
assist them to take prudent decisions on whether to retain their holdings or sell off or even
accumulate further. However, to list the securities on a stock exchange, the issuing
company has to go through set norms and procedures.
Regulatory Framework of Capital Markets:
In India, the capital market is regulated by the Capital Markets Division of the Department of
Economic Affairs, Ministry of Finance. The division is responsible for formulating the policies
related to the orderly growth and development of the securities markets (i.e. share, debt and
derivatives) as well as protecting the interest of the investors. In particular, it is responsible for (i)
institutional reforms in the securities markets, (ii) building regulatory and market institutions,
(iii) strengthening investor protection mechanism, and (iv) providing efficient legislative
framework for securities markets, such as Securities and Exchange Board of India Act, 1992
(SEBI Act 1992); Securities Contracts (Regulation) Act, 1956; and the Depositories Act,
1996. The division administers these legislations and the rules framed thereunder.
The Securities and Exchange Board of India (SEBI) is the regulatory authority established
under the SEBI Act 1992, in order to protect the interests of the investors in securities as well as
promote the development of the capital market. It involves regulating the business in stock
exchanges; supervising the working of stock brokers, share transfer agents, merchant bankers,
underwriters, etc; as well as prohibiting unfair trade practices in the securities market. The

10. following departments of SEBI take care of the activities in the secondary market:
 Market Intermediaries Registration and Supervision Department (MIRSD) :
concerned with the registration, supervision, compliance monitoring and inspections of
all market intermediaries in respect of all segments of the markets, such as equity, equity
derivatives, debt and debt related derivatives.
 Market Regulation Department (MRD) :concerned with formulation of new policies as
well as supervising the functioning and operations (except relating to derivatives) of
securities exchanges, their subsidiaries, and market institutions such as Clearing and
settlement organizations and Depositories.
 Derivatives and New Products Departments (DNPD) : concerned with supervising
trading at derivatives segments of stock exchanges, introducing new products to be traded
and consequent policy changes.

11. Role of capital market in increasing investor protection:
Capital Markets play a key role in the development of every economy, and as a result,
governments in various countries deem it necessary to regulate these markets. And
Financial markets have only one asset that really matters and that asset is PUBLIC
CONFIDENCE.
In order for capital markets to thrive, there must be adequate safeguards, which will
enhance public confidence in the markets.
These safeguards are usually the investor protection roles and functions of regulatory
bodies of the capital markets.
Investor protection is intended to enhance investors‟ confidence in the capital markets.
Confidence in any capital market, is perhaps the single most important pre-requisite for
its sustenance and growth.
For a market to foster business development it must be attractive to prospective investors looking
for investment opportunities. In order for a market to be attractive to potential investors, it must
have earned investor confidence, which in turn is achieved through the imposition and effective
enforcement of rules which ensure the market is operated efficiently and fairly.
Principles of Regulation in capital market:
Key to a successful securities trading system is that all investors share equally in the risks and
opportunities of investment. A number of principles have been developed in securities regulation
to ensure fairness in the market. In the market, the fundamental principle which ensures equal
opportunity is that all trading in securities must take place in an environment where there has
been full, true and plain disclosure of all material facts. This is brought about through a set of
rules which impose significant disclosure requirements upon businesses, which seek to raise
finances from the public through the capital market, as well as their controllers and insiders, and
rules which ensure fair trading practices among all those who trade in the market. While it is
never possible for there to be perfect information available to investors, it is the objective of
securities regulation to ensure that sufficient information is always available to permit buyers and
sellers of securities to make informed decisions. Issuers are faced with obligations for full and

12. timely disclosure of any information about the issuer, as well as its key shareholders, where the
timing of access to such information can have a significant impact on investors.
The regulation of securities in market has also been designed to ensure that trading is conducted
fairly, and that issuers and those that deal in securities on their behalf, provide fair treatment to
investors.
There are two primary means used to promote public confidence in securities traded on
markets. These are;
a) full disclosure at the time of the initial offering,
b) continuous disclosure requirements and
a. Prospectus Disclosure:
Before an issuer is permitted to distribute its securities through an exchange, there are substantial
disclosure requirements that must be fulfilled. Although each jurisdiction in market is responsible
for establishing its own disclosure criteria, the prescribed level of disclosure is consistent among
the provinces. The levels of disclosure required to make an informed investment decision are, of
course, substantially different as between an established business with a well known history, and
a new venture capital enterprise.
A business listing for the first time on an exchange is subject to substantial disclosure
requirements. Disclosure on the following major topics is required in the prospectus which is
filed with the securities commission as the initiation of the application process:
Description and general development of the business
summary and analysis of the financial objectives
business objectives milestones (i.e. significant events required to meet the stated business
objectives)
material acquisitions and dispositions
management experience and expertise
organizational structure
products developed or to be developed with the proceeds of the distribution

13. proprietary protection
operation (i.e. method of production)
market by segment and specific geographic location
marketing plans and strategies
administration costs
b. Continuous Disclosure:
While the disclosure of an issuer through the prospectus filed in support of its initial public
offering provides investors with access to important information.
It includes a summary of any significant event or transaction which occurred during the reporting
period. Specifically:
the issuer is required to reconcile previously disclosed “intended use of proceeds” with actual
use
details of significant transactions, including consideration received or paid, with related parties
must be disclosed
details of investor relations activity undertaken by the issuer during the reporting period must
be disclosed
the report must include details of other significant events or transactions
discussion of details relating to the acquisition or disposition of any material capital asset must
be included
material expenditures, including discussion of their nature, must be included
details of significant events or transactions previously disseminated through material change
reports during the reporting period should also be included
where the has been a breach of any corporate, securities or other laws, or of the issuers listing
agreement with an exchange, disclosure is required
where there has been a change in any of the material assumptions used in the preparation of
future oriented financial information, that information must be updated in accordance with the
change.
These financial statements must be filed with the commission by all reporting issuers.

14. And the are three Core objectives of capital regulation to increase investor protection:
Investor protection
Ensuring that market are fair efficient and transparent
The reduction of systemic risk.
Investor Protection:
o Protection against misleading, manipulative or fraudulent practices, including
insider trading, and the misuse of client assets
o Full disclosure of information which is material to investors‟ decisions .
o Quality of disclosure should be disclosed
o Only duly licensed or authorized persons should be permitted to hold themselves
out to the public as market operators
o Supervision of market participants at all the time.
Ensuring that markets are fair, efficient and transparent
o The regulator‟s approval of exchange and trading system operators and of trading
rules helps to ensure fair markets.
o Dissemination of relevant information is timely and widespread and is reflected in
the price formation process
o Information about trading in the market is to be made publicly available on a real-
time basis
The reduction of systemic risk
o Reduce the risk of failure (through measures including capital and internal control
requirements)
o Respond to market disruptions through facilitation of stable domestic and global
cooperation and information sharing.
o Ensure that capital and other prudential requirements are sufficient to address
appropriate risk taking.

15. SEC’S (Securities and Exchange Commission) ROLE IN INCREASING INVESTOR
PROTECTION:
To maintain surveillance over activities in securities to ensure fair, orderly and equitable
dealings in securities.
To license, authorize and regulate stock exchanges, dealers, investment advisors, other
operators and their representatives.
To license, authorize and regulate collective investment schemes such as unit trusts and
mutual funds.
To maintain proper standards of conduct and acceptable practices in the industry and
monitor the solvency of license holders.
To protect the integrity of the market against any abuses arising from the practice of
insider trading.
To adopt measures to minimize and supervise any conflict of interests that may arise for
dealers.
To formulate principles for the guidance of the securities industry.
To review, approve and regulate takeovers, mergers and acquisitions and all forms of
business combinations.
Legal and Enforcement
o The Enforcement Department is responsible for investigating breaches of the
securities laws.
o It is charged to initiate investigations on complaints and evidence of possible
violations of the securities laws.
Market Surveillance:
o Responsible for establishing and maintaining standards for the fair, orderly,
and efficient operation of the securities market.
o It is also responsible for licensing operators, monitoring their operations to
ensure compliance with the securities laws.
Corporate Finance
o Responsible for overseeing the disclosure of material information to the
investing public by issuers of securities.

16. o Ascertaining whether the disclosures meet with the disclosure requirements
and standards required by law.
Investment Management
o Responsible for supervising and regulating all aspects of the operations of
collective investment schemes such as unit trusts and mutual funds.
o It administers the securities laws applicable with a view to improving
disclosure and minimizing risk for investors without imposing undue costs on
regulated entities.
Market Development
o Undertaking market-related research activities to assist the Commission in
creating the necessary atmosphere for the orderly growth and development of
the securities industry.
o Formulating and implementing the market development and investor/Public
education strategies of the Commission.
o Advising the Ministry of Finance on all matters relating to the securities
industry.
Policy Measures and Initiatives of capital markets for increasing Investor Protection :
A number of initiatives have been undertaken by the Government, from time to time, so as to
provide financial and regulatory reforms in the primary and secondary market segments of the
capital market.
These measures broadly aim to sustain the confidence of investors (both domestic and foreign)
in the country‟s capital market.
The policy initiatives that have been undertaken in the primary market during 2006-07 include:
 SEBI has notified the disclosures and other related requirements for companies desirous
of issuing Indian depository receipts in India. It has been mandated that:
 (i) the issuer must be listed in its home country; (ii) it must not have been barred by any

17. regulatory body; and (iii) it should have a good track record of compliance of securities
market regulations.
 As a condition of continuous listing, listed companies have to maintain a minimum level
of public shareholding at 25 per cent of the total shares issued. The exemptions include:
(i) companies which are required to maintain more than 10 per cent, but less than 25 per
cent in accordance with the Securities Contracts (Regulation) Rules, 1957; and (ii)
companies that have two crore or more of listed shares and Rs. 1,000 crore or more of
market capitalisation.
 SEBI has specified that shareholding pattern will be indicated by listed companies under
three categories, namely, 'shares held by promoter and promoter group'; 'shares held by
public' and 'shares held by custodians and against which depository receipts have been
issued'.
 In accordance with the guidelines issued by SEBI, the issuers are required to state on the
cover page of the offer document whether they have opted for an IPO (Initial Public
Offering) grading from the rating agencies. In case the issuers opt for a grading, they are
required to disclose the grades including the unaccepted grades in the prospectus.
 SEBI has facilitated a quick and cost effective method of raising funds, termed as
'Qualified Institutional Placement (QIP)' from the Indian securities market by way of
private placement of securities or convertible bonds with the Qualified Institutional
Buyers.
 SEBI has stipulated that the benefit of „no lock-in‟ on the pre-issue shares of an unlisted
company making an IPO, currently available to the shares held by Venture Capital Funds
(VCFs)/Foreign Venture Capital Investors (FVCIs), shall be limited to:- (i) the shares
held by VCFs or FVCIs registered with SEBI for a period of at least one year as on the
date of filing draft prospectus with SEBI; and (ii) the shares issued to SEBI registered
VCFs/FVCIs upon conversion of convertible instruments during the period of one year
prior to the date of filing draft prospectus with SEBI.
 In order to regulate pre-issue publicity by companies which are planning to make an issue

18. of securities, SEBI has amended the 'Disclosure and Investor Protection Guidelines' to
introduce 'Restrictions on Pre-issue Publicity'. The restrictions, inter alia, require an issuer
company to ensure that its publicity is consistent with its past practices, does not contain
projections/ estimates/ any information extraneous to the offer document filed with SEBI.
Similarly, the policy initiatives that have been undertaken in the secondary market during 2006-
07 include:
 In continuation of the comprehensive risk management system put in place since May
2005 in T+2 rolling settlement scenario for the cash market, the stock exchanges have
been advised to update the applicable Value at Risk (VaR) margin at least 5 times in a
day by taking the closing price of the previous day at the start of trading and the prices at
11:00 a.m., 12:30 p.m., 2:00 p.m. and at the end of the trading session. This has been
done to align the risk management framework across the cash and derivative markets.
 In order to strengthen the „Know Your Client‟ norms and to have sound audit trail of the
transactions in the securities market, 'Permanent Account Number (PAN)' has been made
mandatory with effect from January 1, 2007 for operating a beneficiary owner account
and for trading in the cash segment.
 In order to implement the proposal on creation of a unified platform for trading of
corporate bonds, SEBI has stipulated that the BSE Limited would set up and maintain the
corporate bond reporting platform. The reporting shall be made for all trades in listed debt
securities issued by all institutions such as banks, public sector undertakings, municipal
corporations, corporate bodies and companies.
 In line with the Government of India‟s policy on foreign investments in infrastructure
companies in the Indian securities market, the limits for foreign investment in stock
exchanges, depositories and clearing corporations, have been specified as follows:- (i)
foreign investment up to 49 per cent will be allowed in these companies with a separate
Foreign Direct Investment (FDI) cap of 26 per cent and cap of 23 per cent on Foreign
institutional investment (FII); (ii) FDI will be allowed with specific prior approval of
Foreign Investment Promotion Board (FIPB); (iii) FII will be allowed only through

19. purchases in the secondary market; and (iv) FII shall not seek and will not get
representation on the board of directors.
 The application process of FII investment has been simplified and new categories of
investment (insurance and reinsurance companies, foreign central banks, investment
managers, international organizations) have been included under FII.
 Initial issue expenses and dividend distribution procedure for mutual funds have been
rationalised.
 Mutual funds have been permitted to introduce Gold Exchange Traded Funds.
 In the Government securities market, the RBI has ceased to participate in primary issues
of Central Government securities, in line with the provisions of Fiscal Responsibility and
Budget Management Act (FRBM Act).
 Foreign institutional investors have been allowed to invest in security receipts.
CONCLUSION:
Thus, the capital market plays a vital role in fostering economic growth of the country, as
it augments the quantities of real savings; increases the net capital inflow from abroad;
raises the productivity of investments by improving allocation of investible funds; and
reduces the cost of capital in the economy. Thus the capital markets safeguarding, public
confidence in the markets.
These safeguards are usually the investor protection roles and functions of regulatory
bodies of the capital markets.
Thus the Investor protection is intended to enhance investors‟ confidence in the capital
markets.
Confidence in any capital market, is perhaps the single most important pre-requisite for
its sustenance and growth.