Securities market is one of such term which might have heard but not understood by many. While travelling across and speaking about capital market, most of the people looks confused. They really feel this type of market is very dangerous for the ordinary investors and only experts can venture into it. Many of the people feel that the market is unregulated or regulated selectively. The idea behind this article is to make an ordinary person to understand what is securities market and regulations with respect to the market.
The market is as we understood is the place where buyers and sellers meet an do the transaction. As a vegetable market is the place where buyers and sellers of vegetable meet an do their sales and purchase, securities market is the market where buyers and sellers of securities meet and do their transactions. Securities market is the branch of Financial market, which is market for transactions in financial instruments.
When the market starts growing, globalization and liberalization entered the market, size of business entities started growing, thus their capital requirements. They started approaching the public for their capital requirement offering a part of capital ,called shares. Shares is not the only way the corporates raise funds for their project, it includes different types of securities. When number of firms increased, there increased the need for channelizing the savings of the investors without compromising their interests, safety and growth of their investments. So the stock market is evolved, which provides a safe and secure platform for the investor and capital raising for corporates as well.
When we look deep into the security market we can understand that there are two main activities happening there. There are corporates entering to the market with their securities and there are corporates who already have their securities trading in the market. When a new entity want their securities be traded in the stock market they need to list their securities. That market where a new entity list their securities for the first time is called primary market. This is used to raise money from the public.
Once the securities are listed in the market it becomes tradeable. Investors can sell and buy these listed securities with other investors, this market is called secondary market. In the primary market the seller will be the entity which is getting their securities listed for the first time, but in the secondary market the securities are sold by investors and bought by other investors.
The entire transactions in the market is facilitated by various market participants, like Brokers, Sub Brokers, Asset Management companies, Underwriters, Investment advisors, etc and regulated by Securities Exchange Board of India, the regulatory authority of securities market in India.
You know that in any type of market there are good business men and bad business men. Securities market is no exception. We have heard the global big case of Rajat Gupta, one of the fine professional headed global giants, then came the story of insider trading, he used information privileged to him, as corporate boss, for his personal gain. Harshad Mehta scam and Ketan Parekh scam are two such securities scam which has shaken Indian securities market. Latest in the big league was Jignesh Shah involved NSEL scam. In all these scam what they do are, price manipulation, insider trading etc. It may be argued that nobody born as scam makers, but the market sometimes make them do it. As the competition reaching new heights, profit cutting becoming a practice to regain customer confidence, market become volatile they may be tempted to do some short term mischiefs. Now the greediness play the spoil sport, as they have done some adjustments for short term, to cover up or the temptation of once more, will make them doing repeatedly in large scale. But the scapegoats may not be the big investors, as we presume, they may the small investors who are parking their hard earned savings in the market.
So here nobody will say that the regulations are not required, it is required to protect the interests of all types of market players. Securities Exchange Board of India, the regulatory authority for entire securities market in India, always respond proactively to safe guard the interests of market players and investors. But some times there are complaints that the regulator become high handed, as accused in the case of Sahara India Parivar case. But it is very important to note that some hard rules and regulations are very much required for avoiding unwarranted future risks. Over simplicity can be very dangerous, which may create havoc in the market. Proper regulations will create highly competitive, efficient market which will be able to avoid frauds, manipulations etc.
Regulations are also required to create a universal system for the smooth functioning of the market. SEBI at the top of the regulatory frame work, regulate the entire market to protect the interests of investors and for the development of the market. The control is done by various rules and regulation issued by SEBI from time to time and also requiring entities to make periodical regulatory filings and disclosures. SEBI also requires every market participant to register with it including stock exchanges and intermediaries.
Under the SEBI there are stock exchanges where the entities lists their securities for trading. Stock Exchanges also have some regulatory powers which they will exercise under the guidance of SEBI. A stock exchange also need to be registered with SEBI. Stock Exchanges are the first place where the regulatory compliances of the entities will be done and checked.
We can have as much rules, regulations etc still we do mistakes if we get a chance. That is human tendency. To reduce the chance of committing an error at the corporate management level is aimed by focusing on corporate governance policies. It makes the entity voluntarily do various actions to ensure that it is not violating any rules or regulations. This works on the principle of prevention is better than cure. It is the system of rules, practices and processes through which the entity is controlled and directed. It is that level where the interests of the stake holders and community is balanced. In a professionally managed company it will be visible in all areas of management. It touches upon the appointment of key managerial personnel, its action plans, internal controls, performance management and measurement and corporate disclosure.
So it is worth to mention that, securities market may look confusing and uncontrolled, but the controls and regulation are far more than and stricter than any other market.