Indian capital market regulators

Indian Capital Market Regulators – Role and functions

by Shruti Agarwal on Basic Finance, Investing Basics
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Often in the haste of becoming a market participant/ trader/ investor, we forget to know the roots governing the Stock Market. This means that we overlook the rules, regulations, regulatory bodies who guide the flow of Indian Capital Markets. This becomes important for us to know because they have the major impact on our financial decisions. At times, any change in the rules or regulations of the Act, governing the Indian Capital Market tends to bring substantial change on market psychology or sentiments. This eventually affects our financial decisions.

NSE Academy Certified Foundation of Capital Markets equips you with all the information and knowledge needed to become an active market participant. The content ranges from basics of fundamental analysis, equity valuation, ratio analysis, reading of technical charts and patterns, application of micro and macroeconomics, introduction to currency and commodity markets and a lot of other interesting modules and readings. One must try and cover all of these topics if they wish to become successful in the markets, not just in the bull run, but even when the bear overpowers the bull.

In this article, we will understand as to who governs the  Indian Capital Markets. Rules & Regulations governing the Stock Market, brief on the Stock Market, Stock Market participants, and functions of the Stock Market.

While investing in Stock Market some prefer to take less risk and go short-term. Others may prefer to take a long-term leap. Basis this Financial market is divided into two types of the market — Money Market and Capital Market. While Money Market Securities are short-term in nature. A Capital Market pitches long-term investments.

The Ministry of Finance (MoF), the Securities & Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) are the three regulatory authorities governing Indian capital markets.

Ministry of Finance (MoF)

The Department of Economic affairs directly manages the Capital Markets segment under the directions of MoF. This segment formulates the rules for the efficient growth of the Stock Market which includes derivatives, debt, and equity. It also formulates regulations for safeguarding the interest of the investors.

This segment regulates the Indian Capital Markets through the following laws:

  • Depositories Act, 1996
  • Securities Contract (Regulation) Act, 1956
  • Securities and Exchange Board of India Act, 1992

Reserve Bank of India (RBI)

The Reserve Bank of India Act, 1934 governs policies framed by the Reserve Bank of India. The functions of RBI in this regard are as follows:

  • Implementation of Monetary and Credit policies
  • Issuance of Currency Notes
  • Government’s Banker
  • Banking System Regulator
  • Foreign Exchange through Foreign Exchange Management Act, 1999
  • Managing payment & settlement system

Apart from the above functions, RBI is also actively involved in developing the financial market.

Securities & Exchange Board of India (SEBI)

The Securities & Exchange Board of India (SEBI) Act, 1992 regulates the functioning of SEBI. SEBI is the apex body governing the Indian stock exchanges.

The primary functions of SEBI are as follows:

Protective Functions

I. It checks Price rigging
II. Prohibits insider trading
III. prohibits fraudulent and Unfair Trade Practices

Development Functions

I. SEBI promotes training of intermediaries of the securities market.
II. SEBI tries to promote activities of stock exchange by adopting a flexible and adaptable approach

Regulatory Functions

I. SEBI has framed rules and regulations and a code of conduct to regulate the intermediaries such as merchant bankers, brokers, underwriters, etc.
II. These intermediaries have been brought under the regulatory purview and private placement has been made more restrictive.
III. SEBI registers and regulates the working of stock brokers, sub-brokers, share-transfer agents, trustees, merchant bankers and all those who are associated with stock exchange in any manner
IV. SEBI registers and regulates the working of mutual funds etc.
V. SEBI regulates takeover of the companies
VI. SEBI conducts inquiries and audit of stock exchanges.

The participation in the Indian Stock Market of both the domestic or foreign financial intermediaries are governed by the regulations framed by SEBI. Additionally, Foreign Portfolio Investors (FPIs) can participate in Indian Stock Market after registering them with an authorized Depository Participant.

Also ReadHow Does SEBI Play An Important Role In Our Economy?

National Stock Exchange of India (NSE)

NSE is responsible for formulating and implementing the rules pertaining to:

  • Registration of Members
  • Listing of Securities
  • Monitoring of Transactions
  • Compliance
  • Other additional functions related to the above functions

NSE itself is regulated by SEBI and is under regular vigilance for all regulatory compliances.

Stock Exchange

In simple terms, a Stock Market is a platform where people buy and sell stocks, prices of which are set according to the prevalent demand and supply situation. It is very similar to a marketplace where traders buy and sell goods, quoting prices on the basis of the demand for the good and the availability or supply of it.

The term trade, in the context of the bourses, means the transfer of money from the seller to the buyer in exchange for a security/ share. The price at which the seller sells or the buyer buys is listed on the stock exchange. You can easily trade through a trading member registered on a Stock Exchange.

As per National Securities Clearing Corporation Limited “A Trading Member means any person admitted as a member in any exchange in accordance with the Rules, Bye-laws and Regulations of that Exchange.”

The Stock Market doesn’t differentiate between any citizen of the country. Outside investments were only permitted in the 1990s and can take place through either Foreign Direct Investments (FDIs) or Foreign Portfolio Investments (FPIs). Thus, the Stock Market participants range from small individual investors to Insurance Companies, Banks, Mutual Fund companies, Manufacturing companies etc.

However, the rules and regulations formulated by SEBI remain the same for all types of market participants and everybody is obligated to abide by such rules and mandates.

Functions of Capital Market

The growth of Economy:

The capital market reflects the condition of the economy and also accelerates the economic growth. It allocates the resources from the people who have surplus capital to who require capital. By this, we can conclude that capital market helps in the growth of the economy as well as the trade of both public and private sectors. This leads to balanced economic growth in the country.

Encourage people to save:

Development of capital markets has helped the banking institutes to provide facilities and provisions to encourage people to save more. People might have just invested in land or gold in the non-existence of a capital market

Stabilizing stock prices:

Capital Markets has reduced speculation activities and also provided capital to the borrowers at the lowest interest rate as possible. This helped in keeping away the prices of stocks from fluctuating.

Role of Capital Market

Proper Allocation of Funds:

Capital Market is an important platform for allocating idle savings from the people to productive channels of an economy. It puts the idle funds in proper investment.

Formation of capital:

Capital market helps in the formation of capital by adding capital to the existing capital in the economy. This helps in the expansion of capital in the economy

Platform for Investment:

Capital market raises resources for longer periods of time. Thus it provides an investment avenue for people who wish to invest resources for a long period of time. It provides suitable interest rate returns also to investors. Instruments such as bonds, equities etc. definitely provide diverse investment avenue for the public.

Accelerates Economic Development: 

The financial requirements of the businesses are met by the capital market as it makes funds available for the longer period. Capital market also helps in the research and development. This results in increasing the productivity of the economy.

Provides Service:

Capital Market provides various services like medium and long-term loans consultancy services. export finance etc.


The above article was an introduction to the regulators of the capital markets, which is just one aspect of the bourses. To enrich your knowledge and strengthen your foundation of the capital markets, there are a lot of aspects which need to be covered.

Happy Learning!

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Disclaimer wants to remind you that all our content is created solely for the purpose of education. No strategy, stock, commodity, fund or any other security discussed here is any way a recommendation for trading or investing. will not be any way responsible for trading losses incurred by any individual or entity for trading with real money. Please take advise of certified financial advisers before trading or investing.

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