Reforms in Secondary Market

24/11/2023 1 By indiafreenotes

The Indian secondary market has witnessed several reforms over the years aimed at enhancing transparency, efficiency, and investor protection. These reforms have been initiated by regulatory bodies like the Securities and Exchange Board of India (SEBI) and are designed to align the market with international best practices.

These reforms collectively aim to create a more robust, transparent, and investor-friendly secondary market in India. While progress has been made, continuous efforts are required to adapt to evolving market dynamics, embrace technological advancements, and address emerging challenges.

  1. Introduction of Dematerialization:

  • Reform: The shift from physical share certificates to dematerialized (demat) accounts.
  • Impact: Reduced risks associated with physical securities, faster settlement cycles, and enhanced transparency in share ownership.
  1. Rolling Settlements:

  • Reform: Introduction of T+2 (Trade Date plus two working days) rolling settlement cycle.
  • Impact: Accelerated settlement process, reduced counterparty risk, and alignment with global standards.
  1. Screen-Based Trading System:

  • Reform: Transition from open outcry systems to electronic trading platforms.
  • Impact: Improved efficiency, increased transparency, and faster order execution.
  1. National Stock Exchange (NSE):

  • Reform: Establishment of NSE as a fully automated electronic exchange.
  • Impact: Emergence of a technologically advanced exchange, setting high standards for efficiency and transparency.
  1. SEBI Act, 1992:

  • Reform: Formation of SEBI as the primary regulatory authority for securities markets in India.
  • Impact: Strengthened regulatory oversight, enhanced investor protection, and improved market integrity.
  1. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015:

  • Reform: Consolidation and revision of listing requirements for securities.
  • Impact: Streamlined disclosure norms, improved corporate governance, and enhanced transparency for listed entities.
  1. Market Infrastructure Institutions (MIIs):

  • Reform: Framework for the regulation of stock exchanges and clearing corporations.
  • Impact: Strengthened governance, risk management, and technological infrastructure of market infrastructure institutions.
  1. Introduction of Market-wide Circuit Breakers:

  • Reform: Implementation of circuit breakers to temporarily halt trading in case of significant market movements.
  • Impact: Prevents sharp market declines, provides time for reassessment, and reduces the impact of panic selling.
  1. Insider Trading Regulations:

  • Reform: SEBI (Prohibition of Insider Trading) Regulations, 2015.
  • Impact: Enhanced provisions to prevent insider trading, protecting the interests of retail investors.
  1. SEBI (Buyback of Securities) Regulations, 2018:

  • Reform: Revised regulations governing the buyback of securities by listed companies.
  • Impact: Increased transparency, more stringent norms, and better protection of minority shareholders.
  1. Introduction of Offer for Sale (OFS):

  • Reform: OFS mechanism allowing promoters to sell shares through the exchange platform.
  • Impact: Provides an exit route for promoters, enhances liquidity, and increases transparency in share sales.
  1. Securities Lending and Borrowing (SLB) Mechanism:

  • Reform: Introduction of SLB to facilitate the lending and borrowing of securities.
  • Impact: Improves liquidity, aids in price discovery, and enhances the efficiency of the securities market.
  1. Introduction of Unified Payments Interface (UPI) for IPOs:

  • Reform: Implementation of UPI as a payment mechanism for IPO applications.
  • Impact: Streamlines the IPO application process, making it more convenient for investors.
  1. Listing of Start-ups on SME Platforms:

  • Reform: Creation of separate SME (Small and Medium-sized Enterprises) platforms for the listing of start-ups.
  • Impact: Provides a dedicated platform for smaller companies, encouraging entrepreneurship and innovation.
  1. Introduction of Electronic Book Building:

  • Reform: Transition to electronic book-building processes for IPOs.
  • Impact: Facilitates price discovery, ensures transparency, and improves the efficiency of the IPO process.
  1. Ease of Doing Business Initiatives:

  • Reform: Measures to simplify regulatory procedures and reduce compliance burden.
  • Impact: Promotes a business-friendly environment, encourages listing, and attracts investment.
  1. Regulatory Sandbox Framework:

  • Reform: SEBI’s regulatory sandbox framework for testing innovative products, services, and business models.
  • Impact: Encourages innovation, allows experimentation within a controlled environment, and promotes technological advancements.
  1. Risk Management and Surveillance Systems:

  • Reform: Implementation of robust risk management and surveillance systems by stock exchanges.
  • Impact: Enhances market integrity, detects irregularities, and ensures investor protection.
  1. Unified Corporate Bond Market:

  • Reform: Efforts to develop a unified corporate bond market.
  • Impact: Boosts the fixed-income market, provides alternative investment avenues, and enhances overall market depth.
  1. SEBI’s Market Stewardship Initiative:

  • Reform: SEBI’s initiative to engage with market participants for inputs on market issues.
  • Impact: Promotes dialogue between regulators and market participants, fostering a collaborative approach to addressing challenges.