INDIAN SECURITIES MARKET
As per Securities Contracts (Regulation) Act, 1956 , the term “Securities” include:
(1) Shares, scrip’s, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or body corporate:(a) Derivatives;
(b) Units of any other instrument issued by any collective investment scheme to the investors in such schemes;
(c) Security receipt as defined in clause (zg) of section 2 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
(d) Units or any other such instrument issued to the investors under any mutual fund scheme;
(e) Any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable, including mortgage debt, as the case may be;
(2) Government securities,
(a) Such other instruments as may be declared by the Central Government to be securities; and
(3) Rights or interest in securities.
1.1.b) IMPORTANCE OF SECURITY MARKET
Securities markets provide a channel for allocation of savings to those who have a productive need for them. As a result, the savers and investors are not constrained by their individual abilities, but by the economy’s abilities to invest and save respectively, which inevitably enhances savings and investment in the economy.
The securities markets in India have witnessed several policy initiatives, which has refined the market micro-structure, modernized operations and broadened investment choices for the investors. The main reforms and changes carried out in the market in last 2 decades explained in the following pages.
1.1.c) PARTICIPANTS AND FUNCTIONS
Transfer of resources from those with idle resources to others who have a productive need for them is perhaps most efficiently achieved through the securities markets.
Stated formally, securities markets provide channels for reallocation of savings to investments and entrepreneurship and thereby decouple these two activities. As a result, the savers and investors are not constrained by their individual abilities, but by the economy’s abilities to invest and save respectively, which inevitably enhances savings and investment in the economy. Savings are linked to investments by a variety of intermediaries through a range of complex financial products called as securities.
There are a set of economic units who demand securities in lieu of funds and others who supply securities for funds. These demand for and sup ply of securities and funds determine, under competitive market conditions in both
goods and securities market, the prices of securities which reflect the present value of future prospects of the issuer, adjusted for risks and also prices of funds. It is not that the users and suppliers of funds meet each other and exchange funds for securities. It is difficult to accomplish such double coincidence of wants. The amount of funds supplied by the supplier may not be the amount needed by the user. Similarly, the risk, liquidity and maturity characteristics of the securities issued by the issuer may not match preference of the supplier. In such cases, they incur substantial search costs to find each other. Search costs are inimised by the intermediaries who match and bring the suppliers and users of funds together. These intermediaries may act as age nts to match the needs of users and suppliers of funds for a commission, help suppliers and users in creation and sale of securities for a fee or buy the securities issued by users and in turn, sell their own securities to suppliers to book profit. It is, thus, a misnomer that securities market disinters mediates by establishing a direct relationship between the savers and the...