In 1992, the Bombay Stock Exchange (BSE),3 the leading stock exchange in India, witnessed the first major scam masterminded by Harshad Mehta (Mehta) Analysts unanimously felt that if more powers had been given to SEBI, the scam would not have happened. As a result, the Government of India (GoI) brought in a separate legislation by the name of 'SEBI Act 1992' and conferred statutory powers to it. Since then, SEBI had introduced several stock market reforms. These reforms significantly transformed the face of Indian stock markets. SEBI introduced on-line trading and demat5 of shares which did away with the age-old paper-based trading, thus bringing more transparency into the trading system. Analysts and experts appreciated SEBI for these reforms. One stock market analyst said, "I'm sure that most of us would agree that SEBI has handled the challenges exceptionally well."6 In spite of SEBI's capital market reforms and increasing regulatory powers over the years, analysts felt that it had failed miserably in stopping stock market scams. In the ten years after the Mehta scam, several scams came to light, casting doubt on the efficiency of SEBI as a regulatory body.
However, a few analysts felt there was a need to confer more powers to SEBI to stop these scams. One analyst commented, "It's rather daunting task of putting in place a regulatory framework for the market against all odds.
The Genesis of SEBI
In the 1980s, Indian capital markets witnessed significant changes. During the sixth Five-Year plan (1980-85), many major industrial policy changes were introduced
These included opening up the Indian economy to foreign corporations and emphasizing a greater role for the private sector.
Many companies tapped the primary market to raise required funds from the public. The total capital raised from the primary market increased from Rs 1.96 bn in the fiscal 1979-80 to Rs. 65 bn in 1989-90.
With more companies raising money by issuing...