Policies and Programmes
This Annual Report of the Securities and Exchange Board of India (SEBI) reviews the policies and programmes of SEBI and its working and operations for the fiscal year 1996-97. It describes the manner in which SEBI has been carrying out its functions and exercising its powers in terms of the Securities and Exchange Board of India Act, 1992; the Securities Contracts (Regulation) Act, 1956; the Companies Act, 1956 and the Depositories Act, 1996. The Report also gives details of developments in Indian securities markets in 1996-97, and their bearing on and relation to the work of SEBI. The Report has been prepared in accordance with the format prescribed in the Securities and Exchange Board of India (Annual Report) Rules, 1994, notified in the Official Gazette on April 7, 1994.
During 1996-97 SEBI continued its operations and initiatives in regulating and developing the Indian securities markets in fulfilment of the twin objectives of investor protection and market development set forth in the SEBI Act, 1992. Throughout its five year existence as a statutory body, SEBI has sought to balance the two objectives by constantly reviewing and reappraising its existing policies and programmes, formulating new policies and crafting new regulations in areas hitherto unregulated to foster development in these areas and implementing them to ensure growth of the markets with efficiency, integrity and protection of investors' interest. The developments and reforms in Indian securities markets since January 1992, when SEBI was given statutory powers are given in the box below.
Securities Markets Reforms and Development January 1992 to March 1996
1996-97 has been another eventful and challenging year for SEBI. At the same time as carrying on its day-to-day work in setting standards, in supervision and enforcement, SEBI introduced an array of reforms in the primary and secondary markets and catalysed modernisation of the market infrastructure to prepare the markets for the new century. Enforcement and surveillance remained a major priority for SEBI. SEBI continued to use its powers to the full and instituted a number of enforcement actions against a wide range of securities law violations. The past year marked an important turning point in primary market regulation, which helped in further streamlining and simplifying the issue procedure, imparted greater flexibility to the issue process and strengthened the criteria for accessing the securities market. In the secondary market, reforms aimed at improving the market efficiency, transparency and integrity. Trading infrastructure was modernised with majority of the stock exchanges replacing the open outcry system by computerised on line screen based trading systems. Improvements were made in the clearance and settlement systems which still form a weak link in the securities markets.
A major step in this direction was taken with the establishment of a depository - the National Securities Depository Limited (NSDL). The development of mutual funds which are important investment vehicles in a mature securities market, was given a major impetus, with the revision of the mutual fund regulations which now provide greater operational flexibility to the fund managers and increase their accountability and supervision. Far reaching changes were made to the SEBI regulations for substantial acquisition of shares and take- overs. The take-over regulations were revised based on the recommendations of the committee appointed by SEBI under the chairmanship of Justice P N Bhagwati, former Chief Justice of India. The new regulations, while enhancing the level of investor protection and transparency recognise the new freedom in the corporate sector as an outcome of the reforms. The regulations for the Foreign Institutional Investors (FIIs) were liberalised to provide greater flexibility and widening the scope of their investment in Indian securities markets.
Five new regulations were notified by SEBI, during the year. These were the SEBI (Custodian of Securities) Regulations, 1996 notified on May 16, 1996; the SEBI (Depository and Participants) Regulations, 1996 notified on May 16, 1996; the SEBI (Venture Capital Funds) Regulations, 1996 notified on December 4, 1996; the revised SEBI (Mutual Funds) Regulations, 1996 notified on December 9, 1996; and the revised SEBI (Substantial Acquisitions of Shares and Take- overs) Regulations, 1997 notified on February 20, 1997. Besides, the regulations for Foreign Institutional Investors were also amended to give effect to the liberalisation in policy on foreign portfolio investment. Changes were also made to the SEBI (Merchant Bankers) Regulations, 1992 and the SEBI (Underwriters) Regulations, 1993. A list of all rules and regulations notified under the SEBI Act is given as an Annexure to this Report.
While introducing these and other reforms and policy changes, SEBI has followed an open, transparent, consultative and participative approach. SEBI has kept in close touch with investors, market participants and professionals. This feedback, as well as expert advice has helped SEBI formulate regulations which have conceptual underpinnings and address market needs.