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notjustinfo.com |
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Knowledge centre for MBA students. |
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Capital Market: Do Regulations Really Regulate the Market? Dr N Balakumar From time to
time, Government of India (and its regulatory agencies like RBI and SEBI), to
ensure proper functioning of stock exchanges towards their economic role in
the financial system, appoints commissions and committees to enquire into the
working and efficacy of the rules governing the working of stock exchanges. A careful comparative examination of the recommendations given by
various expert study groups, from Gorwala Committee (1951) to Melegam
Committee (1995) - irrespective of the committees objective to study primary
or secondary markets - reveals that, again and again certain major policy
recommendations have been repetitively stressed by these studies. Most of the committees have recommended either one or more of the
following: (i) Unhealthy speculation must be
eliminated and any scheme for regulation and control of speculative activity
has to be really effective and it must be on an all-India basis. (ii) There should be fair dealings and protection of investors. (iii) There should be a network of unified national market. (iv) False trading, market rigging,
spreading false rumours and making misleading statements to induce purchase
or sale of securities should be made a punishable offense with fine and
imprisonment. (v) Uniform settlement system in all stock exchanges and in all
shares. (vi) Well-designed management
information system, capable of producing relevant information should be
introduced in all stock exchanges - in other words, effective modernised
communication system for free flow of information. (vii) Governing bodies of stock
exchanges should be made equally representative of the stock brokers
interest, the public and the users of stock market services. (viii) Stock exchanges should
allow for adequate number of brokers with greater degrees of professionalism
discarding traditionalism. (ix) Modern trading and settlement systems should be adopted by all
stock exchanges. (x) Stock exchanges should provide adequate investor support services. Thus, these recommendations do tell us what Indian stock exchanges
lack or in other words, where Indian stock exchanges have to be regulated. It is very obvious that all the recommendations mentioned above by
different study teams, at different time periods are valid even today,
implying the fact that the real crux does not lie in identification of the
problem nor in proper recommendations, but in the execution of the
recommendations. A study by the World Bank (January 1995) on emerging markets
(inclusive of India) identified lack of high quality of regulatory framework as
one of the important barriers to global equity-market integration. Also,
organisational and informational inefficiencies may affect the role of the
stock market in overall economic development in the long run. Thus, the government or its policy making wings, instead of wasting
their time and resources in appointing study groups one after the other, and
getting the same recommendations again and again, should revamp the Indian
stock markets, swiftly, especially, at this juncture when Foreign Financial Institutions
are entering the Indian capital market with vigor so that industrial
securities are accurately priced and financial resources are efficiently
employed leading to allocation efficiency in the capital market, which, in
turn, will lead to long-term economic growth. |
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