1. A
PRESENTATION
ON
INDIAN CAPITAL MARKET
REFORMS
PREPARED BY :-
SEM SHAIKH
THE M.S. UNIVRSITY OF BARODA
MASTEROF COMMERCE
FACULTY OF POST GRADUATE

2. Why Capital Markets Exist
Capital markets facilitate the transfer of capital
(i.e. financial) assets from one owner to another.
They provide liquidity.
◦ Liquidity refers to how easily an asset can be
transferred without loss of value.
A side benefit of capital markets is that the
transaction price provides a measure of the
value of the asset.

3. Growth of Capital Markets in
India
• Origins of trading- East India company
• Post independence- Capital issues control act
• Only nationalized companies allowed to raise
capital
• The securities contract regulation ACT 1956
• Only stock exchanges recognized by the
government of India permitted to function
• Foreign exchange regulations ACT 1973

4. Historically Speaking
• Started in 1850 in front of Town-Hall in
Bombay currently known as Horniman circle
• Formed in 1875 as Bombay Stock Exchange
• In 1986 launched its first stock index named
‘SENSEX’ with base year 1978-79
• Non-profit association & evolved as the
premier stock exchange
• Oldest stock exchange of Asia
• Accounts for 75% of listed capital & 75% of
shares in terms of market capitalization
• Its turnover is 1/3rd of the total turnover in
securities in India

5. Role of Capital Markets
Mobilization of Savings & acceleration of
Capital Formation
Promotion of Industrial Growth
Raising of long term Capital
Ready & Continuous Markets
Proper Channelization of Funds
Provision of a variety of Services

6. Functions of a capital market
 Disseminate information efficiently
 Enable quick valuation of financial
instruments –both equity and debt
 Provide insurance against market risk or
price risk
 Enable wider participation
 Provide operational efficiency through
 -simplified transaction procedure
 - lowering settlement timings and
 - lowering transaction costs

7. Factors contributing to growth of
Indian Capital Market
• Establishment of Development banks &
Industrial financial institution.
• Legislative measures
• Growing public confidence
• Increasing awareness of investment
opportunities
• Growth of underwriting business
• Setting up of SEBI
• Mutual Funds
• Credit Rating Agencies

8. Indian Capital markets - Chronology
1994-Equity Trading commences on NSE
1995-All Trading goes Electronic
1996- Depository comes in to existence
1999- FIIs Participation- Globalisation
2000- over 80% trades in Demat form
2001- Major Stocks move to Rolling Sett
2003- T+2 settlements in all stocks
2003 - Demutualisation of Exchanges

9. Capital Markets - Reforms
Each scam has brought in reforms - 1992 / 2001
Screen based Trading through NSE
Capital adequacy norms stipulated
Dematerialization of Shares - risks of fraudulent
paper eliminated
Entry of Foreign Investors
Investor awareness programs
Rolling settlements
Inter-action between banking and exchanges

10. CAPITAL MARKET REFORMS
IN INDIA
• The 1990s have witnessed the emergence of
the securities market as a major source of
finance for trade and industry in India.
• A growing number of companies have been
accessing the securities market rather than
depending on loans from financial institutions
/ banks.
• The corporate sector is increasingly
depending on external sources for meeting
its funding requirements.

11. Companies free to raise funds from securities
markets after filing prospectus with SEBI
SEBI introduces regulation for primary & other
secondary market intermediaries
Listed Co’s to furnish annual statement to the
exchanges
Book Building introduced for institutional
investors
SEBI introduces regulations governing
substantial acquisition of shares and takeovers.

12. NSE establishment as a stock exchange with
national wide electronic trading
BSE introduces screen based trading
Capital adequacy requirement for brokers
System of mark to market margins introduced
Stock Lending schemes introduced
NSCCL setup by NSE

13. SEBI strengthen surveillance mechanisms
and have a separate surveillance departments
with all stock exchanges
Depositories act introduces for Electronic
transfer of shares.
Permission to access in international capital
markets by Indian companies through Euro
issues
FDI allowed in stock broking ,AMC’s,
Merchant Bankers , NBFC’s.
FII’s allowed to access Indian capital markets

14. Reforms / Initiatives post 2000
Corporatization of exchange memberships
Banning of Badla / ALBM
Introduction of Derivative products - Index /
Stock Futures & Options
Reforms/Changes in the margining system
STP - electronic contracts
Margin Lending
Securities Lending

15. MARKET STRUCTURE
(JULY 31, 2005)
 22 Stock Exchanges,
 Over 10000 Electronic Terminals at over 400
locations all over India.
 9108 Stock Brokers and 14582 Sub brokers
 9644 Listed Companies
 2 Depositories and 483 Depository Participants
 128 Merchant Bankers, 59 Underwriters
 34 Debenture Trustees, 96 Portfolio Managers
 83 Registrars & Transfer Agents, 59 Bankers to
Issue
 4 Credit Rating Agencies

16. Reforms Undertaken in BSE
• January 2000: rolling settlement
system (T+5 system)
–Started with 10 scrips
–Later 153 were brought under
• January 2001: BLESS was introduced
• July 2001: badla was wholly replaced
by rolling settlement system
• January 2002: all the shares in BSE
were brought under this scheme

17. BSE Post Reforms
• Badla and BLESS were banned
• Short selling banned from March 2001
to July 2001
• 20% circuit filter for stocks in rolling
settlement
• Index based filter (10%, 15%, 20%)
• Introduction of margin trading in
September 2001