A comparison of capital markets regulations: India

    By Sanjay Asher, Viplaw Kashyap, and Aayush Virani, Crawford Bayley & Co
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    India’s capital market is a part of the financial market related to the issue and transfer of securities, where capital funds comprising both equity and debt are issued and traded. Capital markets deal with securities such as shares, debentures and bonds, and companies access them to raise funds needed to finance corporate activity.

    India’s capital market has evolved in recent years with various government economic reforms and regulatory actions.


    The capital market is divided into two inter-dependent components, namely the primary market and secondary market.

    Sanjay Asher, Crawford Bayley & Co
    Sanjay Asher
    Senior Partner
    Crawford Bayley & Co
    Tel: +91 98200 23823
    Email: sanjay.asher@crawfordbayley.com

    The primary market deals with the fresh issuance of securities by issuers such as companies, banks and non-banking financial institutions, central and state governments, and public sector undertakings.

    It is through this market that funds flow from investors to corporates for purposes such as capital expenditure, to meet working capital requirements, greenfield and brownfield projects, repayment or prepayment of loans and general corporate purposes.

    In the primary market, the public issue of securities is carried out by way of an offer of securities for subscription, through an offer document known as a prospectus. A company offers its securities to the public for the first time through an initial public offering (IPO). In addition to IPOs, companies raise funds by issuing securities through methods such as qualified institutions placement (QIP), rights issue, preferential issue, private placement, further public offer (FPO) and issuance of American depository receipts, and global depository receipts, etc.

    The secondary market or stock exchange is a market for the purchase and sale of securities that have been initially offered to the public in the primary market and listed on the Stock Exchange.

    Securities are exchanged in the secondary market through registered brokers and sub-brokers of the stock exchange, enabling initial buyers in the primary market to re-offer securities to any interested buyer at mutually accepted price.

    The secondary market provides liquidity and marketability to the existing securities in the market by creating a continuous market for the purchase and sale of securities by investors. Thus, the secondary market promotes the growth of the primary market and capital formation and is often referred to as the backbone of the capital markets.


    Currently, seven stock exchanges function in India, namely the Bombay Stock Exchange (BSE), National Stock Exchange (NSE), Multi Commodity Exchange, Calcutta Stock Exchange, Metropolitan Stock Exchange, National Commodity and Derivatives Exchange and Indian Commodity Exchange.

    As of 2022 year-end, 5,313 companies in India are listed across the BSE, NSE and Multi Commodity Exchange, with all-India market capitalisation of INR283 trillion (USD3.47 trillion).

    The main participants of the capital market include issuers of securities such as companies, banks, non-banking financial institutions, governments, PSUs, statutory and other bodies; investors such as qualified institutional buyers, anchor investors, foreign portfolio investors, alternate investment funds, venture capitals, private equity, angel funds, high net worth individuals, retail individual investors, pension funds; and intermediaries such as stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, depositories, depository participants, credit rating agencies, etc.


    Viplaw Kashyap, Crawford Bayley & Co
    Viplaw Kashyap
    Associate Partner
    Crawford Bayley & Co
    Tel: +91 91670 77002
    Email: viplaw.kashyap@crawfordbayley.com

    The capital markets are regulated by the Securities and Exchange Board of India (SEBI), which was established in 1988 as an executive body and given statutory powers in 1992 through the Securities and Exchange Board of India Act, 1992 (SEBI Act, 1992). to protect the interests of investors in securities and promote development and regulation of the securities market as it deems fit. These measures include regulating business in stock exchanges and other securities markets; prohibiting fraudulent and unfair trade practices; promoting investors’ education and training of intermediaries; prohibiting insider trading in securities; regulating substantial acquisition of shares and company takeovers; registering and regulating intermediaries; and undertaking inspection, inquiries and audits of intermediaries and self-regulatory organisations.

    The SEBI also has quasi-judicial, quasi-legislative and quasi-executive powers, as well as power to issue informal guidance. Under provisions of the Securities Contracts (Regulation) Act, 1956 and SEBI Act, 1992, the SEBI is empowered to make regulations governing various aspects of the capital markets.


    The instruments of the capital markets are referred to as securities. The term “securities” is defined under the Securities Contracts (Regulation) Act, 1956 to include shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature of any incorporated company or other body corporates.

    Aayush Virani, Crawford Bayley & Co
    Aayush Virani
    Crawford Bayley & Co
    Tel: + 91 98199 13196
    Email: aayush.virani@crawfordbayley.com

    Examples of securities include equity shares, preference shares, shares with differential voting rights, debentures including fully convertible debentures, non-convertible debentures and optionally convertible debentures, bonds, foreign currency convertible bonds, foreign currency exchangeable bonds, Indian depository receipts, derivatives, futures, options, warrants, real estate investment trusts, infrastructure investment trusts, securitised debt instruments, municipal bonds and exchange-traded funds.

    A depository is a company where the securities of a shareholder are held in electronic or dematerialised form at the request of the shareholder through the medium of a depository participant. It also provides services related to transactions in securities.

    According to section 2(e) of the Depositories Act, 1996, depository means a company formed and registered under the Companies Act, 2013, granted a certificate of registration under section 12(1A) of the SEBI Act, 1992. Dematerialisation is the process converting physical certificates of an investor to an equivalent number of securities in electronic form.

    A depository participant is an agent of the depository through which it interacts with investors and provides depository services. Complying with SEBI requirements, registered depository participants can include public financial institutions, scheduled commercial banks, foreign banks operating in India, state financial corporations, custodians, stockbrokers, clearing corporations or houses, non-bank financial companies, and registrar to an issue or share transfer agent.

    Currently, there are two depositories in India, namely the National Securities Depository and Central Depository Services (India), which held 289 and 640 registered depository participants, respectively at 2022 year-end.

    Crawford Bayley & CoCRAWFORD BAYLEY & CO
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    Email: sanjay.asher@crawfordbayley.com


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