Capital Markets and Securities Laws

Prior to the initiation of financial reforms in the early 1990s, capital market structure in India was subject to several controls and opaque procedures. The trading and settlement system was outdated and not in tune with international practices. Raising of capital from the market was regulated by the Capital Issues (Control) Act, 1947 which was administered by the Controller of Capital Issues (CCIs) in the Ministry of Finance, Government of India. The scheme of controls under the Act required all the companies to obtain prior consent for issue of capital to the public. Pricing as well as the features of the capital structure (such as debt-equity ratios), were controlled by the Government. The Securities Contracts (Regulation) Act, 1956 was administered by the Directorate of Stock Exchanges, also in the Ministry of Finance. It empowered the Government to recognise/derecognise stock exchanges, stipulate rules and by-laws for their functioning, compel listing of securities by public companies etc. Such a system of regulation and control was fragmented and inadequate in the context of liberalisation wave sweeping across the world. Urgent measures were needed to relax controls and modernise the functioning of capital market. It was in this backdrop, that wide-ranging financial sector reforms in India were introduced as an integral part of the economic reforms process started in the early 1990s. Reforms in respect of capital markets have focused on creating a deregulated environment and enabling free play of market forces while at the same time strengthening the prudential norms and the supervisory system. Part I of this book, containing 10 chapters, explains and examines at length the structure of capital markets in India. Part II of the book, comprising 9 chapters, provides basic knowledge about securities laws and related matters.