Remarkable Regulation of Capital Markets in India

This article on ‘Regulation of Capital Markets in India’ is written by an intern at Legal Upanishad.


The capital market can be called the backbone of every country as it regulates the economy and affects the financial position of the country. It is a place where sellers and buyers trade financial securities like stocks, bonds, etc. and it is much wider than securities. A basic understanding of the capital market is very important for the commercial and industrial development of the country. It helps in providing the mobilisation of resources and allocation of funds. This capital market shows the need for a long-term fund which is required to develop the commercial and industrial sectors. There is a transfer of capital assets from savers to investors and the assets can be easily converted to currency without any loss of value. 

Some of the important functions of the capital market are it enables the quick valuation of financial instruments, wider participation, through simplified transaction procedure it can give operational efficiency, it develops government and private sector, equity and debt instruments, etc. As the capital market is developing there has to be some regulator to make it function smoothly. In this article, we will learn about the regulation of capital markets in India.

Capital Markets in India

The capital market is one of the important sectors of the Indian financial system. India has a good share of the world economy and the share markets or the capital markets of India is of a considerable portion of the world economy.

There are two types of capital markets, they are Primary and Secondary markets. In a primary market governments or public sector institutions, companies through bond issues raise the funds. The corporations here, through an Initial Public Offering, can sell new stock and raise money. Under the primary market, any party can buy directly the shares of a company and the selling of new shares to the investors is called underwriting. In the secondary markets the shares, bonds, stocks, etc. are sold and bought by the customers and using the technology of the current time, bonds, shares are purchased and sold by parties or people.

For example, this market includes the stock exchanges like BSE, NSE, etc. Some of the broad constituents in the Indian capital market are the fund providers, fundraisers, organizations, intermediaries and market regulators.

Regulation of Capital Markets in India

By regulating the capital market, its functioning becomes very smooth, fair and transparent. The development of the market economy depends on the development of the capital market. The regulation of capital markets is very important for growth and development as they give a steady and secure platform for both buyers and supporters also, it regulates the securities. These regulators create rules which have to be followed and make necessary amendments when they detect any loophole and prevent massive losses in finance that may affect the general public. 

There are various organizations to regulate the capital market, in India, the regulatory structure is framed under the four pillars they are, SEBI, Ministry of Finance, Reserve Bank of India and the National Stock Exchange.


Security Exchange Board of India (SEBI) is a principal regulatory body for Stock Exchanges in India. It is also a statutory body that is formed under the SEBI Act, 1992 and SEBI was established as the non-statutory body in 1988. The primary functions are protecting investor interests, regulating and promoting the Indian Securities markets. SEBI regulates all the financial intermediaries permitted by their respective regulators to engage in the Indian securities markets, it can be domestic or foreign. SEBI acts as an apex body of capital market regulators. They promote the market and supervise, manage, control certain institutional companies, investors, brokers and other persons relating to the market. 

SEBI’s primary function is to prohibit unfair trade practices and malpractice such as manipulating funds or insider trading. They play other regulatory functions like registering and regulating the mutual funds and training the intermediaries, etc. 

The two bodies of SEBI have been reviewed and merged into a single regulation recently as SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021.

Some of the regulatory functions of the SEBI are:

  • To regulate the Capital market with correct measures and safeguard the interests of investors.
  • SEBI regulates and registers the work of share transfer agents, merchant bankers, trustees, stockbrokers, sub-blockers and anyone related to the stock exchange.
  • It forms rules to regulate the intermediaries like brokers, underwriters, merchant bankers, etc.
  • It regulates the working of mutual funds, the takeover of the companies and conducts inquiries of the stock exchange.
  • Barring trade practices that are unfair and fraudulent practices relating to the securities market
  • Promotes investors’ training and education of intermediaries of the securities market.

Reserve Bank of India:

Reserve Bank of India Act, 1934 governs the RBI which formulates the bodies, frames the policies and regulate the rules in accordance with the current situation. RBI actively participates in the stock market and several other things like transactions of equity, debt and other types of securities. RBI regulates many bank accounts as they control the capital market through large funds and have a hold of the generated capital. RBI is the intermediary body between the government and the market. They regulate reverse repo rate, repo rate, etc. RBI regulates the financial systems and markets through various legislations. The various other functions of RBI in the Capital Market are:

  • Issuing the current notes
  • Government’s banker’
  • Implementation of Credit and Monetary policies
  • Banking system regulator
  • Managing settlement and payment system
  • RBI regulates the Foreign Exchange Markets through the Foreign Exchange Management Act, 1999

National Stock Exchange:

NSE set up rules and regulations that govern the securities market and trading segments. The NSE is an entity regulated by SEBI and undergoes inspections to ensure compliance. NSE also lays rules and regulations on:

  • Listing of securities
  • Compliance
  • Registering the members
  • Monitoring the transactions
  • Investor protection etc. 

Ministry of Finance:

MoF depicts that the Government of India and their economic policies and manifestos help in the regulation of the Capital market. The MOF regulates through the Department of Economic Affairs – Capital Market Division. The division formulates the policies related to the development of the securities markets that is debt, derivatives and share as well as protects the investors. Particularly they are responsible for:

  • Building regulatory and market institutions
  • For security markets, provides the legislative framework
  • Providing institutional reforms in the securities market
  • Strengthens investor protection mechanism

This regulates the Indian Capital Market regulators through these laws:

  • Depositories Act, 1996
  • SEBI, 1992
  • Securities Contracts (Regulation) Act, 1956

Functions and role of the Capital Market Regulators

The growth of the economy, stabilising stock prices, encouraging people to save, a platform for investment, properly allocating the funds, providing proper service and accelerating the economic development.


The Indian Capital Market has been through many changes and there has been a reduction of malpractices of trade over the years. Through this article, we have learnt that the major regulators of the Capital Market are the SEBI, Ministry of Finance, National Stock Exchange and the RBI. The major grounds for regulations are to keep investors away from deception and any other scams. Therefore, this has led to boosting the performance and eliminating the challenges.