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Regulatory framework

Regulatory Framework for Indian Stock Markets: A Comprehensive Overview.

The Indian stock market operates under a well-defined regulatory framework to ensure transparency, investor protection, and fair trading. The key regulators and legal provisions governing the market include:

1. Securities and Exchange Board of India (SEBI)

  • SEBI is the primary regulatory body overseeing the stock markets in India.

  • Established in 1988 and given statutory powers in 1992 through the SEBI Act, 1992.

  • It regulates and monitors stock exchanges, brokers, listed companies, and other market participants.

2. Stock Exchanges

  • The two major stock exchanges in India:

    • National Stock Exchange (NSE)

    • Bombay Stock Exchange (BSE)

  • Both are regulated by SEBI and must comply with the Securities Contracts (Regulation) Act, 1956.

3. Other Key Regulators & Acts

  • Reserve Bank of India (RBI) – Regulates Foreign Institutional Investors (FIIs) and monetary policy.

  • Ministry of Corporate Affairs (MCA) – Enforces corporate governance norms.

  • Depositories Act, 1996 – Governs depositories like NSDL & CDSL.

  • Companies Act, 2013 – Regulates corporate entities listed on stock exchanges.

  • Income Tax Act, 1961 – Governs taxation of capital gains and market-related income.

SEBI Regulations for Investors

SEBI has framed various regulations to protect investors and ensure fair practices in the stock market. Some of the key regulations include:

1. Investor Protection Regulations

  • Prohibition of Insider Trading Regulations, 2015 – Prevents unfair trading based on confidential company information.

  • Listing Obligations and Disclosure Requirements (LODR), 2015 – Ensures companies disclose all necessary information to investors.

  • Investor Grievance Redressal Mechanism – Investors can file complaints through SCORES (SEBI Complaints Redress System).

  • Mutual Fund Regulations, 1996 – Governs mutual fund schemes to safeguard investors’ interests.

2. Trading and Market Conduct Rules

  • SEBI prohibits price manipulation, front-running, and circular trading.

  • Margin Trading Regulations, 2004 – Controls leverage in stock market trading.

  • Research Analyst Regulations, 2014 – Prevents misleading financial advice.

  • Derivatives Trading Regulations – Defines who can trade in F&O and the margin requirements.

3. Foreign Investment Regulations

  • Foreign Portfolio Investment (FPI) Regulations, 2019 – Governs foreign investors in Indian markets.

  • Participatory Notes (P-Notes) Guidelines – Monitors foreign investments through offshore derivative instruments.

NSE’s Don’ts for Investors

The National Stock Exchange (NSE) has listed several “Don’ts” to prevent fraudulent activities and protect investors:

1. Trading Related Don’ts

  • ❌ Do not trade based on market rumors or unverified tips.

  • ❌ Do not get influenced by unsolicited investment advice from unknown sources.

  • ❌ Do not indulge in speculative trading without proper knowledge.

  • ❌ Do not execute trades on behalf of others (unless you are an authorized broker).

  • ❌ Do not trade in illiquid stocks without due diligence.

2. Broker & Account Related Don’ts

  • ❌ Do not share your trading credentials (ID, password, OTP) with anyone.

  • ❌ Do not keep funds or securities idle in your broker’s account.

  • ❌ Do not sign blank or incomplete documents while opening a demat/trading account.

  • ❌ Do not deal with unauthorized brokers or portfolio managers.

3. IPO & Investment Related Don’ts

  • ❌ Do not apply for IPOs with borrowed funds just to flip for quick gains.

  • ❌ Do not invest in penny stocks based on hype.

  • ❌ Do not blindly follow stock recommendations without research.

  • ❌ Do not invest in schemes that promise assured returns in the stock market.

4. General Market Conduct Don’ts

  • ❌ Do not fall for Ponzi schemes, chit funds, or get-rich-quick stock tips.

  • ❌ Do not indulge in insider trading, front-running, or any unfair practices.

  • ❌ Do not get into unauthorized speculative trading in derivatives.

  • ❌ Do not respond to phishing emails or fraudsters asking for investment details.

Conclusion

The Indian stock market is well-regulated under SEBI, ensuring investor protection and market integrity. However, investors must stay vigilant, avoid fraudulent schemes, and follow NSE’s guidelines to safeguard their investments.