Investors’ probable solutions to their problems: a study of Punjab

Securities and Exchange Board of India and the Indian Capital Markets - A Survey of the Regulatory Provisions

Securities fraud, mainly insider trading, poses a formidable challenge to the integrity and fairness of financial markets worldwide. In the Indian context, where investor confidence is pivotal for economic growth and development, addressing the complexities of insider trading is paramount. This paper comprehensively examines insider trading through a multidisciplinary lens, encompassing criminological perspectives, judicial interpretations, regulatory frameworks, and enforcement mechanisms. Drawing on prominent case studies such as Dilip Pendse v SEBI, Hindustan Lever Limited v SEBI, Rakesh Aggarwal v SEBI, and others, the paper elucidates the motivations, methods, and consequences of insider trading. It underscores the detrimental impact of this illicit practice on market efficiency, investor confidence, and overall market integrity. Through criminological theories such as rational choice theory, social learning theory, and neutralization techniques, the paper delves into the psychological and social factors that drive individuals to engage in insider trading, offering valuable insights into the decision-making processes of perpetrators. Furthermore, the paper critically evaluates the legal framework established by the Securities and Exchange Board of India (SEBI) to combat insider trading. It analyses the effectiveness of regulations such as the (Prohibition of Insider Trading) Regulations, 2015 while highlighting challenges in defining and proving unpublished price-sensitive information (UPSI) and enforcing penalties. The paper elucidates the evolving landscape of insider trading regulation and enforcement in India by examining judicial interpretations and case law. Despite regulatory efforts, the gap between law and enforcement persists, necessitating innovative strategies to strengthen deterrence against insider trading. Recommendations are proposed to enhance surveillance and monitoring, streamline enforcement processes, impose stricter penalties, protect whistleblowers, promote international cooperation, and foster a culture of compliance and transparency. Combating insider trading requires a concerted effort from regulators, market participants, and stakeholders. By addressing the root causes of insider trading, enhancing regulatory oversight, and promoting ethical conduct, we can cultivate a more resilient and transparent securities market that instils trust, encourages investment, and fosters long-term economic prosperity.

PurposeThis study aims to determine experimentally factors affecting the satisfaction of retail stock investors with various investor protection regulatory measures implemented by the Government of India and Securities and Exchange Board of India (SEBI). Also, an effort has been made to gauge the level of satisfaction of retail equities investors with the laws and guidelines developed by the Indian Government and SEBI for their invested funds.Design/methodology/approachTo accomplish the study’s goals, a well-structured questionnaire was created with the help of a literature review, and copies of it were filled by Punjabi retail equities investors with the aid of stockbrokers, i.e. intermediaries. Amritsar, Jalandhar, Ludhiana and Mohali-area intermediaries were chosen using a random selection procedure. Xerox copies of the questionnaire were given to the intermediaries, who were then asked to collect responses from their clients. Some intermediaries requested the researcher to sit in their offices to collect responses from their clients. Only 373 questionnaires out of 1,000 questionnaires that were provided had been received back. Only 328 copies were correctly filled by the equity investors. To conduct the analysis, 328 copies, which were fully completed, were used as data. The appropriate approaches, such as descriptives, factor analysis and ordinal regression analysis, were used to study the data.FindingsWith the aid of factor analysis, four factors have been identified that influence investors’ satisfaction with various investor protection regulatory measures implemented by government and SEBI regulations, including regulations addressing primary and secondary market dealings, rules for investor awareness and protection, rules to prevent company malpractices and laws for corporate governance and investor protection. The impact of these four components on investor satisfaction has been investigated using ordinal regression analysis. The pseudo-R-square statistics for the ordinal regression model demonstrated the model’s capacity for the explanation. The findings suggested that a significant amount of the overall satisfaction score about the various investor protection measures implemented by the government/SEBI has been explained by the regression model.Research limitations/implicationsA study could be conducted to analyse the perspective of various stakeholders towards the disclosures made and norms followed by corporate houses. The current study may be expanded to cover the entire nation because it is only at the state level currently. It might be conceivable to examine how investments made in the retail capital market affect investors in rural areas. The influence of reforms on the functioning of stock markets could potentially be examined through another study. It could be possible to undertake a study on female investors’ knowledge about retail investment trends. The effect of digital stock trading could be examined in India. The effect of technological innovations on capital markets can be studied.Practical implicationsThis research would be extremely useful to regulators in developing policies to protect retail equities investors. Investors are required to be safeguarded and protected to deal freely in the securities market, so they should be given more freedom in terms of investor protection measures. Stock exchanges should have the potential to bring about technological advancements in trading to protect investors from any kind of financial loss. Since the government has the power to create rules and regulations to strengthen investor protection. So, this research will be extremely useful to the government.Social implicationsThis work has societal ramifications. Because when adequate rules and regulations are in place to safeguard investors, they will be able to invest freely. Companies will use capital wisely and profitably. Companies should undertake tasks towards corporate social responsibility out of profits because corporate houses are part and parcel of society only.Originality/valueMany investors may lack the necessary expertise to make sound financial judgments. They might not be aware of the entire risk-reward profile of various investment options. However, they must know various investor protection measures taken by the Government of India & Securities and Exchange Board of India (SEBI) to safeguard their interests. Investors must be well-informed on the precautions to take while dealing with market intermediaries, as well as in the stock market.

The mutual fund industry in India has undergone a remarkable transformation over the past three decades, becoming one of the most trusted and accessible avenues for small and institutional investors alike. This evolution has been primarily guided by the regulatory vigilance of the Securities and Exchange Board of India (SEBI), which has consistently introduced reforms to enhance transparency, investor protection, and market discipline. This research paper critically examines the impact of SEBI’s guidelines on mutual fund operations in India, focusing on the intersection of regulatory governance, market efficiency, and investor confidence. The paper analyses how SEBI’s comprehensive framework — including the SEBI (Mutual Funds) Regulations, 1996, the categorisation and rationalisation norms, disclosure mandates, and risk mitigation policies — has shaped the conduct, compliance, and governance of mutual funds. It also evaluates emerging challenges such as overregulation, compliance costs, and digital transformation pressures. Through doctrinal and analytical approaches, the study aims to highlight SEBI’s role in balancing innovation with investor protection while ensuring that mutual fund operations remain transparent, accountable, and aligned with global best practices. Ultimately, this paper argues that SEBI’s evolving regulatory structure not only strengthens financial discipline but also builds trust and participation in India’s capital market ecosystem.

Insider trading is considered an eminent problem for the proper functioning of the securities market, as it enables people to trade with the help of unpublished price sensitive information (UPSI). The purpose of this research paper is to critically assess the measures taken by the Securities and Exchange Board of India (SEBI) to regulate insider trading in India. For this, the legal instruments provided under the SEBI Act of 1992 and the SEBI Prohibition of Insider Trading Regulations of 2015 are analysed. The paper examines the enforcement regime of SEBI, covering aspects related to surveillance, investigation process, and the penalty system. Some important problems faced by the enforcement regime include the challenge of establishing cases of insider trading using circumstantial evidence, the delay in procedures, ineffective deterrent provided by penalties, and complexity of transactions. The comparison of the enforcement process withthat of the United States reveals the shortcomings in the regime, especially concerning stronger penalties and quick investigations. The paper finally comes to the conclusion that although the regime in India has developed an effective and evolving regime for the regulation of markets, it is moderately effective in enforcing the laws against insider trading. The necessary steps in improving the regime include stronger penalties, use of advanced technological tools, faster process of adjudication, and provision for whistleblower protection.

Since the empowerment of the Securities and Exchange Board of India (SEBI) through an Act of Parliament in 1992, SEBI has come up with a number of initiatives aimed at regulating and developing the Indian securities market and improving its safety and efficiency. These initiatives have made an impact on nearly every aspect of the market. Some of those initiatives have transformed the market fundamentally. Particularly noteworthy is the growth in the following: Market capitalization Number of listed firms Trading volumes and turnover both in the spot and futures markets. There is a growing network of financial intermediaries that operate in a highly competitive environment while being governed by a tight set of norms. India has one of the most sophisticated new equity issuance markets. Disclosure requirements and the accounting policies followed by listed companies for producing financial information are comparable to the best regimes in the world. The Indian securities market is among the safest and the most efficient trading destinations internationally. The Indian corporate governance code is compared to the Sarbanes Oxley Act of the USA. India has one of the fastest growing and well-developed asset management businesses in the world, with state-owned as well as private sector players. That said, the Indian market is often hostage to some scam or the other from time to time. Effective enforcement of compliance is cited as one of the reasons for these unsavoury episodes. The role that SEBI's initiatives have played in bringing about this transformation of the market has not been researched comprehensively so far. Literature that has analysed the efficiency and the design of the Indian securities market has examined the role of certain specific regulatory provisions on the functioning of the securities market. So also the various annual reports of SEBI discuss the regulatory and other institutional developments that took place during the year under review. However, no attempt seems to have been made to take stock of all the various initiatives of SEBI so far and assess its impact on the activity in the securities market. This paper identifies some of the major interventions of SEBI relating to each of these aspects of the market and critically examines the economic consequences of the same. Such a stock-taking will enable a well-rounded and objective review of SEBI's performance. It is also likely to suggest interesting areas for further research.

The study examines the impact of quality certification of initial public offerings (IPOs) arising out of lead manager’s reputation, grading by credit rating agencies, presence of anchor investors and the reputation of auditors on the level of IPO underpricing. The mean initial excess return that measures the level of IPO underpricing is 22 per cent based on a sample of 399 IPOs made by Indian companies during the period from April 2005 to March 2015. Contrary to expectations, nearly 37 per cent of the IPOs do not provide a positive initial excess return. Univariate analysis reveals that except for IPO grading, the other quality certification variables do not make a significant impact on the level of underpricing. Graded issues are more fairly priced compared to non-graded issues. The Securities and Exchange Board of India (SEBI), the capital market regulator, has recently done away with mandatory grading of IPOs. As graded issues have been observed to improve pricing efficiency, SEBI should reconsider its decision and reintroduce compulsory IPO grading. Multivariate analysis, that includes other variables, such as issue size, level of subscription and promoters holding, reveals that the two variables that have a significant influence on initial excess returns from IPOs are the issue size and the level of oversubscription of the IPO.

With every passing year, India is witnessing intense shareholder activism. The number of proposals rejected by the institutional shareholders has been increasing over the years since 2014 since the implementation of the Companies Act, 2013 in India. Furthermore, the introduction of various SEBI (Securities and Exchange Board of India) regulations has improved the corporate governance framework in India. As per the global literature, issues raised by activist shareholders falls in any one of the following four categories – Board of directors related issues, Executive / Senior Management related issues, Financial Performance and Valuation related issues, Idle Cash and Capital Structure related issues and Miscellaneous issues (Other issues which are not part of any of the above category). The proposals rejected by institutional shareholders in listed Indian companies revealed that Director related issues (such as the appointment of directors and compensation of directors) are the most important set of issues in the Indian context. Over the period, Indian regulators (such as SEBI, IRDAI etc.) have tightened regulations which further enhanced corporate governance framework in India. In our earlier paper, we have identified issues raised by activist shareholders across the globe. Our next step is to study characteristics of companies targeted by activist investors. We have shortlisted set of companies where proposals were rejected by the institutional investors. We have used discriminant analysis which is one of the widely used predictive analysis technique. The discriminant analysis explores the relationship between the discriminators (set of independent variables) and the dependent variable. Various performance parameters are used as discriminators or independent variables along with dependent dichotomous variable. We have chosen companies where proposals were rejected by the institutional shareholders. Limitation of the study is that there are multiple instances where proposals were rejected by very thin margins. An extension of this study could be understanding views of various stakeholder of capital market (i.e., investors, advisors, merchant bankers, CXOs of the companies etc.). Target audience for the paper includes academician, policymakers and industry professionals. We have presented discriminant analysis as a methodology which can be used beyond bankruptcy and risk models.

Real Estate Investment Trusts or REITs have become an important tool in India capital markets enabling investors to invest in real estate as an asset class in India without holding a property directly. REITs are simplified form of Collective Investment Schemes (CIS) and are regulated by the Securities and Exchange Board of India (SEBI). The purpose of this paper is to discuss the legal status of REITs in India, the reason for treating them as CIS and other issues including transparency, investor protection and development of real estate. In 2014, Securities Exchange Board of India (SEBI) introduced the REIT Regulations, 2014, which brought a major change in the regulation to institutionalize real estate investment without compromising investor interests. The following study examines the regulation, qualifications, compliance and investor rights under the REIT framework. Finally, it demonstrates the commonalities as well as the differences between CIS and REITs, and provides insight into the developing case law on collective investment schemes. The paper also delves into the challenges of implementation, such as tax inefficiencies, a liquidity trap, and the need for more respondents in the broader market. In essence, REITs, under the aegis of erstwhile SEBI regulation, represents the next logical step in the evolution of the principles underpinning CIS adapted to provide considerable benefits stemming from growth in the real estate sector us and offer Indian’s access to investment opportunities not previously available in their own country.

Changing Regulatory Landscape for Commodity Derivatives Trading in India -- Implications and the Way Forward

Purpose – The aggregate investment by foreign institutional investors (FIIs) in the Indian stock market is significant compared to that by domestic institutions and individual (retail) investors. The question of whether FIIs exhibit herding and positive feedback trading while investing in the Indian stock markets has not been examined so far. This study is an attempt to fill the gap and contribute to the existing evidence on foreign portfolio investment in India.Methodology/approach – We have analyzed the daily data on purchases and sales of securities by FIIs sourced from the Securities and Exchange Board of India (SEBI), and the Bombay Stock Exchange (BSE). We have adopted the approach of Lakonishok et al. (1992), and Wermers (1999) to examine herding and positive feedback trading by foreign investors.Findings – Our results suggest that FIIs exhibit herding and positive feedback trading during different phases of the stock market. This observed behavior is prominent in but not restricted to large cap stocks as they enjoy better liquidity.Social implication – The herding and positive feedback trading by FIIs is a cause for concern for government of India, capital market regulator (SEBI), and the country's central bank (RBI) as it adversely affects stock prices and volatility. They are required to formulate and implement a suitable policy response given their objective of protecting the interests of small investors in the market. They may also have to monitor the purchases and sales of equities by FIIs in general and of better performing large cap stocks in particular.

Economic growth is facilitated by a sound financial system. “Mutual funds are one of the main sources of capital flows to emerging economies”. “The Securities and Exchange Board of India (SEBI) is the highly powerful capital market regulator in the country and it regulates mutual funds”. The regulatory mechanism for mutual funds is quite strong in India. 11th September 2020 is a significant day for equity multi-cap funds in India. SEBI came out with a circular on that day for equity multi-cap funds. The present study endeavours to critically assess the impact of that circular on equity multi-cap funds. The study is exploratory and uses secondary data. The number of equity multi-cap funds reduced drastically after the regulatory circular. Nevertheless, one notable thing is that many fund houses launched schemes under the category of equity multi-cap funds even after this circular. The results reveal that the AUM of the two big funds (Nippon India Multi-Cap Fund and ICICI Pru Multi-cap Fund) has increased and the expense ratio has decreased in February 2022 in comparison to December 2020. The returns generated by these funds were spectacular also. As such, the impact of the circular should not be treated as a negative one for equity multi-cap funds.

The financial system of a country promotes savings by providing a wide variety of financial assets to the general public. Savings collected from the household sector are pooled together and allocated to various sectors of the economy for raising production levels. If the allocation of credit is judicious and socially equitable, it can help achieve the twin objectives of growth and social justice. An understanding of financial markets -- as part of the financial system -- is important as they are at the core of the transmission mechanism of monetary policy. In India, financial markets have been developed with a specific emphasis on increasing allocative efficiency of resources and promoting financial stability. Financial markets in India comprise, in the main, money market, Government securities market, capital market, corporate debt market, credit market, and foreign exchange market. Capital market plays a very important role in the development of financial system of any economy. It is a market where financial assets such as equities/debts are traded over a long period of time. Although the capital market in India has a long history, it remained on the periphery of the financial system for a long time. Various reforms undertaken since the early 1990s by the Securities and Exchange Board of India (SEBI) and the Government have brought about a significant structural transformation in the Indian capital market. As a result, the Indian equity market has become modern and transparent. The equity market has witnessed widespread development in infrastructure and its functioning is comparable to international standards. It has seen significant increase in growth and diversity in composition since early 1990s.

Credit rating agencies (CRAs) exist to primarily evaluate the creditworthiness of corporate borrowers who directly seek funds from the public without going to a bank. This study seeks to review the developments of CRAs in India, taking into consideration the recent global financial crisis. Emphasis is placed on the existing and desired regulatory structure in India vis-à-vis the legislation in the United States (US) and the European Union (EU). In perspective, affixing liability to the CRA is seen as a prudent and a decisive step in checking the potential malfunctioning in the system. Likewise, it would be a welcome move if the Securities and Exchange Board of India (SEBI) leads the way in affixing liability to credit rating agencies for reckless rating.

Determinants of a successful commodity contract: Evidence from the Indian agriculture futures market