SEBI

Securities & Exchange Board of India (SEBI) Economics Study Material & Notes
The security market in an economy is that segment of a financial market which
raises Long-term Capital through instruments like shares, securities, bonds, mutual
funds, debentures. This market is known as the security market of economy.
The security market in India comprises of a Security regulator (SEBI), stock exchanges,
different share indices, brokers, FIIs,etc.
The security market has two complementary markets Primary and secondary markets.
Primary Markets: It is a market where those instruments are traded directly between
the entity raising capital and the instrument purchasing entity.
Secondary Markets: The market where those instruments of security market are
traded among the primary instrument holders. These transactions require an
institutionalized floor for trading, this platform is known as the stock exchanges.
The regulator of Indian stock market, is Securities and Exchange Board of
India(SEBI). It is working since 1988 but was granted the statutory status in 1992 by
the SEBI Act of 1992.
SEBI has its headquarters located in Mumbai with regional offices in Kolkata, Chennai,
New Delhi and Ahmedabad.

Objectives of SEBI:
The Securities and Exchange Board of India has been established under the Section 3
of the SEBI Act of 1992. This act provides for the establishment of SEBI full with
statutory powers for working towards the following :
a)The protection of interests of the investors in securities market.
(b) The promotion for the development of the securities market.
(c) Work for the regulation of the securities market.
Composition of SEBI:
The Board of Securities & Exchange Board of India (SEBI) is comprised of 9 members,
excluding the Chairman. It is managed by its members, in the following manner:
A Chairman is nominated by the Union Government.
2 members of SEBI, are officers from the Union Ministry of Finance.
1 member of SEBI, is from the Reserve Bank of India.
There are 3 whole-time members, who are nominated by the Government of
India.
There are 2 Part-time members, who are also nominated by the Government of
India.
Presently, the Chairman of SEBI is U.K. Sinha
The Functions of SEBI:
The regulatory jurisdiction of SEBI extends over corporates(in the issuance of capital
and transfer of securities), in addition to all the intermediaries and individuals associated
with the securities market. SEBI performs the following functions to meet its objectives.
These functions involve protective measures, Developmental activity and regulatory
functions.
Registering and stock exchanges, merchant banks, mutual funds, underwriers,
registrars to the issues, Brokers, Sub-brokers, transfer agents,etc.

Levying various fees and other charges(as 1% of the issue amount of every
company issuing shares kept by it as a caution money in the concerned stock exchange
where the company is enlisted).

Promoting the knowledge in investor education.

It conducts audit and Inspections of stock exchanges and their various

intermediaries.

It in involved in performing other concerned functions as may be prescribed to it

from time to time.

It Regulates the business in stock exchanges and other securities markets in the
economy.It prohibits Insider Trading by keeping a check when insiders of a company
buy securities of that company.

It takes strict action against insider trading.

It is involved in registering and regulating the working of players in stock exchanges like
stock brokers, sub-brokers, market makers, etc.
It Promotes as well as regulates the self-regulatory organizations also.
SEBI prohibites the fraudulent and unfair trade practices in the securities market.
SEBI is also interested in calling for information, undertaking inspections, conducting
audits and inquiries of the stock exchanges, intermediaries, self regulatory organizations,
mutual funds and other persons associated with the securities market in the country.
It keeps a check on Price-rigging by fraud investors. Price rigging is basically
manipulation of the prices of securities for inflating or deflating the market price of
securities. Such practices are harmful for the performance of market at large.

MONETARY POLICY :Monetary policy is a regulatory policy by which the central bank or monetary authority of
a country controls the supply of money, availability of bank credit and cost of money,
that is, the rate of Interest.
Monetary policy / monetary management is regarded as an important tool of economic
management in India. RBI controls the supply of money and bank credit. The Central
bank has the duty to see that legitimate credit requirements are met and at the same
credit is not used for unproductive and speculative purposes. RBI rightly calls its credit
policy as one of controlled expansion.
B)OBJECTIVES OF MONETARY POLICY OF INDIA :The main objective of monetary policy in India is growth with stability. Monetary
Management regulates availability, cost and use of money and credit. It also brings
institutional changes in the financial sector of the economy. Following are the main
objectives of monetary policy in India :1. Growth With Stability :Traditionally, RBIs monetary policy was focused on controlling inflation through
contraction of money supply and credit. This resulted in poor growth performance. Thus,
RBI have now adopted the policy of Growth with Stability. This means sufficient credit
will be available for growing needs of different sectors of economy and at the same
time, inflation will be controlled with in a certain limit.
2.

Regulation, Supervision And Development Of Financial Stability :-

Financial stability means the ability of the economy to absorb shocks and maintain
confidence in financial system. Threats to financial stability can come from internal and
external shocks. Such shocks can destabilize the countrys financial system. Thus,
greater importance is being given to RBIs role in maintaining confidence in financial
system through proper regulation and controls, without sacrificing the objective of
growth. Therefore, RBI is focusing on regulation, supervision and development of
financial system.
3.

Promoting Priority Sector :Priority sector includes agriculture, export and small scale enterprises and weaker
section of population. RBI with the help of bank provides timely and adequately credit at
affordable cost of weaker sections and low income groups. RBI, along with NABARD, is
focusing on microfinance through the promotion of Self Help groups and other
institutions.

4.

Generation Of Employment :Monetary policy helps in employment generation by influencing the rate of
investment and allocation of investment among various economic activities of different
labour Intensities.

5.

External Stability :With the growth of imports and exports Indias linkages with global economy are
getting stronger. Earlier, RBI controlled foreign exchange market by determining
eaxchange rate. Now, RBI has only indirect control over external stability through the
mechanism of managed Flexibility, where it influences exchange rate by buying and
selling foreign currencies in open market.

6.

Encouraging Savings And Investments :RBI by offering attractive interest rates encourage savings in the economy. A high
rate of saving promotes investment. Thus the monetary management by influencing
rates of interest can influence saving mobilization in the country.

7.

Redistribution Of income And Wealth :By control of inflation and deployment of credit to weaker sectors of society the
monetary policy may redistribute income and wealth favouring to weaker sections.

8.

Regulation Of NBFIs:Non Banking Financial Institutions (NBFIs), like UTI, IDBI, IFCI plays an important
role in deployment of credit and mobilization of savings. RBI does not have any direct
control on the functioning of such institutions. However it can indirectly affects the
policies and functions of NBFIs through its monetary policy.

World Bank
The World Bank and the IMF performs different functions, but they are often confused with
each other either with reference to their functions or with their operation. We are therefore,
trying to clearly mark the points of difference between these two. You must remember that
the name World Bank does not refers to a bank in conventional sense (this is because it

performs development function). And International Monetary Fund or IMF performs the
lending function(which we associate with bank.

The international Bank for Reconstruction and Development( now called the
World Bank) and the International Monetary Fund (IMF) were established with different
mandates.
Both these IMF and World Bank are also known as Bretton Woods Twins.
Let us study the details of both on a comparative basis. This will clear the air about
confusion regarding both these institutions.
Structure and Size of World Bank and IMF:
The World Bank:
188 countries member.
The World Bank has two major organizations in it: The International Bank for
Reconstruction and Development and the International Development Association (IDA).
Headquarters: Washington, D.C.
It has 7,000 staff members, and it is about 3 times as large as the IMF.
The International Monetary Fund:
188 countries member.
Headquarters: Washington, D.C.
It has 2,300 staff members.
Functions:
The World Bank:
The World Bank promotes economic and social progress in developing
countries. It helps these countries to raise productivity to enable people to live a better
and fuller life.
Therefore, its primary mandate is to finance economic development.
The International Monetary Fund:
The IMF is basically a lending institution which gives advances to members in
need.
It is the mentor of its members monetary and exchange rate policies.
To maintain the stability in Exchange rate system around the World.
Operations:
The World Bank:
It works to encourage poor nations to develop, by providing technical assistance
and funding for their projects and that will help realize the nations economic potential.
It endeavors to achievement direct involvement of the poor in the economic
activity, through agriculture and rural development, small-scale enterprises, and urban
development lending.
Since the World Banks lending decisions depend on the economic condition of
the borrowing country, it carefully analyses the economy and needs of the sectors for
which lending is contemplated. These studies help in formulation of an appropriate long-

term development assistance strategy for the economy of the concerned

country.
The International Monetary Fund:
It primarily urges its members to allow their currencies to be exchanged without any
restriction for the currencies of other member countries of IMF.
The IMF supervises economic policies that influence the balance of payments in
members economies. This provides an opportunity for early warning of any exchange
rate or balance of payments problem in its member nations.
It provides short- and medium-term financial assistance to its member nations which
run into any temporary balance of payments difficulties. This financial assistance
involves the option of convertible currencies to alter the affected members troubled
foreign exchange reserves. It is done only in return for that governments promise to
reform their economic policies that have caused the said balance of payments problem.

globalisation means the integration of national economies into the international

economy through trade, foreign direct investment, capital flows, migration, and the
spread of technology.
According to dictionaries
Globalisation (n) is the "process enabling financial and investment markets to operate
internationally, largely as a result of deregulation and improved communications"
(Collins) or - from the US - to "make worldwide in scope or application" (Webster). The
financial markets, however, are where the story begins.

Promotion of free trade:

Elimination of tariffs; creation of free trade zones with small or no tariffs

Reduced transportation costs, especially resulting from development of

containerization for ocean shipping.

Reduction or elimination of capital controls

Reduction, elimination, or harmonization of subsidies for local businesses

Creation of subsidies for global corporations

Harmonization of intellectual property laws across the majority of states, with

more restrictions.

Supranational recognition of intellectual property restrictions (e.g. patents

granted by China would be recognized in the United States)
Benefits of Globalisation

By buying products from other nations customers are offered a much wider
choice of goods and services.

Creates competition for local firms and thus keeps costs down.

Globalisation promotes specialisation. Countries can begin to specialise in those

products they are best at making.

Economic Interdependence among different nations can build improved political

and social links.

Drawbacks of Globalisation

Cheap imports from developing nations could lead to unemployment in

developed countries where the cost of production is high.

Choosing to specialise in certain products may lead to unemployment in other

sectors which are not prioritised.

Increased competition for infant industry.

Dumping of goods by certain countries at below cost price may harm industries
in order countries.

International Trade
Introduction
All of us are affected by global trade in goods and services be it your flight to an
overseas holiday destination; your purchase of a music download from an overseas
web site or a business importing new technology.
Trade is huge and, over the last twenty years world trade has been growing quicker
than expansion of the internal economies of countries around the globe.
Britain is a highly open economy which means that a large and rising share of our
output of goods and services is tied to trade with other countries around the world. The
chart below shows the annual change in the volume of exports and imports note the
sharp downturn in international trade during the recession year of 2009.This was a year
when the volume of global trade dipped by more than 12% and threatened an end to a
sustained phase of globalisation.
Why do countries trade? Exploring the gains from trade

Trade is the exchange of goods and services between countries. When the
conditions are right trade brings benefits to all countries involved and can be a
powerful driver for sustained growth and rising living standards.

One way of expressing the gains from trade in goods and services between
countries is to distinguish between the static gains from trade (i.e.
improvements in allocative and productive efficiency) and the dynamic
gains (the gains in welfare that occur over time from improved product quality,
increased choice and a faster pace of innovative behaviour).

Some of the gains from free trade are outlined below:

Welfare gains: Economists who support the liberalization of trade believe that
trade is a positive-sum game all counties engaged in trade and exchange
stand to gain.

Economies of scale trade allows firms to exploit scale economies by

operating leading to lower average costs of production that can be passed onto
consumers.

Competition / market contestability trade promotes increased competition

particularly for those domestic monopolies that would otherwise face little real
competition.

Dynamic efficiency gains from innovation - trade enhances consumer choice

and stimulates product and process innovations

Access to new technology: trade, like investment, is also an important

mechanism by which countries can have access to new technologies.

Rising living standards and a reduction in poverty - trade can be a powerful

force in reducing poverty and raising living standards.
Economic nationalism
Economic nationalism is a term used to describe policies which are guided by the
idea of protecting a country's home economy, i.e. protecting domestic
consumption, jobs and investment, even if this requires the imposition of tariffs
and other restrictions on the movement of labour, goods and capital.
Examples of economic nationalism include China's controlled exchange of the
Yuan, and the United States' use of tariffs to protect domestic steel production.
The term gained a more specific meaning in 2005 and 2006 after several
European Union governments intervened to prevent takeovers of domestic firms
by foreign companies. In some cases, the national governments also endorsed
counter-bids from compatriot companies to create 'national champions'. Such
cases included the proposed takeover of Arcelor (Luxembourg) by Mittal Steel
(India). And the French government listing of the food and drinks business
Danone (France) as a 'strategic industry' to block potential takeover bid by
PepsiCo (USA).