Capital Markets and the Regulatory State in India
“Securities Markets” in Devesh Kapur & Madhav Khosla (eds), Regulation in India: Design, Capacity, Performance (Hart Publishing, 2019)
22 Pages Posted: 8 Apr 2019
Date Written: March 11, 2019
There exists a strong correlation between the extent of minority protection conferred by law upon investors and the state of the capital markets in an economy. The tools employed to protect minority investors include disclosure and transparency rules, corporate governance norms and the enforcement of shareholder rights. In several jurisdictions, as in India, the role of securities regulation is performed by a regulatory body that is conferred the power to prescribe substantive rules of engagement and enforce them through the power to impose sanctions on perpetrators of non-compliance.
My goal in this paper is to analyze the regulatory apparatus governing the capital markets in India, and to explore the role and performance of India’s regulator, the Securities and Exchange Board of India (SEBI). After examining the evolution of SEBI as a capital markets regulator and the gradual expansion of its role, I will highlight and discuss the key issues and controversies that have surrounded its functioning, and conclude with some critical analysis and normative observations.
I will begin by highlighting the importance of securities regulation to the capital markets and in turn the economy of a country, and analyze the various models of securities regulation that are prevalent. I do so by focusing on SEBI, whose establishment represents a watershed moment in India’s capital markets. Second, while the independence of SEBI has not been in doubt, the role of interest groups in SEBI’s functioning, at least in the sphere of rulemaking, deserves further study, which I undertake in the paper. Third, in its functioning SEBI has encountered several regulatory turf wars, which are worthy of analysis in this paper. The paper will conclude with proposals for reform to address the above issues, within the broader framework of the Indian administrative and regulatory state.
Keywords: Capital Markets, Regulatory State, India, SEBI, Investor Protection
JEL Classification: K22
Suggested Citation: Suggested Citation