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Anti-Money Laundering (AML) Regulations
Final integration: Lastly, the illegal amount thus converted is now legally available for use since the conversion is legitimate in the eyes of the law. Here, laundered funds enter the banking system again and are then used freely by fraudsters. Simply put, the laundered money is readded into the economy in a manner that allows it to be used and withdrawn in a manner that appears to be legal.
Some of the biggest money laundering cases in India:-
By :- Shruti Bahadur & C.Spurthi
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nti-money laundering (AML)
Encompasses a network of laws, regulations, and protocols designed to expose attempts to portray unlawful funds as lawful income. Money laundering endeavours to disguise various crimes, ranging from minor tax evasion and drug trafficking to instances of public corruption and the funding of entities labelled as terrorist organizations. The development of AML legislation was prompted by the expansion of the financial sector, the removal of international capital controls, and the increased ease of executing intricate financial transactions.
Company involved in the scam
Year of scam
Amount involved
Commonwealth Games (CWG) scam
2010
History:-
Saradha Group financial scandal
2013
The battle against illicit gains has evolved over centuries, with the term "money laundering" gaining prominence in the last century. The 1970 Bank Secrecy Act was pivotal, requiring U.S. banks to report cash deposits and implement transaction identification. Subsequent laws targeted drug trafficking, expanded financial monitoring, and addressed terrorist funding. Global efforts intensified in 1989 with the Financial Action Task Force (FATF), later extending to combat terrorist financing. The UN integrated anti-money laundering measures into conventions. The 2020 Anti-Money Laundering Act, enacted in 2021, marked a significant overhaul of U.S. regulations, notably tightening controls on shell companies and bringing cryptocurrency exchanges under enhanced scrutiny.
Indian coal allocation scam or the Coalgate scam
20122013 20072017 2009
70,000 crores 2500 crores 185,591 crores 9,900 crores 7,000 crores 11,40013,500 crores
The Kingfisher Airlines case Satyam scan (Satyam computers scam) Punjab National Bank
20072017
Facts and figures of money laundering cases: a) Two to five percent of the global GDP is laundered every year which is equivalent to approximately USD 800 billion to USD two trillion. (UNODC) b) 90% of global money laundering activities go undetected each year. (United Nations) c) 400 times, more money is laundered through fiat currency instead of cryptocurrencies. (Forbes) d) Only 0.1% of the laundered funds are recovered after an AML investigation. (University of Melbourne)
The Process of Money Laundering:-
The Foundations of Successful Compliance with Anti-Money Laundering (AML) in the Banking Sector In the context of a robust Anti-Money Laundering (AML) program, it is imperative to comprehend its key components, each playing a crucial role in safeguarding financial systems against illicit activities.
Below is a brief discussion of the most common steps followed for such an activity. • •
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Illicit activity: The first and foremost step to money laundering is to have some illicit financial activity. Initial placement: This is the start of the money laundering process; here, illegal funds are transferred to a legitimate establishment or institution, say a bank. This process is carried out in such a way that there is no way any traces of such fraud occurring can be detected. Even though the number of scams is large, these funds are entered into these institutions in smaller batches to avoid any sort of suspicion. Layering: Next comes the process of layering. Here, any signs of criminal activity are eliminated via some complicated financial transactions. It may also involve transferring funds to banks or institutions of foreign origin that have confidentiality laws in place. As a result, the source of money is hidden behind the counterfeit transactions. This procedure assists in removing information about how and where these funds came from.
At the forefront is the "Know Your Customer" (KYC) process, a fundamental element that mandates thorough identity verification
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during the account opening process. This involves aligning digital and real-world identities, ensuring a comprehensive understanding of the customer's profile. The KYC procedures act as a foundational layer in the AML framework, fortifying the financial institution's ability to discern the legitimacy of its clientele.
Steps Taken By Government Of India To Prevent Money Laundering •
Criminal Law Amendment Ordinance (XXXVIII of 1944):It covers the proceeds of only certain crimes such as corruption, breach of trust, and cheating and not all the crimes under the Indian Penal Code.
Another integral facet is Customer Due Diligence (CDD), which involves a meticulous assessment of customer information to identify and evaluate potential risks associated with their financial transactions. This process includes checks against databases housing information about politically exposed persons and watchlists. By scrutinizing the customer's background and financial behaviour, CDD aims to uncover any red flags or irregularities that may indicate involvement in money laundering activities. This proactive approach enhances the financial institution's ability to identify and mitigate risks associated with its customer base. Customer and Transaction Screening form an additional layer in the AML program.
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The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976:It covers the penalty of illegally acquired properties of smugglers and foreign exchange manipulators and for matters connected therewith and incidental thereto. •
Narcotic Drugs and Psychotropic Substances Act, 1985:It provides for the penalty of property derived from, or used in illegal traffic in narcotic drugs. •
Prevention of Money Laundering Act, (PMLA), 2002:It forms the core of the legal framework put in place by India to combat Money Laundering. The provisions of this act are applicable to all financial institutions, banks (Including RBI), mutual funds, insurance companies, and their financial intermediaries. •
PMLA(Amendment)Act,2012:Adds the concept of ‘reporting entity’ which would include a banking company, financial institution, intermediary, etc. PMLA, 2002 levied a fine up to Rs 5 lakh, but the amendment act has removed this upper limit. It has provided for provisional attachment and confiscation of property of any person involved in such activities.
Challenges: •
Compliance costs: The money launderers always find new and complex techniques to launder money which often challenges the financial institutions to detect and prevent the crime which often includes a huge amount of money. • Complex procedures and technology: AML compliance necessitates many processes and technology solutions, such as integrating know-your-customer (KYC) data and systems. These processes and technology solutions can be complex and time-consuming, and they must be able to integrate with other systems and databases within the organization. Data quality must be enhanced and standardized to allow for centralized analysis of fraud and financial crimes.
This component involves scrutinizing diverse transactions to ensure compliance with established regulations and to prevent the transfer of funds to sanctioned individuals or entities. By implementing sophisticated screening mechanisms, financial institutions can identify and halt transactions that may be linked to illegal activities or individuals associated with criminal enterprises. This not only safeguards the institution from unwittingly facilitating money laundering but also contributes to the broader efforts of combating financial crime on a global scale. Lastly, Suspicious Activity Reporting (SAR) is a pivotal aspect of any comprehensive AML program. It entails the establishment and maintenance of an immutable audit trail, facilitating the tracking of financial activities over time. This audit trail serves as a valuable resource for law enforcement agencies, aiding them in tracing and investigating criminal activities. Maintaining a transparent and comprehensive record of suspicious activities not only strengthens the institution's cooperation with regulatory bodies but also establishes a foundation of trust during investigations. In essence, the multifaceted components of an AML program work synergistically to create a robust defence against money laundering and financial crimes. The KYC process establishes a solid foundation by ensuring the accurate identification of customers, while CDD goes a step further by evaluating the associated risks. Customer and Transaction Screening act as proactive measures to prevent illicit fund transfers, and Suspicious Activity Reporting provides a mechanism for ongoing vigilance and collaboration with law enforcement. Together, these components create a comprehensive framework that aligns with regulatory requirements and reinforces the financial institution's commitment to combating money laundering.
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Absence of skilled employees:
It is often challenging to find skilled professionals as demand for them is very high and the availability of them is very low. It is hard to employ the right person with familiarity with a company's sector and expertise in AML regulation.
Conclusion:One of the most important parts of the international defence against financial crime is anti-money laundering legislation. Their value in preserving the integrity of financial institutions, shielding society from the negative effects of illicit activity, and promoting global collaboration cannot be emphasized, notwithstanding the difficulties they face. AML laws must change and continue to be effective in their effort to protect our institutions and economies from the everevolving world of financial crimes.
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Pump and dump is a form of securities fraud in which market manipulators target relatively unknown companies, or ‘penny stocks’, load up on the stocks, and then attract other market participants to invest in the stock and artificially increase the price. After that, they then ‘dump’ or sell their stocks at an inflated price and make a profit. Since the inflation was fabricated, investors will be left with undervalued stock when the stock returns to its initial price or even lower. On 10 June 2015, it was reported that ‘Rakesh Jhunjhunwala’ purchased 250,000 odd shares of Surana Solar after that the stock jumped up by 18%, and the next day the stock crashed to its lower circuit, when the true identity of the investor was revealed. As soon as the news was made public, there was madness amongst the traders and investors to invest in the stock. This sent the stock price surging to an all-time high of Rs. 62.40. At this stage, the operator dumped his holding of the stock, leading to abnormally high volumes on the exchanges. Later, when news leaked that the “Rakesh Jhunjhunwala” who had bought the stock in the first place was not the ace investor 'Rakesh Jhunjhunwala' but a namesake, the stock price plunged to a low of Rs. 25.60
Market Manipulation By:- Avinash Kumar & Jayashree R
Market manipulation is the intentional attempt to create artificial, false, or misleading appearances concerning the price, market, product, security, and currency as well as to interfere with the free and fair operation of the market. In other words, when an individual or group of individuals or organizations intentionally attempts to increase or decrease the price of a financial product for their gain is known as Market manipulation. It is also known as price Manipulation, stock manipulation.
Prohibition of Market Manipulation:Market manipulation is a punishable offense under Article 15 of the Market Abuse Regulation (MAR) Act. Article 15, Section 120, No. 2 states that the offender should believe that committing the prohibited act and completing the offense is possible and approves of this. However, for market manipulation to be considered a criminal offense, intent is essential. In Section 119(4), even though intentional market manipulation does not affect the price of the stock, it's still considered a criminal offense, and the offender is imprisoned for up to 5 years or he will be fined. If the offender is part of an organized crime or while performing professional duty, then the offender will be imprisoned for up to 10 years as per Section 119(5). The violation of market manipulation prohibition is detected and investigated by BaFin. In case of any kind of suspicious activities related to market manipulation have been reported by BaFin
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Insider Trading:Insider trading also known as Front running refers to an insider of a company taking financial action like directly investing in the stock, enticing others to do so, or tipping off someone likely to invest based on company-related information that is not yet public. Taking financial action based on this insider information is called front running as this could affect the value of the security ahead of the public announcement. Sebi has levied a penalty fee totalling Rs 20 lakh on two entities of Rupa and Company Ltd for flouting insider trading norms in the stocks of RCL.
to the relevant public prosecutor's office, as per Section 11, Sentence 1. Market manipulation is also considered an administrative offense if the intent of the offender does not extend to all elements of the offense. A fine of €5,000,000 for individuals or a maximum of €15,000,000 or 15% of total revenue for legal entities is imposed for administrative offenses. In addition, the offender is also penalized with a fine that is 3 times the economic benefit received by the offender from the offense.
The Sebi imposed a penalty fee of Rs 10 lakh each on Sushil Patwari (Independent Director of RCL) and Nagreeka Capital and Infrastructure Ltd (NCIL). Sebi investigated to ascertain whether certain entities traded in the company during February-June, 2021, while in the possession of unpublished price-sensitive information (UPSI). The amount of Rs 2.37 lakh is a disproportionate gain or unfair advantage by NCIL while trading in the shares of RCL.
Market Manipulation techniques:•
Pump and dump:-
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Spoofing:Spoofing is a form of stock market manipulation that refers to the practice of creating faux orders and cancelling them earlier than the deal is made. The trader can repeat this procedure and create an illusion of demand using bots and algorithms, which will artificially affect the stock price. A flash crash on the National Stock Exchange on 6 October 2012 due to erroneous trades by a dealer in 59 frontline stocks including RIL,
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Infosys, ICICI Bank, SBI, and TCS pulled the NSE -50 index down by 15.5% to 4888.
Conclusion Market manipulation poses a serious threat to the integrity and fairness of financial markets. The intentional effort to create false appearances, influence prices, and interfere with the normal operation of markets undermines the principles of transparency and investor confidence. Article 15 of the Market Abuse Regulation Act are in place to prohibit and penalize market manipulation, with criminal offenses carrying significant fines and imprisonment. Various market manipulation techniques, such as pump and dump, insider trading, and spoofing, have been identified, each with its unique characteristics and risks. These manipulative practices can lead to artificial inflation of stock prices, creating a volatile and unpredictable market environment. To confront market manipulation, stock exchanges hire market surveillance and investigation mechanisms. Price bands, market alerts, alerts to trading members, rumour/news verification, and the dissemination of price-sensitive information are essential tools used to monitor, detect, and address suspicious activities. These measures aim to maintain market integrity, protect investors, and ensure a level playing field for all market participants. It is crucial for regulatory bodies, such as BaFin and SEBI, to actively enforce and enhance these surveillance measures to safeguard the financial markets from manipulation. Additionally, market participants must remain vigilant and adhere to ethical practices to foster trust and stability within the financial system. Overall, the continued diligence of regulatory authorities, market participants, and the implementation of robust surveillance mechanisms are vital in curbing market manipulation and maintaining a fair and transparent financial ecosystem.
Nifty-50 recovered at the end of the day's trade to close at 5,747, down 41 while the Sensex closed 120 points down at 18,938. The national stock exchange had suspended Emkay Global Financial Services, the broking house from where the trades had originated.
Market Surveillance and Investigation:To maintain market integrity and fairness, the stock exchanges implement various market surveillance to monitor, detect, and address market manipulation techniques, such as pump and dump, insider trading, spoofing, etc. • Price Bands: Price bands are the price range of the securities which is set to perceive the value of the securities. To prevent price fluctuation of the securities and to determine relevant regulations daily, intra-day, or weekly price bands are set. •
Market Alerts or Watch: Market Alerts or watches are predetermined parameters that are used to generate alerts based on abnormal price or volume fluctuations, order variations, and other criteria.
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Alerts to Trading Members: The Exchange informs trading members of securities with alerts, cautioning them to exercise due diligence while trading in these securities.
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Rumour/News Verification: In response to corporate development rumours or news, the Exchange seeks clarification from the concerned company and disseminates the confirmation or clarification to the market promptly.
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Dissemination of Price-Sensitive Information: Price-sensitive information received from companies is disseminated to the market through electronic display as required by relevant regulations.
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INSIDER TRADING LAWS
The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 are the most recent set of insider trading laws in India. Due to a number of flaws, the initial regulations pertaining to the same were released in 1992 and lacked a reliable system for tracking down cases of insider trading. The PIT Regulations,2015, which were further updated in 2018, were developed as a step toward resolving this issue by providing a more thorough and extensive procedure to check for insider trading and guarantee that no such incidents are left unattended.
By:- Harsh Jain & Arbas Ahmed
Important clauses of Prohibition of Insider Trading Regulations are defined as follows:
Insider trading laws are a body of regulations and laws designed to prevent anyone from trading securities with substantial, proprietary information. These regulations aim to protect the fairness and integrity of the financial markets by ensuring that all investors have equal access to pertinent information. Insider trading laws might differ between legal jurisdictions. Financial market integrity is based on laws and regulations against insider trading that guarantee equity and transparency. These regulations are in place to stop anyone from using significant, private information for their personal benefit.
Why Insider Trading Laws And Regulations ? The laws and regulations governing insider trading are required to uphold fairness in the marketplace, safeguard the interests of minority shareholders, and maintain market integrity. They prevent anyone from making money off of sensitive, proprietary information, therefore safeguarding equity and investor faith.
• Trading Restrictions: Insiders are prohibited from trading securities when they are in possession of sensitive, confidential information. • Disclosure Requirements: Companies must establish an insider code of conduct and notify stock exchanges of trading activity. In order to maintain transparency, these disclosures are necessary. • Prevention of Illegal Communication: Unauthorized disclosure of private information to third parties is another regulation that prohibits insider trading. Severe penalties: A few of the harsh penalties and sanctions that SEBI has imposed for violations include market bans, fines, and jail time. • Insiders: According to the regulations, employees, directors, and other business associates who have access to proprietary information are deemed insiders.
The Securities and Exchange Board of India (SEBI) has been instrumental in the development and implementation of these policies in India, highlighting the nation's commitment to transparent and wellregulated financial markets.
The Above Graph represents the number of Insider trading cases completed by Securities and Exchange Board of India (SEBI) in India from fiscal year 2011 to 2017.
Important Aspects Of Sebi's Insider Regulations And Their Development:
SEBI Regulations, 2003 (Prohibition of Fraudulent and Unfair Trade Practices):
Price-sensitive information that is not publicized (UPSI):The UPSI concept is essential to laws governing insider trading. Insiders must abide by the rules, which define what constitutes UPSI and forbid trading in securities while in possession of this information
These regulations provide a broader framework for regulating unfair and fraudulent trade practices in the securities market. They cover a range of market abuses, including insider trading, though they are not limited to it. Important clauses include procedures for arbitration and appeals as well as fines for deceptive and unfair business activities.
Plans for Trading: SEBI laws allow insiders to build up predetermined trading schemes. These strategies need to be approved by the company's compliance officer and implemented by a SEBI-registered intermediary.
Regulations of SEBI (Prohibition of Insider Trading) (Amendment), 2018: To improve the efficacy of the insider trading laws, SEBI made amendments to them in 2018. Some definitions were clarified by the modifications, including "connected persons" and "trading window." Additionally, they imposed more stringent guidelines for promoters and other important managerial staff to disclose their trading. The following are the key enforcement mechanisms:
Strict Reporting Guidelines: Any trading action must be immediately reported by insiders to the stock exchanges and the company. This deals with creating, modifying, or ending trading programs. Tight Penalties and Implementation: SEBI has established a stringent set of sanctions for insider trading violations. Penalties include fines, the disgorgement of unlawful earnings, and potentially jail time
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Constant Updates on Regulations: SEBI has adjusted its insider trading regulations on a regular basis to accommodate changing market conditions. 2018 amendments improved disclosure requirements, improved enforcement processes, and provided clearer definitions.
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Major Insider Trading Regulations In India:
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Surveillance and Monitoring: Using its integrated surveillance system, SEBI keeps a careful eye on market activity. This technique assists in locating possible cases of insider trading and highlights anomalous trading patterns. Investigation: SEBI investigates into possible insider trading charges when it observes anomalous trading activity. These investigations may include questioning, testing, and obtaining evidence in attempt to detect misbehaviour.
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Adjudication: Adjudicating officers are selected by SEBI to preside over hearings on accusations of insider trading and other market violations. They possess the authority to penalize offenders and administer sanctions. Penalty Provisions: Under the regulations, SEBI is empowered to impose harsh penalties on individuals found guilty of insider trading.
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Ambiguity in prohibitions: Market participants may have confusion due to the interpretation of some insider trading prohibitions, which can be unclear. For efficient compliance, these regulations must be clear.
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Enforcement Delays: The lengthy legal procedure involved in resolving insider trading accusations can cause delays in the imposition of sanctions.
Effect on the Financial Markets in India The financial markets in India have been significantly impacted by the stricter and anti-insider trading legislation that has been put in place. India has been impacted by: •
Enhanced Transparency: The securities market is now far more equitable and transparent as a result of the laws. Investors now have greater faith that they may transact on fair terms without being taken advantage of by insider information.
Fast decision-making is essential for a potent deterrence. •
Cross-Border Issues: International networks and transactions are frequently a part of insider trading. For Indian authorities, harmonizing legislation and coordinating with overseas agencies is a difficulty.
Conclusion: •
Investor Protection: Investor protection is given top priority under Indian insider trading regulations. The regulations ensure that the interests of retail investors are protected by outlawing insider trading and enforcing strong penalties.
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Improved Market Integrity: The Indian financial markets are now more highly integrated due to the enforcement of strict laws against insider trading. It improves the standing of India's financial system by encouraging moral conduct and discouraging unethical actions.
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Market Efficiency: Since insider trading has been restricted, the Indian financial markets have grown more effective, facilitating the fair and impartial dissemination of information.
India's insider trading regulations have evolved throughout time in response to the issues that have arisen from this unethical practice. These policies play a critical role in maintaining the integrity and transparency of the Indian financial markets. India has achieved a notable decrease in insider trading through the implementation of strict laws, enhanced enforcement mechanisms, and a focus on safeguarding investors. However, challenges remain, requiring continued efforts to ensure that laws are properly put into effect, ambiguities are cleared up, and resources are allocated in a way that maintains market integrity. India's insider trading rules must be successful in order to attract foreign investment, create a stable and trustworthy financial system, and safeguard domestic investors. The regulatory framework must evolve in tandem with the market.
More money and investors are drawn to the markets as a result.
Challenges: Even with the advancements, there are still issues and worries with insider trading regulation in India: •
Lack of Resources: SEBI experiences resource limitations, similar to many other regulatory entities. Increased funding is required by the organization in order to strengthen its capacity for enforcement, investigation, and surveillance.
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Investor Protection Laws
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The Magazines Act, of 1996, regulates the functioning of magazines in India, thereby icing the keeping and transfer of securities in electronic form. It reduces the risks involved with physical share instruments by providing investors with a safe and efficient means to hold and exchange their shares. The Companies Act of 2013: Shareholders' and companies' rights and obligations are outlined and provisions to protect investors from fraud and poor management are also included in the Act.
By:- Hetal Dangra & Mangesh Nandkishor Funde The history of investor protection laws in India can be traced back to the early 20th century. However, an effective regulatory structure was established in the 1990s. The Securities and Exchange Board of India (SEBI) was founded in 1992 with the purpose of supervising the growth and management of the securities industry. SEBI has been pivotal in protecting investors and promoting fair and efficient markets. There was no one regulating agency for the Indian securities market until SEBI was established. This resulted in instability and a lack of coordination, which made it challenging to properly manage the market. In the early 1980s, there were a number of high-profile scams in the Indian securities market. The scams involving Ketan Parekh and Harshad Mehta were the most well-known. These frauds destroyed investor confidence, destroyed the market's reputation, had an adverse impact on investors, and raised doubt on the efficacy of India's investor protection laws. The Indian government's implementation of investor protection regulations has contributed to enhancing the securities market's accountability and transparency.
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Publicly traded companies must disclose certain financial and other information to investors. Investors can use this information to make well-informed investing decisions. Fraudulent practices like pump-anddump schemes, insider trading, and market manipulation are prohibited by investor protection legislation. Licensed businesses that purchase and sell securities on behalf of investors are known as brokerdealers. In order to guarantee that broker-dealers work in their clients' best interests, investor protection rules regulate the way they operate. Professionals that advise investors on securities investments are known as investment advisers. Investment advisers are subject to regulations under investor protection legislation, which are designed to help guarantee that their clients receive fair and accurate advice.
The Investor Education and Protection Fund (IEPF) was established to safeguard the interests of investors who have lost touch with their investments. Matured deposits, unclaimed dividends, and other assets are moved to a special fund under the IEPF, assuring that investors can access their money even after a long time of dormancy. SEBI's Investor Protection Fund is a crucial resource that comes into play when investors suffer losses due to the default of a stockbroker or other market intermediaries. This fund increases confidence in the financial markets and compensates impacted investors.
Investor Protection: Legal Framework
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SEBI's Insider Trading Regulations prevent insider trading by company insiders. These rules forbid trading on the basis of nonpublic information and mandate that insiders declare all of their transactions.
The Securities Act of 1933: mandates that publicly traded corporations register their securities with the SEC prior to making them available for purchase by investors. The registration process necessitates the disclosure of comprehensive financial and additional corporate data. The Securities Exchange Act of 1934: This legislation governs overthe-counter and national exchange securities trading. It also protects against insider trading and other fraudulent activities. The Investment Advisers Act of 1940: This legislation governs investment advisers' operations. Investment advisers must register with the SEC and provide their clients with specific information, including their investment philosophy and fees.
By doing so, the regulations protect investors from market manipulation and unfair practices.
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Strong channels for redressing investor grievances have been established by SEBI and stock exchanges. Through these channels, investors who feel their rights have been violated can register complaints, guaranteeing a prompt resolution of disputes and the protection of their interests. In India, regulations are not the only means of protecting investors. An attempt is made to inform investors of the benefits and dangers associated with investing. To improve
The Securities Contracts (Regulation) Act, of 1956: This law prohibits insider trading and other fraudulent activities and controls the trading of securities on stock exchanges. Securities Investor Protection Act of 1970: This law protects investors if their broker-dealer fails financially. It provides for the return of customer securities and cash up to certain limits.
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financial literacy and enable investors to make wise decisions, many projects and activities are carried out.
Additionally, SEBI is now more focused on raising investor awareness and education. Despite the advancement that has been made, there is still room for improvement in investor protection in India. The Investor Protection Fund (IPF), for instance, is still underutilized despite being established to reimburse investors who have lost money as a result of fraud or poor management.
Technologies used to protect the Investors •
In an effort to improve investor protection, SEBI has started several kinds of measures. For instance, SEBI has created the "SEBI Saatchi" smartphone app, which enables investors to submit grievances and obtain information about the securities market. Additionally, SEBI has introduced a chatbot named "SEBI Mitra" to respond to inquiries from investors.
For investors, the procedure of redressal can sometimes be difficult and drawn out.
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The Indian government and SEBI continually are reviewing and updating legislation to stay up with shifting market dynamics in order to solve these difficulties. In order to safeguard investor interests in the event of corporate insolvencies, one noteworthy example of such an effort is the establishment of the Insolvency and Bankruptcy Code (IBC) in 2016.
To safeguard investors, the National Stock Exchange (NSE) of India has created a variety of technology-based solutions. To guarantee that investor orders are carried out fairly and transparently, for instance, the NSE has created a system known as the "Order Management System (OMS)". The "Market Surveillance System (MSS)" is another tool the NSE has created to identify and stop fraudulent activity including insider trading and market manipulation.
To encourage investor education, the Indian government has also implemented a number of initiatives. The National Institute of Securities Markets (NISM) was founded by SEBI to offer market intermediaries and investors training. Additionally, a number of investor awareness programs have been started by the government.
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Several technology-based solutions have also been created by the Indian Bombay Stock Exchange (BSE) to safeguard investors. For instance, to give investors a platform for online securities trading, the BSE created the "BSE Online Trading System (BOTS)". Additionally, the BSE has created a tool known as the "BSE Market Surveillance System (BEMS)" to identify and stop fraudulent practices like insider trading and manipulation in the market. Conclusion
To improve investor safety, SEBI has implemented a variety of measures in recent years. For instance, it has implemented new rules to control the trading of derivatives and the issuing of initial public offers (IPOs).
India's investor protection laws and regulations are designed to ensure the security and confidence of investors in the financial markets. These laws address a wide range of topics, including corporate governance, market transparency, insider trading prevention, and investor redress methods. With India's economy expanding and attracting investments, these rules are essential to protect the confidence and interests of both foreign and domestic investors. Initiatives for investor education also encourage wise investment choices, which strengthens the ecology surrounding investments. The advancements made in India with regard to investor protection are excellent, even though there is still potential for improvement. Investor protection and the advancement of just and efficient markets are top priorities for the Indian government and SEBI.
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MARKET INTEGRITY RULES
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Market Manipulation and Fraud Prevention :- Manipulation in terms of the financial market includes the circulation of any kind of false or misleading information, or transaction that can deceive to mislead market participants. Market manipulation and fraud can confuse investors and create risk in the market. SEBI monitors trading patterns and identifies irregularities. SEBI has implemented rules and regulations to monitor and prevent market manipulation. Activities such as price manipulation and frontrunning are prohibited by The Prohibition of Fraudulent and Unfair Trade Practices Regulations. Similarly, The Integrated Market Surveillance System plays an important role in identifying unusual trading activities and market manipulation. Additionally, SEBI has introduced circuit breakers and price band limits to prevent extreme price fluctuations and market stability.
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Fair Access and Anti-Front Running Measures :- An unethical and illegal trading practice by brokers, traders, or entities in the financial market where they take advantage of advanced information or knowledge of pending orders from their clients to execute their trades is known as front-running.
By :- Suhani Gour & Nehal Garg
Market integrity rules play a paramount role in the fair functioning of the financial market. The rules and regulations designed to ensure the honesty, accountability, and transparency of participants come under market integrity rules. These rules are made to prevent market manipulation, fraud, and any other unethical practices that can disturb the trust and confidence of investors or disrupt the firmness of the financial system. Let's poke about the evolution of the market integrity rules. The 17th century was a pivotal period as during this time, the world’s first official stock exchange was established known as the Amsterdam Stock Exchange (ASE). Before the development of ASE, trading was done on interpersonal trust and oral agreements. This practice of oral agreements gave rise to the need for written contracts, standardized trading rules, and proper legal principles and obligations to act honestly in the market. By the 18th century, stock exchange became more widespread. The century was also a transformative period for the financial market as industrialization and global trade expanded. This created a need for a well-organized and transparent marketplace for the protection of investors. The rules gave transparency and fair dealing opportunities to investors, prevented market manipulation, regulatory bodies to control the overall functioning of the financial market.
It is considered a form of market manipulation because it unfairly exploits the trust and confidential information of the clients. The legal and ethical implications of Front running are: Securities and Exchange Commission Regulation has the authority to bring civil enforcement actions against individuals and entities by charging fines, penalties, and sanctions. Financial Industry Regulatory Authority Rules address front-running. They enforce these rules through regular audits, investigations, and disciplinary actions against the faulty.
In India, the Securities and Exchange Board of India (SEBI) is the primary regulatory authority responsible for regulating India’s capital market. SEBI ensures that the market operates efficiently, fairly, and transparently by setting the key market integrity rules. Key components of market integrity rules are – •
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Insider trading regulations :- When an individual often called an Insider or those close to a company use confidential information that is not yet disclosed to the general public to gain an unfair advantage over others in trading of company’s securities is called Insider Trading. It is considered illegal as it undermines fairness in the market. Section 11(2) E of the Companies Act, 1956 prohibits this kind of trading to provide equal opportunity to every participant in the market and also free and fair flow of information. Information such as periodic financial reports, major changes in policies or operations of the company, upcoming mergers or takeovers, intended dividend declarations, etc are considered sensitive concerning trading, and possession of such information can be illegal according to market integrity rules.
Short selling regulations :- Short selling is an investment strategy where an investor or trader sells a financial asset that they don’t own but sell by borrowing the same asset and then buying back when the price drops to earn profit (or loss). The regulations aim to prevent abusive short-selling practices that can harm market integrity comes under this.
The practice is usually done by investors and traders for various reasons like Hedging, Speculation, Arbitrage, Liquidity Provision, Portfolio diversification, etc. Short selling is a widely practiced investment strategy that is very risky and has unlimited potential for losses. For doing such kind of trading, investors should have a complete understanding of rules and regulations in the specific market. •
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Market Surveillance and Enforcement :- Market surveillance involves continuous monitoring and analysis of trading activities and identifying any kind of irregularities or market abuse in the financial market. On the other hand, Market Enforcement refers to
the legal actions taken for the violation of market integrity rules. It plays a pivotal role in the functioning of the market in an ethical way. Enforcement includes penalties and sanctions to ensure compliance with market integrity rules. Continuous monitoring creates an environment where investors can feel confident and protects the integrity of financial markets. •
Code of Conduct :- A set of guidelines and principles that individuals and organizations are expected to follow in the financial market comes under a code of conduct. It is also known as a code of ethics. Components such as honesty and integrity, conflicts of interest, fair and equal treatment, transparency and disclosure, etc are stated under the code of ethics.
d) Market integrity rules help the global market to be fair and encourage people from other countries to invest their money globally. e) The financial market is always considered a market prone to risk and unstable market. To keep the market stable market integrity rules come into the picture. Stability is like a safety net that protects the investments and jobs of many people. A steady market makes things easy for businesses to plan and grow. f) In addition, innovations that improve market efficiency, another key goal of securities regulation, are likely to be permitted even if the innovation diminishes from the fairness or integrity of the market.
Every individual or entity is advised to follow this code of conduct because violation of the same can cause severe consequences like fines, damage to reputation, regulatory actions, etc. •
CONCLUSION To promote the integrity of the market, spreading awareness and protection is a vital aspect. Usually, SEBI conducts programs to educate investors and create awareness among market participants. SEBI has implemented the concept of whistle-blowers who report unethical or illegal activities in the market. This concept of whistle-blower encourages individuals to come forward with information about unethical practices to maintain the integrity in the market.
Settlement Rules :- Settlement rules consider regulations and procedures that direct the final transfer of ownership and payment for securities and other financial instruments. As the settlement is a crucial part of the trading process to ensure that both buyer and seller fulfil their obligations.
The clearing houses act as intermediaries between buyers and sellers ensuring the settlement of trades efficiently and appropriately. These rules help minimize risk, protecting the interest of participants and maintaining the integrity of the financial market.
Regular audits are done by the authorities to maintain the balance in the market. Independent auditors and regulatory authorities ensure that the rules are followed. Exchanges employ sophisticated market surveillance systems to detect unusual trading patterns and potential market abuse. They monitor trading activities closely to maintain market integrity. The rules also address issues like trade confirmation, margin requirements, dispute resolution mechanisms, etc. All the market participants like investors and brokers are required to complete KYC procedures. The know-your-customer norms ensure that the participants are identified which further helps in maintaining market integrity. Companies that are listed on Indian Stock Exchanges are required to adhere to strict listing and disclosure requirements. This will help the general public to get to know about the information related to the company on time. Accurate information helps in the decision-making process for investors. For the smooth and transparent functioning of India’s financial market, SEBI and Indian Stock Exchanges play a pivotal role by enforcing the market integrity rules. From maintaining fair trade practices to contributing to the growth and development of the economy, market integrity rules maintain the functioning of the financial sector.
The legacy of these rules is evident in today’s financial markets, where regulatory bodies with strict regulations against insider trading and other unfair practices against the interest of investors maintain market integrity. The importance of law, honesty, and transparency in trading is controlled with the help of market integrity rules and regulations. The importance of market integrity rules are: a) Protecting Investor's Interest is the main motive of SEBI’s mission. With time SEBI had tried to install trust and confidence among the investors and market participants by ensuring the timely flow of information, promoting fair trading, and combating fraudulent activities. b) Preventing the manipulation practices that can happen in the financial market with the help of market integrity rules. Such rules help in protecting investors, fostering a level playing field for all the participants of the market. c) Another major importance of market integrity rules is for enhancing global trust. As there do exist companies who deal in the global market, they need to build trust around the market.
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• More emphasis on anti-corruption: Emerging markеts arе implementing stricter rеquirеmеnts for public disclosures and enhanced whistlеblowеr protеctions.
Regulation In Emerging Markets
• Growing role of private sector: Thе private sector is increasingly participating in regulatory consultations and lobbying for specific forms.
By:- Divisha Arora & Ronit Saraogi
Emerging markets are nations that are experiencing fast economic expansion. These industries are characterized by economic reforms, financial development, infrastructure development, and economic expansion. As an emerging economic market, it often becomes synonymous with international trade. This means it can increase the capacity of local debt and equity markets and boost trade and foreign direct investment. It can improve the financial routine and management of the company. Rеgulations in еmеrging markеts arе a sеt of rulеs and laws that govеrn economic activity in countriеs that arе transitioning from a dеvеloping country to a developed country. These Rеgulations arе dеsignеd to promote economic growth, stability, and development, and to protеct consumеrs and the еnvironmеnt.
• More emphasis on risk-based rеgulation: Emerging markеts arе increasingly moving towards a risk-based approach to rеgulation, using supervisory risk assessment and targeted regulatory interventions. • Grater us of regulatory sandbox’s: Regulatory sandbox’s arе being used more frequently in еmеrging markеts to test new Rеgulations and improv their design.
Key Trends in Capital Market Regulation
Key areas of Capital market regulations:
1. Reinforced focus on investor protection: Regulators are concentrating more and more on protecting investors against insider trading, market manipulation, and other misconduct.
The regulations of merging markets covers a wide range of areas, including finance, trade, investment, intellectual property, and еnvironmеntal protеction. The goal of financial rеgulation is to promote financial stability and protect consumers. Somе of thе kеy arеas of financial rеgulation in еmеrging markеts includе bank capital rеquirеmеnts, liquidity risk management, consumеrs protеction, and corporate governance. The goal of competition policy is to promote efficiency and innovation. Some of the important areas of competition law in emerging markets include antitrust law, merger analysis, and private market regulation. The purpose of environmental management is to protect human health and the environment.
2. Enhanced regulatory cooperation: As financial markets become more globally integrated, regulators are collaborating more to guarantee that market regulations are uniform and efficient 3. Adoption of new technologies: In order to better monitor markets and recognise and manage potential risks, regulators are turning more and more to technology. This includes the application of big data analytics, machine learning, and artificial intelligence. 4. Regulatory responses to emerging risks: Regulators are always keeping an eye out for new and developing risks in the market, such digital assets and cryptocurrencies. As a result, new rules and guidelines for controlling these hazards have been created.
Parties involved in Capital market regulations: Policy in emerging markets involves many parties, including national governments, international organizations, regional organizations, the private sector, and civil society. All parties play a role in creating and implementing policies that will encourage business growth and development.
Challenges and Opportunities for Businesses Due to Regulation in Emerging Markets Challenges:
National governments are responsible for creating and enforcing laws for their countries. International organizations provide standards of assistance and support. Regional organizations manage regulations in emerging markets. Thе private sector influences Rеgulations through lobbying and participating in regulatory consultations. Civil society advocates for better Rеgulations.
1.Inconsistent and evolving regulations: Businesses may find it challenging to adhere to all relevant rules and regulations in emerging markets due to the irregular and constantly changing regulatory frameworks in these areas.
Following provides with an insight on some of thе recant trends in еmеrging markеts Rеgulations: •
Increased focus on financial stability: Emerging markеts arе implementing stricter Rеgulations on bank capital rеquirеmеnts, stress testing, and macro-prudential tools.
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Greater attention to еnvironmеntal and social sustainability: Emerging markеts arе implementing stricter Rеgulations on pollution, deforestation, and renewable еnеrgy.
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More emphasis on regional and international cooperation: Emerging markеts arе increasingly working with international organizations and regional organizations to develop and implement regulatory frameworks.
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2.Lack of transparency: Sometimes rules might be ambiguous or difficult to read, which makes it challenging for companies to know what they have to do. 3.Limited enforcement: In many emerging economies, regulatory enforcement may be slack or inconsistent, which can provide enterprises an unfair advantage.
Growing role of technology: Technology is being used to improv data collection, compliance process’s, and targeted regulatory interventions.
4.High compliance costs: For businesses, particularly small and medium-sized ones (SMEs), complying to rules can be expensive.
Greater focus on consumеrs protеction: Emerging markеts arе implementing stricter rеquirеmеnts for financial disclosures and enhanced consumеrs education programs.
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Opportunities: Investigating prospects in developing nations offers companies the chance to be innovative while negotiating a changing and dynamic regulatory environment. This setting encourages the creation of innovative products and services, enabling businesses to stay on the cutting edge of technological advancements in their industry.
Future of Regulation in Emerging Markets 1. The rise of fintech: This quickly developing technology is changing the financial environment in emerging economies, and authorities must stay up to date Those who are skilled at negotiating the regulatory complexities present in new markets can establish themselves as leaders in the industry and gain a first-mover advantage. Furthermore, emerging markets' growing economies and populace provide a doorway for businesses looking to enter new markets and seize expansion opportunities. The possibility of receiving government support is another incentive for businesses; investments in emerging market economies frequently result in support in the form of financial aid, tax breaks, and other benefits. 2. The increasing importance of sustainability: When creating new laws, emerging market regulators will need to consider the growing significance of sustainability. This could entail creating laws to encourage green and sustainable investment or mandating that businesses reveal more details about the effects they have on the environment and society.
Case Studies: Regulatory Changes in Specific Emerging Markets China: •
China enacted a new securities law in 2017 that gave the China Securities Regulatory Commission (CSRC) far more authority. The new law also made it easier for foreign companies to list on Chinese exchanges.
3. The need for regional cooperation: The necessity of regional cooperation on financial regulation is expanding as a result of growing interdependence of emerging markets. This will contribute to the maintenance of fair and uniform market regulation, as well as level playing fields for all players.
Conclusion: •
A set of regulations for the launching of initial coin offerings (ICOs) was released by the CSRC in 2019. The rules mandated that ICO issuers register with the CSRC and prohibited initial coin offerings (ICOs) of more than 100 million yuan (US$14.7 million).
Emerging markets have a complex regulatory environment that includes financial, environmental, and economic aspects. Recent trends show that as these markets develop, there is a greater emphasis being placed on technological integration, environmental sustainability, financial stability, and increased regional and global collaboration. Although companies must navigate constantly changing regulations, these dynamic environments offer opportunities for innovation, first-mover advantages, market access, and possible government support. Case studies from India and China illustrate how regulatory changes affect crowdfunding and foreign investment. Going ahead, the development of fintech , the increasing focus on sustainability, and the need for more regional cooperation in financial supervision will probably influence the future of regulation in emerging markets.
India: •
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For foreign institutional investors (FIIs), the Securities and Exchange Board of India (SEBI) in India unveiled a new regulatory framework in 2015. FIIs now find it simpler to invest in Indian stocks due to the new framework. In 2018, SEBI introduced a new framework for crowdfunding. According to the new framework, crowdfunding platforms must register with SEBI and adhere to specific disclosure and investor protection regulations.
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settlement processes. SEBI mandates the establishment and regulation of MIIs to ensure orderly trading, robust risk management practices, investor asset protection, and effective surveillance mechanisms. These regulations provide the necessary framework for market participants to trade, settle transactions, and safeguard the interests of investors.
Capital Market Micro-Structure Regulations in India.
Trading Regulations: SEBI's trading regulations focus on ensuring fairness, transparency, and efficiency in the trading activities within India's capital markets. These regulations cover a wide range of aspects, including order types, trading hours, price limits, circuit breakers, and surveillance mechanisms to detect and deter market manipulation. By setting guidelines for market participants, SEBI ensures that trading is conducted in a manner that enhances market integrity and protects the interests of investors.
By: - Pavan Kumar M & Shriya Gundi
Capital market micro-structure regulations in India play a pivotal role in shaping the functioning of the country's financial markets. These regulations, implemented by regulatory bodies like the Securities and Exchange Board of India (SEBI), aim to ensure fair, transparent, and efficient trading activities. By establishing rules and guidelines for listing and issuance, trading, market infrastructure institutions, and investor protection, these regulations contribute to the overall development and stability of India's capital markets.
Investor Protection Regulations: SEBI has implemented several regulations to safeguard the interests of retail investors. These regulations aim to protect investors from fraudulent activities, insider trading, and other market abuses. They require companies to disclose material information to the market promptly, prohibit insider trading, and regulate collective investment schemes. By enforcing these regulations, SEBI enhances transparency, prevents market abuse, and instils confidence among investors.
Overview of Capital Market Micro-structure:
Impact of Capital Market Micro-structure Regulations:
Capital market micro-structure refers to the framework and rules that govern the organization and operation of financial markets. It encompasses various key factors, including market infrastructure, trading mechanisms, information dissemination, investor protection, and regulations pertaining to market participants. The goal of capital market micro-structure regulations is to create an environment that fosters fair price discovery, reduces information disparities, promotes liquidity, minimizes market manipulation, and protects the interests of investors.
The implementation of capital market micro-structure regulations in India has had several significant impacts. Firstly, these regulations have increased transparency in the securities market through strict disclosure requirements and periodic reporting. This transparency enables investors to make informed decisions based on accurate and timely information. Secondly, the regulations have bolstered investor confidence in the Indian capital markets. The presence of robust regulations ensures a level playing field for all market participants, thereby fostering trust and attracting both domestic and foreign investments. Thirdly, the regulations have contributed to the overall fairness and efficiency of the markets. By establishing rules for trading mechanisms, surveillance mechanisms, and price discovery processes, these regulations help maintain market integrity by minimizing manipulation and promoting fair practices. Fourthly, the investor protection regulations implemented by SEBI have provided a framework to prevent fraudulent activities, insider trading, and market abuse. This framework acts as a deterrent and safeguards the interests of retail investors, instilling confidence in the market.
Regulatory Bodies in India: The primary regulatory body overseeing capital market microstructure in India is the Securities and Exchange Board of India (SEBI). Established in 1988 and granted statutory powers in 1992, SEBI plays a crucial role in ensuring investor protection, maintaining market integrity, and promoting fair practices. The Reserve Bank of India (RBI) also plays a significant role, particularly in regulating certain aspects of the debt market.
Some of the key recent developments in capital market micro-structure regulations in India include:
SEBI has implemented a range of capital market micro-structure regulations in India, including regulations related to:
Introduction of high-frequency trading (HFT): SEBI has implemented a number of measures to address the impact of HFT on the market microstructure in India. These measures are designed to slow down HFT and reduce the impact of rapid trading on market liquidity and prices. Regulation of algorithmic trading: SEBI has prescribed the requirements for algorithmic trading in India. These requirements are designed to ensure that algorithmic trading is conducted in a fair and orderly manner. Regulation of dark pools: SEBI has regulated dark pools, which are trading platforms that allow investors to trade securities without their orders being displayed on the public order book.
Trading mechanisms: SEBI has prescribed the trading mechanisms to be used by stock exchanges. These mechanisms include order types, order matching, and trade execution. Market participants: SEBI has prescribed the criteria for different types of market participants, such as brokers, market makers, and foreign institutional investors (FIIs). Market information: SEBI has prescribed the requirements for disclosure of market information, such as trade prices and volumes. Listing and Issuance Regulations: SEBI regulates the listing and issuance of securities in India. To ensure transparency and investor confidence, SEBI sets criteria for companies to go public, including disclosure requirements, listing agreements, and continuous disclosure obligations. These regulations aim to provide investors with accurate and timely information about a company's financial health, business operations, and risks associated with investment, enabling them to make well-informed decisions. Market Infrastructure Regulations: SEBI regulates various Market Infrastructure Institutions (MIIs) in India, including stock exchanges, depositories, and clearing corporations. MIIs play a fundamental role in facilitating efficient trading and
Conclusion: Capital market micro-structure regulations in India, enforced by regulatory bodies such as SEBI, are essential for the fair, transparent, and efficient functioning of the financial markets. These regulations encompass various aspects, including listing and issuance, market infrastructure, trading, and investor protection. The implementation of these regulations has had a positive impact, increasing transparency, boosting investor confidence, and enhancing market integrity. As India's capital markets continue to evolve, ongoing review and refinement of these regulations are necessary to cater to the dynamic market environment and maintain a robust regulatory framework.
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Know Your Customer: Ensuring Trust and Security
The 2020s witnessed the rise of fintech companies, promoting innovative digital onboarding and biometric authentication, ultimately balancing KYC compliance and customer convenience.
KYC Process and Procedures The Know Your Customer (KYC) process is a series of steps used by financial institutions, businesses, and organizations to confirm customer identities, evaluate their risk levels, and adhere to regulatory guidelines. This process includes customer identification, document verification using advanced technology, screening against sanction lists, risk assessment based on transaction history, ongoing monitoring, customer due diligence, enhanced due diligence for high-risk clients, data security, and privacy protection. KYC ensures compliance with Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) regulations, helping prevent financial crimes while maintaining trust, security, and regulatory compliance.
By:- Yuvraj Dutt Sharma
In today's complex financial landscape, the Know Your Customer (KYC) process plays a pivotal role in ensuring trust, security, and regulatory compliance. This article explores the history, processes, and technological advancements of KYC, focusing on its impact on the fintech industry and ethical considerations. We will also delve into customer perspectives and strategies for enhancing the KYC experience. History and Key Milestones Know Your Customer (KYC) regulations and practices have evolved over several decades in response to the growing need to combat financial crimes and money laundering while ensuring the integrity of the financial system.
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Role of Technology & KYC in the Fintech Industry
The role of technology in the Know Your Customer (KYC) process within the fintech industry has been transformative. Fintech companies have harnessed the power of cutting-edge technologies to redefine and enhance KYC practices. Innovations such as artificial intelligence (AI), machine learning, optical character recognition (OCR), and blockchain have streamlined KYC procedures, enabling digital onboarding, remote identity verification, and biometric authentication. These advancements have not only made KYC more efficient but also struck a balance between regulatory compliance and delivering convenient financial services to customers. By leveraging technology, fintech firms have positioned themselves at the forefront of KYC innovation, simplifying customer onboarding, reducing paperwork, and improving the overall user experience, all while upholding the highest standards of security and trust in the digital financial ecosystem.
The journey begins in 1970 with the introduction of the Banking Act, which initiated KYC measures to counter money laundering by requiring banks to maintain transaction records and report suspicious activities. In 1989, the Financial Action Task Force (FATF) was established, setting international standards for anti-money laundering (AML) and counter-terrorism financing (CFT) measures, greatly influencing global KYC practices. The pivotal 2001 USA PATRIOT Act significantly fortified KYC requirements, mandating customer identity verification and record-keeping. The 2010s saw the integration of cutting-edge technologies like OCR, AI, and blockchain, enhancing KYC processes' efficiency and security. In 2018, the GDPR implementation in the EU introduced strict data protection rules that influenced KYC procedures.
Conclusion To sum up KYC remains a critical tool for verifying customer identities, assessing risks, and ensuring regulatory compliance across various industries. Technological innovations continue to make the KYC process more efficient, transparent, and secure. As financial systems evolve and threats increase, KYC remains essential for safeguarding customer information and privacy. Continuous adaptation, technology integration, and adherence to ethical principles are imperative to protect the financial sector and customers in a rapidly changing world.
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governmental, (SRO) Self-Regulatory Organization that writes and enforces the rules governing registered brokers, broker deal firms, and exchange markets in the United States of America. Their mission is to protect investors by making sure the U.S. securities industry operates fairly and honestly. FINRA is largely known as the regulations and registration of brokers and brokerage firms. FINRA’s core values are Collaboration, Expertise, Innovation and Responsibility. FINRA also uses innovative AL and ML Technology to keep a close eye on the Market and provide essential support to investors, regulators, policymakers, and other stakeholders. In Addition, the FINRA Application Programming Interface (API) platform provides a rulebook API that enables users to receive rule content including the taxonomy terms tagged to each of the 40 rules. In December 2019, FINRA oversaw 3,517 brokerage firms: 1,53,907 branch offices and approximately 6,24,674 registered securities representatives. They have nearly 3,600 employees in Washington DC and New York with 20 regional offices around the US.
Implication:- Brokerage firms are required to establish and maintain a supervisory system to oversee the activities of their registered representatives. • Rule 4513 (Records of Written Customer Complaints): Implication:- Brokerage firms must maintain records of written customer complaints and track their resolution. • Rule 5130 (Restrictions on Purchase and Sale of Initial Equity Public Offering): Implication:- This rule limits the ability of industry insiders and related persons to purchase shares in Initial Public Offerings (IPOs). • Rule 5240 (Anti-Intercorporate Financing): Implication:- Prohibits intercorporate financing arrangements and imposes restrictions on the borrowings and lending of funds between firms. • Rule 5310 (Best Execution and Interposition): Implication:- Requires firms to seek the best execution for customer orders and prevents interposition Ing (inserting an intermediary) in the execution process. • Rule 5320 (Prohibition Against Trading Ahead of Customer Orders): Implication:- Prohibits trading ahead of customer orders (frontrunning) and requires fair and equitable treatment of customer orders. • Rule 7710 (Trade Reporting and Compliance Engine – TRACE): Implication:- Mandates the reporting of Over-The-Counter (OTC) corporate bond transactions to promote transparency and price discovery. • Rule 11870 (Customer Account Statements): Implication:- Brokerage firms must provide the customer with regular account statements containing essential information about their investment. • Rule 2010 (Standards of Commercial Honora and Principles of Trade): Implication:- Requires members and associated persons to maintain high standards of commercial honour and principles of trade.
Impact On Capital Market
Cybersecurity
FINRA (Financial Industry Regulatory Authority) By:- Abhishek Bommsamudram and Peehu Dwivedi
FINRA (Financial Industry Regulatory Authority), is a non-
FINRA evaluates a firm’s cybersecurity risk management approaches through reviews of their controls and the list of core cybersecurity controls. • Patch Maintenance • Secure system configuration • Identity and Access Management • Vulnerability scanning • Endpoint malware protection • Email and browser protection • Perimeter security • Security and awareness training FINRA expects firms to develop cybersecurity programs and controls that are consistent with their risk profile, business model, and scale. FINRA’s objective is to focus firms on a risk management-based approach to cyber security.
FINRA plays an important role in protecting the investors and maintaining the market integrity of the U.S. Security and Exchange Commission (SEC) is the ultimate regulator of the U.S. Securities including the FINRA. FINRA has no role in regulating and supervising companies that provide brokerage or brokerage services in the field of Forex or Commodities and If a FINRA-regulated broker wishes to incorporate such products in its portfolio, it should create a different subsidiary according to a separate regulatory structure. FINRA periodically conducts regulatory exams of its regulated institutions The self-regulatory organization administers many of the exams that must be passed to become a licensed financial professional; performing all relevant disciplinary and record-keeping functions. National Association of Securities Dealers & New York Exchange’s Regulatory Committee – By consolidating these two regulators, FINRA aims to eliminate regulatory overlap and cost inefficiencies. FINRA offers several different types of licenses needed by both representatives and supervisors corresponding to specific types of business or investment.
Rules And Regulations FINRA is responsible for licensing individuals and admitting firms into the financial industry, formulating rules to regulate their conduct, conducting regulatory examinations to ensure compliance, and is authorized by the U.S. Securities and Exchange Commission (SEC) to take disciplinary action against registered representatives and member firms that violate federal securities laws and FINRA's regulations. Additionally, FINRA offers educational and qualification exams for professionals in the industry and provides outsourced regulatory products and services to various stock markets and exchanges, including the American Stock Exchange (AMEX) and the International Securities Exchange (ISE). Implication of Rules And Regulations:• Rule 2111 (Suitability): Implication:- Brokers and financial advisors must recommend investments that are suitable for the client’s financial situation, investment objectives, and risk tolerance. • Rule 3010 (Supervision):
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willingness to stay current and responsive to industry developments, which is a commendable approach.
Tips to Secure our Financial Accounts: • •
Being aware of what we click Using Strong passwords with unique special characters
Complex Products: FINRA requested data in 2022 regarding the appropriateness of complicated goods for retail. It may be a good idea for businesses to consider their procedures in advance and how they can prove to their clients that they are thoroughly screening them before letting them trade complicated products. View:- Firms proactively addressing the suitability of complex products for retail investors is a responsible stance. Ensuring that customers fully understand the risks and potential rewards of these products is crucial for investor protection. It's in the best interest of the industry to self-regulate and prevent unsuitable products from reaching retail investors, as this can help avoid potential regulatory intervention and protect the reputation of the financial sector.
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Enabling Multifactor Authentication (Fingerprint, Face detection and PIN) • Maintaining Device Security • Not Logging in New devices. Common cybersecurity threats include malware attacks that can damage or even disable computers and computer systems, and access to the data itself or networks.
Quantum Computing: FINRA, the U.S. Financial Industry Regulatory Authority, has initiated a consultation on the potential regulatory implications of quantum computing as securities firms explore its applications.
Future Outlook Of FINRA:-
Reinvigorated enforcement: Capital markets regulators have stepped up their enforcement efforts following years of inadequate oversight. The surge of new rulemaking activity combined with the regulatory strain on firms' government affairs and compliance activities has not been comparable in years. View:- The increased focus on regulatory enforcement in the capital markets is a positive development. It indicates a commitment to maintaining market integrity and protecting investors. It's essential to have robust enforcement mechanisms in place to deter misconduct and ensure a level playing field for all participants. While it may create added pressure on compliance functions, it ultimately contributes to a more transparent and trustworthy financial environment.
View:- FINRA's proactive approach in considering the regulatory implications of quantum computing is commendable. Quantum computing has the potential to revolutionize the financial industry, offering unparalleled computational power and enabling innovative applications. However, the concerns about cybersecurity and encryption vulnerabilities are valid and should not be underestimated. Striking a balance between harnessing the benefits of quantum computing and safeguarding against potential threats is essential. It's crucial that regulatory bodies like FINRA stay ahead of the curve, adapt to emerging technologies, and work collaboratively with the industry to ensure a secure and resilient financial ecosystem in the quantum era.
Branch Office Inspection: To take into account developments in remote work and digital transformation, the Financial Industry Regulatory Authority (FINRA) is thinking about revising the definition of a branch office and the guidelines for branch office inspections.
View:- Adapting the definition of a branch office and inspection rules to accommodate the evolving landscape of remote work and digital transformation is a necessary step. As technology and work arrangements change, regulations should evolve accordingly to effectively oversee financial institutions. This move by FINRA shows a 20
resilience of the worldwide financial system. Moreover, ongoing and expanded cooperation at the international level concerning information sharing and enforcement should contribute to boosting investor confidence.
INTERNATIONAL REGULATORY COOPERATION FOR GLOBAL CAPITAL MARKETS
Capital moves freely across borders, unaffected by geographical limitations. Participants and organizations in financial markets function on a global scale, with market behaviours and activities transcending national boundaries, while investors explore investment opportunities in foreign lands. To address the challenges posed by this globalized financial landscape, there is a concerted effort to enhance and intensify communication among different financial regulatory bodies. This aims to reduce conflicts and external effects that arise from crossborder activities and to proactively identify emerging regulatory issues. The ultimate goal is to establish more uniform standards and shared regulatory approaches.
Top 10 countries with the most international regulatory agreements
By:- Merry Siby & Sai Asrith Pakki
Country United States United Kingdom Japan Germany France Canada Australia Switzerland Hong Kong Singapore
Number of agreements 821 532 421 332 243 154 123 112 103 92
Regulators also seek to establish bilateral Memorandums of Understanding (MoUs) and similar arrangements with foreign counterparts to facilitate the exchange of information and cooperation in overseeing market participants that operate internationally. These arrangements work alongside formal dialogues with foreign counterparts, both on a bilateral and multilateral basis, to identify and discuss common regulatory concerns and strengthen collaboration in enforcement. These various bilateral and multilateral initiatives have delivered substantial benefits to the global financial system. They particularly advance the core goals of securities regulation, which include safeguarding investors, promoting fair, efficient, and transparent markets, and reducing systemic risk. These arrangements contribute to these goals in multiple ways: they make it easier to enforce securities laws, support the evaluation and adoption of high-quality regulations, and enhance regulatory consistency and predictability for international market participants. It's beyond question that financial events in one country have the potential to affect others, as demonstrated by the financial crisis. Consequently, financial regulations in one country can also impact other nations. Hence, since the onset of the financial crisis, there has been a heightened focus on encouraging national financial regulators to implement international standards more rigorously. This emphasis has involved international political pressure on countries to adopt or align their regulations with these global standards.
Global capital markets are engines powering the world economy, requiring regular tune-ups for optimal performance. In the wake of the global financial crisis, significant regulatory changes were implemented to strengthen critical sectors, ranging from over-the-counter derivatives to investment funds and market infrastructure. These changes aimed to address vulnerabilities exposed by the crisis.
Significance Of Regulatory Cooperation Global regulatory cooperation in the context of capital markets is crucial for maintaining the stability and efficiency of financial systems, promoting investor confidence, and facilitating cross-border investment. The regulatory environment in capital markets involves a complex web of rules and standards that impact the functioning of stock exchanges, trading activities, and the behaviour of market participants. The advent of technology has enabled instantaneous and smooth access to various capital markets. Simultaneously, the consolidation of specialized financial institutions into financial conglomerates with a global presence has redefined traditional notions of market boundaries. This shift has led to an increase in cross-border transactions, presenting regulatory challenges for national regulators tasked with overseeing global market participants.
REGULATORY PROGRESS AFTER GLOBAL FINANCIAL CRISIS
It is important to note that the goal of international regulatory coordination should not be pursued in isolation. Rather, its significance lies in how well the policies it endorses or adopts foster equitable, efficient, and transparent capital markets, facilitate capital generation, and minimize the regulatory burdens and costs associated with achieving these objectives. Therefore, it is crucial to acknowledge not only the possible advantages but also the limitations and potential drawbacks of international financial regulation coordination.
Exploring Different Spectrums Carefully planned global initiatives hold the potential to reduce the likelihood of similar financial crises in the future and bolster the
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In April 2009, the G-20 Leaders issued a pivotal Declaration in response to the global financial crisis that emerged in 2008. This Declaration aimed to strengthen the international financial system and prevent future crises. Key commitments included:
fraud.
Regulation of Systemically Important Entities: G-20 member nations agreed to establish and enforce regulations for institutions deemed "systemically important." These institutions posed significant systemic risks and required heightened oversight. Regulation of Vital Markets and Instruments: The Declaration recognized the importance of regulating critical financial markets and instruments, acknowledging their potential to impact the overall stability of the financial system. Compensation Principles: G-20 leaders stressed the need for principles governing compensation at major financial institutions. The focus was on aligning compensation practices with long-term stability rather than short-term gains, discouraging excessive risk-taking. International Coordination: Given the global nature of the financial system, the G-20 emphasized the necessity of coordinated international action to maintain consistent regulatory standards and practices across borders. Financial Stability: The ultimate objective was to enhance financial stability and reduce systemic risk on a global scale, leading to a more resilient and secure financial system. The 2009 G-20 Declaration laid the foundation for ongoing international efforts to reform financial regulations and bolster the stability of the financial system, resulting in initiatives such as Basel III and improved oversight of financial markets. It represented a critical step toward averting future financial crises and promoting economic stability on the world stage.
Cross-Border Trading: Global financial markets are highly interconnected, and investors often trade in securities listed on foreign exchanges. Regulatory cooperation is essential to ensure that trading can occur seamlessly across borders. This may involve harmonizing rules and standards for market access, trading practices, and investor protection.
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International Accounting Standards: Accounting standards play a critical role in the disclosure of financial information by publicly traded companies. The convergence or adoption of international accounting standards, such as International Financial Reporting Standards (IFRS), helps in making financial reporting more transparent and comparable across jurisdictions.
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Market Surveillance and Enforcement: Cooperation among regulatory agencies in different countries is crucial for monitoring and enforcing market rules. This includes sharing information on market abuse, insider trading, and other violations that can span multiple jurisdictions.
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Market Infrastructure: Regulatory cooperation is important for overseeing market infrastructure, such as clearing and settlement systems and central counterparties (CCPs). International standards, like those established by the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO), help ensure the safety and efficiency of these systems.
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Derivatives Regulation: The regulation of derivatives markets, which include futures and options, often involves complex cross-border issues. Cooperation is required to address issues related to margin requirements, trade reporting, and clearing of derivative contracts.
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Securities Offering and Listing: Companies often seek to list their securities on multiple stock exchanges to access a broader investor base. Regulatory cooperation can streamline the listing process and ensure consistency in disclosure requirements.
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Investor Protection: Ensuring that investors are protected in a global marketplace is a priority. Regulatory agencies cooperate to establish common investor protection standards, such as the disclosure of material information and safeguards against
Market Microstructure: Regulations governing market microstructure, including issues related to high-frequency trading and market fragmentation, can benefit from international coordination to ensure fair and orderly markets.
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Systemic Risk Management: Regulatory bodies cooperate to monitor and manage systemic risk in the financial system. Organizations like the Financial Stability Board (FSB) play a role in coordinating regulatory efforts to identify and address systemic risks in global capital markets.
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Resolution of Cross-Border Financial Institutions: In the event of the failure of a globally significant financial institution, crossborder regulatory cooperation is vital for resolving such institutions in an orderly manner to prevent systemic disruptions.
Effective global regulatory cooperation in capital markets is challenging due to the varying legal and regulatory frameworks across countries. However, international organizations like the International Organization of Securities Commissions (IOSCO), the Basel Committee on Banking Supervision, and the FSB(Financial Stability Board) play a central role in facilitating dialogue, promoting best practices, and setting common standards to enhance the stability and integrity of global capital markets. These efforts aim to strike a balance between ensuring a level playing field for market participants and protecting investors and the financial system.
Key Aspects Of Global Regulatory Cooperation •
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suspicious activity, verify client identities, and observe superior due diligence for certain bills. These compute range with the Bank Secrecy Act (BSA) and Financial Crimes Enforcement Network (FinCEN) policies. Further the CFTC participates in worldwide efforts to fight financial crimes and combine with other regulators to share information and implement regulations. These comprehensive AML efforts protect the integrity of the U.S. Derivatives markets.
COMMODITY FUTURES TRADING COMMISSION
Laws and Rules The commodity exchange act (CEA) originally enacted in 1936 and subsequently amended serves as the legal foundation for the oversight of commodity futures trading in the United States. Under the CEA, the U.S. commodity futures trading commission (CFTC) is entrusted with the authority to regulate and oversee these markets. To facilitate its regulatory role the CFTC publishes its rules and regulations in title 17 of the code of Federal Regulations. The Dodd-Frank act of 2010 significantly expanded the CTFC’s mandate by focusing on the regulation of the swaps market. This expansion aimed to enhance transparency mitigates risk, and improve the overall integrity of financial markets. The CFTC established rules for swap dealers standardized derivatives trading on regulated platform and central clearing houses. The primary mission of the CFTC is to regulate the derivatives markets in the United States through a formalized rule making process. The process adheres to the administrative procedure act (APA) and includes several key steps they are advance notice, notice of proposed rulemaking (NPRM) public comments and the issuance of a final rule. To access official federal register a critical resource provided by the office of the federal register within the national archives and records administration offering access to CFTC publications, public comments and archives dating back to 1996 enabling users to stay informed and track federal agency actions.
By:- Anshul Pradhan & Sandeep Gangisetty
The Commodity Futures Trading Commission (CFTC) is a regulatory enterprise inside the United States. It will be managed by government enterprise mounted to regulate the inventory and futures market. Established in 1974, the CFTC performs a critical role in making sure market integrity and transparency, shielding market contributors, stopping fraud and market abuse, implementing compliance with those laws, and coping with enterprise to ensure fairness and correct commercial enterprise practices., financial merchandise and other corporations.
Industry Overlook
New Challenges for the CFTC
The Industry Filing Search Tool provides information on, and filings with, trading organizations such as designated contract markets (DCMs), swap execution facilities (SEFs), derivative clearing organizations (DCOs), swap data repositories (SDRs), and non-U.S. organizations. Designated contract markets (DCMs) are exchanges which could listing for buying and selling futures or choice contracts based on all forms of commodities and that may allow get entry to their centres by using all forms of investors, which includes retail customers. Some DCMs have been operating for many years as regular futures exchanges, while others are new markets that had been useful recently specific as agreement markets with the aid of the CFTC. The intermediaries of CFTC are futures commission merchants (FCMs), Introducing brokers(IBs), commodity pool operators(CPOs), commodity trading advisors(CTAs), swap dealer(SD), major swap participant(MSP).The CFTC's market surveillance software is a complex and enlightened operation that uses numerous tools and techniques to reveal and examine trading pastime, CFTC uses a whole lot of automated surveillance structures to screen buying and selling interest for uncommon price moves, buying and selling patterns, and different capability red flags. The market surveillance takes a variety of actions to find the market unlawfulness include manipulation, fraud, imposing position limits, filing enforcement actions and other crime issues. There are some rules not required for the certified there are Nonsubstantive revisions, transport requirements set with the aid of third parties, recurring adjustments in index products, survey lists , authorize manufacturers ,trading months, minimal tick length, and some rules are introduced without self- generation are Switch of membership, requirements of decorum, trading months, management. CFTC performs a crucial role in fighting cash laundering and terrorist
The CFTC is moving away from its historic role as a regulator of traditional commodity products-related futures and options contracts to face new challenges in the digital age of the 21st century. A new challenge facing the CFTC is in relation to new financial technology (fintech) products and cryptocurrencies such as Bitcoin, which had a Bitcoin futures contract launched in December 2017 that trades with the CME Group. 11 Fintech is driving innovation in financial markets across the globe. These technologies have the potential for significant or even transformational impact on CFTC-regulated markets and the agency itself. The CFTC plans to play an active role in the oversight of this emerging innovation. The CFTC plays an important role in regulating financial markets. Time will show if the agency is up to the new challenges it faces.
Commodities futures trading commission future outlook:
The chart shows that the CFTC's budget and staff are expected to continue to grow in the coming years. This growth is being driven by the increasing complexity and sophistication of the global derivatives markets, as well as the growing importance of digital assets, such as cryptocurrency, in the derivatives markets. The chart also shows that the CFTC is expected to file more enforcement actions in the coming years. This is due to the CFTC's increased focus on emerging risks in the derivatives markets, such as fraud and manipulation. Overall, the future outlook for the CFTC is positive. The CFTC is wellpositioned to protect market participants and promote fair, orderly, and transparent markets in the global derivatives markets.
financing within the U.S. Derivatives markets. The CFTC mandates that futures fee traders (FCMs) and introducing agents (IBs) set up antimoney laundering (AML) applications to detect and document
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financial statements, reducing the risk of fraudulent activities and providing trustworthy information to investors.
The Securities and Exchange Commission (SEC): Protecting Investors and Upholding Market Trust
Major SEC Regulations Market Surveillance and Oversight: Several key regulations, such as the Securities Act of 1933, Securities Exchange Act of 1934, Investment Company Act of 1940, and Investment Advisers Act of 1940, ensure that the securities industry operates in an ethical and transparent manner. The SEC employs various means of monitoring and regulating securities markets, using technology and human analysts to identify potential irregularities, such as insider trading and market manipulation.
SEC's Role in Corporate International Influence:
By:- Swarnima Sapre & Shubham Sharma
The Securities and Exchange
Governance
and
Through rulemaking, enforcement, and disclosure requirements, the SEC influences corporate governance practices. It promotes transparency in executive compensation and risk disclosures and encourages investor scrutiny of boards of directors and executive officers. The SEC's regulations and standards have a global impact, and it collaborates with international regulatory bodies to coordinate enforcement. Its accounting standards and regulations on insider trading serve as models for many countries.
Commission (SEC), founded in 1934 following the Great Depression, is a crucial regulatory agency in the United States. Its mission is to protect investors, ensure market fairness, and promote capital formation. This article explores the SEC's history, primary functions, regulatory roles, and its influence on the global financial landscape. The SEC plays a multifaceted role, from enforcing securities laws to educating investors and maintaining market transparency. It oversees various aspects of the securities industry, making it the backbone of the U.S. financial world's stability and trustworthiness.
History
Cases where SEC Played a Significant Role:
The SEC's evolution spans nearly a century, beginning with the Wall Street Crash of 1929. Over time, it addressed insider trading, transparency, accounting scandals, corporate fraud, and market volatility. The Dodd-Frank Act expanded its regulatory authority in the 2010s, solidifying its global status as a guardian of financial integrity.
The Enron and Bernie Madoff cases serve as examples of the SEC's vital role in bringing perpetrators of financial fraud to justice, despite criticisms of its oversight. These cases also spurred improvements in the SEC's oversight of investment advisers.
Role in Regulating the Security Industry:
Conclusion:
The SEC ensures investors are in safe hands by making companies provide honest and timely information. It watches over stock exchanges, investment advisors, and mutual funds, championing transparency and responsibility, making it a vital player in regulating the U.S. financial scene.The SEC enforces rules that mandate public companies to provide accurate
The SEC's unwavering commitment to protecting investors and maintaining market trust makes it an indispensable institution in the financial world. Its regulatory oversight, international influence, and enforcement mechanisms have left a lasting impact on the financial industry and investor protection. Despite challenges, the SEC remains a key player in upholding market integrity and ensuring investor confidence.
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potential wrongdoers from engaging in activities that could harm investors and disrupt market stability.
The Role of Regulatory Enforcement in Safeguarding Capital Markets and Investors
Their significance becomes evident in cases like Bernie Madoff's massive Ponzi scheme, where they bring wrongdoers to justice, offering a path to recovery for defrauded investors. These actions also prevent scenarios like the Enron scandal, where false financial reporting led to significant losses for investors. Furthermore, regulatory enforcement extends to corporate leaders, as demonstrated in Elon Musk's case, where misleading tweets about Tesla's stock had consequences.
By:- Shelly Tibra & S. Athool Kumar
In the ever-shifting world of capital markets, where unpredictability reigns, there exists a steadfast guardian ensuring stability and shielding investors. This guardian takes the form of regulatory enforcement actions - the sentinels of ethical conduct, defenders of market integrity, and champions of fair competition. These regulatory authorities act as bulwarks against unethical practices, diligently penalizing those who engage in market manipulation and insider trading. Their most potent tool? Stringent disclosure rules, making it mandatory for businesses to provide precise financial information. This transparency empowers investors, equipping them with the data needed to make informed decisions.
How It's Implemented: Unveiling the Process The implementation of regulatory enforcement in the capital market is a multi-faceted process conducted by government agencies such as the SEC or FCA. It commences with vigilant monitoring and surveillance of market activities, financial disclosures, and trading behaviours. When potential violations surface, investigations are initiated, often prompted by tips or whistle-blowers. These investigations collect evidence and may lead to legal actions against those responsible for the violations. Penalties may range from fines to criminal charges. In some cases, settlements are reached, involving monetary fines or changes in business practices. More severe violations may result in formal judicial proceedings. Regulatory agencies make their actions public to raise awareness and discourage future misconduct. Their overarching goal is to ensure market compliance, protect investors, and prevent future violations, thereby maintaining a fair and stable capital market.
Types of Enforcement Actions: Unveiling the Arsenal Now, let's delve into the range of tools at their disposal. Regulatory enforcement actions come in various forms, each carefully designed to preserve market integrity and safeguard investors. Picture civil penalties as fines imposed on individuals or entities breaching market regulations. These fines not only act as deterrents but also serve as a means to compensate harmed investors.
Regulatory enforcement is far from a mere supporting character; it plays a vital role in maintaining the financial system's stability. It serves as a safety net for investors, ensuring their financial interests remain secure and nurturing trust in the market. Moreover, it's instrumental in averting market crashes and financial crises, thus upholding the overall financial system's stability. These regulatory bodies diligently monitor and regulate actions that could potentially disrupt the financial landscape. Additionally, these regulations are not mere rulebooks; they are catalysts for innovation in the financial sector. By providing clear guidelines, regulatory authorities foster an environment conducive to innovative financial services and products. This ensures that new developments align with regulatory requirements, thereby promoting a dynamic and innovative financial landscape.
The Vital Importance: A Lesson from History The significance of regulatory enforcement actions in capital markets cannot be overstated. The financial turmoil of 2008, with its roots in regulatory failures, serves as a stark reminder of their critical role. Lessons from this crisis have led to enhanced regulations aimed at preventing a recurrence, underscoring the crucial role of enforcement actions in safeguarding the financial system. These actions are not mere words, they are the bulwarks against market abuses, such as the manipulation of high-frequency trading. For example, the SEC's investigation into Theano’s, uncovering fraudulent fundraising, exemplifies the unwavering commitment to accurate reporting. Moreover, regulatory actions serve as a powerful deterrent, dissuading
In more severe cases, regulatory agencies may refer matters for criminal prosecution, potentially leading to charges, trials, and imprisonment. Authorities can also suspend or revoke licenses or registrations of wrongdoers, effectively preventing their participation in market activities. Think of injunctions obtained through the courts as restraining orders against ongoing illegal activities. Restitution orders are akin to calls for reparation, requiring wrongdoers to compensate investors who have suffered financial harm. Regulatory
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bodies can issue warnings and cease-and-desist orders to halt potential violations. They may also impose temporary or permanent market restrictions to keep those posing a threat to market integrity at bay. Enhanced monitoring measures could be mandated for entities with a history of violations.
Authority (ESMA) in the European Union, play a pivotal role in ensuring the fairness and security of capital markets. Similar organizations, like the China Securities Regulatory Commission (CSRC) in China, India's Securities and Exchange Board of India (SEBI), Japan's Financial Services Agency (JFSA), Australia's Australian Securities and Investments Commission (ASIC), Hong Kong's Securities and Futures Commission (SFC), France's Autorité des marchés financiers (AMF),
Market Transparency: A Pillar of Trust Market transparency is a cornerstone of financial regulations. It demands that all information regarding companies, stocks, and market activities should be lucid and accessible. This transparency serves as a beacon, ensuring fairness. When companies must report their financial information accurately, they are less likely to engage in dishonest practices. This safeguards ordinary investors who depend on this information for making informed investment decisions. Regulatory efforts to enforce transparency also ensure that everyone adheres to the same rules and is held accountable for their actions. This not only maintains market integrity but also fosters trust among investors. In essence, market transparency is vital as it safeguards investors, prevents fraud, and ensures a level playing field, creating a market where people can trust their investments.
and South Korea's Financial Supervisory Service (FSS), are responsible for regulating and supervising various aspects of financial markets. They ensure that rules are followed, market players behave ethically, and investors' interests are protected. These regulatory bodies contribute to the stability and transparency of global capital markets, creating a safer environment for everyone involved.
Impact on Investors: Ensuring Confidence
Challenges and Concerns: Navigating the Path Ahead
Regulatory enforcement actions in the capital market significantly impact investors by shielding them from fraud and market manipulation. These actions serve as a deterrent, preventing Ponzi schemes and other misconduct while enhancing market transparency. By ensuring accurate reporting and holding wrongdoers accountable, these actions contribute to a trustworthy and secure capital market. This bolsters investor confidence and reduces the risk of financial harm due to false or misleading information. Investors benefit from a more level playing field and a decreased likelihood of falling victim to fraudulent practices, ultimately fostering a climate of trust and security in the financial markets.
Regulatory enforcement in the capital markets faces several challenges. The rapidly evolving market conditions and the complexity of financial instruments and participants make enforcement a formidable task. Globalization necessitates coordination across different jurisdictions, adding another layer of complexity. Enforcement agencies are often hindered by limited resources due to budget constraints and staff shortages. Technological innovation, including digital assets and high-frequency trading, adds to the complexity of enforcement. Regulatory actions may be sluggish due to legal and procedural obstacles, especially when violators possess significant legal resources. Moreover, political and public pressure can threaten regulatory independence, particularly in cases involving influential market participants. Balancing effective enforcement without being overly punitive is crucial to ensure market integrity and investor protection.
Deterrence Effect: A Shield for Investors The deterrence effect of regulatory enforcement actions in the capital market is paramount to their necessity and significance. These actions serve as a formidable deterrent, dissuading potential wrongdoers from engaging in fraudulent or unethical practices that could compromise market integrity. When individuals and entities witness the severe penalties and legal consequences faced by those who violate market regulations, they are less inclined to partake in similar activities. This deterrence effect plays a pivotal role in curbing harmful practices like insider trading and securities fraud, which can erode investor trust and result in substantial financial losses. Regulatory enforcement actions send a resounding message that such activities will not be tolerated, reinforcing the foundational principles of transparency and equity that are essential for a well-functioning capital market. In essence, these actions act as a protective shield for investors, ensuring they are shielded from unscrupulous actors and maintaining the market's reputation. By doing so, they establish an equitable playing field where all participants can operate with confidence, knowing that violations will be met with stern consequences. Ultimately, the deterrence effect contributes to a safer, more trustworthy, and attractive capital market, fostering investor trust and bolstering economic growth.
Conclusion In conclusion, regulatory enforcement actions in the capital market are the pillars of investor protection and market integrity. They are the unsung heroes that prevent fraudulent practices and ensure accurate reporting. By deterring potential wrongdoers through penalties and legal consequences, they contribute to a trustworthy and secure market environment, ultimately building investor confidence and reducing the risk of financial harm. Regulatory authorities worldwide play a pivotal role in maintaining market stability and transparency, ensuring that rules are followed, and safeguarding investors' interests. Nevertheless, challenges such as rapidly evolving markets, globalization, limited resources, and legal obstacles must be addressed to enhance the effectiveness of regulatory enforcement. In essence, these enforcement actions serve as the cornerstone of a wellfunctioning, secure, and equitable capital market, where investors can trust their investments, setting the stage for robust economic growth and prosperity.
Regulatory Authorities: Global Sentinels Regulatory authorities worldwide, such as the Securities and Exchange Commission (SEC) in the United States, the Financial Conduct Authority (FCA) in the United Kingdom, and the European Securities and Markets 26
Impact on Industries
Regulatory Technology: Revolutionizing Compliance and Risk Management
RegTech has had a profound impact on several industries. The financial sector was among the first to adopt RegTech. It has helped banks and financial institutions automate compliance processes, reduce costs, and enhance fraud detection and anti-money laundering efforts. Healthcare providers are using RegTech to manage and secure patient data while ensuring compliance with strict regulations like HIPAA. Fintech companies use RegTech to streamline compliance with financial regulations, allowing them to compete with traditional financial institutions. RegTech plays a critical role in the cybersecurity sector by providing solutions for threat monitoring, data protection, and compliance with data protection regulations like GDPR. The insurance industry relies on RegTech to optimize underwriting processes, claims management, and fraud detection while ensuring compliance with insurance regulations.
Challenges and Concerns By:- Bharat Agrawal & Shivansh Tripathi Despite its advantages, RegTech faces challenges and concerns: Data Privacy: RegTech solutions process and store a wealth of sensitive and confidential data, such as customer information, transaction records, and compliance documents. Given the potential value of this data to cybercriminals, it's crucial to implement robust data privacy and security measures. These measures may include encryption, access controls, intrusion detection systems, and regular security assessments. Scalability: Scalability refers to the ability of RegTech solutions to adapt to changes in regulatory requirements and business needs. As regulations evolve, RegTech solutions must be flexible enough to accommodate new rules and reporting standards. Scalability is essential to ensure that organizations can keep up with changing compliance demands. Integration: Integrating RegTech with existing systems and processes can be a complex and costly endeavour. Legacy systems may not be designed to work seamlessly with new RegTech solutions, requiring custom development, data migration, and integration effort. Integration challenges can lead to operational disruptions, additional costs, and delayed implementation. Regulatory Change: As regulations change, RegTech solutions must be continuously updated to remain in compliance. This requires a commitment to ongoing development and a thorough understanding of evolving regulatory requirements. Adoption Hurdles: Smaller businesses may face challenges when adopting RegTech due to resource limitations, budget constraints, and a lack of expertise. They may also be hesitant to invest in technology solutions that seem complex or require significant upfront costs.
In today's rapidly changing business world, technology is playing a significant role in helping companies navigate complex regulatory requirements. One of the key players in this field is Regulatory Technology, or RegTech. It's a crucial tool for businesses and financial institutions to meet their compliance obligations efficiently. This article will delve into various aspects of RegTech, including its evolution, components, impact on industries, challenges, and future outlook.
The Evolution of Regulatory Technology RegTech emerged in response to the aftermath of the 2008 financial crisis when regulatory authorities worldwide tightened their regulations on financial institutions. These institutions were suddenly faced with a web of complex rules and needed more efficient ways to comply. RegTech was born to meet this need. It started in the early 2010s by using innovative technology to streamline compliance processes. Initially, it mainly served the financial sector but has since expanded to other heavily regulated industries.
Key Components of RegTech RegTech includes various technologies and solutions that help organizations with compliance and risk management. Here are some of its key components: Data Analytics: RegTech relies on advanced data analytics and big data technologies to process, analyse, and extract valuable insights from vast amounts of structured and unstructured data. This enables organizations to identify potential compliance risks and assess them in real time Artificial Intelligence (AI) and Machine Learning: AI and machine learning algorithms are used in RegTech to automate decision-making processes and enhance risk assessment. These technologies can identify anomalies, patterns, and trends that may indicate compliance issues or potential risks. Blockchain: Blockchain technology is used in RegTech to enhance transparency and security in financial transactions and reporting. The immutable and distributed ledger of blockchain can provide an auditable trail for regulatory purposes.
Future Prospects The future of Regulatory Technology looks promising as it continues to evolve. Here are some trends and prospects for RegTech: AI and machine learning will become more advanced, providing more accurate and real-time compliance and risk insights. Distributed ledger technology will enhance transparency and security in regulatory compliance. RegTech solutions will continue to expand beyond finance into other industries, such as healthcare and energy. The development of global regulatory technology standards may improve interoperability and simplify cross-border compliance.: Regulatory authorities may create sandboxes for RegTech companies to test and develop solutions in a controlled environment, fostering innovation.
Conclusion Regulatory Technology (RegTech) is reshaping industries by streamlining compliance and risk management using advanced technologies like AI, blockchain, and data analytics. It emerged post2008 financial crisis to address increasing regulatory demands, initially in finance and now spanning sectors. Key components include data analytics, AI, blockchain, regulatory reporting, KYC/AML solutions, and risk management tools. RegTech benefits the financial sector by automating compliance, enhances healthcare data security, empowers fintech firms, and optimizes insurance operations. Challenges include data privacy, scalability, integration complexities, adapting to regulatory changes, and barriers to adoption for smaller businesses. The future holds more advanced AI, global standards, expanded industry adoption, and regulatory support for RegTech innovation.
Regulatory Reporting: RegTech often includes tools for generating standardized regulatory reports efficiently. These tools help organizations meet reporting requirements accurately and in a timely manner. Know Your Customer (KYC) and Anti-Money Laundering (AML) Solutions: RegTech has greatly improved KYC processes by making them more efficient, accurate, and responsive to changing regulations. It allows financial institutions and other organizations to meet their compliance obligations while minimizing the risk of regulatory fines and enhancing the customer onboarding experience.
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Regulatory Changes And Trends Of The Indian Stock Market
•
By:- Sushree Dash & Daksh Darji
The Indian stock market is experiencing significant shifts in dynamics, driven by regulatory changes and evolving trends. These transformations are not only reshaping the investment landscape but also positioning India as an attractive hub for both domestic and foreign investors. In this article, we shall explore the current state of the Indian stock market and analyze the regulatory changes and trends influencing its trajectory.
Allowed market makers to provide liquidity in multiple illiquid stocks: Market makers were previously restricted to offering liquidity in a single illiquid stock. Market depth and liquidity across a larger range of stocks will be enhanced by the new regulations, which permit market makers to offer liquidity in multiple illiquid stocks. Provided incentives for market makers to provide liquidity in illiquid stocks: Market makers are encouraged to provide liquidity in illiquid stocks by the new regulations in a number of ways, including: 1. Waiver of trading fees: Market makers who engage in marketmaking activities with illiquid stocks will not be charged trading fees. 2. Priority in order execution: When it comes to the execution of their order in illiquid stocks, market makers will be given preference. 3. Financial assistance: Through its Market Microstructure Support Fund (MMSF), SEBI will offer market makers financial assistance.
The Market Making Regulations amendments by SEBI are a positive step towards increasing market liquidity for illiquid stocks. Investors will gain from this since it will make these stocks more accessible to them and lower trading expenses. Additionally, it will help businesses by simplifying and lowering the cost of capital raising.
SEBI's Regulatory Changes
SEBI amended the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (LODR) Regulations to require listed companies to disclose their related-party transactions on a quarterly basis.
SEBI amended the Securities Issuance and Continuous Disclosure Requirements (ICDR) Regulations to require listed companies to disclose their ESG
In order to require listed companies to disclose their related-party transactions on a quarterly basis, SEBI amended the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (LODR) Regulations in May 2023. This was carried out in an effort to increase accountability and transparency in the Indian corporate sector. Previously, the listed company had to disclose the related party transaction only on a half-yearly basis, but SEBI made it compulsory to disclose the information in a quarterly period. According to new regulations listed companies had to disclose the following information about their related-party transaction on a quarterly basis: • The nature of the transaction. • The value of the transaction. • The related party involved. • The rationale for the transaction. • The impact of the transaction. • The impact of the transaction on the company’s financial performance.
The Securities Issuance and Continuous Disclosure Requirements (ICDR) Regulations were amended by the Securities and Exchange Board of India (SEBI) in May 2023 to mandate that listed companies report on their environmental, social, and governance (ESG) performance. Investors are increasingly taking environmental, social, and governance (ESG) factors into account when making investment decisions. A company's corporate governance structure, social and labor practices, and environmental impact are examples of ESG factors. An important step towards encouraging ESG accountability and transparency in India's corporate sector has been taken with SEBI's amendment to the ICDR Regulations. According to the new rules, the listed business must provide information on a variety of ESG aspects. In accordance with the new rules, listed companies must also submit their business responsibility report (BSBR), which is an extensive summary of their ESG performance. The National Guideline on Responsible Business Conduct (NGRBC). Published by the Ministry of Corporate Affairs in 2018, must be followed when preparing the BSBR. It has become easy from an investor's point of view to invest in a company focusing on ESG development.
In accordance with the new rules, listed companies must designate an audit committee to oversee their related-party transactions on a quarterly basis. The board of directors must receive a report from the audit committee outlining its conclusion. The SEBI's step towards LODR Regulation will improve transparency and accountability in Indian firms. Investors will gain a better understanding of the financial transactions between listed companies and their related parties through quarterly disclosures of related-party transactions. This will enable investors to choose investments with greater knowledge.
SEBI amended the Securities and Exchange Board of India (Market Making) Regulations in May 2023 to facilitate market making in illiquid stocks.
IPO Activity Soars Indian stock exchanges, including the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), have taken centre stage globally in the realm of Initial Public Offerings (IPOs). Year-to-date 2023 has seen India secure the top spot for the number of IPOs and rank 8th in terms of issue proceeds, with a notable absence of cross-border deals. Primary markets, comprising BSE and NSE, witnessed a decline in IPO activity in Q2 2023 compared to the previous year, with only 6 IPOs as opposed to 14 in Q2 2022. However, there was a 50% increase in IPOs when comparing Q2 2023 to Q1 2023. This signifies a shifting landscape and a positive outlook for the IPO activity in India. The SME markets, on the other hand, have shown robust growth in IPOs, with 32 IPOs in Q2 2023. This reflects an impressive 78% increase compared to Q2 2022. While there was a slight dip of 16% compared to Q1 2023, the SME market's resilience is evident.
The key amendments are as follows: •
Reduced minimum capital requirement for market makers in illiquid stocks: The minimum capital needed to trade illiquid stocks has been lowered from ₹25 crore to ₹5 crore for market makers. Smaller brokerages and financial institutions will find it simpler to take part in market making as a result.
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The Union Budget for 2023-24 has introduced several pivotal policy changes to bolster the growth of GIFT City's International Financial Services Centre (IFSC) ecosystem. The measures encompass a range of initiatives, such as the delegation of SEZ Act powers to IFSCA, establishing a unified IT system to streamline registration and approval processes, acknowledging offshore derivative instruments (ODIs), extending the period for fund relocation, and granting permission for International Banking Units (IBUs) to partake in acquisition financing. This strategic move reflects a commitment to enhance regulatory efficiency and facilitate a conducive environment for financial activities within the International Financial Services Centre (IFSC). It aims to simplify procedures, promote investment, and adapt to evolving financial landscapes, aligning with a broader strategy to bolster the competitiveness and attractiveness of the IFSC for global financial participants and investors. The Pie chart below shows the bifurcation of the different sectors that invested money in The Gift City.
Foreign Institutional Investors (FIIs) and Market Resilience Foreign Institutional Investors (FIIs) have consistently shown interest in the Indian market. This interest is driven by the nation's stable macroeconomic outlook, political stability, and impressive financial results. The 8% market rally observed since April 2023 is a testament to the confidence FIIs have in India's market. India's consistent GDP growth of over 7% further bolsters its prospects, making it an attractive destination for foreign investment.
Key Sectors in the Limelight The recent IPOs in India have been diverse, with sectors such as Hospitality & Construction, Automotive & Transportation, Diversified Industrial Products, and Real Estate emerging
Conclusion The Indian equity market is undergoing a notable evolution marked by a robust Initial Public Offering (IPO) sector, regulatory adjustments emphasizing transparency and inclusiveness, and the ascent of GIFT City as India's international financial nucleus. With India sustaining a steady macroeconomic landscape and continual GDP expansion, the outlook for the stock market appears optimistic, presenting a plethora of prospects for investors, both domestic and international. The broad spectrum of industries featured in recent IPOs serves as a testament to India's economic robustness and its allure as an appealing investment hub. As the nation continues on its trajectory of stable economic growth, the stock market stands poised as a dynamic arena with ample opportunities, reflecting the resilience and attractiveness of India's financial landscape to a diverse range of investors. The ongoing transformations in the regulatory framework and the burgeoning global prominence of GIFT City further reinforce India's commitment to fostering a conducive environment for investment and financial activities, solidifying its position in the global financial landscape.
as the most active. Cube Highways Trust, an infrastructure investment trust, raised an impressive USD 637.5 million, becoming the largest IPO in Q2 2023 in terms of the issue size.
GIFT City's Transformation In a strategic move to reshape India's financial landscape, Finance Minister Nirmala Sitharaman has outlined a comprehensive legal framework to establish Gujarat International Finance Tec-City (GIFT City) as a global hub for accounting and financial back-office functions. The framework aims to provide services such as accounting, auditing, and taxation from GIFT City. Several key initiatives are set to boost GIFT City's prominence in the stock market. This includes positioning GIFT City as a premier global hub for insurance and reinsurance, leveraging the potential of the Indian International Bullion Exchange (IIBX), facilitating efficient gold imports and banking services, and endorsing the direct listing of Indian shares on IFSC exchanges.
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the excessive speculation and movements in the market. It also protects the economy from big- scale market crashes due to disruption or failures in the market, which could result in global economy shocks.
Margin Requirements in the Regulatory Environment of Capital Markets
Impact of margin requirements on investors Margin requirements play an important role to investors especially those with leverage in trading securities. Investors who use borrowed money and trade in securities might be seriously affected. If the prices move against investors and they lack the required margin money, then they may be compelled to liquidate their securities at a loss. Such may result in huge losses for an investor. Similarly, margin requirements may be used to guard against large investor losses. SEBI reduces the risk of an investor losing too much money by making it mandatory for an investor to put down a specific amount of margin when investing in securities.
By:- Utkarsh Shukla & Sai Varun Yegishetty
The following table shows the margin requirements for selected equity and derivative contracts traded on the National Stock Exchange of India (NSE):
The margin requirements in the Indian capital market are determined
Security
by the Securities and Exchange Board of India (SEBI)-The apex regulator for the Indian securities market. The margin requirement is the monetary value or asset deposited by or set aside for an investor looking forward to opening and maintaining a leveraged position through the assistance of a broker. The investor will have a leveraged position where he/she will use borrowed money to buy a certain security. Margin rules have specific margins for each security and different levels of risks of a trading position. For instance, margin needs for equities are usually lower compared to futures and other contracts. SEBI’s margin rules were implemented to ensure that investors do not incur excess losses, and prevent instability of the financial industry. This also provides a framework within which to ensure that each broker will be applying a fair, uniform, or consistent margin to all trades. For example, if an investor wants to buy 100 shares of a stock that is trading at Rs. 100 per share, they would need to deposit Rs. 5000 in their margin account.
Margin requirement
Nifty 50 futures
100%
Bank Nifty futures
100%
Infosys futures
100%
Reliance Industries futures
100%
USD/INR futures
5%
Gold futures
5%
Margin requirements for different types of securities Margin requirements for different types of securities, which are traded in stock exchanges are set exclusively by SEBI. The following table shows the margin requirements for some of the most commonly traded securities: Security
Margin requirements
Equities
50%
Commodity futures and options
5%
Futures and options
100%
Currency futures and options
5%
Important considerations Besides regulations, other factors that brokers can consider while determining margin requirements for their clients, also exist. These factors include:1. Client’s trading experience and risk appetite. 2. Client portfolios and their size. 3. Volatility of the security. It is also possible based on the liquidity of the underlying security. Moreover, brokers can demand more for a margin on some trading activities like short selling and daily trading. One should clarify this point – even with a margin requirement, losses are still possible. On the other hand, investors in a margin account may actually lose more money than what they deposited on their margins if the price of the underlying security move against the investor during the time they hold the position.
The Purpose of Margin Requirements The main purpose of margin requirements is to manage the risks and excessive losses, which is why regulatory bodies impose them. 1.Protection to investors: The purpose of margin requirements is to protect investors from the tendency to take risks that they may have. Without such restrictions, investors could go beyond what is appropriate about taking up debt. Margin requirements constitute a safety net for investors since they prevent them from overstretching themselves, which could lead to losing their entire capital. 2.Mitigation and management of risks associated: A margin requirement is one of the main objectives that aims to reduce and manage risk in the capital markets. Regulators require minimum levels of collateral that provide a safety net to investors against losses. This provides a shock absorber in terms of finance thereby preventing economic meltdown in the event of unforeseen circumstances. 3. Bringing stability in the market: Margin requirements play a huge part in supporting the general wellness of financial markets. These check the extent of leverage that can be used by investors to control
Conclusion Margin requirements form one of the pillars on which the regulation within capital markets is based. Therefore, they are vital instruments in controlling risks, safeguarding investors, and ensuring market order. Minimum collateral is imposed by regulatory bodies so that businesses undertake sensible investments. Investors need to carefully consider the margin requirements. They should also ensure that they have enough margin in their accounts to cover any potential losses. These requirements for a healthy capital market need to be honoured lest investors’ interests and the stability of the overall financial system be compromised. With time, the nature of the capital market evolves and hence margin requirement becomes important as it helps in striking the right balance between risk and return.
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Market Surveillance In A Regulatory Environment By:- Bhavishya Bade & Palak Maheshwari Recent Development
Market surveillance refers to the technique of monitoring and
Global regulators are responding to the difficulties posed by market surveillance. For instance, the Market Risk Analytics Platform (MRAP) is a brand-new market monitoring tool created by the US Securities and Exchange Commission (SEC). The MRAP analyses trading data and finds possible incidents of market abuse using artificial intelligence and machine learning. Additionally, actions have been taken to enhance market surveillance throughout Europe by the European Securities and Markets Authority (ESMA). A set of uniform market monitoring rules for EU member states has been created by ESMA. These instructions offer direction on how to collaborate with other regulators on cross-border market surveillance cases as well as how to apply a risk-based strategy to market surveillance.
analysing the financial markets and also helps in eradicating illegal trading practices in the securities markets which encompass stock markets, bond markets, and derivative markets.
Products covered by market surveillance The market surveillance activities released via way of means of the BSMI attention specifically on regulated merchandise beneath the governance of the Commodity Inspection Act. The BSMI additionally continues a watch on non-regulated merchandise according with the Consumer Protection Act. Market surveillance in a regulatory environment typically covers a wide range of financial products to ensure that they are traded, reported, and settled in compliance with relevant laws and regulations. The specific products covered may vary depending on the jurisdiction and the scope of the regulatory authority. Some common financial products that are typically subject to market surveillance include Equities, Fixed income securities, Derivatives, Commodities, Foreign exchanges, Exchange traded funds, Money Market Instruments etc.,
Market surveillance assists in ensuring orderly markets in which supply and demand are equal and where the buyers and sellers are willing to participate as they feel confident in the fairness and accuracy of transactions. Market surveillance involves the use of various factors such as technology, data analysis, and regulatory oversight to identify irregularities and protect the interests of investors and the overall stability of the financial markets. Market Surveillance was put up in SEBI during the year 1995 in July. The main responsibility of market surveillance has been endowed to the stock exchanges. However, SEBI keeps an oversight on market movements and trends. Firms trading on regulated markets need to perform market surveillance to maintain fair and accurate transactions. Most jurisdictions have executed regulations against market irregularities. Depending on the market trade that takes place, the financial institutions have to adhere to various regulations accordingly.
Advantages of Market surveillance in the regulatory markets Market surveillance in a regulatory environment provides many benefits that contribute to the overall stability and stability of the financial market. These benefits are important to protect investors, maintain fair and transparent business conditions and ensure compliance with regulations. The key benefits of market monitoring in a Regulatory environment include:
Regulatory Environment for Market Surveillance The regulatory environment for market surveillance in capital markets varies from country to country. However, there are some common principles that are followed by most regulators. These principles include: Risk-based approach: Programmes for market surveillance ought to concentrate on the areas where risk is greatest. Hence, marketplaces, goods, and players who are most likely to be involved in market manipulation should be the focus of regulators' surveillance operations.
1.Market surveillance helps maintain the integrity of the financial market by detecting and preventing fraud, market abuse, insider trading and fraudulent practices.
Technology-neutral approach: Trading activity on all kinds of platforms, including electronic and traditional exchanges, should be tracked by market surveillance systems. International cooperation: Market surveillance is a global issue, and in order to successfully monitor cross-border trading activity and look into examples of international market abuse, authorities must work together.
This ensures that the market works well and that all participants benefit from the playing field.
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2. Market surveillance helps in market monitoring. By looking at marketing data and processes, monitoring helps improve marketing performance. This ensures that prices better reflect supply and demand, reducing efficiency and arbitrage opportunities.
Educating and training market players: Market participants might receive instructions from regulators on the most recent developments in market abuse as well as how to refrain from it. Regular risk assessments: Assessing the risks regularly helps in determining the which areas are most at risk and to concentrate their market monitoring efforts there, regulators should regularly undertake risk assessments.
3. Market surveillance helps to reduce the risk associated with financial markets. By identifying unusual trading activity, regulators can intervene to prevent systemic risk and protect the stability of the financial system.
Key Trends in Market Surveillance
Key Challenges Faced by Market Surveillance Regulators: The increased complexity of capital markets: As a result of capital markets' globalisation and digitization, regulators now have greater challenges in staying aware of emerging trends and creating efficient market monitoring initiatives.
The increasing use of technology: Technology is being used more and more by regulators to track trade activity and spot possible examples of market manipulation. Examples of this trend include artificial intelligence and machine learning. The emphasis on cross-border surveillance: This trend helps to keep an eye on cross-border trade activity and look into examples of international market abuse, regulators are working together more and more. The emergence of new technologies and trading platforms: Regulators must be able to modify their market surveillance programmes to keep an eye on these new platforms and identify new instances of market manipulation, as new technology and trading platforms are always being developed.
The importance of risk-based surveillance: Market surveillance operations are being concentrated by regulators in the riskiest areas which can help the regulators in undertaking the risk assessments.
The challenges of cross-border surveillance: The difficulties with crossborder monitoring Market abuse is frequently a cross-border issue,
The need to strike a balance between innovation and surveillance: Regulators are trying to strike a balance between the need to foster innovation and economic growth and the need to safeguard investors and maintain fair and orderly markets.
and in order to successfully monitor cross border trade activity and look into examples of international market abuse, regulators must work together.
Conclusion: Market surveillance regulators can address the challenges they face by using the following trends
Market surveillance stands as a pivotal component within a regulatory framework, playing a crucial role in upholding market integrity, safeguarding the interests of investors, and promoting the smooth operation of financial markets. Its significance lies in the preservation of trust within the financial system and its adaptability to the dynamic global financial landscape. By actively monitoring and overseeing market activities, regulatory bodies can detect and address any irregularities, market abuses, or potential threats that may compromise the fair and efficient functioning of financial markets. This vigilant approach not only bolsters investor confidence but also ensures the adherence to regulatory standards, fostering a resilient financial environment. As the financial landscape continually evolves, effective market surveillance becomes increasingly indispensable in identifying emerging risks and promptly responding to new challenges. Ultimately, it serves as a linchpin in maintaining a transparent, trustworthy, and well-regulated financial ecosystem that benefits both market participants and the broader economy.
Investing in technology: Investing in technology helps better monitor trade activity and spot possible incidents of market manipulation, regulators should make investments in cutting-edge technologies like artificial intelligence and machine learning. Cooperating with each other: Regulators can collaborate to exchange information and create efficient cross-border monitoring initiatives. Enhancing the quality and accessibility of data used for market surveillance: Regulators can collaborate with industry players to enhance the quality and accessibility of data. Simplifying the regulatory framework: Regulators and legislators can collaborate to simplify the regulatory framework for market surveillance. As a result of which it would be simpler for authorities to collaborate and create efficient cross-border surveillance initiatives.
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These financial statements, including the balance sheet, income statement, and statement of cash flows, provide detailed information on a company's assets, liabilities, revenues, expenses, and cash flows. Apart from financial statements, companies must also disclose other crucial financial information, such as Earnings per Share (EPS), dividends, debt levels, capital expenditures, and risk factors. EPS is a measure of a company's profitability that shows how much profit is allocated to each outstanding share of its common stock. Dividends are payments made by a company to its shareholders as a distribution of profits.
Disclosure Requirements By:- Unnati Jaiswal & Labdhi Doshi
Ensuring effective corporate governance depends on disclosure requirements, which mandate companies and organizations to provide specific information to the public or stakeholders. These requirements promote transparency, accountability, and empower investors, consumers, and other stakeholders to make well-informed decisions. The information companies must disclose may vary based on factors such as industry, location, and size. Larger companies may be obligated to provide more detailed information than smaller organizations, and different industries may have unique disclosure requirements
depending on their operations. Despite such variations, disclosure requirements remain crucial in fostering transparency and accountability in corporate operations, which ultimately build trust between companies and their stakeholders.
Debt levels indicate the amount of debt a company has taken on to finance its operations. Capital expenditures refer to the amount of money a company spends on investments in long-term assets such as property, plant, and equipment. Risk factors are disclosures that highlight any potential risks that may impact a company's financial performance. All of this financial information must be included in a company's annual report, quarterly reports, and other public filings. By providing accurate and transparent financial disclosures, companies can establish trust with their stakeholders and attract potential investors. These disclosures help stakeholders understand the company's financial wellbeing, make informed investment decisions, and hold companies accountable for their financial actions.
Financial disclosures
Risk disclosures
Financial disclosures are an integral component of a company's legal framework that provides investors, shareholders, and other stakeholders with a comprehensive understanding of a company's financial position and performance. The primary objective of these disclosures is to offer a detailed view of a company's financial standing, helping stakeholders make well-informed decisions about investing in the company. In the United States, publicly traded companies are obligated to disclose their financial statements quarterly and annually in accordance with Generally Accepted Accounting Principles (GAAP).
In the world of business, transparency is a crucial component of building trust and confidence among stakeholders. Regulatory bodies have recognized this importance and have mandated companies to disclose the risks associated with their operations. This disclosure aims to provide investors and other stakeholders with a comprehensive understanding of the risks of investing in or doing business with a particular company.
There are two main categories of risk disclosures: financial and nonfinancial. Financial risks include market fluctuations, credit defaults, and operational risks. Market fluctuations refer to the volatility of the 33
financial markets, which can affect the value of a company's assets and investments. Credit defaults, on the other hand, involve the risk of borrowers defaulting on their loans, which can lead to losses for lenders. Operational risks refer to the risks inherent in a company's day-to-day operations, such as system failures or human errors.
training provided to employees on cybersecurity, previous cybersecurity incidents, and the coverage of cybersecurity insurance. Companies can make these disclosures through various means, such as the annual report, their website, or a separate cybersecurity report. It is essential for companies to be transparent in their cybersecurity
On the other hand, non-financial risks encompass a wide range of factors that can affect a company's operations and performance. These risks include environmental, social, and governance risks. Environmental risks refer to the potential impact of a company's operations on the environment, such as pollution or climate change. Social risks involve the impact of a company's operations on society, such as labor practices or human rights violations. Governance risks refer to risks associated with a company's management and decisionmaking processes, such as conflicts of interest or inadequate internal controls. Companies must disclose financial and non-financial risks to stakeholders through various means such as public filings, annual reports, and investor presentations. By doing so, companies can help stakeholders make informed decisions and mitigate potential risks that may affect their investments or business dealings. Overall, risk disclosure is a crucial aspect of corporate transparency, and enables stakeholders to make informed decisions and hold companies accountable.
disclosures to build trust and confidence among their stakeholders. In the current era, cybersecurity disclosures are becoming increasingly common, especially after the occurrence of high-profile cyberattacks. These disclosures provide crucial information about a firm's cybersecurity risks and practices. Such information can help investors and other stakeholders to evaluate the company's susceptibility to cyberattacks. Typically, the cybersecurity disclosures involve information about the company's cybersecurity policies and procedures, cybersecurity training provided to employees, past cybersecurity incidents and the coverage of cybersecurity insurance. Companies can make these disclosures in several ways: through their annual report, on their website, or in a separate cybersecurity report.
ESG disclosures Over the past few years, ESG disclosures have become more prevalent due to the growing investor interest in sustainability and corporate responsibility. Although not mandatory in many jurisdictions, ESG disclosures are considered a crucial tool for investors to assess a company's long-term sustainability and risk management practices. ESG disclosures offer a wealth of information about a company's policies and practices, including its environmental impact, social and labor practices, governance structure, and ESG goals. For instance, a company might disclose its carbon emissions, water usage, and waste
Conclusion To foster transparency, accountability, and informed decision-making in the marketplace, it is critical to establish effective and comprehensive disclosure requirements. These requirements not only enable companies to reveal significant information about their financial performance, but also offer insights into their risk profile and governance practices. By providing stakeholders with access to this data, they can make well-informed decisions based on a clear understanding of the company's operations and its influence on the market.
management practices to demonstrate its dedication to environmental stewardship and sustainability. Likewise, a company might disclose its policies on employee diversity and inclusion, labor rights, and supply chain management to showcase its commitment to social responsibility and human rights. Lastly, a company might disclose its executive compensation practices, board structure, and risk management policies to demonstrate its dedication to transparency and good governance. ESG disclosures can be made through various channels, such as a company's annual report, website, or a separate ESG report. Some investors and regulatory bodies have urged for standardized ESG reporting frameworks to facilitate the comparison of ESG practices across companies and industries.
Greater transparency via disclosure requirements allows stakeholders to better evaluate a company's performance, assess its risks and opportunities, and hold it responsible for its conduct. This creates a more dependable and robust marketplace where stakeholders can trust the companies they invest in. Moreover, comprehensive disclosure requirements can also help prevent fraudulent or unethical behaviour by companies. By mandating full disclosure of all necessary information, investors and other stakeholders can identify potential warning signs and take appropriate action before any damage is done. In conclusion, effective and comprehensive disclosure requirements are crucial for promoting transparency, accountability, and informed decision-making in the marketplace. They ensure that stakeholders have access to critical information, can make informed choices, and can hold companies accountable for their actions, leading to a more dependable and healthy marketplace.
Cybersecurity disclosures In the present era, cybersecurity is a critical aspect for businesses of all sizes and types. Cybersecurity disclosures have gained immense significance in recent times, particularly after the occurrence of highprofile cyberattacks. A cybersecurity disclosure is a process of revealing information about a company's cybersecurity risks and practices to the public. This disclosure can help investors and other stakeholders to assess the company's level of vulnerability to cyber threats. Cybersecurity disclosures can offer valuable insights into the company's approach to cybersecurity and its preparedness for potential cyberattacks. These disclosures typically include details about the company's cybersecurity policies and procedures, the 34
• Market depth: This format indicates the number of shares of a security that are available for buy or sale at different price points. Real-time market data is a priceless tool for a wide range of professionals. It can be used to monitor the performance of a portfolio, assess market trends, and make well-informed trading decisions.
Market Data Reporting
Delayed: Providing market data after it has been published is known as delayed market data. It can be available after 15-20 minutes whereas it can also take several hours or even days to be available. Users who do not make active market decisions use this format. Market data that has been delayed uses the following formats: • End-of-day (EOD) data: This format offers a snapshot of the market at the conclusion of the day. It contains details about each security, including the volume, high, low, and opening and closing prices. • Historical data: Market data for a given time period, such as a day, week, month, or year, is provided in this format. In addition to the intraday high and low prices for each security, it contains the same data as the EOD data. • Fundamental data: Analysts usually use it to assess the stock worth of a company. This format offers details on a company's earnings, debt, and revenue in order to assess its financial health.
By:- Kabita Choudhary & Chepuri Vishnu Siva Navaneeth
Market data reporting is gathering, examining, and showcasing market data. Professionals in finance, such as traders and investors, can benefit from this market data report.
Historical: Market data that has been collected over a long period of time is called historical data. They can be applied to backtest trading methods as well as recognize trends and patterns in the market. It may fall under one of the following categories: • Daily data: Within the given time frame, this format offers a daily market snapshot. It contains details on each security, including the volume, high, low, and opening and closing prices. • Weekly Data: During the designated time frame, this format offers a market snapshot for every week. It contains the same data as the daily data plus the high and low prices for each security for the previous week. • Monthly data: It provides a monthly snapshot of the data available within a given time frame. In addition to the details available in the weekly statistics, it also shows the monthly high and low prices. • Intraday data: It contains details of each and every trade like the price, the volume, and time. It provides data for every trading session within a given time frame.
A variety of details will be included in the market data, including Interest rates, measures of the economy, the volume traded, stock prices, spreads and rates on bonds, and rates of currency exchange, and can be used by a variety of users including investors, traders, risk managers, and regulators, etc. Market data reporting is done for a number of purposes. Among the principal causes are the following: • Investment research: Investors evaluate possible investments and choose where to put their money by using market data. • Trading: Traders utilize market data to find opportunities to purchase and sell securities and other financial instruments. • Risk management: Using market data reports, evaluate and control risk in the financial portfolio. • Regulatory compliance: Financial institutions must notify authorities of specific kinds of market data. Formats of market data reporting
Real-time
Delayed
Historical
Real-time: As soon as data on market activity becomes available in
This market data reporting can be done for various types of data including Price data, which includes the latest prices of stocks, bonds, and commodities, Volume data which shows the number of a particular security that has been traded in a given period, News data, which includes news about industries, companies, and even the economy and Technical data, in which data is generated from the analysis past data, such as technical indicators. Various sources can be used to obtain this data, including: • Exchanges: Real-time price and volume data for the listed securities can be obtained through various exchanges like the New York Stock Exchange(NYSE) and the Nasdaq etc. • Financial data providers: Bloomberg and Reuters provide a vast range of historical, real-time as well as news data to the users. • Company websites: Many companies provide information about their financial position, performance, and their stock prices on their own websites.
the market, these reports give it. It is available in several formats as well. Tick-by-tick: The most comprehensive real-time market data reporting is provided by the tick-by-tick format, which documents each deal as it occurs.
Conclusion
• Limit order book: This type of format provides a list of all active limit orders associated with certain securities. A limit order is one that is placed to purchase or sell a security at a fixed price or more. • Trade volume: This format contains data regarding the total number of shares of a security that have been traded during a specific period of time. • The bid-ask spread: This format basically shows the price differential between the highest and lowest offer for a security.
Market Data is one of the biggest costs faced by financial institutions with a global spend of $37.3 billion in the previous year with surveys indicating that the expenditure is likely to stay strong and grow in 2023 as well. However, greater acceptance of cloud technology and tools to extract intelligence out of the raw data that will ultimately help the users to make informed business and trade decisions justifies this upward trend in spending.
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