ABSTRACT ON FORMATION OF SEBI

This paper focuses on the research activities that help to facilitate the understanding
of the multiple economic uncertainties that lie ahead. Sound research backed by
relevant primary and secondary data sources assist any policy making body in
carrying out its activities, especially under challenging times. Additionally, research
activities contribute in knowledge sharing, dissemination of information and
developing an interface with academics. Securities market in India has witnessed
tremendous growth during the last fifteen years in terms of number of companies,
capitalization, increase in number of investors, stock exchanges, turn over, and mutual
funds etc.

The economic liberalization and various reforms in the country have also acted as
catalyst in the development of securities market. The liberalization measures taken by
government have also facilitated the globalization of the Indian securities market.
This has brought notable changes in securities market and has changed investment
scenario in the country. On the other hand, ever expanding investors population and
market capitalization has also led to variety of malpractices on the part of the
companies, brokers, merchant bankers and many other market participants in new
shares and stocks in India.Thus, the government felt a strong need of a regulatory
body which could monitor and supervise securities market. SEBI was constituted in
1988 and it obtained its statutory character in 1992 after the enactment of SEBI Act,
1992.

SEBI is primarily constituted to regulate and promote securities market.

Concurrently, it is also the duty of SEBI to protect the interest of investors. Thus,
SEBI is operating and functioning in the market from almost last fifteen years (after
having its statutory character). The study has also focused on the reforms made by
SEBI in primary as well as in secondary market to increase transparency and stability
in the market.

One of the three mandates of Securities and Exchange Board of India (SEBI) is
development of the securities market. Moreover, SEBI Act, 1992 mandates SEBI to
conduct research pertaining to various functions of the securities market. In this
regard, extensive policy research is necessary to analyze the existing policies, as well
as to suggest new policy alternatives. The Department of Economic and Policy
Analysis (DEPA) of SEBI has been entrusted with the job of carrying out research on
securities market, preparation of concept papers / background papers and giving
research feedback on current issues.

Therefore, recently, SEBI has taken an initiative - Development Research Group

(DRG). The objective of DRG is to conduct policy oriented research which calls for
in-depth study on various subjects to examine policy impacts, to compare the Indian
scenario with international best practices and to provide analytical and advisory inputs
to the SEBI Board. DRG aims to undertake extensive policy research to analyze the
existing regulatory policies from an academic perspective as well as to suggest new
policy alternatives, essentially on subjects contributing clarity and solutions to
challenges faced by SEBI.

As a part of this initiative in the silver jubilee year of SEBI, four studies were taken
up under DRG-I, catering to different segments of the securities market, viz, 1)
Foreign Investments in Government Bond Market, 2) Earnings Management in India,
3) Impact of increased derivatives trading on price discovery process and 4)
Penetration of Mutual Funds in India. The publication of the present volume is the
culmination of DRG-I. This publication is expected to be useful for researchers,
policymakers, financial market participants, and analysts interested in securities
market.

The studies are undertaken by the Department of Economic and Policy Analysis
(DEPA) in collaboration with the external experts/academicians. The intensive and
dedicated efforts of the external experts and the officers who were associated with
them for completing the studies and publishing the same, deserve high appreciation. I
am sure that the studies will be valuable for the researchers, academicians as well as
policymakers and will promote academic debates as well as contribute to better policy
making .