Towards the last decade of the 20th century, the regulatory perception of the securities market took an optimistic turn and initiated a number of important developments. These reforms were mainly driven by the need to create an efficient securities market to ensure the proper allocation of resources and to give way to the forces of liberalization that were rapidly gaining strength in the 1990s.
This eventually led to the creation of the current statutory regulator, the Securities and Exchange Board of India, in 1992 (although it was created in 1988 as an administrative body) to protect the interests of investors and regulate the securities market, rather than control it—a function , which the Comptroller of Capital used to do to the detriment of the market, investors and new companies.
In general, the idea behind the creation of SEBI was to create a free and fair securities market in India. A natural consequence was the withdrawal of previous government approval for public issues in the securities market, which essentially gave issuers the freedom to raise capital from the primary market, provided satisfactory disclosures were made in the offering documents.
The fairness and integrity of the securities market was intended to be ensured by mandatory disclosure of certain categories of information to ensure parity among investors, backed by broad liability for inaccuracies or misrepresentations.
Through this, it was seen that the control once exercised by the government over the securities market sought to be transferred to the hands of the public, empowering them to make decisions based on accurate, consistent and up-to-date information.
Disclosure requirements have been further complemented by the need for strong corporate governance practices and principles-based accounting standards to cement India’s position as a preferred investment destination with a robust and efficient securities market.
The Indian securities market, once completely isolated from foreign investment, now moved towards integration with international capital markets through the recognition of foreign portfolio investors who could invest with few, if any, restrictions on investment or repatriation.
While the introduction of SEBI marked a steady step towards progress, the 1990s were also known for numerous cases of market manipulation and fraud that took the securities market by storm and created disillusionment in the public eye. These cases triggered many reforms and profound changes in the structure and design of the securities market.
Personal trading and the traditional “out-cry” system took on the nature of electronic trading on the screen and represented one of the first but commendable attempts at technological integration in the securities market.