Banking / Finance

How is the Indian Stock Exchange Regulated?

LegalKart Editor
LegalKart Editor 04 min read 147 Views
Last Updated: Nov 16, 2023
Know more about the Indian Stock Exchange and its regulations


In recent years, India has emerged as a global trading powerhouse with its thriving stock market. The National Stock Exchange (NSE) recently released the country's unique investor count, and it is now at 80 million — a record high. This figure equates to over 17% of households investing in the Indian stock market, further solidifying the country's position as the premier landscape for traders.

The country's comprehensive regulations have played an integral part in making these record highs a reality. For instance, the primary regulator, the Securities and Exchange Board of India (SEBI), is in place to protect investors and encourage the development of Indian security markets. Moreover, SEBI is complemented by the Reserve Bank of India (RBI), which maintains the financial status, monetary policy implementation, and regulatory aspects concerning banking and foreign investments. But just how do these regulators oversee the bustling market? Read on to find out.


A background on broader market-wide regulations
The SEBI was formed in 1992 as an independent authority, and since then, it has set up market rules to encourage only the most profitable market practices. For example, SEBI has fundamental laws on transaction transparency and protecting traders. One of the most notable laws is the Securities and Exchange Board of India Act of 1992. This empowers SEBI since it regulates and enforces authority all over the markets. As per this act, stock exchanges under the SEBI are subject to inspections once a year. Market operations, organisational structure, and administrative powers are comprehensively reviewed during these. Additionally, the SEBI checks if the exchange provides a fair and equitable market for its investors and if the bourse has followed its past directions and guidelines. After which, a compliance report is requested within one month of the inspection, followed by quarterly progress updates.

Another example is the Companies Act of 2013. Under this, the formation and operation of all companies involved in the stock exchanges are regulated. This includes provisions related to proper issuance and transfer of securities, rights of shareholders, and corporate governance.

The RBI regularly creates, monitors, and updates monetary policies that affect various market conditions. It serves as a regulator by supervising the financial system to ensure a secure and stable environment. Recent developments show that RBI continues to keep interest rates unchanged, with the benchmark repo rate remaining at 6.5%. This action taken by the RBI is essential in keeping the already high inflation rates at bay since the high repo rates will discourage banks from borrowing as much. Therefore reducing the overall money supply in the economy and slowing down inflation. With inflation rates still hovering around 5% in the third quarter of 2023, the RBI needs to continue its rigid repo rates that it has maintained since February this year.

Comprehensive overviews on India's regulations shed more light on their attention to detail. In March 2023, the Central Government notified and put all digital assets under the Prevention of Money Laundering Act (PMLA) umbrella. This allows the government to control or confiscate questionable means by which funds are made.

Despite this, the Indian government has not closed all the doors on legal and profitable ventures. Recent developments show that an emphasis on more explicit and specific regulations is a priority. Finding the most appropriate legal framework for modern investments is on the horizon in light of the potential risks and benefits. For now, enthusiasts, investors, and businesses in the country await with excitement and reservation for the new guidelines to come.


Best practices traders can employ in this bustling market

Maximise trading tools
Given the detailed and secure nature of the Indian stock exchanges, now is the perfect time to optimise your trading ventures. To do this, you can utilise handy and simple tools to predict essential market movements and harness bustling markets like the NSE. For instance, investment calculators help determine basic trading positions such as margin, spread cost, commission, and pip value. In terms of usage, however, you can maximise the pip calculator since it determines the value of one pip. This means you can easily calculate how much money you will earn or lose if price movements move by a pip. And the value is calculated with the formula lots x contract size x pip size.

Perform day trading

Day trading is buying and selling various instruments like stocks, currency, shares, and commodities within a day. In effect, you're taking advantage of the constant fluctuation of prices affected by external events. Furthermore, GIFT Nifty recently achieved a new all-time high single-day trading record in September. This equated to over 3.8 million contracts with a turnover of ₹1.2 trillion ($15.25 billion). The constant success of GIFT Nifty has been an ongoing trend since it began full-scale operations back in July 2023. It amassed 4.59 million contracts worth billions of dollars in a short time frame. It all adds up since SEBI paved the way with its detailed rules and regulations designed to give investors the best chance at a fair investment. To summarise, day trading is quite a successful venture and deserves your undivided time and attention.

Swing trading

Swing trading refers to looking for a significant shift in assets, liabilities, and unusual trends. In this, you hold a security for a certain period and wait and see how the pieces will fall into place. Today, India's stock market movements are on the upward swing, with the benchmark Sensex index climbing by 10% in recent months alongside an 11% rise by Nifty 50. The country is home to the world's fourth most valuable equity market, behind only juggernauts like China, Japan, and the United States. And with this constant rise, you can afford to hold your swing trading positions for extended periods.


Overall, India's stringent stock market regulations have been showing fruitful results, as evidenced by the constant rise of the economy despite the usual volatility of the territory. Systems like SEBI and the RBI both serve as the foundations of the entire financial system of India, therefore serving as a blueprint for the rest of the world to follow.

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