Indian Economy Quiz: Capital Market, SEBI and Stock Exchanges

SEBI first appeared in April 1988 as an administrative arrangement with no legal powers, and it became a statutory regulator when the Securities and Exchange Board of India Act was passed in 1992; the words quoted in the question are taken from the preamble of that Act, which speaks of…

It was founded in 1875 as the Native Share and Stock Brokers’ Association, grew out of brokers meeting under a banyan tree in Bombay, and is the oldest stock exchange in Asia; it now stands on Dalal Street and its benchmark index is the Sensex.

The Sensex, or Sensitive Index, of the Bombay Stock Exchange is built from thirty large, well established and actively traded companies drawn from the main sectors of the economy, and it is weighted by free-float market capitalisation.

The Sensex was compiled backwards to 1978-79 and that year was given a base value of 100, so the index number states how many times the market value of its thirty constituents has grown since then.

The money market deals in short-term funds of up to one year, through treasury bills, commercial paper, certificates of deposit and call money, and the Reserve Bank regulates it as part of its control over credit and liquidity.

A person aggrieved by an order of SEBI may appeal to the Tribunal, which is provided for by the SEBI Act itself, and from the Tribunal a further appeal lies to the Supreme Court on a question of law.

An IPO is the first sale of shares by a company to the general public, after which the shares are listed and traded on a stock exchange; it belongs to the primary market, because the money raised goes to the company itself.

SEBI has its head office in Mumbai, at the Bandra Kurla Complex, which places the regulator in the same city as the Bombay Stock Exchange, the National Stock Exchange and the Reserve Bank of India, making Mumbai the financial capital of the country.

It defines what a security is, provides for the recognition of stock exchanges by the Government, and lays down the framework within which contracts in securities may be made; it is the oldest of the statutes governing this market and still the basic one.

The National Securities Depository Limited was set up in 1996, the year the Depositories Act was passed, and was the first depository in India; it holds securities in electronic form so that shares need not change hands as paper certificates, a process called dematerialisation.