Capital Market Reforms

The stock exchange scam of 1992 (Harshad Mehta) and Ketan Parekh scam in 2000 led to various measures to protect the interest of the investor. 

Capital Market Reforms Initiatives

• Circuit Breakers: It is a mechanism under which trading in a stock exchange is halted for a specified period of time, in case of deviation in the index of the Stock Exchange (or share price) beyond a certain limit. 
• Dematerialization/Demat Trading: Under this, computer records of a Stock Exchange are maintained instead of issuing shares/security certificates in the physical form. At present, two public sector depositories are functioning in India: 1. NSDL (National Securities Depositories Limited),  2. CDSL (Central Depositories Services Limited).

• Depository Participants:  These are agents of depositories that provide demand service/online security trading services to the investors. Example: India Infoline, ICICI Direct, Axis Direct etc.
• Rolling settlement: Under Rolling Settlement, a spot market transaction in the stock market must be completed within a specified period i.e., the settlement period cannot be shifted. y It is on the basis of the T+2 system (T= transaction day; T+2= transaction day + 2 working day).
• Corporatization: Objectives of the corporatization of stock exchange- 

• To reduce the scope of manipulation by brokers. 
• To enable the stock exchange to raise funds from the public through IPO modernization.

• Demutualization: It refers to the separation of ownership, management, and brokerage rights in the stock exchange. The 1st stock exchange to be corporatized and demutualized in India was BSE in 2005. 
• Investor Protection and Education Fund: It was established in 2001 by SEBI and the central government for promoting investor awareness and to protect the interest of investors, especially small investors.
• Derivative Trading: To enable investors to hedge (using financial instruments to offset the risk of any adverse price movements) market risks, derivative trading was introduced.