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.