Problems and Reforms of Secondary Capital Market i

Capital Market is vital for the growth and development of an economy. Now-ad ys individual investors, mutual funds, pension funds and insuranc e funds place their money in various instruments of capital market. Therefore, sustainable and pragmati c development of capital market has become essential. With globalization of economies, the role of capita l market regulator assumes more significant and the regulator has to be dynamic and responsive to challenges and changes not only to domestic but als o to international ones. The most important issue to be kept in mind of the regulator is the traders and investors’ interest. Regulation is not a static sub ject and it is a very dynamic one. Therefore, there is, sometimes, frequent review of securities laws to develop secondary capital market and protect interest of traders and investors – individual as well as institutional. Markets themselves are in a state of continuous development and so the contents of regulations must also change to facilitate proper regulation of the secondary capital market. Keeping in view the above objectives and principles, the Securities and Exchange Board of India (SEBI) has been framing regulations, guidelines and also changing them from time to time to make Indian capital market a modern, safe, fair and efficient one. For these reasons, several secondary capital market reforms have been introduced by the SEBI for the pa st several years to eradicate the challenges faced by secondary capital market in India. Keyword: Capital Market, Investors, Oligopolistic,


INTRODUCTION
The capital market refers to the market for shares and bonds of the existing companies as well as those of @ IJTSRD | Available Online @ www.ijtsrd.com | Volume -2 | Issue -5 | Jul-Aug 2018 Capital Market is vital for the growth and days individual investors, mutual funds, pension funds and insurance funds place their money in various instruments of capital market. Therefore, sustainable and pragmatic ent of capital market has become essential. With globalization of economies, the role of capital market regulator assumes more significant and the regulator has to be dynamic and responsive to challenges and changes not only to domestic but also tional ones. The most important issue to be kept in mind of the regulator is the traders and investors' interest. Regulation is not a static subject and it is a very dynamic one. Therefore, there is, sometimes, frequent review of securities laws to secondary capital market and protect interest individual as well as institutional. Markets themselves are in a state of continuous development and so the contents of regulations must also change to facilitate proper f the secondary capital market. Keeping in view the above objectives and principles, the Securities and Exchange Board of India (SEBI) has been framing regulations, guidelines and also changing them from time to time to make Indian safe, fair and efficient one. For these reasons, several secondary capital market reforms have been introduced by the SEBI for the past several years to eradicate the challenges faced by

Investors, Oligopolistic,
The capital market refers to the market for shares and bonds of the existing companies as well as those of new companies. This market is New Issue Market and Old Issue Market. The New Issue Market is also called primary capital market. The primary capital market is where the companies actually sale their shares and bonds first time to finance for investment projects. I capital market is that part of capital market where dealing exchanges take place in the new capital issues i. e. Initial Public Offerings (IPOs) by existing and new companies. Likewise, the Old Issue Market is also called secondary capi exchanges where the existing investors, traders and prospective investors meet with each other. means that the secondary capital market is the market for old and already issued securities. The secondary capital market is composed o market or the stock exchange in which industrial securities are bought and sold and the gilt market in which the government and semi government securities are traded. establishment of Securities and Exchange Board o India (SEBI) in 1992 as a statutory body, like in many other sectors of the economy, the capital market was also strictly regulated under a control and command regime. he primary capital market is where the companies actually sale their shares and bonds first time to finance for investment projects. In nutshell, primary capital market is that part of capital market where dealing exchanges take place in the new capital issues i. e. Initial Public Offerings (IPOs) by existing and Likewise, the Old Issue Market is also called secondary capital market or stock exchanges where the existing investors, traders and prospective investors meet with each other. This means that the secondary capital market is the market for old and already issued securities. The secondary capital market is composed of industrial security market or the stock exchange in which industrial securities are bought and sold and the gilt-edged market in which the government and semigovernment securities are traded. Prior to the establishment of Securities and Exchange Board of India (SEBI) in 1992 as a statutory body, like in many other sectors of the economy, the capital market was also strictly regulated under a control and command regime. The raising of capital, pricing of issues and matters incidental thereto were controlled by the office of the Controller of Capital Issues (CCI) established under the Capital Issues Control Act,1947. In the budget speech of 1991-92, the then Finance Minister, Dr. Monmohan Singh, announced the repeal of the Capital Issues Control Act and transfer of to the SEBI. This brought about a paradigm shift in the Indian Securities Marketfrom control to disclosure based regulation. In this article, the various reforming activities with reference to secondary capital market are being discussed synoptically after mentioning the various age old International Journal of Trend in Scientific Research and Development (IJTSRD) ISSN: 2456-6470 @ IJTSRD | Available Online @ www.ijtsrd.com | Volume -2 | Issue -5 | Jul-Aug 2018 Page: 1729 problems and constraints suffered by the secondary capital market in India since its inception. Then, the reforms and their subsequent impacts are discussed in few words. The discussion of this article is ended with some concluding remarks with the view of its more efficient and vibrant secondary capital market in India.

Major problems of secondary capital market in
India -This part of the article broadly covers the major challenges to the smooth functioning of the secondary capital market in India. These problems or barriers may be political, socio-economic or administrative in natures which are discussed here. Throughout the various phases, the secondary capital market in India has experienced growth and at the same time, some bottlenecks were also experienced. Some of them are mentioned as below: 1. Multiple regulations -Immediate after independence, some steps were taken to regulate the Indian capital market. During the postindependence phase, Indian Companies Act was passed in the year 1956. Before this, Capital Issues (Control) Act, 1947 also came into existence. Then Securities Contract (Regulation) Act was passed in the year 1956. Though the objectives of these acts were good, some provisions of these different acts were contradictory to each other. These multiple regulations also had negative impact on capital market developments.

Isolated stock exchanges -The stock exchanges in
India have a presence only at particular locations. At the respective locations, normally trade takes place which is also characterized by regional features. But it must also be noted that stock brokers of one stock exchange were not allowed to operate in any other stock exchange. The stock exchanges were even not allowed to have branches at different locations. Due to this problem, only few stock exchanges like BSE dominated the trade in capital markets. But this had made other stock exchanges isolated. These stock exchanges were located in distant places throughout the country. But these regional stock exchanges were not much backed by volume of trading. 3. Lack of protection to investors -Though some laws were enacted during the earlier phase, there were no provisions ensuring investors' protection.
There was no separate mechanism to look after grievances of investors. No guidelines were given for various players in the market. This was one of the reasons why there was still poor response from the households. 4. Open outcry -When the capital markets started functioning, few brokers used to come together at a particular place and perform trading activities. As the number of listed companies increased and number of brokers also increased, it was difficult to perform trading. Usually, some gestures and shouting was necessary to find the matching trade.
For example, if one would have to purchase shares of X. Ltd. in a particular quantity at a specific rate, he had to shout and find another person willing to sell the shares of the same company and then, he could negotiate the prices. This system had a limitation that due to open outcry. Very few participants showed their interest in trading with this process. Further, this type of market is not suitable for genuine investors as they shy away from open outcry. 5. Problems faced during the post liberalization period (1991 onwards) -The two decades have lapsed after India accepted the globalization policy as a weapon for financial sector reforms. From restricted regime, slowly the economy moved towards open economy. Instead of control and restriction, the words management and development were used frequently. Even legal terminologies were also relaxed to some extent.
By the year 1991, the number of listed companies was over six thousand which crossed eleventhousand marks in the year 2011. The market capitalization, daily trading volumes increased by leaps and bounds during the last two decades. As the private as well as foreign investment was allowed in various sectors, it provided a huge boost to the capital markets in India. If we look at the index numbers or share prices of companies, there has been huge upswing after 1991, after inception of financial sector reforms. But when all this was happening, there were some problems and constraints being developed in the financial market in general and capital market in particular. 6 Membership of these exchanges is also restricted. The traders / brokers also speculate in shares without processing them. This hampers the general belief that capital market is a perfectly competitive market. 8. Excessive speculation -An excessive speculation in the stock exchanges has now become a well settled / established fact. Share prices in the market are determined by the speculative forces and these prices have very low references of fundamentals or performance of economy, industry or company. The dealers, merchants, insiders, fund managers etc. try to speculate the prices of share. As this has nothing to do with the performance of company, a genuine and studied investor tries to be aloof from the trading. This reduces the presence of genuine investors and thereby increases the speculative motive among the other market participants also. 9. Underdeveloped debt markets -The shares issued in the primary market are later on traded in the secondary markets i.e. stock exchanges. But a part of primary market also involves debenture financing. are artificially increased before rights issues by circular trading. Gullible members of public who buy such shares find the prices of such shares dropping greatly and lose their money. 12. Misinformation -Funds are raised from investors promising investment in projects yielding high returns. But some promoters divert the money to speculative activities and other personal purposes.
Investors who invest their money in such companies ultimately lose their money. 13. Absence of genuine investors -A very small proportion of purchases and sales affected in a stock exchange are by genuine investors. Speculators constitute a major portion of the market. Many of the transactions are carried out by speculators who plan to derive profits from short term fluctuations in prices of securities. This is evident from the fact that majority of the transactions are of the carry-forward type. 14. Fake shares -Frauds involving forged share certificates are quite common. Investors who buy shares unfortunately may get such fake certificates. They would not be able to trace the seller and their entire investment in such fake shares would be a loss. 15. Insider trading -Insider trading is a common occurrence in many stock exchanges. Insiders who come to know privileged information use it either to buy or sell shares and make a quick profit at the expense of common shareholders. Though many rules and regulations have been formulated to curb insider trading, it is a continuing phenomenon. 16. Prevalence of price rigging -Price rigging is a common evil plaguing the stock markets in India.
Companies which plan to issue securities artificially try to increase the share prices, to make their issue attractive as well as enable them to price their issue at a high premium. Promoters enter into a secret agreement with the brokers. 17. Odd lots -Odd lots suffer from poor liquidity. The number of odd lot dealers is very less and odd lots have to be sold at a lower price. 18. Broker defaults -Due to excess speculation in specific shares, broker defaults occur. Such defaults destabilize stock exchanges and results in payment crisis. The existing trades guarantee funds set up by stock exchanges provide counter party guarantee for all the transactions which take place on stock exchanges and meet the payment obligations of the brokers immediately without waiting to declare them as defaulters. This means that the settlement (Pay-in and Pay-out) is effected immediately and investors get their money without delay. 8. Surveillance System -Exchanges were asked to set up independent surveillance cells directly under the Executive Directors of exchanges. The concerned Exchange Executive Director is solely responsible for surveillance activities. Exchanges were asked to develop online monitoring system. Online surveillance system generates alerts including real time alerts to indicate abnormal activity (if, any) in trading. 9. Accounting period settlement -The Indian stock market has historically adopted accounting period settlement. The accounting period settlement indicates the system whereby the positions of brokers accumulated till the end of a specific accounting period are settled on the basis of netted out positions with respect to every security. The accumulation of position during the settlement period gave scope for speculative activities thus, increased the possibility of default by participants.

Major reforms of secondary capital market in
To overcome the deficiencies of the accounting period settlement system, rolling settlement system was introduced in a phased manner. 10. Rolling settlement -In 1998 rolling settlement was introduced by SEBI on a voluntary basis and then it was made compulsory on a T+5 bases in a phased manner. A time schedule for implementation of T+2 rolling settlement as prescribe by SEBI is as follows: Rolling It is a guide for the investors also in evaluating the risk of their investments. 17. Increasing of merchant banking activities -Many Indian and foreign commercial banks have set up their merchant banking divisions in the last few years. These divisions provide financial services such as underwriting facilities, issue organizing, consultancy services, etc. It has proved as a helping hand to factors related to the capital market. 18. Insurance sector reforms -Indian insurance sector has also witnessed massive reforms in last few years. The Insurance Regulatory and Development Authority (IRDA) was set up in 2000. It paved the entry of the private insurance firms in India. As many insurance companies invest their money in the capital market, it has expanded. 19. Commodity trading -Along with the trading of ordinary securities, the trading in commodities is also recently encouraged. The Multi Commodity Exchange (MCX) is set up. The volume of such transactions is growing at a splendid rate.

Conclusion
A study of capital market significantly involves a study of problems which emerged in various phases of development of capital market in India. This article has presented these problems in a phased manner. Apart from this, an attempt has also been made to analyze the frauds which have taken place during last one and half century. The problems experienced in the Indian capital markets as well as the scams were significant as they proved to be hindrances in the smooth functioning of capital markets. Due to these hindrances a genuine investor has remained aloof from the market while more and more speculators and institutional investors continued to dominate the capital markets in India. This has also resulted into increased volatility in the Indian capital market. When the financial sector reforms were initiated, it was also emphasized to have a strong regulator for the Indian capital market. This task of regulation is being shouldered by SEBI to a great extent along with other regulators like RBI, Department of Company Affairs etc. Following the implementation of reforms in the secondary capital market in India in the past few years, Indian stock markets have stood out in the world ranking. But, there is more scope for further reforms and development.