Regulation of Primary Market

Regulation of Primary Market

For companies, raising capital through the primary market is time consuming and expensive. The issuer has to engage the services of a number of intermediaries and comply with complex legal and other formalities. The investor faces much risk while operating in the primary market. Fraudulent promoters may try to dupe the investors who opt to invest in a new issue. Investors in the primary market need protection from such fraudulent operators.

Up to 1992, the primary market was controlled by the Controller of Capital Issues (CCI) appointed under the Capital Issues Control Act, 1947. During that period, the pricing of capital issues was regulated by CCI. The Securities and Exchange Board of India (SEBI) was formed under the SEBI Act, 1992, with the prime objective of protecting the interests of investors in securities as well as for promoting and regulating the securities market. All public issues since January 1992 are governed by the rules, regulations and guidelines issued by SEBI.

SEBI has been instrumental in bringing greater transparency in capital issues. It has issued detailed guidelines to standardise disclosure obligations of companies issuing securities. Companies floating pubic issues are now required to disclose all relevant information affecting investors’ interests. SEBI constantly reviews its guidelines to make them more market friendly and investor friendly.

Successful floatation of a new issue in the primary market requires careful planning, proper timing and comprehensive marketing efforts. The services of specialised institutions such as merchant bankers, registrars to the issue, underwriters, etc. are available to the issuer company to handle the task. There is effective regulation of SEBI at every stage of a public issue. There are also regulations to ensure fair practice by the intermediaries in the market.