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Identifying the Regulators of the Money Market

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Last updated date: 17th Apr 2024
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Who are Regulators?

The efficient provision of infrastructure services is the responsibility of economic regulators. Most regulators of the financial market are not actively involved in the precise judgement that takes place in each phase of the infrastructure lifespan when competition alone is unable to produce this result. Instead, they aim to shape the operator's actions as it oversees the lifetime management of the system.


Economic regulators, for instance, limit tariffs to reasonable levels to avoid the exertion of market power. This restricts the budget available to the operator for administering the system, but it has no bearing on how the operator uses that budget for the same. Economic regulators also give operators cash incentives to work toward goals like raising service standards.

What is Financial Regulation?

Financial regulation is the umbrella term for the laws and regulations that businesses in the financial sector, including banks, community banks, insurance companies, stock brokers, and investment firms, must abide by. Financial regulation, however, involves more than just putting regulations in place; it also involves constant monitoring and enforcement of these standards.


We are all reliant on the financial system in some way. Financial firms that are not adequately regulated run the risk of jeopardising monetary stability, harming consumers, and jeopardising the outlook of the economy. Solid economic regulation is necessary to prevent problems from occurring, protect customers in the event that they do, and preserve the larger financial system.


Kinds of Regulators in India

The share, credit, and derivatives exchanges in India are all subject to regulation, oversight, and policy formulation by the Indian Capital Markets, which is also in charge of safeguarding investor interests.


  1. Securities & Exchange Board of India (SEBI)

It is the main agency for stock exchanges in India and was founded under the SEBI Act of 1992. Whether internal or external, SEBI laws apply to all financial intermediaries who have been given permission by their individual regulators to operate in the Indian securities markets. SEBI, who regulates the money market, was created to keep up with the growing demand for limiting hazardous activities in the quickly growing securities industry and to safeguard investors' interests. The following are SEBI's main responsibilities:


Protective Functions

  • It plays the role of stock market regulators.

  • It looks for price manipulation.

  • It makes insider trading illegal.

  • It forbids unfair and dishonest business practises.


Development Functions

  • SEBI supports the education of securities market middlemen.

  • SEBI has a versatile and adaptable strategy to encourage stock exchange activity.


Regulatory Functions

  • For the purpose of regulating intermediaries, including merchant bankers, brokers, underwriters, and others, SEBI has established rules, regulations, and a conduct code.

  • SEBI regulates and controls how mutual funds, among other things, operate.

  • SEBI investigates and inspects stock exchanges.


  1. Reserve Bank of India (RBI)

The Reserve Bank of India Act, 1934 governs it. The nation's central bank is the Reserve Bank of India. It serves as the Indian financial state's nerve centre. It oversees all organisations involved in allocating capital and saving. The two main categories of entities that are under RBI supervision are commercial banks and non-banking financial institutions (NBFC).

  • Monetary Authority - Creates, directs, and implements monetary policy to keep prices stable while keeping the goal of growth in mind.

  • Regulator and Supervisor of the Financial System - Defines the conditions under which India's banking and financial sector must operate. It also safeguards depositors' interests, keeps public confidence in the banking system, and offers everyone affordable banking services.

  • Foreign Exchange Manager - The Foreign Exchange Management Act of 1999 is overseen by RBI to facilitate international trade and payments while assisting the foreign exchange market's orderly expansion and sustainability in India.

  • Issuer of Currency - Issues, trades, and destroys coins that can't be used in commerce. To ensure that the public has an adequate supply of coins and cash in good condition.

  • Regulator and Supervisor of Payment And Settlement Systems - Introduces and improves secure and effective payment solutions throughout the nation to meet people's needs. Maintain public confidence in the payment and settlement process.

Functions of Regulators

  • Economic Expansion: In addition to reflecting economic health, the capital market also promotes it. It transfers resources from those who have excess capital to others who have not. As a result, the nation experiences equitable economic growth.

  • Encourage Individuals to Save More: As capital markets have grown, banking institutions have been able to offer facilities and provisions that will assist people to save more. Due to the lack of a capital market, individuals may have instead invested in gold or real estate.

  • Stock Price Stabilisation: Capital Market authorities have curbed speculative activity and also given borrowers money at the least potential interest rates. This made it easier to prevent fluctuations in stock values.

  • Proper Fund Redistribution: The capital market is a crucial platform for directing people's idle resources towards an economy's productive sectors. It invests idle money in wise ways.

  • Capital Formation: It is assisted by the capital market, which increases the amount of capital already present in the economy. This facilitates the growth of capital in the economy.

Conclusion

Regulators of the financial market play a significant role in our lives as a result of the fact that we are all dependent on the financial system in some way. Savings customers, for instance, depend on banks to keep their money on hand when they need it. To operate and grow, organisations must be able to borrow money. Consumers may require guidance on the appropriate option for them while obtaining a mortgage or insurance. Enrollees of insurance firms depend on their ability to file claims and receive compensation when some problem occurs.

FAQs on Identifying the Regulators of the Money Market

1. What are a few Quasi-Regulatory Institutions?

Governmental organisations known as quasi-regulatory institutions regulate certain economic sectors. Quasi-Regulatory Institutions include the following:

  • The National Bank for Agriculture and Rural Development (NABARD) is India's top administrative organisation for managing rural development and agrarian funding. 

  • As a completely owned subsidiary of the Reserve Bank of India, National Housing Bank (NHB) offers financial support to the agricultural sector through refinancing to commercial banks and State Co-operative Banks. It is the primary organisation for promoting mortgage lending institutions at the local and regional scales and for offering these institutions financial and other assistance.

2. What is the legal framework for banking regulation?

The Banking Regulation Act of 1949 serves as the primary regulatory framework for banking financial services (Banking Regulation Act). The Reserve Bank of India (RBI) has the authority to establish rules, laws, instructions, and recommendations on a variety of topics relevant to the banking and the financial sector under the Reserve Bank of India Act, of 1934 (RBI Act). The RBI is the country's central bank and the main body as a regulator of banking.

3. How can capital regulators provide a platform for investment?

Longer-term resource raising occurs in the capital market. As a result, it offers a means of investing for those who want to put money aside for a considerable amount of time. It offers investors appropriate interest rate returns as well. The public has access to a variety of investment opportunities thanks to instruments like bonds and shares.