Some Case Studies of the Bombay Stock Exchange
| DOI | https://doi.org/10.1108/eb026005 |
| Pages | 30-39 |
| Published date | 01 March 2001 |
| Date | 01 March 2001 |
| Author | B.V. Kumar |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 9 No. 1
Abuse Versus Speculation — The Role of the
Regulatory Authority
Some Case Studies of the Bombay Stock Exchange
B. V. Kumar
Journal of Financial Crime
Vol.
9. No.
1.
2001.
pp. 30-39
©,
Henry Stewart Publications
ISSN 1359-0790
Corporate governance is the system by which com-
panies are directed and controlled. Boards of directors
are responsible for the governance of their com-
panies. The shareholders' role in governance is to
appoint the directors and the auditors and to satisfy
themselves that an appropriate governance structure
is in place. The responsibilities of the board include
setting the company's strategic aims, providing the
leadership to put them into effect, supervising the
management of the business and reporting to share-
holders on their stewardship. The board's actions
are subject to laws, regulations and scrutiny by the
shareholders in general meeting.
In an interview, Sir Adrian Cadbury stated that
principles of good governance apply to all types of
enterprises: clear responsibilities, a precise distinction
between direction and management, checks and
balances in the governance structure, effective finan-
cial control, and above all, transparency — that is to
say, disclosure. It is up to the boards of different types
of company to implement these principles in ways
that meet their needs. Disclosure — clear, up-to-
date,
and honest reporting on the company's financial
and operational position — can also be used by share-
holders as an effective tool to monitor corporate
performances.
In corporations, shareholders are the principals and
managers their agents. In public life, under democ-
racy, the voters are the principals and the parlia-
mentarians, or the lawmakers, their agents. In
financial markets, institutions must be developed so
that the market for managers is efficient. Since man-
agers have private information, not available to
small investors, the latter need to be convinced that
managers will not be undertaking opportunistic
actions that are to their disadvantage. The laws gov-
erning corporate behaviour and organisations like the
Securities and Investment Commission are meant to
monitor, regulate and, if possible, prevent any
action that may be detrimental to small investors.
Effective market surveillance plays a key role in
ensuring safety, integrity and essentiality of regula-
tory systems. The Security and Exchange Board of
India (SEBI) set up a Market Surveillance Division
in July 1995, with a view to keeping a proactive
oversight on the surveillance activities of the stock
exchanges. Essentially, it focuses on:
— policy formulation for introduction of sur-
veillance systems and risk containment measures
at the stock exchanges to bring integrity, safety
and stability to the Indian securities markets;
— overseeing the surveillance activities of the stock
exchanges, including the monitoring of market
movements by them;
— inspection of the surveillance cells of the stock
exchanges;
— initiating investigations; and
-— preparation of reports and studies on market
movements, which SEBI circulates periodically
to the Ministry of Finance in the government of
India and to securities markets regulators from
other countries.
However, the primary responsibility of market sur-
veillance is the function of the stock exchanges.
SEBI keeps a proactive oversight of market move-
ments and trends and only in exceptional circum-
stances, if information leads to suspicion of
market abuse or market manipulation or insider
trading or other misconduct, are investigations
initiated.
Some of the surveillance systems and risk contain-
ment measures that have been put in place are given
briefly below:
— risk containment measures in the form of an ela-
borate margining system and linking of intraday
trading limits and exposure limits to capital
adequacy;
— daily price bands to curb abnormal price
behaviour and volatility;
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