1.

Introduction toFinancial System The economic scene in the post independence period has seen a sea change; theend result being that the economy has made enormous progress in diverse fields.There has been a quantitative expansion as well as diversification of economicactivities. The experiences of the 1980s have led to the conclusion that to obtainall the benefits of greater reliance on voluntary, market-based decision-making,India needs efficient financial systems. The financial system is possibly the most important institutional and functionalvehicle for economic transformation. Finance is a bridge between the presentand the future and whether it be the mobilisation of savings or their efficient,effective and equitable allocation for investment, it is the success with which thefinancial system performs its functions that sets the pace for the achievement ofbroader national objectives. 1.1 Significance and Definition The term financial system is a set of inter-related activities/services workingtogether to achieve some predetermined purpose or goal. It includes differentmarkets, the institutions, instruments, services and mechanisms which influencethe generation of savings, investment capital formation and growth. Van Horne defined the financial system as the purpose of financial markets toallocate savings efficiently in an economy to ultimate users either for investmentin real assets or for consumption. Christy has opined that the objective of thefinancial system is to"supply funds to various sectors and activities ofthe economy in ways that promote the fullest possible utilization of resourceswithout the destabilizing consequence of price levelchanges orunnecessaryinterference with individual desires." According to Robinson, the primary function of the system is "to provide a linkbetween savings and investment for the creation of new wealth and to permitportfolio adjustment in the composition of the existing wealth." AcroPDF - A Quality PDF Writer and PDF Converter to create PDF files. To remove the line, buy a license.

MBA-Finance Indian Financial System From the above definitions, it may be said that the primary function of thefinancial system is the mobilisation of savings, their distribution for industrialinvestment and stimulating capital formation to accelerate the process ofeconomic growth. FINANCIAL SYSTEM SAVINGS FINANCE TheConcept of theFinancial System

The process of savings, finance and investment involves financial institutions,markets, instruments and services. Above all, supervision control and regulationare equally significant. Thus, financial management is an integral part of thefinancial system. On the basis of the empirical evidence, Goldsmith said that "...a case for the hypothesis that the separation of the functions of savings andinvestment which is made possible by the introduction of financial instrumentsas well as enlargement of the range of financial assets which follows from thecreation of financial institutions increase the efficiency of investments and raisethe ratioof capital formation to national production and financial activities andthrough these two channels increase the rate of growth

SEBI is regulator to control Indian capital market. Since its establishment in 1992, it is doing hard work for protecting the interests of Indian investors. SEBI gets education from past cheating with naive investors of India. Now, SEBI is more strict with those who commit frauds in capital market. The role of security exchange board of India (SEBI) in regulating Indian capital market is very important because government of India can only open or take decision to open new stock exchange in India after getting advice from SEBI. If SEBI thinks that it will be against its rules and regulations, SEBI can ban on any stock exchange to trade in shares and stocks. Now, we explain role of SEBI in regulating Indian Capital Market more deeply with following points: 1. Power to make rules for controlling stock exchange : SEBI has power to make new rules for controlling stock exchange in India. For example, SEBI fixed the time of trading 9 AM and 5 PM in stock market.

2. To provide license to dealers and brokers : SEBI has power to provide license to dealers and brokers of capital market. If SEBI sees that any financial product is of capital nature, then SEBI can also control to that product and its dealers. One of main example is ULIPs case. SEBI said, " It is just like mutual fundsand all banks and financial and insurance companies who want to issue it, must take permission from SEBI." 3. To Stop fraud in Capital Market : SEBI has many powers for stopping fraud in capital market.

It can ban on the trading of those brokers who are involved in fraudulent and unfair trade practices relating to stock market.

It can impose the penalties on capital market intermediaries if they involve in insider trading. 4. To Control the Merge, Acquisition and Takeover the companies : Many big companies in India want to create monopoly in capital market. So, these companies buy all other companies or deal of merging. SEBI sees whether this merge or acquisition is for development of business or to harm capital market. 5. To audit the performance of stock market : SEBI uses his powers to audit the performance of different Indian stock exchange for bringing transparency in the working of stock exchanges. 6. To make new rules on carry - forward transactions :

Share trading transactions carry forward can not exceed 25% of broker's total transactions.

90 day limit for carry forward.

7. To create relationship with ICAI : ICAI is the authority for making new auditors of companies. SEBI creates good relationship with ICAI for bringing more transparency in the auditing work of company accounts because audited financial statements are mirror to see the real face of company and after this investors can decide to invest or not to invest. Moreover, investors of India can easily trust on audited financial reports. After Satyam Scam, SEBI is investigating with ICAI, whether CAs are doing their duty by ethical way or not. 8. Introduction of derivative contracts on Volatility Index : For reducing the risk of investors, SEBI has now been decided to permit Stock Exchanges to introduce derivative contracts on Volatility Index, subject to the condition that; a. The underlying Volatility Index has a track record of at least one year. b. The Exchange has in place the appropriate risk management framework for such derivative contracts. 2. Before introduction of such contracts, the Stock Exchanges shall submit the following: i. Contract specifications ii. Position and Exercise Limits iii. Margins iv. The economic purpose it is intended to serve

v. Likely contribution to market development vi. The safeguards and the risk protection mechanism adopted by the exchange to ensure market integrity, protection of investors and smooth and orderly trading. vii. The infrastructure of the exchange and the surveillance system to effectively monitor trading in such contracts, and viii. Details of settlement procedures & systems ix. Details of back testing of the margin calculation for a period of one year considering a call and a put option on the underlying with a delta of 0.25 & 0.25 respectively and actual value of the underlying. Link 9. To Require report of Portfolio Management Activities : SEBI has also power to require report of portfolio management to check the capital market performance. Recently, SEBI sent the letter to all Registered Portfolio Managers of India for demanding report. 10. To educate the investors : Time to time, SEBI arranges scheduled workshops to educate the investors. On 22 may 2010 SEBI imposed workshop. If you are investor, you can get education through SEBI leaders by getting update information on this page.