Forms of Regulation
There are different forms of regulation to regulate market to fulfill certain objectives. These are discussed below:
The whole amount of financial information regarding the issuer of securities should be disclosed to the investors. These regulations are meant to prevent the asymmetry in the information or the uneven possession of the information by the company managers and shareholders. In the absence of such rules it may be possible for the company managers or agents to leverage the information to their own interests.
Financial Activity Regulation
This is a legal framework about the traders and issuers of securities and the trading practices in the financial markets. An example can be given of the rules that guide the internal set of regulations or insiders of the company who may know the vital information of the company more than the general public. The rule relating to the structure of the operations in the stock markets also comes under this type of framework. These are meant to avoid the collusion between the members of the exchanges resulting in the loss to the general investing public.
Regulation of Financial Institutions
The activities of institutions such as lending, borrowing and funding have a special importance in the modern economy. To avoid the evil affects due to the malfunctioning of these institutions government regulation becomes necessary.
Regulation of Foreign Participants
The ownership or control of the foreign companies in the domestic market is limited by these regulations to avoid any takeover of the domestic market by the foreign partners. In the Indian financial system, Securities and Exchange Board of India (SEBI) works to ensure that companies can get protection from hostile takeover bids. The SEBI (Substantial Acquisition of shares and takeovers) Regulations, 1997 also popularly known as SEBI Takeover Code deals with the takeovers and substantial acquisition of shares of a listed company.
Banking and Monetary Regulations
The money supply in the economy, which is of crucial importance is controlled by regulations such as monetary and credit policy. The policy regulates the money supply and interest rates in the financial system through controlling parameters like bank rate, Cash Reserve Ratio (CRR), etc.