Actual, these FPIs are subjected to multiple levels of regulations. Their broad activities are regulated by the Ministry of Finance in terms of limits. Then considering that they entail foreign flows in and out of India and they also invest in debt markets, they are also regulated by the RBI. Finally, since they operated in the exchange traded securities market, they are obviously subjected to regulation by SEBI also. In short, Indian Capital Markets are regulated and monitored by the Ministry of Finance, The Securities and Exchange Board of India and The Reserve Bank of India. Let us look at how these regulations are administered.

The Ministry of Finance regulates through the Department of Economic Affairs - Capital Markets Division. The division is responsible for formulating the policies related to the orderly growth and development of the securities markets (i.e. share, debt and derivatives) as well as protecting the interest of the investors. In particular, it is responsible for institutional reforms in the securities markets, building regulatory and market institutions, strengthening investor protection mechanism and providing efficient legislative framework for securities markets.

The overall framework administers legislations and rules made under the following acts:

· Depositories Act, 1996

· Securities Contracts (Regulation) Act, 1956 and

· Securities and Exchange Board of India Act, 1992.

Let us now turn to the major regulators in the Indian context

Securities & Exchange Board of India (SEBI)

The Securities and Exchange Board of India (SEBI) is the regulatory authority established under the SEBI Act 1992 and is the principal regulator for Stock Exchanges in India. SEBI’s primary functions include protecting investor interests, promoting and regulating the Indian securities markets. All financial intermediaries permitted by their respective regulators to participate in the Indian securities markets are governed by SEBI regulations, whether domestic or foreign. Foreign Portfolio Investors are required to register with DDPs in order to participate in the Indian securities markets.

Reserve Bank of India (RBI)

The Reserve Bank of India (RBI) is governed by the Reserve Bank of India Act, 1934. The RBI is responsible for implementing monetary and credit policies, issuing currency notes, being banker to the government, regulator of the banking system, manager of foreign exchange, and regulator of payment & settlement systems while continuously working towards the development of Indian financial markets. The RBI regulates financial markets and systems through different legislations. It regulates the foreign exchange markets through the Foreign Exchange Management Act, 1999.

National Stock Exchange (NSE) – Rules and Regulations

This is a kind of first level quasi regulation done by the NSE and the BSE. In the role of a securities market participant, NSE is required to set out and implement rules and regulations to govern the securities market. These rules and regulations extend to member registration, securities listing, transaction monitoring, compliance by members to SEBI / RBI regulations, investor protection etc. NSE has a set of Rules and Regulations specifically applicable to each of its trading segments. NSE as an entity regulated by SEBI undergoes regular inspections by them to ensure compliance.

In addition, the regulation is also done by the NSDL and the CDSL as a first level of regulation unless matters are escalated to the SEBI. For all capital market and exchange related regulations, the SEBI remains the ultimate nodal authority.