Skip to content

NISM-Series-VII: Securities Operations and Risk Management · Introduction to the Securities Market

Regulatory Framework and Market Regulators for NISM Series VII

Updated 11 October 2026 · Fact-checked

The regulatory framework is the set of laws and bodies that govern India's securities market. SEBI is the main regulator under the SEBI Act, 1992. SCRA, 1956 governs securities contracts and exchanges. The Depositories Act, 1996 governs dematerialisation. RBI regulates money, government securities and banks. Exchanges regulate their own members.

Understand Regulatory Framework and Market Regulators

A market needs rules so investors trust it. In India, those rules come from Acts passed by Parliament, and regulators enforce them. Your exam tests which law or body does what.

SEBI (Securities and Exchange Board of India) is the main securities market regulator. It was set up as an administrative body in 1988 and given statutory status by the SEBI Act, 1992. The Act says SEBI must protect investors' interests, promote development of the securities market and regulate it.

SEBI's powers are quasi-legislative (it frames regulations), quasi-judicial (it passes orders after hearing parties) and quasi-executive (it inspects, investigates and enforces). It regulates stock exchanges, intermediaries such as brokers, depository participants and mutual funds, and it prohibits fraudulent and unfair trade practices and insider trading.

The Securities Contracts (Regulation) Act, 1956 (SCRA) regulates the trading of securities. It deals with recognition of stock exchanges, the listing of securities and the control of contracts in securities. Only a recognised exchange can operate as a stock exchange. The Depositories Act, 1996 provides for depositories and for holding and transferring securities in electronic form. The Companies Act, 2013 governs issue of securities by companies.

The RBI is not the main securities regulator. It regulates banks, the money market, the government securities market and foreign exchange. Stock exchanges are front-line regulators of their trading members. They frame rules and bye-laws, monitor trading, and discipline members, all under SEBI oversight. The Ministry of Finance, through the Department of Economic Affairs, also has a role in the framework.

Key formulas to remember

SEBI Act, 1992
Protect investors + promote development + regulate the securities market
Gave SEBI statutory powers. SEBI was originally set up in 1988 as an administrative body.
SEBI's three powers
Quasi-legislative + quasi-judicial + quasi-executive
Regulations, orders after hearing, and inspection/investigation/enforcement respectively.
SCRA, 1956
Recognition of exchanges + listing + regulation of contracts in securities
Only a recognised stock exchange can operate. Think of it as the law for trading and exchanges.
Depositories Act, 1996
Dematerialisation + electronic holding and transfer of securities
Governs depositories (NSDL, CDSL) and their participants.
RBI's securities-related domain
Banks + money market + government securities + forex
Not the regulator of equity and corporate bond intermediaries. That is SEBI.
Exchange role
Self-regulatory organisation for its members, under SEBI oversight
Frames rules, monitors, inspects and disciplines trading members.

How to solve Regulatory Framework and Market Regulators questions

Regulatory questions are usually matching questions: which law or body does this job. Use this method.

  1. 1Read the question and underline the function: issue, trading, demat, banking, money market or enforcement.
  2. 2Identify the subject: a company, an exchange, an intermediary, a depository or a bank.
  3. 3Match the function to the law: trading and exchanges to SCRA, demat to Depositories Act, SEBI's powers to SEBI Act, company issues to Companies Act.
  4. 4Match the function to the body: securities market to SEBI, money market, government securities and banks to RBI, members' conduct to the exchange.
  5. 5Eliminate options that swap two bodies or two Acts, such as giving RBI the role of regulating brokers.
  6. 6Watch words like 'only', 'always' and 'not'. Choose the option that fits the exact condition.

Quickest way: Function-to-Law-and-Body Map

When to use it: Use this when you have under a minute and the question asks which Act or regulator covers an activity.

  1. Memorise the map: SEBI Act = SEBI's powers; SCRA = exchanges and trading; Depositories Act = demat; RBI = banks, money market, G-secs, forex.
  2. Spot the keyword in the stem: 'recognition', 'listing' means SCRA; 'depository', 'demat' means Depositories Act; 'bank', 'G-sec' means RBI.
  3. Pick the option matching the keyword and drop the rest.

Common mistakes in Regulatory Framework and Market Regulators

  • Saying RBI regulates stock brokers and mutual funds.

    RBI is seen as the top financial regulator, so students assume it covers everything.

    Fix: Brokers, mutual funds and depositories are regulated by SEBI. RBI covers banks, money market, government securities and forex.

  • Confusing SCRA with the SEBI Act.

    Both deal with securities, so the names blur.

    Fix: SEBI Act creates and empowers SEBI. SCRA governs exchange recognition, listing and contracts in securities.

  • Crediting SEBI Act 1992 with creating SEBI in the first place.

    The year 1992 is linked with SEBI's birth.

    Fix: SEBI was set up in 1988 as an administrative body. The 1992 Act gave it statutory status and powers.

  • Attributing demat rules to SCRA or the Companies Act.

    Students link all securities rules to the oldest Act.

    Fix: Holding and transferring securities in electronic form is governed by the Depositories Act, 1996.

  • Thinking exchanges have no regulatory role because SEBI exists.

    Students treat regulation as only a government function.

    Fix: Exchanges act as self-regulatory organisations for their members, working within SEBI's oversight.

Worked examples

Example 1

Which of the following governs the recognition of stock exchanges in India? (a) Depositories Act, 1996 (b) Securities Contracts (Regulation) Act, 1956 (c) Banking Regulation Act (d) Foreign exchange law

Show the solution
  1. The function is recognition of stock exchanges.
  2. Recognition of exchanges and control of contracts in securities fall under SCRA.
  3. The Depositories Act deals with demat. The Banking Regulation Act deals with banks. Foreign exchange law deals with forex.
  4. Only option (b) fits.

Answer: (b) Securities Contracts (Regulation) Act, 1956

Example 2

Which statement about regulators of the securities market is correct? (a) RBI is the main regulator of stock brokers (b) SEBI's powers include framing regulations, passing orders after hearing, and investigating (c) Stock exchanges have no power over their members (d) SEBI was created by the Depositories Act

Show the solution
  1. Check (a): brokers are regulated by SEBI, not RBI. Wrong.
  2. Check (b): these are SEBI's quasi-legislative, quasi-judicial and quasi-executive powers. Correct.
  3. Check (c): exchanges frame rules and discipline members as self-regulatory organisations. Wrong.
  4. Check (d): SEBI has statutory status from the SEBI Act, 1992. Wrong.

Answer: (b) SEBI's powers include framing regulations, passing orders after hearing, and investigating

Exam tips

  • Build a one-line map of each Act to its subject. Most questions test only this.
  • Learn SEBI's three powers by name. Options often swap them.
  • Separate SEBI's and RBI's domains clearly. This is a frequent trap.
  • In Series VII, wrong answers carry negative marking of 25% of the marks of the question, so guess only after eliminating options.
  • Read qualifiers such as 'only' and 'not' before choosing.

Practice questions from Introduction to the Securities Market

Regulatory Framework and Market Regulators in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Regulatory Framework and Market Regulators: frequently asked questions

What are the main powers and functions of SEBI under the SEBI Act, 1992?

SEBI protects investors, promotes development of the securities market and regulates it. It has quasi-legislative, quasi-judicial and quasi-executive powers. It registers and supervises intermediaries and prohibits fraud and insider trading.

What are the key provisions of SCRA, 1956 for the NISM exam?

Remember that SCRA governs recognition of stock exchanges, listing of securities and regulation of contracts in securities. Only recognised exchanges can operate. Link it with trading and exchanges.

What is the difference between SEBI and RBI roles in the securities market?

SEBI regulates the securities market, its intermediaries and investor protection. RBI regulates banks, the money market, government securities and foreign exchange. Keep the two domains separate.

Which Act governs demat holding of securities?

The Depositories Act, 1996. It provides for depositories and for holding and transferring securities in electronic form.