Before SEBI was set up, the growth of the capital market in the 1980s led to a variety of malpractices in the securities market. On whose part were these malpractices?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Companies and merchant bankers
Option (1) Depositories and stock exchanges — Incorrect. Neither is named among the wrongdoers. Depositories keep securities in electronic form. The rules of stock exchanges were violated by others.
Option (2) Companies and stock exchanges — Incorrect. Companies are named, but stock exchanges are not. They were helpless in redressing investors’ problems.
Option (3) Companies and merchant bankers — Correct. The growth in investors and market capitalisation led to malpractices by companies, brokers, merchant bankers, investment consultants and others.
Option (4) Depositories and merchant bankers — Incorrect. Merchant bankers are named, including self-styled merchant bankers. Depositories are not among the wrongdoers.
NCERT (Pre-rationalised Edition): “Reasons for the Establishment of SEBI The capital market has witnessed a tremendous growth during 1980’s, characterised particularly by the increasing participation of the public. This ever expanding investors population and market capitalisation led to a variety of malpractices on the part of companies, brokers, merchant bankers, investment consultants and others involved in the securities market. The glaring examples of these malpractices include existence of self – styled merchant bankers unofficial private placements, rigging of prices, unofficial premium on new issues, non-adherence of provisions of the Companies Act, violation of rules and regulations of stock exchanges and listing requirements, delay in delivery of shares etc. …” |