Given below are two statements:
Assertion (A): Before SEBI was set up, the securities market saw a variety of malpractices on the part of companies, brokers and merchant bankers.
Reason (R): The malpractices and unfair trading practices in the securities market eroded investor confidence and multiplied investor grievances.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Both (A) and (R) are true but (R) is not the correct explanation of (A).
Assertion (A): Before SEBI was set up, the securities market saw a variety of malpractices on the part of companies, brokers and merchant bankers. — True. In the 1980s, malpractices came up on the part of companies, brokers, merchant bankers, investment consultants and others.
Reason (R): The malpractices and unfair trading practices in the securities market eroded investor confidence and multiplied investor grievances. — True. These malpractices eroded investor confidence and increased investor grievances.
Why R does not explain A?
R gives the effect of the malpractices on investors. It does not say why the malpractices arose. They arose because the capital market grew fast in the 1980s, with an ever expanding investors population and market capitalisation.
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. These malpractices and unfair trading practices have eroded investor confidence and multiplied investor grievances. …” |