---
title: "SEBI, Capital Markets & Financial Inclusion | Model Diplomat"
description: "Learn SEBI's regulatory architecture, primary and secondary capital markets, money markets, and India's financial-inclusion drive from Jan Dhan to the JAM"
url: "https://modeldiplomat.com/learn/lessons/upsc-indian-economy-financial-markets-sebi-capital-markets-financial-inclusion"
---

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Financial markets: SEBI, capital markets & financial inclusion

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# Financial markets: SEBI, capital markets & financial inclusion

SEBI's regulatory architecture, primary and secondary capital markets, money markets, and India's financial-inclusion drive from Jan Dhan to JAM.

## The regulator: SEBI

The Securities and Exchange Board of India was constituted as a non-statutory body in April 1988 and given statutory teeth by the **SEBI Act, 1992**, in the aftermath of the Harshad Mehta securities scam (1992). SEBI's three-fold mandate under the Act's preamble is to **protect investor interests, develop the securities market, and regulate it**. It is a quasi-legislative, quasi-executive and quasi-judicial body: it frames regulations, conducts investigations and search-and-seizure (powers strengthened after the 2002 amendment), and adjudicates penalties. Appeals against SEBI orders go to the **Securities Appellate Tribunal (SAT)**, and from SAT to the Supreme Court on a question of law.

SEBI regulates stock exchanges (BSE, established 1875, Asia's oldest; NSE, operational 1994), depositories (NSDL, 1996; CDSL, 1999, operating under the **Depositories Act, 1996**, which dematerialised shares), mutual funds, FPIs, credit-rating agencies, merchant bankers and market intermediaries. The **SEBI (LODR) Regulations, 2015** govern listing and disclosure obligations.

## Primary versus secondary markets

The **primary market** is where securities are first issued — Initial Public Offerings (IPOs), Follow-on Public Offers, rights issues and private placements. It channels household savings directly into corporate capital formation. The **secondary market** is where already-issued securities are traded between investors, providing liquidity and price discovery; it does not raise fresh capital for the issuer.

The capital market deals in long-term instruments (equity, debentures, bonds), while the **money market** handles short-term instruments of up to one year — Treasury Bills, Commercial Paper, Certificates of Deposit, and the Call Money market — and is regulated primarily by the **RBI**, not SEBI. This regulatory division (RBI for money/debt and government securities, SEBI for equity and corporate capital markets) is a frequent Prelims trap.

## Instruments and reforms

Key instruments candidates must distinguish: **ADRs/GDRs** (depository receipts letting Indian firms raise capital abroad), **P-Notes** (participatory notes issued by FPIs to investors who do not register with SEBI, long flagged for opacity), **REITs and InvITs** (introduced via SEBI regulations in 2014 to monetise real estate and infrastructure), and **municipal bonds** (Pune issued India's first SEBI-regulated muni bond in 2017).

Major reforms include the switch to the **rolling settlement T+2 (2003), then T+1 (phased from 2022, completed January 2023)** — making India one of the first large markets on T+1; the abolition of the badla system; introduction of **ASBA** (Applications Supported by Blocked Amount) for IPOs; and **margin trading and the SECC framework**. The **Securities Contracts (Regulation) Act, 1956** remains the foundational statute governing exchanges and contracts. India's GIFT City IFSC, regulated since 2020 by the **International Financial Services Centres Authority (IFSCA)**, marks the next frontier of capital-market liberalisation.

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