The Financial Market is a concept and a sophisticated system that serves as a marketplace where financial products like equities, bonds, derivatives, and currencies are regularly bought and sold. Its core function is to facilitate the mobilization and allocation of funds, connecting investors with surplus capital to borrowers who need capital for productive purposes. The market is broadly classified into the Money Market, which deals with short-term instruments with a maturity of up to one year, and the Capital Market, which handles long-term instruments with a maturity of more than one year.
The origins of the Indian financial market date back to the 18th century, with the formal establishment of the Bombay Stock Exchange (BSE), Asia's oldest, in 1875. This formalization solved the problem of unregulated speculation by providing a structured platform for trading. The legal framework was solidified with the Securities Contracts (Regulation) Act, 1956, which provided for the regulation of stock exchanges and investor protection.
The market mechanism involves securities first being issued in the primary market (e.g., through IPOs) and then traded among investors in the secondary market on exchanges like the BSE and National Stock Exchange (NSE). The system is regulated by the Reserve Bank of India (RBI), which oversees the money market and banking sector, and the Securities and Exchange Board of India (SEBI), which regulates the capital market. SEBI was given statutory powers under the Securities and Exchange Board of India Act, 1992.
Recently, the regulatory landscape has seen significant changes, such as the replacement of the 1992 stock broker regulations with the SEBI (Stock Brokers) Regulations, 2025. The RBI has also expanded central clearing for FX forwards up to 36 months and eased Foreign Portfolio Investor (FPI) norms for corporate bonds, while maintaining the core regulatory structure under the SCRA, 1956 and the SEBI Act, 1992.