Corporate Governance and Transparency in Financial Markets
Indian Economy
- PYQs8
- Articles1
Background
Good corporate governance and transparency are fundamental to the health and stability of financial markets, directly impacting investor trust and capital formation. UPSC often asks about regulatory measures to enhance these aspects and the challenges involved.
Corporate governance refers to the system by which companies are directed and controlled, encompassing the relationship between a company's management, its board of directors, shareholders, and other stakeholders. Transparency, a core principle of good governance, involves timely and accurate disclosure of information regarding the company's financial performance, ownership, and management, crucial for investor confidence and market integrity.
Facts & tables
- Definition
- System of directing and controlling companies.
- Key Principle
- Transparency (timely and accurate disclosure).
- Importance
- Builds investor confidence, ensures market integrity, promotes ethical conduct.
- Regulatory Role
- SEBI mandates disclosure norms for financial entities like AMCs.
| Type | Reference |
|---|---|
| Conceptual area | Financial Markets & Instruments |
| Body | Role |
|---|---|
| Securities and Exchange Board of India | Enforces |
Prelims angle
Prelims angle: Statement-based questions
Prelims angle: Institutional roles and functions
- System for company direction and control.
- Transparency: timely, accurate information disclosure.
- Crucial for investor confidence and market integrity.
- SEBI sets disclosure norms for financial entities.
- Balancing transparency with privacy is a regulatory challenge.
| Year | Framing tags |
|---|---|
| 2025 | Multi-statement analysis, Institutional roles and functions |
| 2025 | Statement-based questions, Institutional roles and functions |
| 2024 | Factual recall, Multi-statement analysis |
| 2023 | Multi-statement analysis, Conceptual understanding |
| 2023 | Multi-statement analysis, Factual recall |
| 2022 | Statement-based questions, Conceptual understanding |
| 2021 | Multi-statement analysis, Institutional roles and functions |
| 2019 | Factual recall, Definition-based questions |
Timeline
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Financial Markets & Instruments
Conceptual area
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Prelims 2019
Factual recall, Definition-based questions
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Prelims 2021
Multi-statement analysis, Institutional roles and functions
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Prelims 2022
Statement-based questions, Conceptual understanding
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Prelims 2023
Multi-statement analysis, Conceptual understanding
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Prelims 2023
Multi-statement analysis, Factual recall
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Prelims 2024
Factual recall, Multi-statement analysis
-
Prelims 2025
Multi-statement analysis, Institutional roles and functions
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Prelims 2025
Statement-based questions, Institutional roles and functions
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SEBI proposes to limit salary disclosure of AMC top employees
Corporate governance ensures companies are run ethically and accountably, with transparency (disclosure of relevant information) being vital for investor trust, especially in financial markets regulated by bodies like SEBI. The balance between transparency and privacy is a key challenge.
See also
No related topics linked yet.
Past papers
2019–2025 · 8 questions
In the news
SEBI proposes to limit salary disclosure of AMC top employees
Corporate governance ensures companies are run ethically and accountably, with transparency (disclosure of relevant information) being vital for investor trust, especially in financial markets regulated by bodies like SEBI. The balance between transparency and privacy is a key challenge.
Try these PYQs
Consider the following statements:
I. The Reserve Bank of India mandates all the listed companies in India to submit a Business Responsibility and Sustainability Report (BRSR).
II. In India, a company submitting a BRSR makes disclosures in the report that are largely non-financial in nature.
Which of the statements given above is/are correct?
The Business Responsibility and Sustainability Report (BRSR) is a disclosure framework introduced by SEBI to promote transparency in a company’s non-financial performance, particularly in Environmental, Social, and Governance (ESG) areas. ❌ Statement I: Incorrect
* SEBI, not the RBI, mandates the submission of BRSR.
* It applies to the top 1,000 listed companies by market capitalization. ✅ Statement II: Correct
* BRSR disclosures are mostly non-financial and focus on areas like environment, social responsibility, and governance.
Consider the following statements:
I. India accounts for a very large portion of all equity option contracts traded globally thus exhibiting a great boom.
II. India’s stock market has grown rapidly in the recent past even overtaking Hong Kong’s at some point of time.
III. There is no regulatory body either to warn the small investors about the risks of options trading or to act on unregistered financial advisors in this regard.
Which of the statements given above are correct?
India has seen a massive rise in equity options trading and stock market capitalization, but investor protection is actively overseen by SEBI. ✅ Statement I: Correct India leads globally in equity options trading volume, reflecting a major boom in the derivatives market. ✅ Statement II: Correct In early 2024, India's stock market temporarily overtook Hong Kong’s, becoming the 4th largest by market cap. ❌ Statement III: Incorrect India has a regulatory body—SEBI—which issues warnings and acts against unregistered advisors.
With reference to India, consider the following statements:
1. Retail investors through demat account can invest in ‘Treasury Bills’ and ‘Government of India Debt Bonds’ in primary market.
2. The ‘Negotiated Dealing System-Order Matching’ is a government securities trading platform of the Reserve Bank of India.
3. The ‘Central Depository Services Ltd.’ is jointly promoted by the Reserve Bank of India and the Bombay Stock Exchange.
Which of the statements given below is/are correct?
Statement 1 is correct: Retail investors through demat accounts can invest in Treasury Bills and Government of India Debt Bonds in the primary market. Statement 2 is correct: The Negotiated Dealing System-Order Matching is a government securities trading platform of the Reserve Bank of India. Statement 3 is incorrect: Central Depository Services Ltd (CDSL), is the first listed Indian central securities depository based in Mumbai. CDSL is promoted by BSE Ltd. jointly with leading banks such as State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, and Standard Chartered Bank.
Consider the following statements:
Statement-I: Interest income from the deposits in Infrastructure Investment Trusts (InvITs) distributed to their investors is exempted from tax, but the dividend is taxable.
Statement-II: InvITs are recognized as borrowers under the 'Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002'.
Which one of the following is correct in respect of the above statements?
* Statement I is Incorrect : Earlier, InvITs offered some tax benefits to investors. However, the budget in 2023 changed the taxation structure. Currently, all income distributed by InvITs, including interest income, dividend income, and rental income, is taxable in the hands of the unitholders according to their income tax slab. * Statement II is Correct : InvITs are indeed recognized as borrowers under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). This Act allows InvITs to access various financing options and enforce security interests in case of defaults.
Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly?
Participatory Note (P-Note): This is a financial instrument issued by registered foreign portfolio investors (FPIs) to overseas investors. It allows overseas investors to participate in the Indian stock market indirectly without directly registering with the Securities and Exchange Board of India (SEBI). The FPI holds the underlying Indian securities, and the P-Note represents ownership for the overseas investor. The other options are not used for this purpose: Certificate of Deposit (CD): Issued by banks to raise short-term funds, not related to stock markets. Commercial Paper (CP): Short-term debt instrument issued by companies, not related to foreign investment in stocks. Promissory Note: A written promise to repay a debt, not used in this context of stock market participation.
Show 3 more PYQs
In India, which of the following can trade in Corporate Bonds and Government Securities?
1. Insurance Companies
2. Pension Funds
3. Retail Investors
Select the correct answer using the code given below:
* Insurance Companies: Insurance companies have large funds that they need to invest securely for long-term returns. Corporate bonds and government securities fit this investment profile. Hence, this statement is correct. * Pension Funds: Similar to insurance companies, pension funds manage retirement savings and need safe, long-term investment avenues like corporate bonds and government securities. Hence, this statement is correct. * Retail Investors: Retail investors can also invest in corporate bonds and government securities, though the process might be slightly more complex than investing in stocks. Various platforms and brokers facilitate such investments. Hence, this statement is correct. Therefore, all three statements are correct.
With reference to the Indian economy, consider the following statements :
1. A share of the household financial savings goes towards government borrowings.
2. Dated securities issued at market-related rates in auctions form a large component of internal debt;
Which of the above statements is/are correct ?
Statement 1 is correct: A portion of household financial savings in India does indeed go towards government borrowings. The government raises funds through various debt instruments like bonds and treasury bills. When households save money, they might invest it in these government debt instruments through banks or other financial institutions. This provides a source of funding for the government while offering a return to the investors (savers). Statement 2 is correct: Dated securities are a major component of India's internal debt. These are essentially government bonds issued at market-determined interest rates through auctions. Investors, including households, banks, and financial institutions, can participate in these auctions and purchase dated securities. Hence, both statements are correct.
Consider the following markets:
1. Government Bond Market
2. Call Money Market
3. Treasury Bill Market
4. Stock Market
How many of the above are included in capital markets?
Capital markets are financial markets where long-term securities, such as stocks and bonds, are traded. They provide a platform for raising capital for businesses and governments. On the other hand, Money markets are financial markets where short-term securities such as T-Bill, C-Paper, Cash Management Bills, Ways and Means advances, etc are traded. * Statement 1 is correct- Government bonds are long-term debt securities issued by governments to finance their activities. The government bond market is a part of the capital market as it involves the trading of long-term debt securities. * Statement 2 is incorrect- The call money market is a short-term market where funds are borrowed and lent for very short durations, usually overnight. It deals with short-term funds, and its transactions are not classified as part of the capital market. * Statement 3 is incorrect- Treasury bills are short-term debt instruments issued by governments to finance their short-term cash flow requirements. The treasury bill market, similar to the call money market, deals with short-term instruments and is not considered part of the capital market. * Statement 4 is correct\- The stock market, also known as the equity market or share market, is where shares or stocks of publicly listed companies are bought and sold. The stock market is a part of the capital market as it involves the trading of ownership interests (equity securities) in companies.