Securities and Exchange Board of India (SEBI)
Securities And Exchange Board Of India (Sebi)
The Securities and Exchange Board of India (SEBI) is the regulatory body for the securities market (capital market) in India. It was established in 1988 as a non-statutory body and was given statutory powers through the SEBI Act, 1992.
SEBI is headquartered in Mumbai and has regional offices in Delhi, Kolkata, Chennai, and Ahmedabad.
Reasons For The Establishment Of Sebi
Prior to the establishment of SEBI, the Indian capital market was characterised by numerous malpractices on the part of brokers, merchant bankers, and companies. These malpractices included unofficial premiums on new issues, delay in delivery of shares, violation of rules and regulations of stock exchanges, and insider trading. Such practices eroded investor confidence and hampered the growth of the capital market.
The need for a regulatory body to protect the interests of investors and promote the healthy development of the securities market became increasingly evident. The establishment of SEBI was a response to these issues, aiming to bring transparency, fairness, and order to the market.
Purpose And Role Of Sebi
The primary Purpose of SEBI is to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto.
Its Role is that of a regulator, supervisor, and facilitator of the Indian capital market. It acts as a watchdog to prevent malpractices and ensure smooth functioning of the market. SEBI is responsible for creating a conducive environment for investment and protecting the rights of investors.
Objectives Of Sebi
The main objectives for which SEBI was set up are:
1. To Protect the Interests of Investors: This is the primary objective. SEBI aims to protect investors, especially small investors, from malpractices in the securities market and provides a safe and transparent environment for their investments.
2. To Promote the Development of the Securities Market: SEBI works towards the development of the market by introducing new instruments, improving market infrastructure, and promoting research and education in the market.
3. To Regulate the Securities Market: SEBI frames rules and regulations for the proper functioning of the market and its intermediaries (brokers, merchant bankers, etc.) and ensures compliance with these regulations.
4. To Regulate the Working of Stock Exchanges: SEBI has control over the operations of stock exchanges, ensuring fair and orderly trading.
5. To Prevent Trading Malpractices: SEBI takes measures to prevent insider trading, price rigging, and other fraudulent activities in the market.
Example 1. An investor buys shares of a company based on insider information received from a company employee about a major upcoming deal, making significant profit when the news is made public. Which objective of SEBI is violated by this action?
Answer:
This action violates the objective of SEBI To Prevent Trading Malpractices, specifically insider trading.
Functions Of Sebi
To achieve its objectives, SEBI performs a wide range of functions, which can be categorised into three main groups:
Protective Functions
These functions are performed by SEBI to protect the interests of investors and other participants in the market.
1. Prohibition of Fraudulent and Unfair Trade Practices: SEBI takes steps to prevent market manipulation and other unfair trading activities.
2. Controlling Insider Trading: SEBI prohibits insider trading (trading on the basis of unpublished price-sensitive information) and penalises those involved.
3. Educating Investors: SEBI promotes investor awareness and education about the securities market and investment risks.
4. Promoting Fair Practices and Code of Conduct: SEBI promotes fair practices by intermediaries and issues code of conduct for them.
Developmental Functions
These functions are performed by SEBI to promote and develop the activities of the stock exchange and the securities market.
1. Promoting Training of Intermediaries: SEBI promotes training of intermediaries of the securities markets.
2. Conducting Research: SEBI conducts research and publishes information useful to all market participants.
3. Introducing New Instruments: SEBI facilitates the introduction of new financial instruments in the market.
4. Taking Steps to Increase Trading on Stock Exchanges: SEBI takes measures to improve trading systems and increase market efficiency.
Regulatory Functions
These functions are performed by SEBI to regulate the business in stock exchanges and the overall securities market.
1. Registering Brokers and Agents: SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer agents, merchant bankers, underwriters, portfolio managers, and other intermediaries.
2. Registering and Regulating Mutual Funds: SEBI registers and regulates the working of mutual funds and venture capital funds.
3. Regulating Takeovers: SEBI regulates the takeover bids by companies to protect the interests of shareholders.
4. Conducting Inquiries and Audits: SEBI conducts inquiries and audits of stock exchanges and intermediaries.
5. Levying Fees or other Charges: SEBI levies fees for carrying out its functions.
6. Registering and Regulating Credit Rating Agencies: SEBI registers and regulates the working of credit rating agencies.
Example 2. SEBI issues guidelines that mandate stock brokers to disclose all transaction costs and commissions to their clients transparently. Which category of function is SEBI performing here?
Answer:
SEBI is performing a Regulatory Function by issuing guidelines for the working of stock brokers.
Example 3. SEBI conducts workshops and seminars for investors across the country to educate them about investment basics, risks, and rights. Which category of function is SEBI performing here?
Answer:
SEBI is performing a Protective Function by educating investors.
The Organisation Structure Of Sebi
SEBI functions under the overall guidance of its Board. The structure is designed to ensure efficient decision-making and implementation of regulations.
The Board of SEBI consists of:
1. Chairman: Appointed by the Central Government.
2. Two Members: Officers from the Central Ministry of Finance and Ministry of Corporate Affairs.
3. One Member: From the Reserve Bank of India (RBI).
4. Five Other Members: Nominated by the Central Government, of whom at least three shall be whole-time members.
The Chairman is the chief executive of SEBI. The whole-time members are responsible for different departments within SEBI. SEBI is organised into various departments, each headed by an Executive Director. These departments look after specific areas like market regulation, corporate finance, market intermediaries regulation and supervision, investigation, legal affairs, etc.
SEBI also has regional offices and a Securities Appellate Tribunal (SAT) to hear appeals against SEBI's orders.