Business Studies Part I
Business Studies Part II

SEBI

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SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

The Securities and Exchange Board of India was established by the Government of India on 12 April 1988 as an interim administrative body to promote orderly and healthy growth of the securities market and for investor protection. It was to function under the overall administrative control of the Ministry of Finance of the Government of India. The SEBI was given a statutory status on 30 January 1992 through an ordinance. The ordinance was later replaced by an Act of Parliament known as the Securities and Exchange Board of India Act, 1992. Reasons for the Establishment of SEBI The capital market has witnessed tremendous growth during the 1980’s, characterized particularly by the increasing participation of the public. This ever-expanding investors population and market capitalization 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 the existence of self – styled merchant bankers unofficial private placements, the rigging of prices, the 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. The Government and the stock exchanges were rather helpless in redressing the investor’s problems because of a lack of proper penal provisions in the existing legislation. In view of the above, the Government of India decided to set-up a separate regulatory body known as the Securities and Exchange Board of India. Purpose and Role of SEBI The basic purpose of SEBI is to create an environment to facilitate efficient mobilization and allocation of resources through the securities markets. It also aims to stimulate competition and encourage innovation. This environment includes rules and regulations, institutions and their interrelationships, instruments, practices, infrastructure, and policy framework. This environment aims at meeting the needs of the three groups which basically constitute the market, viz, the issuers of securities (Companies), the investors and the market intermediaries. 

  • To the issuers, it aims to provide a market place in which they can confidently look forward to raising finances they need in an easy, fair and efficient manner.
  • To the investors, it should provide protection of their rights and interests through adequate, accurate and authentic information and disclosure of information on a continuous basis.
  • To the intermediaries, it should offer a competitive, professionalized and expanding market with adequate and efficient infrastructure so that they are able to render better service to the investors and issuers. 

 Objectives of SEBI:

The overall objective of SEBI is to protect the interests of investors and to promote the development of, and regulate the securities market. This may be elaborated as follows:

  1. To regulate stock exchanges and the securities industry to promote their orderly functioning.
  2. To protect the rights and interests of investors, particularly individual investors and to guide and educate them.
  3. To prevent trading malpractices and achieve a balance between self-regulation by the securities industry and its statutory regulation.
  4. To regulate and develop a code of conduct and fair practices by intermediaries like brokers, merchant bankers, etc., with a view to making them competitive and professional. Functions of SEBI Keeping in mind the emerging nature of the securities market in India, SEBI was entrusted with the twin task of both regulation and development of the securities market. Regulatory Functions: 1. Registration of brokers and sub-brokers and other players in the market. 2. Registration of collective investment schemes and Mutual Funds. 3. Regulation of Stock Bankers and portfolio exchanges, and merchant bankers. 4. Prohibition of fraudulent and unfair trade practices.
  5. Controlling insider trading and takeover bids and imposing penalties for such practices.
  6. Calling for information by undertaking inspection, conducting inquiries and audits of stock exchanges and intermediaries.
  7. Levying fee or other charges for carrying out the purposes of the Act.
  8. Performing and exercising such power under Securities Contracts (Regulation) Act 1956, as may be delegated by the Government of India.
  9. Development Functions
  • Investor education
  • Training of intermediaries
  • Promotion of fair practices and code of conduct of all SRO’s.
  • Conducting research and publishing information useful to all market participants.

The Organisation Structure of SEBI As SEBI is a statutory body there has been a considerable expansion in the range and scope of its activities. Each of the activities of the SEBI now demands more careful, closer, co-ordinated and intensive attention to enable it to attain its objectives. Accordingly, SEBI has been restructured and rationalized in tune with its expanded scope. It has decided its activities into five operational departments. Each department is headed by an executive director. Apart from its head office at Mumbai, SEBI has opened regional offices in Kolkata, Chennai, and Delhi to attend to investor complaints and liaise with the issuers, intermediaries and stock exchanges in the concerned region. The SEBI also formed two advisory committees. They are the Primary Market Advisory Committee and the Secondary Market Advisory Committee. These committees consist of the market players, the investor’s associations recognized by the SEBI and the eminent persons in the capital market. They provide important inputs to the SEBI’S policies. 

The objectives of the two Committees are as follows:

 a. To advise SEBI on matters relating to the regulation of intermediaries for ensuring investors protection in the primary market.

 b. To advise SEBI on issues related to the development of the primary market in India. 

c. To advise SEBI on disclosure requirements for companies. 

d. To advise for changes in the legal framework to introduce simplification and transparency in the primary market. 

e. To advise the board in matters relating to the development recognized by the SEBI and the eminent persons in the capital market. They provide important inputs to the SEBI’S policies.  The committees are however nonstatutory in nature and the SEBI is not bound by the advice of the committee. These committees are a part of SEBI’s constant endeavor to obtain feedback from the market players on various issues relating to the regulations and development of the market.

The overall objective of SEBI is to protect the interest of investors, promote the development and regulate the securities in market. This may be elaborated as follows

  1. To regulate stock exchanges and the securities industry to promote their orderly functioning.
  2. To protect the rights and interests of investors, particularly individual investors to guide and educate them.
  3. To prevent trading malpractices and achieve a balance between self-regulation by the securities and its statutory regulation.
  4. To regulate and develop a code of conduct and fair practices by intermediaries like brokers, merchant bankers etc with a view to making them competitive and professional.