SEBI
SEBI stands for Securities and Exchange Board of India. It is a statutory regulatory body that
was established by the Government of India in 1992 for protecting the interests of investors
investing in securities along with regulating the securities market. SEBI also regulates how
the stock market and mutual funds function.
By the end of 1970, the capital market began to emerge as a sensation. As people started
trading and it became really popular, various malpractices started to begin such as insider
trading, price rigging, and violation of stock exchange rules, price rigging and other such
activities.
Once this started happening, then the government realized that they require a body to lessen
these malpractices. Also, it was essential to form an authority that could regulate the working
of the Indian Securities market so that the trust of people could be built again.
Thus the underlying motive of its establishment was to assure that Indian Capital
Market works in a streamlines way and gives the investors a transparent environment for
investing their valuable and hard-earned money.
Before the establishment of SEBI, the Indian securities market was regulated by
the Controller of Capital Issues (CCI), a body created under the Capital Issues (Control) Act
of 1947. However, by the late 1980s, the Indian securities market had grown significantly,
and the CCI’s limited regulatory framework became increasingly inadequate to address the
complexities of the evolving market.
In response to the rising number of market malpractices and investor grievances, the Indian
government established the Securities and Exchange Board of India (SEBI) in 1988.
However, SEBI initially lacked statutory powers, which limited its effectiveness in
controlling fraudulent activities in the market.
The need for a more empowered regulatory authority became evident in the wake of
the Harshad Mehta scam in 1992, which exposed significant loopholes in the financial and
stock market systems.
In the same year, the SEBI Act, 1992 was passed by the Indian Parliament, giving
SEBI statutory powers and the authority to regulate the securities market.
Objectives of SEBI
1. Investor Protection: This is one of the most important objectives of setting up SEBI. It
involves protecting the interests of investors by providing guidance and ensuring that
the investment done is safe.
2. Preventing the fraudulent practices and malpractices which are related to trading and
regulation of the activities of the stock exchange
3. To develop a code of conduct for the financial intermediaries such as underwriters,
brokers, etc.
4. To maintain a balance between statutory regulations and self regulation
Functions of SEBI
1. Protective Function
2. Regulatory Function
3. Development Function
Protective Function: The protective function implies the role that SEBI plays in protecting
the investor interest and also that of other financial participants. The protective function
includes the following activities.
a. Prohibits insider trading: Insider trading is the act of buying or selling of the securities by
the insiders of a company, which includes the directors, employees and promoters. To prevent
such trading SEBI has barred the companies to purchase their own shares from the secondary
market.
b. Check price rigging: Price rigging is the act of causing unnatural fluctuations in the price
of securities by either increasing or decreasing the market price of the stocks that leads to
unexpected losses for the investors. SEBI maintains strict watch in order to prevent such
malpractices.
c. Promoting fair practices: SEBI promotes fair trade practice and works towards prohibiting
fraudulent activities related to trading of securities.
d. Financial education provider: SEBI educates the investors by conducting online and offline
sessions that provide information related to market insights and also on money management.
Regulatory Function: Regulatory functions involve establishment of rules and regulations
for the financial intermediaries along with corporates that helps in efficient management of
the market.
The following are some of the regulatory functions.
a. SEBI has defined the rules and regulations and formed guidelines and code of conduct that
should be followed by the corporates as well as the financial intermediaries.
b. Regulating the process of taking over of a company.
c. Conducting inquiries and audit of stock exchanges.
d. Regulates the working of stock brokers, merchant brokers.
Developmental Function: Developmental function refers to the steps taken by SEBI in order
to provide the investors with a knowledge of the trading and market function. The following
activities are included as part of developmental function.
1. Training of intermediaries who are a part of the security market.
2. Introduction of trading through electronic means or through the internet by the help of
registered stock brokers.
3. By making the underwriting an optional system in order to reduce cost of issue.
Structure of SEBI
1. SEBI board comprises nine members. The Board consists of the following members.
2. One Chairman of the board who is appointed by the Central Government of India
3. One Board member who is appointed by the Central Bank, that is, the RBI
4. Two Board members who are hailing from the Union Ministry of Finance
5. Five Board members who are elected by the Central Government of India
Powers of SEBI
The Securities and Exchange Board of India (SEBI) is endowed with extensive powers to
regulate and oversee various aspects of the Indian securities market.
Quasi-Judicial Powers
SEBI has quasi-judicial powers to adjudicate disputes, conduct hearings, and pass
orders in matters related to securities law violations and regulatory enforcement
actions.
It appoints adjudicating officers to hear and decide on enforcement cases, issue
orders, and impose penalties or sanctions on individuals and entities found guilty of
violating securities laws and regulations.
SEBI's quasi-judicial proceedings follow principles of natural justice, including the
right to be heard, the right to present evidence, and the right to appeal its decisions.
SEBI's decisions can be challenged through appeals to the Securities Appellate
Tribunal (SAT) and, subsequently, to the courts, providing a mechanism for judicial
review of its quasi-judicial actions.
Quasi-Legislative Powers
SEBI has quasi-legislative powers to make rules, regulations, guidelines, and circulars
governing various aspects of the securities market.
It formulates regulatory frameworks to govern the issuance, trading, listing, and
disclosure of securities, as well as the conduct of market participants.
SEBI's quasi-legislative functions involve rulemaking activities aimed at ensuring
investor protection, market integrity, and the orderly functioning of the securities
market.
The regulations are enforceable and binding on market participants, and non-
compliance can result in disciplinary actions and penalties.
Quasi-Executive Powers
SEBI exercises quasi-executive powers to implement and enforce securities laws and
regulations.
It conducts investigations, inquiries, and inspections to gather evidence, detect
irregularities, and enforce compliance with securities laws.
SEBI has the authority to issue directives, impose trading restrictions, and take
enforcement actions against individuals and entities found to have violated securities
laws and regulations.
SEBI's quasi-executive functions involve monitoring market activities, enforcing
regulatory compliance, and maintaining market integrity through proactive
interventions and enforcement measures.
