What is Securities and Exchange Board of India (SEBI), and Why is it important?


Read this detailed article to understand what is Securities and Exchange Board of India, what are its role in the Securities Market, what legal holdings it has and what it does to protect the rights of shareholders and retain investors.

India has one of the largest stock markets in the world. With two of its largest national stock exchanges - Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) - contributed a total market value of well over $2.374B comprising approximately 8,000 listed companies, according to research house, ForexToStock.

India used to have 23 stock exchanges, among which 21 were Regional Stock Exchanges (RSEs), but after a stringent reform introduced by SEBI, 20 RSEs have since exited the industry.

Over here we will discuss what SEBI is about and its roles in the financial and capital market of India.

Securities and Exchange Board of India (SEBI)


The Securities and Exchange Board of India (SEBI) is a governmental body that was created on the 12th of April 1992, to monitor and regulate all processes involved in the Indian capital market.

According to a report compiled by TaxGuru, SEBI has played a major role in the regulation of stock exchange businesses, securities market among other functions. In 2015, SEBI made amendments to the investment advisers regulation, this is aimed at strengthening the regulatory framework for investment advisers.

This statutory body was put in place to promote a safe environment for the Indian investment and security market while bolstering the interest of other investors.

With its headquarters located in Mumbai, and other regional offices in prominent cities like New Delhi, Chennai, Kolkata and Ahmedabad, SEBI has no problem overseeing and regulating the functionality of the capital market in India.

Organizational structure of SEBI, India


The Securities and Exchange Board of India is built to follow a corporate structure. With over 20 departments which are all manned by their respective heads, SEBI's hierarchical administration runs down from the Board of directors, to the senior management team, departmental heads and then, other important sectors broken down into departments.
SEBI hierarchy
The entire SEBI hierarchy is managed by –
The Chairman – appointed by the Indian Union Government,
Two members – chosen from the Indian Union Finance Ministry
One member – elected from the Reserve Bank of India (RBI)
Five other members – nominated by the Indian Union Government.

The departments of Information Technology, Human Resources, International affairs and the National Institute of Securities Market are what constitute SEBI's most important sectors.
Others may include:
  • The Foreign Portfolio Investors and Custodians
  • Investment Management Department
  • Commodity and Derivative Market Regulation Department
  • Department of Financial and Legal Affairs
  • Department of Investor Assistance and Education
    Investigations Department
  • Corporation Finance Department

What are the functions of SEBI?


The SEBI Act of 1992 entrusts the regulatory body with several powers to effectively perform vital functions in the Indian Capital Market. With this, the functions of SEBI meet the needs of investors and traders, as well as financial mediators, and Issuers of security.

SEBI in 2017, compiled a handbook of statistics on the Indian security market. The handbook contains a comprehensive outlook into the Indian security market and trends for both old and new investors.

This is one of the many financial activities carried out by the organization.

Some functions of SEBI are to:
  • Check and flag down price manipulation.
  • Flag fraudulent activities and prohibit unfair trades within the securities market.
  • Provide compulsory basic education and diverse ideas for investors to educate them on ways to make better investment options.
  • Promotes training for investor-intermediaries like stock brokers and securities markets.
  • Act as a platform for stockbrokers, bankers, investors, transfer agents and other portfolio managers.
  • Protect the interest of Indian investors in the market.
  • Oversee and regulate all business/trade operations on the security market
  • To monitor stocks acquisition.
  • To effectively monitor the securities market through updated research tactics.
  • Provides venture capital funds, collective investment funds and mutual funds.

Powers involved


The government of India has vested SEBI with some powers, for the efficient discharge of its functions.
Some of these powers are:
  1. To endorse by-laws of security exchanges
  2. To compel defaulting companies to list their shares in different security exchanges
  3. To inspect and audit the account records of recognized security exchanges and call for periodical returns
  4. To approve and inspect account records of financial intermediaries
  5. To register brokers and sub-brokers
  6. Abilities to compel security exchangers to amend their by-laws.

The powers of SEBI were further divided into three main sub-sections namely:
  1. The Quasi-legislative;
  2. The Quasi-judicial;
  3. The Quasi-Executive.

These powers list SEBI's regulations in its legislative capacity, enforce actions in the executive branch by conducting thorough investigation and then pass these laws from its judicial sector.
Each of these power functions are better explained below:

The Quasi-Judicial powers:


Subsequently, the Quasi-Judicial power operates to create transparency and a fair system of trade and operations on the securities market. It also has the power to pronounce judgment in cases of fraud and other unethical activities on the market.

The Quasi-Legislative powers:


This body provides the rules and regulations that guide the security market against malpractices and unfair trades. Such rules have been made to protect the best interest of the investors and other intermediaries. These drafted rules may include the listed obligations and trading regulations as well as some important requirements of investors, managers, e.tc in the securities market.

SEBI regulated brokers adhere strictly to the laid down rules and regulations, provided by the Quasi-legislative power. This in turn, saves investors the stress of playing into the hands of fraudsters and ensures a safe trading environment.

The Quasi-executive powers:


The government of India has entrusted SEBI India with the power to examine and audit the Book of records and accounts coupled with other essential documents of registered brokers in order to monitor brokers and sub-brokers against violating the regulations laid down by the Quasi-Legislative arm.

This arm of power is the one that imposes rules, passes judgements and other legal actions against those found to be violators of such rules and regulations.

Objectives of SEBI:


SEBI was formed to meet a number of goals on the capital market of India. These objectives play a major role in boosting the economy of the country:

Protection of Investors
The main aim of SEBI lies in its quest to protect the interest of investors of the stock market and enhance a healthy zone for their business operations

Prevention of Malpractices
The Securities and Exchange Board of India was also formed to prevent unethical trade practices on the stock market or between brokers and investors.

Proper Functioning of the Market
SEBI has the responsibility of ensuring the Indian capital market is functioning perfectly well, and in order. This has been achieved through close monitoring and regulation of activities of financial intermediaries such as brokers, sub-brokers, etc.

Proper Regulations of Takeovers and Acquisitions
SEBI is known to draft guidelines that'll regulate Mergers, Takeovers and firm acquisitions to protect investor's interests.

Conclusion


SEBI, as the apex Indian capital market regulatory body has, since inception, promoted an efficient system of transparency which has played a significant role in maintaining a healthy and trustworthy capital market system for the likes of investors, agents, brokers in India.


Comments

Author: Neeru Bhatt03 Nov 2020 Member Level: Diamond   Points : 3

This is a very informative article on SEBI and its functions by the author. I have a query to make and if the author is aware or have some idea, I would request him to share the information. During 1988-1998, many private companies (one of them quite reputed also) floated fixed deposit schemes and as the rate of interest was high people beelined for that and bought those instruments. Unfortunately within 5-6 years something happened in the market and these companies started to default one by one and investors lost a huge amount. SEBI did some investigation and made some body to take care of the interest of investors and some investors got some partial refund also but that system was also closed by SEBI and after that I did not hear anything in the matter. So, have you, while preparing this resource, come across any agency, online or offline, which SEBI might had nominated (or SEBI itself doing it) is there, which is still entertaining the investors who have details of those instruments? Please pass on the information if you have anything like that in your notes. Thanks.



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