Table Of Contents
Full Form of SEBI - Securities and Exchange Board of India
The full form of SEBI is the Securities and Exchange Board of India. It is the market regulator of securities markets in India, formed to establish a facilitating market environment while simultaneously curbing unfair trade practices. The SEBI rules apply to not just stock exchanges but also to mutual funds, brokers, merchant banks, and portfolio managers.
SEBI acts as the market regulator for the securities market in India, much like the Securities and Exchange Commission is to the US. With its various powers over issuers, market participants, and investors, SEBI strives to protect the interests of investors by making market practices more regulated, fair, and transparent.
SEBI Explained
The Securities and Exchange Board of India (SEBI) is a regulatory body that plays a pivotal role in regulating and supervising the securities market in India. Established in 1988 as a statutory body under the SEBI Act, SEBI serves as the country's primary regulatory authority for the securities market, tasked with promoting investor protection and ensuring the orderly functioning of capital markets.
SEBI's mandate includes a wide range of regulatory functions aimed at improving transparency, integrity, and efficiency in the securities market. It regulates various market participants, including stock exchanges, brokers, merchant bankers, mutual funds, and portfolio managers, by formulating and enforcing rules, regulations, and guidelines governing their conduct and operations.
One of SEBI's key objectives is to safeguard the interests of investors and promote fair and transparent practices in the securities market. It achieves this through stringent regulations governing disclosure norms, insider trading, fraudulent and unfair trade practices, and investor education initiatives aimed at enhancing investor awareness and literacy.
SEBI plays a crucial role in ensuring market integrity and stability by overseeing the conduct of market intermediaries, monitoring market abuse and manipulation, and enforcing disciplinary actions against violators. It also works towards enhancing market infrastructure and promoting innovation and technological advancements in the securities market to ensure its development and competitiveness.
Additionally, SEBI acts as a regulatory authority for corporate governance, overseeing compliance with corporate governance norms and regulations by listed companies. It promotes transparency and accountability in corporate affairs, thereby enhancing investor confidence and trust in the capital markets.
Overall, SEBI's regulatory oversight and enforcement efforts are instrumental in promoting investor protection, market integrity, and the overall development and stability of the securities market in India.
History
Before 1992, the Controller of Capital Issues (CCI) regulated India’s capital market through its powers under the Capital Issues Control Act, 1947. The Act gave the Central Government the power to dictate the amount of capital a company could raise and the price at which one could raise it, which was, more often than not, at par value. It resulted in the shares being offered to the public being highly undervalued. While it meant gains for small investors, the companies could not get the right value for their business.
On account of the gradual opening up of the economy, the CCI was repealed and replaced with SEBI by enacting the Securities and Exchange Board of India Act, 1992. SEBI was established as a non-statutory body in 1988 and gave the power to become the statutory and apex regulatory authority for securities markets through the SEBI Act 1992. SEBI has encouraged appropriate pricing of capital issues and securities by enforcing various regulations to exercise its powers.
SEBI constitutes the following key objectives:
- To be the regulating agency for the securities market and promote the development of the same.
- Regulate the activities of market intermediaries.
- To protect the interests of investors.
- Oversee and administer regulations and other enactments relating to the securities market.
Objectives
The objectives and SEBI rules are directed in four main avenues- Investor protection, market development, regulatory oversight, and corporate governance. Let us understand each of these avenues in detail through the explanation below.
Investor Protection
- SEBI aims to safeguard the interests of investors by ensuring fair, transparent, and efficient conduct in the securities market.
- It enforces regulations to prevent fraudulent and unfair trade practices, insider trading, and market manipulation.
Market Development
- SEBI works towards the development and growth of the securities market by promoting innovation, enhancing market infrastructure, and fostering investor confidence.
- It encourages the adoption of best practices and standards to strengthen market integrity and competitiveness.
Regulatory Oversight
- SEBI regulates various market participants, including stock exchanges, brokers, merchant bankers, mutual funds, and portfolio managers, to ensure compliance with regulations and guidelines.
- It monitors market activities, enforces disciplinary actions against violators, and maintains market stability and integrity.
Corporate Governance
- SEBI oversees compliance with corporate governance norms and regulations by listed companies to promote transparency, accountability, and investor trust in corporate affairs.
- It works towards improving corporate governance practices and disclosures to enhance investor protection and confidence in the capital markets.
Members
The management according to the SEBI act is to vest in the following members:
- Chairman of the Board.
- Two members are officials from the Ministry of Central Government that deals with finance and the Companies Act administration.
- One member is an official of the Reserve Bank of India.
- Five other members appointed by the Central Government – at least three of them should be appointed as whole-time members.
Structure
The execution of SEBI's functions and responsibilities are carried out through the concerned departments within SEBI. Its key departments perform the following roles:
| Department | Functions |
|---|---|
| Commodity Derivatives Market Regulation Department. | Supervising the functioning and operations of Commodity Derivatives exchanges. |
| Corporate Finance Department | • Issuance and listing of securities • Merger/ demerger, amalgamation, reduction in capital. • Corporate governance and accounting/auditing standards. • Corporate restructuring through Takeovers/ buybacks. • Delisting, etc. |
| Department of Economic and Policy Analysis | • Policy Analysis • Regulatory Research • Statistics and Publication • Commodity research |
| Department of Debt and Hybrid Securities | Matters related to corporate bonds, listed debt securities, Real Estate Investment Trust, Infrastructure Investment Trust. |
| Enforcement Department – 1 | Enforce legal proceedings and action against market irregularities. |
| Enforcement Department – 2 | Handles appeals against SEBI orders filed in other courts of law and tribunals. |
| Inquiries and Adjudication Department | Handles hearings and adjudication brought on by other departments of SEBI against market violators who are within SEBI’s purview. |
| Recovery and Refund Department | Initiates and handles recovery proceedings against market violators who were directed to pay fees/penalties/refunds to investors and have failed to do so. |
| Division of Foreign Portfolio Investors & Custodians. | Monitoring and regulating activities of Foreign Portfolio Investors and Custodians. |
| Integrated Surveillance Department. | Market surveillance of all segments of the securities market. |
| Investigations Department | Conducts examination and investigation of all types of violations related to the securities market. |
| Investment Management Department | Registers and regulates mutual funds, venture capital funds, foreign venture capital investors, Foreign Institutional Investors, Portfolio Managers, custodians, etc. |
| Market Intermediaries Regulation & Supervision Department. | Registration and monitoring of all market intermediaries like stockbrokers, credit rating agencies, debenture trustees, etc. |
| Market Regulation Department | Formulation of policies and supervision of stock exchanges, depositories, clearing corporations, etc. |
| Office of International Affairs | Engages with foreign regulators and law enforcement agencies to promote international cooperation as regards regulations and enforcement. |
| Office of Investor Assistance and Education. | Handles investor complaints. |
Functions
The SEBI rules gives the following powers and functions to enable it to meet the main objectives with which it was formed:
#1 - To Develop and Regulate the Securities Market
- Regulating stock exchanges and any other securities markets. In doing so, SEBI would also be involved in executing the powers and functions delegated to it under the Securities Contracts Regulation Act, 1956.
- Regulating instances of substantial acquisition of shares and take-over of companies.
- Specify and detail the various requirements for listing and transfer of securities.
- Undertaking inspection, inquiry, and audit of stock exchanges and others connected with securities markets.
- Calling for information from banks or any other body involved in transactions under investigative scrutiny by SEBI.
- Calling for information in India or outside India prevents or detects instances of violating securities laws.
- Conducting research related to the securities market to achieve its objectives.
- Levying fees, penalties, and other charges in its endeavor to enforce discipline in the securities market.
#2 - To Regulate the Activities of Market Intermediaries
- SEBI has the power to register and regulate the working of the following market intermediaries.
- Stockbrokers
- Sub-brokers
- Share transfer agents
- Bankers to an issue
- Trustees of trust deeds in relation to securities
- Registrars to an issue
- Merchant bankers
- Underwriters
- Portfolio managers
- Investment advisers
- Depositories
- Custodians of securities
- Foreign Institutional Investors
- Credit Rating Agencies
And other intermediaries may be associated with the securities market in any manner.
SEBI also governs the registration of and regulates the working of alternate investment venues such as
- Venture Capital Funds
- Mutual Funds
- Collective Investment schemes
- Promoting and regulating other self-regulatory organizations in connection with the securities market.
#3 - Protection of Interests of Investors/Securities Market
To protect the interest of investors, SEBI has the power to take the following measures:
- Suspend the trading of any security.
- Restrain and prohibit any person from accessing the securities market to buy or sell securities.
- Suspend any official of any stock exchange or any other self-regulatory organization.
- Retain the proceeds or securities in respect of any transaction under investigation.
- Attach the bank account of any intermediary or other person violating any securities law to the extent of the proceeds involved in the violation.
- Direct any person not to dispose of the security or other asset involved in the transaction under investigation.
- Prohibit insider trading in securities. In the case of instances of insider trading. SEBI has the power to inspect books or documents connected to the issue and take measures such as those specified in the points above.
- Specify matters that one must disclose in a prospectus or any other document for the issue of capital and other securities, including how to disclose the information.
- Prohibit any company from issuing a Prospectus or Offer Document or advertisement soliciting money for the issue of securities.
#4 - To Oversee and Administer Regulations and Other Enactments Related to the Securities Market
Securities and Exchange Board of India can make regulations by notification, with the prior approval of the Central Government, concerning, among other things:
- Issue of capital
- Transfer of securities
- Matters to be disclosed by companies issuing securities
- Condition for grant of certificate of registration of intermediaries and market participants regulated by it, fees to be paid, manner of suspension or cancellation of the certificate.
#5 - Powers of Investigation
Securities and Exchange Board of India can appoint any Investigating Authority to investigate any intermediary or other person connected with the securities market when it has reason to believe that transactions are performed in a manner detrimental to the interest of investors or violation of any of the laws in force.
SEBI can call for the production of books or other documents connected to the violation, inspect the documents, summon persons concerning the issue, and examine witnesses.
