Securities And Exchange Board Of India


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 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 a tremendous growth during 1980’s, characterised particularly by the increasing participation of the public.

This ever-expanding investors population and market capitalisation 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 –

  • existence of self-styled merchant bankers’ unofficial private placements,
  • rigging of prices,
  • 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 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 Securities and Exchange Board of India.

Purpose And Role Of SEBI

The basic purpose of SEBI is to create an environment to facilitate efficient mobilisation 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, professionalised 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 enquiries 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.

Development Functions

  1. Investor education
  2. Training of intermediaries
  3. Promotion of fair practices and code of conduct of all SRO’s.
  4. 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, coordinated and intensive attention to enable it to attain its objectives.

Accordingly, SEBI has been restructured and rationalised 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 Kolkalta, 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 investors associations recognised 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 –

  1. To advise SEBI on matters relating to the regulation of intermediaries for ensuring investors protection in the primary market.
  2. To advise SEBI on issues related to the development of primary market in India.
  3. To advise SEBI on disclosure requirements for companies.
  4. To advise for changes in legal framework to introduce simplification and transparency in the primary market.
  5. To advice the board in matters relating to the development and regulation of the secondary market in the country.

The committees are however non-statutory in nature and the SEBI is not bound by the advise of the committee. These committees are a part of SEBI’s constant endeavour to obtain a feedback from the market players on various issues relating to the regulations and development of the market.

SEBI Violations

SEBI on Thursday unearthed yet another abuse of IPO norms in the IDFC’s Initial Public Offering (IPO) where a few investors opened over 14,000 dematerialized accounts to corner large number of shares of the company.

This is the second such incident, after a similar such violations were detected in the YES Bank’s IPO.

SEBI said in IDFC’s IPO too four investors opened as many as 14,807 dematerialized accounts with Karvy-DP and ‘Strangely’, all these account holders have their bank accounts with Bharat Overseas Bank Ltd., Ahmedabad.

SEBI order said: “Further probe is required for examining the systemic fault, if any, of the registrar Karvy-RTI, i.e., Karvy Computer Shares P Ltd., and the lead managers Kotak Mahindra Capital Company Ltd., DSP Merrill Lynch Ltd. and SBI Capital Markets Ltd. in identifying and weeding out the benami applications.”

Reference is being made to the RBI to examine the role of BOB, HDFC Bank, Indian Overseas Bank, ING Vysya Bank and Vijaya Bank in opening the bank accounts of these benami entities and apparently funding them.

Source: The Economic Times

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Bibliography : NCERT – Business Studies

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