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What is SEBI and its Role in Capital Market?

What is SEBI and its Role in Capital Market?

What is SEBI and its Role in Capital Market?

What is SEBI?

SEBI is the Indian stock market watchdog. The full form of SEBI is the Securities and Exchange Board of India which regulates, monitors, and oversees the function of the stock market. SEBI is a financial regulatory body that reports to the Ministry of Finance. It was established in 1988 as a non-statutory organization, but in 1992 the SEBI Act granted it statutory powers that empower it to regulate the securities market, protect investors' interests, and promote market development.  


The Indian capital market is regulated primarily by this regulatory body. Regulatory, monitoring, and management functions are performed by it for the Indian securities market. Incorporating rules and regulations is intended to safeguard investors' interests and foster a safe investment environment. As part of its work, it also develops investment-related guidelines for improving the investment situation in India.




Why was SEBI established?

In 1980, there was tremendous growth in the capital market due to the increasing participation of the public. The expanding investor population resulted in many malpractices by companies, stock market brokers, merchant bankers, etc.


Some of the common malpractices that plagued the stock were:

  • Unofficial private placements
  • Price rigging
  • Unofficial premium on new issues
  • Non-adherence to provisions of the Companies Act
  • Violation of rules and regulations of stock markets
  • Delay in delivery of shares


These unethical practices crumbled the confidence of investors and aggravated their resentment. The government and stock market were not able to resolve the problems.


As a result, the Government of India set up an independent regulatory body through the SEBI Act, 1992 known as the securities and exchange board of India and that’s how SEBI was given a statutory status on 30 January 1992 to keep the interests intact of various stakeholders. On February 21, 1992 SEBI was established as a statutory body.




Who is SEBI Chairman and its Members?

The Sebi management consists of Nine Board members who are as follows; the Union Government of India appoints the Chairman, two Union Finance Ministry officers are members, and the Reserve Bank of India has one representative.


The remaining Five members are also appointed by the Union Government of India and out of the five members, three shall be whole-time members. Currently, SEBI is headed by Ms. Madhabi Puri Buch as the Chairman.




What is Role Of SEBI in Capital Market?

SEBI was established to monitor and improve the Indian Capital market. In order to achieve this goal, it looks after the needs of the three most important financial participants involved in the Indian capital market. Those three parties are:


1). Issuers of securities: In any company that is listed on the stock exchange, the issuers are organizers that help raise funds from the financial market. The role of SEBI here is to ensure that IPO and FPO issuance is done fairly and without misrepresentation.


2). Protect Investor’s Interest:  The role of SEBI is to protect investor’s interests and prevent unfair trade practices so that investor’s interests don’t get harmed.

Protecting the interests of traders and investors is important for the survival of the capital market because they are an integral part of the capital market.


3). Financial Intermediaries: SEBI act as the financial market intermediaries, ensuring that stock market trades take place smoothly and securely. Their purpose is to oversee the activities of financial intermediaries such as NBFCs, brokers, sub-brokers, and so on.


Apart from this SEBI oversees and manages the complaints division dealing with complaints about the Commodity derivatives segment of the recognized stock exchanges, dealing with investor’s grievances, investor education, and policy related to it.



What are the Powers of SEBI?

SEBI has broad regulatory and investigative powers including the authority to punish violators.


  • SEBI promotes the formation of self-regulation organizations. It governs the activities of transfer agents, stock brokers, and motion bankers against others. SEBI is also in charge of the registration of new brokers, financial advisors, and so on.
  • SEBI has the power to provide licenses to brokers, investors, and dealers and without a license, they cannot trade in the market and it has the power to ban the trading of those brokers who are involved in fraud and unfair trade practices.
  • Other powers of SEBI include controlling company mergers, acquisitions, and takeovers, as many big companies want to create a monopoly in the capital market. Thus, SEBI ensures whether all mergers and acquisitions are for the development of the market or not.



What are the Divisions of SEBI?

  • To ensure efficient and smooth functioning, SEBI has various departments catering to diverse needs such as:
  • Division of Exchange Administration which deals with registration, recognition, and administration of recognized stock exchanges, reviewing rule change proposals relating to all policy issues, issuing show cause notices, and much more.
  • Divisions for Investors Awareness 1 & 2 that concerns with the awareness and education of the investors and policy-related matters thereto.
  • Division of New Products and Market Policy that is related to product design of new commodity products and policy related to commodity derivatives markets.
  • Division of Inspection conducts inspections of recognized stock exchanges and visits various ancillary infrastructures such as warehouses, assaying labs, etc.


SEBI has taken a proactive approach to aligning disclosure requirements with international standards and robust mechanisms. The statutory powers given to SEBI ensure that investor’s interest is protected at any cost and that the Indian security market is monitored and regulated.



What are Objectives of SEBI?

For all of us the assurance about the safety of our investments tends to be the deciding factor of where we invest. But, How do we know that the investments in the stock market are safe and that there are no loopholes? And this is where the securities and exchange board of India (SEBI) comes in.


 The objectives of SEBI are as follows:

  • To regulate the stock exchange and securities market to ensure their orderly function.
  • To protect the rights and interests of investors and to guide and educate them.
  • To prevent trading malpractices like price rigging, insider trading, etc., and promote fair dealings in the market.
  • To develop and enforce a code of conduct and fair practices for intermediaries to make them competitive and professional.



What are SEBI's major functions?

As a governing body for stock markets, SEBI is entrusted with the following major functions which are:


  1. Proactive Function: The proactive functions refer to SEBI`s role in protecting the interest of investors as well as other financial participants.
  • It prohibits all types of fraudulent and unfair trade practices like making misleading statements in the prospectus, price rigging, etc.
  • It prohibits insider trading and imposes penalties for such practices.
  • It undertakes several steps like the issue of booklets, campaigns, etc. for investor protection.
  • It promotes fair practices and a code of conduct in the securities market.


2). Regulatory Function: The regulatory functions include the establishment of rules and regulations for financial intermediaries, as well as corporations, which aids in the efficient management of the market. The regulatory functions of SEBI are of such types:

  • Governing the process of acquiring a company.
  • Conducting stock exchange investigations and audits.
  • Regulates the activities of stock brokers, merchant brokers, underwriters, portfolio managers, and investment advisers.
  • It regulates the business on stock exchanges through rules and regulations.


3). Development Function: The development functions refer to the actions taken by SEBI to cater to investors with an understanding of trading and market functions.

  • It promotes the training of intermediaries of the securities market.
  • SEBI conducts research and publishes useful information for the benefit of investors, traders, and other intermediaries.
  • SEBI undertakes several measures to develop the capital markets by adopting a flexible approach.



What are SEBI's Market Regulatory Guidelines?

Investor's protection is SEBI’s primary focus, and to ensure it, SEBI has set up certain guidelines to which everyone involved in the market should comply and upon non-compliance to its guidelines, SEBI could take legal action against the non-compliant.

One such example of it is the Black Out Period set by SEBI. According to the Prohibition Under Insider Trading (PBIT) rule by SEBI, If a piece of important news is set to be announced regarding a certain company then no employee of that particular company could neither trade nor invest in the shares of that company for a period of 48 days from the date the news broke out publicly.

This period of 48 days from the time the news broke out is called the Black Out period. It is set out to protect the rights of the investors so that no individual gets an unfair advantage.

SEBI plays an important role in safeguarding the rights of the investors and ensuring a level playing field for all the investors whether big or small, foreign or domestic. Before the advent of SEBI, the stock market was disorganized with frequent irregularities and malpractices taking place frequently.




Since SEBI came into being with certain powers by the government which has ensured that the stock market is a fair place to put your money and SEBI played an integral role in making that happen.




Ques 1. Is SEBI owned by Government?

Ans. Yes, the Securities and Exchange Board of India (SEBI) is a regulatory body that is owned by the Government of India in 1988. The Government of India established SEBI as an independent statutory body through an executive order, after that with the passage of the SEBI Act 1992 by the Indian Parliament, it became an autonomous body on 30 January 1992.


Ques 2. What is Securities Appellate Tribunal (SAT)?

Ans. Under Section 15K Securities Appellate Tribunal of the Securities and Exchange Board was established under the Securities and Exchange Board of India. A Securities Appellate Tribunal is primarily responsible for hearing and dispose of appeals against orders passed by SEBI or by adjudicating officers under the SEBI Act.



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