Functions of the Securities and Exchange Board of India-SEBI

The Securities and Exchange Board of India was constituted as a non-statutory body on April 12, 1988, through a resolution of the Government of India and was established as a statutory body in the year 1992 and the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992) came into force on January 30, 1992.

The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as “…to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto”

The Securities and Exchange Board of India (SEBI), regulates capital markets, protects investors, and enforces rules. It plays a vital role in managing companies issuing shares. SEBI has specific powers and functions, including quasi-judicial, executive, and legislative. It also regulates the functioning of stockbrokers, sub-brokers, portfolio managers, and other intermediaries in the securities market. It regulates the operations of depositories, participants, custodians of securities, foreign portfolio investors, and credit rating agencies. The regulator SEBI also plays a crucial role in the Indian financial system by ensuring transparency and protecting investors’ interests.

The Ministry of Finance holds ownership of SEBI. SEBI drafts regulations according to its legislative capacity, and it conducts investigation and enforcement action in executive function. It passes the rulings and orders in its judicial capacity. One of the main objectives of SEBI is to educate investors on the methods to take necessary precautions. Along with that, SEBI facilitates investors to make informed decisions related to investments. SEBI has adopted measures such as the dematerialization of securities, T+2 rolling settlement, screen-based trading system. It has also framed regulations for regulating intermediaries, corporate restructuring, as well as the issue and trade of securities.

Development:

The Securities and Exchange Board of India plays a huge role in the development of the Indian securities market. Without its contribution, the country’s securities market could not have grown into the behemoth that it is today. Some of the activities that the SEBI partakes in pursuit of the development of the securities market are as follows.

In addition to legislation, the Securities and Exchange Board of India also plays a major regulatory role. Some of the activities that it partakes in the guise of regulation are as follows.

Regulation:

Regulation of the activities of merchant bankers, stock brokers, and share transfer agents and trustees, among others;

Periodic inquiries and audits of exchanges

Registration and regulation of mutual funds;

Regulation of the take-over process of companies;

Training the various stock market intermediaries;

Examining and promoting the Initial Public Offering of various companies;

Reduction of IPO costs by making underwriting of public issues optional;

Introduction and regulation of electronic trading activities;

Legislation:

One of the primary functions of SEBI is the drafting of rules, regulations, guidelines, and legislation concerning the various aspects of the Indian stock market. All the market participants are expected to follow the laid out rules diligently. In the case of any contravention of legal provisions, the SEBI is empowered to act swiftly and reprimand the entities.

Besides, SEBI is facilitating redressal of Investor Grievances, Regulating the Stock Market, and Developing a Code of Conduct for Intermediaries of Mutual Funds.

There are three main powers of SEBI, including the following:

Quasi-Judicial: In case there are any financial frauds committed in the security market, SEBI has the authority to rule out judgments. This is to ensure transparency, fairness, and accountability within the securities market.

Quasi-legislative: SEBI also holds the power to protect its investors by managing rules to prevent malpractices within the securities market. These rules are related to insider reading, essential disclosure requirements, and listing obligations. Prohibiting price rigging since this malpractice involves the manipulation of security prices to inflate or deflate market prices of securities.

Insiders have access to sensitive information of the company to which they belong. They use the privilege of having internal information to impact the prices of securities. SEBI protects the interest of investors by prohibiting insider trading.

It does not allow companies to prepare any statement that may mislead investors and induce the purchase and sale of securities.

Quasi-executive: SEBI holds the power to examine and gather critical financial documents as evidence against violations. Based on the investigation, SEBI can impose rules, take legal actions, and pass judgment as and when required.

Continue to read for more details about SEBI as a regulator: WHAT ARE THE ROLES OF SEBI?

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