SEBI- Roles, Functions, Powers and Objectives

 

The Securities and Exchange Board of India (SEBI), founded on April 12, 1988, regulates the Indian financial markets.

Initially created as a non-statutory organization with no authority, it was eventually recognized as an independent entity with statutory authority in 1992. 

This regulatory body tightly controls the securities market in India. Therefore, it is crucial to understand the same's objective and function.

As a result, we will cover the establishment of this regulatory organization and its roles, functions, powers, and objectives in this blog post.

Why was SEBI established?

Capital markets were developing as the new craze among Indians during the end of the 1970s and early 1980s. Many malpractices began to occur, such as unofficial self-styled merchant bankers, unofficial private placements, price rigging, non-compliance with requirements of the Companies Act, violation of stock exchange rules and regulations, delay in delivery of shares, and so on.

People began to lose faith in the stock market due to these blunders. The government was compelled to establish an entity to regulate operations and minimize malpractices. As a result, the government established the Securities and Exchange Board of India (SEBI).

Organizational Structure:

There are nine members of the SEBI Board.

1. One Chairman is chosen by the Indian government

2. Two members are Union Finance Ministry officers

3. One Reserve Bank of India employee

4. Five individuals are chosen by the Indian Union Government

Role of SEBI

This regulatory body serves as a watcher for all players in the capital market. Its primary goal is to provide an environment for those interested in the financial markets that makes the securities market operate effectively and smoothly. The SEBI has a significant impact on the economy.

To make this happen, it ensures that investors, financial intermediaries, and issuers of securities—the three primary participants in the financial market—are taken care of.

1. Investor

The markets are kept active by investors. This regulatory body is in charge of preserving an environment free from fraud to regain the trust of the general people who put their hard-earned money into the markets.

2. Financial Intermediaries 

These are the individuals who serve as intermediaries between issuers and investors. They facilitate and secure financial transactions.

3. Issuers of Securities

These business organizations raise money from a variety of sources on the market. This organization sees that they receive a safe and open atmosphere that meets their requirements.

Functions of SEBI

The three primary functions of SEBI are regulatory, protective, and developmental. Let's examine each of them individually:

1. Regulatory Function

These are carried out to control the stock exchange business. These consist of the following:

1. Regulating intermediaries like brokers and underwriters with guidelines and a code of conduct.

2. Conducting investigations and stock exchange audits.

3. Registration and supervision of mutual funds.

4. Bringing intermediaries under regulatory review and tightening up private placement.

5. Regulating corporate takeovers.

6. Registering and monitoring the activities of stock brokers, sharing merchant brokers, administrators, and other stock exchange professionals.

2. Protective Function

One of SEBI's other major functions is protecting investors' interests and ensuring their investment safety. Additional tasks carried out by SEBI for this reason include:

1. The outlawing of price rigging is a process that includes manipulating security prices to boost or lower market valuations for securities.

2. Insiders have access to confidential data belonging to the firm they work for. They influence the pricing of securities by taking advantage of their access to internal information. SEBI forbids insider trading to safeguard investors' interests.

3. It forbids businesses from creating any statement that may deceive investors and encourage the buying and selling of securities.

4. Investor education may assist them in comparing the securities of various firms and maximizing production by selecting the most lucrative investment.

3. Development Function

SEBI carries out these duties to advance and expand stock exchange activity. SEBI does the following activities as part of its developmental duties:

1. Encouraging the education of securities market intermediaries.

2. Allowing an initial public offering (IPO) on the stock market.

3. Lowering the cost of the offering for which SEBI has removed the requirement for underwriting.

4. Allowing online stock trading through a licensed stockbroker.

Powers of SEBI

The following are three of SEBI's primary powers:

1. Quasi-Judicial

SEBI can overturn verdicts if financial fraud is perpetrated in the securities industry. This will ensure accountability, fairness, and openness in the securities industry.

2. Quasi-legislative

SEBI has the authority to safeguard investors by enforcing regulations that stop fraud in the securities industry. These regulations cover insider reading, necessary disclosures, and listing duties.

3. Quasi-executive

SEBI can inspect and collect important financial records to provide proof of infractions. SEBI can impose regulations, pursue legal action, and render judgment as and when necessary based on the inquiry.

Objectives of SEBI

The Securities and Exchange Board of India's Preamble outlines the fundamental goals of SEBI. According to this statement, SEBI serves the following objectives:

1. Safeguarding the Interest of Investors

One of SEBI's key goals is teaching investors how to take the appropriate measures. Additionally, SEBI enables investors to make well-informed investment selections. SEBI has implemented steps including the screen-based trading system, T+2 rolling settlement, and dematerialization of securities. Additionally, it has established rules for regulating intermediaries, corporate reorganizations, and the issuance and trading of securities.

2. Facilitating Redressal of Investor Grievances

SBI has a thorough procedure for resolving investor complaints against intermediaries and listed companies. If a business or intermediary fails to address investors' concerns, SEBI reminds them and organizes meetings. As required by law, appropriate enforcement measures are conducted.

The stock market and depositories have a thorough arbitration process to settle investor complaints. If a broker is found to be in default, the investor protection fund aids in repaying investors. The depository reimburses investor losses brought on by the depository's carelessness.

3. Regulating the Stock Market

SEBI's regulation of the Indian capital markets is one of its other objectives. The Department of Economic Affairs' Capital Markets Division is responsible for enforcing the regulations set out by SEBI. Within the confines of SEBI laws, it performs the following tasks:

• Capital market regulation through proactive tactics.

• Encouraging the establishment of organizations that practice self-regulation.

• Regulating the activities of the stock market and other securities markets.

• Creating regulations to stop systemic fraud. Managing and overseeing the complaints section.

• Encouraging investor education opportunities.

4. Developing Code of Conduct for Intermediaries of Mutual Funds

SEBI gives investors' interests top priority. Thus, it takes action to protect them. SEBI sets Mutual Fund Regulations and guidelines to guarantee safe distribution, selling, and advertising. Additionally, it requires mutual funds to prepare literature for every program by SEBI requirements. The SID, addenda, performance report, fact sheets, SAI, portfolio disclosure, and brochure for these schemes must be current.

Conclusion

The primary regulatory authority for the Indian securities market is SEBI. The financial markets in India would become uncontrolled unless SEBI  kept surveillance and monitored. Companies, investors, and traders will not be permitted to do lawful business in the market.

In this entire exercise of the peak margin system, SEBI's primary goal was to curb market speculation to prevent losses for individual investors in turbulent markets.