Security Exchange Board of India

 Security Exchange Board of India – Establishment

The establishment of the SEBI was a landmark government measure to monitor and regulate capital market activities and to promote healthy development of the market.  The securities and exchange board of India was constituted as non-statutory body an April 12, 1988 through a resolution of the government of India. It is an apex body to develop and regulate the stock market in India.

The securities and exchange board of India 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 with SEBI Act 1992 being passed by the Indian parliament.

The board of members of SEBI shall consist of a chairman, two members from amongst the officials of the ministries of the central government dealing with finance and law, one member from amongst the official of the RBI, two other members to be appointed by central government, who shall be professionals and inter alia have experience or special knowledge relating to securities market. The act empowers the central government to supersede SEBI, if on account of grave emergency, SEBI is unable to discharge the functions and duties under any provisions of the Act.

Security Exchange Board of India - Preamble

The preamble of the securities and exchange board of India describes the basic objective 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”

Objective of SEBI

The objective of SEBI is to protect the interest of investors in securities and to promote the development of, and to regulate, the securities market for matters connected therewith or incidental thereto.

1. To protect the interest of investors so that there is a steady flow of savings in to the capital market.
2. To regulate the securities market.
3. Ensure fair practice by the issuers of securities so that so that they can raise resources at minimum cost.
4. To promote efficient services by brokers, merchant bankers and other intermediaries so that they become competitive and professional.

Function of Security exchange board of India 

1. Regulating the business in stock exchange and any other security market.
2. Registering and regulating the working of stock broker, sub broker, share transfer agent, banker to the issue, trustees to trust deeds, registrar to the issue, merchant bankers, underwriters, portfolio managers, investment advisors and any other intermediate who may have associated with the security market in any manner.
3. Registering and regulating the working of collective investment scheme including Mutual Funds.
4. Promoting and regulating self-regulatory organisations (SRO).
5. Prohibiting fraudulent and unfair trade practices in the securities market.
6. Calling for information, undertaking inspection, conducting enquiries and audits of the stock exchange, intermediaries and self-regulatory organisation in the security market.
7. Promoting investors education and training of intermediate in securities market.
8. Prohibiting insider trading in securities
9. Regulating substantial acquisition of share and takeover of companies.

SEBI – Department

The Securities and Exchange Board of India (SEBI) plays a pivotal role in shaping the landscape of our financial markets. Its oversight of the primary and secondary markets ensures transparency and fairness, fostering investor confidence. The regulation of mutual funds promotes a structured approach to investment, allowing individuals to participate in wealth creation. Additionally, SEBI's framework for foreign institutional investment enhances the attractiveness of Indian markets on a global scale, driving economic growth. As we navigate the complexities of these markets, SEBI's commitment to protecting investor interests remains paramount.

Primary Market 

The market where new securities are issued and sold for the first time (e.g., IPOs). This transparency not only protects investors but also fosters trust in the market. By facilitating a smooth process for companies to access funds, SEBI contributes to the overall growth of the economy.

SEBI’s Role for primary market

1. Regulates and approves public issues like IPOs and FPOs.
2. Ensures full and fair disclosure in offer documents (like DRHP).
3. Protects investors by enforcing rules on pricing, allotment, and advertisement.
4. Monitors merchant bankers, underwriters, and registrars involved in the issue.

Secondary Market

The market where existing securities are traded (e.g., stock exchanges like NSE, BSE). SEBI's regulations help maintain market integrity and prevent manipulative practices, ensuring that investors can trade with confidence. The introduction of various trading platforms and technological advancements under SEBI's guidance has further enhanced market accessibility and efficiency.

SEBI’s Role for secondary market

1. Regulates stock exchanges and brokers.
2. Ensures fair trading practices and prevents frauds like insider trading.
3. Implements surveillance to detect manipulation and maintain market integrity.
4. Develops infrastructure (e.g., T+1 settlement, online trading platforms).

Mutual Fund

Investment vehicles that pool money from investors to invest in diversified portfolios. The regulatory framework established by SEBI promotes investor education and safeguards against malpractices, making mutual funds a reliable option for wealth creation. By encouraging transparency and accountability among fund managers, SEBI has significantly contributed to the growth of this sector.

SEBI’s Role for mutual fund

1. Regulates all mutual fund companies and schemes.
2. Approves scheme launches and mandates clear disclosures.
3. Monitors Asset Management Companies (AMCs) and trustees.
4. Protects investors through transparency norms and grievance redressal mechanisms.

Foreign Institutional Investment

Investment by foreign entities in Indian financial markets (mainly in stocks, bonds). By creating a conducive environment for foreign investors, SEBI has attracted significant capital inflows into the Indian market. This not only boosts liquidity but also enhances the overall competitiveness of the Indian economy on a global scale.

SEBI’s Role for foreign institutional investment

1. Registers and regulates Foreign Portfolio Investors (FPIs), which replaced FIIs.
2. Monitors capital inflows to prevent excessive volatility or speculation.
3. Ensures compliance with ownership limits and sectoral caps.
4. Coordinates with RBI for macroeconomic and currency stability.

Limitations of SEBI

1. Government control
2. Board of members dominated by nominees
3. No freedom to file criminal case.
4. A paper tigers.
5. Some practical problems are:
6. Limited transparency in working.
7. Lack of professionalism in working.
8. Weak constitution.
9. Minimum accountability.
10. Lengthy and time-consuming procedures of work.

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