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Securities Exchange Board of India (SEBI)

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During the late 1970s and early 1980s, the capital markets in India were emerging as the hot ticket amongst the people in India. Alongside, few malpractices started to take place in the share market and capital market like unofficial private placements, price rigging, unofficial self- styled merchant bankers, non-compliance to provisions of the Companies Act, violating rules and regulations of stock exchanges, and unnecessary delay in delivery of shares etc.

Empirically, people started to lose confidence in the stock market all because of these malpractices. Eventually, the Govt. of India started to feel an utmost need to establish an authority which would regulate the functioning in stock market and eliminate these malpractices to a significant extent. As a result, the Govt. of India called up for the establishment of Securities Exchange Board of India (SEBI).

SEBI is a statutory regulatory body, established by Govt. of India, on the 12th of April, 1992. It regulates and keeps an eye on the financial market while ensuring protection of the interests of the investors by formulating regulations and guidelines to be complied to. The head office of SEBI is located in Bandra Kurla Complex, Mumbai and it also has its Northern, Eastern, Southern and Western Regional Offices situated in New Delhi, Kolkata, Chennai, and Ahmedabad respectively.

Role of SEBI
SEBI plays the role of a watchdog covering all the participants in capital market and with primary objective to provide such an environment to the financial market enthusiasts that ease more efficient and smoother functioning of the market.

To put the words into action, SEBI ensures that the three important participants of the financial market are given due care. Following are the main participants of a financial market:

  • Issuers: These are entities in the corporate world that raise finance from various available sources in the financial market. SEBI ensures that the issuers get a healthy and transparent environment in market to fulfill their financial needs;
  • Intermediaries: These are the individuals or group of individuals who perform certain functions to bridge the gap between issuers and investors. They try to make the transactions entering in the financial market smoother and safer; and
  • Investor: These are the ones who actually keep the financial market active. SEBI has the responsibility to maintain an environment that is free of malpractices and to restore the confidence of general public who invest their hard earned money in the markets.

Structure of SEBI
SEBI has a corporate framework structure comprised of various departments managed by different department head. There are more than 20 departments under SEBI including corporation finance, debt and hybrid securities, human resources, economic and policy analysis, enforcement, commodity derivatives market regulation, investment management, legal affairs, and so on.

However, the hierarchical structure of SEBI consists of the below mentioned members:

  • The chairman as nominated by the Government of India;
  • Two officers from the Union Finance Ministry;
  • One member as appointed by the Reserve Bank of India; and
  • Five other members will be nominated by the Union Govt. of India.

Objectives of SEBI
SEBI has following main objectives:

  • The primary objective of SEBI is protection of the interests of participants in the stock market including investors, issuers and intermediaries and provision of a healthy work environment for them;
  • One of the important reasons for establishing SEBI is to prevent malpractices in the financial market;
  • It’s the objective of SEBI to ensure orderly functioning of the capital markets and keeps a close eye over the activities of the financial intermediaries working in the financial market.

Functions of SEBI
SEBI primarily performs below mentioned three major functions:

  • Protective Functions: SEBI performs following protective functions in regard to protection of the interests of investors and other financial participants:
    • Check on price rigging;
    • Preventing insider trading;
    • Promoting fair trade practices;
    • Creating awareness among investors; and
    • Prohibition of fraudulent and unfair trade practices.
  • Regulatory Functions: These are the functions mainly performed to keep a check on the activities taking place in the businesses in the financial markets. These functions may include:
    • Formulating guidelines and establishing a code of conduct for the smooth functioning intermediaries and corporate;
    • Regulating and monitoring acquisition and takeover of companies;
    • Conducting inquiries and undertaking audit of exchanges;
    • Registering brokers, sub-brokers, merchant bankers and other participants;
    • Levying fees;
    • Performing and executing powers; and
    • Registering and regulating credit rating agency.
  • Development Functions: SEBI also performs some development functions that include following, however the below list is not exhaustive:
    • Conducting training for intermediaries:
    • Imparting education to investors:
    • Promoting fair trade practice and eliminating unfair trade malpractices;
    • Carrying out research work;
    • Encouraging self-regulating organizations.

Authority and Power of SEBI
The major authorities empowered to SEBI include:

  • Quasi-Judicial authority: SEBI is authorized to deliver judgments relating frauds and other unethical malpractices prevailing in the securities market. This, in turn, ensures fairness, transparency, and accountability in the financial market;
  • Quasi-Executive authority: SEBI is authorized to execute the regulations and judgments made and to take legal action against the violators. SEBI is also allowed power to inspect books of accounts and other related documents if it suspects any violation of the regulations;
  • Quasi-Legislative authority: SEBI holds the authority to draw rules and regulations for protection of interests of the investors;
  • SEBI is empowered to get companies listed and de-listed from any stock exchange in India;
  • SEBI can enlist companies’ shares in more than one stock exchange if it sees that it finds doing so beneficial to investors;
  • SEBI is also empowered to regulate and monitor the registration of intermediaries working in the stock market.

It is worth noting that, despite so many authorities, the results of SEBI’s functions have to go through the Securities Appellate Tribunal and the Supreme Court of India.

At AJSH, we assist our clients in dealing with various corporate matters (Company incorporations, statutory audits, ROC Compliances, Company winding up), ITR Filings, TDS Compliance, and related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about SEBI, kindly contact us.

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