SEBI is also known as the Security and Exchange Board of India. It was established on 12 April 1992 via SEBI Act, 1992. SEBI was a non-statutory body established to regulate the securities market. SEBI provides helps in regulating the Capital Market by guarding the interest of investors and by establishing the rules and regulations for the development of the capital market in India.
SEBI controls the issuers of securities, the investors, and the market intermediaries in India. The Board of SEBI draft regulations and statutes which is provided under its legislative authority, and also pass rulings and orders under its judicial power and operate investigations in its executive limits. SEBI provides a barrier to avoid malpractices in the stock market by establishing a code of conduct and also by promoting the healthy functioning of the stock exchange.
Reasons for the Establishment of SEBI
During the 1970s and the rise of the 1980s, the people of our nations were opting to work in the Capital Market as the market was trending those days. Without any authority, problems arose like unofficial private placements, the rigging of prices, unofficial self-styled merchant bankers started violating the rules and regulations of the stock exchange which caused delays in the delivery of shares, and to counter those ill practice government established a regulatory body.
Purpose and Role of SEBI
SEBI aids in making a healthy environment to facilitate an effective mobilization between the market participants and investors. It also helps in locating the resources with the help of the securities market. SEBI establishes rules and regulations, policy framework, and infrastructure to meet the needs of the market.
Organizational Structure of SEBI
The members of the Security and Exchange Board of India provided under the act are:
- The Chairman is appointed by the Union Government of India.
- Two members are selected from the officers of the Union Finance Ministry.
- One member is appointed by the Reserve Bank of India.
- The other five members are appointed by the Union Government of India, out of five three must be whole-time members.
Functions of SEBI
SEBI protects the interest of the investors in the security market, promotes the development of the security market and regulates the business. The main functions of the SEBI are:
- Protective Function
These functions are used to protect the interest of investors and other financial participants. These functions are:
- Prevent Insider Trading: People who are working in the market like director, promoters or employees in the company starts to buy or sell the securities because they have access to the inside price which may result in affecting the price of the security is known as insider trading. SEBI prohibits companies to buy their own shares from the secondary market and regulates regular check-ups to prevent insider trading and avoid malpractices.
- Checks price rigging: The malpractices which create unreasonable fluctuations in the price of the securities with the help of increasing or decreasing the market price of stocks which provides an enormous loss for the investors are known as price rigging. To prevent price rigging, SEBI keeps active surveillance on the factors which can promote price rigging.
- Promotes fair trade practices: SEBI also established rules and regulations and a certain code of conduct in the securities market to prohibit fraudulent and unfair trade practices.
- Providing awareness/financial education for investors: SEBI organises seminars both online and offline to educate the investors and others about insights into the financial market and money management.
- Regulatory Function
Regulatory functions establish rules to regulate the financial intermediaries and corporates for the efficiency of the market. These functions are:
- SEBI provides guidelines and a code of conduct for efficient and efficient working of financial intermediaries and corporate.
- Pre-established rules for taking over a company.
- Do regular inquiries and audits of stock exchanges.
- Regulates mutual funds’ process.
- Provides regulation for registration of brokers, sub-brokers, and merchant bankers.
- Levying of fees is regulated.
- Restrictions on private placement.
- Development Function
The development functions are taken by SEBI to order to improve the security of the market through technology and these functions are:
- Provide training sessions to the intermediaries of the market.
- Promote fair trading and restrictions on malpractices.
- Introduced the DEMAT format.
- Promote self-regulating organizations.
- By providing online trading through registered stock brokers.
- By providing discount brokerage.
Objectives of SEBI
The objectives of SEBI are:
- Protection of investors: The primary and most important objective of SEBI is to protect the interests of individual investors in the stock market by guiding them to a healthy environment.
- Prevention of malpractices: The second main objective for the formation of SEBI was to prevent fraud and malpractices and to regulate the activities of the stock exchange.
- Promoting fair and proper functioning: SEBI maintains the functioning of the capital market and also promotes the functioning of the stock exchange. They keep eye on the activities of the financial intermediaries and regulate the securities industry efficiently and efficiently.
- Establishing Balance: SEBI makes a balance between the statutory regulation and the self-regulation of the securities industry in India.
- Establishing a code of conduct: SEBI develops and regulates a code of conduct to avoid frauds and malpractices which may be caused by intermediaries such as brokers, underwriters, and other people.
Features of SEBI
SEBI is responsible for maintaining an environment free from malpractices to protect the general public who invest their earned money in the market. SEBI controls the bylaws of every stock exchange in the country. Few features of the SEBI are given below:
SEBI can conduct hearings and may also pass judgments on unethical cases or fraudulent trade practices. SEBI helps to promote transparency, accountability, reliability, and fairness in the market.
SEBI also has the power to draft legislatures with respect to the capital market. SEBI provides rules and regulations to protect the interests of the investors. This act helps in consolidating and streamlining the provisions of existing listing agreements for several segments of the financial market like equity shares. And also helps in protecting the market from malpractices and fraudulent trading activities happening at the bay.
SEBI provides for the implementation of the legislation and is allowed to file a complaint against any person who has violated their rules and regulations. Moreover, they also have the power to inspect all the books and records to check for any wrongdoings.