What is SEBI? And What is its role in Financial Market?
The capital market started emerging as a new sensation in India during the end of the 1970s. However, with the popularity of stocks, a number of malpractices also started rising like price rigging, unofficial private placements, non-compliance with the provisions of the Companies Act, insider trading, violation of stock exchange rules and regulations, delay in making delivery of shares and many others.
As this time, the Indian Government realized the need for establishing an authority to reduce these malpractices and regulate the working of the Indian securities market as the majority of Indian People started losing their trust in the stock market.
Soon after, SEBI (Securities and Exchange Board of India) was set up in the year 1988.
Initially, SEBI acted as a watchdog and lacked the authority of controlling and regulating the affairs of the Indian capital market. Nonetheless, in the year 1992, it got the statutory status and became an autonomous body to control the activities of the entire stock market of the country. The statutory status of the SEBI authorized it to conduct the following activities:-
- SEBI got the power of regulating and approving the by-laws of stock exchanges.
- It could inspect the accounting books of the recognized stock exchanges in the country. It could also call for periodical returns from such stock exchanges.
- SEBI became empowered to inspect the books and records of financial Intermediaries.
- It could constrain companies for getting listed on any stock exchange.
- It could also handle the registration of stockbrokers.
SEBI is headquartered in Mumbai and having its regional offices in New Delhi, Chennai, Kolkata, and Ahmedabad. You can also find SEBI’s local offices in Jaipur, Guwahati, Bangalore, Patna, Bhubaneswar, Chandigarh, and Kochi.
At present, 17 stock exchanges are currently operating in India, including NSE and BSE. The operations of all these stock exchanges are regulated by the guidelines of SEBI.
The organizational structure of SEBI
Mr. Ajay Tyagi is the current chairman of SEBI. He was appointed on the 10th of January, 2017 and took over the charge with effect from 1st March 2017 from Mr. U.K. Sinha.
SEBI consists of one chairman and other board members. The honorable chairman is nominated by the Central Government. Out of the eight board members, two members are nominated by the Union Finance Ministry and one member is nominated by the RBI. The rest five members of the board are nominated by the Union Government.
The objectives of SEBI
SEBI’s responsibility is to ensure that the securities market in India functions in an orderly manner. It is made to protect the interests of investors and traders in the Indian stock market by providing a healthy environment in securities and to promote the development of, and to regulate the equity market.
Further, as stated earlier, one of the prime reason for establishing SEBI was to prevent malpractices in the Indian capital market.
SEBI’s main roles in the Indian financial market
In order to achieve its objectives, SEBI takes care of the three most important financial market participants.
— Issuer of securities. These are the companies listed in the stock exchange which raise funds through the issue of shares. SEBI ensures that the issue of IPOs and FPOs can take place in a transparent and healthy way.
— Players in the capital market i.e. the traders and investor. The capital markets are functioning only because the traders exist. SEBI is responsible for ensuring that the investors don’t become victims of any stock market manipulation or fraud.
— Financial Intermediaries. They act as mediators in the securities market and ensure that the stock market transactions take place in a smooth and secure manner. SEBI monitors the activities of the stock market intermediaries like brokers and sub-brokers.
The functions of SEBI
The SEBI carries out the following three key functions to perform its roles.
1. Protective Functions: SEBI performs these functions for protecting the interests of the investors and financial institutions. Protective functions include checking price rigging, prevention of insider trading, promoting fair practices, creating awareness among investors and prohibition of fraudulent and unfair trade practices.
2. Regulatory Functions: Through regulatory functions, SEBI monitors the functioning of the financial market intermediaries. It designs the guidelines and code of conduct for financial intermediaries and regulates mergers, amalgamations, and takeovers takeover of companies.
SEBI also conducts inquiries and audit of stock exchanges. It acts as a registrar for the brokers, sub-brokers, merchant bankers and many others. SEBI has the power to levy fees on the capital market participants. Apart from controlling the intermediaries, SEBI also regulates the credit rating agencies.
3. Development Functions: Among the list of SEBI’s development functions, one of them is imparting training to intermediaries. SEBI promotes fair trading and malpractices reduction. It also educates and makes investors aware of the stock market by utilizing the funds available in IEPF.
The stock market is one of the most crucial indicators of a country’s economic health. If people lose faith in the market, the number of participants will go down. Furthermore, the country will also start losing FDIs and FIIs considerably which will substantially hamper the country’s foreign exchange inflows.
Before SEBI was established many scams and malpractices took place in the Indian stock market. One of the famous Indian stock market scams was “Harshad Mehta scam.”
After SEBI came into power, stock market affairs started becoming healthier and more transparent. Nonetheless, some securities mark scams have taken place even after SEBI came into power. One famous such scam was “Ketan Parekh scam”
Although unfair activities do happen in the Indian capital market even as of today, their frequency is quite less. Moreover, the security market statutes and regulations are updated time and again. Therefore, day by day, SEBI is getting more and more stringent with its authority.