Securities and Exchange Board Securities and Exchange Board of Indiaof India

A CRITICAL ANALYSIS

A Brief History

For a healthy growth of capital markets and to prevent malpractices in trading, the Government decided to “set up a separate board for the regulation and orderly functioning of Stock Exchange and the securities industry”

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A Brief History (Contd…)

• In July 1987, the Cabinet Committee on Economic Affairs approved the broad features of SEBI and process of establishment of SEBI was commenced

• The statement of Purpose and Approach outlined twin objectives of SEBI as,

- promoting healthy and orderly development of securities markets and- ensuring adequate investor protection and emphasized the developmental

philosophy with which SEBI would operate

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Introduction• SEBI was established as a statutory authority through an

Ordinance promulgated on 30.01.1992 by the President of India

• It is managed by a Board comprising of nine members including the chairman

• Paradoxically this is a positive outcome of the Harshad Mehta Securities Scam of 1990-91

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Purpose and Role of SEBI• SEBI was set up with the main purpose of keeping a check on

malpractices and protect the interest of investors. It was set up to meet the needs of three groups

• Issuers:• For issuers it provides a market place in which they can raise finance fairly and

easily

• Investors:• For investors it provides protection and supply of accurate and correct

information

• Intermediaries:• For intermediaries it provides a competitive professional market

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Basic Objectives

• To protect the interests of investors in securities

• To promote the development of Securities Market

• To regulate the securities market and

• For matters connected therewith or incidental thereto

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Powers of SEBI

• Powers relating to stock exchanges and intermediaries:

• SEBI has wide powers regarding the stock exchanges and intermediaries dealing in securities

• It can ask information from the stock exchanges and intermediaries regarding their business transactions for inspection/scrutiny and other purposes

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Powers of SEBI (Contd…)

• Powers relating to monetary penalties:

• SEBI’ has been empowered to impose monetary penalties on capital market intermediaries and other participants for a range of violations

• It can even impose suspension of their registration for a short period

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Powers of SEBI (Contd…)

• Powers to initiate actions relating to functions assigned:

• SEBI has a power to initiate actions in regard to functions assigned

• For example, it can issue guidelines to different intermediaries or can introduce specific rules for the protection of interests of investors

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Powers of SEBI (Contd…)

• Powers under Securities Contracts (Regulation) Act :

• For effective regulation of stock exchanges, the Ministry of Finance issued a Notification on 13 September, 1994 delegating several of its powers under the Securities Contracts (Regulation) Act to SEBI

• SEBI is also empowered by the Finance Ministry to nominate three members on the Governing Body of every stock exchange instead of earlier practice of government making such nominations

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Powers of SEBI (Contd…)

• Powers to regulate business of stock exchanges :

• SEBI is empowered to regulate the business of stock exchanges

• Intermediaries associated with the securities market as well as mutual funds, fraudulent and unfair trade practices relating to securities and regulation of acquisition of shares and takeovers of companies

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Powers of SEBI (Contd…)

• Powers relating to insider trading:

• SEBI has power to regulate insider trading or can regulate the functions of merchant bankers

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Functions of SEBI

• The SEBI performs functions to meet its objectives.

• Functions can be broadly divided into:

• Protective functions

• Developmental functions

• Regulatory functions

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Functions of SEBI (Contd…)

• Protective Functions-• It Checks Price Rigging• It Prohibits Insider trading• SEBI prohibits fraudulent and Unfair Trade Practices• SEBI undertakes steps to educate investors • SEBI promotes fair practices and code of conduct in security market

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Functions of SEBI (Contd…)

• Developmental Functions-

• SEBI promotes training of intermediaries of the securities market.• SEBI tries to promote activities of stock exchange by adopting

flexible and adoptable approach in following way:• SEBI has permitted internet trading through registered stock brokers.• SEBI has made underwriting optional to reduce the cost of issue.• Even initial public offer of primary market is permitted through stock

exchange.

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Functions of SEBI (Contd…)

• Regulatory Functions-• It has framed rules and regulations and a code of conduct to regulate

the intermediaries such as merchant bankers, brokers, underwriters, etc.

• It registers and regulates the working of all those who are associated with stock exchange in any manner.

• It registers and regulates the working of mutual funds etc.• It regulates takeover of the companies.• It conducts inquiries and audit of stock exchanges.

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Summary• For the development of any economy• Capital Market, which is one of the main organ to mobilize

funds of huge order• shall evolve all steps to develop the market • simultaneously bringing in the credibility in the financial

market, which is watched world wide• through effective and speedy implementable regulations,

ultimately, protecting the interest of the Investors and the Country

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Know your Stock Markets• Major Stock Exchanges in India:• National Stock Exchange (NSE)• Bombay Stock Exchange (BSE)• MCX’SX Stock Exchange (MCX’sx)

• Various products for investments:• Equities• Derivatives• Commodities• Currencies / Forex

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