Securities and Exchange Board of India (SEBI)

What is the Securities and Exchange Board of India (SEBI)?

The Securities and Exchange Board of India (SEBI) is a regulatory body that came into power in 1992 to protect the Indian securities market from fraudulent activities. It functions with the same objective as the Securities and Exchange Commission (SEC), its American counterpart.

Creation of the Securities and Exchange Board of India

Established in 1988 to regulate the securities market, the SEBI did not gain statutory powers until 1992 through the Securities Exchange Board of India Act. It succeeded another regulatory body called Controller of Capital Issues, which was created towards the end of the British Rule in India.

Fast forward to 1996, the SEBI gained more statutory powers under The Depositories Act (1996).

The SEBI’s Charter

The SEBI is responsible for protecting the interests of the following groups:

• Issuers of securities
• Investors
• Market intermediaries

More areas of regulation for the SEBI include stock exchanges, merchant bankers, portfolio managers, foreign institutional investors, share transfer agents, and other intermediaries connected to the securities market.

An example that would require an organization like the SEBI to step in is insider trading. Recently, they took severe measures to tighten their regulations specifically for insider trading, as it can result in heavy market manipulation.

Functions of the Securities and Exchange Board of India

The SEBI enjoys tremendous power to prohibit fraudulent trade practices associated with the securities markets. Here are some of the functions of the SEBI:

• Developing Indian capital markets
• Granting investment advisory licenses
• Regulating market intermediaries
• Conducting investor awareness programs

Some powers of SEBI also include, but are not restricted to:

Investigation

• Inspecting books of accounts and evaluating returns from recognized stock exchanges
• Inspecting books of accounts of financial intermediaries within India
• Encouraging company share listings

Cease and desist proceedings

Direct prosecution power under the violation of certain provisions of the Companies Act

Regulation

Regulating primary markets through regulation of issuers’ access to market, as well as the processes and procedures relating to the issuance of security

The SEBI’s Influence

Since the inception of the SEBI within India, its securities market standards have improved substantially. It is widely known that the market in India was associated with inefficiency and risk in the past.

However, with a consistent effort from regulatory bodies like the SEBI, National Stock Exchange of India (NSE), and the National Securities Depository Limited, India now has a more efficient trading market and settlement system.

Its achievements include:

• Dematerialization of shares: The SEBI got rid of physical certificates that contributed to an obsolete system, leading to inefficiencies and process slow-downs. It also dealt with the market of fake share certificates and made way for electronic trading.
• Mutual funds industry: The SEBI has exercised several efforts to increase the popularity of mutual fund products and prevent fraud.

Criticisms and Challenges Faced by the SEBI

The SEBI has been blamed in the past for being less stringent about its rules and creating an atmosphere of low transparency since it was not accountable to a governing authority.

The Securities Appellate Tribunal is the only formal process of holding the SEBI responsible for any of its actions, which involved a panel of three judges along with the Supreme Court of India.

Some of the challenges it faced are:

• Despite maintaining a strong presence in enforcement due to its statutory powers, the SEBI has not made much progress in enforcing laws and displaying consistency to investors.
• It is also said to be ignorant towards certain violations that go unnoticed due to government intervention or insufficient resources.
• The SEBI is held accountable for inadequate surveillance, investigation, and enforcement.

Related Readings

CFI is the official provider of the Capital Markets & Securities Analyst (CMSA)® certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

• Regulatory Risk
• Sensex
• Insider Trading
• Trading Securities
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