Profile
Settings
Refer your friends
Sign out
Capital markets began to gain popularity in India towards the 1970s. However, this further led to a rise in many misconducts, for example, price rigging, violation of policies of the stock exchange, and so on. As a result of these misdeeds, the government established a body to supervise the workings of the stock exchange and prevent these malpractices, leading to establishing the Securities and Exchange Board of India (SEBI) on 12 April 1988 given statutory powers in 1992 under the SEBI Act.
Definition Of SEBI And Its Importance
Securities and Exchange Board of India, commonly called SEBI, can be called the statutory regulatory body set up by the Indian government in 1992 to oversee the securities market and protect the interests of investors. It was initially formed as a non-statutory body on 12 April 1988, with no authority over anything, but later in 1992, it was accepted as an independent agency with statutory powers. The board of SEBI usually consists of 9 members and more than 25 departments, some of them being the Corporation Finance Department, Investment Management Department, etc. As for the board members, The Central Government of India appoints one Chairman of the Board, one member Board is appointed by the Reserve Bank of India (RBI), two members of the board are from the Union Ministry of Finance, and the Central Government of India elects five members to the board.
Thus SEBI is an important institution because it fulfils the role of a watchdog for all capital market players and seeks to create an atmosphere that allows the securities market to operate efficiently and smoothly for financial market participants. It further plays a crucial role in the economy of India by protecting the investors’ interests, monitoring how the intermediaries function, and preventing malpractices. Now we look further at SEBI functions and objectives.
Objectives Of SEBI
Some of the main objectives of SEBI are as follows:
To protect the rights of the people who are motivated towards investing in stock markets and create a safe environment for them to invest money without worry.
Preventing malpractices and regulating the working of stock exchanges is another primary objective of SEBI.
To develop and maintain a specific code of conduct to be followed by the intermediaries like brokers etc.
To ensure the efficient functioning of the capital markets and maintain a balance between legislated self-monitoring by the securities sector.
Functions Of SEBI
SEBI has primarily three main functions, namely; Protective function, regulatory function, and development function, and each of these three further have their various functions, which we will look at now in detail:
Protective functions of the SEBI involve the following points:
Monitoring rigging of prices means malpractices with the aim of sudden and abnormal decrease or increase in the stock prices in the market, forcing people who had invested in facing the loss and backlash.
Restricting insider trading refers to the insiders like employees working within the company who have access to crucial sensitive information and are involved in purchasing or selling securities, altering the pricing of the securities.
Forbidding unfair and deceptive trading of securities by coming up with laws and codes of conduct in the securities market
It also aims to expand investors’ understanding of strategies to evaluate investment opportunities better and, therefore, organises offline seminars and online sessions to raise awareness against important concepts.
The regulatory function is to set rules and regulations for the intermediaries for the efficient functioning of the market:
A particular code of conduct is implemented on the financial intermediaries like underwriters, brokers, etc.
The workings of the mutual funds are monitored by keeping a close eye on their business operations.
It looks over the process of a company’s takeover.
It oversees and keeps track of merchant bankers, trustees, stockbrokers, and other stock exchange members.
It performs inspections and audits to monitor the functioning of stock exchanges.
Development Function refers to the steps undertaken to strengthen the security markets by using the ever-growing newest technologies of the country. It involves activities like:
It provides training to the intermediaries.
It is also responsible for engaging with research and research work.
It involves other functions like incorporating online trading through licensed brokers.
It promotes self-regulatory groups and focuses on fair trading with no misconduct.
Conclusion
As a result, SEBI is a key term to be familiar with regarding financial terms and stock markets. As we have seen, SEBI is a crucial body with a specific role, organisational structure, SEBI functions, and objectives, and we have also gained insights into its significance and powers. We now know who has the authority to perform periodical checks, legal hearings, and establish rules & policies upon finding any malpractice or inappropriate stock market operation. When it comes to companies, it has the authority to impose penalties and expulsions if they are found doing something illegal and listing and de-list them from any stock market in the country. Therefore, SEBI is the one who forms legal measures to safeguard the investors and the larger mass.
