SEBI as a Regulator

Established on 12th April 1988, India’s Securities and Exchange Board (SEBI) is India’s regulating authority for the stock market. As a non-statutory organisation, it had no legislative power before 1992, when it was reclassified as an independent body with statutory jurisdiction. SEBI is the regulatory body that governs the country’s securities market. As a result, it is essential to know the system’s purpose and goals. Because of this, we’ll analyse why this regulating organisation was created and its responsibilities, duties, and goals. We will also look at the role of SEBI in mutual funds regulation in India.

What was the Motivation for the Establishment of the SEBI as a Regulator?

In the late 1970s and early 1980s, when capital markets emerged as a new phenomenon, many Indians began showing an increased interest in investing in them. An increase in the number of malpractices started occurring. These malpractices include fixing prices, illegal brokers, and companies not abiding by the Companies Act established by the government. It also included the breach of the laws and regulations of capital markets, delay in delivery of share capital, price rigging, and other practices.

Due to these immoral practices, the stock market suffered, and people’s confidence in it began to wane. The government founded the SEBI as it felt the need to form a body to regulate working conditions and reduce the incidence of malpractices in the stock market.

SEBI as a Regulator 

As a regulator of the capital market, SEBI aims to create an atmosphere that encourages the integrated and convenient operation of the securities market. As a result, it can ensure the satisfaction of the three key stakeholders in the financial market: asset issuers, investors, and intermediaries of financial services. As a market regulator, SEBI also plays a significant role in the Indian economy.

• Securities issuers 

These business entities raise cash from many sources to support their operations. The SEBI ensures that they have a safe and transparent environment to conduct their operations.

• Investor

For markets to remain afloat and function, investors must continue to participate. The mission of the Securities and Exchange Board of India (SEBI) as a market regulator is also to maintain an atmosphere free of misconduct and restore the general public’s confidence. 

• Money brokers and other financial intermediaries

These are the individuals who act as go-betweens between issuers and potential investors. They ensure that financial transactions are seamless and secure.

The following are the key three functions of the SEBI:

• Protective functions
• Regulatory function
• Development function

Protective functions

As the name implies, the SEBI carries out these tasks to safeguard the interests of investors and other financial players in the financial markets.

It consists of the following elements:

• Price manipulation examination by SEBI
• Stopping insider trading
• Encouraging the use of ethical behaviours
• Informing investors
• Prohibiting trade practices that are deceptive or unfair

The Role of Regulatory Functions

The primary purpose of these activities is to ensure that a firm’s operation in the financial markets is monitored and controlled.

These features are as follows:

• Making standards and a code of conduct for the correct operations in the stock market
• Regulating takeovers
• Inquiries about audits
• Registration of intermediaries like brokers, sub-brokers, merchant bankers, and others
• Penalising companies for violations
• Registering credit rating agencies

Developmental Functions

SEBI also conducts some development duties, which may include, but are not limited to, those listed below:

• Training the intermediaries
• Encouraging fair business and reducing malpractices
• Conducting research into the benefits of encouraging self-regulating groups
• Transaction of MFs directly through a broker
• Carrying out research

Mutual Fund Regulations by SEBI

To protect the interests of investors, the SEBI has also issued a few regulations and established standards for mutual funds.

These standards have been established to provide uniformity to the operation of comparable mutual funds, which will assist investors in making better-informed investment decisions in the long term.

To ensure consistency in the operation of identical mutual fund schemes, the SEBI has classified mutual funds into five major categories:

They are as follows:

• Equity schemes

• Debt relief schemes

• Hybrid schemes

• Other schemes