Introduction to Security And Exchange Board Of India (SEBI)

Vijaya Malik| Lloyd Law College| 7th June 2020 

Introduction

To regulate the Indian stock market and protect investors from trading malpractices like price ragging and insider trading, etc, the Government of India established the Security Exchange Board Of India (SEBI) on 11 April 1988. It has it’s headquartered in Mumbai and it has it’s a regional office in New Delhi, Ahmedabad, Chennai, and Kolkata. A total of 17 stock exchanges are currently operating in India, including NSE (National Stock Exchange) and BSE ( Bombay Stock Exchange). All their stock exchanges are operated and regulated by SEBI.

SEBI was enacted by the Parliament of India on 4th April 1992, and it extends to the whole of India. It was commenced and became an autonomous body of Government of India on 30th April 1992.

Powers of SEBI

1. SEBI has the power to make by-laws for stock exchange and regulates them.
2. SEBI can check the accounting books and records of intermediaries in India like stock exchange, commercial banks, stockbrokers, investment banks, etc.
3. SEBI can also abstain from companies from getting listed in any stock exchange.
4. It can also handle the registration of stockbrokers. 

Objectives of SEBI

1. The main objective of SEBI is to protect the rights and interests of investors by guiding and educating them.
2. To prevent malpractices like misleading statements, price ragging which is making manipulations with the sole objective of inflating the market price of securities, and insider trading for the personal profit of the working staff or other members of the company.
3. To provide such a marketplace where the investors can raise finance efficiently and fairly. 
4. To promote orderly and smooth functioning by regulating the stock exchange and security market.
5. To develop a code of conduct and promote fair practice by intermediaries with a view of promoting professionalism.

Functions of SEBI

SEBI performs three types of functions:-

1. Protective functions- it performs a protective function to safeguard the interest of investors and financial institutions by spreading awareness among them and prevent/reduce fraudulent and unfair trade practices in security markets and control insider trading by imposing penalties for such practices. We can say that under this function SEBI undertakes steps regarding investor protection.
2. Regulatory Functions- Under this function, SEBI monitors the functioning and regulates market intermediaries like stockbrokers, underwriters, merchant bankers, portfolio exchanges, and also regulates take-over birds by companies. It registers brokers, sub-brokers, collective investment schemes, and Mutual Funds. It undertakes inspection and audit of stock exchanges and intermediaries.

Under regulatory functions, SEBI also levies fees or other charges for carrying out purposes of the SEBI Act, 1992. 

• Development Functions- Under development function, SEBI provides training to intermediaries and by using IEPF (Investor Education and Protection Fund) it publishes information to educate investors regarding stock exchange. It also undertakes measures to develop the capital market by adopting a flexible approach.

Structure of SEBI under the SEBI Act, 1992

Section 3 of SEBI Act, 1992  talks about the establishment and incorporation of  a board  and according to Section 4 , the board consists of one chairperson and other eight board members. The chairperson is nominated by the central government. And two board members are nominated by the Union Finance Ministry, one board member is nominated by RBI (Reserve Bank of India) and the remaining five members are nominated by the Union Government. According to Section 5 of this act, the central government can terminate and dissolve the service of appointed members by giving notice of three months before termination. And members also have the power to quit their service by giving notice 3 months before.

 According to Section 6, a board member can be removed by Central Government if:-

1. If the member becomes insolvent,
2. If the member becomes of unsound mind,
3. If the member is convicted of any crime,
4. If the Central Government finds that any board member is misusing their post and power for personal gain.

The current Chairperson of SEBI is Mr. Ajay Tyagi, he was appointed in 2017 and serving as a chairperson to date..

Conclusion 

It is said that the stock market is one of the indicators of a country’s economic condition. Before SEBI was established, there were very few investors in Stock Market because of price-fixing, unofficial private placement, delay in making delivery of share, etc. And it was not considered as a safe place for investment., Harshad Mehta Scam was an example of this. We can not say that after the establishment of SEBI, every problem is solved but it has reduced unfair activities and now the stock market is more transparent and safe as compared to before because of SEBI Act, 1992 consists of a set of rules which regulates the whole stock market.