What is SEBI? What is its Role?
Introduction
The Securities and Exchange Board of India also known as SEBI. It is a statutory regulatory body that the Indian government set up in 1992 to control the securities market and safeguard the interests of investors who buy securities. Mutual funds and the stock market are also subject to SEBI regulation.
Capital markets began to gain popularity among Indians at the end of the 1970s and 1980s. Numerous unethical practices, such as unauthorized self-styled merchant bankers, unauthorized private placements, price rigging, disregard for the provisions of the Companies Act, disregard for the rules and regulations of stock exchanges, delay in the delivery of shares, etc., began to be practiced.
Due to these unethical practices, people began to have less faith in the stock market. The government felt that establishing an authority to control operations and lessen these malpractices was urgently necessary. Because of this, the government decided to create SEBI.
Goals of the SEBI
Some of the SEBI’s goals are listed below:
- Investor protection: One of the main goals of establishing SEBI is to protect investors. Offering advice and ensuring that the investments made are secure involves defending investors’ interests.
- Eliminating dishonest trading practices and other lousy behavior and enforcing stock exchange activity regulations
- To create a code of conduct for financial intermediaries like brokers and underwriters.
- To keep statutory regulations and self-regulation in proper proportion.
SEBI’s Roles SEBI performs the following roles.
- A protective role
- Regulatory Role
- Developmental Role
We’ll go into detail on the following duties.
- Protection:
The SEBI’s protection of investor interests, as well as those of other financial participants, is implied by the term “protective function.” The following tasks are part of the protective function.
a. Outlaws insider trading: Insider trading refers to a company’s directors, employees, and promoters buying or selling securities in the company. Companies are not permitted to buy their shares on the secondary market, as SEBI has done to stop such trading.
b. Verify price rigging: Price rigging is manipulating the market price of stocks to cause unnatural fluctuations in the price of securities, resulting in investors suffering unexpected losses. To stop such malpractices, SEBI keeps a close eye.
c. Promoting ethical conduct: SEBI promotes ethical conduct in business and works to outlaw fraudulent activities involving the trading of securities.
d. Provider of financial education: SEBI instructs investors through offline and online sessions that cover topics like money management and market insights.
- Regulatory Function
The establishment of rules and regulations for businesses as well as financial intermediaries is a regulatory function that aids in the effective management of the market.
Some of the regulatory tasks include the next.
- SEBI has established the rules and regulations and developed guidelines and a code of conduct that corporations and financial intermediaries must abide by.
- Controlling the acquisition of a company.
- Investigating and auditing stock exchanges
- Controls how stock brokers and merchant brokers operate.
- Developmental Function
SEBI’s efforts to educate investors about how markets and trading work are referred to as its “developmental function.” The activities listed below are considered part of the developmental function.
- Educating intermediaries who work in the securities industry.
- The adoption of online or electronic trading with the assistance of licensed stock brokers.
- By removing the underwriting requirement to lower the cost of the issue.
Goals of SEBI
The goal of SEBI’s establishment was to create a setting that facilitates resource mobilization and allocation.
It offers procedures, a structure, and infrastructure to handle the rising demand.
It satisfies the requirements of the following groups:
Issuer:
SEBI offers an online market that issuers can use to raise money.
Investors:
It offers protection and a steady supply of up-to-date, accurate information.
Intermediaries:
Setting up the necessary infrastructure offers the intermediaries a competitive market.
SEBI’s organizational structure consists of a nine-member board. The following people make up the Board.
- The Central Government of India appoints one Chairman of the Board.
- One Board member who the RBI chooses, or central bank,
- The Union Ministry of Finance has two Board members.
- The Indian Central Government chooses five Board members.
Powers of SEBI:
SEBI has the authority to oversee and approve any legislation about stock exchange operations.
- It can arrange for regular checks and returns into the operations of the stock exchanges and has the authority to access the books of records and accounts for all stock exchanges.
- If any misconduct on the stock exchanges is discovered, it may also hold hearings and render verdicts.
- It has the authority to have businesses listed on and delisted from any domestic stock exchange regarding how they are treated.
- If a company engages in unethical behavior, it has the authority to completely regulate all facets of insider trading and impose penalties and expulsions.
- If companies believe listing their shares on multiple stock exchanges will benefit investors, they may decide to do so.
- Regarding investor protection, SEBI can create legal regulations to guarantee public safety.
- Additionally, it can control how brokers and other market intermediaries who work with investors are registered.
Mutual Funds and SEBI:
To operate, SEBI approval is required for Asset Management Companies (AMCs) which manage mutual funds. The trustees of the AMC keep an eye on the mutual fund’s performance and ensure it operates following SEBI Regulations. A Custodian registered with SEBI holds the securities of the fund’s various schemes.
The Association of Mutual Funds of India is a recently established self-regulatory body for mutual funds (AMFI). The mission of AMFI is to promote the ethical and professional growth of the Indian mutual fund industry.
AMFI seeks to improve operational standards in all areas to safeguard and advance mutual funds and their stakeholders.
Mutual Fund Regulations by SEBI:
To protect investors’ interests, SEBI has also established a few policies and rules for mutual funds.
These rules have been established to create consistency in the operation of similar mutual fund schemes, which will aid investors in making more informed investment decisions.
Mutual funds have been divided into five general categories by SEBI to bring uniformity to the functionality of similar mutual fund schemes:
As follows:
- Equity Plans
- Debt-Management Plans
- Hybrid Plans
- Object-Oriented Designs
- Other Plans
