What Is The Role Of SEBI In The Financial Markets

Although the Bombay Stock Exchange (BSE) was established in 1875, investment picked up in the 1970s. However, due to lax rules and numerous loopholes, unscrupulous market operators, such as Manu Manek and Harshad Mehta, engaged in a slew of frauds.

The Indian government recognised the critical need for a robust market regulator to eliminate these malpractices and protect the interests of investors. Therefore, in 1988, the Securities and Exchange Board of India (SEBI) was established, and in 1992, SEBI was granted legislative powers.

SEBI is responsible for regulating all participants in the Indian capital market and strives to safeguard investors’ interests and grow capital markets by implementing numerous rules and regulations.

What is SEBI?

Initially, SEBI served as a watchdog with no capacity to monitor or regulate the proceedings of the Indian capital market. In 1992, SEBI was accorded statutory powers, and it became an autonomous organisation overseeing the country’s entire stock market. The SEBI’s statutory standing allows it to engage in the following activities:

• SEBI could regulate and approve stock exchange bylaws.
• SEBI has the authority to audit the books of the country’s authorised stock exchanges, and it could even demand regular returns from such stock exchanges.
• SEBI can audit financial intermediaries’ books and records.
• It may make it difficult for firms to get listed on any stock market.
• It may also manage stock broker registration.

SEBI has regional offices in New Delhi, Chennai, Kolkata, and Ahmedabad, along with a headquarters in Mumbai. SEBI has local offices in Jaipur, Guwahati, Bangalore, Patna, Bhubaneswar, Chandigarh, and Kochi.

NSE and BSE are two of seven stock exchanges in operation in India. SEBI governs all of these stock exchanges’ activities.

Objectives of SEBI

• The primary goal of SEBI is to protect the interests of all parties involved in trading.
• The job of SEBI is to guarantee that the Indian securities market operates in an orderly manner. SEBI was created to safeguard the interests of investors and traders in the Indian stock market by promoting the growth and regulation of the equity market and by ensuring a healthy environment in securities.
• Furthermore, as indicated, a primary motivation for establishing SEBI was to avoid malpractices in the Indian capital market.
• To track the stock exchange’s activity.
• To protect the interests of investors.
• To balance between legislative laws and self-regulation to combat fraudulent practices.
• To establish a code of ethics for brokers, underwriters, and other intermediaries.

Organisational structure of SEBI

SEBI comprises a chairman and other board members. The Central Government appoints the honourable chairman. Two members of the eight-member board are nominated by the Union Finance Ministry, whereas the RBI nominates one member. The Union Government appoints the remaining five members of the board.

Primary role of SEBI in the Indian financial market

SEBI is responsible for three essential financial market players to fulfil its goals.

• Securities issuer: These firms are listed on the stock exchange and raise cash by issuing shares. SEBI guarantees that Initial public offering and follow-on public offer get issued transparently and healthily.
• Capital Market Participants: Traders and Investors The capital markets only work because traders exist. SEBI is in charge of ensuring that investors are not victims of stock market manipulation or fraud.
• Intermediaries in the financial sector: These operate as intermediaries in the securities market, ensuring seamless and secure stock market transactions. SEBI supervises the activity of stock market intermediaries such as brokers and sub-brokers.

Functions of SEBI

SEBI performs the following tasks to satisfy its objectives: Protective functions, regulatory functions, and developmental functions.

SEBI conducts the following duties as part of its protective functions:

• Monitors pricing manipulation.
• Prohibits insider trading.
• Forbids unfair and deceptive business activities.
• Encourages a fair code of behaviour in the security industry.
• Educates investors on effectively analysing investment possibilities.

SEBI undertakes the following duties as part of its regulatory powers:

• A code of conduct and regulations regulate brokers, underwriters, and other middlemen.
• SEBI is in charge of a company’s takeover.
• SEBI regulates and registers share transfer agents, stockbrokers, merchant bankers, trustees, and other stock market participants.
• SEBI regulates and registers mutual funds.
• SEBI performs stock exchange audits and investigations.

SEBI undertakes the following activities as part of its developmental duties:

• SEBI makes the training of intermediaries easy.
• The goal of SEBI is to promote stock market activity through an adaptable and flexible strategy.

Authority and power of SEBI

The primary goal of SEBI is to foster a healthy market environment in which the interests of all investors are protected. The SEBI has powers that give it authority to establish such an environment. Its three most crucial abilities are as follows:

Quasi-Judicial Authority

According to this, SEBI can hold hearings and issue judgements in the event of frauds or other unethical actions in the Indian securities markets. SEBI contributes to the securities market’s fairness, openness, and accountability.

Quasi-Executive Authority

SEBI has the right to create laws, deliver judgments, and pursue legal action against offenders. To obtain evidence, SEBI can inspect books of accounts and other documents.

Quasi-Legislative Authority

SEBI has the jurisdiction to develop guidelines, rules, and regulations to protect the interests of investors. SEBI has enacted rules to guarantee that disclosure requirements, trading rules, and listing duties are followed.

Standards in place to ensure that market fraud and other malpractices do not occur.

Mutual Funds Regulations by SEBI

SEBI has also established standards for mutual fund monitoring and management in India. The Securities and Exchange Board of India Regulations, 1996, provide these guidelines.

A firm must initially be founded as a separate asset management company (AMC) with a fair value of Rs.50,000 to set up a mutual fund. AMCs own mutual funds.

These trustees of these AMCs verify that the mutual funds follow these rules. If a mutual fund is set up only to trade in the money markets, it should be registered with SEBI.

The SEBI mutual fund regulations include the following:

• Shareholders are not permitted to possess more than 10% of the mutual fund’s AMC, either directly or indirectly.
• A sponsor of a mutual fund, a group of firms, or an affiliate of the AMC’s cannot own 10% or more of the AMC or other mutual funds’ ownership and voting rights.
• Before debut, all new funds must disclose their SEBI compliance status.
• Generally, a single stock may not represent more than 35% of the total weight of a sector or thematic index. The limit for other indicators is set at 25%.
• The top three index elements’ rising weight should not exceed 65%.
• Trading frequency should be at least 80% when referring to individual index members.
• Liquid schemes must have at least 20% of their assets in liquid assets such as treasury loans, government securities, cash, among others.

Conclusion

The most significant marker of a country’s economic health is the stock market. The number of people participating in trading will decrease if individuals lose trust in the market. Furthermore, the country will begin to lose FDIs and FIIs, significantly reducing the country’s foreign exchange inflows.

Before the establishment of SEBI, many frauds and malpractices were perpetuated in the Indian stock market.

Stock markets began to improve and become more transparent when SEBI took over. However, certain securities mark frauds have occurred even after SEBI took over.

SEBI has considerably clamped down on unfair practices in the Indian stock market on an infrequent basis. Furthermore, the legislation and regulations governing the security market are changed regularly. Therefore, SEBI’s authority is becoming increasingly strict by the day.