Regulating the Securities- SEBI Guidelines

SEBI, a statutory regulatory body, was established on April 12, 1992 to regulate and monitor the Indian capital and securities markets and ensure that developing regulations and guidelines protect investors’ interests. The headquarters of SEBI are in Mumbai’s Bandra Kurla Complex.

SEBI is responsible for regulating all participants in the Indian capital market. SEBI seeks to protect investors’ interests and cultivate financial markets by executing SEBI guidelines and standards. Let us understand the scope of SEBI guidelines.

Table of Contents

SEBI Act 1992

The Union Government of India enacted the SEBI Act in 1992, converting the nonstatutory SEBI into an autonomous body with statutory powers. The SEBI Act of 1992 empowers SEBI to regulate Stock Exchange and other securities markets.

SEBI formulates SEBI guidelines to modulate and review the efficiency of stockbrokers, sub-brokers, registrars, trust deed trustees, issue bankers, portfolio managers, and other intermediaries. Furthermore, SEBI is in charge of the following:

  • Mutual fund authorisation and control
  • Endorsement and regulation of self-regulatory organisations
  • Prevention of deceptive practices and unfair trade practises
  • Substantial acquisition of shares and companies’ takeover,
  • Undertaking evaluation
  • Carrying out all of the functions specified in the Capital Issues (Control) Act of 1947 and the Securities Contract (Regulation) Act of 1956.

Regulations of SEBI

SEBI enacts SEBI guidelines and regulations per the SEBI Act of 1992. All Indian laws should strictly follow anyone directly or indirectly involved with the stock market or other securities.

SEBI guidelines ensure that all trades on stock exchanges and other securities are secure and flawless.

Regulations on Insider Trading by SEBI

The SEBI (Prohibition of Insider Trading) Regulation, 2015, enacts new insider trading regulations to make such trading illegal.

Regulation of LODR

The SEBI Listing Obligations and Disclosure Requirements, or LODR Regulation, deals with the mandatory compliance of listed companies registered with India’s stock exchanges.

Regulation of the ICDR

The SEBI ICDR Regulation, also known as the Issue of Capital and Disclosure Requirements, was implemented in 2009 to govern provisions for dealing with capital matters and disclosures made by India’s listed companies.

This regulation is intended to make trading secure, flawless, and beneficial to listed companies and investors.

Regulations of SEBI SAST

The SEBI Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011, is designed to address the legal and fair recovery of stock and takeovers.

SEBI guidelines

To increase transparency in stock exchanges such as the NSE, BSE, and others, SEBI introduces various SEBI guidelines for the primary market, initial public offering (IPOs), and investor protection.

SEBI Guidelines for IPO

SEBI ICDR established certain guidelines for filing a company as an IPO, discussed further below.

Entry Norm I

Profitability Pathway
  • The company must satisfy the following criteria to become an IPO.
  • For the last three years, the company’s net worth must have been Rs 1 crore.
  • The minimum net tangible assets are Rs 3 crores for three consecutive years, with no more than 50% in monetary assets.
  • In the last three to five years, the company has had an average profit of 15 crores.
  • Ensure that the size of the issue does not exceed five times the pressure value.

Entry Norm II

QIB Pathway
  • If a company wishes to expand but fails to meet any above criteria, the SEBI imposes certain alternatives.
  • This policy allows the company to gain public access through the book-building process, that is, regulated bidding from a shareholder with a specific price range. The policy is useful in determining the worth of a share.
  • Buyers from institutions (QIBs) will receive 75% of the total net offer. If the minimum QIB subscription value is not satisfied, the company refunds the subscription fee.
Other Requirements
  • To file for an IPO, the company should first file a draft offer document referred to as the Draft Red Herring Prospectus to SEBI to file for an IPO.
  • The draft includes all necessary information, such as the contact information of the company, risks associated with it, the company’s response and approach to risks, and the specifics of the company’s leadership.

SEBI Guidelines for Primary Markets

The SEBI guidelines for the primary market are as follows:

New Company

A new company that has not completed 12 months of commercial operations cannot issue shares at a premium.

Existing Company Promotes New Company

If an existing company promotes a new company with a good track record of profit for at least five years, it can price its issue.

Private and closely held companies

Private and closely held companies with a track record of profit for at least three years are permitted to price their issues freely. The issuer will determine these prices after consulting with the lead manager.

Existing Listed Companies

Existing listed companies can freely raise fresh capital to expand their market with 50% of a promoter contribution on the first 100 crores, 40% on further 100 crores (200 crores), 30% on the next 100 crores (300 crores), and 15% on the balance issue amount.

SEBI Guidelines for Investor Protection

SEBI is protects the interests of investors in addition to regulating the stock market. To achieve this goal, the following SEBI guidelines are provided:

New Issues

To provide fair disclosure, SEBI introduces a code of advertisement for public issues. Underwriting has been made optional to reduce the cost of issuance.

Investor Education

SEBI promotes investor education and is invested in various investor associations. SEBI provides transparency into the organisation’s financial strength. CRISIL, ICRA CARE, and other credit rating agencies are examples of such associations.

Information Disclosure

SEBI discloses fair and adequate information about the stock exchange to assist investors in making investment decisions.

Arrangement for Grievances

The SEBI Board arranges to disclose the grievances of investors.

Information for Promoters

Promoters’ contributions listed in the prospectus should be clearly delineated.


SEBI was established to ensure fairness and security in trading. Since its inception, SEBI has introduced new SEBI guidelines and regulations. SEBI improves the stock market and makes it safer and more reliable for trading.

SEBI strengthens the stock market’s regulatory system and empowers the Indian securities market, attracting more investors to trading platforms. Furthermore, SEBI’s role in regulating businesses involved in the stock exchange protects the interests of traders.

Overall, SEBI is a strong regulatory body that reduces the risk of fraud in the stock exchanges and capital markets.

FAQs on SEBI Guidelines

According to the Securities Exchange Board of India's (SEBI) guidelines, a company offering public shares must receive a minimum subscription

SEBI requires that a company offering public shares receive at least 90% of the minimum subscription.

What are the various issues that an Indian company can create in India?

The most common issues by an Indian company are public rights, bonuses, and private placement.

Who is subject to SEBI regulation?

The SEBI is the primary regulator for Indian stock exchanges and was established under the SEBI Act of 1992.

How far has SEBI been effective in protecting investors' interests?

Although not entirely successful, SEBI has nearly come close to defined objectives of investor protection.