What is the role of SEBI in the financial markets

Although the BSE (Bombay Stock Exchange) was established in 1875, it was not until the 1970s that the investing bug struck the country. However, due to lax rules and numerous loopholes, market operators such as Manu Manek and Harshad Mehta rose to prominence, resulting in a slew of frauds.

Before getting too late, the Indian government recognised the critical need for a robust market regulator to eliminate these malpractices and defend the interests of investors. As a result, in 1988, the Securities and Exchange Board of India (SEBI) was established, and in 1992, it was granted legislative powers.


When it comes to the role of SEBI, it is responsible for regulating all participants in the Indian capital market. It 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. Nonetheless, it had statutory standing in 1992, and it became an autonomous organisation responsible for overseeing the country’s entire stock market. The SEBI’s statutory standing allows it to engage in the following activities:

  • SEBI had the authority to regulate and approve stock exchange bylaws.
  • It has the authority to audit the books of the country’s authorised stock exchanges, and it might even demand regular returns from such stock exchanges.
  • SEBI gained the authority to 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 (Securities and Exchange Board of India) has regional offices in New Delhi. There are regional offices for SEBI in New Delhi, Chennai, Kolkata, and Ahmedabad, along with a Mumbai headquarters. There are local offices of SEBI in Jaipur, Guwahati, Bangalore, Patna, Bhubaneswar, Chandigarh, and Kochi.


NSE and BSE are two of seven stock exchanges in operation in India. Securities and Exchange Board of 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 Securities and Exchange Board of India’s (SEBI) job is to guarantee that the Indian securities market operates orderly. It 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 previously indicated, one of the primary motivations for establishing SEBI was to avoid malpractices in the Indian capital market.
  • To keep track of the stock exchange’s activity.
  • To protect the interests of investors.
  • To keep a balance between legislative laws and self-regulation to combat fraudulent practices.
  • To establish a code of ethics for brokers, underwriters, and other intermediaries.

The organisational structure of SEBI

The current chairman of SEBI is Mr Ajay Tyagi. He got appointed on the 10th of January 2017 and took over the duty from Mr U.K. Sinha on the 1st of March 2017.

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, while the RBI nominates one member. The Union Government appoints the remaining five members of the board.

The primary role of SEBI in the Indian Financial Market

Coming to the role of SEBI, it is responsible for three essential financial market players to fulfil its goals.


  • Securities issuer: These firms get 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: i.e. 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.

The functions of SEBI

SEBI carries out the following tasks to meet its objectives: Protective functions, Regulatory functions, and developmental functions.

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

  • It monitors pricing manipulation.
  • It prohibits insider trading.
  • It forbids unfair and deceptive business activities.
  • It encourages a fair code of behaviour in the security industry.
  • It takes time and effort to educate 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 also in charge of a company’s takeover.
  • It regulates and registers share transfer agents, stockbrokers, merchant bankers, trustees, and other stock market participants.
  • It also regulates and registers mutual funds.
  • It performs stock exchange audits and investigations.

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

  • It makes the training of intermediaries easier.
  • Its goal 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 all investors’ interests get protected. The SEBI gave powers that give it authority to establish such an environment to do this. Its three most crucial abilities are as follows:

Quasi-Judicial Authority

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

Quasi-Executive Authority

It implies that 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 also 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.

In addition, there are 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, are the source of these guidelines.


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

These AMCs’ trustees verify that the mutual funds follow these rules. If a mutual fund is set up only to trade in the money markets, it must get 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, and so on.

Conclusion

One of the most significant markers of a country’s economic health is the stock market. The number of participants 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.

Many frauds and malpractices occurred in the Indian stock market before the establishment of SEBI.

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

Even now, because of the role of SEBI, unfair practices occur in the Indian stock market on a somewhat infrequent basis. Furthermore, the legislation and regulations governing the security market are changed regularly. As a result, SEBI’s authority is becoming increasingly strict day by day.

FAQs

What is the structure of SEBI?

SEBI has a nine-member board of directors.

  • The Central government appoints one Chairman of the Board of Directors.
  • One member of the Board gets appointed by the Central Bank, i.e. the RBI.
  • Two members of the Board are from the Union Ministry of Finance.
  • The Central Government of India elects five members to the Board.

What is the purpose of SEBI?

The Securities and Exchange Board of India (SEBI) was formed to monitor unfair activity and protect investors.
The organisation was established to satisfy the needs of the three categories listed below:

  • Issuers: SEBI seeks to provide investors with a marketplace to raise funds efficiently and fairly.
  • Intermediaries: SEBI strives to provide intermediaries with a professional and competitive market.
  • Investors: SEBI safeguards and provides correct information to investors.

What is the regulatory role of SEBI?

Insider trading and takeover bids are prohibited by SEBI, which imposes penalties.

Who is the current chairman of SEBI?

Ajay Tyagi

Where is the headquarters of SEBI situated?

Mumbai

Which products were allowed by SEBI to be endorsed by celebrities?

Mutual Funds