Legal Blogs

Role of Securities and Exchange Board of India

Introduction-

SEBI or the Securities and Exchange Board of India was initially constituted on 12th April 1988 as a non-legislative body via government resolution to encourage the evolution and growth of the securities market. SEBI monitors the actions of stock exchanges, mutual funds, etc. to accomplish the desired objects. Currently, there are seventeen operational stock exchanges in India and all of them are regulated by SEBI’s guidelines. Its head office is situated in Mumbai and it has branch offices in Kolkata, Chennai, and Delhi. The present Chairman of SEBI is Mr. Ajay Tyagi.

 It’s a regulatory body that is controlled by the Government, in order to control the securities market. The capital market has experienced high growth by a surge in the contribution of the community in the marketplace. The government resolved to offer SEBI directly with legislative powers which were essential to arrange successfully with all the cases related to the wealth market. Some officers are appointed to monitor acquiescence with securities law as well as for addressing the investor’s complaints. SEBI also has formed two advisory committees to deal with both primary and secondary markets.

Securities-

In simple words, Securities are arrangeable economic apparatuses that are allotted by a company or the government that gives the ownership rights, debt rights, rights to purchase, right to sell or trade an option to the contributor. 

“Securities” include-

  • “shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;
  • derivative;
  • units or any other instrument issued by any collective investment scheme to the investors in such schemes;
  • security receipt;
  • units or any other such instrument issued to the investors under any mutual fund scheme;
  • Government securities; 
  • such other instruments as may be declared by the Central Government to be securities; and
  • rights or interest in securities;”

Securities are broadly in three primary categories:

  • Equity securities- stocks
  • Debt securities- bonds and banknotes
  • Derivatives- options and futures 

Evolution of SEBI-

In 1875, there was a rising of “Stock Brokers Association” that is currently known as Bombay Stock Exchange, is the first stock exchange in Asia it gave a whole new beginning to the stock exchange market in India. Due to the new market formation, the need for its regulation was felt by the government authorities. So, they took a legislative approach and the Bombay Securities Contracts Control Act 1925 was enacted in Mumbai, mainly to monitor the sale and purchase of securities.

Around the 1980s, when the capital market was spring but it had its drawbacks i.e. various malpractices like price rigging etc. took place and as a result of which the public(investors) were losing their trust in the stock market. This gave rise to various regulations in order to control the malpractices which were causing damage to the market balance. Finally, the Securities and Exchange Board of India was established by the government of India to maintain the stock market and regulate it accordingly.

Establishment and incorporation-

Under the SEBI Act,1992, SEBI was appointed and established by the central government. SEBI is basically a corporate entity which means it is a separate legal entity, it can enter into a contract, has a common seal and has the authority to acquire or dispose of any movable or immovable property.

Composition-

SEBI has a corporate framework consisting of various departments and each department is managed by a department head. Some of the departments are corporation finance, economic and policy analysis etc.

The Board of SEBI involves the following memberships:

  • A chairman is nominated by the central government;
  • Two members who are the officials of the finance department in the central government;
  • One member who is an official of the reserve bank of India and;
  • Five other members out of which at least three members shall be the permanent members.

Objectives-

SEBI has the following objects-

  • To regulate the securities market 
  • To endorse the rise of the securities market
  • To guard the interests of investors 
  • Encourage reasonable and fair-minded dealings by the issuers of securities
  • Monitors the stock exchange activities, mutual funds etc.
  • Control and advance a code of conduct and reasonable practices by mediators

Role of SEBI in Securities Market-

SEBI was an arrangement as an authoritative body to control the practices and diminish these misconducts and to defend the investors for their benefit. It was arranged to encounter the requirements of mainly three groups-

  1. Issuers:

For issuers, a market is provided by SEBI, where they can raise finance fairly and easily.

  1. Investors:

For investors, protection id provided by SEBI as well as the supply information which is more accurate and correct for them to understand nature and invest easily.

  1. Intermediaries:

For intermediaries, a competitive specialized market is provided by SEBI.

Functions of SEBI-

  • The functions of SEBI include controlling, expansion and advancement of the securities market in India.
  • SEBI safeguards the interests of the investors, which makes it easy for investors to trust and invest in the market.
  • Promotes the overall expansion and progress related to the securities market. 
  • Promotes investor’s training and also the education of intermediaries in the market.
  • Promotes self- running organizations.
  • Prohibits malpractices and deceitful trade practices in the securities markets.
  • Prohibits insider trading.
  • Controls the stock exchange business and other securities markets as well.
  • Not just register but also regulate the working and affairs of various agents, stockbrokers, bankers, trustees, merchant bankers, sub-brokers and several other intermediaries who are connected with the securities market.  
  • Control the practices of depositories, foreign investors, custodians of securities etc. as well as the working of collective investment schemes (mutual funds).
  • Regulate extensive procurement of shares and takeover of companies.
  • Researches for efficient work, advances and progress of the securities market.

Powers of SEBI-

SEBI has the following powers:

Quasi-Judicial: 

In the cases of fraudulent and unethical practices of trade, SEBI can do judicial hearings and pass the ruling judgements. This gives transparency, fairness, accountability and reliability in the market which leads to more trust from the investors. 

Quasi-Legislative: 

SEBI drafts rules and regulations for the safeguarding the interests of the investors. Its objective is to merge and restructure the guidelines of prevailing listing agreements for the economic market. This type of regulation formulated by SEBI stops all malpractice and fraudulent trade activates.

Quasi-Executive: 

SEBI has the authorization to file a case against any person or body, who violates its rules and regulation. SEBI has the authority to examine or review account books and other relevant documents as well if it finds traces of any suspicious activity it can file a case straight away.

Role of SEBI in the mutual funds-

 SEBI frames, controls and monitors the mutual funds for the interests of the investors and encourages them to invest in mutual funds, this gives the investors some trust on the system, which eventually leads to the growth in the investments in the securities market.

Securities Appellate Tribunal-

The first Securities Appellate Tribunal (SAT) was established in 1992, under Section 15K of the SEBI Act, 1992 by a notification was issued by the government. If there is a requirement for more SATs, then the Government can establish more by issuing a notification.

This body ensures the accountability and that the malpractitioners can be answerable.

There are certain powers of SAT given under Section 15K of the Securities and Exchange Board of India Act, 1992:

  • Can summon any person if necessary; 
  • Examines the person under pledge;
  • Commands the investigation or production of any relevant papers/forms/documents;
  • Acquires evidence on affidavits;
  • Gives commissions for the witness exam or particular relevant documents;
  • Evaluates its own decisions; 
  • Can terminate any request or application or claim for default;
  • Elects if an application is ex-parte;
  • Can terminate or set aside any order;
  • Other matters which may be prescribed.

SEBI’s approach against Insider Trading

“Insider trading is an act that includes subscribing or agreeing to subscribe, buying or marketing or agreeing to purchase or sell, agreeing to transact with the statistics which is not issued to the community and is sensitive. This act should be done by the administrator or key supervisory employees or any other officer of an entity who should have admittance to such non-public and delicate or important information.”

The Indian securities market witnessed a lot of bent conditions, non-compliance, and misuse of the general laws and rules in governing their organizations. E.g. manipulation of the price, the formation of an unnatural or false market, grave misconduct and insider trading were some of the major issues prevailing in the market. 

The Securities and Exchange Board of India Regulations in the year 1992, established several rules and guidelines intending to suppress practices that violated the market. So, the need for regulations for insider trading was felt. To do that, the main aim is to make sure that nobody is at an advantage by dealing on ‘insider’ or ‘unpublished’ or ‘sensitive’ information of the entity because such trading of information is prohibited and it causes unfair trades in the securities market. By enacting such insider trading regulations, the Indian economy was eased to do trading securely and the securities market got more exposed to the opportunities from the foreign institutional investors. Hence, the SEBI (Insider Trading) Regulations, 1992  was introduced to eradicate the issues of insider trading in India. 

Conclusion-

Securities and Exchange Board of India plays a major role in the Indian securities market. All the guidelines, regulations, notifications are given according to the need which occurs in different scenarios keeping the investor’s interest in mind. The whole balance is maintained in the market by SEBI. SEBI not only guides but also tackles all the malpractices and takes adequate actions against the rule violators via its statutory powers which are invested in SATs. All these steps taken by SEBI increases transparency and accountability in the securities market. 

Looking at the current state, while the whole financial situation of the nation is crippled by the global pandemic, SEBI has been issuing notifications regarding the market functioning regarding the handling of securities by the issuers, intermediaries as well as the investors for the betterment of the market situation. 

References-

https://www.sebi.gov.in/sebi_data/attachdocs/1456380272563.pdf

https://www.sebi.gov.in/acts/contractact.pdf

https://www.scconline.com/

https://www.mca.gov.in/SearchableActs/Section195.htm

Any questions? Leave a comment.

 

Link to some of my articles (published on other websites):

 

https://excelonip.com/an-overview-on-intellectual-property-rights-and-its-international-position/

https://blog.ipleaders.in/legal-aspects-related-assisted-suicide/amp/

https://blog.ipleaders.in/analysis-human-rights-modern-era/amp/

https://blog.ipleaders.in/applicability-mnaghten-rules-contemporary-situations/amp/

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