What is SEBI?
- SEBI stands for Securities and Exchange Board of India, the principal regulator of the securities market in India. It ensures the prevention of malpractices in the stock market.
- SEBI operates as a statutory body under the Ministry of Finance, Government of India.
Objectives of SEBI
The main objectives of SEBI are:
- To act as a custodian of the Indian Capital Market.
- To safeguard the interests of investors in securities.
- To upgrade and synchronize the securities market.
Evolution of SEBI
- Before the establishment of SEBI, the Capital Issues (Control) Act, 1947 governed the regulation of capital issues.
- In the late 1980s, with the LPG reforms underway, the need arose for an independent body to regulate and protect the Indian financial system.
- SEBI was constituted in April 1988 as the main controller of capital markets in India by an executive resolution of the Government of India.
- With the enactment of the Securities and Exchange Board of India Act, 1992, SEBI became an autonomous and statutory body.
Organizational Structure of SEBI
- SEBI’s organizational structure aims to protect investors and regulate the securities market. It operates with a corporate structure with several departments and levels of hierarchy.
- Each department of SEBI has a head who manages its functioning.
- The Board of Directors consists of 9 members:
- A Chairperson nominated by the Government of India.
- 2 members from the Union Ministry dealing with administration and finance (Company Act 2013).
- 1 member from RBI (Reserve Bank of India).
- 5 other members, with at least 3 being whole-time members appointed by the Government of India.
- SEBI comprises about twenty departments, including:
- Economic and Policy Analysis
- Debt and Hybrid Securities
- Corporation Finance
- Human Resources
- Enforcement
- Legal Affairs
- Commodity Derivatives and Market Regulation
- Investment Management
Roles and Functions of SEBI
- Market Statute
- SEBI sets the conditions for raising capital from the public to protect the interests of investors.
- Market Expansion
- SEBI works to widen and deepen securities markets by improving both macro and micro structures, including steps like introducing a transparent online trading system and enhancing the risk management framework.
- Implementation of Regulatory Norms
- SEBI ensures compliance with its norms through inspections and investigations of registered intermediaries.
- It has the authority to launch criminal proceedings against entities breaching regulations.
- SEBI can also act as a civil court to inspect records, issue summons, and investigate securities-related entities.
- Investors’ Conservation
- SEBI facilitates redressal of investor grievances and promotes investor education and awareness.
- It offers dispute resolution mechanisms and compensates investors when necessary.
Major Achievements of SEBI
SEBI has been instrumental in ensuring the well-functioning and development of the securities market in India. Its major achievements include:
- Initiating nationwide electronic trading.
- Establishing clearing corporations.
- Nurturing the mutual fund industry.
- Introducing a risk management system.
- Demilitarizing shares.
- Shortening settlement cycles.
Powers of SEBI
SEBI holds several powers:
- Quasi-Legislative: SEBI makes rules, regulations, and circulars for regulating the securities market.
- Quasi-Judicial: SEBI passes orders and rulings.
- Quasi-Executive: SEBI conducts enforcement actions and investigations.
- SEBI can prohibit insider trading if found guilty.
- SEBI regulates stock exchanges and business conduct in securities markets.
- SEBI can order an investigation if there are reasonable grounds for it.
- SEBI regulates levies, fees, investment schemes, and notifies rules and regulations.
Issues Associated with SEBI
- SEBI has been criticized for focusing less on prudential regulation and over-controlling market conduct.
- There is a widespread fear of regulation, with a lack of prior consultation with the market and a system for reviewing regulations to assess if they have met their purpose.
- Rules and enforcement are sometimes inadequate, particularly in areas like insider trading.
- Compared to counterparts in the UK and US, SEBI has greater legislative and enforcement powers.
Way Forward
- SEBI should shift its focus from regulating market conduct to prudential regulations.
- Instead of focusing solely on the volume of funds being raised as a parameter for growth and success, SEBI should engage in deeper reviews and research for improvements.
- Lateral entry could be encouraged to draw the best talent to strengthen SEBI’s human resources.
- To resolve overlap and exclusion issues, a unified financial regulator may be needed.
