SEBI (Securities and Exchange Board of India)

Last Updated : May 18, 2023, 10:59 a.m.

SEBI, established under the SEBI Act on April 12, 1992, is a regulatory body entitled to regulate the Indian Securities Market owned by the Indian Government. It was objected to safeguarding the interest of the investors, and securities issuer, regulating the market by introducing rules and regulations and establishing a transparent market.

This article presents a detailed discussion of the power, roles, structures, and functions of SEBI.

Role of SEBI

The role of SEBI is to monitor all the stock market players in India. Its main objective is to operate the stock market smoothly and efficiently. Hence, creating a secure atmosphere for all the investors and the other participants is its key aim.

It guides traders and investors to conduct trades according to rules and regulations.

The role of SEBI in India includes regulating and promoting the following entities:

• Issuers of Securities: These are represented by the companies and industries that have their stock listed on the stock market for trade to raise funds for the expansion. SEBI ensures the smooth processing of IPO (Initial Public Offering) before and after the process.
• Investors: The most active participants in the stock market are the investors. The regulatory authority of SEBI protects the interest of investors who have invested their money in the market.
• Financial Intermediaries: The intermediaries are the mediator or a connecting link between the issuers and the investors. They make sure that trading is smooth and hassle-free. Intermediaries include brokers, custodians, underwriters and credit rating agencies.

Functions of SEBI

There are three primary functions of SEBI .

Protective Functions

SEBI protects the interest of the investors and the other financial participants. The protective functions of SEBI include the following.

• Prohibition of unfair trade and fraud related to market subjects.
• Prevention of insider trading, which is an act of buying and selling security based on confidential information
• Check on price rigging, an unnatural fluctuation of securities based on an increase or decrease in market price, ultimately hampers the investors.
• Direction to perform fair trade and protects the interest of investors and other intermediaries participants.

Regulatory Functions

Establishing rules and regulations for financial intermediaries and corporates is a key part of the regulatory functions of SEBI. It performs in various prospects such as:

• Regulating the businesses in the stock market
• Regulating the working of depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies and other intermediaries
• Managing different schemes such as mutual funds and capital funds
• Regulating the process of taking over the companies
• Conducting audits, inquiries, and inspections as per the requirement.

Development Functions

It refers to the function of providing knowledge and guidelines to investors on the basis of trading and market functions. This activity is done by-

• Providing training to the investors and other participants of the security market
• Developing the electronic means of trading through a registered broker
• Encouraging and overseeing the activities of self-regulatory organisations.

Objectives of SEBI

SEBI is responsible for meeting the following objectives.

• Protecting investors’ rights and interests
• Prevention of malpractices and fraud in the stock exchange
• Promoting fair and proper functioning of the capital market
• Establishing a balance between statutory regulation and self-regulation of the securities industry
• Developing and regulating a code of conduct to prevent fraud and misconduct.

Powers of SEBI

SEBI has three major powers related to Indian Capital Market.

• Quasi-Judicial: Rendering judgments on matters concerning fraud and unethical practices.
• Quasi-Executive: Enforcing regulations and judgments, taking legal action against violators, and inspecting books and documents for regulatory violations.
• Quasi-Legislative: Creating rules and regulations to protect investors, such as insider trading regulations, listing obligations, and disclosure requirements.

Structure of SEBI

Here is the organisational structure that executes the functions of SEBI.

• Chairman: The chairman of SEBI is appointed by the central government of India
• One Board Member – appointed by the central government’s Ministry to look after the Financial and Administrative Functions of the Companies Act, 2013.
• One Board Member – appointed by the reserve bank of India
• Five Board Members – appointed by the Union Government of India. Three members have to be full-time members of SEBI.

Departments of SEBI

There are various departments to carry out the functions of SEBI.

• Commodity Derivative Market Regulation Department (CDMRD)
• Corporation Finance Department (CFD)
• Department of Economic and Policy Analysis. (DEPA)
• Department of Dept and Hybrid Securities
• Enforcement Department 1 (EFD1)
• Enforcement Department 2 (EFD2)
• Enquiries and Adjudication Department (EAD)
• General Service Department (GSD)
• Human Resources Department (HRD)
• Information Technology Department (ITD)
• Integrated Surveillance Department (ISD)
• Investigations Department (IVD)
• Investments Management Department (IMD)
• Legal Affair Department (LAD)
• Market Intermediaries Regulation and Supervision Department (MIRSD)
• Market Regulation Department (LAD)
• Office of International Affairs (OIA)
• Office of Investor Assistance and Education (OIAE)
• Office of the Chairman (OCH)
• Regional Offices (RO)

Mutual Funds and SEBI

The functions of SEBI include the establishment of various Mutual Funds regulations, which the sponsors, asset management firms, and shareholders have to follow.

• SEBI must give its approval to the mutual fund’s manager for its Assets Management Companies (AMC).
• Before issuing mutual funds scheme, it must be registered with SEBI.
• AMC director cannot run two AMC at the same time.
• AMC trustees cannot invest in their own Mutual Funds.
• AMC must disclose all the information in the offer document to the investors.
• The offer documents caring all the information must not be misleading or incorrect.

SEBI Guidelines

SEBI has given several guidelines for investors who want to invest in mutual funds.

• Investors must be aware of their own finances before investing in mutual funds and also must know the risk involved in the investment.
• Investors must go through every detail on the website, such as asset allocation, risk level, past performance, expense ratio, tax, etc.
• Investors can invest in different schemes to decrease the risk factor and get a high capital value in future.
• For long-term growth, investors must match the investment’s objective with the investment’s duration.

Conclusion

SEBI is an apex regulatory body for the stock market and securities, which protects the interests of all participants. Investors, traders and anyone else involved in the activity of the stick market must be well aware of the guidelines and functions of SEBI to ensure secure investment and trading.

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