What is SEBI and What is its role in the Stock market

Probably, you’ve heard the name, RBI. What is it? It is a body that regulates the banking system in India. In the same manner, there is also a regulatory body for the stock market which is known as SEBI.

SEBI

  • SEBI stands for ‘Securities and Exchange Board of India’.
  • It is the regulator of the stock market in India.
  • SEBI was constituted as a non-statutory body on April 12, 1988, through a resolution of the Government of India but it does not have any statutory powers as it was not autonomous then.
  • After the passing of the SEBI Act, 1992; SEBI was established as a statutory and autonomous body on January 30, 1992.
  • ‘Controller of capital issues’ was the regulatory authority before SEBI came into existence. This authority was derived from the capital issues (control) Act, 1947.
  • SEBI’s headquarter is in Bandra Kurla Complex, Mumbai and SEBI also have 4 regional offices:
    • Eastern regional office at Kolkata.
    • Western regional office at Ahmedabad.
    • Northern regional office at Delhi.
    • Southern regional office at Chennai.
  • SEBI Board members comprise the following 9 designated officers:
    • The Chairman is nominated by the GOI.
    • 2 officers from the Union Finance Ministry.
    • 1 member from the RBI.
    • 5 other members which are nominated by again the GOI.

What is SEBI Act

The SEBI Act, 1992 is an act enacted for the regulation and development of the stock market in India. It was amended in the years 1995, 1999 and 2002 to meet the requirements of changing needs of the stock market.

The main objectives of the SEBI Act, 1992 are the establishment of the Securities and Exchange Board of India and the development of the Indian stock market.

Role of SEBI

SEBI acts as a keeper for all the participants of the securities market and its main aim is to provide such an environment to the investors that facilitate the smooth working of the securities market.

To get it done, SEBI ensures that the 3 main participants of the securities market are taken care of:

  1. Issuers of securities
  2. Investors
  3. Financial Intermediaries

1. Issuers of securities

Issuers are the companies that raise capital from the market through public issues. SEBI makes sure that the companies get a healthy and transparent environment for their funding needs.

2. Investors

Investors are all those people who invest in companies. Investors and traders are the ones who keep the share market active. SEBI is responsible for creating and maintaining an environment that is free from malpractices to restore the confidence of the investors who invest their hard-earned money in the market.

3. Financial Intermediaries

Intermediaries are the people or entities who act as middlemen between the issuers and investors. Depositories, Clearing corporations, broking firms etc. are some financial intermediaries which make financial transactions smooth and safe.

Objectives and Functions of SEBI

The Preamble of the SEBI describes the basic functions of the SEBI as “…to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto”.

Main objectives of SEBI

  • Protection of the interest of investors in the stock market and providing a healthy environment for them.
  • Prevention of malpractices like insider trading, ring trading or any other illegal procedure.
  • Keep a close check over the financial intermediaries’ activities.

Major functions of SEBI

  • Controls the activities of the stock exchanges.
  • Safeguards the rights of the shareholders and investors.
  • Guarantees the security of investors’ investments.
  • Check fraudulence, if any, going on in the market.
  • Enables a competitive professional market for intermediaries.
  • Provides the marketplace in which the issuers can raise the capital for their businesses.
  • Ensures safety and supply of precise and accurate information from the investors.
  • Analyses the stock trading and safes the stock market from malpractices.
  • Provides education to the investors regarding the stock market.
  • Controls the intermediaries like Depositories, Clearinghouses, Broking firms etc.

Conclusion

At the end of the 1970s and during the 1980s, stock markets were emerging as the new sensation among Indian individuals. Many malpractices started taking place such as unofficial investment bankers, unofficial private placements, violation of rules and regulations of stock exchanges, delays in share delivery etc.

Due to these malpractices, investors started losing confidence in the stock market. The Indian govt. felt a sudden need to set up an organisation to regulate the working of the markets and reduce the malpractices going on in the share market. As a result, the Government came up with the establishment of SEBI.

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