This article was written by Apeksha Gupta a student of National law University, Odisha.
With the growth of dealings in stock markets, emerged lot of misconducts like late delivery of shares, price rigging and violation of regulations which ultimately resulted in customers losing faith in the stock exchange. Government of India then decided to set up a regulatory body known as Securities and the Exchange Board of India (SEBI). The Narasimham Committee for capital market reforms had stressed on freeing capital market operations and the need to reinforce SEBI’S powers making it the supervisory and regulatory authority. In 1988, SEBI was set up for regulating securities market. Earlier SEBI was ineffective in controlling and regulating such activities and was a mere watch dog. Hence in 1992, SEBI was granted a statutory status and Controller of Capital Issues Act of 1947 was abolished.
SEBI is managed by members consisting of chairman (nominated by Government of India), a member from RBI, 2 officers from finance ministry and 5 members nominated by Indian government (3 being the whole time members). The objectives of SEBI are:
- To monitor and regulate the stock market activities and developing intermediaries code of conduct.
- To protect investors interest by preventing malpractices and encouraging healthily growth in the securities market.
Protective functions of SEBI
As clear from the name, SEBI’s protective function is to protect investors’ interest and provide them security by taking following actions:
- Manipulation of security prices to inflate or depress the market prices (price rigging) and thereby cheating investors is prohibited by SEBI.
- SEBI keeps check on insiders who buy securities of the company and then takes strict action on insider trading i.e. trading by insiders by using such information that is not available to general public.
- SEBI also prohibits fraudulent unfair Trade Practices by not letting the companies make misleading statements which might induce the investors.
- SEBI also undertakes steps in educating investors so that they can evaluate and make correct decisions
- SEBI promotes code of conduct and fair practices in the security market
These are implemented by SEBI to promote and develop stock exchange activities or dealings. It promotes training of intermediaries, allows internet trading and also made underwriting optional so as to reduce issue cost.
These are implemented by the SEBI for regulating stock exchange. It registers and regulates mutual funds and working of those connected with stock exchange in any manner e.g. Brokers, merchant bankers etc. SEBI also regulates the takeover of companies and conducts the inquiries.
Other function or powers given to SEBI
- SEBI has been empowered to seek records and information from any board or statutory authority or corporation established by central government, state or local government.
- If there are reasonable grounds of believing that a particular company might be indulging in unfair trade practices then SEBI may conduct inspection of registers, books or of documents and records of listed company or any public company that intends to get the securities listed.
- It shall have similar powers as given to a civil court in certain matters like summoning, oath examination , issuing of commissions and also in matters of inspection or production of books of account , records or documents of a company or of any person specified in section 12 of the SEBI act 1992.
- Has been empowered to levy fees for carrying out various functions.
- SEBI may take any of these measure during the investigation or inquiry or on completion of such an investigation or inquiry:
- Suspending any security’s trading in a recognized stock exchange.
- Prohibiting a person to deal in securities or restraining the person from gaining access to the securities market.
- Suspending office bearers of stock exchanges or of self-regulatory organizations from holding of such positions.
- Retaining the proceeds of securities of a transaction under investigation.
- Attach after passing of the order
- Directing intermediary or person associated with securities market not to alienate or dispose of an asset that forms part of transaction under investigation.
- Regulating or prohibiting the issue of prospectus, advertisements or offer document or advertisement for issue of securities.
- SEBI may make enquiries to protect interest of investors, to prevent activities from being conducted in an unfair manner and to ensure proper management of the intermediaries.
- SEBI is empowered to conduct search and seizure can be made use of if there exist reasonable grounds in believing that operations are being carried on in a way that affects badly the interests of those associated with securities market.
- SEBI is empowered to issue desist and cease order if after the inquiry Board finds that the person has violated or may violate provisions of the SEBI Act or rules made there under.
- Under Securities Contracts Regulations Act of 1956, following powers have been given to SEBI:
- Granting of recognition to stock exchange.
- Withdrawing such recognition in the interest of the trade.
- Requiring stock exchange to provide periodical returns
- Approving stock exchange for making bye – laws.
- Suspending for a limited period the business of recognized stock exchange
- Compelling listing of securities by the public companies.
SEBI has laid down strict comprehensive guidelines that control issue of financial instruments, and detailed norms for merchant bankers, stock-brokers, sub-brokers, portfolio managers and mutual funds, thus providing issuers with a place to deal fairly, providing accurate information and protection to investors and a good fair market to the intermediaries.