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SEBI: The Regulatory Body of the Indian Stock Exchange

Investment starts from a set goal and objective. It’s all about following a dream with a vision. It is about understanding the market and grabbing the nerve at the right time, importantly the gut feel and common sense which shall reap immense profits.

Every country has its own stock exchange to buy and sell securities. And If you want to buy stocks, you will almost always need a Stock broker — essentially, a middleman — to place those orders on your behalf. All such exchanges work on a given set of rules and regulations to abide by while trading. Different countries have different time zones, currencies, and many stock exchanges within themselves. For example, India has around 8 notable exchanges and several other small scale exchanges. Having a centralized domestic governing body is very important for the smooth functioning of such exchanges.Therefore, it is important to bring into existence a regulatory body to control their financial and investment trade markets.

In India, the governing body of stock exchange is the Securities and Exchange Board of India (SEBI). It looks after all such functions that bring unified operation and coordination of these domestic financial markets with each other.

SEBI was established in the year 1988. It was assignedthe role of governing and regulatory authority only on the 12th of April, 1992, through the SEBI Act (1992). In 2005, it became a statutory body after the changes made to the original Act. The SEBI head office is located in BandraKurla Complex Business District in Bandra East, Mumbai. There are regional offices present in the Eastern, Western, Northern and Southern zones of the country as well.

Management Team of SEBI:

The Board management is made up of its own members. It consists of 8 members:

  • A Chairman- Nominated by the Union Government of India
  • 2 officers- Members of the Union Finance Ministry of India
  • 1 member of the Reserve Bank of India
  • 5 other members- As nominated by the Union Government of India

Powers of SEBI

SEBI has three ultimate powers namely:

  • Quasi-Legislative Powers- The right to draft regulations through the SEBI Act.
  • Quasi-Judicial Powers- The right to pass new orders and rules.
  • Quasi-Executive Powers- The right to independently examine and investigate; and the right to take action as they deem fit.

Note: Though SEBI has such vast powers, the Securities Appellate Tribunal and the Supreme Court of India looks over the functions and its consequences constantly. Major changes have to be passedthrough the two aforementioned bodies before being adopted.

Objectives of SEBI

Mentioned below are the main objectives of SEBI:

  • Protection- Protection of the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected there with or incidental thereto.
  • Competitive and Professional objective: To regulate healthy and professional competition among merchant banks, agents, etc by designing and implementing a uniform code of conduct.
  • Prevention of trading malpractices.
  • To balance statutory and self regulatory functioning of the securities industry.
  • To promote orderly functioning of all securities exchanges in the country.

Functions and Responsibilities of SEBI

The preamble of the SEBI Act lists all the functions of the regulatory body in detail. The SEBI has three main functions; protective, developmental and regulatory functions.

Following are its functions and responsibilities towards different parties.

  1. Protective Functions
  2. Prevention of insider trading and prohibits the management, directors or promoters from making profits by sharing sensitive insider information.
  3. Promotion of fair trade practices.
  4. Prevention and detection of fraudulent and unfair trading by keeping a check on price manipulation and tricking investors by providing false or misleading information.
  5. Educating Investors through campaigns, conducting seminars and publishing bulletins.

 

  1. Developmental Functions
  2. Training and development of intermediaries.
  3. Research activities- Conducts research that is useful to all trading participants and publishes journals available to the public.
  4. Fair trade through making underwriting optional.

 

  1. Regulatory Functions
  2. Performing its duties and exercising the powers delegated to it by the Government through the Securities Contract Act, 1956.
  3. Compulsory registration of merchant banks,stock exchange brokers, sub-brokers and agents.
  4. Notifications of rules and regulations for the smooth functioning of all the intermediaries present in the market.
  5. Regulation of Investor Schemes such as mutual funds.
  6. Levying of penalties, charges and fees as and when necessary.
  7. Prohibition of unfair trade practices.
  8. Conducting inquiries and inspections through stock exchange audits.

 

Conclusion

The SEBI in many ways acts like a parent to all the stock exchanges and securities industry of the country. By performing its daily functions, it promotes healthy trade relations with foreign and domestic investors. The reason for the establishment of this governing body was heavy interest in investing from the public and severe malpractices conducted in the past to dupe the investors. True to its words, SEBI has managed to handle one of the most lucrative trade markets of the world. Bombay Stock Exchange and National Stock exchange are the most important trade centres of India. Read more about the BSE and NSE in our article “What is The Difference between BSE and NSE”?

Indira Securities is dedicated to help our investors learn more about the Indian stock market and if you want to Open Demat Account we will provide you free Demat services and life time free research calls. We’re always at your service and just a click away. We wish you luck on your trading journey.