At present, there are sixteen stock exchanges in the world with a market capitalization of over US$ 1 Trillion. While the NYSE (New York Stock Exchange) takes the first spot in the world based on the parameter Market Capitalization, the Indian Capital market is also one of the biggest Capital Markets in the world. SENSEX (Stock Exchange Sensitive Index), also known as BSE-30, is the oldest and the main stock exchange of India, which plays a significant role in the global market. Everything requires a particular body for its governance, to control and monitor this Capital Market, the government of India formed the SEBI (Securities and Exchange Board of India[1]). Here, in this article, we will go through the Powers of SEBI.
Some Major Highlights of SEBI
SEBI is a regulatory body of the government of India established on 12 April 1992 under the SEBI Act, 1992. It is headquartered at the Bandra Kurla Complex in Mumbai with the regional offices in New Delhi, Kolkata, Chennai, and Ahmadabad.
The main objective of SEBI is to control and regulate the Capital market and ensure that the Indian capital market works systematically. This will provide investors with a transparent environment and promote the development of the capital markets.
Structure of SEBI
SEBI has a hierarchical structure which comprises of various departments which are managed by their respective department head. The list of some of the departments of SEBI is:
- Corporation finance
- Economic and Policy Analysis
- Debt and Hybrid Securities.
- Human resources
- Investment Management
- Commodity Derivatives market
- International Affairs
- National Institute of Securities Market.
Board of Directors
The senior management of SEBI consists of a Board of Directors who are appointed by different government organizations.
- The Union government of India nominates the Chairman of Securities and Exchange Board of India.
- Two officers from the Union Finance Ministry.
- A member will be appointed from the RBI (Reserve Bank of India).
- The Union government will appoint another five members.
What Are the Major Role of SEBI?
The main aim behind the formation of SEBI is to protect the interests of investors in the Securities Market. It means that the money which the public is investing is safe because the investors invest their hard-earned money in the hope of getting a better return.
- SEBI act as the Issuer of the Securities:
The Security and Exchange Board of India ensures that the issuance of the IPO (initial public offering) and FPO (Follow-Up Public Offering) takes place in a healthy and transparent manner. IPO is the fresh issuance of shares of a company in the Stock market, whereas FPO is the issuance of the additional shares after an Initial Public Offering.
- SEBI acts as the Protector for both the Traders and Investors
It is the responsibility of SEBI to safeguard the interest of the investors and ensure that the investors do not become a victim in the hands of any stock market fraud.
- SEBI acts as Financial Intermediaries
The body acts as an intermediate in the stock market to ensure that all the market transactions take place smoothly. It also monitors the activities of the financial intermediaries such as the broker, sub-broker, NBFC, etc.
- SEBI acts as the prohibition of the inner trade in securities and controls the unfair trade practices related to the Securities market.
Functions of SEBI:
SEBI primarily has three functions-
- Protective Function
- Regulatory Function
- Development Function
Protective Functions
As the name suggests, protective functions are carried out by SEBI to protect the investor’s interest and other financial participants like check price rigging, promoting fair practices, to create consciousness among the investors and prohibit the fraudulent activities and unfair trade practices
Regulatory Functions
The objective behind performing these functions is to keep a check on the business of the financial markets work function. These functions shall include-
- Framing the code of conduct and guidelines for the proper function of the corporate and financial intermediaries.
- Regulate the takeover of companies.
- Conduct the audit of exchanges and inquiries
- Registration of the brokers, merchant bankers etc.
- Fees Levying
- Implementing and exercising powers
- Regulate and register the credit rating agency
Development Functions
The development functions performed by the SEBI includes but are not limited to-
- Conveying training to intermediaries
- Promote fair trading and reduce malpractices
- Carrying of the research work
- Encouragement of the self-operating enterprises
- Buying and selling of mutual funds from AMC via broker.
What are the Powers of SEBI?
To function efficiently and keep an eye over the share market, SEBI has been granted some powers.
Quasi-Judicial:
To ensure fairness, transparency, and accountability in the securities market, SEBI has the powers to deliver judgments related to any kind of fraud and other unethical practices in terms of the securities market. It includes the drafting of the legislature pertaining to the Capital Markets.
Quasi-Executive:
SEBI has the powers to implement the regulations and judgments and take legal actions against the violators. Also, this body is authorized to inspect books of accounts and other documents if it violates the regulations.
Quasi-Legislative:
SEBI has the right to frame the rules and regulations to protect the interest of the investors. It also consists of insider trading regulations, listing obligations, and disclosure requirements.
What are the Mutual Fund Regulations by SEBI?
The regulations for Mutual Funds laid down by SEBI are:
- Any group company which includes the asset management company of a fund cannot hold 10% or more of the shareholding and voting rights in the asset management company.
- This asset management company cannot have the representation on a board of any other mutual hand.
- The cap of all the stock is limited to 25% for all the indices except the index for a Sectoral or thematic index. The cap cannot be more than 35% for these indexes.
- The overall weight of the top three constituents of the index cannot be more than 65%.
- The new funds must submit the status of their compliance to the SEBI before it is getting launched.
- Investors of liquid schemes who exit the scheme within a period of seven days need to pay the exit penalty.
Conclusion
SEBI (Securities and Exchange Board of India) is the body which is responsible for the efficient functioning of the share market of our country. Also, it is the role of SEBI to keep an eye on the investors who invest their hard-earned money in the share market does not go in waste. Besides this, the Powers of SEBI need to go through the Securities Appellate Tribunal and the Supreme Court of India.
Read our article:How SEBI Protects Investor Right?
