SEBI AS A REGULATORY BODY

G E N E S I S , O R G A N I Z AT I O N ,
OBJECTIVES AND FUNCTIONS
OF SEBI.
WH AT I S S EB I ?
• SEBI stands for Securities and Exchange Board of
India.
• It is a statutory regulatory body that was
established by the Government of India in 1992 for
protecting the interests of investors investing in
securities along with regulating the securities
market. SEBI also regulates how the stock market
and mutual funds function.
• SEBI was founded on April 12, 1992, under the
SEBI Act, 1992. Headquartered in Mumbai, India,
• SEBI has regional offices in New Delhi, Chennai,
Kolkata and Ahmedabad along with other local
regional offices across prominent cities in India.
ABOUT SEBI
The Securities and Exchange Board of India is the highest
regulatory body with regards to the functioning of the Security
Markets, Stock Exchanges, Commodities Markets etc in India. •
SEBI was formed in 1988 as a non-statutory body.
• It was made an Autonomous and Independent Regulatory body
after the passing of the Securities and Exchange Board of India
Act, 1992 by the Indian Parliament.
• SEBI functions under the Ministry of Finance.
• SEBI now has Statutory powers with regards to regulation of
the Securities and Commodities market in India.
• The main objective of SEBI is to facilitate the growth and
development of the capital markets and to ensure that the
interests of investors are protected.
• The Head office of SEBI is in Mumbai and regional offices at
Kolkata (East), Ahmedabad (West), New Delhi (North) and
Chennai (South).
• It also has local offices in almost all major cities of the country.
S T RU C T U RE O F S E B I
• The functions of SEBI are carried out
by a Board of 9 members – 1
Chairman and 8 members
• The Chairman of SEBI is nominated
by Central Government
• Two Board members who are hailing
from the Union Ministry of Finance
• One Board member who is appointed
by the Central Bank.
• Rest of 5 members (3 of them must be
full time) are nominated by the
Government of India.
• The current Chairman of SEBI is
Madhabi Puri Buch.
OBJECTIVES OF SEBI
Following are some of the objectives of the SEBI:
1. Investor Protection: This is one of the most
important objectives of setting up SEBI. It
involves protecting the interests of investors
by providing guidance and ensuring that the
investment done is safe.
2. Preventing the fraudulent practices and
malpractices which are related to trading and
regulation of the activities of the stock
exchange
3. To develop a code of conduct for the financial
intermediaries such as underwriters,(financial
risk taking)(loan, insurance, securities,
investments), brokers,(financial consult, MM,
ESTATE PLANNING, TAX,) etc.
4. To maintain a balance between statutory
regulations and self regulation.
FUNCTIONS OF SEBI

3.
1. Protective 2. Regulatory
Development
Function Function
Function
PROTECTIVE FUNCTION:

The protective function

implies the role that SEBI
plays in protecting the
investor interest and also that
of other financial
participants. The protective
function includes the
following activities.
A. PROHIBITS INSIDER TRADING:

Insider trading is the act of buying or

selling of the securities by the insiders
of a company, which includes the
directors, employees and promoters.
To prevent such trading SEBI has
barred the companies to purchase their
own shares from the secondary market.
Insider is any person connected with the
company such as directors, promoters
etc. These insiders have sensitive
information which affects the prices of
the securities.
This information is not available to people
at large but the insiders get this privileged
information by working inside the
company and if they use this information
to make profit, then it is known as insider
trading.
e.g., the directors of a company may
know that company will issue Bonus
shares to its shareholders at the end of
year and they purchase shares from
market to make profit with bonus issue.
This is known as insider trading.
SEBI keeps a strict check when insiders
are buying securities of the company and
takes strict action on insider trading.
B. CHECK PRICE RIGGING:
• Price rigging is the act of causing
unnatural fluctuations in the price of
securities by either increasing or
decreasing the market price of the stocks
that leads to unexpected losses for the
investors. SEBI maintains strict watch
in order to prevent such malpractices.

• Price rigging refers to manipulating the

prices of securities with the main
objective of inflating or depressing the
market price of securities. SEBI
prohibits such practice because this can
defraud and cheat the investors.
C. PROMOTING FAIR PRACTICES:

SEBI promotes fair trade practice and works towards prohibiting

fraudulent activities related to trading of securities. SEBI does not allow
the companies to make misleading statements which are likely to induce
the sale or purchase of securities by any other person.

SEBI undertakes steps to educate investors so that they are

able to evaluate the securities of various companies and
select the most profitable securities.

(a) SEBI has issued guidelines to protect the interest of debenture-

holders wherein companies cannot change terms in midterm.
(b) SEBI is empowered to investigate cases of insider trading and has
provisions for stiff fine and imprisonment.
(c) SEBI has stopped the practice of making preferential allotment of
shares unrelated to market prices.
D . F IN A N C I A L ED U C AT IO N P R O V I D E R :

SEBI educates the

investors by conducting
online and offline
sessions that provide
information related to
market insights and also
on money management.
R E G U L AT O R Y F U N C T I O N :

Regulatory functions involve

establishment of rules and
regulations for the financial
intermediaries along with
corporates that helps in
efficient management of the
market.
These functions are performed by SEBI to regulate the
business in stock exchange. To regulate the activities of stock
exchange following functions are performed:
(i) SEBI has framed rules and regulations and a code of
conduct to regulate the intermediaries such as merchant
bankers, brokers, underwriters, etc.
(ii) These intermediaries have been brought under the
regulatory purview and private placement has been made
more restrictive.
(iii) SEBI registers and regulates the working of stockbrokers,
sub-brokers, share transfer agents, trustees, merchant bankers
and all those who are associated with stock exchange in any
manner.
(iv) SEBI registers and regulates the working of mutual funds
etc.
(v) SEBI regulates takeover of the companies.
(vi) SEBI conducts inquiries and audit of stock exchanges.
D E V E L O P M E N TA L F U N C T I O N :

Developmental function refers to the steps taken by SEBI in order to provide the investors with a knowledge of
the trading and market function. The following activities are included as part of developmental function.

1. Training of intermediaries who are a part of the security market.

2. Introduction of trading through electronic means or through the internet by

the help of registered stockbrokers.

3. By making the underwriting an optional system in order to reduce

cost of issue.
These functions are performed by the SEBI
to promote and develop activities in stock
exchange and increase the business in stock
exchange. Under developmental categories
following functions are performed by SEBI:
(i) SEBI promotes training of intermediaries
of the securities market.
(ii) SEBI tries to promote activities of stock
exchange by adopting flexible and
adoptable approach in following way:
(a) SEBI has permitted internet trading
through registered stockbrokers.
(b) SEBI has made underwriting
optional to reduce the cost of issue.
(c) Even initial public offer of primary
market is permitted through stock exchange.
PURPOSE OF SEBI
• The purpose for which SEBI was setup was to
provide an environment that paves the way for
mobilsation and allocation of resources. It provides
practices, framework and infrastructure to meet the
growing demand.
• It meets the needs of the following groups:
1. Issuer: For issuers, SEBI provides a marketplace
that can utilized for raising funds.
2. Investors: It provides protection and supply of
accurate information that is maintained on a regular
basis.
3. Intermediaries: It provides a competitive market
for the intermediaries by arranging for proper
infrastructure.
T H E O R G A N I ZATI O N A L S T R U C T U R E O F S E B I

1. SEBI is working as a corporate sector.

2. Its activities are divided into five departments. Each
department is headed by an executive director.
3. The head office of SEBI is in Mumbai, and it has
branch office in Kolkata, Chennai and Delhi.
4. SEBI has formed two advisory committees to deal
with primary and secondary markets.
5. These committees consist of market players, investors
associations and eminent persons.
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W H A T A RE T H E P OW E RS O F S E B I
Securities and Exchange Board of India has the following
three powers:
Quasi-Judicial: With this authority, SEBI can conduct
hearings and pass ruling judgements in cases of unethical
and fraudulent trade practices. This ensures transparency,
fairness, accountability and reliability in the capital market.
SEBI PACL case is an example of this power.
Quasi-Legislative: Powers under this segment allow SEBI
to draft rules and regulations for the protection of the
interests of the investor. One such regulation is SEBI
LODR (Listing Obligation and Disclosure Requirements).
It aims at consolidating and streamlining the provisions of
existing listing agreements for several segments of the
financial market like equity shares. This type of regulation
formulated by SEBI aims to keep any malpractice and
fraudulent trading activates at bay.
Quasi-Executive: SEBI is authorized to file a case against
anyone who violates its rules and regulation. It is
empowered to inspect account books and other documents
as well if it finds traces of any suspicious activity
POWERS
For the discharge of its functions efficiently, SEBI has
been vested with the following powers:
• To approve by−laws of Securities exchanges.
• To require the Securities exchange to amend their
by−laws.
• Inspect the books of accounts and call for periodical
returns from recognized Securities exchanges.
• Inspect the books of accounts of financial
intermediaries.
• Compel certain companies to list their shares in one
or more Securities exchanges.
• Registration of Brokers and sub-brokers
 SEBI COMMITTEES

• Advisory
• Committee for
Committee for the • Takeover
• Technical Advisory review of structure of
SEBI Investor Regulations Advisory
Committee infrastructure Protection and
institutions Committee
Education Fund

• Primary Market • Secondary Market • Corporate Bonds &

• Mutual Fund
Advisory Committee Advisory Committee Securitisation
Advisory Committee
(PMAC) (SMAC) Advisory Committee
RE S P O N S I B I L I T I E S
The Preamble of the Securities and Exchange Board of India describes the basic functions of the
Securities and Exchange Board of India 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 there
with or incidental there to".
SEBI has to be responsive to the needs of three groups, which constitute the market:
• Issuers of securities
• Investors
• Market intermediaries
There is an appeal process to create accountability.
There is a Securities Appellate Tribunal which is a three-member tribunal and is currently headed by
Justice Tarun Agarwal, former Chief Justice of the Meghalaya High Court.
A second appeal lies directly to the Supreme Court.
SEBI has taken a very proactive role in streamlining disclosure requirements to international
standards.