SEBI’s quasi-powers: Keeping India’s securities market ethical

What is SEBI?

On April 12, 1988, a government resolution created SEBI as a non-statutory organisation. It later transformed into a governing body in 1992, with the enactment of the Securities and Exchange Board of India Act, 1992 (15 of 1992), which came into effect on January 30, 1992. This transition marked a significant milestone in SEBI’s evolution.

SEBI functions as a market regulator, aiming to maintain equilibrium in daily stock market operations through established regulatory frameworks. SEBI headquarters is in Mumbai, and it maintains offices in parts of Gujarat, Rajasthan, Karnataka, Kerala, Bihar, Assam, Haryana along with head branches in New Delhi, Chennai, Kolkata.  

Structure of SEBI

SEBI operates within a structured framework encompassing numerous departments, each led by a department head.

These departments, totalling around 20 in number, cover a wide array of functions, including corporation finance, economic and policy analysis, debt and hybrid securities, enforcement, human resources, investment management, regulation of commodity derivatives markets, and legal affairs, among others.

SEBI’s hierarchical composition includes the following key members:

• The Chairman, appointed by the Union Government of India.
• Two representatives from the Union Finance Ministry hold positions within this structure.
• One member, designated by the Reserve Bank of India, is also part of the regulatory framework.
• Additionally, five other members are nominated by the Union Government of India to form a diverse team overseeing SEBI’s operations and decision-making processes.

Source: SEBI

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Role and functions of SEBI

SEBI, the regulatory authority overseeing India’s financial markets, holds a crucial responsibility in protecting the welfare of investors and maintaining the equitable and effective operation of financial markets.

Its responsibilities include crafting guidelines, monitoring market transactions, and advancing openness and honesty within the securities market. 

SEBI also regulates market participants, including stock exchanges, brokers, and listed companies, to maintain market stability and protect investor rights. By enforcing compliance with its rules and regulations, SEBI contributes to the overall health and trustworthiness of India’s financial markets.

Functions of SEBI:

• Regulatory oversight: SEBI regulates various market entities, including stock exchanges, brokers, and depository participants, to ensure they operate in compliance with its guidelines. 
• Protection of Investors: SEBI’s core mission centres on shielding the rights of investors. It advocates for transparency, mandates businesses to divulge significant details, and guarantees equitable and consistent treatment of all investors.
• Market development: SEBI stock market plays a vital role in growth and promotion of the securities market. It introduces reforms and innovative financial products to attract investment and enhance market liquidity.

• Surveillance and enforcement: SEBI employs surveillance systems to monitor market activities and detect irregularities, insider trading, and market manipulation. This helps in identifying potential market manipulations and taking preventive actions.
• Issuance and listing: SEBI regulates the issuance and enlists the company securities. It ensures that the process is fair, transparent, and adheres to regulatory standards.
• Educational initiatives: SEBI conducts investor awareness programs to educate investors about market risks, investment strategies, and their rights and responsibilities.
• Policy formulation: SEBI formulates policies and regulates the operations of the capital markets. 
• Regulation of intermediaries: SEBI regulates intermediaries like brokers, portfolio managers, and mutual funds. It ensures their compliance with rules and guidelines, protecting the interests of investors who use their services.
• Risk Mitigation: SEBI encourages risk management measures among market participants, reducing systemic risks and fortifying market stability.
• Research in Securities Markets: SEBI conducts research and inquiries into the securities market to gain knowledge, recognise emerging threats, and formulate policies to tackle them.
• Global Collaborations: SEBI partners with international regulatory entities to harmonise its procedures with global benchmarks and bolster cross-border regulatory coordination.
  

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Powers of SEBI

The three significant powers that SEBI possesses, each contributing to its regulatory role:

1. Quasi-judicial authority: SEBI possesses quasi-judicial powers, enabling it to render judgments concerning fraudulent and unethical activities within the securities market. This authority ensures that fairness, transparency, and accountability prevail in market dealings. 

SEBI acts as a watchdog, overseeing market conduct and penalising those involved in fraudulent practices, thus maintaining market integrity.

2. Quasi-executive authority: SEBI exercises quasi-executive powers, allowing it to enforce the regulations and judgments it pronounces. When violations occur, SEBI can initiate legal actions against wrongdoers, impose penalties, and even inspect the books of accounts and related documents to investigate regulatory breaches. 

This authority grants SEBI the capability to ensure compliance and deter market misconduct. 

3. Quasi-legislative authority: SEBI holds quasi-legislative authority, empowering it to formulate and enforce rules and regulations aimed at safeguarding the interests of investors and maintaining market stability. 

SEBI rules provide insights on insider trading, listing specifications, disclosure necessities. SEBI helps prevent market malpractices and promotes ethical conduct.

While SEBI possesses these powers, it’s important to note that the outcomes of its regulatory actions can still be subject to review and appeal processes, involving the Securities Appellate Tribunal and the Supreme Court of India. This ensures a checks-and-balances system, upholding justice and fairness in the securities market.

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Bottomline

In summary, SEBI in India plays a crucial role in upholding the honesty and steadiness of India’s financial markets. Its functions include regulations, investigations, and quasi-legal powers that promote transparency and safeguard investors. 

As we explore SEBI’s intricate operations, it becomes clear that its steadfast dedication to fair and accountable markets significantly influences India’s financial landscape. Comprehending SEBI is essential for all stakeholders, contributing to an ethical market environment.