Securities and Exchange Board of India(SEBI)
(BASIC FINANCIAL MANAGEMENT)
Abstract of SEBI
The Securities and Exchange Board of body in 1992 and more powers were given
India (frequently abbreviated SEBI) is the through an ordinance. Since then it regulates
regulator for the securities market in India. It the market through its independent powers
was formed officially by the Government of set up by Government of India in 1988, it
India in 1992 with SEBI Act 1992 being acquired statutory form in 1992 with SEBI
passed by the Indian Parliament. Chaired by Act 1992 Functions and Responsibilities.
C B Bhave, SEBI is headquartered in the SEBI has to be responsive to the
popular business district of Bandra-Kurla needs of three groups,which
complex in Mumbai, and has Northern, constitute the market:
Eastern, Southern and Western regional
offices in New Delhi, Kolkata, Chennai and The issuers of securities
Ahmedabad. The investors
The market intermediaries.
History, role, function of sebi
SEBI has three functions rolled into one
HISTORY body quasi-legislative, quasi-judicial and
quasi-executive. It drafts regulations in its
Set up originally in 1988 by Govt. of legislative capacity, it conducts investigation
India and enforcement action in its executive
Acquired statutory form in 1992 function and it passes rulings and orders in
underSEBI its judicial capacity. Though this makes it
Act 1992 very powerful, there is an appeals process to
Chairman is CB Bhave
create accountability. There is a Securities
Headquartered in Mumbai
Appellate Tribunal which is a three member
Securities and Exchange Board of India tribunal and is presently headed by a
(SEBI) was first established in the year 1988 former Chief Justice of a High court - Mr.
as a non-statutory body for regulating the Justice NK Sodhi. A second appeal lies directly
securities market. It became an autonomous to the Supreme Court.
History and Role of SEBI in mutual funds.
funds in India In the year 1992, Securities and exchange
Board of India (SEBI) Act was passed. The
Unit Trust of India was the first mutual fund objectives of SEBI are – to protect the
set up in India in the year 1963. In early interest of investors in securities and to
1990s, Government allowed public sector promote the development of and to regulate
banks and institutions to set up mutual the securities market.
As far as mutual funds are concerned, SEBI to protect the interests of investors in
formulates policies and regulates the mutual securities;
funds to protect the interest of the investors. to promote the development of
SEBI notified regulations for the mutual Securities Market;
funds in 1993. Thereafter, mutual funds to regulate the securities market and
sponsored by private sector entities were for matters connected therewith or
allowed to enter the capital market. The incidental thereto.
regulations were fully revised in 1996 and
have been amended thereafter from time to As an important entity in the
time. SEBI has also issued guidelines to the market it works with following
mutual funds from time to time to protect objectives:
the interests of investors.
All mutual funds whether promoted by 1. It tries to develop the securities market.
public sector or private sector entities 2. Promotes Investors Interest.
including those promoted by foreign entities 3. Makes rules and regulations for the
are governed by the same set of Regulations. securities market
There is no distinction in regulatory
requirements for these mutual funds and all
are subject to monitoring and inspections by Since its inception SEBI has been working
SEBI. The risks associated with the schemes targetting the securities and is attending to
launched by the mutual funds sponsored by the fulfillment of its objectives with
these entities are of similar type. It may be commendable zeal and dexterity. The
mentioned here that Unit Trust of India improvements in the securities markets like
(UTI) is not registered with SEBI as a capitalization requirements, margining,
mutual fund (as on January 15, 2002). establishment of clearing corporations etc
The basic objectives of the Board
were identified as:
SEBI has introduced the comprehensive identification and risk management systems
regulatory measures, prescribed registration for Clearing houses of stock exchanges,
norms, the eligibility criteria, the code of surveillance system etc. which has made
obligations and the code of conduct for dealing in securities both safe and
different intermediaries like, bankers to transparent to the end investorAnother
issue, merchant bankers, brokers and sub- significant event is the approval of trading in
brokers, registrars, portfolio managers, stock indices (like S&P CNX Nifty &
credit rating agencies, underwriters and Sensex) in 2000.
others. It has framed bye-laws, risk
A market Index is a convenient and and suggest bye-laws for Regulation and
Control of Trading and Settlement of
effective product because of the Derivatives Contracts. The Board of SEBI in
following reasons: its meeting held on May 11, 1998 accepted
the recommendations of the committee and
It acts as a barometer for market approved the phased introduction of
behavior; derivatives trading in India beginning with
It is used to benchmark portfolio Stock Index Futures. The Board also
performance; approved the "Suggestive Bye-laws" as
It is used in derivative instruments recommended by the Dr LC Gupta
like index futures and index options; Committee for Regulation and Control of
It can be used for passive fund Trading and Settlement of Derivatives
management as in case of Index Contracts.
SEBI then appointed the J. R. Verma
Committee to recommend Risk
Two broad approaches of SEBI is to Containment Measures (RCM) in the Indian
integrate the securities market at the national Stock Index Futures Market. The report was
level, and also to diversify the trading submitted in november 1998.
products, so that there is an increase in
number of traders including banks, financial However the Securities Contracts
institutions, insurance companies, mutual (Regulation) Act, 1956 (SCRA) required
funds, primary dealers etc. to transact amendment to include "derivatives" in the
through the Exchanges. In this context the definition of securities to enable SEBI to
introduction of derivatives trading through introduce trading in derivatives. The
Indian Stock Exchanges permitted by SEBI necessary amendment was then carried out
in 2000 AD is a real landmark. by the Government in 1999. The Securities
Laws (Amendment) Bill, 1999 was
SEBI appointed the L. C. Gupta introduced. In December 1999 the new
Committee in 1998 to recommend the framework was approved.
regulatory framework for derivatives trading
Derivatives have been accorded the status of necessary regulations/bye-laws and
`Securities'. The ban imposed on trading in intimated the Stock Exchanges in the year
derivatives in 1969 under a notification 2000. The derivative trading started in India
issued by the Central Government was at NSE in 2000 and BSE started trading in
revoked. Thereafter SEBI formulated the the year 2001.
Important Objectives of SEBI: Functions Of SEBI:
As an important entity in the market it 1. Regulates Capital Market
works with following objectives:
2. Checks Trading of securities.
1. It tries to develop the securities market.
3. Checks the malpractices in securities
2. Promotes Investors Interest. market.
3. Makes rules and regulations for the 4. It enhances investor's knowledge on
securities market. market by providing education.
5. It regulates the stockbrokers and sub-
6. To promote Research and Investigation
SEBI In India's Capital Market: For working as an underwriter an asset limit
of 20 lakhs has been fixed.
SEBI from time to time have adopted many
rules and regulations for enhancing the For Share Prices
Indian capital market. The recent initiatives
According to this law all Indian companies
undertaken are as follows:
are free to determine their respective share
Sole Control on Brokers: prices and premiums on the share prices.
Under this rule every brokers and sub For Mutual Funds
brokers have to get registration with SEBI
SEBI's introduction of SEBI (Mutual
and any stock exchange in India.
Funds) Regulation in 1993 is to have direct
For Underwriters: control on all mutual funds of both public
and private sector.
Role of SEBI in Capital Market Registering and regulating the
working of stockbrokers and other
SEBI’s Principal Tasks intermediaries associatedwith the
To regulate the business in Stock securities market.
Exchage &other Securities Registering and regulating the
working ofcollective investment
To register & regulate the
working of Capitalmarket schemes includingmutual funds.
intermediaries. Promoting and regulating the self-
To register & regulate the regulateryorganizations.
working of MutualFunds. Prohibiting fraudulent and unfair
To promote & regulate Self- trade practices relating to securities
Purpose and Aims of SEBI Promoting investors’ education and
training ofintermediaries of
Regulating the business in the stock
market andother securities market.
Prohibiting insider trading in
Other Functions of SEBI
monetary penalties, on erring market
The regulation of the capital markets intermediaries.
is primarily the responsibility of the Regulating substantial acquisition of
Securities and Exchange Board of shares and takeover of
India (SEBI),which is located in companies.
Mumbai. Some of the major Calling for information from,
functions of SEBI are: carrying out inspection,
SEBI is expected to regulate the conducting inquiries and audits of
business in stock exchanges and any the stock exchanges and
other securities markets. intermediaries and self regulatory
Registering and regulating the organizations in the securities
working of collective investment market.
schemes, To promote investor's education and
including mutual funds is a training of intermediaries
responsibility of SEBI. of securities markets.
SEBI is responsible for prohibiting Prohibit Fraudulent and Unfair Trade
fraudulent and unfair trade practices Practices
Prohibiting insider trading in
securities, with the imposition of
FUNCTIONS OF SEBI IN connected Stock Exchange ware added to
RESPECT OF MATTERS this list of exchange not to be inspected.
During these inspections, a review of the
SPECIFIED IN SECTION 11 OF
market operations, organisational structure
THE SECURITIES AND and administrative control of the exchange is
EXCHANGE BOARD OF INDIA made to ascertain whether :
The exchange provides a fair,
A) equitable and growing market to
REGULATION OF BUSINESS IN THE The exchange’s organisation,
STOCK EXCHANGES systems and practices are in
The SEBI has been inspecting all the stock accordance with the Securities
exchanges once every year since 1995-96 Contracts (Regulation) Act (SC(R)
under the Act), 1956 and rules framed
SEBI Act, 1992. However, in view of the The exchange has implemented the
low/insignificant turnover recorded at the directions, guidelines and
OTCEI, instructions issued by the SEBI
from time to time
Saurashtra-Kutch, Madhya Pradesh, Jaipur,
The exchange has complied with the
Mangalore, Magadh, Bhubaneswar and
conditions, if any, imposed on it at
Gauhati Stock Exchanges, these exchanges
the time of renewal
were not inspected during 1999-2000. In the
Grant of its recognition under section
year 2000-2001 four more exchanges viz.
4 of the SC(R) Act, 1956.
Madras, Vadodara, Coimbatore and Inter-
Based on the observations/suggestions made and public representatives on the governing
in the inspection reports, the exchanges are board/council of management of the stock
advised to send a compliance report to the exchanges also pursue the matters in the
SEBI within one month of the receipt of the meetings of the governing board/council of
inspection report by the exchange and management. If the performance of the
thereafter quarterly reports indicating the exchanges whose renewal of recognition is
progress made by them in implementing the due, is not found satisfactory,
suggestions contained in the inspection
report. The SEBI nominee directors
SEBI grants further recognition for a short a Monthly Development Report which the
period only, subject to fulfillment of certain exchanges are required to submit to the
conditions. Further, the functioning of the SEBI every month.
exchanges are also being monitored through
REGISTRATION AND REGULATION The number of underwriters registered with
OF THE WORKING OF SEBI in terms of SEBI (Underwriters) Rules
INTERMEDIARIES and Regulations, 1993 as on March 31, 2001
was 57 during the year. 19 underwriters
were grantedfresh registration during the
Merchant bankers year 2000-01.
As on March 31, 2001, there were 162 Portfolio managers
Category I Merchant Bankers registered
The number of Portfolio Managers
with SEBI. 16 Merchant Bankers were given
registered as on March 31, 2001 was 39.
fresh registration during the year 2000-01.
During the year 2000-01, 16 Portfolio
Underwriters Managers were granted fresh registration.
Stock brokers services form integral part of year under review, 919 new brokers were
stocks market expansion and growth which registered and 329 registrations were de-
is an indication of deepening of the market. registered due to cancellation or
The year of 2000-01 has again witnessed surrendered. As a result total number of
large expansion in the number of brokers as registered brokers increased from 9,192 as
observed during the previous year. During on March 31, 2000 to 9,782 as on March 31,
the current financial 2001.
REGISTRATION AND REGULATION UTI which is not registered with SEBI)
OF MUTUAL FUNDS operating in India as on March 31, 2001.
Though UTI is not registered with SEBI,
Registration of mutual funds there is an arrangement of voluntary
During the year, registration was granted to compliance of regulations by the UTI for the
one new mutual fund in the private sector schemes launched after July 1, 1994.
viz. HDFC Mutual Fund. With the Subsequently, UTI has brought some more
registration of the above mutual fund, there schemes launched before July 1994 under
are a total of 39 mutual funds, (including the voluntary compliance arrangement.
FRAUDULENT AND UNFAIR TRADE manipulations and practices and take action
PRACTICES against the manipulators/violators. During
2000- 2001, 47 cases were taken up for
After enacting the SEBI (Prohibition of alleged market manipulation and price
Fraudulent and Unfair Trade Practices rigging; 5 cases weretaken up for alleged
relating to the securities market) “issue” related manipulation, etc
Regulations, which enabled SEBI to
investigate into market manipulations and
fraudulent and unfair trade practicesvigorous
efforts were undertaken to unearth these
PROHIBITION OF INSIDER TRADING to successful investigations in one case. On
full working of the Stock Watch System,
During 2000-2001, 6 new cases were taken which has been put in place, surveillance
up. Inquiries/Investigations were completed over insider trading would be further
in fourcases of insider trading in this year. strengthened.
Show cause notices have been issued to the
SUBSTANTIAL ACQUISITION OF
SHARES AND TAKE-OVERS
and Take-overs) Regulations, 1997.
SEBI has taken up one case of alleged Inquiries/Investigations were completed in
violation of the SEBI (Substantial three other cases and pursuant to
Acquisition of Shares investigations, adjudication proceedings
have been initiated in one cases and further
proceedings under the regulations are in
Future Challenges of sebi
Speculative Trading & Distribution of Turnover.
Registering and regulating the
The Securities and Exchange Board of working of collective investment
India (frequently abbreviated SEBI) is the schemes,
regulator for the securities market in India. It including mutual funds is a
was formed officially by the Government of responsibility of SEBI.
India in 1992 with SEBI Act 1992 being SEBI is responsible for prohibiting
passed by the Indian Parliament. fraudulent and unfair trade practices
Prohibiting insider trading in
Regulating the business in the stock securities, with the imposition of
market andother securities market. monetary penalties, on erring market
Registering and regulating the intermediaries.
working of stockbrokers and other Regulating substantial acquisition of
intermediaries associatedwith the shares and takeover of
securities market. companies.
Registering and regulating the Calling for information from,
working ofcollective investment carrying out inspection,
schemes includingmutual funds. conducting inquiries and audits of
Promoting and regulating the self- the stock exchanges and
regulateryorganizations. intermediaries and self regulatory
Prohibiting fraudulent and unfair organizations in the securities
trade practices relating to securities market.
market. To promote investor's education and
Promoting investors’ education and training of intermediaries
training ofintermediaries of of securities markets.
securities market. Prohibit Fraudulent and Unfair Trade
Prohibiting insider trading in Practices
other securities markets.