SEBI project by sachinrajsachin

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									  Securities and Exchange Board of India(SEBI)







                     MGT 333
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
         regulatoryOrganization                      market.

Purpose and Aims of SEBI                            Promoting investors’ education and
                                                     training ofintermediaries of
    Regulating the business in the stock
                                                     securities market.
     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
                                               market operations, organisational structure
THE       SECURITIES     AND                   and administrative control of the exchange is
EXCHANGE BOARD OF INDIA                        made to ascertain whether :
ACT, 1992
                                                   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
Primary Market
                                                 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.
Secondary Market

Stock brokers

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
insiders pursuant


                                                  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.
      Market Abuses
                                                    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.

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