Securities and Exchange Board of India (SEBI) is a statutory regulatory body entrusted with the responsibility to regulate the Indian capital markets. It monitors and regulates the securities market and protects the interests of the investors by enforcing certain rules and regulations.
Securities and Exchange Board of India 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.
The objective of SEBI is to ensure that the Indian capital market works in a proper or systematic manner and provide investors with a clear or transparent environment for their investment. To put it simply, the primary reason for setting up SEBI was to prevent malpractices in the capital market of India and promote the development of the capital markets.
Functions of SEBI
- Securities and Exchange Board of India is set up to protect the interests of investors in the securities market.
- It promotes the development of the securities market and regulates the business.
- SEBI provides a platform for stockbrokers, sub-brokers, portfolio managers, investment advisers, share transfer agents, bankers, merchant bankers, trustees of trust deeds, registrars, underwriters, and other associated people to register and regulate work.
- SEBI regulates the operations of participants, depositories, custodians of securities, foreign portfolio investors, and credit rating agencies.
- It prohibits inner trades in securities, i.e. unfair and fraudulent trade practices related to the securities market.
- SEBI ensures that investors are educated on the intermediaries of securities markets.
- It monitors substantial acquisitions of shares and take-over of companies.
- SEBI takes care of research and development to confirm the securities market is efficient at all times.
SEBI Regulations on Mutual Fund
Mutual Funds are managed by AMC which stands for Asset Management Companies which need to be approved by SEBI. A Custodian who is registered with SEBI keeps the securities of various schemes of the fund. The trustees of the Asset Management Companies monitor the performance of the mutual fund and ensure that it works in compliance of SEBI Regulations.
Following are some of the regulations on Mutual Fund:
- A sponsor of a mutual fund scheme, a group of the company or an associate which involves asset management company (AMC) of the fund, cannot hold the following in any form:
- 10% or above of the voting rights and shareholding in the AMC or any other mutual fund scheme Asset Management Companies cannot have representation on the board of any other mutual fund
- Shareholders can’t hold more than 10% of the shares both directly and indirectly in AMC of the Mutual Fund
Structure of SEBI
SEBI, just like any corporate firm has a hierarchical structure and consists of numerous departments headed by their respective heads. Following is a list of some of the departments of SEBI:
- Foreign Portfolio Investors and Custodians
- Human Resources Department
- Information Technology
- Investment Management Department
- Office of International Affairs
- Commodity and Derivative Market Regulation Department
- National Institute of Securities Market
Apart from the department heads, the senior management of SEBI consists of a Board of Directors who are appointed as follows:
- 1 chairman nominated by the Union Government of India
- 2 members from the Union Finance Ministry of India
- 1 member from the Reserve Bank of India (RBI)
- 5 members nominated by the Union Government of India
What are the Powers of SEBI
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 Securities and Exchange Board of India aims to keep any malpractice and fraudulent trading activates at bay.
Quasi-Executive: SEBI is authorised 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.