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.
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.
The objective of SEBI is to ensure that the Indian capital market works in a systematic manner and provide investors with a 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.
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
Functions of SEBI
The functions and powers of SEBI have been listed in the SEBI Act,1992. SEBI caters to the needs of three parties operating in the Indian Capital Market. These three participants are mentioned below:
- Issuers of the Securities: Companies that issue securities are listed on the stock exchange. They issue shares to raise funds. SEBI ensures that the issuance of Initial Public Offerings (IPOs) and Follow-up Public Offers (FPOs) can take place in a healthy and transparent way.
- Protects the Interests of Traders & Investors: It is a fact that the capital markets are functioning just because the traders exist. SEBI is responsible for safeguarding their interests and ensuring that the investors do not become victims of any stock market fraud or manipulation.
- Financial Intermediaries: SEBI acts as a mediator in the stock market to ensure that all the market transactions take place in a secure and smooth manner. It monitors every activity of the financial intermediaries, such as broker, sub-broker, NBFCs, etc
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 SEBI 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.
SEBI Regulations on Mutual Fund
Mutual Funds are managed by Asset Management Companies (AMC) which need to be approved by SEBI. A Custodian who is registered with SEBI holds the securities of various schemes of the fund. The trustees of the AMC 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
- An AMC 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