The government of India recognized the need to address the malpractices, unfair trade practices, frauds, and scams that were taking place in the stock exchange. These activities were negatively impacting investor confidence and trust in the stock market. As a result, the government decided to establish a separate body to regulate and monitor the stock exchange. This new regulatory body was given the responsibility of overseeing and controlling the functioning of the stock exchange.

Establishment of a Separate Regulatory Body:
To address the issues plaguing the stock market, the government of India established the Securities and Exchange Board of India (SEBI) in 1988. SEBI was given the authority to regulate and supervise the activities of the stock exchange and other securities markets in the country. Its main objective was to protect the interests of investors and ensure the fair and transparent functioning of the stock market.

Powers and Functions of SEBI:
SEBI was granted extensive powers to regulate and control the stock exchange. Some of the key powers and functions of SEBI include:

1. Regulatory Framework: SEBI formulates rules, regulations, and guidelines for the stock exchange and securities markets. It ensures that these regulations are in line with international best practices and are designed to promote transparency, fairness, and investor protection.

2. Registration and Regulation of Market Intermediaries: SEBI registers and regulates various market intermediaries such as brokers, merchant bankers, and portfolio managers. It sets eligibility criteria, conducts inspections, and takes disciplinary actions against those who violate the regulations.

3. Surveillance and Enforcement: SEBI conducts regular surveillance of the stock exchange to detect market manipulations, insider trading, and other fraudulent activities. It has the power to investigate and take punitive actions against those involved in such malpractices.

4. Investor Protection: SEBI plays a crucial role in safeguarding the interests of investors. It ensures that companies provide accurate and timely information to the public, facilitates grievance redressal for investors, and promotes investor education and awareness.

5. Market Development: SEBI works towards the development and growth of the securities market. It introduces new financial instruments, encourages innovation, and facilitates the entry of new players in the market.

Impact of SEBI:
The establishment of SEBI has had a significant impact on the stock market in India. It has brought about greater transparency, improved corporate governance practices, and enhanced investor confidence. SEBI's efforts to regulate and monitor the stock exchange have helped in reducing malpractices and frauds, thereby creating a more level playing field for investors.

In conclusion, the government of India recognized the need for a separate regulatory body to address the malpractices and frauds in the stock exchange. SEBI was established to regulate and control the functioning of the stock market, with the aim of protecting investor interests and ensuring a fair and transparent marketplace. Its powers and functions have had a positive impact on the stock market, instilling confidence and trust among investors.