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Securities and Exchange Board of India (SEBI): Purpose, Objectives and Functions!

The Securities and Exchange Board of India was established as an interim administrative body on 12 April 1988 by the Government of India.


Its main objective was to promote orderly and healthy growth of securities and to provide protection to the investors.


 
The Ministry of Finance of the Government of India has overall administrative control over its functions. On 30th January 1992, it was given a statutory status through an ordinance, which later on was replaced by Act of Parliament known as Securities and Exchange Board of India Act, 1992. SEBI is considered as watchdog of the securities market.

Reasons for the Establishment of SEBI:
During 1980s, there was tremendous growth in the capital market due to increasing participation of public. This led to many malpractices like Rigging of prices, unofficial premium on new issues, violation of rules and regulations of stock exchanges and listing requirements, delay in delivery of shares etc. by the brokers, merchant bankers, companies, investment consultants and others involved in the securities market.

This resulted in many investor grievances. Because of lack of proper penal provision and legislation, the government and the stock i exchanges were not able to redress these grievances of the investors. This (necessitated a need for a separate regulatory body, and hence Securities and Exchange Board of India was established.

Purpose and Role of SEBI:

The main objective is to create such an environment which facilitates efficient mobilization and allocation of resources through the securities market. This environment consists of rules and regulations, policy framework, practices and infrastructures to meet the needs of three groups which mainly constitute the market i.e. issuers of securities (companies), the investors and the market intermediaries.



 
(i) To the Issuers:

SEBI aims to provide a market place to the issuers where they can confidently look forward to raise the required amount of funds in an easy and efficient manner.

(ii) To the Investors:

SEBI aims to protect the right and interest of the investors by providing adequate, accurate and authentic information on a regular basis.



(iii) To the Intermediaries:

In order to enable the intermediaries to provide better service to the investors and the issuers, SEBI provides a competitive, professionalised and expanding market to them having adequate and efficient infrastructure.


Objectives of SEBI:

Following are the main objectives of SEBI:

1. Protection:


To guide, educate, and to protect the rights and interests of the investors.

2. Competitive and Professional:

To make the intermediaries like merchant bankers, brokers etc. competitive and professional by regulating their activities and developing a code of conduct.

3. Prevention of Malpractices:
To prevent trading malpractices.

4. Balancing:

To establish a balance between statutory regulation and self regulation by the securities industry.

5. Orderly Functioning:

To promote orderly functioning of stock exchange and securities industry by regulating them.

Functions of SEBI

The functions of SEBI can be divided into three parts viz:

(1) Regulatory function

(2) Development Function &

(3) Protective function.

1. Regulatory Functions:
Regulatory functions of SEBI are as follows:

(a) Registration of Brokers and Agents:

It registers brokers, sub-brokers, transfer agents, merchant banks etc.

(b) Notifications of Rules and Regulations:

It notifies rules and regulations for the smooth functioning of all intermediaries in the securities’ market.

(c) Levying of Fees:

It levies fees, penalties and other charges for contravening its directions and orders.

(d) Regulator of Investment Schemes:

It registers and regulates collective investment schemes and mutual funds.

(e) Prohibits Unfair Trade Practices:

SEBI prohibits fraudulent and unfair trade practices.

(f) Inspection and Enquiries:

It undertakes inspection and conducts enquiries & audit of stock exchange

(g) Performing and Exercising Powers:

It performs & exercises such powers under Securities Contracts (Regulation) Act 1956, as have been delegated to it by the Government of India.

2. Development Functions:
Development functions of SEBI are as under:

(a) Training to intermediaries:

It promotes training of intermediaries of the securities.

(b) Promotion of fair trade:

It promotes fair trade practices by making underwriting optional.

(c) Research:

It publishes information useful to all market participants for conducting research.

3. Protective Functions:
Protective Functions of SEBI are as under:

(a) Prevents Insider Trading:

It does so by prohibiting insiders such as directors, promoters etc. to make profit through trading of securities using confidential price sensitive information.

(b) Prohibits Fraudulent and Unfair Trade Practices:

It prohibits fraudulent and unfair trade practices in the security market, such as price rigging and sale or purchase of securities through misleading statements.

(c) Promotes Fair Practices:

It promotes fair practices and code of conduct in the securities market e.g. it looks after the interests of the debenture holders in terms of any mid-term revision of interest rates etc.

(d) Educates Investors:

It educates the investors through campaigns.