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[OPTION B: TERM PAPER] Report submitted to DU in partial fulfillment of the Requirement for the degree of:

B.COM (Hons.)


Under the guidance of (Associate Professor)


To study and evaluate the functions of securities and exchange board of India. To study the powers and organization structure of SEBI. To study and evaluate the role of SEBI in Indian economy. To have better understanding of SEBIs contribution in the economy. To study the role of SEBI in new issue market.


1. Introduction 2. Organization structure 3. Role of SEBI in the Indian Capital Market 4. Guidelines issued by SEBI 5. Role of SEBI in Mutual Funds and IPOs 6. SEBI and Central Government 7. Conclusion

The Securities and Exchange Board of India Act, 1992 (the SEBI Act) is an Indian legislation enacted by the Parliament of India for regulation and development

of securities market in India. It was amended in the years 1995, 1999 and 2002 to meet the requirements of changing needs of the securities market.

SEBI is the regulator for the securities market in India. In 1988 SEBI was established by


government of India through an executive resolution, and was subsequently upgraded as a fully autonomous body (a statutory board) in the year 1992 with the passing of Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. The SEBI was established on April 12, 1992. In place of government control, a statutory and autonomous regulatory board with defined responsibilities to cover both development and regulation of the market and independent powers have been set up. Paradoxically this is a positive outcome of the Securities scam of 1990-91. REASONS FOR ESTABLISHMENT OF SEBI SEBI was officially established by the Government of India in the year 1988 and given statutory powers in 1992 with SEBI Act 1992 being passed by the Indian Parliament. There are various reasons for which SEBI was introduced. Some of the reasons for its establishment are given as under: The capital market had witnessed a tremendous growth during the 1980s characterized by the increasing participation of the public This ever expanding investor population and market capitalization led to a variety of malpractices on the part of companies, brokers, merchant bankers, investment consultants and others involved in the securities market. The glaring examples of these malpractices include existence of self styled merchant bankers, unofficial private placements, rigging of prices, unofficial premium on new issues, non adherence of provisions of The Companies Act, violation of rules and regulations of stock exchanges and listing requirements, delay in delivering shares etc.

These malpractices and unfair trade practices have eroded investors confidence and multiplied investors grievances. The government and the stock exchanges were rather helpless in redressing the investors problems because of lack of proper penal provisions in the existing legislature.

Therefore the government of India decided to set up SEBI a separate regulatory body.

PREAMBLE The preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as:



MISSION Securities and Exchange Board of India(SEBI) formed under the SEBI Act, 1992 with the prime objective of Protecting the interests of investors in securities, Promoting the development of, and Regulating, the securities market and for matters connected therewith or incidental thereto. SEBIs Strategic action plan has identified four key spheres and has set strategic aim for each of the following spheres: Investors : Investors are enabled to make informed choices and decisions and achieve fair dealings in their financial dealings.

Firms (corporates) : Regulated firms and their senior management understand and meet their regulatory obligations. Financial Markets (Exchanges, Intermediaries) : Consumers and other

participants have confidence that markets are efficient, orderly and clean. Regulatory Regime : An appropriate, proportionate and effective regulatory regime is established in which all the stakeholders have confidence.


It was officially established by the Government of India in the year 1988 and given statutory powers in 1992 with SEBI Act 1992 being passed by the Indian Parliament. SEBI has its Headquarters are at the business district of Bandera Kurla Complex in Mumbai, and has

Northern, Eastern, Southern and Western Regional Offices in New Delhi, Kolkata, Chennai and Ahmadabad respectively.Controller of Capital Issues was the regulatory authority before SEBI came into existence; it derived authority from the Capital Issues (Control) Act, 1947. Initially SEBI was a non statutory body without any statutory power. However in the year of 1995, the SEBI was given additional statutory power by the Government of India through an amendment to the Securities and Exchange Board of India Act 1992. In April, 1988 the SEBI was constituted as the regulator of capital markets in India under a resolution of the Government of India. It was provided that: It shall be a body corporate with perpetual succession an common seal with power to acquire hold and dispose of property. Head Quarter will be in Mumbai and may establish offices at other places in India. Chairman and members of board will be appointed by the central government. Government can prescribe terms of offices and other conditions of service of the board and chairman Primary duties of the board is to protect the interest of the investors.

The SEBI is managed by its members, which consists of following: a) the chairman who is nominated by Union Government of India. b) Two members, i.e. Officers from Union Finance Ministry. c) One member from The Reserve Bank of India. d) The remaining 5 members are nominated by Union Government of India; out of them at least 3 shall be whole-time members. The office of SEBI is situated at SEBI Bhavan, Bandera Kurla Complex, Bandera East, Mumbai- 400051, with its regional offices at Kolkata, Delhi, Chennai & Ahmadabad. It has

recently opened local offices at Jaipur and Bangalore and is planning to open offices at Guwahati, Bhubaneshwar, Patna, Kochi and Chandigarh in financial year 2013-2014. The Securities and Exchange Board of India consists of following members : Chairman Two members, one from amongst the officials of the central government dealing with finance and another from the administration of companies act of 1956. One members from amongst the official of the reserve bank of India Five other members of whom atleast three shall be the whole-time members to be appointed by the central government.


1) Shri U.K. Sinha, Chairman,SEBI, SEBI Bhavan, Bandra Kurla Complex, Bandra(E), Mumbai- 400051,


2) Shri Prashant Saran Whole time member, SEBI SEBI Bhavan, Bandra Kurla Complex, Bandra(E), Mumbai- 400051,

Member Appointed Under Section 4(1) (d) of the SEBI Act 1992

3) Shri Rajeev Aggarwal Whole time member, SEBI SEBI Bhavan, Bandra Kurla Complex, Bandra (E), Mumbai- 400051,

Member Appointed Under Section 4(1) (d) of the SEBI Act 1992

4) Dr. Thomas Mathew Joint Secretary (Capital Markets)

Member Appointed Under Section 4(1)

Department of economic affairs, Ministry of Finance New Delhi

(d) of the SEBI Act 1992

5 ) Shri V.K. Jairath 194 B Kalpatru Horizon, S.K. Ahire Marg,Worli, Mumbai 400018

Member Appointed Under Section 4(1) (d) of the SEBI Act 1992

6) Shri Anand Sinha Deputy Governor Reserve Bank of India

Member Appointed Under Section 4(1) (d) of the SEBI Act 1992

7) Shri Naved Masood Secretary, Ministry of Corporate Affairs

Member Appointed Under Section 4(1) (d) of the SEBI Act 1992


SEBI has divided its activities in four operational departments, each headed by an Executive Director:

1) Primary Market Department : It deals with all policy matters and regulatory issues relating to primary market.

2) Issue Management and Intermediaries Departments : This department is concerned with inspection of offer documents and other things like registration, regulation and other monitoring of issue related to intermediaries.

3) Secondary Market Department : It looks after all the policy and regulatory issues for the secondary market; administration of the major stock exchanges and other matters related to it.


Institutional Investment Department : It concerned with framing policy for foreign

institutional investors.

In addition to this, there are two other departments: They are; Legal Department and Investigation Department also headed by officials of the rank of Executive Directors. SEBI has two Advisory committees, one each for primary and secondary markets. They provide advisory inputs in framing policies and regulations. These committees are non-statutory in nature and SEBI is not bound by the committees


The overall objectives of SEBI are to protect the interest of investors and to promote the development of stock exchange and to regulate the activities of stock market. The objectives of SEBI are:

1. To regulate the activities of stock exchange. 2. To protect the rights of investors and ensuring safety to their investment. 3. To prevent fraudulent and malpractices by having balance between self regulation of business and its statutory regulations. 4. To regulate and develop a code of conduct for intermediaries such as brokers, underwriters etc.

FUNCTIONS OF SEBI The SEBI performs functions to meet its objectives. To meet three objectives SEBI has three important functions. These are: I) Protective functions

II) Developmental functions III) Regulatory functions.

Protective Functions:
These functions are performed by SEBI to protect the interest of investor and provide safety of investment. As protective functions SEBI performs following functions:

I) It Checks Price Rigging

Price rigging refers to manipulating the prices of securities with the main objective of inflating or depressing the market price of securities. SEBI prohibits such practice because this can defraud and cheat the investors.

II) It Prohibits Insider trading:

Insider is any person connected with the company such as directors, promoters etc. These insiders have sensitive information which affects the prices of the securities. This information is not available to people at large but the insiders get this privileged information by working inside the company and if they use this information to make profit, then it is known as insider trading, e.g., the directors of a company may know that company will issue Bonus shares to its shareholders at the end of year and they purchase shares from market to make profit with bonus issue. This is known as insider trading. SEBI keeps a strict check when insiders are buying securities of the company and takes strict action on insider trading.

III) SEBI prohibits fraudulent and Unfair Trade Practices:

SEBI does not allow the companies to make misleading statements which are likely to induce the sale or purchase of securities by any other person.

IV) SEBI educates Investors

SEBI undertakes steps to educate investors so that they are able to evaluate the securities of various companies and select the most profitable securities.

V) SEBI promote fair practices

SEBI promotes fair practices and code of conduct in security market by taking following steps:

(a) SEBI has issued guidelines to protect the interest of debenture-holders where in companies cannot change terms in midterm.

(b) SEBI is empowered to investigate cases of insider trading and has provisions for stiff fine and imprisonment.

(c) SEBI has stopped the practice of making preferential allotment of shares unrelated to market prices.

Developmental Functions These functions are performed by the SEBI to promote and develop activities in stock exchange and increase the business in stock exchange. Under developmental categories following functions are performed by SEBI: I) SEBI promotes training of intermediaries of the securities market. II) SEBI tries to promote activities of stock exchange by adopting flexible and adoptable approach in following way:

(a) SEBI has permitted internet trading through registered stock brokers.

(b) SEBI has made underwriting optional to reduce the cost of issue. (c) Even initial public offer of primary market is permitted through stock exchange.

Regulatory Functions

These functions are performed by SEBI to regulate the business in stock exchange. To regulate the activities of stock exchange following functions are performed: I) SEBI has framed rules and regulations and a code of conduct to regulate the

intermediaries such as merchant bankers, brokers, underwriters, etc.


These intermediaries have been brought under the regulatory purview and private

placement has been made more restrictive.


SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer

agents, trustees, merchant bankers and all those who are associated with stock exchange in any manner.

IV) SEBI registers and regulates the working of mutual funds etc.

V) SEBI regulates takeover of the companies. VI) SEBI conducts inquiries and audit of stock exchanges.


I) Issue of guidelines: SEBI has issued guidelines to companies (bringing new issues in the
market) mutual funds, portfolio managers, merchant bankers, underwriters,












operations and also for avoiding exploitation of investors by one way or the other. SEBI has introduced a code of advertisement for public issues for ensuring fair and truthful disclosures. In order to reduce the cost of issue, the underwriting is made optional on certain terms. These steps are also for the protection of investors. SEBI keeps watch on all intermediaries and see that they follow the guidelines in the right spirit. It also takes panel actions when the guidelines are not followed. These steps give protection to investors.


Public interest advertisements: investors on the basic

SEBI issues public interest advertisements to features of various instruments and minimum


precautions they should take before choosing an investment. The SEBI desires to create anawareness among investors about their rights and about remedies if

problem arise. It has published some booklets for the information and guidance of investors.

III) Dealing with complaints of investors:

The investors can make complaints to SEBI if

they face problems relating to their investment in industrial securities and financial assets. SEBI receives thousands of complaints relating to non-receipt of refund orders, allotment letters, nonreceipt of dividend or interest and delays in the transfer of shares and debentures. SEBI is making efforts to solve such complaints through appropriate measures.

SEBI is keen to solve the complaints of investors and wants to protect their interests. It is committed to co-operating with various consumer redressal forum in this regard. Although, a large number of complaints reaching SEBI are being redressed, still a large complaints remain unredressed. number of

IV) Investor education:

SEBI is aware that investor education is important for his

protection. It encourages the formation of investor associations that disseminate information

through newsletters. More than nine such associations are registered with SEBI. SEBI is bringing out two monthly publications for the investors. These are: (a) SEBI- Market Review (b) SEBI News-letter. These publications are for the education, guidance and protection of investors.


Investor surveys:

SEBI has also conducted surveys in respect of investment and

opportunities for the benefit of small investors. The findings of the surveys are given wide publicity so as to provide proper guidance to investors regarding their investment decisions.


Introduction to stock invest:

SEBI has introduced stock invest as a new instrument

useful while submitting application for shares. This new instrument introduced through the cooperation of banks gives protection to investors as they get interest on the application money till the allotment of shares.

VII) Disclosures by companies:

SEBI has introduced norms for disclosure of half yearly

Unaudited results of companies. It has also revised the format of prospectus to provide more information to investors. It also insists that every share application form is accompanied by an abridged prospectus. The provisions relating to disclosures are for the information and protection of small/average investors.

VIII) Code regarding takeovers: SEBI has now issued code regarding takeovers of companies, mergers and amalgamations. It has introduced regulations governing substantial acquisition of shares and takeovers and lays down the conditions under which disclosures and mandatory public offers have to be made to the shareholders. Here, the purpose is to protect the interests of investors even when they are not direct party to such takeovers


Powers relating to Stock Exchange and Intermediaries SEBI has wide powers regarding the stock exchange and intermediaries dealings in intermediaries. It can ask information from stock exchanges and intermediaries regarding their business transactions for inspection/scrutiny and other purposes.

Powers relating to monetary penalties SEBI has been empowered to impose monetary penalties on capital market intermediaries and other participants for a range of violations

It can even impose suspension of their registration for a short period.

Powers to initiate actions relating to functions assigned SEBI has powers to initiate actions in regard to functions assigned

For example it can issue guidelines to different intermediaries or can introduce to different intermediaries or can introduce specific rules for the protection of interests of investors.

Powers under Securities Contracts (Regulation) Act

For effective regulation of stock exchanges, the Ministry of Finance issued a Notification on 13 September, 1994 delegating several of its powers under the Securities Contracts (Regulation) Act to SEBI.

SEBI is also empowered by the Finance Ministry to nominate three members on the Governing Body of every stock exchange instead of earlier practice of government making such nominations

Powers to regulate business of stock exchange SEBI Is empowered to regulator the business of stock exchange Intermediaries associated with the securities market as well as mutual funds fraudulent and unfair practices relating to securities and regulation of acquisition of shares and takeovers of companies. Powers relating to Insider Trading SEBI has powers to regulate insider trading or can regulate the functions of merchant bankers


Eligibility Norms for Companies Issuing Securities No company shall make any issue of a public issue of securities, unless a draft Prospectus has been filed with the board, through an eligible merchant banker at Least 21 days prior to the filing of prospectus with the registrar of the Companies (ROCS).

Pricing by companies issuing securities A listed company, whose equity shares are listed on a stock exchange, may Freely price its equity shares and any securities convertible into equity at a later date, offered through a public or rights issue

Pre issue obligations The standard of due diligence shall be such that the merchant banker shall satisfy himself about all the aspects of offering, varsity and adequacy of disclosure in the offered documents.

Content of offered documents Prospectus shall also contain all material information which shall be true and adequate so as to enable the investors to make informed decision on the investments in the issue.


Post issue capital decreased to 10% in all sectors. SEBIs nominee is appointed in allotment committee. Time for finalizing allotment reduced from 30 to 15 days. Compulsory Book building process if issue size is 5 times the pre issue net worth. New company (not subsidiary of existing co.) issue shares at face value. Wide publicity after disclosure of information in national English Daily, national Hindi daily. Lead managers, underwriters, bankers to an issue must be registered with SEBI.


The central government has power to issue directions to SEBI Board, supersede the Board, if necessary and to call for returns and reports as and when necessary The central government has also power to give any guideline or to make regulations and rules for SEBI and its operations. The activities of SEBI are financed by grants from Central Government, in addition to fees, charges etc. collected by SEBI The fund called SEBI General Fund is set up, to which, all fees, charges and grants are credited. This fund is used to meet the expenses of the board and to pay salary to staff and members of the body.


SEBI Act 1992 was amended in the years 1995, 1999 and 2002 to meet the requirements of changing needs of the securities market.

SEBI AMENDMENT BILL, 1995 Mainly focused on Foreign Institutional Investors (FII). Given additional statutory powers

SEBI AMENDMENT BILL,1999 Included derivates and instruments of collective investment schemes under the definition of securities. Enable RBI to regulate the transactions in government securities and other related instruments as may be specified by the government.

SEBI AMENDMENT BILL,2002 Gave more teeth to SEBI to punish market offenders through Serious Fraud Office (SFO). Power to search and seize books, registers and documents of intermediaries or any other persons associated with the securities market. Fine of 25 crores for insider trading Board strength increased from six to nine.

SEBI AMENDMENT BILL,2013 Passed by Rajya sabha on 5th September Widen the area for eligible candidates for the past of Presiding Officer at the Securities Appellate Tribunal (SAT) The Bill extends eligibility criteria for SAT Presiding Officers role and includes sitting or retired judges of a High Court with a minimum service of 7 years.


CODE OF CONDUCT : The code of conduct has to be strictly observed and those employees, officers, or directors of the company who violate the code of conduct will be subject to disciplinary action by SEBI or by the company. DUTY OF OFFICERS : Every listed company has to employ a compliance officer who has to report to MD or CEO of the company.

SECURITY : Confidential files should be protected and kept secure these pertain to all files but especially computer files and passwords, which are likely to have sensitive price information.


MUTUAL FUNDS SEBI notified regulations for the Mutual Funds in 1993. SEBI has also issued guidelines to the mutual funds from time to time to protect the
interests of investors.

All mutual funds whether promoted by public sector or private sector are governed by

IPO The roles, regulations and procedures relating to public issues in India are governed by

Any company going public in India should get approval from SEBI before opening its
IPO. Issuer Companys lead managers submit the public issue prospectus to SEBI, provide clarification, make changes to the prospectus suggested by SEBI and get it approves.

SEBI validate the IPO and make sure that document has enough information to help
investors to take decision before applying shares in an IPO.

For the development of any economy, capital market, which is one of the main organs to mobilize funds of huge order, shall evolve all steps to develop the market, simultaneously, bringing in the credibility in the financial market, which is watched worldwide, through effective and speedy implementable regulations, ultimately, protecting the interest of the Investors and the Country. With reference to the above the establishment and successful functioning of SEBI has ensured the following: The complete transformation of the trading, clearing and settlement infrastructure. Dramatic transformation to a paperless market and transparent trading system. Cutting the settlement cycle and now going forward towards a T+1 settlement system SEBI has made the markets much safer for investors.