CRITICAL REVIEW OF SEBI IN THE BACKDROP OF FINANCIAL

SCAMS

- Jishnu Sanyal1

ABSTRACT

In the post-reform period of the last two decades, one of the more important innovations
facilitating a more rapid pace of economic development has been the creation of regulators.
These are statutory entities that were placed outside of the machinery of the government, but
given powers to regulate and supervise a sector. One reason for the government to create such
entities was to have expert bodies to regulate sectors where they faced an increasing
complexity of economic activities. Here, the regulator would have domain knowledge to deal
with such complex issues.

The first statutory regulatory body that the government of India set up post the reforms of
1991 was the Securities and Exchanges Board of India (SEBI). As a regulator for the
securities markets, SEBI was given the powers to create subordinate legislation and to
investigate wrong-doing and impose relevant penalties. Since the empowerment of the
Securities and Exchange Board of India (SEBI) through an Act of Parliament in 1992, SEBI
has come up with a number of initiatives aimed at regulating and developing the Indian
securities market and improving its safety and efficiency. This includes public issuance of
securities, the secondary market and registration for brokers. The purpose of SEBI is three
fold:

(a) protection of the investor,

(b) prudential regulation of securities markets intermediaries and

(c) development of the markets.2

Recent repeated misconduct in the stock market have led to an image of disarray, lack of
transparency and fraud dominating the financial sector. Consequent collapses in the stock
market have resulted in such a loss of confidence in the minds of investors, domestic and
foreign. Also in the light of recent governance scams there might be a need to restructure its

1
Jishnu Sanyal, 2nd Year, National Law University, Delhi.
2
SEBI Act 1992, preamble.
policies and implementation process. Gaps in legislation needs to be filled and therefore
active part must be taken by the parliament as well to make sure illegal activities like that
insider trading, governance scandals like that of Satyam no longer poses a threat to the
investors in the market.

ii
 SEBI AS A REGULATORY BODY

The economic reforms of the early nineties shifted emphasis away from central planning to a
more market-oriented economic process. The role of the government shifted away from
running businesses towards regulation and supervision. In the process, new regulatory entities
were created. The Capital Issues (Control) Act 1947, administered by the Controller of
Capital Issues (CCI), governed capital issues in India. As part of liberalizing reforms CCI
was abolished, and SEBI set up in1988, was made a statutory body in 1992. Flexibility was
required to respond to market arbitrage, and to emerging requirements in the Indian context.
There has been a constant attempt to improve regulatory practices and contribute to the
ongoing capital market reforms. 3

SEBI works under a statutory mandate of market development and promotion, along with
investor protection and market regulation, as the statutory duty of the regulator.4 In contrast,
indicates that market development is not an explicit goal in the mandate of either the U.S. or
the U.K. securities market regulator.5

 DUTIES AS A REGULATOR
The SEBI Act, 1992 provides the duties of the regulator which includes:

1. Regulating intermediaries through regulations, rather than through government

notified rules.
2. Prohibition and prevention of Insider Trading.
3. Framing Regulations for Take-overs.
4. Preventing unfair trade practice and market manipulation.
5. Regulating issue of capital.
6. Regulating stock-exchanges and transactions on the stock- exchanges.

The SEBI Act, 1992 gives SEBI power to draft regulations in order to regulate the market
and discharge its functions and duties. While the objectives are provided in the SEBI Act,

3
Ashima Goyal, „Regulation and Deregulation of stock market in India‟ p .10, <
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=609322> accessed on 2/03.2012.
4
The SEBI Act 1992, Preamble.
5
Dharmistha Raval, „ Improving the Legal Process in Enforcement at SEBI‟, p. 7,<
http://www.igidr.ac.in/pdf/publication/WP-2011-008.pdf> accessed on 3/03/2012.

1
1992, the implementation details are left to the regulator. The securities market is regulated
more through regulations than through the SEBI Act, 1992.

Besides the parent Act, SEBI also has powers under the provisions of the Securities Contract
(Regulation) Act, 1956, (referred as the SCR Act)6 to notify the framework to regulate stock
exchanges, and transactions on the stock exchanges, as well as the depositories under the
provisions of the Depositories Act, 19967.

SEBI regulates the markets through three mechanisms: regulations, circulars, and guidelines.

a) Regulations:
SEBI has evolved a more transparent procedure of its own for drafting, formulating and
notifying regulations. Right from the start, in 1992, before notifying any regulation, SEBI has
issued a public concept note or policy paper on the proposed regulations. For example, the
SEBI (Insider Trading) Regulations of 1992, which were aimed at prohibiting insider trading,
were preceded by a concept paper containing the objectives, rationale and provisions of the
proposed regulation. This concept paper was posted on the SEBI web- site seeking comments
and suggestions from the public. On receipt of the comments from the public, these were
internally debated within SEBI. The revised draft regulations, along with comments received
from the public, were then circulated for the consideration and approval of the SEBI Board.8

SEBI also appoints committees to recommend the contents of regulations. The committees,
which consist of experts as well as policy-makers, study the matter and present
recommendations in a report.9

b) Circulars and Guidelines:

SEBI also regulates the securities market through guidelines and circulars. Normally,
circulars are meant for clarifying the existing regulatory framework, and not for notifying a
new framework. Circulars are to be issued within the legal parameters specified in the Act
and the regulations. Circulars have been issued by almost all the departments of SEBI. SEBI

6
Securities Contract Regulation Act, 1956 ( No. 42 of 1956).
7
The Depositories Act, 1996 ( No. 22 of 1996).
8
Dharmistha Raval, „ Improving the Legal Process in Enforcement at SEBI‟, p. 11,<
http://www.igidr.ac.in/pdf/publication/WP-2011-008.pdf> accessed on 3/03/2012.
9
Ibid.

2
does not always follow a public consultation route before the circular is notified. But in many
cases, SEBI does discuss the circular with many market participants.10

There is significant transparency in the formulation of the regulations of SEBI from the time
the regulations are being conceptualised, up to the stage when the regulation is notified. SEBI
was the first regulator in the country to bring about this level of transparency in the
formulation of its regulatory framework, to the extent that, today, the agenda papers for
meetings of the SEBI Board are placed on the SEBI website prior to the meeting itself.

 ENFORCEMENT:
For a regulator to effectively discharge the various activities entrusted to it, it needs powers to
enforce regulations. This means that when there are alleged violations of regulations the
regulator has to be able to conduct effective investigations and enquiry. The regulator has to
be equipped to garner information, gather evidence and facts in a timely manner from the
concerned entities.

a) Inspections:
Inspections SEBI is empowered to conduct inspections of registered intermediaries.16 These
can be initiated either as a matter of routine, or to ensure compliances with the provisions of
law, or on investor complaints. The procedure followed by SEBI in all cases is normally the
same. Hence though different regulations may be applicable to different intermediaries, the
procedure in case of inspection and investigation is almost the same. Inspections are
authorised by the Whole Time Member (WTM) on the board of SEBI who is in charge of
intermediaries. For example, SEBI (stock-broker and sub-broker) regulations empowers
SEBI to conduct inspection of stock brokers and sub-brokers.11

b) Investigation:
Besides inspection, SEBI is empowered to conduct investigations in case of breach of any
regulation, or in case of action detrimental to interest of investors.12 On receipt of information
of a violation, or a possible violation, the Whole Time member (WTM) may pass a formal
order appointing one of its officers to investigate the alleged violation. The investigating
officer can summon the intermediary to appear before them to produce documents and to give

10
Ibid, p. 12.
11
L.K Singhvi, „Surveillance: Challenge and Reality‟ p 1, < http://www.iief.com/Research/surveillance and
reality_chp10.pdf> accessed on 20/03.2012.
12
Section 11(c)(1) of SEBI Act, 1992.

3
evidence.13 The investigating officer can conduct a search of premises and seize books and
registers. But they are required to approach a Judicial Magistrate for appropriate orders,
before exercising the search and seizure powers, even for attaching the bank account of any
person. 14 The investigating authority thereafter submits either an interim report or a final
report which is circulated to a internal committee of senior officers of SEBI. The internal
committee will decide whether any enforcement action needs to be initiated. The report of the
internal committee the report is then forwarded to the WTM to decide on the further course of
action.

c) Orders and Directions:

If evidence of misdemeanour is found, SEBI initiates disciplinary action (given its quasi-
judicial authority). These can be one of two types: orders and directions, and varies
depending upon the offence for which the action is being issued, which are the following:

 Suspending or cancelling certificate of registration of the certificate,15

 Imposition of monetary penalty,16
 Restraining a person from accessing the securities market.17 These can even be issued
without giving an opportunity of hearing, provided that a post decisional opportunity
of hearing is given.18

SCAMS AND ITS EFFECT ON FINANCIAL MARKET

The Regulatory framework has to be fashioned to cater for the changing economic scenario
of the country. With liberalisation, the role of the government as a direct player is being
progressively reduced. Earlier, the Government had considerable control over a large part of
economic activity and acted as policy maker, regulator and service provider in several
sectors.19

13
Dharmistha Raval, „Improving the Legal Process in Enforcement at SEBI‟, p. 15,<
http://www.igidr.ac.in/pdf/publication/WP-2011-008.pdf> accessed on 3/03/2012.
14
The SEBI Act, 1992 , Section 11(4)(e) and 11(c)(8).
15
The SEBI Act, 1992 , Section 12(3).
16
The SEBI Act, 1992 , Section 15(A) to Section 15(J).
17
The SEBI Act, 1992 , Section 15(A) to Section 15(J).
18
The SEBI Act, 1992 , 2nd proviso of Section 11(4).
19
Joint Committee Report on Stock Market scams and matters relating thereto, Vol-1 Report, para 2.5.

4
Efforts to separate these functions have been going on since 1991 and will have to continue.
Whatever the functions of the Government with regard to the economy as a whole, the
functions of Government as a policy maker have changed and will change as the economy
shifts towards more and more market-orientation. There is a conscious effort at distancing
Government from day-to-day regulation, augmenting the autonomy of Regulators and
endowing them with statutory powers. At the same time, Regulators have been found wanting
and they do not instil confidence in the investor.20

„Scam‟ has to be considered predominantly in the context of the Stock/Capital market.

Individual cases of financial fraud in themselves may not constitute a scam. But persistent
and pervasive misappropriation of public funds falling under the purview of statutory
regulators and involving issues of governance becomes a scam.21

Market scams cause considerable damage to the capital market, the common investor and
market sentiment. Among other things, such repeated scams lead to cynicism and a loss of
faith in the system as various sections of society start believing that stock markets are
manipulated, banks are regularly defrauded and the regulators do not take their job
seriously.22

Scams are basically the manipulation of the capital market to benefit market operators,
brokers, corporate entities and their promoters and managements. Certain banks, notably
private and co-operative banks, stock exchanges, overseas corporate bodies and financial
institutions were willing facilitators in this exercise.23

Financial scams come in many faces like securities scam – eg: Harshad Mehta & Ketan
Parekh scam, IPO scams, governance scams etc.

Scams are a typical feature of every market economy. Not only India but stock markets
around the world, at one point of time or the other, has been a victim of scams. In US for
example $65 billion Madoff Ponzi scheme, Enron scandal is quite infamous.24 Also the recent

20
Santi Swarup, K., „Measures for improving common investor confidence in Indian primary market: a survey”,
NSE Research Initiative, Working paper no. 28, December 2003.
21
Joint Committee Report on Stock Market scams and matters relating thereto, Vol-1 Report, para 2.7
22
Joint Committee Report on Stock Market scams and matters relating thereto, Thirteenth Lok Sabha, Vol-1
Report, para 2.5.
23
Joint Committee Report on Stock Market scams and matters relating thereto, Thirteenth Lok Sabha, Vol-1
Report, para 2.20.
24
The New York Times , „ Ponzi Schemes‟
<http://topics.nytimes.com/top/reference/timestopics/subjects/f/frauds_and_swindling/ponzi_schemes/index.htm
l?scp=5&sq=madoff%20onzi&st=cse> accessed on 7/04/2012.

5
global economic crisis triggered by the subprime mortgage lending which was infact a direct
result of underwriting of the mortgages by Fannie Mae and Freddie Mac, the government-
sponsored enterprises (GSEs) in the US supporting housing finance.25

India has had its fair share of scams since early 1991:

Harshad Mehta Scam: This is perhaps the most well known of all financial scams –
probably because it happened in a highly visible period – economic reforms had just been
started in 1991. Harshad Mehta was quick to understand the weaknesses of the banking
system, and exploited these weaknesses to the hilt. He managed to procure huge amounts of
money using the so called “Ready Forward” deals, and used this money to purchase large
amounts of shares at hugely inflated prices. He earned the sobriquet of “Big Bull” due to this
penchant. Later, the banks got a clue of his shady deals, and demanded their money back.26

UTI Scam: The Unit Trust of India (UTI) remained the sole vehicle for investment in the
capital market. UTI rode the stock-market rise of 1990‟s and its flagship scheme, US 64,
continued promising returns as high as 18%, till the “Ketan Parekh scam” burst the market. A
full-fledged run on the stock markets would have likely ensued had the government not come
out with a rescue package. 27UTI Act was repealed, UTI was broken up, and UTI Mutual
Fund still runs, but now like any other mutual fund, controlling less than 10% share of the
market and operating at a distance from the government.28

Ketan Parekh: A qualified CA, and a stock broker, identified a number of stocks (popularly
called the K-10), and took up huge positions in these. For this purpose, he used a large
number of Benami accounts and smaller stock exchanges, such as the Kolkata and
Ahmedabad stock exchanges. He also borrowed heavily from banks such as Global Trust
Bank and Madhavpura Mercantile Cooperative Bank. A team of traders, Shankar Sharma,
Anand Rathi and Nirmal Bang, known as the bear cartel, placed sell orders on KP‟s favorite
stocks, the so called K-10 stocks, and crushed their inflated prices. Even the borrowings of
KP put together could not rescue his scrips. The Global Trust Bank and the Madhavpura

25
Viral V Acharya , ‘State overreach: some lessons for India‟, <
http://www.livemint.com/2011/07/10222421/State-overreach-some-lessons.html> accessed on 12/03.2012.
26
Monika Halan, „A Broker goes for Broke‟ < http://www.livemint.com/2009/08/25215204/The-broker-goes-
for-broke-Sea.html> accessed on 12/03.2012.
27
Mani Shankar Aiyar, „Stock Market Scam And UTI Imbroglio‟ Economic and Political Weekly March 8
2003, p 2, < http://epw.in/epw/uploads/articles/2569.pdf> accessed on 12/03/2012.
28
Ibid.

6
Cooperative were driven to bankruptcy as the money they had lent Parekh went into an abyss
with his reportedly favourite K-10 stocks.29

IPO Scams: A number of key operators, including corporate stock brokers such as Karvy
and Indiabulls, were involved in the IPO scam that spanned the years 2004 – 2005. The
modus operandi was simple – the operators would open thousands of fake accounts to
purchase shares in IPOs, in the hope of selling later at huge profits. A spate of IPOs issued
during this period were heavily oversubscribed due to this scam, sometimes by as much as 40
times.30

Satyam Scandal: In 2009, Ramalinga Raju, chairman of Satyam Computer Services,

admitted to falsification in the company accounts and various other irregularities, and sent a
chill down the collective spine of the Indian financial system. Coming on the back of the
global recession, this incident promised to bust the Indian outsourcing industry and the stock
market, but for some deft bailout work by the government. Mr Raju himself had admitted to
irregularities worth around Rs 12,000 crores.

GDR scam: Pulling the plug on a scam involving Global Depository Receipt (GDR) issues,
the Securities and Exchange Board of India (SEBI) barred seven companies from issuing any
shares or convertible instruments or alter their capital structure in any manner. According to
the Sebi, most of these companies had issued GDRs in 2009. The modus operandi of the
alleged misuse was to issue large sized GDR issues in overseas market and then gradually
sell it in a structured manner to Indian clients already known to the FIIs.31

COMBATING SCAMS: PROPOSALS FOR CHANGE

Eliminating market scams are of immense importance for countries that have embarked on a
process of reforming their financial and capital markets for accelerating growth. India has to
continually strive to maintain an appropriate balance between market freedom and regulatory
discipline for ensuring stability in the growth process. Even a developed country such as the

29
D.N Ghosh, „Market Scandals and Regulatory Governance‟ Economic and Political Weekly May 17, 2010, p
1918 < http://epw.in/epw/uploads/articles/2805.pdf> accessed on 12/03/2012.
30
IPO Plot Thickens, Economic and Political Weekly May 13, 2006, <
http://epw.in/epw/uploads/articles/2057.pdf> accessed on 12/03/2012.
31
SEBI Cracks Down On GDR Scam,<http://www.indianexpress.com/news/sebi-cracks-down-on-gdr-
scam/849933/0> accessed on 7/03/2012.

7
US – with a dynamic financial and securities market and a number of sophisticated regulatory
institutions – can become a victim of periodic „deregulatory spasms‟.32

There is a deep-seated concern that the regulating agencies are not adequately equipped and
capable of discharging their primary responsibility of preserving the integrity of the market
processes.33Some changes that the SEBI should undertake are discussed below.

a) Rule making Process by the central Government:

Even though the SCR Act contains provisions for delegating powers of the GOI, the
government does retain powers for rule making in some areas of the securities market. 34
There is a strong case to be made at this stage of securities market development, to consider
changing the above provision of the Act to shift more regulatory responsibility onto the
regulator. Unlike the SEBI process of rule making for the securities, the GOI process is
neither transparent nor does it follow any consultative process while notifying the rules under
the SEBI Act. There have only been one or two instances when such a process has been
followed. The Act should also be amended to ensure that, irrespective of which government
is in power or the bureaucrat in charge, a consultative transparent process is always followed
in the rule making process. There is no rationale justifying the secrecy in the rule making
process of the GOI.

b) Internal Constitution SEBI:

Regulators all over the world appoint people, who practiced law at some point of time in their
profession, as the chairperson of the organisation. It is unusual that SEBI does not have a
whole time legal member to guide the regulator. It is recommended that the SEBI Act be
amended so that the SEBI Board consists of at least one WTM with adequate practical
experience in law and legal practise. The presence of a dedicated whole time legal member,
and a separate set of officers in charge of quasi-judicial functions, at SEBI will not only give
the feeling that justice is done but also that justice is seen to be done.35

32
D.N Ghosh, „Market Scandals and Regulatory Governance‟ Economic and Political Weekly May 17, 2010, p
1916 < http://epw.in/epw/uploads/articles/2805.pdf> accessed on 12/03/2012.
33
Ibid
34
Section 8 of the SC(R) Act, 1956.
35
Dharmistha Raval, „Improving the Legal Process in Enforcement at SEBI‟, p. 30 ,
<http://www.igidr.ac.in/pdf/publication/WP-2011-008.pdf> accessed on 3/03/2012.

8
 c) Circulars: scope and maintenance:
Frequent amendments to the regulations adversely affect the transactions which are in pipe
line besides creating uncertainty. SEBI is known to issue circulars under the regulations. It is
extremely difficult to keep track of the circulars issued by SEBI. There is a need to categories
circulars in a consistent manner and track it in the public domain so that there is maximum
clarity in regulations. This could be facilitated with a central system that is created within
SEBI, so that all the original circulars are centrally catalogued and the sequencing of these is
preserved.36

d) Investigations by SEBI:
The investigating process of SEBI is another area that is clouded with uncertainty whereby
the investors, or the market participants, are not aware of the length of time within which the
investigations will either be initiated, or kept pending, or completed. Within SEBI, there is no
policy of limitation and hence investigations can be initiated at anytime and can be kept
pending for any number of years. A system needs to be put in place whereby any
investigation that is initiated would automatically come up for review within the organisation,
after the predefined length of time. This would ensure that investigations are not kept pending
for unreasonable point of time, which would eradicate any misuse on this account.37

e) Process of conducting adjudication/enquiry/inquiry:

Good implementation is essential for effective regulation. Actions SEBI takes are largely
under Regulation 11, Prohibition of Fraudulent and Unfair Trade Practices Relating to
Securities Markets38, and Regulation 13 (4) Procedure for Holding Enquiry and Imposing
Penalties39. The procedure followed for issuing directions under Section 11 and 11(B) of the
SEBI Act, 1992, passing punitive orders against a intermediary, and imposing monetary
penalty are different under the Act. Three different procedures are prescribed under the Act,
rules and regulations when taking disciplinary proceedings. This often becomes a cause for
confusion to investors and noticees as to what procedure which will be followed by SEBI to
pass orders under the SEBI Act, 1992.

36
Ibid, p 33.
37
Ibid, p 34.
38
SEBI Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market Regulations,
1995, < http://www.sebi.gov.in/acts/futpfinal.html> accessed on 2/2/2012.
39
SEBI Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty, 2002, <
http://www.sebi.gov.in/acts/EnquiryPenalty.html> accessed on 2/2/2012.

9
A uniform procedure provided under the SEBI Regulations for disciplinary proceedings will
make the proceedings more discernable and simple for all the noticees to understand.40

f) Orders of the quasi-judicial authority:

After the personal hearing is over and the written submissions are received, a reasoned order
should be expeditiously passed by the authority. One mechanism to prevent misuse of powers
is through enhanced transparency. Presently, SEBI uploads orders passed by the en-
quiry/inquiry/adjudicating authority on its web-site, where it can be publicly viewed.
However, there have been instances when the orders have not been put on the web-site.41

To ensure that this does not happen, and that there is accountability in case the orders are not
posted on the web-site, it is necessary that there is a mandatory provision requiring SEBI to
mandatorily upload all the orders on the web-site.

g) Maintaining a digest of case-laws:

SEBI is party to all litigations where not only SEBI has passed orders but also where the
constitutional validity of the SEBI Act is challenged. A comprehensive digest cataloguing the
interpretation of each definition, of each regulation by SEBI, SAT, High Court and the
Supreme Court would be of tremendous help to facilitate understanding of issues in each
case, or any decision that has to be taken on questions regarding these. Such a digest would
also ensure that the officers of SEBI take decisions in accordance with the law which has
been interpreted and upheld.

h) Securities Appellate Tribunal (SAT) benches:

Presently, the SAT is situated in Mumbai. A person anywhere in the country has to approach
the SAT if they are aggrieved by a decision of SEBI and stock-exchanges. Litigants all over
the country are required to travel to Mumbai in case they want to appeal. Benches should be
established at other metropolitan cities. This will be an investor friendly measure and will
also ensure that the proceedings are not all Mumbai-centric.

i) Innovation in Financial market and updating of Regualtory framework:

There is a deep-seated concern that the regulating agencies are not adequately equipped and
capable of discharging their primary responsibility of preserving the integrity of the market

40
Nageswaran V. A. and S. Krithivasan, “Capital market reforms in India and ASEAN: avenues for co
operation”, paper presented at the 1st ASEAN-India Roundtable, February 9-10 -2004, Singapore , p 23.
41
Ashima Goyal, „Regulation and Deregulation of stock market in India‟ p .10, <
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=609322> accessed on 2/03.2012.

10
processes. The fact that the concerned regulatory agencies had been out of step with the
motives and behaviour of the dominant market players is apparent.42

A bull market is known to be a breeder of systemic risks. The spectacular success of many
businesses during this phase is often built on shallow foundations. For those who have the
responsibility for preserving the stability of the market, it may be a wise dictum to nurture a
culture of cynicism towards entrepreneurial celebrities.43

It is the speed and efficiency of enforcement that lends credibility to any surveillance set-up.
For what has happened in Wall Street, the American establishment – the political executive
as well as the regulatory agencies – has been facing a barrage of criticism for their regulatory
apathy, for having been caught napping. 44

Third, the quality of surveillance has become a burning issue today. The low level of
confidence in the regulatory setup is largely attributable to this. The regulating agencies have
to ask themselves honestly: are they properly equipped for the kind of surveillance that the
market expects of them?

SEBI‟s Integrated Market Surveillance System (IMSS) does this to a certain extent. Sebi
already has an Integrated Market Surveillance System (IMSS), and has been building on this
lately. It has budgeted about INR 20 crore in this fiscal year (6% of its total expenditure
budget) to beef up IMSS by procuring a data warehousing and business intelligence system.
Still, IMSS‟s scope can be increased considerably.45

Also questions are being asked about how SEBI is governing itself. In the ultimate analysis,
regulatory governance can be as good as the political executive can make happen. The basic
components of good governance in a regulatory institution – independence, accountability,
transparency and integrity – which the investors expect of the regulatory agencies cannot
come about without the active support and encouragement of the political executive. 46What

42
D.N Ghosh, „Market Scandals and Regulatory Governance‟ Economic and Political Weekly May 17, 2010, p
1919 < http://epw.in/epw/uploads/articles/2805.pdf> accessed on 12/03/2012.
43
Ibid.
44
Sunanda Sen, „Speculations, Scams, Frauds and Crisis‟, Economic & Political Weekly March 21, 2009 vol
XLIV no. 12.
45
Mobis Philipose, ‘SEBI‟s integrated market surveillance needs a boost‟ <
http://www.livemint.com/2010/07/19210441/Sebi8217s-integrated-market.html>
46
D.N Ghosh, „Market Scandals and Regulatory Governance‟ Economic and Political Weekly May 17, 2010, p
1919 < http://epw.in/epw/uploads/articles/2805.pdf> accessed on 12/03/2012.

11
is missing today is the requisite political will to put the regulatory institutions on a
professionally sound footing.47

A example may be given of the credit rating agencies in US – S&P, Moody‟s and the US
Securities and Exchange Commission (SEC) who has been caught napping time and again as
the global financial crisis unfurled its fury across the capital market around the world.

CONCLUSION & SUGGESTION

The SEBI has been operating now as the securities markets regulator since 1991, and has
appeared to have done a commendable task in upholding the mandate it was charged with, in
a period of high growth and reasonably heightened levels of economic volatility. The
principles based on which the entity was created has stood it in good stead. Some of these
principles include a clarity on the mandate it was to deliver on, non-interference from the
government, statutory powers to issue subordinate legislation which can be notified
expeditiously to accommodate the rapid changes that takes place in the equities markets in
India and the powers to enforce the regulatory mandate.

The credibility of SEBI as a regulator also appears to have been facilitated hugely by the
creation of specialised courts with specialised domain knowledge that can rapidly review
regulatory actions. Also in the process of ensuring that the markets develop in such a way
that the objective of securities markets continue to be met, the legal processes at SEBI have
also continued to evolve along the lines of higher levels of transparency of processes, clarity
of actions and credibility of legal action.

With respect to technology, automation, disclosure, risk containment and reduction in

transaction costs Indian bourses have outperformed those in developed countries. More
participation and depth of instruments is required. This will happen with a revival of growth
and greater confidence in the improved monitoring systems. India has also taken up the new

47
Ibid.

12
automated trading system- algorithmic trading which aims to reduce human error in large
volume transactions48, SEBI has already come out with guidelines regarding the same.49

A part of this project has been devoted to suggesting various changes that SEBI should look
to undertake. It is in the best interest of the market that the regulator continues to evolve and
bridge any gaps between current process and what the principles driving a good regulatory
functioning would suggest, we suggest that SEBI continues to fine-tune the legal processes,
particularly in enforcement, to achieve better levels of clarity on regulation and the legal
process.

48
R. Yegya Narayanan, „Algorithmic trading gaining ground‟
<http://www.thehindubusinessline.com/markets/article2509134.ece>accessed on 4/04/2012.
49
Sachin P Mampatta & Nitin Shrivastava, „SEBI sets curbs on algorithmic trading‟ <
http://www.dnaindia.com/money/report_sebi-sets-curbs-on-algorithmic-trading_1669543> accessed on
3/04/2012.

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 REFERENCES

ACTS AND REGULATIONS:

The SEBI Act 1992.

The Depositories Act, 1996.

The Capital Issues (Control) Act 1947.

Securities Contract Regulation Act, 1956.

SEBI Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market
Regulations, 1995.

SEBI Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty, 2002.

ARTICLES:

Ashima Goyal, „Regulation and Deregulation of stock market in India‟ p .10,

<http://papers.ssrn.com/sol3/papers.cfm?abstract_id=609322>

D.N Ghosh, „Market Scandals and Regulatory Governance‟ Economic and Political Weekly
May 17, 2010, p 1918 < http://epw.in/epw/uploads/articles/2805.pdf>

Dharmistha Raval, „ Improving the Legal Process in Enforcement at SEBI‟,

<http://www.igidr.ac.in/pdf/publication/WP-2011-008.pdf>

IPO Plot Thickens, Economic and Political Weekly May 13, 2006, <
http://epw.in/epw/uploads/articles/2057.pdf>

L.K Singhvi, „Surveillance: Challenge and Reality‟,

<http://www.iief.com/Research/surveillance and reality_chp10.pdf>

Mani Shankar Aiyar, „Stock Market Scam And UTI Imbroglio‟ Economic and Political
Weekly March 8 2003, p 2, < http://epw.in/epw/uploads/articles/2569.pdf>

Mobis Philipose, ‘SEBI‟s integrated market surveillance needs a boost‟

<http://www.livemint.com/2010/07/19210441/Sebi8217s-integrated-market.html>

iii
Monika Halan, „A Broker goes for Broke‟
<http://www.livemint.com/2009/08/25215204/The-broker-goes-for-broke-Sea.html>

Nageswaran V. A. and S. Krithivasan, “Capital market reforms in India and ASEAN:

avenues for co operation”, paper presented at the 1st ASEAN-India Roundtable, February 9-
10 -2004, Singapore

R. Yegya Narayanan, „Algorithmic trading gaining ground‟

<http://www.thehindubusinessline.com/markets/article2509134.ece>

Sachin P Mampatta & Nitin Shrivastava, „SEBI sets curbs on algorithmic trading‟
<http://www.dnaindia.com/money/report_sebi-sets-curbs-on-algorithmic-trading_1669543>

Santi Swarup, K., „Measures for improving common investor confidence in Indian primary
market: a survey”, NSE Research Initiative, Working paper no. 28, December 2003.

SEBI Cracks Down On GDR Scam,<http://www.indianexpress.com/news/sebi-cracks-down-

on-gdr-scam/849933/0>

Sunanda Sen, „Speculations, Scams, Frauds and Crisis‟, Economic & Political Weekly March
21, 2009 vol XLIV no. 12.

The New York Times , „ Ponzi Schemes‟

<http://topics.nytimes.com/top/reference/timestopics/subjects/f/frauds_and_swindling/ponzi_
schemes/index.html?scp=5&sq=madoff%20onzi&st=cse>

Viral V Acharya , ‘State overreach: some lessons for India‟,

<http://www.livemint.com/2011/07/10222421/State-overreach-some-lessons.html>

REPORTS:

Joint Committee Report on Stock Market scams and matters relating thereto, Vol-1, Tabled at
Thirteenth Lok Sabha. < http://164.100.24.208/ls/committee/report.htm>

NSE (National Stock Exchange), 2003, Indian Security Markets: A Review, and earlier
issues, available at <www.nse-india.com>

iv