A PROJECT REPORT ON

SEBI AS A REGULATOR OF CAPITAL MARKET

SUBMITTED BY:

RAJ VARDHAN AGARWAL (A90821517066)-BBA.LLB(H)

MEHAL KAUR (A90811117061)-BA.LLB(H)

1
 INDEX

Sr. No. Particulars Pg. No.

1) SEBI: INTRODUCTION 3

2) HISTORY 4-6

3) MISSION & OBJECTIVES OF SEBI 7-8

4) POWER AND FUNCTIONS OF SEBI 9-11

5) CAPITAL MARKET 12

6) CAPITAL MARKET IN INDIA 13

7) ROLE OF SEBI 14-15

8) SEBI (SETTLEMENT OF ADMINISTRATIVE & CIVIL 16-17

PROCEEDINGS) REGULATIONS, 2014

9) SEBI (PROCEDURE FOR SEARCH AND 18

SEIZURE) REGULATIONS, 2014

10) SECURITIES APPELLATE TRIBUNAL (SAT) 19

11) SEBI AS A REGULATOR 20-21

12) CONCLUSION 22
 INTRODUCTION
The SEBI, that is, The Securities And Exchange Board Of India, is the national regulatory
body for the securities market, set up under The Securities And Exchange Board Of India
Act, 1992, to “protect the interest of investors in securities and to promote the development
of, and to regulate the securities market and for matters connected therewith and incidental
too.”

SEBI has its head office in Mumbai and it has now set up regional offices in the
metropolitan cities of Delhi, Kolkata and Chennai. The Board of SEBI comprises a
Chairman, two members from the Central Government representing the ministries of finance
and law, one member from the Reserve Bank Of India and two other members appointed by
the Central Government.

As per the SEBI Act, 1992, the power and functions of the Board encompass the
regulation of Stock Exchanges and other securities markets; registration and regulation of the
working stock brokers, sub-brokers, bankers to an issue (a public of capital), trustees of trust
deeds, registrars to an issues, merchant bankers, under writers, portfolio managers,
investment advisors and such other intermediaries who may be associated with the stock
market in any way; registration and regulations of mutual funds; promotion and regulation of
self-regulatory organizations; prohibiting fraudulent and unfair trade practices and insider
trading in securities markets; regulating substantial acquisition of shares and takeover of
companies; calling for information from, undertaking inspection conducting inquiries and
audits of stock exchanges, intermediaries and self-regulatory organizations of the securities
market; performing such functions and exercising such powers as contained in the provisions
of the Capital Issues (Control) Act, 1947 and the Securities Contracts (Regulation) Act, 1956,
levying various fees and other charges, conducting necessary research for above purposes
and performing other functions as may be prescribed from time to time.

SEBI as the watchdog of the industry has an important and crucial role in the market in
ensuring that the market participants perform their duties in accordance with the regulatory
norms. The Stock Exchange as a responsible Self-Regulatory Organization (SRO) functions
to regulate the market and its prices as per the prevalent regulations. SEBI and the Exchange
play complimentary roles to enhance the investor protection and the overall quality of the
market.

SECURITIES AND EXCHANGE BOARD OF INDIA:-

SEBI:- What does Securities And Exchange Board Of India – SEBI Mean?
The regulatory body for the investment market in India. The purpose of this board is to
maintain stable and efficient markets by creating and enforcing regulations in the market
place.

SEBI The Securities And Exchange Board of India is similar to the U.S. SEC. The SEBI is
relatively new (1992) but is a vital component in improving the quality of the financial
markets in India, both by attracting foreign investors and protecting Indian Investors.
 HISTORY

The idea of setting up a regulator was first proposed by former Prime Minister, Late Mr.
Rajiv Gandhi who was also the Finance Minister in 1987. In his budget speech for 1987-88,
Mr. Gandhi had said “For a healthy growth of capital markets, investors’ rights must be fully
protected. Trading malpractices must be prevented. Government has decided to set up a
separate board for the regulation and orderly functioning of stock exchanges and the
securities industry.” Thus, a notification was issued and SEBI was constituted on 12 th April
1988 as an interim administrative body under the Finance Ministry. However, it was four
years later; on 4th April 1992 that a notification awarding statutory powers to SEBI was
finally issue.

SEBI is a quasi-legislative, quasi-judicial and quasi-executive body. It can draft regulations,

conduct inquiries, pass rulings and impose penalties. All decisions taken by SEBI are
collectively taken by its Board that consists of a Chairman and eight other members. The
current Chairman of SEBI is Ajay Tyagi who was appointed on 10th January 2017,
replacing
U. K. Sinha, and took charge of the Chairman Office on 1st March 2017. Moreover, SEBI
appoints various committees, whenever required to look into the pressing issues of that time.
Further, a Securities Appellate Tribunal – SAT has been constituted to protect the interest of
entities that feel aggrieved by any of SEBI’s decision. SAT, consisting of a Presiding Officer
and two other Members, has the same powers as vested in a civil court. Further, if any person
feels aggrieved by SAT’s decision or order can appeal to the Supreme Court.

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 at the business district of Bandra Kurla Complex in Mumbai, and has Northern,
Eastern, Southern and Western Regional Offices in New Delhi, Kolkata, Chennai and
Ahmedabad 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 market in India under a resolution of the
Government of India.

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.
e) The office of SEBI is situated at SEBI Bhavan, Bandra Kurla Complex, Bandra East,
Mumbai- 400051, with its regional offices at Kolkata, New Delhi & Chennai. It has
recently opened local offices at Jaipur, Bangalore, Chandigarh, Lucknow, Hyderabad,
Dehradun, Kochi, Shimla, Guwahati, Jaipur, Bhubaneshwar, Indore, Patna, Panaji, Ranchi
and Raipur.

ESTABLISHMENT OF THE SECURITIES AND EXCHANGE BOARD OF INDIA

 Establishment And Incorporation Of Board:-

 With effect from such date as the Central Government may, by notification appoint,
there shall be established for the purposes of this Act, a Board by the name of the
Securities And Exchange Board Of India.
 The Board shall be a body corporate b the name aforesaid, having perpetual succession
and a common seal, with power subject to provision of his Act, to acquire, hold and
dispose of property, both movable and immovable, and to contract, and shall, by the said
name, sue or be sued.

 The head office of the Board shall be at Bombay.

 The Board may establish offices at other places in India.
 Management Of The Board:-
 The Board shall consist of the following members, namely:-
 A Chairman;
 Two members from amongst the officials of the [Ministry] of the Central Government
dealing with Finance [and administration of the Companies Act, 1956(1 of 1956)];
 One member from amongst the officials of [the Reserve Bank];
 Five other members of whom [at least three shall be the whole-time members] to be
appointed by The Central Government.

 The general superintendence, direction and management of the affairs of the Board shall
vest in a Board of members, which may exercise all powers and do all acts and things
which may exercise all powers and do all acts and things which may be exercised or
done by the Board.

 Save as otherwise determined by regulations, the Chairman shall also have powers of
general superintendence and direction of the affairs of the Board and may also exercise
all powers and do all acts and things which may be exercised or done by that Board.

 The Chairman and members referred to in clauses (a) and (b) of sub-section (1) shall be
appointed by the Central Government and the members referred to in clauses (b) and (c)
of that sub-section shall be nominated by the Central Government and the [Reserve
Bank] respectively.

 The Chairman and the other members referred to in clauses (a) and (d) of sub-section (1)
shall be persons of ability, integrity and standing who have shown capacity in dealing
with problems relating to securities market or have special knowledge or experience of
law, finance, economics, accountancy, administration or in any other discipline which,
in the opinion of the Central Government, shall be useful to the Board.
Removal Of Member From Office:-

The Central Government shall remove a member from office if he –

 is, or at any time has been, adjudicated as insolvent;
 is of unsound mind and stands so declared by a competent court;
 has been convicted of an offence which, in the opinion of the Central Government,
involves a moral turpitude;
 has, in the opinion of the Central Government, so abused his position as to render his
continuation in office detrimental to the public interest:
Provided that no member shall be removed under this clause unless he has been a
reasonable opportunity of being heard in the matter.

 Meetings:-

 The Board shall meet at such times and places, and shall observe such rules of
procedure in regard to the transaction of business at its meetings (including quorum at
such meetings) as may be provided by regulations.
 The Chairman or, if for any reason, he is unable to attend a meeting of the Board, any
other member chosen by the members present from amongst themselves at the meeting
preside at the meeting.
 All questions which come up before any meeting of the Board shall be decided by a
majority votes of the members present and voting, and, in the event of an equality of
votes, the Chairman, or in his absence, the person presiding, shall have a second or
casting vote.

 Member Not To Participate In Meetings In Certain Cases:-

Any member, who is a director of a company and who as such director has any direct or
indirect pecuniary interest in any matter coming up for consideration at a meeting of the
Board, shall, as soon as possible after relevant circumstances have come to his knowledge,
disclose the nature of his interest at such meetings and such disclosure shall be recorded in
the proceedings of the Board, and the member shall not take any part in any deliberation or
decision of the Board with respect to that matter.”

 Vacancies etc.. Not To Invalidate Proceedings Of Boards:-

No act or proceedings of the Board shall be invalid merely by reason of-
 Any vacancy in, or any defect in the Constitution of, the Board; or
 Any defect in the appointment of a person acting as a member of the Board; or
 Any irregularity in the procedure of the Board not affecting the merits of the case
 MISSION OF SEBI
Securities And Exchange Board Of India (SEBI) formed under the SEBI Act, 1992 with the
prime objective of :-
 Protecting the interest of investors in securities,
 Promoting the development of, and
 Regulating, the securities market and for matters connected therewith or incidental
thereto.’
Focus being the greater investor protection, SEBI has become a vigilant watchdog

PREAMBLE
The Preamble of the Securities And Exchange Board of India describes the basic functions
of the SEBI as `…to protect the interests of investors in securities and to promote the
development of, and to regulate the securities market and for matters connected therewith or
incidental thereto”

OBJECTIVE OF SEBI

In 1988, the Securities And Exchange Board Of India (SEBI) was established by the
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 the Securities
And Exchange Board Of India Act (SEBI Act) on the 30 th January 1992. In place of
Government Control, a statutory and autonomous regulatory board with defined
responsibilities , to cover both development & regulations of the market, and market, and
independent powers has been setup. Paradoxically this a positive outcome of the Securities
Scam of 1990-91
The basic objectives of the Board were identified as:

 To protect the interests of investors in securities;

 To promote the development of Securities Market;
 To regulate the Securities market and
 For matters connected therewith or incidental there to.
Since its inception SEBI has been working targeting the securities and its attending to the
fulfilment of its objectives with commendable zeal and dexterity. The improvements in the
securities markets like capitalization requirements, margining, establishment of clearing
corporations etc. reduced the risk of credit and also reduced the market.
SEBI has introduced the comprehensive regulatory measures, prescribed registration norms,
the eligibility criteria, the code of obligations and the code of conduct for different
intermediaries like, bankers to issues, merchant bankers, brokers and sub-brokers, registrars,
portfolio managers, credit rating agencies, underwriters and others. It has framed by-laws,
risk identification and risk management systems for Clearing houses of stock exchanges,
surveillance system etc. which has made dealing in securities both safe and transparent to the
end investor.
Another significant event is the approval of trading in stock indices (like S&P CNX Nifty &
Sensex) in 2000. A market Index is a convenient and effective product because of the
following
Reasons:
 It acts as a barometer for market behaviour;
 It is used to benchmark portfolio performance;
 It is used in derivative instruments like index futures and index options;
 It can be used for passive fund management as in case of Index Funds
Two broad approaches of SEBI is to integrate the securities market at the national level, and
also to diversify the trading products, so that there is an increase in number of traders
including banks, financial institutions, insurance companies, mutual funds, primary dealers
etc. to transact through the Exchanges. In this context the introduction of derivatives trading
through Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark.
SEBI appointed the L. C. Gupta Committee in 1998 to recommend the regulatory framework
for derivatives trading and suggest by-laws for Regulations and Control of Trading and
Settlement of Derivatives Contracts. The Board of SEBI in its meeting held on May 11, 1998
accepted the recommendations of the committee and approved the phased introduction of
derivatives trading in India beginning with Stock Index Futures. The Board also approved the
“Suggestive By-laws” as recommended by the Dr. L.C Gupta Committee for Regulations and
Control of Trading and Settlement of Derivatives Contracts. SEBI then appointed the J. R.
Verma Committee to recommend Risk Containment Measures (RCM) in the Indian Stock
Index Futures Market. The report for the same was submitted in November 1998.
However the Securities Contracts (Regulation) Act, 1956 (SCRA) required amendment to
include “derivatives” in the definition of securities to enable SEBI to introduce trading in
derivatives. The necessary amendment was then carried out by the Government in 1999 the
new framework was approved.
Derivatives have been accorded the status of `Securities’. The ban imposed on trading in
derivatives in 1969 under a notification issued by the Central Government was revoked.
Thereafter SEBI formulated the necessary regulations/by-laws and intimated the Stock
Exchanges in the year 2000. The derivative trading started in India at NSE in 2000 and BSE
started trading in the year 2001.
 POWERS AND FUNCTIONS OF SEBI
 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:-

 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.
 Registration and Regulation of the Working of Intermediaries and Mutual Funds,
Venture Capital Funds and Collective Investment Schemes.
 Prohibiting fraudulent and unfair trade practices and insider trading in the securities
market.
 Investor education and the training of intermediaries.
 Inspection and inquiries.
 Regulating substantial acquisition of shares and take-over.
 Performing such functions and exercising such powers under the provision of the
 Securities Contracts (Regulation) Act, 1956 as may be delegated to it by The Central
Government;
 Levying fees or other charges for carrying out the purposes of this section.
 Promotes activities of stock exchange by adopting flexible and adoptable approach in
following ways:-
i. SEBI has permitted internet trading through registered stock brokers.
ii. SEBI has made underwriting optional to reduce the cost of issue.
Even initial public offer of primary market is permitted through stock exchange
 DEVELOPMENTAL FUNCTIONS:-

These functions are performed by SEBI to promote and develop activities in stock
exchange and increase the business in Stock Exchange. Under development categories
following functions are performed:-

 SEBI promotes training of intermediaries of the securities market.

 SEBI tries to promote activities of stock exchange by adopting flexible and adoptable
approach in following way:-
 SEBI has permitted internet trading through registered stock brokers.
 SEBI has made underwriting optional to reduce the cost of issue.
 Even initial public offer of primary market is permitted through stock exchange.
  PROTECTIVE FUNCTION:-

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

 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.

 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 price 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.

 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.

 SEBI undertakes steps to educate investors so that they are able to

evaluate the securities of various companies and select the most
profitable securities.

 SEBI promotes fair practices and code of conduct in security market by taking
following steps:-
 i. SEBI has issued guidelines to protect the interest of debenture-holders wherein
companies cannot change terms in midterm.
ii. SEBI is empowered to investigate cases of insider trading and has provisions for
stiff fine and imprisonment.
iii. SEBI has stopped the practice of making preferential allotment of shares unrelated
to market price.

POWERS OF SEBI

 Powers relating to stock exchanges & intermediaries

SEBI has wide powers regarding the stock exchanges and intermediaries dealing in
securities. It can ask information from the stock exchanges and intermediaries
regarding their business transactions for inspection or scrutiny and other purpose.

 Power to impose 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.

 Power to initiate actions in functions assigned

SEBI has a power to initiate actions in regard to functions assigned. For example, it
can issue guidelines to different intermediaries or can introduce specific rules for the
protection of interests of investors.

 Power to regulate insider trading

SEBI has power to regulate insider trading or can regulate the functions of merchant
bankers.

 Powers under Securities Contracts Act

For effective regulation of stock exchange, the Ministry of Finance issued a
Notification on 13 September, 1994 delegating several of its powers under the
Securities Contracts (Regulations) Act to SEBI.
SEBI is also empowered by the Finance Ministry to nominate three members on the
Governing Body of every stock exchange.

 Powers to regulate business of stock exchanges

SEBI is also empowered to regulate the business of stock exchanges, intermediaries
associated with the securities market as well as mutual funds, fraudulent and unfair
trade practices relating to securities and regulation of acquisition of shares and
takeovers of companies.
 CAPITAL MARKET

A capital market is a financial market in which long-term debt (over a year) or equity-
backed securities are bought and sold. Capital markets channel the wealth of savers to those
who can put it to long-term productive use, such as companies or governments making long-
term investments. A capital market can be either a primary market or a secondary market. In
primary market, new stock or bond issues are sold to investors, often via a mechanism known
as underwriting. The main entities seeking to raise long-term funds on the primary capital
markets are governments (which may be municipal, local or national) and business
enterprises (companies). Governments issue only bonds, whereas companies often issue both
equity and bonds. The main entities purchasing the bonds or stock include pension funds,
hedge funds, sovereign wealth funds, and less commonly wealthy individuals and investment
banks trading on their own behalf. In the secondary market, existing securities are sold and
bought among investors or traders, usually on an exchange, over-the-counter, or elsewhere.
The existence of secondary markets increases the willingness of investors in primary markets,
as they know they are likely to be able to swiftly cash out their investments if the need arises.
CAPITAL MARKET IN INDIA

The history of the capital market in India dates back to the 18 th century when East India
Company securities were traded in the country. It has been a long journey for the Indian
Capital Market. Now the Capital Market is organised, fairly integrated, mature, more global
and modernized. The Indian Equity Market is one of the best in the world in terms of
technology as well as value-cum-volume of business. On 31st August, 2010 our Indian equity
stocks total market capitalization value was around Rs. 70,00,000 crores.

After the securities are issued in the primary market, they are traded in the secondary market,
by the investors. The stock exchanges along with a host of other intermediaries provide the
necessary platform for trading in secondary market and also for clearing and settlement. The
securities are traded, cleared and settled within the regulatory framework prescribed by the
Exchanges and the SEBI. Till recent, it was mandatory for the companies to list their
securities on the regional stock exchange nearest to their registered office, in order to provide
an opportunity to investors to invest/trade in the securities of local companies. However,
following the withdrawal of this restriction, the companies have an option to choose from any
one of the following stock exchanges in India to list their securities. Due to the earlier
regulation requiring companies are to get listed first at the regional stock exchange, there are
in all 23 exchanges operating today in the country. With the increased application of
information technology, the trading platforms of all stock exchanges are accessible from
anywhere in the country through their trading terminals.
However, the trading platforms of NSE is also accessible through internet and mobile
devices. In a geographically widespread country like India, this has significantly expanded
the reach of the exchanges to the homes of ordinary investors and assuages the aspirations of
people to have exchanges in their vicinity. As a result of the reforms/initiatives taken by the
Government and the Regulators, the markets microstructure has been redefined and
modernized. The investment choices for the investors have also broadened.
The securities market moved from T+3 settlement periods to T+2 rolling settlement with
effect from April 1, 2003. Further, straight through processing has been made mandatory for
all institutional trades executed on the stock exchange. RBI to settle inter-bank transactions
online at real time mode has also introduced real time gross settlement. These developments
in the securities market provide the necessary impetus for growth and development, and
hereby strengthen the emerging market economy in India.
 ROLE OF SEBI IN INDIAN CAPITAL MARKET

SEBI is regulator to control Indian Capital Market. Since its establishment in 1992, it is doing
hard work for protecting the interests of Indian investors. SEBI gets education from past
cheating with naïve investors of India. Now, SEBI is more strict with those who commit
frauds in capital market. The role of security exchange board of India (SEBI) in regulating
Indian Capital Market is very important because government of India can only open or take
decision to open new stock exchange in India after getting advice from SEBI. If SEBI thinks
that it will be against its rules and regulations, SEBI can ban on any Stock Exchange to trade
in shares and stocks. Now, we explain role of SEBI in regulating Indian Capital Market more
deeply with following points;

 POWER TO MAKE RULES FOR CONTROLLING STOCK EXCHANGES :- SEBI has

power to make new rules for controlling stock exchanges in India. For example, SEBI
fixed the time of trading 9 AM and 5 PM in stock market.

 TO PROVIDE LICENSE TO DEALERS AND BROKERS :-

SEBI has power to provide license to dealers and brokers of capital market. If SEBI sees
that any financial product is of capital nature, then SEBI can also control to that product
and its dealers. One of main example is ULIP’s case. SEBI said, “It is just like funds and
all banks and financial and insurance companies who want to issue it, must take
permission from SEBI.’

 TO STOP FRAUD IN CAPITAL MARKET :-

SEBI has many powers for stopping fraud in capital market.
 It can ban on the trading of those brokers who are involved in fraudulent and unfair
trade practices relating to stock market.
 It can impose the penalties on capital market intermediaries if they involve in insider
trading.

 TO CONTROL THE MERGE, ACQUISITION AND TAKEOVER OF THE

COMPANIES :-
Many big companies in India want to create monopoly in capital market. So, these
companies buy all other companies or deals of merging. SEBI sees whether this merge or
acquisition if for development of business or to harm capital market.

 TO AUDIT THE PERFORMANCE OF STOCK MARKET :-

SEBI uses his powers to audit the performance of different Indian Stock Exchange for
bringing transparency in the working of Stock Exchanges.

 TO MAKE NEW RULES ON CARRY-FORWARD TRANSACTIONS :-

 Share trading transactions carry forward can not exceed 25% of broker’s total
transactions.
 90 days limit for carry forward.
 TO CREATE RELATIONSHIP WITH ICAI :-
ICAI is the authority for making new auditors of companies. SEBI creates good
relationship with ICAI for bringing more transparency in the auditing work of company
accounts because audited financial statements are mirror to see the real face of company
and after this investors can decide to invest or not to invest. Moreover, investors of India
can easily trust on audited financial reports. After, Satyam Scam. SEBI is investigating
with ICAI, whether CA’s are doing their duty by ethical way or not.

 INTRODUCTION OF DERIVATIVE CONTRACTS ON VOLATILITY INDEX:-

 For reducing the risk of investors, SEBI has now been decided to permit Stock
Exchanges to introduce derivative contracts on Volatility Index, subject to the
condition that;
 The underlying Volatility Index has a track record of at least one year.
 The Exchange has in place the appropriate risk management framework for such
derivative contracts.

 Before introduction of such contracts, The Stock Exchanges shall submit the following:
 Contract specifications
 Position and Exercise Limits
 Margins
 The economic purpose is intended to serve
 Likely contribution to market development
 The safeguards and the risk protection mechanism adopted by the exchange to
ensure market integrity, protection of investors and smooth and orderly trading.
 The infrastructure of the exchange and the surveillance system to effectively
monitor trading in such contracts, and
 Details of settlement procedures and systems
 Details of back testing of the margin calculation for a period of one year
considering a call and a put option on the underlying with a delta of 0.25 & -0.25
respectively and actual value of the underlying.

 TO REQUIRE REPORT OF PORTFOLIO MANAGEMENT ACTIVITIES:-

SEBI has also power to require report of portfolio management to check the capital
market performance. Recently, SEBI sent the letter to all Registered Portfolio Managers
of India for demanding report.

 TO EDUCATE THE INVESTORS:-

Time to time, SEBI arranges scheduled workshops to educate the investors. On 22nd May,
2010 SEBI imposed workshop.
 SEBI (SETTLEMENT OF ADMINISTRATIVE & CIVIL PROCEEDINGS)
REGULATIONS, 2014

Under the SEBI Act,1992, Securities Contracts (Regulation) Act,1956 (SCRA) and the
Depositories Act, 1996, SEBI pursues two streams of enforcement actions i.e.
Administrative/Civil or Criminal. Administrative/civil actions include issuing directions such
as remedial orders, cease and desist orders, suspension or cancellation of certificate of
registration and imposition of monetary penalty under the respective statutes and action
pursued or defended in a court of law/tribunal. Criminal action involves initiating prosecution
proceedings against violators by filing complaint before a criminal court. Consent order is a
remedial measure for settling civil proceedings initiated by SEBI.

Consent Order means an order settling administrative or civil proceedings between the
regulator and a person (Party) who may prima facie be found to have violated securities laws.
Consent Order provides flexibility of wider array of enforcement and remedial actions which
will achieve the twin goals of an appropriate sanction, remedy and deterrence without
resorting to litigation, lengthy proceedings and consequent delays.

SEBI vide circular ref no. EFD/ED/Cir-1/2007 dated April 20, 2007 laid down the framework
for passing of consent orders and for considering requests for composition of offences under
SEBI Act, SC(R) Act and Depositories Act. Again in the year 2012 SEBI with the purpose of
providing more clarity on its scope and applicability, partially modified the same.

The President of India promulgated the Securities Laws (Amendment) Second Ordinance,
2013 on September 16, 2013 conferring explicit powers on SEBI to settle administrative and
civil proceedings under section 15JB of the Securities and Exchange Board of India Act,
1992(SEBI Act), section 23JA of the Securities Contracts (Regulation) Act, 1956 and section
19-IA of the Depositories Act, 1996.

The said Ordinance provided that SEBI may, after taking into consideration the nature,
gravity and impact of defaults, agree to the proposal for settlement, on payment of such sum
by the defaulter or on such other terms as may determine by SEBI in accordance with the
regulations made under SEBI Act. The said Ordinance further provided that the settlement
proceedings shall be conducted in accordance with the procedure specified in the regulations
made under SEBI Act. In this direction SEBI also placed a draft consultation paper on SEBI
(Settlement of Administrative and Civil Proceedings) Regulations, 2013 on its website for
public comments.

In the light of the above, SEBI framed SEBI (Settlement of Administrative and Civil
Proceedings) Regulations, 2014 and notified it vide Circular No. LAD-NRO/GN/2013-
14/37/50 dated 09 January, 2014. These regulations will enable the persons who have
defaulted on any SEBI laws & civil proceedings have been initiated against them, to settle the
proceedings. These regulations do not provide for settling proceedings which are under
criminal in nature.

These regulations provides for the involved entity to file settlement plea within 60 days of the
show cause notice served to them by SEBI. The charges and related costs would not be
considered upon the payment of settlement also in the cases in which the applicant has
already been a party to two earlier settlements. The regulation mentions the minimum
amount to be
paid by entities, which will vary as per the charges against them. These charges will be
highest for the promoters.

The SEBI (Settlement of Administrative & Civil Proceedings) Regulations, 2014 is

divided into VIII chapters and two schedules. Chapter 1 covers the preliminary definitions
part. Chapter II deals with the application for settlement and limitations part. Chapter III
stipulates the scope of settlement proceedings, withdrawal of application for settlement, effect
of pending application on the specified proceedings etc., Chapter V deals with the terms of
settlement like monetary and non- monetary terms, factors to be considered to arrive at the
settlement terms, Chapter V defined the role of the internal committee and high powered
advisory committee in order to impart transparency in the process, Chapter VI provides the
procedure of settlement before the internal committee and high powered advisory committee,
Chapter VII deals with Settlement orders like settlement of proceeding before the
adjudicating officer and SEBI or Settlement proceeding pending before tribunal or any court,
Rejection of application in certain eventualities and chapter VIII deals with miscellaneous
information like confidentiality of information, power to remove difficulties, SEBI’s power to
specify procedures, Rescission and savings etc. Schedule I is divided into three parts A, B &
C respectively and Schedule II is again divided into seven chapters. The highlights of the
Regulations in brief is discussed below:
 Scope Of Settlement Proceeding:
Regulation 5 deals with the scope settlement proceedings. It provides that an application for
settlement of any specified proceeding shall not be considered, if:

a) the alleged default was committed within a period of 24 calendar months from the date
of the last settlement order where the applicant was a party.
b) An earlier application with regard to the same alleged default has been rejected;
c) the applicant has been party to two settlement orders during the period of thirty six
calendar months, prior to the date of applications;
d) the audit or investigation, if any, in respect of any alleged default, is not complete.
The following proceedings are out of the scope of this regulations, i.e. a specified proceeding
cannot be settled, if it involves any of the following defaults:
a) defaults involving insider trading and communication of unpublished price sensitive
information ;
b) fraudulent and unfair trade practices including front running, which in the opinion of
SEBI are serious and have a market wide impact or have caused substantial losses to or
affect the rights of investors in securities, especially retail investors and small
shareholders:
c) failure to make an open offer except where the applicant agrees to make the open offer
or where SEBI is of the opinion that the making of the open offer would not be
beneficial to the shareholders or is infructuous;
d) defaults or manipulative practices by mutual funds, alternative investment funds,
collective investment schemes and their sponsors or asset management companies,
collective investment management company, managers, trustees that result in substantial
losses to investors, except in cases where the applicant has compensated the investors
for the losses, to the satisfaction of SEBI;
 SEBI (PROCEDURE FOR SEARCH AND SEIZURE) REGULATIONS,
2014

The Securities Laws (Amendment) Second Ordinance, 2013 was promulgated on September
16, 2013 conferring explicit powers on the Chairman, SEBI to authorize Investigating
Authority or any other officer of SEBI to conduct search and seizure under sub-section (8) of
section 11C of the SEBI Act, 1992.

The said Ordinance vide sub-section (9) of section 11C of the SEBI Act, provides that SEBI
may make regulations in relation to search and seizure under section 11C of the SEBI Act. A
corresponding provision as clause (cc) has also been inserted in sub-section (2) of section 30
of SEBI Act enabling SEBI to frame regulations providing for the procedure to be followed
by the authorized officer for search or seizure under sub-section (8) of section 11C of SEBI
Act.

In order to exercise the powers of search and seizure at the time of Investigation, harmonious
with the rights of the persons who are subjected to search of their person and property, while
pursuing the SEBI’s statutory mandate of investor protection, detailed procedures relating to
the procedural safeguards during different stages of search and seizure and the rights of those
persons subjected to search and the obligations of the authorized persons, SEBI placed a draft
regulations titled SEBI (Procedure for Search and Seizure) Regulations, 2013 dated
14.11.2013 and invited comments from the public on the draft regulations.

Keeping the above in perspective, SEBI on January 10, 2014 issued the SEBI (Procedure for
Search and Seizure) Regulations, 2014, specifying detailed procedures to be followed at
different stages of an investigation.
 SECURITIES APPELLATE TRIBUNAL (SAT)

In order to afford proper appellate remedies, Chapter VIB of SEBI Act provides for the
establishment of the Securities Appellate Tribunals to consider appeals against SEBI’s orders,
of penalties.
As per Section 15K, the Central Government is empowered to establish by notifications one
or more Appellate Tribunals, to be known as the Securities Appellate Tribunals to exercise
the jurisdiction, power and authorities conferred on such Tribunal by SEBI Act or under the
Act or any other law for the time being in force. The Central Government has set up a
tribunal at Mumbai.
 COMPOSITION OF SAT

According to Section 15L, which deals with the composition of the Tribunal, the
Securities Appellate Tribunals shall consist of a Presiding Officer and two other members
to be appointed by the Central Government by notification.

 QUALIFICATION FOR APPOINTMENT AS PRESIDING OFFICER OR

MEMBER

Section 15M prescribes that a person shall not be qualified for appointment as the
Presiding Officer of Securities Appellate Tribunals unless he is a sitting or retired Judge
of the Supreme Court or a sitting or retired Chief Justice of a High Court or is a sitting or
retired Judge of a High Court who has completed not less than seven years of service as a
Judge in a High Court. It has also been prescribed that the presiding officer of the
Securities Appellate Tribunal shall be appointed by the Central Government in
consultation with chief justice of India or his nominee. A person shall not be qualified for
appointment as a member of Securities Appellate Tribunal unless he is a person of ability,
integrity and standing who has shown capacity in dealing with problems relating to
securities market and has qualification and experience of corporate law, securities laws,
finance, economics or accountancy.

A member of SEBI or any person holding a post at senior management level at SEBI
cannot be appointed as presiding officer or member of Securities Appellate Tribunal
during his service or tenure as such with SEBI or within two years from the date on which
he ceases to hold office as such in SEBI.
 SEBI AS A REGULATOR

For a growing and dynamic economy like India, capital markets play an important role
in not just attracting domestic and foreign investment but also mirror the state of affairs in our
country. In order to present the Indian dream most favourably among investors, it is
important that our capital markets have a strong and non-manipulative infrastructure and to
ensure this, India has its capital market regulator, the Securities and Exchange Board of India
– SEBI.

With changing times and while facing newer challenges, SEBI has always taken
responsibility for everything that is right or wrong in India’s capital markets. Even now,
when SEBI finds itself surrounded by the din of chit funds siphoning off crores of rupees
from gullible investors and a need for tightening insider trading norms; the Indian
government has happily obliged to SEBI’s demand for more powers. Accordingly the
government has promulgated Securities Laws (Amendment) Second Ordinance, 2013 that
would amend the SEBI Act, the Securities Contracts (Regulation) Act and the Depositories
Act. With these amendments, SEBI will be able to regulate any money pooling scheme worth
Rs. 100 crore or more and attach assets in cases of non-compliance. The SEBI Chairman
would have the authority to order "search and seizure operations". The amended law would
also allow SEBI to seek information, such as telephone call data records, from any persons or
entities in respect to any securities transaction being investigated by it. The law would further
allow setting up of special courts to speed up SEBI related cases.

 JOURNEY SO FAR:

SEBI, in its short journey of 25 years has made a remarkable impression on investors as well
as capital markets. Following are some of the changes introduced by SEBI…..

 Settlement System:-

SEBI introduced rolling settlement on a T+5 basis for domestic as well as foreign
institutional investors in 1998. Gradually reducing the settlement time since then, Indian
markets have switched to T+2 trading now.

 Dematerialization of Share Certificates:-

SEBI initiated the process of dematerialization of share certificates in 1999. The need
for this initiative was felt to avoid the threat of forgery or theft of share certificates
coupled with inordinate delay by transfer agents and post offices.

 Fostering Mutual Funds:-

SEBI regularly issues revised guidelines for mutual fund industry to help them flourish in
India. Till early 90s, Unit Trust of India was the only player in India's mutual fund
market. SEBI's efforts not only encouraged hundreds of mutual funds to enter the Indian
markets, but also gave an opportunity to not so savvy investors to invest in the markets
through a much safer way. To enhance the popularity of mutual funds, SEBI relaxed
know your customer (KYC) norms for small investors and widened the distribution
network in rural
 India by roping in postal agents. By banning entry loads for mutual fund schemes in
2009, SEBI curbed mis-selling of mutual fund products.

 Rolling Out Red Carpet For FIIs:-

In order to keep a close eye on FII inflow; the task of giving approvals to FII
registrations was handed over to SEBI in 2003 and since then SEBI has been
consistently revising the FII investment limit in both corporate as well as
government debt. Meanwhile, in order to discourage FII investments made through
P-notes, SEBI has imposed sufficient checks and balances to avoid the flow of
black money into the Indian markets.

 IPO reforms:-

SEBI had last year notified wide-ranging reforms in Initial Public Offer -IPO
market which included a strict vigil on usage of issue proceeds, greater disclosure
by companies and their bankers and allotment of a minimum number of shares to
retail investors. Keeping with the times, SEBI has also introduced e-IPO procedure
for electronic bidding in public offers to help investors bid for shares in a cost-
effective manner.

 Surveillance and risk management:-

In 1996-97, SEBI directed all exchanges to fix the daily price band at 10% and a
weekly overall limit of 25% to curb undesirable volatility. To bring about a
coordinated trading halt in all equity and derivates market nationwide, SEBI
introduced an index based circuit breaker system applicable at 10%, 15% and 20%
movement either way.

 Grievance redresses and investor awareness:-

SEBI has a web-based centralized grievance redress system called SEBI

Complaints Redress System – SCORES for assisting investors to lodge their
complaints in a structured way. Further, in its silver jubilee year, SEBI has launched
a massive mass media exercise to inform investors about SCORES and its toll free
helpline (1800 266 7575 / 1XXX XX 7575, available in 14 languages). To reach
rural masses, SEBI has tied up with the department of posts to print cautionary
messages on the back of post office passbooks while for urbanites Google India’s
Ad Word facility displays pop-up investor awareness messages on its search engine.
 CONCLUSION

Reforms in the securities market, particularly establishment and empowerment of SEBI,

allocation of resources by market, screen based nation-wide trading, dematerialization
and electronic transfer of securities, availability of derivatives of securities, etc. have
greatly improved the regulatory framework and efficiency and safety of issue, trading
clearing and settlement of securities. However, efforts are on to improve working of the
securities market further. The main change, which has witnessed the Indian securities
market, is that earlier trading in both primary market and secondary market was done
physically and is now replaced by electronic systems available for trading. With an
strengthening of the regulatory system and introduction of various Acts has empowered
the Indian securities market and therefore has become a better option for investing the
resources, we can also see that no of people investing insecurities be it Mutual Funds,
Derivatives, in Equity Market, in Debt Market is on increase and will also further
increase with more sophistication of technology and not to forget legislation authorities
protecting rights of investors. Security exchange board of India SEBI has been playing
an important role in regulating the business in stock exchanges and any other securities
markets and to protect the interests of investors. The emergence of the securities market
resulted as a major source of finance for trade and industry across India. A growing
number of companies are access in the securities market rather than depending on loans
from FIs/banks. Moreover the Indian securities market is contributing to Indian GDP
growth immensely.