Table of Contents:

About SEBI .................................................................................................................. 2

Purpose of SEBI........................................................................................................... 2
Powers of SEBI ............................................................................................................ 2
Functions of SEBI ........................................................................................................ 3
Role of Securities and Exchange Board of India in Indian Stock Market
Scenario: .................................................................................................................... 4
Role of SEBI in Indian Capital Market: ................................................................ 5
Role of SEBI in Corporate Governance: ............................................................... 5
Regulation of Securities Market ................................................................................ 7
Primary Securities Market: .................................................................................... 8
Secondary Securities Market: ................................................................................. 8
 Chapter-15
SEBI as a Regulator: The role of SEBI as a statutory regulatory body.

About SEBI
Securities Exchange Board of India (SEBI) is the regulating body of securities markets in India. It is
a body established by the government of India for monitoring and controlling all matters concerned
with the security market. SEBI was established on April 12, 1988, and got statutory powers on April
12, 1992, through SEBI act, 1992. It is headquartered at Mumbai with its regional offices in Kolkata,
Chennai, New Delhi and Ahmedabad. SEBI is a statutory regulatory body established by the
Government of India to regulate the securities market in India and protect the interests of investors in
securities. It also regulates the functioning of the stock market, mutual funds, etc. At the end of the
1970s and during the 1980s, capital markets were emerging as the new sensation among the
individuals of India. Many malpractices started taking place such as unofficial self-styled merchant
bankers, unofficial private placements, rigging of prices, non-adherence of provisions of the
Companies Act, violation of rules and regulations of stock exchanges, delay in delivery of shares,
price rigging, etc. Due to these malpractices, people started losing confidence in the stock market.
The government felt a sudden need to set up an authority to regulate the working and reduce these
malpractices. As a result, the Government came up with the establishment of SEBI.
The whole working of SEBI is managed by 6 members: One person nominated by Central
Government, two officers of central ministries, one member from RBI and remaining two nominated
by Central Government. SEBI acts as a watchdog for Indian capital market and monitors all its
functions to safeguard the interest of its shareholder. SEBI issues guidelines for the Indian capital
market and aims at removing all fraudulent and malpractices from securities trading. SEBI strictly
prohibits insider trading from the capital market. It is responsible for registration and regulation of
intermediaries like Share transfer agent, Sub brokers and Stockbrokers working with capital market.
It has full right to inspect the books and accounts of financial intermediaries involved in trading. SEBI
is also concerned with educating of investors and training of the financial intermediaries for better
functioning of the capital market.

Purpose of SEBI
The fundamental objective of SEBI is to safeguard the interest of all the parties involved in trading.
It also regulates the functioning of the stock market. SEBI’s objectives are:
• To monitor the activities of the stock exchange.
• To safeguard the rights of the investors
• To curb fraudulent practices by maintaining a balance between statutory regulations and self-
regulation.
To define the code of conduct for the brokers, underwriters, and other intermediaries.

Powers of SEBI
SEBI possesses high authority and power as its primary purpose was to control the market
systematically by preventing any fraudulent activity. It has three significant powers:
• Quasi-Judicial: This includes drafting legislation with respect to the capital markets. With
the help of this authority, it has the right to conduct hearing and pass judgments in case any
 fraudulent activity happens. The benefit of this authority is that it assures that there is fairness,
reliability and accountability in the capital market.
• Quasi-Executive Functions: Implementing legislation also comes under SEBI. This means
that SEBI has the absolute authority to build rules and regulations to shield the interest of
investors. For example, there is legislation called SEBI Listing obligation and Disclosure
requirements; this was made to consolidate and simplify provisions of the current listing
agreements for various segments to financial markets such as equity shares. Such regulations
are made to keep any sort of illegal practice at bay.
• Quasi-Legislative: Under this segment, the role of SEBI is to create guidelines for the
security of interest of investors. Few rules and regulations made by SEBI are disclosure
requirements, trading regulation and listing obligation. The primary goal is to methodize and
fortify the provision of current listing agreements for various segments of the financial market.
Although SEBI has a lot of powers, still, it has to go through the Securities Appellate Tribunal
and the Supreme Court of India.

Functions of SEBI
SEBI carries out the following tasks to meet its objectives: Protective functions, Regulatory functions,
and developmental functions.
Functions that SEBI performs as a part of its Protective Functions are:
• It checks price manipulation
• It bans Insider trading
• It prohibits unfair and fraudulent trade practices
• It promotes a fair code of conduct in the security market
• It takes efforts to educate the investors regarding ways to evaluate the investment options
better
As a part of its Regulatory Functions, SEBI performs the following role:
• It has designed a code of conduct, rules, and regulations to regulate the brokers, underwriters,
and other intermediaries.
• SEBI also governs a company’s takeover.
• It regulates and registers the workings of share transfer agents, stockbrokers, merchant
bankers, trustees, and others who are linked with the stock exchange.
• It regulates and registers the mutual funds as well.
• It conducts audits and inquiries about stock exchanges.
As a part of its Developmental Functions, SEBI performs the following role:
• It facilitates the training of the intermediaries.
• It aims to promote activities of the stock exchange by having an adoptable and flexible
approach.
The SEBI is the regulatory authority in India established under Section 3 of SEBI Act to protect the
interests of the investors in securities and to promote the development of, and to regulate, the
securities market and for matters connected therewith and incidental thereto. Protecting the interests
of investors in securities and promoting and regulating the development of the securities market;
Regulating the business in stock exchanges; Registering and regulating the working of stock brokers,
sub–brokers, share transfer agent etc.; Registering and regulating the working of venture capital
funds, collective investment schemes (like mutual funds) etc.; Promoting investor’s education and
training intermediaries; Promoting and regulating self-regulatory organizations; Prohibiting
fraudulent and unfair trade practices; Calling for information from, undertaking inspection,
conducting inquiries and audits of the stock exchanges, intermediaries, self – regulatory
organizations, mutual funds and other persons associated with the securities market.
1) Regulates Capital Market: SEBI is a regulating body for the capital market in India. It is set
up by the government of India and act as a watchdog for the capital market. It issues guidelines
for the functioning of stock exchanges and aims at reducing all malpractices from the trading
world. It avoids all speculative activities and insider trading from securities trading business.
2) Regulation And Registration of Financial Intermediaries: Financial Intermediaries
working with stock exchanges and involved in trading business are registered by SEBI. SEBI
regulates the functioning of all financial intermediaries like stockbroker, share transfer-agent,
Portfolio managers, Underwriters, Trustees, Merchant bankers, sub-broker etc. All these
intermediaries work as per the instructions of SEBI.
3) Educates Investors and Trains Intermediaries: SEBI provides full detail guidelines to its
investors to increase their investing knowledge. It educates them regarding all investment
issues so that they can protect themselves from malpractices. It makes its investors fully aware
of all affairs concerned with trading activities. SEBI also provides time to time training to
financial intermediaries for better functioning and serving investors well. It aims at improving
their understanding with people.
4) Audit Stock Market Performance: SEBI has full power and right to check the account and
books of stock exchanges working in India. Stock exchanges are required to show their book
of account to SEBI whenever required by it. It aims at bringing transparency in trading
activities to protect its investor’s interest.
5) Control Merger, Takeover and Acquisition of Companies: SEBI keep an eye and fully
regulates all merger, acquisition and takeover activities. It aims at removing and reducing all
fraud activities from the Indian capital market. With the aim of creating a monopoly in the
capital market, many big companies want to buy and merge with different companies. SEBI
avoids all such mergers and acquisition activities and checks whether it is done for
development purposes.
6) Better Relationship With ICAI: SEBI aims at bringing the transparency in auditing work of
businesses. For this, it maintains good understanding with ICAI, the authority for making
auditors in India. SEBI along with ICAI investigates whether all charted accountants are doing
their job properly. Financial statements are termed as a mirror to see the real face of
companies. Investors can get full detail by just analysing these statements. SEBI thereby
ensures that whether these statements are prepared correctly by keeping an eye over charted
accountant’s duty.
7) Evaluate Portfolio Management Activities: SEBI in order to check the capital market
performance evaluates report of portfolio management activities from time to time. It demands
a performance report from all registered portfolio managers in India by sending a letter to
them. This helps in evaluating and regulating capital market performance in India.
Role of Securities and Exchange Board of India in Indian Stock Market Scenario:
It’s a goal to provide and build a market zone in which they can strongly generate fund operations.
SEBI always give first preference to protect investor’s wealth in the stock market. The listing
companies made into mandatory for providing investment information and disclosure of information
on a regular basis for giving more clarity on investment activities. SEBI always protects investor’s
rights and interest through accurate and authentic way by providing investing information and
disclosure of information on a continuous basis for generating more clarity on stock market activities.
For the market intermediaries on a continuous basis providing training and development regarding
investment activities, and it always offers a competitive, professionalized advantage and expanding
the market operations with an adequate and efficient way so as to render better service to investors
and issuers.
Role of SEBI in Indian Capital Market:
Security Exchange Board of India's efforts is always to create an effective stock market system for
the safe securities market and encourage responsible and accountable autonomy and transparency on
the part of all players the capital market, who should have disciplined themselves and observe the
rules of the market mechanism, therefore, they can minimize losses. This would be possible through
intermediaries set themselves up to an effective self-regulatory body. Self-regulation is, therefore, to
maintain harmony in the capital market through of the regulatory framework advocated by the
Securities Exchange Board of India. However, self-regulation can work only if there is an effective
regulatory body engaging the activities of self-regulatory organizations. Security Exchange Board of
India owns to provide a controller structure which an effective mobilization and allotment of wealth
through capital market structure, which would encourage effective of the capital market so that it
could manage the render essential services to business and commerce and individual investors in the
most effective economic route, reducing the competition and promote innovation, be responsive to
international growth a structure which is flexible and cost-effective so that it has clarity to guide,
modifications and other changes, and finally turns into trust on the part of the investors, traders and
other users of the stock market by ensuring the capital market place and is also seen to be, clean and
clear to do trading and investment in a fair manner, transparent and efficient way.
Role of SEBI in Corporate Governance:
Corporate governance encompasses the mechanisms, rules and practices by which companies are
operated and controlled. It aims to mitigate conflicts of interest between shareholders and promote
ethical decision-making, transparency and integrity at the executive level. The role of SEBI in
corporate governance is to ensure these rules are implemented and followed by all parties. For
example, the organization ensures that companies issuing securities use fair practices and disclose
relevant information to the shareholders. It also regulates takeovers, listing agreements of stock
exchanges, corporate restructurings and more. SEBI guidelines for corporate governance are
designed to provide a safe, transparent environment for investors and prohibit fraudulent or unfair
practices, like insider trading.
The role of SEBI in ensuring ethical standards among corporations became even more important in
2018 when the organization imposed additional compliance conditions. For instance, big firms will
be required to have at least one-woman independent director and separate chairpersons and CEOs.
Furthermore, listed companies must disclose related-party transactions and hold a specific number
of annual general meetings. SEBI initiatives in corporate governance are largely based on the
recommendations made by the Kotak committee in March 2018 and aim to enhance transparency.
Under the chairmanship of Kumar Mangalam Birla, SEBI (Securities and Exchange Board of India)
created a committee on corporate governance in India to actualize the need of corporate governance
and promote good corporate governance in India. SEBI has released specific guidelines for auditing
and corporate governance in India based on this committee’s recommendations, which are expected
to be incorporated into the listing agreement between the company and the stock exchange.
Board of Directors: The following are some points in this regard:
• The company’s board of directors shall have an optimal balance of executive and non-
executive directors.
 • The number of independent directors will depend on the executive or nonexecutive nature of
the Chairman.
Audit Committee: The organization shall appoint an independent audit committee, the constitution
of which shall be as follows:
• It shall have at least three members, all of whom shall be nonexecutive directors, the
majority of whom shall be autonomous, and at least one of whom shall possess financial and
accounting skills.
• An independent director will be the Chairman of the committee.
• The Chairman will be present at the Annual General Meeting to address questions from
shareholders.
The corporation shall name an independent audit committee, and its constitution shall be as follows:
• It shall have at least three members, all of whom shall be nonexecutive directors, the
majority of whom shall be independent, and at least one of whom shall have financial and
accounting expertise.
• The Chairman of the committee will be an independent director. At the Annual General
Meeting, the Chairman will be present to answer concerns from shareholders.
Remuneration of Directors: In the section on corporate governance of the Annual Report, the
following disclosures on the remuneration of directors are made:
• All managers’ remuneration plan components, i.e., wages, benefits, incentives, stock
options, pensions, etc.
• Descriptions of fixed components and benefits linked to results, along with performance
requirements.
Process of the Board Some of the points set out in this Regard are:
• The board meetings shall be held at least four times a year, with a maximum period of four
months between each of the two meetings.
• A director shall not be a member of more than ten committees, nor shall he serve as
Chairman of more than five committees in all the companies of which he is a director.
Administration: A Management Discussion and Appraisal Report should form part of the
shareholders’ annual report, including discussions on the following topics (within limits defined by
its competitive position).
• Risks and opportunities
• Segment-wise or product-wise performance
• Risks and Issues
• Discussion on financial results concerning the performance of operation.
• Front of material growth in human resource / industrial relations.
Shareholders: In the event of the appointment of a new director or the reappointment of a director,
the following details must be given to shareholders:
• A short resume of the director (summary)
• Nature of his specialist knowledge
• Number of organizations of which he retains the management and membership of the
Board’s committees.
 • A Board Committee shall be formed under the chairmanship of a non-executive director to
examine the redress of shareholder and investor grievances explicitly.
Corporate Governance report: A separate section on auditing and corporate governance shall be
included in the Company’s Annual Report. It shall consist of a comprehensive report on corporate
governance.
Compliance: The company shall acquire a certificate from the company auditors regarding its
auditing and corporate governance compliance conditions. This certificate shall be appropriated
with the Directors’ Report sent to stockholders and also forwarded to the stock exchange.

Regulation of Securities Market

Protecting the interest of investors: SEBI ensures that the investors do not get be fooled by
misleading and false advertisements. In return, SEBI issued guidelines so as to protect investors and
also ensured that the advertisement is fair and concise.
Regulation of price rigging: Price rigging refers to manipulation of prices by way of fluctuating the
prices with the object of inflating and depressing the market price of securities.
SEBI make efforts to educate investors so that they are able to make choices between the offerings
of different companies and choose the most profitable securities.
SEBI has issued guidelines to investigate cases of fraud and insider trading. Adding to this the
provisions for fine and Imprisonment.
To ensure Development activities in Stock Exchange:
• E-Trading: Concept of E-trading have been introduced few years back by SEBI to eliminate
the discomfort. It simplifies the process of buying and selling of securities.
• The initial public offering of Primary Market (which is a part of Capital market) permits
through stock exchange.
• SEBI promotes training of intermediaries of securities market with the object of smooth
functioning.
Regulate the business of stock exchange and activities of stock exchange: SEBI introduced
proper Code of Conduct applicable to everyone who is a part of the process of buying and selling of
securities, stock exchange, etc. Following are the areas of concern:
• Rules and Regulations to regulate intermediaries such as Broker, underwriters, etc.
• Registers and regulates the working of merchant Bankers, sub-brokers, stock-brokers, share
transfer agent, trustees, etc.
• Registers the working of mutual Funds.
• SEBI regulates turnover of the companies.
• It also conducts inquiry and audits.
To Regulate Insider Trading: Insider Trading have been a problem since the introduction of the
Market dealing with buying and selling of securities, stock exchange, etc. An Insider is a person or
a group of people having first- hand knowledge about the internal issues and Ups and downs of a
company. The moment insider gets to know about the loss which is going to occur, the shares under
insider’s name are sold immediately. Hence, company suffers a huge amount of loss.
Primary Securities Market: In a market economy, primary securities market of capital market plays
a significant role in helping mobilisation of capital and investment formation. Many types of
intermediaries carry out this role very effectively. Some of the major intermediaries in this segment
are: merchant bankers, underwriters, bankers to an issue, registrars to an issue and share transfer
agents and debenture trustees.
Secondary Securities Market: Brokers play a significant economic role in the secondary securities
market of the capital market. They bring investors, both buyers and sellers, together to make
aggregate demand and supply at any point of time. The aggregate demand and supply decide the price
discovery and the level of transaction costs. Therefore, brokers have a crucial role to play in the
functioning of stock markets. There are three classes of brokers, namely proprietary, partnership and
corporate. In the old exchanges, most of the brokers are proprietary in nature, whereas in the new
exchanges, they are corporate members. Prior to screen based trading and the spread of trading
network across the country, brokers in some of the exchanges acquired membership in more than one
exchange (multiple membership) to expand their business and serve clients spread across the country.
With the on-set of screen-based trading and expansion of networking to almost 400 cities and towns
of the country, the concept of multiple partnerships has become irrelevant. This also became
irrelevant as most of the trading takes place on the two major stock exchanges and most of the
companies traded are listed on these two exchanges.
The stock market is one of the most crucial indicators of a country’s economic health. If people lose
faith in the market, the number of participants will go down. Furthermore, the country will also start
losing FDIs and FIIs considerably which will substantially hamper the country’s foreign exchange
inflows. Before SEBI was established many scams and malpractices took place in the Indian stock
market. One of the famous Indian stock market scams was “Harshad Mehta scam.” After SEBI came
into power, stock market affairs started becoming healthier and more transparent. Nonetheless, some
securities mark scams have taken place even after SEBI came into power. One famous such scam
was “Ketan Parekh scam” Although unfair activities do happen in the Indian capital market even as
of today, their frequency is quite less. Moreover, the security market statutes and regulations are
updated time and again. Therefore, day by day, SEBI is getting more and more stringent with its
authority.