UNIVERSITY INSTITUTE OF LEGAL STUDIES

PANJAB UNIVERSITY,CHANDIGARH

The Project Report On Topic

NEED AND IMPORTANCE OF SEBI

Is Submitted As Per The Curriculum Of B.com LLB (Hons.) In

the Subject Of
BUSINESS LAW

SUBMITTED TO: SUBMITTED BY:

MS. PREETI BANSAL IMAN SINGLA
ROLL NO: 236/20
SEMESTER-7
B.COM LLB (SEC-D)

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 ACKNOWLEDGEMENT

The success and final outcome of this project required a lot of guidance and
assistance from many people and I am extremely fortunate to have got this all
along the completion of my project report. Whatever I have done is only due to
such guidance and I would never forget to thank them.

I take this opportunity to record deep sense of gratitude to my teacher MS.

PREETI BANSAL, University Institute of Legal studies, Chandigarh for her
perfect unmatched guidance, encouragement, valuable suggestions and efforts
made during the preparation of this project and during her lectures which
enabled me to complete this project successfully on the topic.

NEED AND IMPORTANCE OF SEBI

I owe my regards to the entire faculty of the Department of Legal Studies, from
where I have learnt the basics of Law and whose informal discussions,
intellectual support helped me in the entire duration of this work.

IMAN SINGLA
ROLL NO: 236/20
SEMESTER-7
B.COM LLB(SEC-D)

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 CONTENTS
 Abstract.........................................................................................................................4
 Introduction..................................................................................................................5
 Reasons for the Establishment of SEBI......................................................................5
 Securities Exchange Board Of India..........................................................................6
 Need and importance of SEBI.....................................................................................7
 What is the Role of SEBI in Stock Exchange?...........................................................9
 Functions Of SEBI.....................................................................................................10
 Structure of SEBI.......................................................................................................12
 Powers of SEBI...........................................................................................................12
 Conclusion...................................................................................................................14
 Bibliography...............................................................................................................15

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ABSTRACT

The Securities and Exchange Board of India (SEBI) is a paramount regulatory authority in
the Indian financial landscape, tasked with overseeing the securities market and safeguarding
investor interests. This project delves into the need, importance, structure, functions, and
powers of SEBI, shedding light on its pivotal role in ensuring market integrity, transparency,
and fairness.

The study highlights the pressing need for SEBI's establishment, driven by the imperative of
investor protection in a market rife with potential pitfalls. It explores how SEBI's regulatory
functions extend to encompass the development of the securities market and the enforcement
of market regulations. Furthermore, it examines the powers vested in SEBI, including rule-
making, enforcement, and surveillance, which collectively form a robust framework to deter
market manipulation, insider trading, and other illicit activities.

SEBI's importance cannot be overstated, as it plays a multifaceted role in fostering investor

confidence, promoting economic growth, and enhancing India's standing in the global
financial community. Through its governance structure, SEBI efficiently oversees market
intermediaries, stock exchanges, and market participants, ensuring adherence to stringent
regulatory norms.

This project also underscores SEBI's commitment to investor education, corporate

governance, and its tireless pursuit of aligning with international best practices, which all
contribute to the broader objectives of maintaining market integrity and transparency. The
study concludes that SEBI's continued vigilance and dedication are instrumental in creating a
secure, well-regulated securities market that not only protects investors but also stimulates
economic growth, ultimately underpinning India's financial prosperity.

Keywords: Regulatory Authority, Surveillance, Robust, Stringent, Vigilance.

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INTRODUCTION

Widespread and illegitimate speculation by means of deliberate manipulations gambling etc.

increased the intensity of industrial fluctuations and crises in the Indian economy. Hence, the
government- of India appointed Dr. P. Thomas, the then economic advisor to the Ministry of
Finance, to inquire into the affairs of stock exchanges and the security market- In his
recommendations, a high power official committee was founded in 1948. The committee
prepared a draft bill in 1951, it was passed in 1954 and was enacted in1956. Thus securities
contract (Regulation Act ) came into existence.

The Act provides for the establishment of a directorate of the stock exchanging order to
ensure proper administration of the Act. It has to keep a close watch on the activities of stock
exchanges and their members. Further, it has to check the daily returns of the members, and if
it finds that members are over trading, it can recommend suitable action against them. But
these regulations were found insufficient to curb scams and affair trade practices. So the
Govt. decided to establish an independent body for the purpose. SEBI was established in
1988 and given statutory power in 1992 to regulate stock market.

Majorly, SEBI controls the issuers of securities, the investors and the market intermediaries.
The Board draft regulations and statutes under its legislative authority, also pass rulings and
orders under its judicial capacity and operate investigations in its executive limits. SEBI
works as a barrier to avoid malpractices related to the stock market by establishing a code of
conduct and promoting the healthy functioning of the stock exchange. Initially, SEBI didn’t
have the authority to regulate the stock exchange, but in 1992 the Union Government gave
statutory powers to SEBI through the SEBI Act, 1992.

Reasons for the Establishment of SEBI

During the fall of the 1970s and the rise of the 1980s, the people of India were preferring to
work in the Capital Market as the market was trending. Without any authority, problems like
unofficial private placements, the rigging of prices, unofficial self-styled merchant bankers
started violating the rules and regulations of the stock exchange which caused delays in the
delivery of shares.

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The Government felt an immediate need to establish a regulatory body to regulate its working
and to find solutions for all the problems the market was going through, as the people were
losing interest in the market. This led to the establishment of the Security and Exchange
Board of India.

SEBI was established to rectify the following problems-

 Fragmented regulation and multiplicity of administration.

 Primary markets were not in the mainstream of the financial system.
 Poor disclosure in the prospectus.
 Prospectus and balance sheet were not made available to investors.
 Investors faced problems of refund delays and transfer delays.
 No inspection of the stock exchange was undertaken.
 Stock exchange was run as 'brokers' clubs'; management was dominate by brokers.
 Merchant bankers and other intermediaries were unregulated.
 Mutual funds were virtually unregulated.
 There were poor disclosures by mutual funds, NAV was not published.
 No prohibition of insider trading'
 Fraudulent and unfair trade practices were common

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

SEBI is a statutory authority to deal with all matters authority to regulate the securities
market. It is also their authority in India established to protect the interests of the investors in
securities. It aims to promote the development of the securities market too. SEBI was set up
in 1988 as an administrative body to control an regulate the activities of stock exchanges,
stock brokers and to protect the interests of investors. It was given a statutory status in 1992
by act of parliament. It has assumed greater significance with the abolition of Controller of
Capital Issue(CCI)in 1992. With the policy of economic liberalization, the government
adopted a free price policy for security issues. This pushed the new issues to market forces
with regard to the share issues, the premium charged, the conversion of debentures, new
methods of issue, innovative instruments, etc. SEBI assumes new role in this context.

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According to preamble of the SEBI Act, the major goal of SEBI is to encourage healthy
and orderly expansion of the securities market while also ensuring investor safety. The
Securities and Exchange Board of India (SEBI) oversees the activity of not just stock
exchanges but also merchant bankers and other financial institutions for this purpose. It
was on April 12, 1988, that the Securities and Exchange Board of India (SEBI) was
established after the Government of India recognized a need for the establishment of an apex
body to develop and regulate the stock market in India.
To begin with, SEBI was established as a non-statutory organisation. It took almost four
years for the government to enact a separate act of parliament, the Securities and Exchange
Board of India Act 1992, which gave the board statutory authority. All players in the capital
market are subject to the oversight of this regulatory authority, and its primary goal is to
create an environment for financial market enthusiasts that facilitates the efficient and
seamless operation of the securities market. The Securities and Exchange Board of India
(SEBI) also has a significant role in the economy.

According to preamble of the SEBI Act, the major goal of SEBI is to encourage healthy and
orderly expansion of the securities market while also ensuring investor safety. The Securities
and Exchange Board of India (SEBI) oversees the activity of not just stock exchanges but
also merchant bankers and other financial institutions for this purpose.

Need and importance of SEBI

The establishment of the Securities and Exchange Board of India (SEBI) was driven by
several compelling needs and importance. Some of the primary needs for SEBI are as
follows:

 Investor Protection:

One of the foremost needs for SEBI is to protect the interests of investors in the securities
market. Prior to SEBI's establishment, the Indian securities market lacked adequate
regulatory oversight, which left investors vulnerable to fraudulent activities and market
manipulations. SEBI's role is to ensure that investors are provided with accurate information
and that their investments are safe from unscrupulous practices.

 Market Integrity:

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SEBI is needed to maintain the integrity of the securities market. It formulates and enforces
regulations that prevent insider trading, market manipulation, and other unfair trading
practices. By doing so, it fosters confidence in the market and encourages more participants
to invest.

 Transparency and Fairness:

SEBI plays a pivotal role in promoting transparency and fairness in the securities market. It
establishes rules for disclosure and reporting by companies and market intermediaries,
ensuring that all participants have access to the same information. This helps create a level
playing field for investors and traders.

 Regulation of Market Intermediaries:

The presence of SEBI is crucial for the regulation of various market intermediaries, including
stockbrokers, mutual funds, merchant bankers, and others. These intermediaries play a
significant role in facilitating market transactions, and their activities need to be closely
monitored to protect investors' interests.

 Development of the Capital Market:

SEBI is instrumental in the development of the Indian capital market. It formulates policies
and regulations to encourage capital formation, the mobilization of savings, and the flow of
investment into the economy. This is vital for economic growth and development.

 Maintaining Systemic Stability:

SEBI's oversight helps maintain systemic stability in the financial markets. By regulating
market operations and monitoring risks, it helps prevent disruptions that can have wider
economic repercussions.

 Corporate Governance:

SEBI's role in setting corporate governance standards and enforcing them ensures that listed
companies adhere to best practices. This enhances transparency, accountability, and investor
confidence in the corporate sector.

 Market Surveillance:

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SEBI conducts surveillance of market activities to identify and prevent fraudulent and
manipulative practices. This helps maintain the overall health of the securities market.

 International Standing:

SEBI's existence is crucial for India's standing in the international financial community. It
aligns India's regulatory framework with global best practices, making it more attractive to
foreign investors and companies.

 Investor Education:

SEBI engages in investor education initiatives to enhance financial literacy and empower
investors to make informed decisions, reducing the risk of investment losses.

What is the Role of SEBI in Stock Exchange?

The Securities exchange board of India acts as a watchdog for all the stock market
participants in India. The goal is to provide a safe environment for the retail investors as well
as other participants of the securities market and ensure smooth and efficient working of the
stock market. SEBI's role in the stock market is important to investors and other market
intermediaries. It ensures that the three most important financial market players are taken care
of.

 Securities issuers:

These entities get listed on the stock exchanges and raise funds by issuing shares. The SEBI
makes sure that the initial public offering and post-public offer take place transparently.

 Investors:

Investors are the most important part of the stock market and they are the ones who actively
participate in the stock market. SEBI protects these investors by ensuring there is no fraud or
stock market manipulation.

 Financial sector intermediaries:

These intermediaries between the issuers and investors in the stock market make the financial
transactions safe and smooth. SEBI takes charge of the activity of the stock market
intermediaries.

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Functions Of SEBI

SEBI has the following functions:

1. Developmental Functions

SEBI performs these functions for promoting and developing activities in the stock exchange.
As a part of the developmental functions, SEBI does the following:

 Promoting the training of intermediaries of securities market

 Permitting IPO of the primary market through the stock market
 Reducing the cost of the issue for which SEBI has made underwriting optional
 Permitting internet trading through a registered stock broker

2. Protective Function

Another crucial function of SEBI is to protect the interests of investors and to provide them
the safety of the investment. For this purpose, SEBI performs further functions:

 Prohibiting price rigging since this malpractice involves the manipulation of

security prices to inflate or deflate market prices of securities.
 Insiders have access to sensitive information of the company to which they
belong. They use the privilege of having internal information to impact the
prices of securities. SEBI protects the interest of investors by prohibiting
insider trading.
 It does not allow companies to prepare any statement that may mislead
investors and induce the purchase and sale of securities.
 Educating investors to help them evaluate securities of different companies
and maximize the output by choosing the most profitable security.

3. Regulatory Functions

These are performed to regulate business in stock exchange. These include the following:

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  Regulating intermediaries such as brokers and underwriters on the basis of a
code of conduct and set of rules
 Conducting inquiries and auditing of stock exchange
 Registering and regulating mutual funds
 Bringing intermediaries under the regulatory purview and making private
placement more restrictive
 Regulating takeover of companies
 Registering and regulating the working of stock brokers, sharing merchant
brokers, trustees, and professionals associated with the stock exchange.

4. Enforcement and Penalties:

 Taking enforcement actions: SEBI has the authority to impose penalties and
initiate legal proceedings against entities or individuals found to be in
violation of securities regulations.
 Maintaining order and discipline: SEBI's enforcement actions are essential in
maintaining discipline and fairness in the securities market.

5. Market Development:
 Encouraging capital formation: SEBI formulates policies and regulations to
promote capital formation, savings mobilization, and the flow of investment
into the Indian economy.
 Facilitating economic growth: It supports economic growth by providing
businesses with access to necessary capital.

6. Corporate Governance:
 Setting corporate governance standards: SEBI establishes corporate
governance norms and ensures their enforcement, promoting transparency and
accountability in the corporate sector.
 Enhancing investor confidence: This function helps boost investor confidence
in the companies listed on the stock exchanges.

7. Investor Education:

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  Enhancing financial literacy: SEBI conducts investor education initiatives,
seminars, workshops, and produces educational materials to empower
investors to make informed decisions.

8. Research and Development:

 Developing market infrastructure: SEBI is involved in research and
development activities to improve market infrastructure, trading systems, and
regulatory frameworks.

Structure of SEBI

SEBI board comprises nine members. The Board consists of the following members.

1. One Chairman of the board who is appointed by the Central Government of India

2. One Board member who is appointed by the Central Bank, that is, the RBI.

3. Two Board members who are hailing from the Union Ministry of Finance.

4. Five Board members who are elected by the Central Government of India.

Powers of SEBI

The Securities and Exchange Board of India (SEBI) is vested with several powers to
effectively regulate and oversee the securities market in India. Some of the key powers and
authorities of SEBI include:

 Regulatory Authority: SEBI is the primary regulatory authority for the securities
market in India, and it has the power to formulate regulations, rules, and guidelines to
govern various aspects of the market.
 Investigative Powers: SEBI has the authority to conduct investigations into market-
related activities, insider trading, market manipulation, and violations of securities
laws and regulations.
 Rule-Making Authority: SEBI can create, amend, and enforce rules and regulations to
govern stock exchanges, listed companies, market intermediaries, and other market
participants. It has the flexibility to adapt to changing market conditions.

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 Enforcement of Regulations: SEBI can enforce its regulations through various means,
including imposing fines, penalties, and sanctions against entities or individuals found
to be in violation of securities laws.
 Imposition of Penalties: SEBI has the power to impose monetary penalties on market
participants for violations of securities regulations. These penalties can be substantial
and serve as a deterrent against non-compliance.
 Issuance of Cease and Desist Orders: SEBI can issue cease and desist orders to
prevent individuals or entities from engaging in unlawful or unethical activities in the
securities market.
 Inspection and Surveillance: SEBI has the authority to inspect books, records, and
accounts of market intermediaries to ensure compliance with regulatory requirements.
It can also conduct market surveillance to detect irregularities and market
manipulations.
 Adjudication: SEBI can conduct adjudication proceedings to determine violations of
securities laws and to impose penalties, sanctions, or take corrective actions as
necessary.
 Market Surveillance: SEBI has advanced surveillance systems to monitor trading
activities, identify potential market abuses, and investigate trading patterns that may
raise concerns about market integrity.
 Imposition of Trading Restrictions: SEBI can impose trading restrictions or suspend
trading in specific securities or segments in the interest of market integrity and
investor protection.
 Settlement Mechanisms: SEBI has the authority to establish settlement mechanisms to
resolve disputes and expedite the settlement of securities transactions.
 Regulation of Market Intermediaries: SEBI can regulate and oversee market
intermediaries such as stockbrokers, mutual funds, and portfolio managers to ensure
they adhere to prescribed norms and standards.
 Corporate Governance Oversight: SEBI can enforce corporate governance norms and
take action against companies or individuals who violate these norms.
 Listing and Delisting of Securities: SEBI regulates the listing and delisting of
securities on stock exchanges, including the power to approve or reject listing
applications and to specify conditions for delisting.

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  Investor Education and Awareness: SEBI is authorized to conduct investor education
programs, promote financial literacy, and empower investors with knowledge to make
informed decisions.

CONCLUSION

In conclusion, the project on the Securities and Exchange Board of India (SEBI) has provided
a comprehensive understanding of the organization's pivotal role in the Indian financial and
securities markets. SEBI's establishment was necessitated by the need for investor protection,
market integrity, and regulatory oversight, and this project has underscored the critical
importance of SEBI in fulfilling these requirements.

The project has delved into SEBI's multifaceted functions, its regulatory authority, and its
enforcement capabilities. It has illuminated how SEBI's rule-making authority, investigative
powers, and enforcement actions collectively contribute to the fair and transparent
functioning of the securities market in India. The ability to impose penalties and issue cease
and desist orders ensures that market manipulations, insider trading, and other fraudulent
practices are deterred, ultimately safeguarding investor interests.

Furthermore, this project has highlighted SEBI's impact on investor education, corporate
governance, and market development. Its commitment to fostering economic growth and
aligning with international standards has positioned India as an attractive destination for
investors on the global stage.

In summary, SEBI is not just a regulatory body; it is a guardian of the securities market,
dedicated to protecting investors, maintaining market integrity, and fostering economic
growth. Its ongoing commitment to these objectives is crucial in ensuring a secure and well-
regulated securities market in India, which is fundamental to the nation's financial well-being.

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BIBLIOGRAPHY

 https://byjus.com/commerce/sebi-objectives-and-functions/
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analysis/securities-and-exchange-board-of-india/34330557
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and-taxition/securities-exchange-board-of-india/29710835
 https://www.indmoney.com/articles/personal-finance/what-is-sebi-why-was-sebi-
established
 https://www.studocu.com/in/document/university-of-calicut/bcom/functions-of-
sebiecurities-exchange-board-of-india/22496807
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e-nf1Zuw
 https://www.shiksha.com/online-courses/articles/objectives-of-sebi/
 https://www.drishtiias.com/important-institutions/drishti-specials-important-
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