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Securities and Exchange Board of

India
A CRITICAL ANALYSIS

A Brief History
Prior to SEBI the security markets and stock exchange were regulated by several
Acts, which were:

The Bombay Securities Contracts Control Act, 1925

The Capital Issues (Control) Act, 1947

The Securities Contracts (Regulation) Act, 1956

Registrar of Companies (The Indian Companies Act, 1956)

For a healthy growth of capital markets and to prevent malpractices in trading,


the Government subsequently decided to set up a separate board for the
regulation and orderly functioning of Stock Exchange and the securities industry

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SEBI- A Critical
Analysis

A Brief History

(Contd)

In July 1987, the Cabinet Committee on Economic Affairs


approved the broad features of SEBI and process of establishment
of SEBI was commenced
The statement of Purpose and Approach outlined twin objectives
of SEBI as,
- promoting healthy and orderly development of securities markets and
- ensuring adequate investor protection and emphasized the developmental
philosophy with which SEBI would operate
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Introduction
SEBI was established as a statutory authority through an
Ordinance promulgated on 30.01.1992 by the President of India
SEBI is the regulator for the Securities Market in India
It is managed by a Board comprising of nine members including
the chairman
Paradoxically this is a positive outcome of the Harshad Mehta
Securities Scam of 1990-91
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SEBI - PREAMBLE
The Preamble of the Securities and Exchange Board of India
describes the basic functions of the Securities and Exchange
Board of India 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"
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SEBI- A Critical
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Purpose and Role of SEBI


SEBI was set up with the main purpose of keeping a check on
malpractices and protect the interest of investors. It was set up to
meet the needs of three groups
Issuers:
For issuers it provides a market place in which they can raise finance fairly and
easily

Investors:
For investors it provides protection and supply of accurate and correct
information

Intermediaries:
For intermediaries it provides a competitive professional market
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SEBI- A Critical
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Basic Objectives
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 thereto

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Powers of SEBI
Powers relating to stock exchanges and 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/scrutiny and other
purposes

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SEBI- A Critical
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Powers of SEBI

(Contd)

Powers relating to monetary penalties:


SEBI has been empowered to impose monetary penalties on capital
market intermediaries and other participants for a range of violations
It can even impose suspension of their registration for a short period

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SEBI- A Critical
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Powers of SEBI

(Contd)

Powers to initiate actions relating to 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

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Powers of SEBI

(Contd)

Powers under Securities Contracts (Regulation) Act :


For effective regulation of stock exchanges, the Ministry of Finance
issued a Notification on 13 September, 1994 delegating several of its
powers under the Securities Contracts (Regulation) Act to SEBI
SEBI is also empowered by the Finance Ministry to nominate three
members on the Governing Body of every stock exchange instead of
earlier practice of government making such nominations

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Powers of SEBI

(Contd)

Powers to regulate business of stock exchanges :


SEBI is 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

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Powers of SEBI

(Contd)

Powers relating to insider trading:


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

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Functions of SEBI
The SEBI performs functions to meet its objectives.
Functions can be broadly divided into:
Protective functions
Developmental functions
Regulatory functions

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Functions of SEBI

(Contd)

Protective Functions It Checks Price Rigging


It Prohibits Insider trading
SEBI prohibits fraudulent and Unfair Trade Practices
SEBI undertakes steps to educate investors
SEBI promotes fair practices and code of conduct in security market

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Functions of SEBI

(Contd)

Developmental Functions 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.

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Functions of SEBI

(Contd)

Regulatory Functions It has framed rules and regulations and a code of conduct to regulate
the intermediaries such as merchant bankers, brokers, underwriters,
etc.
It registers and regulates the working of all those who are associated
with stock exchange in any manner.
It registers and regulates the working of mutual funds etc.
It regulates takeover of the companies.
It conducts inquiries and audit of stock exchanges.

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Change in the Market


The

complete

transformation

of

the

trading,

clearing

and

settlement infrastructure
Dramatic transformation to a paperless market and transparent
trading system
Cutting the settlement cycle and now going forward towards a
T+1 settlement system
SEBI has made the markets much safer for investors
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Contributions
Issue of guidelines
Public interest advertisements
Dealing with complaints of investors
Investor education
Investor surveys
Introduction to stockinvest
Disclosures by companies

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Summary
For the development of any economy
Capital Market, which is one of the main organ to mobilize
funds of huge order
shall evolve all steps to develop the market
simultaneously bringing in the credibility in the financial
market, which is watched world wide
through effective and speedy implementable regulations,
ultimately, protecting the interest of the Investors and the
Country
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Know your Stock Markets


Major Stock Exchanges in India:
National Stock Exchange (NSE)
Bombay Stock Exchange (BSE)
MCXSX Stock Exchange (MCXsx)

Various products for investments:


Equities
Derivatives
Commodities
Currencies / Forex
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Terminologies used in Stock Markets


Primary Market and Secondary Market
Broker or Brokerage Firm
Know Your Customers (KYC)
Demat
Trading
Delivery
Intraday
Blue Chip Stocks
Bull and Bear Market
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Thank You