ROLES & FUNCTIONS OF SEBI

www.sebi.gov.in
 W HY DO WE NEED A REGULATORY BODY
FOR I NVESTOR PROTECTION IN I NDIA ?

 India is an ` Informationally ' weak market

 Boosting capital market demands restoring the

confidence of investors who have been beaten
down by repeated scams

 Progressively softening interest rates and an under

performing economy have eroded investment
options, and require enhanced investing skills.
 C ONTENTS
• Establishment
• Organization’s Structure
• Current Board Members
• Objectives of SEBI
• Functions of SEBI
• Powers of SEBI
• Various Departments & their functions

• Few Cases
 E STABLISHMENT

It was in the 1980s that India witnessed a

phenomenal growth and development of the
securities market. During the phase, India was
entering into the period of liberalization and
decontrol which was to accelerate and gather
momentum in the 1990s.
In order to sustain the growth of the market and
form the growing awareness and interest in
investment opportunities.
 SECURITIES AND EXCHANGE BOARD OF INDIA

. The establishment of the securities and exchange board of

india(SEBI) was a land mark government measure to
monitor and regulate capital market activities and to
promote healhty development of the market.
 SEBI was set up as a non-statutory body. Securities
and Exchange Board of India (SEBI) is a autonomous
body created by the Government of India in 1988 and
given statutory form in 1992 with the SEBI Act 1992
 It took almost four years for the government to bring
about a separate legislation in the name of securities and
exchange board of India act, 1992 conferring statutory
powers.
 E STABLISHMENT

The regulatory function should have a Sharpe

objective of fostering fair competition and
correcting market deficiencies and irregularities
with a view to bringing about healthy growth of
the sector and the protection of participants.
It is autonomous and fragmentation of
regulating agencies and laws should be avoided.
The practices of regulations as well as the
organization of the regulatory body are much
more so.
 E STABLISHMENT
On April 12, 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 30th January
1992.
INTRODUCTION
The introduction 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”
 O RGANIZATION ’ S S TRUCTURE
8

Management of the Board

The Board shall consist of the following members, namely:-

a) A Chairman

b) Two members, One from amongst the officials of the

Ministry of the Central Government dealing with
Finance and second from administration of the
Companies Act, 1956.

c) One member from amongst the officials of the Reserve

Bank of India.

d) Five other members of whom at least three shall be the

whole-time members to be appointed by the central
Government .
 C URRENT
9
BOARD MEMBERS
10 C URRENT BOARD MEMBERS
CONTINUE ..
11 C URRENT BOARD MEMBERS
CONTINUE ..
N EED FOR REGULATION
BY SEBI
 O BJECTIVES OF SEBI

The primary objective of SEBI is to promote

healthy and orderly growth of the securities
market and secure investor protection. The
objectives of SEBI are as follows:
 To protect the interest of investors, so that, there is
a steady flow of savings into the capital market.
 To regulate the securities market and ensure fair
practices.
 To promote efficient services by brokers, merchant
bankers, and other intermediaries, so that, they
become competitive and professional.
14 F UNCTIONS OF SEBI

The SEBI Act, 1992 has entrusted

with two functions, they are
 Regulatory functions And
 Developmental functions
 R EGULATORY F UNCTIONS
 Regulation of stock exchange and self regulatory
organizations.
 Registration and regulation of stock brokers, sub-brokers,
Registrars to all issues, merchant bankers, underwriters,
portfolio managers etc.
 Registration and regulation of the working of collective
investment schemes including mutual funds.
 Prohibition of fraudulent and unfair trade practices
relating to securities market.
 Prohibition of insider trading
 Regulating substantial acquisition of shares and takeover
of companies.
 D EVELOPMENTAL F UNCTIONS
16

 Promoting investor’s education

 Training of intermediaries
 Conducting research and publishing
information useful to all market participants.
 Promotion of fair practices
 Promotion of self regulatory organizations
 J OB E NTRUSTED TO SEBI

 SEBI shall create a proper and conductive

atmosphere require for raising money from the
capital market.

 SEBI shall educate investors and make them

aware of their rights in clear and specific terms.

 SEBI shall create a proper investment climate and

enable the corporate sector to raise industrial
securities easily, efficiently and at affordable
minimum cost.
18 J OB E NTRUSTED TO SEBI

 SEBI shall develop a proper infrastructure so that

the market automatically facilitates expansion
and growth of business to middlemen like
brokers, jobbers, commercial banks, merchant
bankers, mutual funds, etc.
 SEBI shall make more effective the law in the
existing status as far as they relate to the
industrial securities, mutual finds, investments in
units, LIC savings plan, Chit-fund companies and
securities issued by housing/ industrial and
corporations with the purpose of making
investment in housing/ industrial projects.
19 J OB E NTRUSTED TO SEBI

 SEBI shall create the framework for more open,

orderly and unprejudiced conduct in relation to
takeovers and mergers in the corporate sector to
ensure fair and equal treatment to all the
security holders, and to facilitate such takeovers
and mergers.
 P OWERS SEBI
20
OF

 Power to call periodical returns from recognized

stock exchanges.
 Power to compel listing of securities by public
companies.
 Power to levy fees or other charges for carrying
out the purposes of regulation.
 Power to call information or explanation from
recognized stock exchanges or their members.
 Power to grant approval to bye-laws of
recognized stock exchanges.
21
P OWERS OF SEBI CONTINUE ..

 Power to control and regulate stock exchanges.

 Power to direct enquiries to be made in relation to
affairs of stock exchanges or their members.
 Power to make or amend bye-laws of recognized
stock exchanges.
 Power to grant registration to market
intermediaries.
 Power to declare applicability of Section 17 of the
Securities Contract (Regulation) Act 1956, in any
State or area, to grant licenses to dealers in
securities.
22 G UIDELINES TO I NVESTORS

 Deal with a registered member of the stock

exchange.
 Insist that all your deals are done in the
trading ring.
 Give specific orders to buy or sell within the
fixed price limits and/or time periods within
which orders have to be executed.
 Insist on contract notes to be passed on to
you on the dates, when the orders are
executed.
23 G UIDELINES TO I NVESTORS

 Make sure that your deal is registered with

the stock exchange in a Trade book.
 Collect a settlement table from the stock
exchange mentioning the pay-in and pay-out
days.
 Keep separate records of dealings in
specified shares and non-specified share.
 Execute period settlements of dues and
delivery of shares to avoid accumulation of
transactions.
24 G UIDELINES TO I NVESTORS

 Insist on delivery.
 Ensure that shares bought are transferred in
your name before the company’s book
closure date.
 Complain if the broker does not deliver the
shares bought in your name.
 Do not sell shares that are not transferred in
your name after the book closure as these
are not valid in the market.
25 G UIDELINES TO I NVESTORS

 Do not sell/deal in shares where any one of

the holders has passed away.
 Do not expect the money for share to come
immediately.
 Unless you have a special arrangement with
the broker, do not expect the adjustment of
purchases and sales against one another.
 You have to complain to the Grievance Cell of
the stock exchange or the SEBI for any type
of delay.
 26
L EGISLATIVE P ROTECTION TO
I NVESTORS
Complaints Relief Provided
Delay in refund of excess Payment of interest for the delayed
application money or period beyond 30 days from the
allotment letters closure of issue at 15%
Delay in transfer of As per listing agreement, the time
shares limit is only one month from the
lodgement of shares.
Refusal to transfer Transfer can be refused only for
shares specified and valid reasons given in
the act and not otherwise.
Problem of odd lots Need for consolidation of odd lots
and ensuring the issue of shares.
 L EGISLATIVE P ROTECTION TO
27
I NVESTORS
Complaints Relief Provided
Takeover bids Purchases or acquisition of shares
beyond 5% to be notified to the
stock exchange.
Insider trading The investors have to guard
themselves regarding the price
and their investment.
Delay and non-payment of Complain to the company law
interest/ fixed deposits by board.
companies
Delay and non-payment of dues Complain to the Grievance Cell of
or non-delivery of shares, etc. by the concerned Stock Exchange
brokers and to SEBI
28
L IMITATIONS

 Limited transparency
 Lack of professionalism
 Long and complex procedures
 Lack of serious approach to investor’s
needs
 Weak legislation
 Too mechanical procedures
 S OME COMMON TERMS

 Insider trading is the trading of a public company's

stock or other securities (such as bonds or stock
options) by individuals with access to non-public
information about the company.
 When the insider buys or sells based upon company
owned information, he is violating his obligation to
the shareholders.
 corporate insiders are defined as a company's
officers, directors and any beneficial owners of more
than 10% of a class of the company's equity
securities.
 R ECENT C ASE LAWS
 Nokia Finance International Finance P. Ltd. Vs SEBI
 In exercise of the powers conferred under section 15-I(2)
of the SEBI Act, 1992, read with Rule 5 of SEBI
Adjudication Rules, respondent impose a penalty of Rs.
18,00,000/- on the basis of unjust enrichment and
disproportionate gain accrued to the entity.
 The appellant had been given more than one
opportunity (three summonses) and a personal hearing
to submit the required information which was
submitted only partially. It is a serious case of excess
dematerialized shares than the authorized capital being
traded in the market.
 The appellant could have availed of the opportunity
of submitting all the required information and come
clean, but he failed to do so. Decided that there is no
violation of natural justice in this particular case
and the penalty has been imposed as per the
regulations. The impugned order indicates that the
various factors to be reckoned under Section 15(J)
of SEBI Act, 1992 were duly considered before
deciding on the quantum of penalty imposed. In
view of the fact that appellant has failed to give the
necessary information to the respondent for
conducting investigation into a very serious
irregularity in the market,
 R ECENT C ASE LAWS

 Pavak Securities Ltd. Vs. SEBI: ( 2005) 63 SCL

455
 It was held that though the appellant have
been found guilty of violation of code of
conduct, however, having regard to the fact
that in similar cases, SEBI has taken lenient
view and ordered minor or less severe
penalties, penalty in the matter be reduced
from Rs. 150,000 to Rs. 50,000.
15 Applicability
HA Listed Companies / Intermediaries / Any Other Person

Contravention Penalty

Indulgence in any Penalty of Rs. 25 crore or 3

Fraudulent and Unfair Trade times the amount of profits
Practices. made out of such practices,
whichever is higher.
15 Applicability
HB Listed Companies / Intermediaries / Any Other Person

Contravention Penalty

Contravention of any of the penalty which may be extend

provision of the Act where to Rs. 1 Crore
no specific penalty is
specified
SECURITIES APPELLATE TRIBUNAL, MUMBAI
Continental Device India Ltd.v.Securities and Exchange Board
of India
 Section 15H SEBI Act, 1992, read with regulation
3(1)(c)(ii) of the SEBI(SAST) Reg, 1997 - Penalty - For non-
disclosure of acquisition of shares and takeovers
 SEBI, holding that appellant-company allotted certain
shares on preferential basis to promoters without
disclosing identity of proposing allottees, consequential
changes in voting rights, changes in board of directors
and shareholding pattern, imposed penalty of Rs. 1 lakh
on appellant-company
 However, from material on record, it appeared that it had
disclosed all facts in board’s resolution to SEBI and also
informed same details at annual general meeting to
shareholders and that only violation was that identity of
class of persons was not fully disclosed
 Whether since most of details were correctly disclosed to
SEBI; there was no loss to shareholders; management of
company had not changed after issue; and issue was
listed in two stock exchanges, misconduct was of technical
nature and, therefore, fine was to be reduced from Rs. 1
lakh to Rs. 25,000 - Held, yes
 C ASE L AW – 15G
SECURITIES APPELLATE TRIBUNAL, MUMBAI

S. Ramesh and S. Padmalata Asis Bhaumik

v.

Securities and Exchange Board of India

 Section 15G SEBI Act, 1992, read with reg 3 of the SEBI (Prohibition of Insider Trading) Regulations, 1992 -
Penalty - For insider trading

 Appellants, being company secretary and executive director of a company, had bought shares of that
company on behalf of their family members on basis of unpublished price sensitive information, which was
not known to general public but to appellants as employees of company

 They, later on, tendered said shares in open offer announced by acquirer at higher price, thereby making
an unlawful gain - SEBI held appellants guilty of misconduct of insider trading and imposed penalty -
Appellants admitted that they had made a mistake and were willing to pay back profit earned by sale of
shares

 Whether any violation of provision relating to inside trading will make a person guilty of being an inside
trader - Held, yes - Whether however, taking into account said financial position of both parties, their
admission and their offer to pay back profit, which they had earned by sale of said shares, penalty was to
be reduced - Held, yes
SECURITIES APPELLATE TRIBUNAL, MUMBAI
Subhash A. Gandhi v.SEBI
 Section 15A, read with, reg 7 of the S EBI (SAST) Reg,
1997 - Penalty - For failure to furnish information, return,
etc.
 Appellant informed target company about his shareholding
exceeding prescribed limit of 5 per cent by .03 per cent but
did not inform about aggregate shareholding and exact
percentage of shareholding in company in desired format -
Hence, SEBI imposed penalty of Rs. 10,000 on appellant
for a delay in submitting information's in prescribed format
as prescribed under regulation 7
 Whether since appellant had complied with part of
requirements and had exceeded limit only by .03 per cent,
this was a case for taking a lenient view and consequently,
penalty could be reduced to Rs. 1,000 - Held yes
15 Applicability
A Listed Companies / Intermediaries / Any other person

Contravention Penalty

Failure to furnish any

document, return or report to
the Board
File any return or furnish any
information, books or other
Penalty of Rs.1 Lakh Per Day
documents within the time
during which such failure
specified therefore in the
continues or Rs. 1 Crore,
regulations
whichever is less
To maintain books of account or
records
 Roopram Sharma v. SEBI
 Facts : Appellant, a company-secretary in
practice, was held guilty of violating terms of
issue of prospectus, circulars and SEBI
guidelines on disclosure and protection of
investors by SEBI in the public issue of a
company with which he was alleged to be
associated
 Consequently, invoking section 11B respondent
directed that appellant be prohibited from
accessing capital market and dealing in
securities market in any capacity for a period of
three years from date of order
41

 Appellant challenged said prohibition contending that

alleged violation had taken place after he vacated office of
director. Further, he challenged validity of direction issued
against him as tantamounting to imposition of penalty which
was beyond scope and purview of section 11B

 Whether SEBI is competent to issue a direction under

section 11B which tantamounts to imposition of penalty -
Held, no
 Integrated Amusement Ltd. v. SEBI
Facts: Company raised certain amount towards
share capital by public issue. Having come to
know that appellant had not utilised funds for
purpose specified in prospectus, SEBI directed
appellant to submit details of funds so utilised
but appellant failed to do so.

- SEBI declared appellant as vanishing company

and issued directions debarring appellant from
associating with any capital market activity and
also prohibiting them from accessing capital
market for a certain period
THE STOCK EXCHANGE
 Share = Stocks

Stock is a piece of ownership of a company. Ownership of such a

portion gives the holder the right to receive part of the company’s
profits and to participate in its management as if you own enough stock
you also have some decision-making power within the company.

When a company needs to acquire extra money to help grow the

business, they can sell some or all of the ownership of the company in
the form of stocks. So if you were to buy 100% of a company's stock,
you would own the whole company.

Buying stock is a very popular form of investing.

WHAT IS STOCK EXCHANGE?

Definition of Stock Exchange : The securities regulation act of 1956

defined stock exchange as “an association , organization , or a individual
which is established for for the purpose of assisting , regulating , and
controlling business in buying ,selling and dealing in securities.”
Meaning : This comes under treasury sector ,which provides service to
stock brokers & traders to trade stocks ,bonds and securities. Stock
exchanges helps the companies to raise their fund. Therefore the
companies needs to list themselves in the Stock Exchange and the
shares will be issued which is known as equity or a ordinary share and
these shareholders are the real owners of the company the Board Of
Directors of the Company are elected out of these Equity Shareholders
only.
STOCK EXCHANGE: special markets where buyers and sellers
are brought together to buy and sell stocks.

Professionals in a The New York Stock Exchange (=The Big

hectic activity Board) is a stock exchange located at 11
buying and selling Wall Street, New York City. It is the
world's largest stock . It provides a
stocks.
means for buyers and sellers to trade
shares in companies registered for public
trading.
 TWO MAJOR STOCK
MARKETS
BSE NSE
(BOMBAY STOCT EXCHANGE ) (NATIONAL STOCK EXCHANGE)
BOMBAY STOCK EXCHANGE

It is oldest and first stock exchange of

India established in the year 1875.
First it was started under baniyan
tree opposite to town hall of
Bombay over 22 stock brokers. The
top gainer in BSE is 100 companies
in that GMR infra is first
 NA TIONAL S TOCK
EXCHANGE OF INDIA(NSE OR
NS EI)
T H E N S E O F I N D I A I S T H E L E A D I N G S TO C K
EXCHANGE OF I NDIA, COVERING 3 7 0 CITIES
A N D TO W N S I N T H E C O U N T RY. I T WA S
E S TA B L I S H E D I N 1 9 9 4 A S A TA X C O M PA N Y. I T
WA S E S TA B L I S H E D B Y 2 1 L E A D I N G F I N A N C I A L
INSTITUTIONS AND BANKS LIKE THE
I D B I , I C I C I , I F C I , L I C , S B I , ETC.
Features of NSEI
Nation wide coverage i.e., investors from all over country
Ringless i.e., it has no ring or trading floor
Screen-based trading i.e., trading in this stock exchange is done
electronically.
Transparency,i.e.,the use of computer screen for trading makes the
dealings in securities transparent.
Professionalization in trading, i.e., it brings professionalism in its functions
 SPECULATION AND
SPECULATOR
 SPECULATION : It is the transaction of members to buy or
sell securities on stock exchange with a view to make profits to
anticipated raise or fall in price of securities.
 SPECULATOR : The dealer in stock exchange who indulge in
speculation are called speculator . They do not take delivery of
securities purchased or sold by them , but only pay or rescue the
difference between the purchase price and sale price . The
different types of speculators are
 BULL
 BEAR
 STAG
 LAME DUCK
 BULL {TEJIWALA}

He is speculator who expects the future raise in price of securities he

buys the securities to sell them at future date at the higher price.

He is called as bull because his activities resembles as a bull , as the

bull tends to throw its victims up in the air through its horns. In
simple the bull speculator tries to raise the price of securities by
placing a big purchase orders.
BEAR {MANDIWALA}

He is speculator who expects

future fall in prices , he does
an agreement to sell
securities at future date at
the present market rate .

He is called as bear because his

altitude resembles with bear
, as the bear tends to stamp
its victims down to earth
through its paws . In simple
the bear speculator forces of
prices of securities to fall
through his activities.
STAG {DEER}
He operates in new issue of
market . He is just like a bull
speculator . He applies large
number of shares in the issue
market only by paying ,
application money , allotment
money. He is not a genuine
investor because , he sells the
alloted securities at the
premium and makes profit. In
simple he is cautious in his
dealings . He creates an
artificial rise in prices of new
shares and makes profits.
 LAME DUCK
He is speculator when the bear
operator finds it difficult to
deliver the securities to the
consumer on a particular day as
agreed upon , he struggles as a
lame duck in fullfilling his
commitment . This happens
when the prices do not fall as
expected by the bear and the
other party is not willing to
postpone the settlement to the
next period.
 M ARKET T IMINGS
Trading on the equities segment takes place on all days of the
week (except Saturdays and Sundays and holidays declared by
the exchange in advance)

The market timings of the equities segment are:

Normal market open : 9:00 am hours

Normal market close : 3:30 pm hours

The closing session is held between 15.50 hours and 16.00 hours
in NSE and 15.40 hours and 16.00 hours in BSE
 T RADING R EQUIRED
Step1 PAN Card
Step 2(Demat a/c)
Subscribe to a trading account with one of the
major online broking houses.
Step 3
Now major challenge starts is to learn
trading. You can read books, join online
charting communities, blogs, membership site
or get into a mentorship program.
Step 4
Apply your knowledge and start trading.
Offline Trading

In offline trading the investor places orders with the stockbroker either verbally
(personally or telephonically) or in a written form (fax). This may be because
he is not comfortable in accessing the Internet.

Highlights

 Trading over the phone

 No access to live market watch

 Absence of online Fund transfer

Online trading

Online trading means trading/investing in equities, derivatives, commodities

etc through the Internet. It enables the investor to electronically connect
(through Internet) to buy or sell stocks, derivatives etc with the other investors.
In online trading, one can access a stockbroker's website through an Internet-
enabled PC and can place orders.

Online trading started in February 2000 when a couple of brokers started

offering an online trading platform for their customers.

Highlights

 Streaming quotes
 Self-execution and instant confirmation
 Complete control over their trading decisions
 Can access accounts Online
 Convenience of trade
 Wide access to historical charts and past data
 W HY S TOCK P RICES R ISES ?

 News about
company
 News about the
Country
 Exchange rate
regime
 Demand & Supply
 THE GREAT QUESTION: HOW DO I
KNOW WHICH STOCK TO BUY?

Checking the
technical
Stocks indicators?
recommended on
TV, experts,
newspapers,
experts?

Based on rumors?

Stocks from big,

stable and
successful
companies?
Choosing randomly?
 W HY DO THE PRICES OF SHARE
INCREASE OR DECREASE IN THE
MARKET ?
 There is one major factor that causes the movement of the
market and this is BUYER / BUYERS.
The more buyers for a given security, the higher the price of
that security will go, if there are no buyers, the price of the
security will drop.
Companies can have the greatest product/service in the
world but if no one wants to buy, the
price of the stock will go no
where and if it does move it will
move down.