Regulatory Bodies in India : Securities Exchange Board of India (SEBI)

Regulatory Bodies in India Securities Exchange Board of India SEBI 

Securities Market and Need for a Regulator:

Amid many debates and differences, all economists agree that Securities market plays a vital role in the development of any economy. The Securities market is the backbone of an economy. Without a sustainable securities market, an economy cannot get the required finance to fund the development projects. Hence, for any economy to survive and grow in long run the presence of a well regulated and transparent securities market is a must. India is no exception to this fact. It is only through securities market that even a common man in India can become an investor in a multi-national company. The securities market ensures that savings are properly channelized so that sufficient finance is available where it is needed the most.

Having said that we must bear in mind that poorly regulated securities market can only prove to be harmful to any economy. Undue manipulation of the market can lead to huge financial losses and unrest among investors. India has long seen many scams in the securities market like Harshad Mehta Case, Ketan Parek Case, Sahara India Case etc. These scams have not only caused huge financial losses but have also shaken the confidence of Foreign Institutional Investors. The gist of the matter is that no economy can grow sustainably without the presence of a well regulated and transparent securities market. This is where Securities Exchange Board of India (SEBI) comes into the picture.

Securities Exchange Board of India (SEBI):

Securities Exchange Board of India (SEBI) was established in the year 1988 by Government of India with a view to regulate the securities market in India. It was given statutory powers in the year 1992 through the SEBI Act, 1992. Since then, it has been acting as a watchdog over the securities market in India.

Functions and Responsibilities:

The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as " protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected there with or incidental there to".

SEBI has to be responsive to the needs of three groups, which constitute the market:

  1. Securities Issuers
  2. Investors
  3. Market Intermediaries

SEBI has three functions to perform:

  1. Quasi-Legislative: It drafts regulations in its legislative capacity
  2. Quasi-Judicial: It conducts investigation and enforcement action in its executive function
  3. Quasi-Executive: It passes rulings and orders in its judicial capacity

Powers of SEBI:

SEBI has the following powers for the proper performance of its role as regulator of the securities market.

  1. To approve by−laws of Securities exchanges
  2. To require the Securities exchange to amend their by−laws
  3. Inspect the books of accounts and call for periodical returns from recognized Securities exchanges
  4. Inspect the books of accounts of financial intermediaries
  5. Compel certain companies to list their shares in one or more Securities exchanges
  6. Registration of brokers

SEBI Committees:

SEBI is made up of many expert committees which act as torch bearers in carrying on it’s the functions.

  1. Technical Advisory Committee
  2. Committee for review of structure of market infrastructure institutions
  3. Advisory Committee for the SEBI Investor Protection and Education Fund
  4. Takeover Regulations Advisory Committee
  5. Primary Market Advisory Committee (PMAC)
  6. Secondary Market Advisory Committee (SMAC)
  7. Mutual Fund Advisory Committee
  8. Corporate Bonds & Securitization Advisory Committee

SEBI in Action:

SEBI has taken many regulatory decisions and implemented them effectively. Some of the regulatory steps taken by SEBI are as follows:

The Rolling Cycle: SEBI has introduced regulations related to trading cycle from 2001 onwards. T+5 rolling cycle was introduced in July 2001, T+3 in April 2002 and T+2 in April 2003. The rolling cycle of T+2 means, the settlement is done in 2 days after Trade date.

Physical Certificates: SEBI did away with physical certificates that were prone to postal delays, theft and forgery, apart from making the settlement process slow and cumbersome by passing Depositories Act, 1996

Disclosures: In October 2011, it increased the extent and quantity of disclosures to be made by Indian corporate promoters

Global Recession: In light of the global meltdown, it liberalized the takeover code to facilitate investments by removing regulatory structures. In one such move, SEBI has increased the application limit for retail investors to 2 lakh from 1 lakh at present.

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Financial Management