The securities and exchange board of India (SEBI) was first established on April 12, 1988. Earlier it did not have any statutory power and it used to function under the administration of finance ministry of India. Later on January 30, 1992, it was given a statutory power through an ordinance and this ordinance was later replaced by the securities and exchange board of India Act, 1992.
It was established with a purpose of safeguarding the interest of the savers / investors and also to regulate the securities market. it helped in promoting the market and thus helped in growth of the economy.
With ever growing investment in the securities market during 1980, what came along were the malpractices and unfair trade practices. These practices were done by companies, brokers, investment consultants, merchant bankers, and other bodies involved in investment arena. They used to play against the interest of the investors by making delay in payments, giving unofficial premium of shares, manipulation of prices, unofficial private placement, not adhering to the companies act etc. To redress these problems of the investors it became important to set up a body that could control these malpractices and thus in the year 1992 Securities and exchange board of India was set up.
Purpose or role of securities and exchange board of India (SEBI)
- The main purpose was to establish an environment which was efficient enough so that proper mobilisation of funds in the securities market can take place. Along with mobilisation, utilisation and allocation of funds in the most productive use is also a purpose of SEBI.
- It creates an environment where healthy competition takes place and there is scope for innovation in that market.
- It will help the issuers, so that they can raise the funds easily, in a fair and efficient manner. It provides scope for raising the funds without excessive cost.
- On the other hand, investors also get an environment where their rights and interests are protected and they get adequate and true information so that they can make an informed and fair deal.
- While the intermediaries also get the advantage. They get an efficient infrastructure so that they can provide their services in a competitive and professional manner to the investors and the issuers.
Objectives of SEBI
- Main objective of SEBI is to protect the rights of the investors along with their interest. This is the main objective because it was set up for the same.
- To promote the proper functioning of the stock market and stock exchanges. There should not be disorderliness in their administration.
- To follow the statutory regulations and prevent the malpractices and thus help both – the issuers and the investors equally.
- To set up a code of conduct for the working so that fair trade practices take place.
- To make the securities market an healthy place to make the investment without unhealthy practices and unhealthy competition.
Functions of SEBI (Securities and exchange board of India)
There are mainly two types of functions which are performed by the securities and exchange board of India. They are as under:
- Regulatory functions
- Developmental functions
Regulatory functions of SEBI
- To take care of the registrations. Every broker and sub – brokers need to be registered with SEBI. Other players in the securities market are also liable to get registered.
- It needs to regulate the business of stock exchanges, merchant bankers etc.
- It was set up with the main purpose of preventing the unfair trade practices and fraudulent practices and thus it has the similar function to perform.
- There should be no insider trading as it is the illegal practice of having the confidential information so that it can be used for personal benefit. SEBI has a function of controlling it by putting the penalties on the companies and institutions doing it.
- Undertaking the inspection is also an important function. SEBI takes care that the audits and enquiries are done time to time of the stock exchanges.
- Registration of the securities, investment schemes and also mutual funds needs to be done before offering them to the general public.
Developmental functions of SEBI
- It has a function to educate the investor about the rights and responsibilities so that they can make an informed decision about their investments.
- Training is provided to the intermediaries before they start acting as the middlemen between the issuers and the investors as it is very important for the intermediaries to know about the details of the securities market before taking the charge.
- Setting a proper code of conduct so that there is no scope for malpractices and unhealthy speculation.
- It also conducts timely research and that information is published for the public to see it and make a wise decision.
Organizational structure of SEBI
Securities and exchange board of India has five operational departments. These departments have a head as an executive director. SEBI’s offices are located in Kolkata, Chennai, Delhi, with a main office in Mumbai.
It has two advisory committees:
- Primary market advisory committee
- Secondary market advisory committee
Objectives of these committees
- It provides advice to SEBI on various important matters so that it can help in protecting the interest of the investors in the primary market.
- It helps in developing the markets in the country- both the primary and the secondary market.
- It advises SEBI on various other matters including the suggestions regarding the changes in legal framework so that there is more liquidity, transparency and easy transactions taking place.
Although, these committees provide advice to SEBI but it is up to SEBI whether it wants to follow the advice or not. Also, these committees do not have any statutory position.