SEBI – Objectives, Structure and Functions

Introduction of the SEBI:

SEBI commonly known as the Securities and Exchange Board of India is a regulatory body of the financial markets of India. It was originally established as a non-statutory body on 12 April 1988, but it was declared an autonomous body with statutory powers in 1992 under section 3 of the Securities and Exchange of India Act, 1992, which came into force on 30 January 1992.

SEBI headquarters was set up in Mumbai and established several regional offices across the country including New Delhi, Ahmedabad, Kolkata, and Chennai, as well as opened local offices in Jaipur, Guwahati, Bangalore, Patna, Bhubaneswar, Chandigarh, and Kochi. Currently, there are 16 stock exchanges in the world, and NYSE [New York Stock Exchange] is the top in the world, India’s Sensex [Stock Exchange Sensitive Index] is the oldest and main stock exchange among the seven stock exchange markets in India. To regulate, govern and monitor these securities market’s capital, the Government of India created SEBI.

            SEBI also regulates the performance of the stock market and the credit flow of mutual funds. comprehensively we can say, It acts as a watchdog with the power of an independent body dealing with the progress of the entire securities exchange in the country as well as the entire stock market credit flows in the country. It supervises and directs the Indian capital and securities market while ensuring the interests of investors and financial backers by framing rules and regulations and framing investment-related guidelines. NSE and BSE are the two major stock exchanges among the seven stock exchanges operating in India. All these stock exchange activities are regulated by SEBI.

Evolution of Securities and Exchange Board of India (SEBI):

           In the late 1970s, People have seen the booming stock markets in India, where many irregularities and malpractices such as informal self-styled merchant bankers, unauthorized private placements, and price rigging began to take place. The famous 1992 Indian stock market scam by Harshad Shantilal Mehta falls under this category only. After all these bad results, the Government of India felt the need to set up an authority to regulate the workflow of stock markets and curb the malpractices as soon as possible. As a result, SEBI was created by the Government of India to control malpractices and irregularities in the stock exchange of India.

Structure of the Securities and Exchange Board of India (SEBI):

        SEBI has been designed with a corporate structure, which consists of a Board of directors, Senior Management, Departmental Heads, and various key departments. SEBI’s hierarchical structure consists of the following 9 designated officers.

1. The Chairman – Nominated by the Union Government of India.
2. Two Members – Belonged to the Union Finance Ministry of India.
3. One Member – Belonged to the Reserve Bank of India.
4. Other Five Members – Nominated by the Union Government of India.

Role of the Securities and Exchange Board of India (SEBI):

• SEBI also plays a major role in the Indian economy, to ensure that safeguard the interests of major participants in the financial markets, investors in the market, and financial intermediaries. The result of this increase in investment in the stock markets will boost the Indian economy.
• This regulatory body ensures a healthy and transparent environment for its affiliated companies in the corporate sector to raise funds from various sources to invest in the stock market.
• This regulatory authority is responsible for keeping an environment free of malpractices and irregular practices as investors invest their well-deserved hard-earned money in the stock market, where SEBI plays a major role in this process because financial backers and investors are the only ones who keep the market sector in an active mode.
• SEBI should facilitate smooth, secure financial transactions and safe transactions for intermediaries who act as middlemen between the financial backers, insurers, and investors.
• SEBI regulates the capital amount in the trading through certain measures and regulations which protect the interests of traders and investors and reflect fair publicity on the stock exchange.
• This regulatory body has framed rules and regulations to prevent malpractices and unethical practices related to complaints or tips raised in the grievance or complaints division.
• SEBI plays a major role in paving the way for how securities markets and stock exchanges deal with security threats, fraudulent, and unfair trade practices.
• Another major role of SEBI is to promote the development of securities market and stock exchanges, encourage the formation of self-regulatory bodies and promote learning opportunities for investors as well as provide education and training to intermediaries regarding stock exchange or securities exchange techniques.
• SEBI conducts registration activities for new brokers, stock brokers, share transfer agents, financial advisers, and intermediaries. In addition, it also enrolls working capital funds and collective investment schemes like mutual funds.
• SEBI protects investors and other financial stakeholders by creating awareness among the investors and prohibiting fraudulent and unfair practices by checking price rigging and preventing insider trading.
• Another key role played by SEBI is to check the functioning of business processes followed by financial markets through conducting inquiries, audits of inter-dealer exchanges, and regulatory actions taken by affiliated companies in respect of brokers, merchant brokers, sub- Brokers, credit registration, rating agencies, etc.
• SEBI also performs some developmental roles like training intermediaries, conducting research work, promoting advanced self-regulatory institutions, and buying-selling mutual funds directly from AMC [Asset Management Company] through a broker.

Related Frequently Asked Questions and Answers:

Q1. What is SEBI and explain it in brief?

Ans: SEBI commonly known as the Securities and Exchange Board of India is a regulatory body of the financial markets of India. It was originally established as a non-statutory body on 12 April 1988, but it was declared an autonomous body with statutory powers in 1992 under section 3 of the Securities and Exchange of India Act, 1992, which came into force on 30 January 1992. SEBI headquarters was set up in Mumbai and established several regional offices across the country including New Delhi, Ahmedabad, Kolkata, and Chennai, as well as opened local offices in Jaipur, Guwahati, Bangalore, Patna, Bhubaneswar, Chandigarh, and Kochi.

Q2. What factors led to the establishment of SEBI in India?

Ans: In the late 1970s, People have seen the booming stock markets in India, where many irregularities and malpractices such as informal self-styled merchant bankers, unauthorized private placements, and price rigging began to take place. The famous 1992 Indian stock market scam by Harshad Shantilal Mehta falls under this category only. After all these bad results, the Government of India felt the need to set up an authority to regulate the workflow of stock markets and curb the malpractices as soon as possible. As a result, SEBI was created by the Government of India to control malpractices and irregularities in the stock exchange of India.

Q3. Briefly describe the hierarchical structure of SEBI.

Ans: SEBI has been designed with a corporate structure, which consists of a Board of directors, Senior Management, Departmental Heads, and various key departments. SEBI’s hierarchical structure consists of the following 9 designated officers.

• The Chairman – Nominated by the Union Government of India.
• Two Members – Belonged to the Union Finance Ministry of India.
• One Member – Belonged to the Reserve Bank of India.
• Other Five Members – Nominated by the Union Government of India.

4Q. What is the main role of SEBI in the Securities Exchange Market?

Ans: SEBI also plays a major role in the Indian economy, to ensure that safeguard the interests of major participants in the financial markets, investors in the market, and financial intermediaries. The result of this increase in investment in the stock markets will boost the Indian economy. This regulatory body ensures a healthy and transparent environment for its affiliated companies in the corporate sector to raise funds from various sources to invest in the stock market. This regulatory authority is responsible for keeping an environment free of malpractices and irregular practices as investors invest their well-deserved hard-earned money in the stock market, where SEBI plays a major role in this process because financial backers and investors are the only ones who keep the market sector in an active mode. 

            Another key role played by SEBI is to check the functioning of business processes followed by financial markets through conducting inquiries, audits of inter-dealer exchanges, and regulatory actions taken by affiliated companies in respect of brokers, merchant brokers, sub- Brokers, credit registration, rating agencies, etc. SEBI also performs some developmental roles like training intermediaries, conducting research work, promoting advanced self-regulatory institutions, and buying-selling mutual funds directly from AMC [Asset Management Company] through a broker.