Powers and Functions of SEBI
SEBI stands for Securities and Exchange Board of India. It is a legal body set up by the Government of India in 1992 to protect the interests of people investing in securities. SEBI also oversees the working of the stock market and mutual funds to ensure they function smoothly. Functions of SEBI include:
Protective Functions
Regulatory Functions
Development Functions
Powers and Functions of SEBI
SEBI has several powers and duties to ensure the smooth working of the securities market. These include:
Regulatory Powers
Controlling stock exchanges and securities markets.
Making rules for how the market operates.
Protective Powers
Protecting investors from fraud and unfair practices.
Preventing any illegal activities in the market.
Development Functions
Educating investors and spreading awareness.
Supporting new ideas and fair practices in the market.
Judicial Powers
Investigating wrongdoings in the market.
Taking action and punishing those who break the rules.
Advisory Powers
Advising the government on market-related policies.
Suggesting ways to improve the financial system.
SEBI works to make the securities market safe and fair while encouraging its growth.
Purpose of SEBI
SEBI was set up to create a system that helps in collecting and using money properly. It provides rules, a working setup, and facilities to meet the needs of the growing market.
It focuses on helping these groups:
Issuers: SEBI gives a platform for businesses to raise money.
Investors: It protects investors by giving correct and timely information.
Intermediaries: SEBI supports intermediaries by ensuring fair competition and proper facilities.
Structure of SEBI
The SEBI Board has nine members, which include:
A Chairman is chosen by the Central Government.
One member from the Reserve Bank of India (RBI).
Two members from the Ministry of Finance.
Five members are selected by the Central Government.
Conclusion and Key Takeaways
The Securities and Exchange Board of India (SEBI) is crucial in ensuring a transparent, fair, and efficient securities market in India. Established in 1992, SEBI performs diverse functions, including regulating stock exchanges, protecting investors from fraud, and encouraging fair practices. Its powers span regulatory, protective, developmental, judicial, and advisory domains, allowing it to oversee market operations, take legal actions against malpractices, and promote investor education. SEBI’s structured governance, comprising representatives from the Central Government, RBI, and Ministry of Finance, ensures comprehensive oversight. By safeguarding investor interests, enabling businesses to raise capital, and fostering innovation, SEBI contributes to the stability and growth of India’s financial ecosystem.
FAQs on Functions of SEBI: Objectives, Purpose and Structure
1. What is SEBI and what are its primary objectives for the Indian securities market?
The Securities and Exchange Board of India (SEBI) is the principal regulatory body for the securities and commodity market in India, established under the SEBI Act, 1992. Its primary objectives are threefold: to protect the interests of investors in securities, to promote the development of the securities market, and to regulate the market's activities to ensure fairness and transparency.
2. What are the three main categories of functions performed by SEBI?
SEBI's functions are broadly classified into three main categories to achieve its objectives:
- Protective Functions: Aimed at safeguarding investors from malpractices like fraud and unfair trade.
- Developmental Functions: Focused on upgrading the market infrastructure, modernising practices, and educating market participants.
- Regulatory Functions: Involve creating and enforcing rules and codes of conduct for financial intermediaries and corporations to ensure smooth and fair market operations.
3. What are some key examples of SEBI's Protective Functions in action?
Under its protective functions, SEBI takes several crucial actions to safeguard investor interests. Key examples include:
- Prohibiting fraudulent and unfair trade practices, such as price rigging.
- Controlling insider trading and imposing heavy penalties for such activities.
- Undertaking steps to promote investor education and awareness.
- Promoting a fair code of conduct in the securities market to protect investors from misleading information.
4. How does SEBI fulfill its Developmental Functions for the market?
SEBI undertakes several developmental activities to modernise and improve the securities market. It promotes the training of intermediaries like brokers and agents to enhance service quality. It has also facilitated the move towards screen-based trading (online trading) and the dematerialisation of shares (holding them in electronic form), which has made transactions faster, cheaper, and more secure for investors.
5. What does SEBI do under its Regulatory Functions?
As a regulator, SEBI establishes the rules of the game for the market. Its regulatory functions include:
- Framing rules and regulations for financial intermediaries like brokers, merchant bankers, and mutual funds.
- Registering and regulating all market intermediaries, including stockbrokers, sub-brokers, and portfolio managers.
- Regulating takeover bids by companies to ensure they are fair to shareholders.
- Conducting regular inquiries and audits of stock exchanges and intermediaries to ensure compliance.
6. How does the management structure of SEBI ensure its independent functioning?
SEBI's management structure is designed for autonomy and impartiality. The board consists of a Chairman appointed by the Government of India, members from the Reserve Bank of India (RBI) and the Union Finance Ministry, and other whole-time members. This diverse, high-level composition ensures that SEBI can make decisions independently of market players and other influences, which is crucial for building investor confidence and maintaining market integrity.
7. Why is preventing insider trading a critical function of SEBI for a common investor?
Preventing insider trading is critical because it ensures a level playing field for all investors. Insider trading involves using confidential, non-public information to make profits, giving an unfair advantage to those with access to such information. By banning this practice, SEBI ensures that a common investor's decisions are based on publicly available information, not on unfair advantages held by a few. This builds trust and encourages wider participation in the market.
8. What is the main difference between SEBI's protective and regulatory functions?
The key difference lies in their focus. Protective functions are primarily concerned with directly shielding investors from harm, like stopping fraud and price manipulation. They are often reactive or preventative measures against specific wrongdoings. In contrast, regulatory functions are about creating the overall framework and rules that the market must operate within. They are proactive and structural, aiming to establish a fair system (e.g., registering brokers, setting rules for mutual funds) to prevent issues from arising in the first place.
