Security Exchange Board of India, History, Role, Reform

Securities and Exchange Board of India (SEBI) is the regulatory body responsible for overseeing and regulating the securities and commodity market in India. Established in 1988 and given statutory powers on January 30, 1992, through the SEBI Act of 1992, its primary functions include protecting investor interests, promoting the development of the securities market, and regulating its participants. SEBI’s activities are focused on ensuring transparent and fair dealings in the market, preventing malpractices, and enhancing investor education. It formulates rules and regulations, conducts audits and inspections, and takes enforcement actions to fulfill its objectives. Headquartered in Mumbai, SEBI is pivotal in shaping the growth and stability of India’s financial markets.

Security Exchange Board of India History:

• Pre-SEBI Era

Before SEBI’s establishment, the regulatory oversight of the securities market in India was fragmented and lacked the teeth necessary for effective enforcement. The Capital Issues (Control) Act of 1947 was the primary regulatory framework, which primarily controlled the issuance of securities and capital raising but did not effectively regulate market practices or protect investor interests.

• Establishment of SEBI

Recognizing the need for a dedicated regulatory body to manage an expanding market, the Government of India established the Securities and Exchange Board of India (SEBI) on April 12, 1988, through an executive resolution. Initially, SEBI had no statutory power.

• SEBI Act, 1992

The real transformation came with the SEBI Act of 1992, which was passed by the Indian Parliament in January 1992. This act granted SEBI statutory powers, making it the primary regulator with comprehensive authority over securities markets in India. This was a crucial step in bringing transparency, accountability, and efficiency to the markets.

Role of SEBI:

1. Investor Protection:

SEBI’s primary role is to protect the interests of investors in securities and promote their education, ensuring fair play and transparency in financial transactions.

2. Regulation and Development of the Market:

SEBI regulates the securities market and works towards its development. It frames rules and regulations to ensure the smooth functioning of the securities market, facilitating the growth of this sector.

3. Regulation of Intermediaries:

It regulates the activities and certification of various market intermediaries, including brokers, merchant bankers, mutual funds, and others, ensuring they adhere to best practices and ethical standards.

4. Prohibition of Fraudulent and Unfair Trade Practices:

SEBI has the power to investigate and take action against fraudulent and unfair trade practices, such as market manipulation, insider trading, and violation of rules.

Powers of SEBI:

1. Quasi-Legislative Powers:

SEBI has the authority to draft regulations, rules, and guidelines for the protection of investors and the orderly functioning of the securities market. These regulations are binding on all parties involved in the market.

2. Quasi-Judicial Powers:

SEBI can conduct hearings and adjudication proceedings to settle disputes and impose penalties on violators of the securities law. This includes the power to issue orders such as cease-and-desist orders, disgorgement orders, and suspension or cancellation of licenses.

3. Quasi-Executive Powers:

It possesses the power to enforce its regulations and directives. This includes conducting investigations into market malpractices, carrying out inspections and audits of market intermediaries, and taking enforcement action against violators.

4. Regulatory Powers:

SEBI oversees and approves by-laws of stock exchanges, regulates the business in stock exchanges and any other securities markets, and registers and regulates the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities markets in any manner.

5. Developmental Powers:

SEBI has powers to conduct research and publish information useful to investors, thus promoting the education and training of intermediaries of the securities market. It also has a role in promoting and developing self-regulatory organizations within the industry.

Market Reforms and Developments

Since its inception, SEBI has introduced a series of reforms to enhance market integrity and efficiency.

• The introduction of dematerialization to reduce paper-based transactions.
• The establishment of clearing corporations to provide a secure and efficient settlement system.
• The introduction of corporate governance norms to improve transparency and accountability in companies.
• Implementation of strict norms for mutual funds and other collective investment schemes to protect investor interests.
• Introduction of derivative trading, which provided new financial instruments for risk management.