SEBI – Role & Regulations
🟠 Topic 53: SEBI – Role & Regulations
📌 Introduction
The Securities and Exchange Board of India (SEBI) is the regulator of India’s capital markets, responsible for overseeing the functioning of stock exchanges, brokers, mutual funds, investment advisors, and ensuring investor protection and market transparency. Established in 1988 and given statutory powers in 1992, SEBI plays a critical role in fostering trust and efficiency in India’s financial ecosystem.
🔹 What is SEBI?
📖 Definition
SEBI is the statutory regulatory body overseeing securities markets in India, ensuring fair practices, market integrity, and protecting the interests of investors.
Objectives of SEBI
| Objective | Description |
|---|---|
| Investor Protection | Safeguard investors from fraudulent practices. |
| Market Regulation | Ensure fair play and transparency in capital markets. |
| Development of Market | Promote innovations and facilitate new instruments. |
| Monitoring & Surveillance | Curb insider trading, price manipulation, and unfair practices. |
🔹 Structure of SEBI
| Level | Members |
|---|---|
| Chairperson | Appointed by the Government of India |
| Whole-Time Members | 3 |
| Part-Time Members | 5 (Representatives from RBI, Finance Ministry & others) |
- SEBI operates through various departments, including: ✔️ Corporate Finance Department
✔️ Market Regulation Department
✔️ Enforcement Department
✔️ Investment Management Department
🔹 Functions of SEBI
1️⃣ Regulatory Functions
✔️ Regulates stock exchanges and securities intermediaries (brokers, depositories, custodians).
✔️ Oversees primary and secondary markets.
✔️ Regulates mutual funds, credit rating agencies, foreign portfolio investors (FPIs), and alternative investment funds (AIFs).
2️⃣ Developmental Functions
✔️ Promotes financial literacy and investor education.
✔️ Encourages corporate governance reforms.
✔️ Introduces innovative financial instruments (REITs, InvITs).
3️⃣ Protective Functions
✔️ Investigates fraudulent and unfair trade practices.
✔️ Monitors insider trading and price manipulation.
✔️ Ensures timely disclosures by listed companies.
🔹 Key Regulations Administered by SEBI
1️⃣ SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
- Governs disclosure norms for listed companies.
- Ensures timely reporting of material events, financial results, and corporate governance practices.
2️⃣ SEBI (Prohibition of Insider Trading) Regulations, 2015
- Prohibits trading based on non-public, price-sensitive information.
- Mandates disclosure of trades by insiders.
3️⃣ SEBI (Mutual Fund) Regulations, 1996
- Regulates formation, management, and operations of mutual funds.
- Ensures fair treatment to investors.
4️⃣ SEBI (Foreign Portfolio Investors) Regulations, 2019
- Governs investments by foreign institutional investors in Indian markets.
- Enhances compliance standards for FPIs.
5️⃣ SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
- Regulates public offerings (IPO, FPO).
- Ensures accurate and adequate disclosures to investors.
🔹 SEBI & Stock Exchanges
- SEBI oversees BSE, NSE, MCX, ensuring: ✔️ Fair price discovery.
✔️ Prevention of market manipulation.
✔️ Compliance with listing rules.
Example
In 2021, SEBI fined NSE officials in the co-location scam, ensuring tighter compliance for exchange operations.
🔹 Investor Protection Measures
✔️ Investor awareness campaigns like SEBI Saksham.
✔️ Investor Grievance Redressal Mechanism via SCORES platform.
✔️ Mandatory Investor Protection Fund (IPF) at exchanges.
Case Study – Karvy Stock Broking Scam (2019)
- Karvy misused client securities to raise loans for its own operations.
- SEBI intervened, suspended Karvy’s license, and compensated affected investors through the Investor Protection Fund.
- Enhanced monitoring of broker-client securities segregation followed.
🔹 SEBI’s Role in New Instruments & Markets
| Instrument | SEBI’s Role |
|---|---|
| REITs & InvITs | Facilitated framework for real estate & infrastructure investment trusts |
| Green Bonds | Encouraged listing of ESG-friendly debt instruments |
| Sovereign Gold Bonds | Promoted market participation |
| Startup IPOs | Eased listing norms for tech startups |
🔹 SEBI’s Surveillance & Enforcement Powers
✔️ Conducts search and seizure operations with court approval.
✔️ Can impose penalties, ban entities from markets.
✔️ Investigates pump-and-dump schemes, circular trading, price manipulation.
🔹 SEBI’s Role in Corporate Governance
- Mandates listed companies to: ✔️ Have at least 1 woman independent director.
✔️ Disclose related-party transactions.
✔️ Maintain transparency in board appointments, executive compensation.
Example
- SEBI strengthened corporate governance norms after Satyam Scandal (2009).
🔹 Recent Reforms & Initiatives
| Reform | Objective |
|---|---|
| T+1 Settlement | Faster transaction settlement cycle |
| Direct Listing of Indian Companies Abroad | Allowing Indian firms to list directly in foreign exchanges |
| SEBI RIA Regulations | Tightening norms for investment advisors |
| Social Stock Exchange | Platform for non-profits and social enterprises to raise funds |
Technological Upgrades
✔️ Real-time surveillance systems for detecting unusual trading patterns.
✔️ Use of AI and data analytics for market monitoring.
📊 SEBI & Investor Confidence
| Indicator | Impact |
|---|---|
| Stock Market Capitalisation (2023) | ~$4 trillion |
| FPI Inflows (2023) | ₹1.25 lakh crore |
| Mutual Fund AUM (2023) | ₹49 lakh crore |
| Retail Investor Accounts | ~12 crore (CSDL + NSDL) |
📚 Practice MCQ
1️⃣ Consider the following statements regarding SEBI:
- SEBI regulates both stock markets and banking sector.
- SEBI can investigate insider trading and impose penalties.
- SEBI was established under the RBI Act, 1934.
Which of the above statements are correct?
✅ Options:
(a) 1 and 2 only
(b) 2 only
(c) 2 and 3 only
(d) 1, 2, and 3
2️⃣ Which of the following is a key function of SEBI?
✅ Options:
(a) Conducting Monetary Policy
(b) Regulating Mutual Funds
(c) Supervising Cooperative Banks
(d) Managing Currency Supply
3️⃣ What is SCORES?
✅ Options:
(a) RBI’s Forex Management System
(b) SEBI’s Online Investor Grievance Redressal System
(c) Digital Payment System
(d) Startup Funding Platform
