Securities and Exchange Board of India (SEBI) - Powers & Function (2024)

The Securities and Exchange Board of India (SEBI) was established as a statutory agency in 1992 by the Securities and Exchange Board of India Act 1992. It works under the ownership of the Ministry of Finance, Government of India. The Securities and Exchange Board of India’s primary responsibility is to safeguard the interests of investors in securities and to promote and regulate the securities market.

The topic of financial regulatory bodies like SEBI, IRDA, PFRDA, etc., is an important topic from the perspective of UPSC Prelims and General Studies Mains examination. Time and again, questions have been asked from statutory bodies in the UPSC IAS/IPS exam.

This article will discuss in a detailed manner the objective behind the establishment of SEBI along with its composition, powers, roles, and the limitations associated with it.

What is Securities and Exchange Board of India (SEBI)?

The Securities and Exchange Board of India (SEBI) is a statutory body established by the Government of India in 1992 to regulate the securities market in India. It is the apex regulatory authority for the securities market. It aims to protect the interests of investors and promote the development of the securities market. It ensures fair and efficient practices in the securities market.

Formation of the Securities and Exchange Board of India (SEBI)

• In India, before the establishment of SEBI, the Controller of Capital Issues was the regulating authority, which had been provided authority under the Capital Issues (Control) Act of 1947.
• A resolution of the Government of India established the SEBI as the regulator of capital markets in India in April 1988. SEBI initially came into existence as a non-statutory body, so there were no statutory powers provided to SEBI.
• With the passing of the SEBI Act 1992, it obtained statutory significance.
• Further, the powers of SEBI were increased through subsequent amendments in the years 1999 & 2014.
• As a result of this Act, SEBI became an independent and statutory institution of the Indian government. Its mission is to supervise India’s securities and capital markets.
• The Security and Exchange Board of India(SEBI) has four regional offices located in New Delhi, Kolkata, Chennai, and Ahmedabad,
• The headquarters of SEBI is in Mumbai, Maharashtra.

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List of Chairpersons of SEBI

The table shows the list of chairpersons of SEBI.

Achievements of SEBI

• SEBI has achieved success as a regulator through aggressive and successive systematic reforms.
• Notable initiatives include the transition to electronic and paperless markets with the introduction of T+5, T+3, and T+2 rolling cycles.
• The T+2 rolling cycle signifies settlement within 2 days after the trade date.
• SEBI has played an active role in regulatory setup, eliminating physical certificates prone to delays and forgery through the Depositories Act, 1996.
• In response to global challenges and the Satyam fiasco, SEBI implemented quick and effective measures.
• In October 2011, it enhanced disclosures by Indian corporate promoters and liberalized the takeover code amid the global meltdown.
• SEBI has increased the application limit for retail investors to ₹200,000 from ₹100,000, fostering investments.
• As part of World Investor Week 2022, SEBI Executive Director Shri G. P. Garg launched a Financial Literacy book in collaboration with Metropolitan Stock Exchange of India Limited and CASI New York.

Objectives of SEBI

The primary objectives of SEBI are as follows:

• SEBI aims to protect the interests of investors by ensuring fair and transparent practices in the securities market.
• SEBI aims to promote the development of the securities market. It creates a conducive environment for investment.
• SEBI aims to ensure fair and efficient practices in the securities market. It regulates the activities of market intermediaries, such as brokers, dealers, and mutual funds.

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Organizational Structure of SEBI

Under Section 4 of the SEBI Act,1992 following provisions relating to the management of SEBI consisting of the following (9-member Board) have been laid down:

• A Chairman
• Members from the Ministry of Finance and Ministry of Corporate Affairs (MCA): 2
• Members from the officials of the Reserve Bank of India (RBI): 1
• 5 other members (among them, at least 3 shall be Whole-Time Members)

SEBI also appoints numerous committees as needed to investigate the most important issues at the time. A Securities Appellate Tribunal (SAT) has also been established to protect the rights of entities who allege SEBI’s rulings have harmed them.

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Powers and Functions of SEBI

Functions

• Safeguarding Investor Interests: SEBI protects the interests of investors by ensuring transparency and market integrity. It investigates complaints from investors. It takes action against market intermediaries who engage in fraudulent or manipulative practices.
• Market Regulation: SEBI regulates the activities of stock exchanges, market intermediaries, and issuers. It sets guidelines for market operations, listing requirements, and investor protection measures.
• Enforcement: SEBI has the power to investigate, issue orders, and impose penalties. It can even prosecute offenders for violations of securities laws and regulations. It ensures that market participants adhere to ethical practices and maintain market stability.
• Investor Education: SEBI promotes investor education. It empowers investors with knowledge and skills to make informed decisions. It provides educational materials and conducts workshops and campaigns. It raises investor awareness and protects them from financial scams.

Powers

• Quasi-Legislative: SEBI has the authority to frame regulations. It can issue circulars governing the securities market. These regulations cover aspects like:
  • market operations,
  • listing requirements,
  • investor protection measures, and
  • conduct of intermediaries.
• Quasi-Judicial: SEBI can adjudicate disputes between market participants, investors, and intermediaries. It conducts hearings and examines evidence. It issues orders to resolve disputes and enforce regulations.
• Quasi-Executive: SEBI has executive powers to inspect, summon records, and conduct investigations. It can also issue directives and impose penalties. It can suspend or revoke registrations of non-compliant entities.

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Limitations of SEBI

• It is overburdened with excessive emphasis on securities market behavior regulation and less on financial supervision.
• SEBI has been provided with the powers of civil court only. So, SEBI will have to get prior approval for filing criminal complaints about violations of the regulations.
• SEBI does not have full autonomy. The majority of the SEBI’s board members are government appointees.
• The Chairman of the SEBI does not have a fixed term and can be removed at any time with three months’ notice.
• The component of prior consultation to meet the articulated purpose is missing. Hence, the fear of the regulator in the Indian market is widespread.

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Way Forward

Continuous surveillance and better market intelligence can aid enforcement. India’s financial markets are still divided. One regulator cannot be held liable for the failure of another where their responsibilities for a financial product overlap. An independent financial regulator makes great sense in this context, as it eliminates both overlap and banned areas. Human resources and internal issues must be given special attention by SEBI. To attract the top personnel, SEBI must facilitate lateral entrance.

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