What is SEBI - Securities and Exchange Board of India

The Securities and Exchange Board of India (SEBI) is the regulatory authority overseeing the securities market in India. Established in 1992, SEBI plays a crucial role in ensuring transparency, efficiency, and fairness in the functioning of the securities markets. Its objectives and functions are aimed at fostering investor protection, maintaining market integrity, and promoting the development of the securities market in India.

History of SEBI

SEBI was established in 1988 as a non-statutory body to regulate the securities market. Before its establishment, the securities market was regulated by several government institutions, resulting in inconsistency and inefficiency. In 1992, the Government of India passed the SEBI Act, which gave SEBI statutory powers and established it as the regulatory authority for the Indian securities market.

Objectives of SEBI

SEBI has several key objectives:

• Investor protection: SEBI's foremost objective is to safeguard the interests of investors in the securities market. It seeks to ensure that investors receive accurate and timely information about the securities they invest in and are protected from fraudulent and unfair trade practices.
• Regulation and development of the securities market: SEBI is entrusted with the responsibility of regulating and developing the securities market. It formulates regulations and guidelines that govern various market participants, such as stock exchanges, brokers, and listed companies, to promote fair and transparent practices.
• Prevention of insider trading: SEBI works towards preventing insider trading, a practice where individuals with access to non-public information use it to gain an unfair advantage in trading. SEBI's regulations on insider trading aim to maintain a level playing field for all market participants.
• Promotion of fair practices and code of conduct: SEBI promotes fair practices and a high standard of integrity in the securities market. It enforces a code of conduct for all market participants, fostering an environment where market activities are conducted ethically and transparently.
• Prohibition of fraudulent and unfair trade practices: SEBI is empowered to act against fraudulent and unfair trade practices in the securities market. It investigates and takes corrective measures to maintain market integrity and protect investors from the market.

Functions of SEBI

SEBI performs several key functions to achieve its objectives:

• Protective function: SEBI's protective function involves safeguarding the interests of investors and other financial participants. This includes prohibiting insider trading, checking price rigging, promoting fair practices, and providing financial education to investors.
• Regulatory function: SEBI's regulatory functions involve establishing rules and regulations for financial intermediaries and corporates to ensure the efficient functioning of the market. This includes defining rules and regulations, regulating the process of taking over a company, conducting inquiries and audits of stock exchanges, and regulating the working of stock brokers and merchant brokers.
• Developmental function: SEBI's developmental function involves taking measures to educate investors about trading and market functions. This includes training intermediaries, introducing electronic trading, and making underwriting an optional system to reduce the cost of issues.

Structure of SEBI

SEBI has over 20 departments, all of which are supervised by their respective department heads, which in turn are administered by a hierarchy in general. The regulatory body is managed by its members, which consist of the following:

• The chairman is nominated by the Union Government of India.
• Two members from the Union Finance Ministry.
• One member from the Reserve Bank of India.
• The remaining five members are nominated by the Union Government of India.

Power of SEBI

There are three major powers that SEBI has as a regulatory body which are as follows:

Quasi-Judicial

SEBI has the power to give judgments in relation to unethical and fraudulent practices in terms of the securities market which helps in ensuring transparency, fairness, accountability, and reliability. One example of this power would be the SEBI PACL case in which PACL, which had raised money from general society for the sake of farming and land businesses, was found by Sebi to have gathered more than Rs 60,000 crore through unlawful collective investment schemes (CIS) over a time of 18 years.

Quasi-Executive

SEBI has the power to implement the regulations and judgments established and to take legal action against anyone who violates the regulations and rules. It also holds the power to inspect the books of accounts and other documents if it suspects the violation of regulations.

Quasi-Legislative

SEBI has the power to frame the rules and regulations to ensure the protection of the interests of the investors. Some of its regulations involve listing obligations, trading regulations, and disclosure requirements and these have been framed to avoid malpractices.

It is important to note that despite these powers, the conclusion of these functions of SEBI has to go through the Securities Appellate Tribunal and Supreme Court of India. 

Role of SEBI

The main roles of the SEBI are as follows:

• To Protect the investor’s interest in the securities market
• To Regulate the securities market of India
• To Promote the securities market

SEBI Regulations of Mutual Funds

Management of mutual funds is done by the Asset Management Companies (AMC) which further requires the approval of SEBI. The deputies of AMC have a role to scrutinize the performance of the mutual funds and make sure that mutual funds work in compliance with rules and regulations framed by SEBI. All the mutual funds are mandated to register with SEBI before starting investment-related operations. And in the case of mutual funds that deal exclusively with money market instruments i.e. the Money market mutual funds, they also need to mandatorily seek clearance from the Reserve Bank of India before registering with SEBI. Some of the regulations in mutual funds laid down by SEBI include:

• The Scheme cannot invest more than 10% of its assets in debt securities including money market instruments and non-money market instruments issued by a single issuer. Such investment limits may be extended to 12% by the prior approval of the Board of Trustees and the Board of Directors of the asset management company.
• The mutual fund scheme cannot invest more than 25% of its assets in unrated debt instruments.
• The Scheme can make investments in the other schemes of the same AMC or the schemes of other AMCs, but such investments should be limited to up to 5% of the total assets of the fund without charging any management fees.
• The mutual fund Scheme cannot make investments in any unlisted securities of an associate or group company of the sponsor.
• The scheme cannot invest in any Fund of funds schemes.
• As per sectoral classification prescribed by AMFI, the mutual fund scheme cannot take exposure in fixed income securities of more than 25% to a single sector.
• The Fund can only borrow its assets for meeting temporary liquidity needs and is allowed to borrow not more than 20% of its assets for a maximum period of 6 months.
• The Scheme cannot pass loans against the units to the investors.

SEBI Guideline

SEBI has laid guidelines on the reclassification of mutual funds which are as follows:

1. The funds are mandated to be named on the basis of the fundamental purpose of the funds and assets. The risk associated must be specified clearly.

2. As per SEBI Categorization, debt mutual funds have been categorized into 16 types, equity mutual funds have been classified into 10 types and hybrid mutual funds have been categorized into 6 types.

3. The classification of debt funds is prescribed on the basis of the duration of funds and a mix of asset quality. Except for index funds, the AMCs are allowed to have only one fund per classification, i.e., an AMC can have a maximum of 34 funds including funds in all the categories.

Conclusion

SEBI plays a pivotal role in regulating and developing the securities market in India. Through its objectives and functions, SEBI strives to ensure investor protection, market integrity, and sustainable market development. By implementing robust regulatory measures and fostering transparency and fairness, SEBI contributes to the growth and stability of the Indian securities market, thereby facilitating capital formation and economic progress

FAQs on SEBI

Q. What is SEBI full form in mutual funds?

A. The Securities and Exchange Board of India(SEBI) was established as a statutory body in the year 1992 and the provisions of the Securities and Exchange Board of India.

Q. What is SEBI and its Role?

A. SEBI or Securities and Exchange Board of India is a statutory regulatory body that aims to protect the interest of investors making investments in the Indian Financial Markets & regulating the capital market of India.

The main role of the SEBI is to regulate the intermediaries in the capital market so as to protect the interests of traders & investors in the market. It aims to ensure that the investments & trades in the market are conducted in a systematic & fair manner. Along with the securities market, the SEBI is also responsible for regulating the functioning of the Indian Mutual Funds Industry.  

Q. What is the full form of SEBI?

A. The full form of SEBI is the Securities and Exchange Board of India. SEBI is often referred to as a watchdog for the participants in the Indian capital market. Along with regulating the industry & protecting the interest of the investors, it also promotes the development of the securities market.  

Q. How can I raise a complaint with SEBI?

A. On the website of SEBI, there is an online form available for investors to register complaints. If the complaint is regarding AMC, it is advised to initially consider registering the complaint on AMC’s website. Investors can also send complaints to the address of the headquarters of SEBI. 

Q. What is the aim of SEBI?

A. The aim of SEBI is to supervise the Indian capital and securities market and take steps in order to protect the interests of the investors, establish the rules and regulations to be followed, and also take care of the efficiency of the securities market.

Q. What are the powers of SEBI?

A. SEBI has three powers, i.e., quasi-judicial, quasi-legislative, and quasi-executive.

Q. What does SCORES stand for?

A. SCORES stands for SEBI Complaints Redress System.

Q. What is the term of validity of SEBI observations on SID?

A. The scheme is to be launched in six months from the date of issuance of final observations from SEBI.

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