SEBI: Meaning, History and Function

  • June 03, 2024
  • Dushyant Sharma
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The full form of SEBI is the Securities and Exchange Board of India. The capital markets, securities and commodities in India are regulated and overseen by this regulatory authority.

 

You must understand a few things concerning SEBI, including its meaning, history and functions, if you plan to invest or make a career in the current Indian stock market. 

What is the meaning and history of SEBI?

Securities and Exchange Board of India (SEBI) is a regulatory body that was established on 12th April, 1988. It was given statutory powers on 30th January in the year 1992. 

 

This authority, since 1992, has been responsible for regulating and overseeing the capital market and the entire nation’s securities and commodities markets. The SEBI is owned by GOI, and aims to safeguard the interests of investors, regulate the capital market and create transparency in it. 

 

SEBI regularly mandates information disclosure and establishes and implements guidelines and regulations in order to ensure that the investor’s rights and interests are protected.

 

Before SEBI was established, the securities market in the country was subject to a patchwork of regulations, that were inconsistent and ineffective, from different government agencies. However, in 2014, GOI made a decision to hand greater power and regulatory authority to SEBI in order to secure and monitor the capital market all the more. Now with more authoritative power, SEBI can perform seizure and search operations and impose heavy penalties and fines in case of fraudulent activities. These fines can range from mere lakhs to crores. 

What is SEBI’s Organizational Structure?

SEBI consists of the following members:

  • The Chairman appointed by the Union Government of India.
  • Two members selected from the officers of the Union Finance Ministry.
  • One member appointed by the Reserve Bank of India (RBI).
  • Five other members appointed by the Union Government of India, out of which three must be full-time members. 

The first Chairman of SEBI Dr. S.A. Dave was appointed on 10th April, 1988. Madhabi Puri Buch is the current chairperson of SEBI. She is known as the first woman chairperson to lead SEBI. 

What are the Functions of SEBI?

Like we discussed earlier, SEBI basically protects the interest of investors in the share market, promotes the share market’s regulation and development. We can divide the functions of SEBI into three parts:

Protective Functions of SEBI

Through its protective functions, SEBI protects the interest of investors and other financial participants. Let’s discuss these protective functions.

  • Prevention of Insider Trading: When individuals working in the market such as directors, promoters or employees in a company start buying and selling securities because they have access to confidential information, it affects the price of the security. This is known as insider trading. SEBI restricts companies to purchase their own shares from the secondary market and also conducts regular investigations to prevent insider trading and avoid malpractices.
  • Keeping a check to prevent Price Rigging: When malpractices create unreasonable fluctuations in the price of the securities with the help of increasing or decreasing market stocks, it results in an immense loss for the investors or trader. This is known as price rigging. SEBI actively keeps an eye on the factors which can promote price rigging, so that it can prevent it from taking place.
  • Promotion of Fair Trade Practices: SEBI has established rules and regulations and a certain code of conduct in the securities market in order to restrict the fraudulent activities and unfair trade practices from taking place.
  • Providing Financial Awareness to Investors: Online and offline seminars are conducted by SEBI so that it can educate the investors regarding the financial market and money management.

Regulatory Functions of SEBI

SEBI, through its regulatory functions, checks the functioning of the financial business in the Indian securities and commodities market. It establishes rushes to regulate the financial intermediaries and corporations for the market’s efficiency. Let’s discuss SEBI’s regulatory functions below:

  • Establishing Guidelines and Code of Conduct: For efficient working of financial intermediaries and corporations, SEBI issues guidelines and code of conduct.
  • Setting Rules for Takeover: It regulates the process of taking over a company by setting rules for the same.
  • Conducting Audits and Enquiries: SEBI conducts regular inquiries and audits of stock exchanges to ensure their compliance and smooth functioning. 
  • Regulation of Mutual Funds: The responsibility of regulation of mutual funds in India lies with SEBI. The operating behaviors of Mutual Funds Distributors are also regulated by SEBI.
  • Issuing Licenses: It issues licenses/registration to registered investment advisors, brokers, sub-brokers and merchant bankers.
  • Restrictions: It puts restrictions on private placement.

Development Functions of SEBI

For the purpose of improving the security through technology, SEBI takes certain development functions. Let’s find out what these development functions of SEBI are:

  • Training: SEBI provides training sessions to the intermediaries of the market. 
  • Promotion of Fair Trade: SEBI promotes fair trading and puts restrictions on malpractices of any kind. 
  • Introduction of DEMAT: By introducing the facility of DEMAT format for trading, SEBI helps the investors to invest their money easily. 
  • Promotion: SEBI also promotes self-regulating organizations. 
  • Online Trading: By introducing online trading through registered stock brokers, SEBI encourages investors to earn profit and enables companies to meet their capital requirements.. 
  • Discount on Brokerage: SEBI provides discount on brokerage. 

Conclusion

SEBI is the apex regulatory body for the Indian securities market. The financial market is regulated in India due to SEBI’s surveillance and guidance. SEBI plays a crucial role in ensuring that the traders, investors and companies operate in the market in a legal manner. If you want to become an investment advisor, it is mandatory for you to get SEBI’s RIA license. To obtain this license in a smooth and hassle free manner, you can get in touch with Registrationwala.


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Dushyant Sharma
Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.

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