SEBI Full Form is Securities and Exchange Board of India. The Securities and Exchange Board of India was established as an interim administrative body on 12 April 1988 by the Government of India. Its main objective was to promote orderly and healthy growth of securities and to provide protection to the investors. The Ministry of Finance of the Government of India has overall administrative control over its functions. On 30th January 1992, it was given a statutory status through an ordinance, which later on was replaced by Act of Parliament known as Securities and Exchange Board of India Act, 1992 (SEBI Act). SEBI is considered as a watchdog of the securities market.
The Organisational Structure of SEBI:
- SEBI is working as a corporate sector.
- Its activities are divided into five departments. Each department is headed by an executive director.
- The head office of SEBI is in Mumbai and it has branch office in Kolkata, Chennai and Delhi.
- SEBI has formed two advisory committees to deal with primary and secondary markets.
- These committees consist of market players, investors associations and eminent persons.
Purpose and Role of SEBI
The main objective is to create such an environment which facilitates efficient mobilization and allocation of resources through the securities market. This environment consists of rules and regulations, policy framework, practices and infrastructures to meet the needs of three groups which mainly constitute the market i.e. issuers of securities (companies), the investors and the market intermediaries.SEBI was set up with the main purpose of keeping a check on malpractices and protect the interest of investors. It was set up to meet the needs of three groups
1. Issuers :
For issuers, it provides a market place in which they can raise finance fairly and easily.
2. Investors :
For investors, it provides protection and supply of accurate and correct information.
3. Intermediaries :
In order to enable the intermediaries to provide better service to the investors and the issuers, SEBI provides a competitive, professionalized and expanding the market to them having the adequate and efficient infrastructure.
Functions of SEBI
We can classify the functions of SEBI in three categories:-
- Protective functions
- Developmental functions
- Regulatory functions.
1. Protective Functions:
As the name suggests, the main focus of this function of SEBI is to protect the interest of investor and security of their investment
As protective functions SEBI performs following functions:
a) SEBI checks Price Rigging:
Price Rigging means some people manipulate the prices of securities for inflation or depressing the market price of securities. SEBI prohibits such practice to avoid fraud and cheating which can happen to any investor.
b) SEBI prohibits Insider trading:
Any person which is connected with the company such as directors, promoters, workers etc are called Insider. Due to working in the company they have sensitive information which affects the prices of the securities.Such information is not available to people at large but Insider gets this key full knowledge by working in such company. Insider can use this information for their personal benefits or make the profit from it, such process is known as Insider Trading.
For Example – Managers or Directors of a company may know that company will issue Bonus shares to its shareholders at the particular time and they purchase shares from market to make a profit with bonus issue.
SEBI always restricts these types of practices when Insider is buying securities of the company and take strict action to avoid this in future.
c) SEBI prohibits fraudulent and Unfair Trade Practices:
SEBI always restricts the companies which make misleading statements which are likely to induce the sale or purchase of securities by any other person.
d) SEBI some times educate the investors so that become able to evaluate the securities and always invest in profitable securities.
e) SEBI issues guidelines to protect the interest of debenture holders.
f) SEBI is empowered to investigate cases of insider trading and has provision for stiff fine and imprisonment.
g) SEBI has stopped the practice of allotment of preferential shares unrelated to market prices.
h) SEBI has stopped the practice of making a preferential allotment of shares unrelated to market prices.
2. Developmental Functions:
Under developmental categories following functions are performed by SEBI:
(i) SEBI promotes training of intermediaries of the securities market.
(ii) SEBI tries to promote activities of stock exchange by adopting a flexible and adoptable approach in following way:
- SEBI has permitted internet trading through registered stock brokers.
- SEBI has made underwriting optional to reduce the cost of issue.
- An Even initial public offer of primary market is permitted through the stock exchange.
3. Regulatory Functions:
These functions are performed by SEBI to regulate the business in stock exchange. To regulate the activities of stock exchange following functions are performed:
- SEBI has framed rules and regulations and a code of conduct to regulate the intermediaries such as merchant bankers, brokers, underwriters, etc.
- These intermediaries have been brought under the regulatory purview and private placement has been made more restrictive.
- SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer agents, trustees, merchant bankers and all those who are associated with stock exchange in any manner.
- SEBI registers and regulates the working of mutual funds etc.
- SEBI regulates takeover of the companies.
- SEBI conducts inquiries and audit of stock exchanges.
Objectives of SEBI
Following are the main objectives of SEBI:
1. Protection :
To guide, educate, and to protect the rights and interests of the investors.
2. Competitive and Professional:
To make the intermediaries like merchant bankers, brokers etc. competitive and professional by regulating their activities and developing a code of conduct.
3. Prevention of Malpractices:
To prevent trading malpractices.
4. Balancing :
To establish a balance between statutory regulation and self-regulation by the securities industry.
5. Orderly Functioning:
To promote orderly functioning of the stock exchange and securities industry by regulating them.
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