Securities and Exchange Board of India (SEBI) - Objective and Functions
[Indian Financial System Notes BCOM NEP Syllabus]
SECURITIES AND EXCHANGE BOARD OF INDIA: With the
growth in the dealings of stock markets, lot of malpractices also started in
stock markets such as price rigging, ‘unofficial premium on new issue, and
delay in delivery of shares, violation of rules and regulations of stock
exchange and listing requirements. Due to these malpractices the customers
started losing confidence and faith in the stock exchange. So government of
India decided to set up an agency or regulatory body known as Securities
Exchange Board of India (SEBI). Securities Exchange Board of India (SEBI) was set up
in 1988 but legal status is granted in May 1992. SEBI is a body
corporate having a separate legal existence and perpetual succession.
Objectives of SEBI:
The overall objectives of SEBI are to protect the interest of investors and to promote the development of stock exchange and to regulate the activities of stock market. The objectives of SEBI are:
a)
To regulate stock exchanges and the securities industry and to promote their
orderly functioning.
b)
To protect the rights of investors and ensuring safety to their investment.
c)
To prevent fraudulent and malpractices by having balance between
self-regulation of business and its statutory regulations.
d)
To regulate and develop a code of conduct for intermediaries such as brokers,
underwriters, etc.
e)
To Regulate Mutual fund agencies and collective Investment schemes.
Purpose and Role of SEBI: 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: For intermediaries it provides a competitive professional market.
Functions of SEBI: The SEBI
performs functions to meet its objectives. To meet three objectives SEBI has
three important functions. These are:
i.
Protective functions
ii.
Developmental functions
iii.
Regulatory functions.
1. Protective Functions: These
functions are performed by SEBI to protect the interest of investor and provide
safety of investment. As protective functions SEBI performs
following functions:
(i) It Checks Price Rigging. SEBI prohibits such practice
because this can defraud and cheat the investors.
(ii) It Prohibits Insider trading. SEBI keeps a strict check
when insiders are buying securities of the company and takes strict action on
insider trading.
(iii) SEBI prohibits fraudulent and Unfair Trade Practices. SEBI
does not allow the companies to make misleading statements which are likely to
induce the sale or purchase of securities by any other person.
(iv) SEBI
undertakes steps to educate investors so that they are able to evaluate the
securities of various companies and select the most profitable securities.
(v) SEBI
promotes fair practices and code of conduct in security market by taking
following steps:
(a)
SEBI has issued guidelines to protect the interest of debenture-holders wherein
companies cannot change terms in midterm.
(b)
SEBI is empowered to investigate cases of insider trading and has provisions
for stiff fine and imprisonment.
(c)
SEBI has stopped the practice of making preferential allotment of shares
unrelated to market prices.
2. Developmental Functions: These
functions are performed by the SEBI to promote and develop activities in stock
exchange and increase the business in stock exchange. 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 flexible and
adoptable approach in following way:
(a)
SEBI has permitted internet trading through registered stock brokers.
(b)
SEBI has made underwriting optional to reduce the cost of issue.
(c)
Even initial public offer of primary market is permitted through 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:
(i)
SEBI has framed rules and regulations and a code of conduct to regulate the
intermediaries such as merchant bankers, brokers, underwriters, etc.
(ii)
These intermediaries have been brought under the regulatory purview and private
placement has been made more restrictive.
(iii)
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.
(iv)
SEBI registers and regulates the working of mutual funds etc.
(v)
SEBI regulates takeover of the companies.
(vi)
SEBI conducts inquiries and audit of stock exchanges.