What is SEBI (Securities and Exchange Board of India)?
Securities and Exchange Board of India (SEBI) is a regulatory body which exercises full control over the securities market in India. In 1988, the Government of India established SEBI especially to observe the stock market activities, but it was found ineffective in controlling and regulating them. As a result on 12 April 1992, the Government of India gave statutory powers through the SEBI Act. SEBI operates from its headquarter in Mumbai with its four Regional Offices such as Northern in New Delhi, Eastern in Kolkata, Southern in Chennai and Western Regional Offices in Ahmedabad.
Role of SEBI
The main role of SEBI is to eradicate the prevailing malpractices from the stock market. These malpractices include the violation of rules and regulations of stock exchange, price rigging, the delay in delivery of shares, insider trading etc. In other words, we can say, SEBI not only protects the interest of investors but also promote the development of and regulate the stock exchange. Apart from this, SEBI also protects the rights of investors and ensures safety to their investment from fraudulent institutions.
How does SEBI function?
SEBI controls stock market activities by three basic functions. These functions are Protective functions, Developmental functions and Regulatory functions. They are discussed below:
- Protective functions: – As the name suggest, through this functions SEBI protects the interest of investors and provide safety to their investment. Under this function, SEBI prohibits the following unusual practices such as:-
- Price Rigging: – Manipulating the prices of securities to earn profit is called Price Rigging. It can be done either by inflating the prices of securities or by depressing these prices. SEBI keeps a strict watch on such activities and initiates actions against guilty.
- Insider Trading: – Trading initiated by insiders of the company (any person associated with company such as directors, promoters etc) to earn profits by the use of companies sensitive information is called Insider Trading. SEBI keeps a strict watch when insiders are buying securities of the company.
- Unfair Trade Practices – SEBI controls unfair trade practices through restricting companies to make such misleading statements which may induce any other person to sale or purchase of securities.
- Developmental functions: – Through developmental functions, SEBI promote and develop the stock exchange activities. These activities include training of intermediaries of the securities market and also promoting activities of stock exchange by adopting flexible and adoptable approach.
- Regulatory functions: – Through regulatory functions, SEBI regulate the business in stock exchange. Under this function, SEBI not only makes rules and regulations to regulate the intermediaries such as merchant bankers, brokers, underwriters, etc. but also registers and regulates the working of stock brokers, sub-brokers, share transfer agents, trustees, merchant bankers etc.