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Question
Explain the objectives and functions of the SEBI.
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Solution
The Securities and Exchange Board of India was established in 1988 in order to encourage an orderly and healthy growth of the securities market. SEBI was set with an overall objective of investor protection and to promote the development and regulation of the functions of the securities market. The following are the listed objectives.
1. Regulation :- The main objective of SEBI was to regulate the functioning of the stock exchange and the securities market. It aims at providing a place where the issuers of securities (i.e. companies) can raise funds in an easy and confident manner.
2. Protection :- SEBI educates the investors by providing them valuable information regarding various securities and companies. It provides them with the guidelines related to efficient investment. It provides them adequate and reliable information about the companies and thereby, helps them in taking wise and informed investment decisions.
3. Prevention :- To combat the malpractice in trading of securities was the basic reason for the establishment of SEBI. Malpractice such as insider trading, violation of rules and regulations, non-adherence to Companies Act, etc. erodes the confidence of investors. SEBI aims at checking these malpractice by creating a balance between the self regulation of a business and the legal statutory regulations.
4. Code of Conduct :- Through efficient regulation, SEBI aims at developing a code of conduct for fair trade practices by intermediaries such as brokers, merchant bankers, underwriters, etc. This helps in making them competitive and professional.
To attain the aforementioned objectives, SEBI perform 3 main functions namely, Regulatory, Development and Protective functions.
The following are the functions performed by SEBI.
1. Regulatory Functions
- Registration:- One of the regulatory functions performed by SEBI is the registration of the brokers, sub-brokers, agents and other players in the market. Registration of collective mutual schemes and Mutual Funds is also done by SEBI.
- Regulating the Work:- SEBI regulates the working of the stock brokers, underwriters, merchant bankers and other market intermediaries. It frames rules and regulations for the working of the intermediaries. SEBI also regulates the takeover bids by the companies. It conducts regular enquires and audits of stock exchange and intermediaries.
- Regulation by Legislation:- SEBI performs and exercise various other powers which are delegated by the Government of India under the Securities Contracts (Regulation) Act, 1956. Besides, it levies fee or other charges for carrying out the purposes of the Act.
2. Development Functions
- Training:- SEBI promotes the training and development of the intermediaries of the securities market in order to promote healthy growth of the securities market.
- Research:- By conducting research in the required and important areas of the securities market, SEBI publishes useful information. This helps the investors and other market players to make wise investment decisions.
- Flexible Approach:- SEBI has adopted a flexible and adaptive approach such permitting internet trading, IPOs, etc. Such measures promote the development of capital market.
3. Protective Functions
- Prohibition:- SEBI prohibits fraudulent and unfair trade practices. It prevents the spreading of misleading and manipulative statements which are likely to affect the working of the securities market. SEBI educates the investors by providing them valuable information regarding various securities and companies so as to enable them to make wise investment decisions.
- Checks on Insider Trading:- Insider trading refers to a situation where an individual connected with the company leaks out crucial information regarding the company. Such information may adversely affect its share prices. SEBI keeps a strict check on such insider trading.
- Promotion and Protection:- SEBI encourage fair trade practices and promotes a code of conduct for the intermediaries. It undertakes step for investor protection and education. It also checks the manipulation of price of securities.
RELATED QUESTIONS
Mr. Aditya Gupta was the chairman of ‘Vandan Bank’. The Bank was earning good profits. Shareholders were happy as the bank was paying regular dividends. The market price of their shares was also steadily rising. The bank announced taking over of ‘Karur Bank’. Aditya Gupta knew that the share price of Vandan Bank would rise on this announcement. Being a part of the bank, he was not allowed to buy shares of the bank. He called one of his rich friends Nimesh and asked him to invest Rs 6 crores in the shares of his bank promising him the capital gain.
As expected, the share prices went up by 40% and the market price of Nimesh’s shares was now Rs 8.4 crores. He had earned a profit of Rs 2.4 crores. He gave Rs 1.2 crore to Mr. Aditya Gupta and kept Rs 1.2 crore with him. On regular inspection and by conducting enquiries of the brokers involved, Securities and Exchange Board of India (SEBI) was able to detect this irregularity. SEBI imposed a heavy penalty on Aditya Gupta. By quoting the lines from the above para identify and state any two functions that were performed by SEBI in the above case.
Answer each of these questions in about fifteen words
What do you understand by private placement?
Answer each of these questions in about fifteen words:
What is SEBI?
Answer each of these questions in about fifty words:
Who manages SEBI?
Answer each of these questions in about fifty words:
Explain briefly the three functions of SEBI rolled into one body.
What is the power of SEBI?
Depository Participant
State whether the statement is true or false:
SEBI protects the interest of investors in securities market.
Select the correct option form the bracket.
| Group ‘A’ | Group ‘B’ |
| Regulator of Securities Market | ______________ |
State any five regulatory functions of the Securities and Exchange Board of India.
State the year in which Securitites Board of India was established?
Of the following sources of funds, ______ are not Borrowed Funds.
Of the following sources of funds, ______ are Owner's Funds.
Which is the apex statutory body of capital market to which customers can complain to redress their grievances?
Which of the following statements is incorrect?
State any three objectives of the Securities Exchange Board of India.
'Due to various malpractices and multiplied investors grievances the Govt. of India decided to set up a separate regulatory body to protect the interest of investors and to regulate the securities market.'
- Identify the regulatory body set up by Govt. of India for the above-stated purpose.
- State any one objective of the regulatory body identified in (a) above.
SEBI calls for information and issues a show cause notice to stock exchange and its officials seeking explanation and conducting audit and enquiry. Which function is SEBI performing?
STATEMENT I: Electronic holdings can be converted into physical certificates with the process of dematerialisation.
STATEMENT II: There is no danger of theft, loss or forgery of share certificates in dematerialisation.
Choose the correct option from the following:
Which body is the regulator of the securities market in India?
What was SEBI's initial status?
What is SEBI's broad role in the securities market in India?
Why is SEBI called the watchdog of the Indian securities market?
Which examples of fraudulent and unfair trade practices does SEBI prohibit?
Which protective function directly concerns investors?
Which conduct does SEBI prohibit as part of its regulatory functions?
Which risks involving share certificates does the depository system eliminate?
What opinion do credit rating agencies provide about investments?
What do credit rating agencies monitor, and what do they promote among borrowers?
Which are other types of mutual fund schemes?
Which combination is a benefit of mutual funds?
What additional benefits do mutual funds offer investors?
What role do mutual funds play under SEBI's regulation?
