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Securities and Exchange Board of India and Its Functions

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Last updated date: 27th Feb 2024
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What is SEBI?

SEBI stands for Security and Exchange Board of India. SEBI is the body which is responsible for the governance of Secondary Markets in India. SEBI acts as a quasi-legislative and quasi-judicial body. It also appoints various committees to look into the specific issues arising at any point in time.


Objectives of SEBI

The four main objectives of the SEBI are as follows:

  1. Providing protection to the investors through proper guidance and educating them about investment.

  2. Preventing the malpractices and frauds related to the trading in the capital market.

  3. Developing a code of conduct for the financial intermediaries, which includes brokers, underwriters, etc.

  4. To bring in the orderly functioning of the secondary market.


Structure of SEBI

The corporate structure of SEBI includes different departments, which are controlled by a departmental head. Some of these departments are Foreign Portfolio Investors, Human Resources, Collective Investment Schemes, Commodity and Derivative Market Regulation, Legal Affairs department, and others. The organisation structure of SEBI consists of 9 members, which includes the following:

  • A chairman who is chosen by the central government.

  • Two members of the rank of officers from the union finance ministry.

  • One member from the RBI and five other members are chosen by the union government of India.


Functions of SEBI

SEBI was established as an administrative body on 12 April, 1998. In 1992, it got statutory status through the Securities and Exchange Board of India (SEBI) Act 1992. The purpose of SEBI was mainly to fulfil the needs of the secondary market. SEBI was created with the purpose of fulfilling the demands of three entities. For Issuers, SEBI helps by providing a marketplace to raise funds. For Investors, SEBI helps in providing protection and accurate information regarding investments. For Intermediaries, SEBI creates a competitive market through proper infrastructure arrangements.


SEBI and Its Functions


SEBI and Its Functions


Functions of SEBI are classified into Protective functions, Regulatory functions, and Developmental functions.

Protective Functions

The protective function deals with protecting the interest of investors and other financial entities. The protective function includes the following:

  • Prohibiting insider trading is defined as the selling or buying of securities by insiders of a company.

  • Promoting fair trade practices in the securities market.

  • Preventing malpractices by checking price rigging.

  • Providing financial education to the investors.

Regulatory Functions

The regulatory function of SEBI includes making rules and regulations for financial entities, including intermediaries and corporates. Some of the regulatory functions of SEBI are listed below:

  • SEBI has defined the rules and regulations and code of conduct to be followed by the financial entities, including intermediaries like brokers and corporates.

  • It plays the role of conducting inquiries and audits of stock exchanges.

  • It regulates the activities of stock brokers and merchant brokers.

Development Functions

The development function of the SEBI deals with the steps taken by SEBI to provide the knowledge of the trading and the market functions to the investors. These includes the following:

  • Providing training to the intermediaries of the security market.

  • It conducts research and publishes all the information useful for market entities.

  • It undertakes measures to develop the capital markets.


Functions of SEBI


Functions of SEBI


Case Study

ETC Bank is chaired by Mr Rohan Mehra. It was flourishing. Since the regular divident payment was made by the bank, the shareholders were happy. The prices of their market shares were also steadily rising. Mr Rohan Mehra was aware of the fact that if Taran Bank took over Veena Bank, the shares of Taran Bank would rise. As he was a part of the Bank, he was not able to purchase shares of the Bank. Therefore, Mr Rohan Mehra asked one of his friends Ravi, to invest Rs. 7 crores in his bank with the promise of future capital gain.


Now, the shares of the bank rose up to 40%, and the market price of Ravi’s share also increased. However, when enquiries and inspections were made of the brokers involved, the Securities and Exchange Board of India (SEBI), performing its regulatory function, found the irregularities. Then SEBI, performing its protective function, imposed a huge penalty on Rohan Mehra.


Summary

The Securities and Exchange Board of India works as the regulator of the securities and exchange market in India. It works under the ownership of the Ministry of Finance. There are nine members in the SEBI to manage it. Madhabi Puri Buch is the current chairperson of SEBI, and she is also the first woman chairperson of SEBI. In total, SEBI has 20 departments through which it regulates the Indian financial market. The Preamble of Securities and Exchange Board of India states the primary function of SEBI as “to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto".

FAQs on Securities and Exchange Board of India and Its Functions

1. List the 5 major functions of SEBI.

The major functions of the Securities and Exchange Board of India are as follows:

  • It prohibits insider trading in the corporate world. It prevents malpractices like price rigging and promotes fair trade practices in the securities market.

  • SEBI educates the investors about financial problems and investments.

  • SEBI provides training to the intermediaries like merchant brokers.

  • SEBI makes the rules and regulations to be followed by the financial entities.

  • SEBI also conducts inquiries and audits of stock exchanges.

2. What are the different departments of SEBI?

SEBI has 20 departments through which it regulates the securities and exchange market in India. These 20 departments are listed below:

  1. Commodity Derivatives Market Regulation Department (CDMRD)

  2. Corporation Finance Department (CFD)

  3. Department of Economic and Policy Analysis (DEPA)

  4. Department of Debt and Hybrid Securities (DDHS)

  5. Enforcement Department – 1 (EFD1)

  6. Enforcement Department – 2 (EFD2)

  7. Enquiries and Adjudication Department (EAD)

  8. General Services Department (GSD)

  9. Human Resources Department (HRD)

  10. Information Technology Department (ITD)

  11. Integrated Surveillance Department (ISD)

  12. Investigations Department (IVD)

  13. Investment Management Department (IMD)

  14. Legal Affairs Department (LAD)

  15. Market Intermediaries Regulation and Supervision Department (MIRSD)

  16. Market Regulation Department (MRD)

  17. Office of International Affairs (OIA)

  18. Office of Investor Assistance and Education (OIAE)

  19. Office of the chairman (OCH)

  20. Regional offices (ROs)

3. What is the role and organisation structure of SEBI?

The Securities and Exchange Board of India play an important role in regulating the securities market in India. Initially, it was formed as an executive body in 1988. On the recommendation of the Narasimham Committee in 1992, SEBI was given statutory status through the SEBI Act, 1992. Securities and Exchange Board of India consists of nine members as follows:

  • The chairman is chosen by the central government. 

  • Two Official rank members from the Union Finance Ministry.

  • One member is from the RBI, and five other members are chosen by the central government.