Securities and Exchange Board of India

Securities and Exchange Board of IndiaA CRITICAL ANALYSIS

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A Brief HistoryPrior to SEBI the security markets and stock exchange were regulated by several Acts, which were:The Bombay Securities Contracts Control Act, 1925The Capital Issues (Control) Act, 1947The Securities Contracts (Regulation) Act, 1956Registrar of Companies (The Indian Companies Act, 1956)For a healthy growth of capital markets and to prevent malpractices in trading, the Government subsequently decided to set up a separate board for the regulation and orderly functioning of Stock Exchange and the securities industryMET-IOMSEBI- A Critical Analysis*

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A Brief History (Contd)

In July 1987, the Cabinet Committee on Economic Affairs approved the broad features of SEBI and process of establishment of SEBI was commenced

The statement of Purpose and Approach outlined twin objectives of SEBI as,promoting healthy and orderly development of securities markets andensuring adequate investor protection and emphasized the developmental philosophy with which SEBI would operate MET-IOMSEBI- A Critical Analysis*

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IntroductionSEBI was established as a statutory authority through an Ordinance promulgated on 30.01.1992 by the President of IndiaSEBI is the regulator for the Securities Market in IndiaIt is managed by a Board comprising of nine members including the chairmanParadoxically this is a positive outcome of the Harshad Mehta Securities Scam of 1990-91MET-IOMSEBI- A Critical Analysis*

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SEBI - PREAMBLEThe Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India 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"MET-IOMSEBI- A Critical Analysis*

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Purpose and Role of SEBISEBI 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 groupsIssuers:For issuers it provides a market place in which they can raise finance fairly and easilyInvestors:For investors it provides protection and supply of accurate and correct informationIntermediaries:For intermediaries it provides a competitive professional marketMET-IOMSEBI- A Critical Analysis*

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Basic ObjectivesTo protect the interests of investors in securitiesTo promote the development of Securities MarketTo regulate the securities market andFor matters connected therewith or incidental theretoMET-IOMSEBI- A Critical Analysis*

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Powers of SEBI

Powers relating to stock exchanges and intermediaries: SEBI has wide powers regarding the stock exchanges and intermediaries dealing in securitiesIt can ask information from the stock exchanges and intermediaries regarding their business transactions for inspection/scrutiny and other purposesMET-IOMSEBI- A Critical Analysis*

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Powers of SEBI (Contd)

Powers relating to monetary penalties: SEBI has been empowered to impose monetary penalties on capital market intermediaries and other participants for a range of violationsIt can even impose suspension of their registration for a short periodMET-IOMSEBI- A Critical Analysis*

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Powers to initiate actions relating to functions assigned: SEBI has a power to initiate actions in regard to functions assignedFor example, it can issue guidelines to different intermediaries or can introduce specific rules for the protection of interests of investorsMET-IOMSEBI- A Critical Analysis*

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Powers of SEBI (Contd)Powers under Securities Contracts (Regulation) Act : For effective regulation of stock exchanges, the Ministry of Finance issued a Notification on 13 September, 1994 delegating several of its powers under the Securities Contracts (Regulation) Act to SEBISEBI is also empowered by the Finance Ministry to nominate three members on the Governing Body of every stock exchange instead of earlier practice of government making such nominationsMET-IOMSEBI- A Critical Analysis*

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Powers to regulate business of stock exchanges : SEBI is empowered to regulate the business of stock exchangesIntermediaries associated with the securities market as well as mutual funds, fraudulent and unfair trade practices relating to securities and regulation of acquisition of shares and takeovers of companies

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Powers relating to insider trading: SEBI has power to regulate insider trading or can regulate the functions of merchant bankersMET-IOMSEBI- A Critical Analysis*

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Functions of SEBIThe SEBI performs functions to meet its objectives.Functions can be broadly divided into:Protective functionsDevelopmental functionsRegulatory functions


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Functions of SEBI (Contd)Protective Functions-It Checks Price RiggingIt Prohibits Insider tradingSEBI prohibits fraudulent and Unfair Trade PracticesSEBI undertakes steps to educate investors SEBI promotes fair practices and code of conduct in security market


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Functions of SEBI (Contd)Developmental Functions-SEBI promotes training of intermediaries of the securities market.SEBI tries to promote activities of stock exchange by adopting 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.Even initial public offer of primary market is permitted through stock exchange.


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Functions of SEBI (Contd)Regulatory Functions-It has framed rules and regulations and a code of conduct to regulate the intermediaries such as merchant bankers, brokers, underwriters, etc.It registers and regulates the working of all those who are associated with stock exchange in any manner.It registers and regulates the working of mutual funds etc.It regulates takeover of the companies.It conducts inquiries and audit of stock exchanges.


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Change in the MarketThe complete transformation of the trading, clearing and settlement infrastructureDramatic transformation to a paperless market and transparent trading systemCutting the settlement cycle and now going forward towards a T+1 settlement systemSEBI has made the markets much safer for investors


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ContributionsIssue of guidelinesPublic interest advertisementsDealing with complaints of investorsInvestor educationInvestor surveysIntroduction to stockinvestDisclosures by companies


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SummaryFor the development of any economyCapital Market, which is one of the main organ to mobilize funds of huge ordershall evolve all steps to develop the market simultaneously bringing in the credibility in the financial market, which is watched world widethrough effective and speedy implementable regulations, ultimately, protecting the interest of the Investors and the Country


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Know your Stock MarketsMajor Stock Exchanges in India:National Stock Exchange (NSE)Bombay Stock Exchange (BSE)MCXSX Stock Exchange (MCXsx)Various products for investments:EquitiesDerivativesCommoditiesCurrencies / Forex


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Terminologies used in Stock MarketsPrimary Market and Secondary MarketBroker or Brokerage FirmKnow Your Customers (KYC)DematTradingDeliveryIntradayBlue Chip StocksBull and Bear Market


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Thank You

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Documents

Securities and Exchange Board of India