Role Of Sebi: 100% Fair Play In The Indian Stock Market

August 7, 2023
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by Arun Singh Tanwar

Role of SEBI: Ensuring 100% fair play in the Indian Stock Market

Table of Contents

Overview

SEBI is the statutory body established by the Indian government to attain transparency and reliability in the Indian capital market. It stands for the Securities and Exchange Board of India.

The role of SEBI is to safeguard the investor’s interest and regulate the capital market. It ensures that all the transactions in the capital market are carried out under the rules and regulations of SEBI.

SEBI is working relentlessly to protect the investments of investors. It ensures that the integrity of the capital market is maintained and a transparent financial ecosystem is created for the traders as well as the investors.

About SEBI

The Securities and Exchange Board of India (SEBI) is a primary regulatory body of the Indian capital market established on 12^th April 1992. It was recognized by the Inidan government in 1992.

SEBI was established under the Securities and Exchange Board of India Act, of 1992. The Capital Market Division of the Department of Economic Affairs is mandated by this act to administer the rules implemented by SEBI. It plays an important role in supervising the stock market and maintaining fair and transparent dealings in the market.

The primary role of SEBI is to curate policies for an organized security market in India. It further regulates the stock exchanges of India.

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Functions of SEBI

SEBI is like the eldest person in our home. They make rules, and everyone follows. In the capital market family of India, SEBI makes the rules, and participants of the stock market and stock exchanges have to abide by its rules. The Crucial Role of SEBI in the Indian capital market are:

Ensure a smooth experience for traders and investors.
The role of SEBI is to provide a sense of security to investors and traders regarding their money.
SEBI ensures that the listing of companies and their IPOs must be smooth and transparent.
To critically regulate the operations of the security market of India. These securities are equity, debt, commodities, derivatives, etc.
The role of SEBI is to ensure transparency between stock exchanges and investors.
SEBI holds the power to pass judgement on any entity. This power can be used when any unforeseen activity or illegal practice is seen in the market.
SEBI promotes fairness in the capital market of India, in order to protect the interest of traders and investors.
Brokers, brokerage firms, transfer agents, and merchant banks have to abide by the rules of SEBI whilst connecting with investors and traders.
SEBI promotes various learning opportunities for stock market investors.
It handles the complaints division for better functioning of the capital market.

Structure of SEBI

The Board of SEBI comprises 9 members. These members regulate the major functioning of SEBI and play an important role in decision-making.

SEBI has one chairman who is appointed by the central government of India.
One board member of SEBI is appointed by the Reserve Bank of India.
The Union Ministry of Finance appoints 2 board members of SEBI.
5 board members of SEBI are appointed by The Central Government of India.

Note: Different bodies appoint different types of board members. They all serve their purpose in SEBI accordingly. They ensure the Role of SEBI is fulfilled without any compromises.

Role of SEBI in Mutual Funds

As per the SEBI regulations, 1996, mutual funds must register under the Trust Act, of 1882. Mutual funds are managed by the sponsors and Asset Management Companies. These companies should be SEBI approved in order to practice legally.

There are different types of mutual funds, including equity, debt, hybrid, solution-oriented, tax-saving, etc. As the SEBI is in authority to make rules and regulations for the capital market, the regulations made by SEBI regarding all the mutual funds are:

A mutual fund sponsor or an associate in the AMC cannot hold more than 10% or more shareholding and voting rights. Also, an AMC cannot be represented by any other mutual fund board.
SEBI has released eligibility criteria for registering mutual funds. The company or AMC must have positive growth for the years and must have maintained fairness and integrity in their business.
The sponsor of the mutual funds must hold more than 40% net worth of the AMC to become eligible.
The sponsor should not be guilty of an offence or have had any criminal history against them.
Any major change to the information or details previously provided that affects the registration approved by SEBI must be immediately reported to the Board by the mutual fund.
A mutual fund must be established as a trust, and the trust instrument must take the form of a deed that has been duly registered in accordance with the Indian Registration Act, 1908 (16 of 1908), and is executed by the sponsor in favour of the trustees specified by the AMC or the sponsor.
In sectoral and thematic mutual funds, a company cannot have more than 35% of weightage. In the other funds, the weightage of a single company cannot be more than 25%.
Each liquid scheme must have at least 20% of its assets in liquid assets such as treasury bills, government securities, cash, repo on government securities, and so on.

Responsibilities of SEBI

Indian stock market functions on the path provided by the SEBI. The role of SEBI is to make decisions regarding the functioning of the stock market. For a seamless and hassle-free stock market experience for traders and investors, SEBI has taken some important decisions:

Monitoring: SEBI monitors the company’s takeovers and acquisitions to ensure fair practices in the stock market.

Stock Manipulation: SEBI strictly prohibits stock manipulation. It ensures no external factors (secret tips, fake news, etc.) regulate the price of stocks.

No Insider Trading: The role of SEBI is to ensure fairness and integrity in the market. SEBI has put a ban on insider trading, ensuring everyone gets the same opportunity.

Regulation of Mutual Funds: As mentioned earlier, the role of SEBI is to regulate both government and private sector mutual funds.

CONCLUSION

Undoubtedly, SEBI is the grandfather of the Indian capital market. No one can make a move without SEBI’s permission and one needs to abide by its rules in any case. The role of SEBI is to ensure fairness in the stock market and educate investors. It promotes investing by maintaining integrity in the market. Further, SEBI fulfills the needs of investors by providing them safe investing experience.

Therefore, it deals with all the policies and regulations that are required for fair practices in the market. SEBI makes the decision for the welfare of the Indian capital market and its participants. It helps in protecting both the companies and their investors.

FAQs

1. Why was SEBI established, and what is the role of SEBI?

SEBI was established to promote fairness and integrity in the Indian capital market. SEBI’s role is to make the stock market secure for investors by establishing rules for systematic operation and transparency.

2. Can foreign investors participate in the Indian stock market?

Yes, foreign investors can participate in the Indian stock market through various routes and mechanisms such as FIIs (foreign institutional investors), FPIs (foreign portfolio investors), FDI (foreign direct investment), IPO (initial public offerings), depository receipts and QIBs( qualified institutional buyers). However, there are certain restrictions and regulations that are imposed on foreign investors in order to maintain safe and fair practices. In foreign investments, the role of SEBI is to ensure safe transactions, it makes sure no fraud and guilty company is being listed

3. What are the powers of SEBI?

The role of SEBI has given it 3 core powers. First, Quasi-Judicial as it has the power to deliver judgments related to any unfair practice in the stock market. Second, Quasi Executive as it executes rules and regulations to safeguard the interest of investors. Moreover, it can take legal proceedings against the violators. And last Quasi Legislative as it has the right to frame guidelines such as trading guidelines, disclosure requirements, and listing obligations.

4. Is SEBI a statutory regulatory body?

Yes, SEBI is a statutory regulatory body established by the government of India. The role of SEBI is to ensure fair work practices in NSE and BSE and all the participants abide by its rules.
Therefore, if SEBI finds any unfair practices in the market, quick action is taken especially in the interest of the investors.

5. What is the role of SEBI and RBI in the stock market?

The role of SEBI is to protect the stock market from unfair practices and frauds, while the RBI is in charge of the monetary funds. CCI manages market competition, whereas IRDA regulates insurance plans.