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How Securities and Exchange Board of India (SEBI) Controls Capital Market of India?

10-FEB-2016 16:23

    The Securities and Exchange Board of India (SEBI), was initially constituted on April 12, 1988 as a non contributory body through  a resolution of the government for dealing with all matters related to development and regulation of securities market and investor protection and to advice the government on all these matters. SEBI was given statutory status and powers through an ordinance promulgated on January 30, 1992.

    Organisational Structure of SEBI

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    SEBI is managed by six members-one chairman (nominated by Central Government), two members (officers of central ministries), one member (from RBI) and remaining two members are nominated by Central Government. The office of SEBI is situated at Mumbai with its regional offices at Kolkata, Delhi and Chennai. In 1988 the initial capital of SEBI was ~ 7·5 crore which was provided by its promoters (IDBI, ICICI, IFCI). This amount was invested and with its interest amount day-to-day expenses of SEBI are met.  All statutory powers for regulating Indian capital market are vested with SEBI itself.

    Functions of SEBI

    1. To safeguard the interests of investors and to regulate capital market with suitable measures.
    2. To regulate the business of stock exchanges and other securities market.
    3. To regulate the working of Stock Brokers, Sub-brokers, Share Transfer Agents, Trustees, Merchant Bankers, Underwriters, Portfolio Managers etc. and also to make their registration.
    4. To register and regulate collective investment plans of mutual funds.
    5. To encourage self-regulatory organisations.
    6. To eliminate malpractices of security markets.
    7. To train the persons associated with security markets and also to encourage investors' education.
    8. To check insider trading of securities.
    9. To supervise the working of various organisations trading in security market and also to ensure systematic dealings.
    10. To promote research and investigations for ensuring the attainment of above objectives.

    Read Also: Financial System: An Overview

    Decisions taken by SEBI for Ensuring a Healthy Capital Market

    SEBI has adopted a number of revolutionary steps to re-establish the credit of capital market, which include the following-

    1. Control on Utilizing' Application Amount' having no Interest by Companies Releasing Public Issues- At the instance of SEBI commercial banks introduced Stock Investment Scheme under which investor has to submit stock-invests, purchased from banks, with their share application. If the investor is allotted shares/debentures, the required amount is transferred in concerned company's account by the bank issuing 'Stock invests'.

    In other case (if share/debenture is not allotted), investor gets a pre-determined interest rate on invested capital. This step of SEBI ensured interest earning to the investor until he got share/ debenture allotment. It also ensures the refund of invested amount to the investor in case shares are not allotted.

    2. Share Price and Premium Determination - According to the latest directions of SEBI, Indian companies are now free to determine their share prices and premium on those shares. But determined price and premium amount will be equally applicable to all without any discrimination.

    3. Underwriters-The minimum asset limit has been fixed to be ~ 20 lakh to work as underwriter. Besides, SEBI has warned under writers that their registration can be cancelled if any irregularity is found in the purchase of unsubscribed part of the share' issue.

    4. Control on Share Brokers-Under new rules every broker and sub-broker has to obtain registration with SEBI and any stock exchange in India.

    5. Insider Trading-Companies and their employees usually adopt malpractices in Indian capital market to variate share prices. To check this type of insider trading, SEBI introduced SEBI (Insider Trading) Regulation 1992 which will ensure honesty in the capital market and will develop a feeling of faith among investors to promote investments in capital market in the long run.

    6. SEBl's Control on Mutual Funds-SEBI introduced SEBI (Mutual Funds) Regulation 1993 to take over direct control of all mutual funds of government and private sector (excluding UTI). Under this new rule, the company floating a mutual fund should possess net assets of ~ 5 crore which should consist of atleast 40% contribution from promoter's side.

    7. Control on Foreign Institutional Investors-SEBI has made it compulsory for every foreign institutional investor to get registered with SEBI for participating in Indian capital market. SEBI has issued directives in this regard.

    Conclusion: Hence it can be concluded that the SEBI plays a very prominent role in the smooth operation of the capital market of India so that the precious money of the investors can give them good return with less uncertainty.

    If you want to read more related articles click on the links….

    Financial Instruments

    Microfinance Institutions in India

    Structure of Banking Sector in India

    Monetary Policy: An overview

    DISCLAIMER: JPL and its affiliates shall have no liability for any views, thoughts and comments expressed on this article.

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