Securities and Exchange Board of India (Sebi) Commerce YouTube Lecture Handouts

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Topics to be covered are

  • What is SEBI
  • Why was SEBI formed?
  • Objectives of SEBI
  • Functions of SEBI
  • What are the powers of SEBI
  • Structure of SEBI
  • Role of SEBI in the capital market
  • Mutual fund regulations by SEBI
  • Advantages of SEBI
  • Disadvantages of SEBI

What is Sebi

  • SEBI is one of the Regulatory Authority on capital and derivative market in India. The SEBI Act of 1992 vests it with wide ranging powers to regulate the stock exchange and securities industry to promote their orderly functioning.
  • It can frame or issue rules, regulations, directives, guidelines and norms in respect of primary markets and secondary markets intermediaries operating in the market and certain financial institutions. The role Sebi is to create conditions for efficient mobilisation and allocation of resources through the securities markets, stimulating competition and encouraging innovations.

Why Was SEBI Formed?

  • At the end of the 1970s and during 1980s, capital markets were emerging as the new sensation among the individuals of India. Many malpractices started taking place such as unofficial self- styled merchant bankers, unofficial private placements, rigging of prices, non-adherence of provisions of the companies act, violation of rules and regulations of stock exchanges, delay in delivery of shares etc.
  • So, government felt a sudden need to set up an authority and as a result, the government came up with the establishment of SEBI.

Objectives of SEBI

The principal objectives of SEBI are:

  • Control over brokers
  • Prevention of malpractices
  • Protection to the investors
  • Regulation of stock exchanges

Functions of SEBI

SEBI Primarily has three functions-

  • Protective Function
  • Regulatory Function
  • Development Function

What Are the Powers of SEBI

  • Quasi-judicial
  • Quasi-legislative
  • Quasi-executive

Structure of SEBI

The management of SEBI consists of a board of directors who are appointed as follows:

  • 1 chairman nominated by the union government of India
  • 2 members from the union finance ministry of India
  • 1 member from the reserve bank of India (RBI)
  • 5 members nominated by the union government of India

Role of Sebi in the Capital Market

  • Power to make rules for controlling stock exchange.
  • To provide license to dealers and brokers.
  • To stop fraud in Capital Market.
  • To control the Merger, Acquisition and Takeover the companies.
  • To audit the performance of stock market.
  • To make new rules on carry forward transactions
  • To create relationship with ICAI.
  • Introduction of derivative contracts on Volatility Index.
  • To require report of Portfolio Management Activities.
  • To educate the investors.

Mutual Fund Regulations by SEBI

  • SEBI has made few policies and laid down guidelines for the mutual funds in order to safeguard the interests of the investors.
  • To bring uniformity in the functionality of the similar mutual fund scheme, SEBI has categorized mutual funds in the five broad categories:

They are:

  • Equity schemes
  • Debt schemes
  • Hybrid schemes
  • Solution oriented schemes
  • Other schemes

Advantages of Sebi

  • It promotes healthy and orderly growth of securities market and protects investors.
  • It helps in maintaining steady flow of savings into capital market.
  • It helps in regulating securities market and ensures fair practice by issuers to help them raise resources at minimum cost.
  • It promotes efficient services by brokers, merchant bankers and other intermediaries to make them professional and competitive.
  • It helps and contributes in promoting investor education, training of intermediaries and it conducts research and provide information to market participants.
  • SEBI helps in the development of the capital market.

Disadvantages of Sebi

  • Lack of adequate required power
  • Large size of the market and inefficient handling
  • Inefficient standard regulatory model
  • No due process for framing/changing regulations
  • Implementation of existing disclosure norms inadequate
  • Regulatory bias towards corporate sector and large investors
  • No disclosure norms for mergers, demergers, asset sell-offs, inter-corporate transactions