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SEBI: Meaning, Functions, and Role in the Indian Stock Market

31 Oct 2023

The stock market is where investors, both individual and institutional, trade a wide range of securities such as stocks, bonds, ETFs, commodities and derivatives with one another. The sheer number of trades across all of these segments and asset classes alone is mind-boggling. In fact, in the equity market alone, more than 100 crores of shares of various companies are traded in a single day. 

Such a rich environment needs strong rules and regulations to ensure that trading happens in a controlled and orderly manner. It also needs a capable enforcer of these rules and regulations. Here’s where the SEBI comes into the picture. It is the market watchdog that’s responsible for overseeing the Indian securities market and ensuring that all the rules and regulations laid out are followed by all the market participants. 

Wish to know more? Continue reading to find out all about this organisation and the different roles and functions of SEBI.

What is SEBI?

SEBI is an acronym for the Securities and Exchange Board of India. Headquartered in Mumbai in the Bandra Kurla Complex, it is a statutory and independent body established by the Ministry of Finance in the year 1992. The organisation is tasked with the responsibility of regulating the Indian securities market. 

In addition to the head office in Mumbai, the SEBI also has other regional offices in the Northern, Southern, Eastern and Western regions of the country in New Delhi, Chennai, Kolkata and Ahmedabad respectively. 

The Securities and Exchange Board of India controls more than 20 different departments. The organisation consists of 2 members from the Ministry of Finance, a member from the Reserve Bank of India and 5 other members nominated by the Government of India. 

Why was the SEBI Formed? 

Now that you’re aware of what the full form of SEBI is, let’s take a look at a few reasons why SEBI was formed. 

As the popularity of the Indian stock market started to rise in the early 1990s, there was a need for a strong, capable and independent regulatory body to keep a check on the number of unfair practices and to protect investors from such malpractices. 

The Securities and Exchange Board of India was formed to cater to the requirements of the following three primary market participants - issuers, intermediaries and investors. Here’s a quick overview of the objectives of the regulatory authority. 

  • SEBI ensures that there’s a regulated marketplace where issuers of securities can raise funds for their operations efficiently and fairly. 
  • It also works towards establishing a market for the intermediaries involved in the Indian stock market. 
  • SEBI is responsible for making sure that only accurate information is supplied to investors and that their interest is protected at all times. 

What are the Roles and Functions of SEBI?

The Securities and Exchange Board of India is tasked with a plethora of responsibilities and functions. Let’s take a quick overview of a few of them. 

1. Development 

The Securities and Exchange Board of India plays a huge role in the development of the Indian securities market. Without its contribution, the country’s securities market could not have grown into the behemoth that it is today. Some of the activities that the SEBI partakes in pursuit of the development of the securities market are as follows. 

  • Training the various stock market intermediaries 
  • Examining and promoting the Initial Public Offering of various companies
  • Reduction of IPO costs by making underwriting of public issues optional 
  • Introduction and regulation of electronic trading activities 

2. Legislation

One of the primary functions of SEBI is the drafting of rules, regulations, guidelines and legislations concerning the various aspects of the Indian stock market. All the market participants are expected to follow the laid out rules diligently. In the case of any contravention of legal provisions, the SEBI is empowered to act swiftly and reprimand the entities. 

3. Regulation 

In addition to legislation, the Securities and Exchange Board of India also plays a major regulatory role. Some of the activities that it partakes in the guise of regulation are as follows. 

  • Regulation of the activities of merchant bankers, stock brokers, share transfer agents and trustees, among others
  • Periodic inquiries and audits of exchanges 
  • Registration and regulation of mutual funds 
  • Regulation of the take-over process of companies

4. Protection 

As you’ve already seen before, the most important of the various functions of SEBI is to protect the investors and other market participants. As part of its role as the protector, the entity does the following. 

  • Enacting rules and regulations prohibiting insider trading
  • Taking action on entities indulging in insider trading
  • Ensuring that the market operates in a free and efficient manner without any price rigging or manipulation 
  • Prohibiting fraudulent activities by market participants 
  • Educating investors through online and offline knowledge sessions 
  • Disseminating or promoting the dissemination of accurate information regarding companies listed on the exchanges 
  • Promoting a fair code of conduct 
  • Promptly redressing the various investor grievances 

Conclusion

With this, you must now be aware of what SEBI is, its importance and its roles and responsibilities. Managing one of the largest stock markets in the world is far from an easy job. However, despite the challenging nature, the Securities and Exchange Board of India has managed to consistently provide the market participants with a fair, unbiased and free market environment. 

 

 

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