SEBI stands for the Securities and Exchange Board of India that was established in the year 1988 by the Government of India. SEBI was established to regulate the functions of the stock market. Previously, SEBI did not have the power to control the stock market and was a non-statutory body. Later, the Union Government established SEBI as an anonymous body with statutory powers by passing the SEBI Act 1992.
The main purpose of SEBI is to safeguard the rights and interests of the investor, reduce malpractices related to the stock exchange, establishing a code of conduct and promoting the healthy functioning of the stock exchange.
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Functions of SEBI: Meaning, Objectives, and Power
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Functions of SEBI:
The functions of the Securities and Exchange Board of India can be categorized into three parts:
- Protective functions: the protective functions of SEBI are as follows:
- Prohibits insider trading: Insider trading is the buying or selling of securities by the insiders like directors, promoters or employees working in the company, having access to confidential price or information that affects the prices of securities. To prevent insider trading, SEBI has barred Trusts of listed companies and employee welfare schemes from purchasing their own shares from the secondary markets. It also keeps a strict check on insider trading and takes action in case of malpractices.
- Checks price rigging: Price rigging refers to malpractices relating to securities, with the objective of causing unnatural fluctuations in the price of securities by increasing or decreasing the market price of stocks leading to huge losses for investors or traders. SEBI keeps strict surveillance to prevent such price riggings.
- Promotes fair trade practices: SEBI prohibits fraudulent and unfair trade practices and promotes fair trading of securities by establishing regulations and code of conduct in the securities market.
- Provides financial education to investors: SEBI educates investors by conducting online and offline seminars that help investors get insights on the financial market and money management.
- Developmental functions: The developmental functions mean the initiative taken by SEBI to upgrade the security market with the help of technological innovations. They are as follows:
- By training the intermediaries of the securities market.
- Introducing electronic/ internet trading through registered stock brokers.
- Introducing the DEMAT format.
- By making underwriting optional to reduce the cost of the issue.
- By the introduction of discount brokerage.
- Regulatory functions: This refers to the establishment of regulations for financial intermediaries and corporates to make sure the market runs efficiently:
- SEBI has framed guidelines and code of conduct that are enforced to financial intermediaries and corporates.
- These intermediaries have been brought under the regulatory purview and private placement has been made more restrictive.
- SEBI regulates the working of the mutual funds.
- Regulates takeover of companies.
- Conducts enquiries and audit of stock exchanges.
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Objectives of SEBI:
Outlined below are the main objectives of SEBI:
- Protection: To protect the rights and interests of the investors by properly guiding them and ensuring the safety of the money invested.
- Prevention of malpractices: to prevent fraudulent and malpractices related to trading and regulate the activities of the stock exchange.
- Establishing a code of conduct: To regulate and develop a code of conduct for intermediaries such as brokers, underwriters, and so on.
- Establishing balance: To establish a balance between statutory regulation and self regulation by the securities industry.
- Promote proper functioning: To promote orderly functioning of the stock exchange and securities industry by regulating them.
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Purpose and Role of SEBI:
The main objective is to create an environment that facilitates the effective mobilization and allocation of resources, through the securities market. SEBI enforces rules and regulations, policy framework, practices and infrastructure to meet the needs of three groups which mainly constitute the market i.e. issuers of securities (companies), the investors and the market intermediaries. It was setup to meet the needs of the following groups:
For issuers, it provides a market place in which they can raise funds in an easy and efficient manner.
For investors, it provides protection and supplies accurate and correct information on a regular basis.
For intermediaries, it provides a competitive professional market. It also helps intermediaries provide better service to the investors and issuers by giving them efficient infrastructure.
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