SEBI (Securities and exchange Board of India) was established in the year 1988 by the Government of India through an executive resolution, and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. SEBI was established with the main objective of development and regulation of stock markets in India. SEBI is an autonomous and statutory regulatory body with defined responsibilities and independent powers have been set up to control, regulate and monitor the markets effectively. Paradoxically, SEBI is a positive outcome of 1990-91’s securities scandal. SEBI’s basic objectives were identified as:
to protect the interests of investors in securities;
to promote the development of Securities Market;
to regulate the securities market and
For matters connected therewith or incidental thereto.
SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility criteria, the code of obligations and the code of conduct for different intermediaries like, bankers to issue, merchant bankers, brokers and sub-brokers, registrars, portfolio managers, credit rating agencies, underwriters and others. It has framed bye-laws, risk identification and risk management systems for Clearing houses of stock exchanges, surveillance system etc. which has made dealing in securities both safe and transparent to the end investor.
Since its inception SEBI has been working targeting the securities and is attending to the fulfillment of its objectives with commendable zeal and dexterity. The improvements in the securities markets like capitalization requirements, margining, establishment of clearing corporations etc. reduced the risk of credit and also reduced the market. Another significant event is the approval of trading in stock indices (like Nifty & Sensex) in 2000. A market Index is a convenient and effective product because of the following reasons:
It acts as a barometer for market behavior;
It is used to benchmark portfolio performance;
It is used in derivative instruments like index futures and index options;
It can be used for passive fund management as in case of Index Funds.
Two broad approaches of SEBI is to integrate the securities market at the national level, and also to diversify the trading products, so that there is an increase in number of traders including banks, financial institutions, insurance companies, mutual funds, primary dealers etc. to transact through the Exchanges. In this regard the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 is a real landmark.