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SEBI UPSC Notes

February 28, 2023 /

The Securities and Exchange Board of India (SEBI) is a statutory and regulatory body established in the year 1988 and got statutory powers under the Securities and Exchange Board of India Act, 1992. SEBI is a part of UPSC Syllabus. The primary function of SEBI is to protect the interests of investors in securities and to promote the development of the securities market in India. In this article, we will explore SEBI, its functions, and its role in the development of the Indian securities market.

SEBI UPSC

Functions of SEBI

SEBI has several regulatory functions that it performs to protect the interests of investors and to promote the development of the securities market.

  1. Registration of intermediaries: SEBI is responsible for registering intermediaries such as brokers, merchant bankers, and portfolio managers. It ensures that these intermediaries meet the necessary eligibility criteria and comply with the regulations set by SEBI.
  2. Regulation of stock exchanges: SEBI regulates stock exchanges and ensures that they follow the rules and regulations set by SEBI. It also ensures that the stock exchanges function efficiently and fairly.
  3. Investor Protection: SEBI is responsible for protecting the interests of investors in securities. It ensures that investors are provided with accurate and timely information about the securities they invest in. It also takes action against fraudulent practices and insider trading.
  4. Monitoring of Listed Companies: SEBI monitors listed companies to ensure that they comply with the regulations set by SEBI. It also ensures that listed companies provide accurate and timely information to investors.

Powers of SEBI

  1. Monitoring and Surveillance: SEBI has the power to monitor and conduct surveillance of the securities market in India. It can conduct investigations and inspections to detect any violation of securities laws and regulations.
  2. Enforcement: SEBI has the power to enforce securities laws and regulations by imposing penalties, issuing warnings, and taking legal action against violators. It has the power to initiate legal proceedings and prosecute those who violate securities laws and regulations.
  3. Promoting Development of Securities Market: SEBI has the power to take measures to promote the development of the securities market in India. It can introduce new products and instruments, encourage participation of retail investors, and promote the use of technology in securities trading.
  4. Education and Awareness: SEBI has the power to promote investor education and awareness. It can conduct programs and seminars to educate investors about the securities market, its risks and rewards, and the importance of making informed investment decisions.
  5. Policy Making: SEBI has the power to make policy decisions related to the securities market in India. It can advise the government on matters related to securities market regulation and development.

Formation of SEBI

SEBI, the Securities and Exchange Board of India, was established in 1988 as a regulatory body for the securities market in India. Prior to SEBI’s establishment, the securities market was regulated by the Controller of Capital Issues (CCI) under the Ministry of Finance.

In the early 1980s, the Indian securities market was plagued by several issues such as price rigging, insider trading, and lack of transparency. The government recognized the need for a regulatory body to oversee the securities market and protect the interests of investors.

The government set up a committee under the chairmanship of Mr. S.S. Nadkarni to recommend measures for the regulation of the securities market. The committee submitted its report in 1985, which recommended the establishment of an independent regulatory body for the securities market.

Based on the recommendations of the Nadkarni Committee, the Securities and Exchange Board of India Act was passed in 1992. SEBI was established as an independent statutory body in 1992 with the objective of regulating the securities market and protecting the interests of investors.

Structure of SEBI

  1. Chairman: SEBI is headed by a Chairman who is appointed by the Government of India. The Chairman is responsible for the overall functioning of SEBI and is assisted by other members of the board.
  2. Board Members: SEBI has a board of directors comprising 1 Chairman and not more than 6 other members appointed by the central government. The board members are responsible for the policy decisions of SEBI and are appointed for a term of three years.
  3. Departments: SEBI has various departments that are responsible for specific functions. Some of the important departments are:

Securities Appellate Tribunal (SAT)

It is an appellate body established by the Government of India under the Securities and Exchange Board of India (SEBI) Act, 1992. SAT was established in 1995 to provide a mechanism for aggrieved parties to appeal against the decisions of SEBI. SAT functions as an independent judicial body that hears appeals against SEBI’s orders and decisions.

The main objective of SAT is to ensure fair and transparent functioning of the securities market in India by providing an independent platform for aggrieved parties to appeal against SEBI’s orders and decisions. SAT hears appeals against SEBI’s orders in relation to various matters such as securities trading, issuance of securities, takeovers, insider trading, and other securities-related issues.

SAT is composed of a presiding officer and two other members, all of whom are appointed by the central government. The presiding officer is a retired judge of the Supreme Court or a retired chief justice of a high court. The other two members are experts in the field of securities market regulation or securities law.

SAT’s decisions are final and binding, subject to an appeal to the Supreme Court of India on questions of law. The decisions of SAT have played an important role in shaping the development of securities law and regulation in India. SAT has provided a level of certainty and predictability to the securities market in India by ensuring that SEBI’s orders and decisions are subject to an independent review.

Above points of SEBI will be helpful for UPSC Mains Exam also.

Achievements of SEBI

SEBI has played a crucial role in the development of the securities market in India. Some of the ways in which SEBI has contributed to the development of the securities market are:

  1. Introduction of Electronic Trading: SEBI introduced electronic trading in 1994, which revolutionized the way securities were traded in India. Electronic trading made it easier for investors to trade securities, and it also made the market more efficient.
  2. Introduction of Dematerialization: SEBI introduced dematerialization of securities in 1996, which eliminated the need for physical certificates. Dematerialization made the process of buying and selling securities faster and more efficient.
  3. Regulation of Mutual Funds: SEBI regulates mutual funds and ensures that they follow the rules and regulations set by SEBI. This has made the mutual fund industry more transparent and has given investors more confidence in investing in mutual funds.
  4. Promotion of Corporate Governance: SEBI has introduced several measures to promote corporate governance in listed companies. This has improved the transparency and accountability of listed companies, which has increased investor confidence in the securities market.

Above points of SEBI will be helpful for UPSC Mains Exam also.

Challenges Faced by SEBI

SEBI has faced several challenges in its role as a regulator of the securities market. Some of the challenges faced by SEBI are:

  1. Insider trading: Insider trading is a major challenge for SEBI. Insider trading involves the buying or selling of securities based on inside information that is not available to the public. SEBI has taken several measures to prevent insider trading, but it remains a challenge.
  2. Fraudulent practices: Fraudulent practices such as manipulation of stock prices, market rigging, and Ponzi schemes are a challenge for SEBI. SEBI has taken strict measures against fraudulent practices, but it remains a challenge to identify and prevent them.
  3. Lack of investor awareness: Lack of investor awareness is a challenge for SEBI. Many investors are not aware of the risks associated with investing in securities. SEBI has taken several measures to increase investor awareness, but it remains a challenges.

Keep Readings this article on SEBI for UPSC Exam.

SEBI UPSC: Measures to Improve the Functioning of SEBI

To ensure the effective functioning of SEBI, the following measures can be taken:
  1. Adequate Resources: SEBI should be provided with adequate resources, including human, financial, and technological resources, to carry out its functions effectively. This would help in improving SEBI’s surveillance and enforcement capabilities.
  2. Strengthening Enforcement Mechanisms: SEBI should strengthen its enforcement mechanisms to ensure strict compliance with securities laws and regulations. It should have the power to impose heavy penalties and sanctions against violators.
  3. Investor Awareness and Education: SEBI should focus on investor education and awareness programs to educate investors about the securities market, its risks and rewards, and the importance of making informed investment decisions. This would help in improving investors’ confidence in the securities market.
  4. Collaborative Approach: SEBI should adopt a collaborative approach with other regulators and law enforcement agencies to ensure effective coordination in dealing with securities market violations. It should work closely with other agencies to share information and intelligence.
  5. Technology Adoption: SEBI should leverage technology to enhance its surveillance capabilities and ensure timely detection and prevention of securities market violations. It should also encourage the use of technology by market participants to improve efficiency and transparency in securities trading.
  6. Simplification of Regulations: SEBI should simplify its regulations to make them more user-friendly and easily understandable. This would help in improving compliance and reducing the burden of compliance costs on market participants.
  7. Transparent and Accountable: SEBI should be transparent and accountable in its functioning. It should be open to feedback and suggestions from market participants and investors and should address their concerns promptly.

In summary, the effective functioning of SEBI is crucial for ensuring the fair and transparent functioning of the securities market in India. Adopting these measures would help in improving SEBI’s regulatory effectiveness, enhancing investor confidence, and promoting the development of the securities market.

Summary: SEBI for UPSC Exams

  • SEBI was established in 1988 as an independent regulatory body.
  • It has its headquarters in Mumbai and operates through regional offices located in major cities across India.
  • SEBI regulates various entities such as stock exchanges, brokers, mutual funds, and other market intermediaries.
  • Its main functions include regulating the securities market, promoting transparency and fairness, protecting investors’ interests, and preventing fraudulent and unfair trade practices.
  • SEBI has the power to impose penalties and fines on market participants who violate its rules and regulations.
  • In recent years, SEBI has taken various initiatives to strengthen the securities market in India, such as introducing new regulations for investment advisors and strengthening corporate governance norms.
  • SEBI has also introduced several measures to promote financial inclusion, such as allowing mutual funds to invest in small and medium enterprises and encouraging the use of digital technology for securities trading.
  • Above points of SEBI will be helpful for UPSC Prelim Exam also.

Questions: SEBI for UPSC Exams

Q. When was SEBI established?
a. 1986
b. 1988
c. 1990
d. 1992
Answer: b. 1988. SEBI was established in 1988 as an independent regulatory body to oversee and regulate the securities market in India.

Q. What is SEBI’s primary objective?
a. To promote the development of the securities market
b. To regulate the banking sector
c. To regulate the insurance sector
d. To promote tourism in India
Answer: a. To promote the development of the securities market. SEBI’s primary objective is to protect the interests of investors and promote the development of the securities market in India.

Q. What are the entities regulated by SEBI?
a. Stock exchanges, brokers, and mutual funds
b. Banks, insurance companies, and mutual funds
c. Stock exchanges, banks, and insurance companies
d. Stock exchanges, brokers, and insurance companies
Answer: a. Stock exchanges, brokers, and mutual funds. SEBI regulates various entities such as stock exchanges, brokers, mutual funds, and other market intermediaries.

Q. What are SEBI’s main functions?
a. Promoting the development of the securities market and protecting investors’ interests
b. Regulating the banking sector and promoting tourism in India
c. Regulating the insurance sector and promoting transparency and fairness
d. Preventing fraudulent and unfair trade practices and regulating the stock exchanges
Answer: a. Promoting the development of the securities market and protecting investors’ interests. SEBI’s main functions include regulating the securities market, promoting transparency and fairness, protecting investors’ interests, and preventing fraudulent and unfair trade practices.

Q. What initiatives has SEBI taken to promote financial inclusion?
a. Allowing mutual funds to invest in small and medium enterprises and encouraging the use of digital technology for securities trading
b. Allowing banks to invest in small and medium enterprises and promoting the use of cash for securities trading
c. Encouraging insurance companies to invest in small and medium enterprises and promoting the use of Cheque for securities trading
d. Encouraging stock exchanges to invest in small and medium enterprises and promoting the use of credit cards for securities trading
Answer: a. Allowing mutual funds to invest in small and medium enterprises and encouraging the use of digital technology for securities trading. SEBI has introduced several measures to promote financial inclusion, such as allowing mutual funds to invest in small and medium enterprises and encouraging the use of digital technology for securities trading.

Above points of SEBI will be helpful for UPSC Mains Exam also.

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