After reading this article you will learn about SEBI:- 1. Introduction to SEBI 2. Purpose of the SEBI 3. Board of Management 4. Function 5. Guidelines for Issue of Securities 6. Limitations.

Contents:

  1. Introduction to SEBI
  2. Purpose of the SEBI
  3. SEBI’s Board of Management
  4. Function of SEBI
  5. SEBI Guidelines for Issue of Securities
  6. Limitations of SEBI


1. Introduction to SEBI:

The Government issued an ordinance on January 30, 1992 for giving statutory powers to SEBI. This Act was passed by the Parliament as Act No. 15 of 1992 which received the assent of the Parliament on 4th April, 1992.

ADVERTISEMENTS:

Further, on May 29, 1992 the Government issued an ordinance abolishing the Capital Issues Control Act, 1947. The ordinance also supersedes the various guidelines issued by the CCI from time to time. Accordingly, SEBI has been set up under the SEBI Act, 1992.


2. Purpose of the SEBI:

The purpose of the SEBI Act is to provide for the establishment of a Board called Securities and Exchange Board of India.

The purpose of the Board as laid down in its preamble is as below:

ADVERTISEMENTS:

(i) To protect the interests of investors in securities;

(ii) To promote the development of the securities market;

(iii) To regulate the securities market; and

(iv) For matters connected therewith or incidental thereto.


ADVERTISEMENTS:

3. SEBI’s Board of Management:

i. Formation of the Board:

As per section 4 of the SEBI Act, 1992 as amended by the Securities and Exchange Board of India (Amendment) Act, 2002, the Board shall consist of the following members, namely:

(a) A chairman;

ADVERTISEMENTS:

(b) Two members from amongst the officials of the Ministry of the Central Government dealing with Finance and administration of the Companies Act, 1956;

(c) One member from amongst the officials of the Reserve Bank;

(d) five other members of whom at least three shall be the whole time members to be appointed by the Central Government.

The Chairman and members referred to clauses (a) and (d) above shall be appointed by the Central Government and the members referred to in clause (b) and (c) shall be nominated by the Central Government and the Reserve Bank respectively.

ADVERTISEMENTS:

The Chairman and other members shall be persons of ability, integrity and standing who have shown capacity in dealing with problems relating to securities market or have special knowledge or experience of law, finance, economics, accountancy, administration or in any other discipline which, in the opinion of the Central Government, shall be useful to the Board.

The general superintendence, direction and management of the affairs of the Board is vested in the Board which may exercise all powers and do all acts and things which may be exercised or done by the Board. The Chairman of the Board can exercise all powers of the Board, except those specified in the regulations.

ii. The Term of Office and Conditions of Service:

The term of office and other conditions of service of the Chairman and the members appointed by the Central Government shall be such as may be prescribed. However, the appointment can be terminated at any time before the expiry of the prescribed period by giving not less than three months’ notice in writing or three months’ salary and allowances in lieu thereof (Section 5).

ADVERTISEMENTS:

iii. Removal of Member from Office:

The Central Government shall remove a member from office if he (a) is, or at any time has been, adjudicated as insolvent; (b) is of unsound mind as declared by a competent court; (c) has been convicted of an offence involving moral turpitude; (d) has so abused his position as to lender his continuation in office detrimental to the public interest (section 6).

iv. Meetings (Operation of the Board):

The Board shall meet at such times and places, and shall observe such rules of procedure in regard to the transaction of business at its meetings as may be prescribed by regulations. Decisions at the meeting are to be made by a majority vote of the members present and voting, and in the event of any equality of votes, the Chairman or the presiding member has a second or casting vote (Section 7 of SEBI Act).

ADVERTISEMENTS:

Any member who is a director of a company and who as such director has any direct or indirect pecuniary interest in any matter coming up for consideration at a meeting of the Board shall, as soon as possible after relevant circumstances have come to his knowledge, disclose the nature of his interest at such meeting and such disclosure shall be recorded in the proceedings of the Board, and the member shall not take any part in any deliberation or decision of the board with respect to that matter.

Acts or proceedings of the Board are valid even if there is a vacancy or any defect in the constitution of the Board (section 8). The Board may appoint such other officers and employees as it considers necessary for the efficient discharge of its functions.


4. Function of SEBI:

Section 11 of the SEBI Act specifies that basic duty of SEBI is to:

(a) Protect the interests of investors in securities, and

(b) To promote the development of, and to regulate the securities market.

ADVERTISEMENTS:

The following measures may be taken by SEBI to fulfill its duties:

(a) Regulating the business in stock exchanges and any other securities markets;

(b) Registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities markets in any manner;

(ba) registering and regulating the working of the depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies and such other intermediaries as the Board may, by notification, specify in this behalf;

(c) Registering and regulating the working of venture capital funds and collective investment schemes, including mutual funds;

(d) Promoting and regulating self-regulatory organisations;

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(e) Prohibiting fraudulent and unfair trade practices relating to securities markets;

(f) Promoting investors’ education and training of intermediaries of securities markets;

(g) Prohibiting insider trading in securities;

(h) Regulating substantial acquisition of shares and take-over of companies;

(i) Calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, mutual funds, other persons associated with the securities market, intermediaries and self-regulatory organisations in the securities market;

(i) calling for information and record from any bank or any other authority or board or corporation established or constituted by or under any Central, State or Provincial Act in respect of any transaction in securities which is under investigation or inquiry by the Board. [Inserted by the Securities and Exchange Board of India (Amendment) Act, 2002].

ADVERTISEMENTS:

(j) Performing such functions and exercising such powers under the provisions of the Securities Contracts (Regulation) Act, 1956, as may be delegated to it by the Central Government.

(k) Levying fees or other charges for carrying out the purposes of this section;

(l) Conducting research for the above purposes;

(l) calling from or furnishing to any such agencies, as may be specified by the Board, such information as may be considered necessary by it for the efficient discharge of its functions;

(m) Performing such other functions as may be prescribed.


5. SEBI Guidelines for Issue of Securities:

ADVERTISEMENTS:

SEBI has issued detailed guidelines in respect of issue of securities to public. The guidelines were first issued on 11th June, 1992 and were amended subsequently from time to time. SEBI issued consolidated guidelines as SEBI (Disclosure and Investor Protection) Guidelines, 2000 vide its circular No. 1 dated 19-1-2000.

These guidelines were applicable to all public issues by listed and unlisted companies, all offers for sale and rights issues by listed companies whose equity share capital is listed, except in case of rights issues where the aggregate value of securities offered does not exceed Rs. 50 lacs.

Broadly, there are three methods for issuing securities to the public:

(a) Conventional mode of receiving applications through bankers,

(b) Book building, and

(c) On line system of stock exchange (e-IPO).

ADVERTISEMENTS:

Other Measures Taken By SEBI:

The Securities and Exchange Board of India, in addition to the above mentioned guidelines ‘for disclosure and investor protection’, has taken a number of other measures for healthy development and regulation of the capital market.

i. Guidelines for Merchant Bankers.

ii. Guidelines for EURO Issues.

iii. Guidelines for Mutual Funds and Asset Management Companies.

iv. Guidelines for Foreign Institutional Investors.

v. Guidelines to Development Financial Institutions for Disclosure and Investor Protection.

vi. Guidelines for Book Building, Employees Stock Option Scheme (ESOS) and Employee Stock Purchase Scheme (ESPS).

vii. Guidelines for Preferential Issues.

viii. Guidelines for OTCEI Issues.

ix. Guidelines on External Commercial Borrowings.

x. Regulatory measures for Stock Brokers and Sub-brokers, Underwriters, Portfolio Managers, Registrars to an Issue and Share Transfer Agents, Insider Trading, Bankers to an Issue, Depositories and Participants, Venture Capital Funds, etc.


6. Limitations of SEBI:

Though SEBI has started as a watchdog in protecting investors’ interests, regulating the working of Stock Exchanges and promoting capital market, still it faces a number of problems in its working.

Some of these limitations are as follows:

i. The Central Government has authorised SEBI to frame its rules and regulations for actively monitoring capital markets. These rules and regulations will have to be approved by the government first. This will cause unnecessary delays and interference by the Finance Ministry.

The bureaucratic delays in clearing the rules will hamper the working of SEBI. The government should direct SEBI to frame or change the rules as per the demand of the situation so that it is able to achieve professional efficiency.

ii. SEBI will have to seek prior approval for filing criminal complaints for violations of the regulations. This will again cause delays at government level.

iii. SEBI has not been given autonomy. Its Board of Directors is dominated by government nominees. The Chairman of the Board has no fixed tenure and can be sacked with three months’ notice. These appointments should be for a fixed tenure to regulate the SEBI’s working in the long run.


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