Securities And Exchange Board Of India (SEBI)

The Securities and Exchange Board of India, also known as the SEBI, oversees the Indian financial markets. The agency implements regulations to ensure a safe, transparent and fair trading environment. This article will detail the role of the SEBI, including its debarred entities list and its powers under sections 3, 11 and 12 of the 1992 Act. Use our list of SEBI regulated brokers to start trading today.

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What Is The Securities And Exchange Board Of India?

The Securities and Exchange Board of India is a financial regulatory body. It monitors the Indian securities and exchange markets. Its core objective is ‘to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto’.

The SEBI is essentially the Indian equivalent of the US Securities and Exchange Commission (SEC) or the UK Financial Conduct Authority (FCA).

SEBI regulator

The SEBI’s headquarters are located in the business district of Mumbai. Regional offices are situated throughout the country including in New Delhi, Kolkata and Chennai.

History

The Securities and Exchange Board of India was first established in 1988 following analysis of UK and US regulatory models. A draft law was developed, including the proposal of a capital markets transaction tax to generate revenue. However without legal powers, no one took the law seriously.

The financial agency was finally given statutory powers and became an autonomous body on the 30th of January 1992, with the passing of the SEBI Act in the Indian Parliament.

Why Was The SEBI Created?

The retail trading trend caught traction in India in the early 1980s. But as the trend began to boom, so did malpractice within capital markets. This included price rigging, violations of stock exchange rules and delays in completing transactions. Unsurprisingly, individuals began losing confidence in the stock market. As a result, the government was forced to step in, creating an authoritative body to promote efficient operations across the securities markets.

Structure

The Securities and Exchange Board of India follows a corporate structure. Board members are made up of directors and senior management leading 20+ departments. These subdivisions include the Office of International Affairs, The Foreign Portfolio Investors and Custodians, plus The Commodity and Derivative Market Regulation department.

Senior leadership roles include:

  • One chairman nominated by the Indian Union Government
  • Five members nominated by the Indian Union Government
  • Two Union Finance Ministry of India members
  • One member of the Reserve Bank of India

Objectives

The SEBI has a number of core objectives under the 1992 Act:

  • Code of Conduct – Developing a stable code of conduct for intermediaries
  • Prevention of Malpractice – Reduce fraudulent and immoral activities related to retail trading
  • Protection – Safeguarding the interests of investors and their capital by providing guidelines and trading rules
  • Establishing Balance – Creating fair and transparent statutory regulation within the securities industry
  • Promote Functioning – Ensuring the operational effectiveness of financial securities and stock exchanges in the region

Responsibilities

So what are the main responsibilities of the Securities and Exchange Board of India? The Board focuses its efforts across three key areas: Protection, Development and Regulation.

Protection

The SEBI protects investors against malpractice through several activities, including:

  • Monitoring and tracking unusual price fluctuations in the financial markets
  • Offering educational content to retail investors to help identify signs of scams. The regulator also provides market insights and content on capital management, available on the official website
  • Establishing welfare schemes to prevent individuals from purchasing secondary market shares using ‘insider’ information

Development

The regulatory authority aims to develop sustainable financial markets through:

  • Technology innovations
  • Promoting fair trading
  • Introducing DEMAT accounts
  • Encouraging self-regulating organisations
  • Providing training to intermediaries in the securities market

Regulation

The Securities and Exchange Board of India carries out key activities to enforce regulations, including:

  • Levying fees
  • Conducting audits
  • Regulating mutual funds
  • In-depth organisation inquires
  • Overseeing the takeover of companies
  • Creating a code of conduct and guidelines for all intermediaries

SEBI trading regulations

Authority

The SEBI has a number of powers under several legal structures:

Quasi-Judicial

The Securities and Exchange Board has the power to deliver rulings linked to fraudulent activity and unethical practices in the securities market. This creates fairness, transparency and accountability for all members.

Quasi-Executive

The regulatory body has the power to impose rules and take legal action against members that engage in trusted document fraud. The SEBI also has the authority to examine financial records at any time and to list and delist corporations from stock exchanges in the country.

Quasi-Legislative

The Securities and Exchange Board of India reserves the right to frame rules and regulations to protect investors. The body can formulate trading guidelines, obligations and requirements for online brokers and market participants.

Note, that whilst the SEBI has extensive regulatory remit, the Supreme Court of India and the Securities Appellate Tribunal can overrule decisions made by the regulator.

Peak Margin Trading Rules

In September 2021, The Securities and Exchange Board of India began the final implementation phase of new day trading margin rules. The Board introduced the peak margin system at the end of 2020, executed in four phases; 25% peak margin, 50% peak margin, 75% peak margin, and finally 100% upfront margin.

Under the new system, margin trading conditions are no longer worked out on end-of-day positions. Instead, exchanges quote prices four times per session and margins are calculated based on this.

The system was created to reduce speculation and to curb significant losses. This follows leverage limits introduced in Europe, though the SEBI has taken a more rigid approach, with zero flexibility. Essentially, Indian traders will have to meet 100% upfront margin requirements.

Unsurprisingly, there has been some negative backlash. Initial funding requirements in futures markets, for example, are now particularly high. And the SEBI has already had requests from multiple brokers seeking relief under the new rules.

Achievements

Despite some unpopular decisions, the Securities and Exchange Board of India has been relatively successful. It is well-regarded for its role in pushing markets to become paperless and electronic. Today, trades are executed quickly thanks to the absence of physical certificate requirements. Trade settlement is also much faster.

In addition, the SEBI continues to increase corporate disclosures to ensure transparency and has introduced the Takeover Code. Other achievements include introducing a complete ban on forwards trading, issuing guidance on Insider Trading and developing a code of conduct for mutual fund services to provide balance sheet publications.

Criticisms

There are, of course, criticisms levelled at the regulator. A key challenge is around transparency, with the only real authority to check its power being the Securities Appellate Tribunal, which consists of a few judges, plus the Supreme Court of India. The regulatory body has also been accused of being ‘overreaching’ on several occasions.

For traders, there are criticisms around the limited direction when filing complaints against brokerages. The SEBI often passes complaints straight to the broker in question and doesn’t play an active role in resolving grievances.

Final Thoughts On The SEBI

The Securities and Exchange Board of India (SEBI) still has some work to do to earn the trusted status of the CySEC or the FCA. With that said, the regulator has done a lot to promote fairness and transparency across local securities and stock exchanges.

For Indian retail traders: remember to check a broker is licensed by searching for its registration number on the SEBI’s online database.

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