We always worry about the security of our valuables. We need someone to guard our properties, just like a nation needs a disciplined army to guard the interests of the country. Likewise, Governments feel that each country needs an organization to protect the investments of retail investors in stock markets. Various nations have different organizations to guard their securities markets. USA has the Securities and Exchange Commission (SEC). India has the “SEBI – Securities and Exchange Board of India”; an organization which is focused on protecting retail investors in the securities markets. SEBI is considered to be the most important regulatory body in India.
History of SEBI :
The Securities and Exchange Board of India was established as a regulatory body in 1988, but real ordinance powers were given to SEBI after the passing of the Securities and Exchange Board of India Act by the Parliament on January 30, 1991. SEBI is located in Mumbai and it also has regional branches located in the northern, eastern, western and southern parts of the country.
The branches are located in New Delhi, Kolkata, Chennai and Ahmedabad respectively. Besides it also has small offices in cities like Bangalore, Jaipur, Guwahati, Bhubaneshwar, Patna, Kochi, and Chandigarh. The SEBI is run by its own members which consist of a chairman, who is elected by the parliament, two officers from the Union Finance Ministry, one member from the RBI and five members who are mutually elected by the Parliament and the Chairmen of SEBI.
The SEBI was established to replace the Controller of Capital Issues, which had administered the security markets in India during the British era. The SEBI is regulated as per the Capital Issues (Control) Act of 1947, one of the first acts passed by the Parliament of India after India’s Independence.
The main purpose of SEBI is to protect the interest of small retail investors in the securities markets and to promote the development of new securities market in India. The SEBI is expected to be compliant to 3 main groups:
l The issuers of Securities
l The market intermediaries
SEBI has indefinite powers, as it drafts the rules, regulations and statutes in its legislative capacity. It passes orders in its judicial capacity and conducts investigations and enforces orders in its executive capacity.
SEBI has 3 main functions rolled into one body: quasi-legislative, quasi-judicial and quasi-executive. Even though this makes it very powerful, there is also an appeal process to create accountability.
The appeal process is carried out by the Securities Appellate Tribunal (SAT) which consists of a three-member tribunal. It is currently headed by Justice J P Devadhar of the Bombay High Court. A second appeals mechanism is also in place. The individual or company has to approach the Supreme Court of India directly to resolve any pending issues. SEBI is very proactive and always tries to ensure that all its work is as per international standards. This is necessary as every securities market attracts international investors.
In India, the role of SEBI, has been the most benevolent in its use of its authority. It has upheld the law and followed strong systematic reforms aggressively. After the Recession of 2008 and the Satyam Fiasco in October 2011, the SEBI was able to quickly take steps to protect small investors from losing a large chunk of their investments and thus stabilize the economy.
There are many other private investors who sometimes are in a position to get inside information of a company, before other investors. Using inside information to profit is illegal and not allowed by law. Rich investors are sometimes barred from investing for a certain period of time if they are found guilty of insider trading. Insider trading is a very serious offense internationally and must be taken seriously.