What is SEBI? What Are Their Functions?

We are here to answer to prominent questions about SEBI, first of all, what is SEBI? and what are their functions?

We know that there are two categories of security markets: primary and secondary. SEBI operates within the secondary market, dealing with stocks, shares, and other securities. Before delving into a discussion about SEBI, it’s essential to comprehend its purpose, functions, and the reasons for its existence. In the past, the Capital Goods Act was in place before SEBI was established. Over the years, additional acts have been introduced outlining the laws related to securities in our country. SEBI, an acronym for the Securities and Exchange Board of India, was founded in 1988. It is crucial in upholding transparency and fairness in India’s financial markets. 

As India navigates the complexities of the global financial landscape, SEBI remains an unwavering guardian of its financial interests. Through its protective, regulatory, and developmental functions, it is a secure investment for investors and nurtures a vibrant, transparent, and prosperous financial market, essential for the nation’s growth and progress. SEBI is responsible for creating rules and regulations for various market participants, such as corporations and brokers. In this article, we will explore more about SEBI and its functions. Keep reading!

What is SEBI?

SEBI stands for Securities and Exchange Board of India. It is a regulatory institution in the field of Indian finance. It was established in 1988. The central role of SEBI is to oversee and regulate India’s securities market to ensure its fairness and transparency. But how does it accomplish this? Well, SEBI creates and enforces rules and guidelines that all participants in the securities market must adhere to. But, it must be acknowledged that this institution does not deal with the setting of prices of the shares or securities in the market.  

Importance of SEBI

The significance of SEBI reaches beyond the financial sphere, resonating in the broader economic landscape. It bolsters economic stability by nurturing equitable and transparent markets that allure domestic and foreign investments. Regardless of their scale, investors depend on SEBI’s protective measures to safeguard their investments. Furthermore, the regulatory framework laid down by SEBI fosters trust among market participants, nurturing a robust trading environment. It catalyzes capital formation, allowing corporations to secure funds confidently, thus fueling economic expansion, job creation, and innovation. Another critical responsibility of them is to curb fraudulent activities like insider trading in the securities market. It conducts investigations and takes appropriate actions against those attempting to manipulate the system or engage in unlawful practices. But SEBI’s role goes beyond enforcement; it places great importance on education. SEBI believes that informed investors make better decisions. To achieve this, they organize educational programs and initiatives to help investors like you better understand the intricacies of investing. Their goal is to empower you with knowledge to make prudent investment choices.

Functions of SEBI

The wing carries out various functions. The key functions can be categorized under three main areas: 

• Protective – SEBI’s protective function acts as a shield for investors. It diligently guards the interests of the investors, allowing them to maintain alternative investment strategies and an equitable marketplace. By curbing insider trading, deterring price manipulation, endorsing fair practices, and disseminating financial education, SEBI cultivates an environment where investors can confidently engage and secure that their investments are shielded.
• Regulatory– The regulatory function injects structure and discipline into the financial markets. Whether regulating takeovers, conducting meticulous audits, or overseeing the conduct of stock and merchant brokers, they guarantee that market participants operate ethically and within legal boundaries.
• Developmental– SEBI’s developmental function embodies its commitment to empowering investors and propelling market expansion. By providing training to intermediaries, introducing electronic trading platforms, and implementing optional underwriting systems, it not only bolsters market efficiency but also illuminates investors about market intricacies. 

Protective Function

The foremost role of SEBI is to provide protection to the investors. Since investors are the backbone of the economy, it is the duty of SEBI, being the regulatory body, to safeguard the interests of investors and other participants in the financial market. This function includes several key activities:

• Preventing Insider Trading- Insider trading involves the buying or selling of securities by individuals with inside knowledge of a company, such as its directors, employees, and promoters. SEBI has implemented measures to prevent such trading, including prohibiting companies from purchasing their own shares in the secondary market.
• Preventing Price Manipulation– They closely monitor market activities to detect and prevent price manipulation, which can lead to unnatural fluctuations in security prices, causing unexpected losses for investors.
• Promoting Fair Practices– They actively promote fair trade practices and take action to prohibit fraudulent activities related to securities trading.
• Providing Financial Education– They contribute to investor education by conducting both online and offline sessions to provide valuable insights into the market and educate investors on money management.

Regulatory Function

The regulatory function of SEBI involves the setting of rules and regulations for financial markets and corporations. This is to ensure the efficient management of the market. The key regulatory activities include:

• Defining Rules and Guidelines– SEBI defines rules, regulations, and a code of conduct that must be adhered to by both corporations and financial intermediaries.
• Regulating Takeovers– SEBI regulates the process of companies taking over other companies.
• Conducting Inquiries and Audits– SEBI conducts inquiries and audits of stock exchanges to ensure compliance with established regulations.
• Regulating Stock Brokers and Merchant Brokers– SEBI regulates the activities of stock brokers and merchant brokers to maintain market integrity.

Developmental Function

SEBI’s developmental function focuses on educating investors about trading and market operations. This function includes the following activities:

• Training of Intermediaries– SEBI provides training to individuals and entities involved in the securities market, ensuring they have the necessary knowledge and skills.
• Introduction of Electronic Trading– SEBI promotes the use of electronic trading platforms and the Internet, facilitating trading through registered stock brokers.
• Optional Underwriting System– SEBI has introduced an optional underwriting system to reduce the cost of issuing securities.

Thus, with the above-mentioned functions, we can understand that SEBI fulfills its main role by protecting investors. It also assists in regulating market participants and promoting the development of a transparent and efficient securities market in India.

Conclusion

The Securities and Exchange Board of India holds an indispensable role in the intricate tapestry of India’s financial markets. Its importance cannot be overstated, and its diverse functions highlight its central role in ensuring the honesty, fairness, and prosperity of the securities market. Its unwavering efforts to thwart fraudulent activities and propagate fair practices resonate with investors and stakeholders alike. They also serve as a watchdog for India’s stock exchanges. They assist in ensuring that the markets function smoothly and in accordance with the laws and regulations. It is because of the trust and faith in SEBI that the investors are able to keep high returns investment options. This oversight is pivotal in maintaining a level playing field for all investors. 

SEBI is the bedrock upon which India’s financial future is built. Its significance, multifaceted functions, and commitment to investor protection and market integrity render it an essential institution that will continue to shape India’s financial landscape for years to come. To get more insights and knowledge about the various types of securities markets and the powers and functions of SEBI, check the Bhive Alts platform and then make investment decisions.