The Background

Securities and Exchange Board of India, popularly called SEBI, is a quasi government body that was initially formed in 1988 by an administrative order. The Indian capital market had started developing very fast during the 1980s. The amount of capital raised by companies from the primary market increased from a modest 200 crores in 1980 to a substantial 6500 crores in 1990. This implied a great exposure of public money, which also attracted a number of fly-by-night operators. This necessitated a watchdog that could safeguard the interests of investors.

SEBI Logo

SEBI was provided an statutory status in the immediate aftermath of infamous securities scam perpetrated by Harshad Mehta. The scam shook up the foundations of the Indian financial framework. The stock market, which was making a frenzied climb upwards, collapsed on its face. Thousands of crores of market equity was destroyed overnight and a number of financial institutions and banks were forced to shut shop. That a single individual could twist and tweak the system, with all is apparent loopholes, for earning tremendous profits became painfully apparent to everyone.

A number of financial institutions and other market players were left high and dry after the scam, but the biggest loser turned out to be the common investor. The economy had just started opening up after the 1991 economic reforms, and the India market was just taking its first tottering steps. At this stage, such a huge scam would not only have damaged the market, but would have severely damaged investor confidence. In time, investors could have lost trust in the system, thus adversely affecting the ability of companies to raise money in stock market. This, in turn, would have severely restricted industrial growth at a time when the economy had started improving.

The Securities and Exchange Board of India Act was passed in 1992, thus giving the regulatory teeth to the body. SEBI was entrusted with the primary task of protecting the interests of the investors. In addition, SEBI was also entrusted with the twin objectives of developing and regulating the stock market. In this regard, SEBI has done a decent job, though admittedly, there have been instances when the regulator has been caught napping! But overall, the lot of investors has definitely improved due to the policies and steps taken by the regulator.

Offices and Administration

SEBU has its head office located at Mumbai, the financial capital of India. In addition, SEBI has four regional offices, located at New Delhi, Chennai, Kolkata and Ahmedabad. The regional offices have jurisdiction over the companies and institutions located on their designated areas.

To manage its affairs, SEBI has a five member board, headed by a chairperson. Out of the five members, one member each is taken from the Law and Finance ministries, one member is from RBI, and the remaining two members can be eminent members of the industry.

Role of SEBI

SEBI has been entrusted with a wide ranging role to develop and regulate the financial markets. The primary task of SEBI is to regulate the affairs of the stock markets. In this respect, SEBI has introduced a number of notable reforms such as dematerialization of shares, online share trading, approval for stock indices trading, derivatives trading. This has made the market broad based and easily approachable by everyone. Over the years, SEBI has also evolved and enforced a code of conduct for the banks, financial institutions, companies, mutual funds, financial intermediaries/brokers and portfolio managers.

In addition, SEBI deals with following activities related to financial markets -

Primary market issues

Secondary market issues

Mutual Funds

Takeovers and mergers & acquisition

Collective investment schemes

Share buy backs

Delisting of shares from Stock exchanges

SEBI is also entrusted with handling investor grievances and complaints related to any of the abovementioned activities. SEBI also undertakes periodical investor education initiatives, workshops and seminars to raise investment and financial awareness.

For detailed information on SEBI, you can also visit the SEBI website.

Find out more.