SEBI — Establishment, Objectives and Functions

Establishment. The Securities and Exchange Board of India (SEBI) was first set up as a non-statutory body in 1988, in response to a series of stock-market irregularities and the rapid growth of the primary market that the existing legal framework could not adequately supervise. It was given full statutory powers when Parliament passed the SEBI Act, 1992, making SEBI the principal regulator of India's securities (capital) market — with authority over stock exchanges, listed companies, stockbrokers, merchant bankers, mutual funds, depositories and other market intermediaries. This is a foundational institutional fact examined under the MSBSHSE Std XII Secretarial Practice syllabus, alongside the Securities Contracts (Regulation) Act, 1956 that governs stock exchanges themselves.

Objectives of SEBI. SEBI's overarching objectives, as stated in the SEBI Act, 1992, are to:

1. Protect the interests of investors in securities;
2. Promote the development of the securities market; and
3. Regulate the securities market, and matters connected with, or incidental to, these three objectives.

Functions of SEBI. SEBI's wide-ranging functions are usually grouped under three heads:

1. Protective functions — aimed directly at safeguarding investors: prohibiting fraudulent and unfair trade practices and insider trading; regulating substantial acquisition of shares and takeovers of listed companies (to protect minority shareholders); promoting fair practices and a code of conduct for intermediaries; and running investor-education and grievance-redressal mechanisms.
2. Regulatory functions — aimed at the orderly conduct of the market: registering and regulating stockbrokers, sub-brokers, merchant bankers, portfolio managers, credit-rating agencies and other intermediaries; registering and regulating collective investment schemes and mutual funds; regulating the working of stock exchanges and depositories; framing the listing obligations and disclosure requirements that companies must follow; and conducting inquiries and audits of exchanges and intermediaries.
3. Developmental functions — aimed at growing and modernising the market: promoting investor education and training of market intermediaries; encouraging fair and equitable dealing by introducing new products and self-regulatory organisations; and promoting the demutualisation and electronic, screen-based trading of stock exchanges (see the earlier sections), which has itself made Indian markets faster, fairer and more transparent. …