SEBI (Securities and Exchange Board of India) is the prime regulator which monitors capital market operations. The SEBI was established in 1988 but given regulatory powers in 1992 by the government of India under the SEBI Act 1992. The activities of capital market need to be observed as it has an essential role in attracting domestic and foreign investment as well as reflects the position of Indian economy. Capital markets harm the interest of investors in the stock market which is well-protected by a strong and non-manipulative infrastructure designed by SEBI.
SEBI ensures the stability of the financial markets and liquidity inflow for the betterment of Indian economy. SEBI is managed by six members, i.e. one chairman (nominated by the Union Government of India), two members who are officers from the Union Finance Ministry, one member from the RBI and two other members (nominated by the Union Government of India). They closely monitor the market activities and take actions when required.
Why was SEBI established?
With the increase in stock market transactions, several malpractices started in the stock market such as violations of stock market rules and regulations, non-compliant with the provision of the Companies Act and price rigging etc. Due to these illegal happenings, the investors started losing faith and confidence in the stock market. Hence, the Indian government decided to establish regulatory body known as Securities & Exchange Board of India (SEBI) to monitor all the stock market dealings to avoid illegal activities to regain the faith of investors.
Why is SEBI beneficial for investors?
SEBI has been set up with the prime purpose to protect the interest of investors in securities. According to SEBI, an investor enjoys investing if he knows how to invest and have full knowledge of the market. Hence, SEBI launched investor awareness campaigns with the objective to educate investors so that they can be alert from false investment tips and guidance and be aware of the frauds and misleading activities. These initiatives are helping to improve the confidence of small investors. Additionally, SEBI examines insider trading activities for protecting the interest and rights of small investors.
Previously, investors have to wait to receive a dividend and redemption payment as the issuer company distributed benefits after obtaining information from the depositories. Under SEBI Act 1992, the regulatory authorities fabricated rules & regulations to give rights to depositories to provide these cash benefits to investors very easily and rapidly.
SEBI- As a regulator of financial markets
SEBI as a regulator ensures transparency and fairness in all dealings whether buy or sell transaction. Let us have a look at SEBI role in regulating Indian financial markets.
1) Review the stock market operations: Under the SEBI Act 1992, the SEBI has been authorized to conduct an inspection of stock exchanges. The board inspects stock exchanges once every year since 1995-96. The review of the market operations, organizational structure and administrative control of the exchanges has been undertaken by the SEBI and the exchanges have to send a compliance report to the SEBI. It is performed with a major purpose to know the measures taken by the stock exchanges for investors protection.
2) Protect the interest of investors: SEBI safeguards the interest of investors by providing education and guidance related to the investment in securities. For this purpose, the board issues booklets including golden rules of investment on regular basis. Moreover, SEBI has set of rules and
regulations to be followed by financial intermediaries such as brokers, merchant bankers, and other intermediaries. SEBI supervises all the investor complaints and takes a fair action after understanding the matter of concern.
As per the recent news (dated 23rd March 2018 on Livemint), SEBI is planning a proposal to levy a congestion charge to restrict algo traders who send a large number of order messages to stock exchanges, which may hurt the interest of investors. Hence, this initiative will help to protect investors in the stock market.
3) Examine the insider trading activities: Insider trading means buying and selling of securities by an individual with access to some non-public information about the company. This information, if misused can harm the interest of general investors. Several steps have been taken to check insider trading with the medium of SEBI.
4) To control the mergers, acquisitions & takeover of companies:
To create a monopoly in the Indian market, several large companies acquired or merged with other companies. SEBI observes the company transactions to make sure that it should be performed with the fair purpose towards company development and not harm the capital market.
The prime factors which ensure that SEBI works to maintain the financial stability of the market are:
- SEBI checks the proper flow of money in the economy by keeping an eye on fraud and misleading activities caused due to financial intermediaries.
- They make several rules and regulations to protect the rights of small investors and ensure transparency and fairness in all dealings of the stock market.
- SEBI holds an administrative control over stock exchanges for the benefit of investors
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