Securities and Exchange Board of India (SEBI)

Securities and Exchange Board of India, established in 1992, is the regulator for the securities market in India. Its primary objective is to safeguard investors’ interests and ensure the smooth operation and development of the securities market. SEBI wields various powers, including quasi-judicial, quasi-executive, and quasi-legislative, allowing it to enforce regulations, judge on fraud cases, and draft rules to protect investors. In this article, you will know about history, objective, power, composition, committees and concerns associated with SEBI.  To explore more interesting UPSC Economy topics like Securities and Exchange Board of India, check out other Economic articles and IAS Notes of IASToppers.   

Table of Content

• What is Securities and Exchange Board of India (SEBI)?
• History of Securities and Exchange Board of India
• Securities and Exchange Board of India (SEBI) Act 1992
• Composition of Securities and Exchange Board of India
• Functions of Securities and Exchange Board of India
• Authority and Power of Securities and Exchange Board of India
• Committees of Securities and Exchange Board of India
• Securities Appellate Tribunal (SAT)
• Concerns associated with Securities and Exchange Board of India
• Recommendations for Securities and Exchange Board of India
• Conclusion
• FAQs on Securities and Exchange Board of India

What is Securities and Exchange Board of India (SEBI)?

• Securities and Exchange Board of India (SEBI) was established as a statutory body in 1992 as per the provisions of the Securities and Exchange Board of India Act, 1992.
• The objective of SEBI isto protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
• Headquarter of SEBI is located in Mumbai.

History of Securities and Exchange Board of India

• Before SEBI was formed, the Controller of Capital Issues acted as the regulatory authority which derived its powers from Capital issues Act, 1947.
• On April 12, 1988, SEBI was initially created as a non-statutory body through an Indian Government resolution.
• It was given a status of statutory body in 1992.
• In 2014, the Indian Government granted SEBI enhanced regulatory powers, including the capacity to conduct search and seizure operations and impose stricter penalties for market manipulation and insider trading.

Securities and Exchange Board of India (SEBI) Act 1992

Some of the following subjects covered by SEBI Act 1992 are as follows:

• Establishment, Powers & Functions of SEBI
• Appointment of Chairman & Members of the SEBI
• Fund sources of SEBI, as in grants made available by the Union Government
• Penalties & Adjudication
• Inspection of listed companies by SEBI
• Defines the judicial authority of SEBI
• Extent of powers of the Union Government to supersede SEBI
• Establishment of Securities Appellate Tribunal (SAT)
• Composition of SAT
• Right to legal representation

Composition of Securities and Exchange Board of India

SEBI is composed of a different department, each overseen by a department head. SEBI has approximately 20 departments.

Some of these departments are Commodity Derivatives Market Regulation, corporation finance, economic and policy analysis, debt and hybrid securities, enforcement, investment management, legal affairs, international affairs, surveillance, enquiries and adjudication etc.

The hierarchical structure of SEBI consists of the following members:

• Chairman is nominated by the Union Government of India
• Two officers from the Union Finance Ministry
• One member is appointed from the Reserve Bank of India
• Five other members are nominated by the Union Government of India

Functions of Securities and Exchange Board of India

• SEBI serves as a regulatory body for stockbrokers, sub-brokers, portfolio managers, investment advisers, share transfer agents, bankers, merchant bankers, and other associated people to register and regulate work.
• It oversees the functioning of depositories, participants, securities custodians, foreign portfolio investors, and credit rating agencies.
• SEBI ensures that investors receive education regarding securities market intermediaries.
• It promotes research and development to maintain efficiency in the securities market.
• It prohibits fraudulent and unfair trading practices, including insider trading, in the securities market.
• It monitors significant acquisitions of shares and take-over of companies.

Authority and Power of Securities and Exchange Board of India

• Quasi-Judicial: SEBI has the jurisdiction to pass judgements on fraudulent and unethical practices in the securities market.
• Quasi-Executive: SEBI holds the power to enforce its regulations and judgements and to take legal proceedings against violators.
• Quasi-Legislative: SEBI has the prerogative to establish rules on insider trading regulations, listing obligations, etc. to safeguard investor interests.

Committees of Securities and Exchange Board of India

Some of the committees of SEBI as follows:

• Intermediary Advisory Committee
• Market Data Advisory Committee
• Research Advisory Committee
• Technical Advisory Committee
• High Powered Steering Committee on Cyber Security
• Information Systems Security Committee
• Hybrid Securities Advisory Committee
• Members of Advisory Committee on Mutual Funds
• FPI Advisory Committee
• Committee for review of structure of infrastructure institutions
• Advisory Committee for the SEBI Investor Protection and Education Fund
• Takeover Regulations Advisory Committee
• Primary Market Advisory Committee
• Secondary Market Advisory Committee
• Advisory Committee on Mutual Funds
• Corporate Bonds and Securitization Advisory Committee

Securities Appellate Tribunal (SAT)

• It is a statutory body established under the provisions of Section 15K of the Securities and Exchange Board of India Act, 1992.
  • SAT hears and disposes of appeals against orders passed by:
• The Pension Fund Regulatory and Development Authority (PFRDA) under the PFRDA Act, 2013.
• The Insurance Regulatory Development Authority of India (IRDAI) under the Insurance Act, 1938
• The General Insurance Business (Nationalization) Act, 1972
• The Insurance Regulatory and Development Authority Act, 1999

Composition of Securities Appellate Tribunal (SAT)

• SAT consists of a Presiding officer and 2 other members.
• The Presiding officer of SAT is appointed by the Central Government in consultation with the Chief Justice of India or his nominee.
• The 2 members of SAT are appointed by the Central Government.

Concerns associated with Securities and Exchange Board of India

Questionable Selection Process for SEBI Appointments

• Questions are raised on the method adopted by the Indian government for important SEBI appointments, potentially putting at risk SEBI’s efficacy.

Influence of Corporate Interests on SEBI

• A key member of the SEBI board, sent a letter to the Prime Minister warning of potential dangers to SEBI from powerful corporate interests. He claimed that the Finance Minister’s office was attempting to sway cases before SEBI, including those involving Sahara Group, Reliance etc.

SEBI’s Unchecked Authority

• SEBI has been criticized for the absence of checks and balances, especially regarding the issuing of orders without formal hearings.

SEBI’s Wide-Ranging Powers

• Currently, SEBI officials hold enormous power, functioning as both enforcers and adjudicators. This power extends to regulating the securities market in any way deemed fit, leading to potential misuse.
• This setup often results in companies and their executives being at the mercy of SEBI officials who can investigate, issue warnings, and adjudicate without needing to justify their actions.

Other Challenges Faced by SEBI

• Over time, SEBI’s role has become increasingly complex, with an overemphasis on market conduct regulation and insufficient focus on prudential regulation.
• Additionally, there is a lack of regulatory review and consultation, which contributes to widespread fear of the regulator.
• There is an also concern over the organizational structure of SEBI. Giving such a huge power to SEBI often leads to favoritism and bias.
• Despite its extensive powers, SEBI has a poor track record in initiating criminal prosecution in significant cases.

Recommendations for Securities and Exchange Board of India

• To prevent misuse of power, there should be a “Separation of Powers” within SEBI, dividing the regulator’s powers between different branches, such as executive and judicial.
  • In other words, SEBI’s quasi-judicial arm needs to be isolated to provide a check and balance on the executive arm. This would prevent SEBI from unilaterally dictating laws to the public.
• For implementing this, SEBI should adopt practices followed by the Competition Commission of India (CCI) which has a separation of its investigating arm from its quasi-judicial arm.
• SEBI should justify its allegations of violations to an independent judge in the criminal justice system.

Conclusion

The role of SEBI has evolved into a complex, multifaceted institution, handling both market conduct regulation and prudential regulation. While it has been effective, concerns about unchecked authority and potential misuse of power persist. The way forward for the Indian government is to enhance the checks and balances within SEBI’s structure, such as separating its investigating arm from its quasi-judicial arm.

Ref: Source-1

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