Economy Simplified: SEBI: Role, Objective, Structure and Functions of Securities and Exchange Board of India

What is SEBI? 

SEBI is a statutory regulatory body established on the 12th of April, 1992. It monitors and regulates the Indian capital and securities market while ensuring to protect the interests of the investors, formulating regulations and guidelines. The head office of SEBI is at Bandra Kurla Complex, Mumbai.

Role of SEBI

This regulatory authority acts as a watchdog for all the capital market participants and its main purpose is to provide such an environment for the financial market enthusiasts that facilitate the efficient and smooth working of the securities market.
To make this happen, it ensures that the three main participants of the financial market are taken care of, i.e. issuers of securities, investors, and financial intermediaries.

1. Issuers of securities

These are entities in the corporate field that raise funds from various sources in the market. This organization makes sure that they get a healthy and transparent environment for their needs.

2. Investor

Investors are the ones who keep the markets active. This regulatory authority is responsible for maintaining an environment that is free from malpractices to restore the confidence of the general public who invest their hard-earned money in the markets.

3. Financial Intermediaries

These are the people who act as middlemen between the issuers and investors. They make the financial transactions smooth and safe.

Powers of SEBI:

  • When it comes to stock exchanges, SEBI has the power to regulate and approve any laws related to functions in the stock exchanges.
  • It has the powers to access the books of records and accounts for all the stock exchanges and it can arrange for periodical checks and returns into the workings of the stock exchanges.
  • It can also conduct hearings and pass judgments if there are any malpractices detected on the stock exchanges.
  • When it comes to the treatment of companies, it has the power to get companies listed and delisted from any stock exchange in the country.
  • It has the power to completely regulate all aspects of insider trading and announce penalties and expulsions if a company is caught doing something unethical.
  • It can also make companies list their shares in more than one stock exchange if they see that it will be beneficial to investors.
  • Coming to investor protection, SEBI has the power to draft legal rules to ensure the protection of the general public.
  • It also has the power to regulate the registration of brokers and other middlemen who will deal with investors in the market.

Mutual Funds and SEBI

  • Mutual funds are managed by Asset Management Companies (AMC), which have to be approved by SEBI. 
  • A Custodian registered with SEBI holds the securities of various schemes of the fund. 
  • The trustees of the AMC monitor the performance of the mutual fund and ensure that it works in compliance with SEBI Regulations.

SEBI and Credit Rating Agencies

  • A credit rating agency (CRA) assesses an entity’s (group, company, government, etc.) creditworthiness in general terms or relating to particular debt or financial obligation. These agencies help lenders and investors determine the potential risk involved in lending money to a particular borrowing entity and gauge the entity’s repayment ability based on its past credit behaviour.
  • SEBI (Securities and Exchange Board of India) authorizes and regulates all credit rating agencies in India as per SEBI Regulations, 1999 of the Securities and Exchange Board of India Act, 1992.
  • There are seven credit rating agencies in India including CRISIL, ICRA, CARE, India Ratings and Research Pvt Ltd, Acuite Ratings & Research, Brickwork Ratings India Pvt. Ltd. and Infomerics Valuation and Rating Pvt. Ltd. that are authorised by SEBI to assess credit ratings.
  • Sebi rolls out a framework for credit rating agencies aimed at enhancing transparency and improving the rating process.

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