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Role of SEBI

Context:  The Securities and Exchange Board of India (SEBI) unveiled its new logo at a ceremony marking the regulatory body’s 35th foundation day.

What is SEBI?

  • Establishment: The Securities and Exchange Board of India was established as a statutory body in the year 1992.
    • The provisions of the Securities and Exchange Board of India Act, 1992 came into force on January 30, 1992.
  • History: Before SEBI came into existence, Controller of Capital Issues was the regulatory authority; it derived authority from the Capital Issues (Control) Act, 1947.
    •  In 1988, SEBI was constituted as the regulator of capital markets in India.
    •  Initially, SEBI was a non-statutory body without any statutory power.
    • Following the passage of the SEBI Act by Parliament in 1992, it was given autonomous and statutory powers.
  •  Structure: SEBI Board consists of a Chairman and several other whole time and part time members.

What are Powers and Functions of SEBI?

  • Main functions: It is the regulator of the securities and commodity market in India owned by the Government of India.
    • SEBI also aims to check fraudulence by harmonising its statutory regulations and self-regulating business.
    • It also enables a competitive professional market for intermediaries.
    • SEBI provides a marketplace in which the issuers can increase finance properly.
    • It also ensures safety and supply of precise and accurate information from the investors.
    • SEBI analyses the trading of stocks and saves the security market from the malpractices.
    •  It controls the stockbrokers and sub- stockbrokers.
    •  It provides education regarding the market to the investors to enhance their knowledge.
  • Powers: It is a quasi-legislative and quasi-judicial body which can draft regulations, conduct inquiries, pass rulings and impose penalties.
    • SEBI has powers to regulate any pooling of funds for investments aggregating Rs 100 crore or more by an individual or a company.
    • Chairman SEBI has powers to authorize the carrying out of search and seizure operations.
Powers and Functions of SEBI
Powers and Functions of SEBI

What is Securities Appellate Tribunal?

  • Securities Appellate Tribunal is a statutory body established under the Securities and Exchange Board of India Act, 1992.
  • Its main function is to hear and dispose of appeals against orders passed by the Securities and Exchange Board of India.
  • The Tribunal has the same powers as are vested in a civil court.
  • Person aggrieved by any order or decision of Securities Appellate Tribunal can file an appeal to the Supreme Court.

Challenges Faced by SEBI

  • Concentration of powers: SEBI as a regulator fuses the three branches of the legislative, executive and judicial. This has created a tremendous concentration of power and financial firms fear to challenge the regulator.
  • Independent directors: The SEBI Board lacks a majority of independent directors, which could be a countervailing force.
  • Lack of detailed investigations:  Punishments are often being imposed without the basic process of an investigation and a hearing.
    • The punishment of stopping financial markets activity imposes high costs upon different firms.
    • The arbitrary power wielded in the executive and quasi-judicial functions at SEBI is inconsistent with a liberal democracy.
  • Stringent punishment: It can impose serious restraints on economic activity; this is done based on suspicion, leaving it to those affected to shoulder the burden of disproving the suspicion, somewhat like preventive detention.
  • Lack of proper regulations: Regulation, either rules or enforcement, is far from perfect, particularly in areas like insider trading.

Way Forward

  • Change in attitude: There is need of an attitudinal change, despite the fact that market contains large number of crooks, necessitating a crackdown and severe intervention.
    • The foremost objective of SEBI should be cleaning up the policy space in this area of the market.
  • Improve human resource: SEBI must give special attention to human resources and matters within the organization. SEBI must encourage lateral entry to draw the best talent.
  • Improving market intelligence: Enforcement can be strengthened with continuous monitoring and improving market intelligence.
  • India’s financial markets are still segmented. One regulator can’t be blamed for another’s failure when the remit over a financial product overlaps.
  • Unified financial regulator:  A unified financial regulator makes eminent sense to remove both overlap and excluded boundaries.

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