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SEBI’s full form is the Securities and Exchange Board of India, which is the regulatory body for the securities market in India. It was established in 1988 to protect the interests of investors and to promote the development of the securities market.
SEBI is responsible for regulating and supervising the activities of stock exchanges, brokers, and other intermediaries in the securities market. Its main objectives are to ensure transparency, fairness, and accountability in the market, to prevent insider trading and fraudulent activities, and to educate investors about the market. In short, SEBI plays a crucial role in maintaining the integrity of the securities market in India.
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The Securities and Exchange Board of India (SEBI) was established in 1988 by the Government of India to regulate and develop the securities market in India. The establishment of SEBI was a significant milestone in the history of the Indian capital market, which had suffered from a lack of regulation and transparency for many years.
Before the establishment of SEBI, the regulation of the securities market in India was fragmented, with different regulatory bodies responsible for different aspects of the market. This led to a lack of coordination and consistency in regulation, which made the market prone to manipulation and fraud.
The need for a unified regulatory body for the securities market in India was felt after a series of scams and scandals in the 1980s, such as the Harshad Mehta scam, which shook investor confidence in the market. The government, therefore, decided to establish SEBI as a statutory body with the objective of protecting the interests of investors and promoting the development of the securities market in India.
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SEBI Act 1992
The Securities and Exchange Board of India (SEBI) Act was passed by the Indian Parliament in 1992 to provide a legal framework for the regulation of the securities market in India. The SEBI Act was passed by the Indian Parliament on the basis of the recommendations of two committees: the first was the High Powered Committee on Capital Market Reforms (popularly known as the L.C. Gupta Committee) and the second was the Narasimham Committee on Financial System Reforms.
SEBI Act 1992 Objectives
The Act aims to protect the interests of investors, promote the development of the securities market, and regulate the functioning of market intermediaries such as brokers, mutual funds, and investment bankers.
Key Features of the SEBI Act
|Establishment of SEBI||The Act establishes SEBI as a statutory body with the power to regulate and develop the securities market in India.|
|Powers and functions of SEBI||The Act outlines the powers and functions of SEBI, which include regulating the securities market, registering and regulating market intermediaries, promoting investor education, and taking measures to prevent fraudulent and unfair trade practices.|
|Investor protection||The Act emphasizes the protection of the interests of investors and provides for the establishment of an Investor Protection Fund to compensate investors in case of losses due to fraudulent practices.|
|Disclosure and transparency||The Act mandates companies to make timely and accurate disclosures about their financial performance and other material information that may affect the price of their securities. This helps to promote transparency in the securities market.|
|Enforcement||The Act provides SEBI with the power to investigate and take action against market intermediaries and companies that violate the regulations. It also empowers SEBI to impose penalties and initiate legal proceedings against defaulters.|
|Appeals||The Act provides for an appellate mechanism, where aggrieved parties can appeal to the Securities Appellate Tribunal (SAT) against the orders passed by SEBI.|
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The SEBI Chairman is appointed by the Government of India for a term of three years, which can be extended to another two years. The Chairman is selected from a pool of candidates who have expertise in finance, law, economics, or business management.
Recently, Madhabi Puri Buch was appointed as the new Chairperson of the Securities and Exchange Board of India (SEBI) by the government, making her the first woman to lead the regulator. She is also the first non-bureaucrat to hold the position in the last 17 years. Madhabi Puri Buch is a well-known veteran in the financial industry.
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The Securities and Exchange Board of India (SEBI) is the regulatory body responsible for regulating the securities market in India. The functions of SEBI can be broadly classified into four categories:
SEBI formulates and enforces rules and regulations to ensure that the securities market operates in a fair, transparent, and efficient manner. SEBI is responsible for registering and regulating various entities such as brokers, mutual funds, investment bankers, etc. It also sets guidelines for the disclosure of information by companies to ensure transparency.
SEBI aims to develop and improve the securities market in India by promoting transparency, efficiency, and investor protection. It develops policies and guidelines for the growth and development of the securities market.
SEBI aims to protect the interests of investors by regulating the securities market. It takes measures to prevent fraudulent and unfair trade practices and takes action against defaulters.
SEBI aims to promote the development of the securities market in India by creating awareness about the benefits of investing in the securities market. It also encourages the participation of foreign investors in the Indian securities market.
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Securities and Exchange Board of India Reforms
Since its inception, the Securities and Exchange Board of India (SEBI) has initiated several key reforms to regulate and develop the securities market in India. Some of the significant reforms initiated by SEBI are:
Introduction of Electronic Trading
SEBI introduced electronic trading in the Indian stock exchanges in 1994, which replaced the traditional open outcry system. This move helped in increasing transparency, and efficiency, and reduce trading costs.
Dematerialization of Securities
SEBI mandated the dematerialization of securities in 1996, which facilitated the electronic storage and transfer of securities, thereby reducing the risks associated with physical certificates.
Strengthening Disclosure Norms
SEBI has constantly been working towards strengthening the disclosure norms of listed companies. It has introduced several regulations like the Insider Trading Regulations, 2015, which mandates the disclosure of insider trading, and the Listing Regulations, 2015, which provides for detailed disclosures by listed companies.
Introduction of Investor Protection Measures
SEBI has introduced several measures to protect the interests of investors, including the establishment of the Investor Protection Fund, which compensates investors in case of losses due to fraudulent practices.
Regulation of Market Intermediaries
SEBI regulates various market intermediaries, including brokers, merchant bankers, and mutual funds, to ensure that they comply with the regulatory framework and act in the best interest of investors.
Introduction of Market Infrastructure Institutions
SEBI has encouraged the establishment of market infrastructure institutions, such as the National Stock Exchange (NSE) and the Central Depository Services (India) Limited (CDSL), to strengthen the Indian securities market.
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The Securities and Exchange Board of India (SEBI) faces several challenges in recent times, some of which are:
The COVID-19 pandemic has caused significant market volatility, which poses a challenge for SEBI to maintain market stability and protect investor interests.
With the increasing use of technology in the securities market, cybersecurity risks have also increased. SEBI needs to ensure that the market infrastructure and systems are secure and protected against cyber threats.
Enforcement of Regulations
SEBI needs to ensure that the regulations are effectively enforced and that market participants comply with the regulatory framework. This requires a robust enforcement mechanism and sufficient resources.
Integration of Markets
SEBI has been working towards integrating the Indian securities market with the global markets, which presents several challenges, including the need to align the regulatory framework and address cross-border legal and compliance issues.
Investor Education and Awareness
SEBI needs to promote investor education and awareness to ensure that investors make informed investment decisions and are protected against fraudulent practices.
Balancing Innovation and Regulation
With the increasing use of technology and innovation in the securities market, SEBI needs to strike a balance between promoting innovation and ensuring that the regulatory framework keeps pace with the evolving market dynamics.
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SEBI Needs to Focus on Some Other Areas
The Securities and Exchange Board of India (SEBI) has made significant progress in regulating and developing the securities market in India since its inception. However, there are still several areas where SEBI needs to focus to move forward, some of which are:
SEBI needs to strengthen its enforcement mechanism to ensure that the regulations are effectively enforced and market participants comply with the regulatory framework.
SEBI needs to promote innovation in the securities market while ensuring that the regulatory framework keeps pace with the evolving market dynamics.
Improving Market Infrastructure
SEBI needs to work towards improving market infrastructure, including trading platforms, settlement systems, and depositories, to increase efficiency and reduce risks.
Enhancing Investor Protection
SEBI needs to continue to enhance investor protection measures by promoting investor education and awareness and ensuring that market participants act in the best interests of investors.
Aligning with Global Standards
SEBI needs to align its regulatory framework with global standards to promote cross-border investments and integrate the Indian securities market with the global markets.
SEBI needs to leverage technology to enhance its surveillance and enforcement capabilities and promote greater transparency and efficiency in the securities market.
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SEBI is an important topic for UPSC as it is a regulatory body that plays a critical role in regulating the securities market in India. The Securities and Exchange Board of India (SEBI) is a significant aspect of the Indian economy and is covered in the UPSC Syllabus for the Preliminary and Main examinations.
UPSC aspirants are expected to have a sound understanding of SEBI’s functions, powers, and regulatory framework. Questions related to SEBI may appear in different sections of the UPSC exam, including Economy, Current Affairs, and General Studies.
To prepare for the UPSC exam, candidates can refer to various sources of information, including textbooks, newspapers, and online resources. StudyIQ UPSC Online Coaching platform provides comprehensive UPSC courses that cover SEBI and other important topics. The platform offers UPSC Mock Test, lectures, and study material to help candidates prepare for the exam effectively.
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