INTRODUCTION

The SEBI, that is, the Securities and the Exchange Board of India, is the national regulatory
body for the securities market, set up under the securities and Exchange Board of India act,
1992, to “protect the interest of investors in securities and to promote the development of,
and to regulate the securities market and formatters connected therewith and incidental
too.”

SEBI has its head office in Mumbai and it has now set up regional offices in the metropolitan
cities of Kolkata, Delhi, and Chennai. The Board of SEBI comprises a Chairman, two
members from the central government representing the ministries of finance and law, one
member from the Reserve Bank of India and two other members appointed by the central
government.

As per the SEBI act, 1992, the power and functions of the Board encompass the regulation
of Stock Exchanges and other securities markets; registration and regulation of the working
stock brokers, sub-brokers, bankers to an issue (a public offer of capital), trustees of trust
deeds, registrars to an issues, merchant bankers, under writers, portfolio managers,
investment advisors and such other intermediaries who may be associated with the stock
market in any way; registration and regulations of mutual funds; promotion and regulation of
self-regulatory organizations; prohibiting Fraudulent and unfair trade practices and insider
trading in securities markets; regulating substantial acquisition of shares and takeover of
companies; calling for information from, undertaking inspection, conducting inquiries and
audits of stock exchanges, intermediaries and self-regulatory organizations of the securities
market; performing such functions and exercising such powers as contained in the
provisions of the Capital Issues (Control)Act,1947 and the Securities Contracts (Regulation)
Act, 1956, levying various fees and other charges, conducting necessary research for above
purposes and performing such other functions as may be prescribes from time to time.

SEBI as the watchdog of the industry has an important and crucial role in the market in
ensuring that the market participants perform their duties in accordance with the regulatory
norms. The Stock Exchange as a responsible Self-Regulatory Organization (SRO) function to
regulate the market and its prices as per the prevalent regulations. SEBI and the Exchange
play complimentary roles to enhance the investor protection and the overall quality of the
market.

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 ESTABLISHMENT
. Section 3 says about the establishment and incorporation of Board. Sub section 1 says that a
Board by the name of Securities Exchange Board of India shall be established. The Board shall be a body
corporate by the name Securities Exchange Board of India which will have perpetual succession and a
common seal, with power to acquire, hold and dispose of property, both movable and immovable, and to
enter in to contract and can sue or be sued by the said name. The head office of the Board shall be at
Bombay. The Board may establish other offices at any other places in India.

The management of the Board is mentioned in section 4 of the Act. The Board shall consist of
the following members, namely:

(a) a Chairman;

(b) two members from amongst the officials of the Ministry of the Central Government dealing with
Finance and administration of the Companies Act, 1956(1 of 1956);

(c) one member from amongst the officials of 7[the Reserve Bank];

(d) five other members of whom at least three shall be the whole-time members, who shall be appointed
by the Central Government.

The general superintendence, direction and management of the affairs of the Board shall vest in a Board
of members, which may exercise all powers and do all acts and things which may be exercised or done by
the Board. The Chairman shall also have powers of general superintendence and direction of the affairs
of the Board and may also exercise all powers and do all acts and things which may be exercised or done
by that Board. The Chairman and members shall be appointed by the Central Government and members
from amongst the officials of the Reserve Bank of India and five other members shall be nominated by the
Central Government and the Reserve Bank respectively. The chairman and the other member shall be
persons of ability, integrity and standing who have the capacity in dealing with problems relating to
securities market or have special knowledge or experience of law, finance, economics, accountancy,
administration or in any other discipline which, in the opinion of the Central Government, shall be useful
to the Board.

Section 5 says about term of office and conditions of service of Chairman and members of the
Board. The term of office and other conditions of service of the Chairman and members shall be as
prescribed by the Board. The Central Government shall have the right to terminate the services of the
Chairman or a member appointed under section 4 at any time before the expiry of the period
prescribed, by giving him notice of not less than three months in writing or three months salary and
allowances in lieu thereof, and the Chairman or a member, as the case may be, shall also have the right to
relinquish his office at any time before the expiry of the period prescribed by giving to the Central
Government notice of not less than three months in writing.

The removal of the office has been mentioned in section 6. The Central Government shall
remove a member from the office if he-

i. Is or at any time has been adjudicated as insolvent,

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 ii. Is of unsound mind and stands so declared by the competent person,
iii. Has been convicted of an offence which in the opinion of the Central Government involves moral
turpitude,
iv. In the opinion of the Central Government the member has abused his position as to tender his
continuation detrimental to the public interest. It is also provided that no member shall be
removed under this section unless he has been given an opportunity of being heard.

Regarding meetings, section 7 says that the Board shall meet at such places and shall observe
such rules of procedure in regard to the transaction of business at its meetings, including quorum as may
be provided by the regulations. If the Chairman is unable to attend any of the meeting of the Board, any
other member chosen by the members present from amongst themselves at the meeting shall preside at
the meeting. All questions which come up to any meeting of the Board shall be decided by the majority
votes of the members present and voting and in the event of equality of votes, the Chairman or in his
absence, the person presiding shall have a second or casting vote.

But any member who is a director of a company and who as such director has any direct or
indirect pecuniary interest in any matter coming up for consideration at a meeting of the board, shall
disclose the nature of his interest at such meeting and such disclosure shall be recorded in the
proceedings of the Board and the member shall not take part in any deliberation or decision of the Board
with respect to that matter.

No act or proceeding of the Board shall be invalid merely by reason of any vacancy in or any
defect in the constitution of the Board, or any defect in the appointment of a person acting as a member
of the board, or any irregularity in the procedure of the Board not affecting the merits of the case

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 Functions of SEBI
The three main functions of SEBI are as follows:

1. Protective function
2. Developmental function
3. Regulatory function

1. Protective functions
Protective functions are performed by SEBI to protect interest of investors and
provide safe investments. This entails:

 Checks on prices rigging:

Price rigging refers to manipulating the prices of securities with the main objective of
inflating or depressing the market price of securities. SEBI prohibits such practice
because this can defraud and cheat the investors.

 Prevents insider trading:

Insider is any person connected with the company such as directors, promoters etc.
These insiders have sensitive information which affects the prices of the securities.
This information is not available to people at large but the insiders get this privileged
information by working inside the company and if they use this information to make a
profit, then it is known as insider trading, e.g., the directors of a company may know
that company will issue Bonus shares to its shareholders at the end of the year and
they purchase shares from market to make a profit with bonus issue. This is known as
insider trading. SEBI keeps a strict check when insiders are buying securities of the
company and takes strict action on insider trading.

 SEBI undertakes steps to educate investors so that they are able to evaluate the
securities of various companies and select the most profitable securities

 SEBI promotes fair practices and code of conduct in security market by taking
following steps:

(a) SEBI has issued guidelines to protect the interest of debenture-holders wherein
companies cannot change terms in a midterm.

(b) SEBI is empowered to investigate cases of insider trading and has provisions for
stiff fine and imprisonment.

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  Prohibits fraudulent and unfair practices:

SEBI does not allow the companies to make misleading statements which are likely to induce the
sale or purchase of securities by any other person.

2. Developmental functions
Development functions are performed by the SEBI to develop activities in stock
exchange to increase the business in stock exchange. Under this category, following
functions are performed by SEBI:

 SEBI promotes training of intermediaries of the securities market.

 SEBI tries to promote activities of stock exchange by adopting a flexible and
adaptable approach in following way:

(a) SEBI has permitted internet trading through registered stock brokers.

(b) SEBI has made underwriting optional to reduce the cost of issue.

(c) The even initial public offer of primary market is permitted through the stock
exchange.

3. Regulatory functions
Regulatory functions are performed by SEBI to regulate the business in stock
exchange.

These functions are performed by SEBI to regulate the business in stock exchange. To
regulate the activities of stock exchange following functions are performed:

(i) SEBI has framed rules and regulations and a code of conduct to regulate the
intermediaries such as merchant bankers, brokers, underwriters, etc

(ii) These intermediaries have been brought under the regulatory purview and private
placement has been made more restrictive.

(iii) SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer
agents, trustees, merchant bankers and all those who are associated with stock exchange in
any manner.

(iv) SEBI registers and regulates the working of mutual funds etc.

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(v) SEBI regulates takeover of the companies.

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