SEBI

Dissecting the Powers of SEBI

Securities and Exchange Board of India came into existence as a statutory authority by virtue of an ordinance on 30^th Jan 1992. The ordinance was approved by both houses of Parliament on 1^st April 1992, but the statute is said to have come into establishment from the date when the ordinance was promulgated. This article examines and analyses the powers of SEBI.

Objective of SEBI

SEBI was formed as similar to the Securities and Exchange Commission of USA, which was formed as per the Securities Exchange Act of 1934 to regulate the securities market and to keep a check on the unfair trade practices on the stock exchange. Due to the securities scam, there was an urgency felt to establish SEBI as a capital markets regulator. 

The Securities & Exchange Board of India seeks to fulfil the needs of issuers, investors and intermediaries linked with Securities market. SEBI is a quasi-legislative and quasi-judicial body that can draft regulations, conduct inquiries, make rulings and levy penalties.

Powers of SEBI

SEBI has wide powers to meet the objectives of the SEBI Act 1992. SEBI can take preventive actions and punitive actions to protect the investors and promote securities market. Such measures can be in the form of circulars, guidelines, press releases etc. Further, the measures can also be taken if it is exercised in consonance and furtherance of the specified objectives.

SEBI is empowered to take measures to regulate the following:

• Regulation of stock exchange business and other securities market

SEBI focuses on maintaining transparency, integrity and proper functioning of the stock exchanges through various ways such as registration of brokers, increasing trading hours, addressing investor grievances etc. SEBI has also the power under Securities Contract (Regulation) Act 1956^[1] to grant recognition to stock exchanges, supersede business of stock exchange, withdrawal of recognition etc. These powers have been delegated by the Central Government.

• Registration and Regulation of securities market intermediaries

SEBI has the power to issue regulation for registration and can provide for the eligibility criteria, norms for capital adequacy, code of conduct etc. Unless the certificate of registration is provided by SEBI, no person can engage into activities that a SEBI registered intermediary undertakes. It ensures adherence to the fit and proper criteria.

• Registration and regulation of the functioning of the Venture Capital Fund, Collective Investment Schemes

Earlier the Mutual Funds were governed by the RBI guidelines, which was applicable to mutual funds sponsored by banks. SEBI provides certificate of registration to the mutual fund. It also governs the structure, and the constitution of the fund, its AMCs, registration of trust deed and also has the power to regulate different schemes and businesses of mutual funds.

• Regulation of the self-regulatory organizations

Self-regulatory organizations are given the responsibilities of being the first level regulator for a segment of intermediaries in the securities market being its members. SEBI issued recognitions to self regulatory organizations and looks after the activities of such organizations, and assist them in maintaining ethical standards. It helps in maintaining fairness, accountability and transparency to investors. Example of Self-regulatory organizations: Association of Investment Bankers of India and Association of Mutual Funds of India.

• Power to prohibit fraudulent & unfair trade practices in securities market

SEBI notified the SEBI (Prohibition of fraudulent and unfair trade relating to securities market) Regulations 2003. Fraudulent transactions and unfair trade practices identified by SEBI include price rigging, circular trading, inflating, depressing, fluctuating securities price, publishing any untrue statement or misleading advt. among others.

• Prohibiting Insider Trading in Securities

SEBI has taken measures for prohibition of Insider Trading by the participants in the securities market. SEBI framed the first Prohibition of insider trading regulations in 1992, after that replaced it with Prohibition of Insider Trading Regulations 2015, providing for the meaning of an insider, unpublished price sensitive information, trading etc. SEBI set up different committees with an objective to strengthen the market integrity and to boost investor confidence.

Various amendments were made to the Prohibition of Insider Trading Regulations on the recommendation of the TK Viswanathan Committee Report.

• Regulation of substantial shares acquisition and companies takeover

SEBI mandates open offer and requires disclosure to be made by the acquirer and the person acting in concert with such acquirer. It provides who would be an acquirer, target company etc. What it does is that it ensures that the process of takeover is fair, transparent. SEBI also mandates adequate disclosures from the acquirer and promoters of the listed companies.

Among the powers of SEBI, it can make regulations under Section 30(2) of SEBI Act. Regulations have been provided for securities market intermediaries, mutual funds, alternative investment fund, venture capital fund, foreign portfolio investors, insider trading, takeover and matters related to securities matter. However, it may be noted that regulations of SEBI are legislative in nature and statutory in character.

Investigating Powers of SEBI

SEBI’s quasi-judicial functions and its rulings are subject to appeal, and the duties of the Board fall to the other side when it comes to doctrine of separation of power. The board uses its legislative powers by making regulations, executive power by administering regulations framed by it and taking measures against the entity that breaks the regulations and judicial power by adjudicating disputes in the implementation. Such power must comply with the constitution and the SEBI Act and should not contradict it.

The SEBI has the power to order for investigation if it has a reason to believe that a transaction in securities is detrimental to the investors/securities market or if someone violates the provisions of the said Act. SEBI also has the powers of a civil court where it can summon and order for the presence of a person, examine them, and inspect books of accounts.

Further, as part of the powers of SEBI, it can restrain a person or prohibit a person from accessing the securities market. Such an order can be made by SEBI even on pendency of investigation. Moreover, SEBI can recover illegal gains made by a person through an illegal conduct by issuing disgorgement order.

SEBI can also take actions on illegal schemes introduced by companies to make money from retail investors, refrain a person acting as intermediary such as research analyst, investment advisor etc., not to solicit/undertake an activity in securities either directly or indirectly.

Conclusion

The powers of SEBI have been raised time and again by the parliament of India. This is because its role in the Indian Financial System is pivotal. It is safe to say that SEBI is one of the most robust regulatory body in India. It has a huge role in preventing major financial scams by regulating the Indian financial market through its 20 departments.

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