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Securities & Exchange Board of India (SEBI)

Introduction

Prior to independence, the law relating to capital prevailing in India was the Capital Issues (Control) Act, 1947.

This Act was primarily created by the British to channelize funds and resources for the World War.
Even after independence, this Act was retained with some modifications as a means of controlling the raising of capital by companies and to ensure that national resources were channelled into proper lines Under the Act, any firm wishing to issue securities had to obtain approval from the Central Government, which also determined the amount, type and price of the issue.

SEBI origin

As a part of the liberalisation process, the Capital Issues (Control) Act, 1947, was repealed in May 1992.

Thus, Governments control over issues of capital, pricing of issues, rates of interest on debentures etc. ceased.
However, to ensure effective regulation of the market, Securities & Exchange Board of India Act, 1992 was enacted with the following main objectives

protecting the interests of investors in securities, promoting the development of the securities market, and regulating the securities market

SEBI Jurisdiction

SEBIs regulatory jurisdiction extends over companies listed on Stock Exchanges and companies intending to get their securities listed on any recognized stock exchange It controls all intermediaries and persons associated with securities market.

SEBI can specify the matters to be disclosed and the standards of disclosure required for the protection of investors.
It can conduct enquiries, audits & inspection of all concerned and adjudicate offences under the Act. In short, SEBI has been given the necessary autonomy and authority to regulate and develop an orderly securities market.

SEBI Intermediaries
All intermediaries and persons associated with the securities market shall be registered with SEBI and governed by the SEBI rules and regulations.

Brokers, Sub-brokers, Underwriters, Merchant bankers, Bankers to the issue, Share transfer agents Registrars to the issue, Depositories,

Portfolio managers, Debentures trustees, Foreign institutional investors, Custodians , Venture capital funds, Mutual funds, Collective investments schemes, Credit rating agencies etc.

SEBI Constitution

SEBI is a body corporate, having its head office in Mumbai. SEBI consists of the following members, namely:

a Chairman appointed by the Central Govt.; two members from amongst the officials of the Ministry of the Central Government dealing with Finance and administration of Companies Act, 1956; one member from amongst the officials of the RBI; five other members of whom at least two shall be whole time members to be appointed by the Central Government.

The general superintendence, direction & management of the affairs of SEBI vests in a Board of Members.

SEBI Functions
a)

Regulating the business in stock exchanges and any other securities markets;

b)

Registering & regulating working all intermediaries/ persons who may be associated with securities markets in any manner;
Promoting and regulating self-regulatory organisations; Prohibiting fraudulent and unfair trade practices relating to securities markets; Promoting investors' education and training of intermediaries of securities markets; Prohibiting insider trading in securities;

c) d)

e)

f)

SEBI Functions
g)

Regulating substantial acquisition of shares and take-over of companies;

h)

Calling for information, undertaking inspection, conducting inquiries and audits of stock exchanges, mutual funds, other intermediaries / persons associated with the securities market; Performing such functions and exercising according to Securities Contracts (Regulation) Act, 1956,
Levying fees or other charges for carrying out above purposes Conducting research for the above purposes; Performing such other functions as may be prescribed.

i)

j) k) l)

SEBI Powers
i.

Suspend the trading of any security in a recognized stock exchange,

ii.
iii.

Restrain persons from accessing the securities market,


Prohibit any person associated with the securities market to buy, sell or deal in securities, Suspend any officer of any stock exchange or intermediary, Impound and retain the proceeds of any transaction which is under investigation, Summon attendance of any person and examine on oath, Inspection of books of accounts, documents, registers etc.

iv. v.

vi. vii.

SEBI Powers
vii.

Power to carry out a formal investigation, when SEBI has reasonable grounds to believe that
o

Transactions in securities are carried out in such a manner that is harmful to the market / investors interests,
Any intermediary / person has violated the provisions of the law.

SEBI Penalties

In the following defaults the penalty will be Rs. 1 lac per day of delay or Rs. 1 crore, whichever is lower

Failure to furnish returns / books/ information / documents within the specified time period,
Failure to enter into agreements with clients,

Failure to redress investors grievances,


By a mutual fund company dispatching unit cert., refund application money, failing to invest collected money etc.

By a stock broker failure to deliver any security or make payment to an investor, in the manner prescribed.

SEBI Penalties (contd.)

When a stock broker fails to issue contract notes in prescribed manner, penalty is five times the amount of contract note,

Insider trading is dealing in securities based on unpublished price-sensitive information. Penalty is Rs. 25 crore or 3 times the profit made, whichever higher. Non-disclosure of acquisition of shares and takeovers penalty is Rs. 25 crore or 3 times the profit made, higher.
Fraudulent or unfair trade practices - penalty is Rs. 25 crore or 3 times the profit made, whichever higher.

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