Objectives of SEBI and Its Functions

SEBI regulates every player in Indian capital market to protect the interest of investors. One of the main objectives of SEBI is developing the Indian capital markets by enforcing rules and regulations.

In this article, we will be discussing the objectives of SEBI to understand its importance in the financial system of India.

Table of Contents

• About SEBI
• Objectives of SEBI
• Powers of SEBI
• Functions of SEBI

What is SEBI?

The Securities and Exchange Board of India (SEBI) is a statutory body that regulates the commodity and financial market in India. The Ministry of Finance holds ownership of SEBI. SEBI drafts regulations according to its legislative capacity, and it conducts investigation and enforcement action in executive function. It passes the rulings and orders in its judicial capacity. SEBI is responsible for ensuring that the requirements of investors, market intermediaries and securities issuers are fulfilled. This apex body is crucial for the interest of those who are interested in investing.

The corporate framework comprises of more than 20 departments under SEBI that consist of different members. It is managed by two members from Union Finance Ministry and one member from the RBI. The rest of the five members are nominated by the Union Government of India, where three members must be at least whole-time members. 

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Objectives of SEBI

The basic objectives of SEBI are described by the Preamble of the Securities and Exchange Board of India. As per this description, SEBI’s function is as mentioned: 

Along with that, the following are the objectives of SEBI:

1. Safeguarding the Interest of Investors

One of the main objectives of SEBI is to educate investors on the methods to take necessary precautions. Along with that, SEBI facilitates investors to make informed decisions related to investments. SEBI  has adopted measures such as the dematerialization of securities, T+2 rolling settlement, screen-based trading system. It has also framed regulations for regulating intermediaries, corporate restructuring, as well as the issue and trade of securities. 

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2. Facilitating Redressal of Investor Grievances

SEBI has a comprehensive mechanism for the redressal of the grievances of investors against listed companies and intermediaries. In case a company or intermediary does not redress the grievances of investors, SEBI sends reminders and also holds meetings. Appropriate enforcement actions are taken as per the law. 

There is a comprehensive arbitration mechanism in the stock exchange and depositories for the resolution of investors’ disputes. The investor protection fund helps in compensating investors if a broker is declared to be a defaulter. The depository repays the investors for loss due to negligence of the depository. 

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3. Regulating the Stock Market

Another objective of SEBI is to regulate Indian Capital Markets. The Capital Markets Division of Department of Economic Affairs administers the rules made within the bounds of SEBI. It carries out the following functions within the tenets of SEBI regulations:

• Regulating Capital markets through preventive measures
• Encouraging the formation of self-regulatory organizations
• Regulating the functions of stock exchange and security markets
• Formulating rules to prevent malpractices within the system
• Managing and controlling complaints division
• Promoting learning opportunities for investors

4. Developing Code of Conduct for Intermediaries of Mutual Funds

SEBI prioritizes the interests of investors, and therefore it takes steps to safeguard their interests. For this purpose, SEBI issues Mutual Fund Regulations and guidelines to ensure safe distribution, selling, and advertising practices. It also mandates mutual funds to adhere to SEBI guidelines for preparing literature related to any scheme. These schemes must be up to date in the form of SID, addenda, performance report, fact sheets, SAI, portfolio disclosure, and brochure.  

Powers of SEBI

There are three main powers of SEBI, including the following:

• Quasi-Judicial: In case there are any financial frauds committed in the security market, SEBI has the authority to rule out judgments. This is to ensure transparency, fairness, and accountability within the securities market. 
• Quasi-legislative: SEBI also holds the power to protect its investors by managing rules to prevent malpractices within the securities market. These rules are related to insider reading, essential disclosure requirements, and listing obligations. 
• Quasi-executive: SEBI holds the power to examine and gather critical financial documents as evidence against violations. Based on the investigation, SEBI can impose rules, take legal actions and pass judgment as and when required. 

Functions of Securities and Exchange Board of India

SEBI has primarily three functions, including Developmental, Protective and Regulatory functions. Let us take a look at each of them:

1. Developmental Functions

SEBI performs these functions for promoting and developing activities in the stock exchange. As a part of the developmental functions, SEBI does the following:

• Promoting the training of intermediaries of securities market
• Permitting IPO of the primary market through the stock market
• Reducing the cost of the issue for which SEBI has made underwriting optional
• Permitting internet trading through a registered stock broker

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2. Protective Function

Another crucial function of SEBI is to protect the interests of investors and to provide them the safety of the investment. For this purpose, SEBI performs further functions:

• Prohibiting price rigging since this malpractice involves the manipulation of security prices to inflate or deflate market prices of securities.
• Insiders have access to sensitive information of the company to which they belong. They use the privilege of having internal information to impact the prices of securities. SEBI protects the interest of investors by prohibiting insider trading.
• It does not allow companies to prepare any statement that may mislead investors and induce the purchase and sale of securities. 
• Educating investors to help them evaluate securities of different companies and maximize the output by choosing the most profitable security.

3. Regulatory Functions

These are performed to regulate business in stock exchange. These include the following:

• Regulating intermediaries such as brokers and underwriters on the basis of a code of conduct and set of rules
• Conducting inquiries and auditing of stock exchange
• Registering and regulating mutual funds
• Bringing intermediaries under the regulatory purview and making private placement more restrictive
• Regulating takeover of companies
• Registering and regulating the working of stock brokers, sharing merchant brokers, trustees, and professionals associated with the stock exchange

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Conclusion

SEBI is the apex regulatory body for the securities market in India. Without the monitoring and guidance of SEBI, the financial markets in India will become unregulated. Traders, investors, and companies will be unable to operate in the market in a legal manner.