06-12-2024
09:30 AM
Prelims: Economic and Social Development-Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc.
Mains: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
The Securities and Exchange Board of India (SEBI) is the key regulatory authority for the Indian securities market, established to protect investor interests, promote market growth, and ensure the fairness and transparency of financial transactions. Initially formed in 1988, SEBI was given statutory powers through the SEBI Act, 1992.
Over the years, SEBI has played a pivotal role in transforming India’s securities markets by introducing major reforms like paperless trading, electronic settlements, and the T+1 settlement cycle, which has significantly improved the market’s efficiency and security.
The Securities and Exchange Board of India (SEBI) is a statutory body responsible for overseeing and regulating the securities markets in India. Established to protect the interests of investors and promote the development and regulation of the securities market, SEBI plays a crucial role in maintaining the integrity of the Indian financial system.
Before the establishment of SEBI, the Indian securities market was regulated by the Controller of Capital Issues (CCI), a body created under the Capital Issues (Control) Act of 1947. However, by the late 1980s, the Indian securities market had grown significantly, and the CCI's limited regulatory framework became increasingly inadequate to address the complexities of the evolving market.
SEBI's primary objectives are to protect the interests of investors, promote the development of the securities market, and regulate its functioning to ensure transparency and fairness. It aims to create an environment where investors feel secure by enforcing rules that prevent fraudulent and unfair trade practices, such as insider trading.
By maintaining an effective regulatory framework, SEBI seeks to balance investor protection with market growth, ensuring that both corporate participants and investors benefit from a well-regulated securities market.
SEBI is governed by a Board of Directors responsible for ensuring its smooth functioning and effective regulation of the securities market. The board is composed of representatives from various government bodies and experts from the financial sector. The composition of SEBI’s board is as follows:
The Central Government has the authority to remove any member from office under specific conditions, including if the member is adjudicated as insolvent, declared of unsound mind by a competent court or convicted of an offence involving moral turpitude as deemed by the Central Government.
SEBI holds extensive powers to regulate and control the securities market in India. These powers are equivalent to those of a civil court under the Code of Civil Procedure, 1908, allowing SEBI to investigate and take necessary actions to protect investor interests and ensure market integrity. SEBI’s powers in this regard include the following:
Additionally, SEBI can take the following measures to safeguard the market, either during an investigation or after its completion:
SEBI plays a vital role in regulating and developing the securities market in India. Its wide-ranging functions ensure market integrity, protect investors, and promote transparency. Some of SEBI's key functions include:
The Securities Appellate Tribunal (SAT) was established under Section 15K of the SEBI Act to hear appeals against orders issued by SEBI or an adjudicating officer under the SEBI Act. SAT ensures an independent judicial review of SEBI’s decisions. The presiding officer of SAT must either be a sitting or retired Supreme Court judge, a Chief Justice of a High Court, or a High Court judge with at least seven years of service.
SEBI has been successful as a regulator by implementing systematic reforms and modernizing the Indian securities market. One of its significant contributions is the move towards a fully electronic and paperless trading system, which improved efficiency and reduced risks like theft, forgery, and delays. SEBI has also played a pivotal role in establishing regulations and addressing major financial challenges. Key achievements include:
Despite SEBI’s regulatory role, it has faced criticism for its handling of various financial scams and market irregularities. Critics argue that SEBI has not always been proactive in addressing major financial crises and has been slow to take action against fraudulent activities. Key criticisms include:
To address its shortcomings and improve market regulation, SEBI needs to adopt a more proactive and transparent approach. Strengthening its enforcement mechanisms, enhancing monitoring capabilities, and improving investor education are critical steps for SEBI to regain and maintain public trust. Key areas for improvement include:
Question 1) The product diversification of financial institutions and insurance companies, resulting in overlapping of products and services strengthens the case for the merger of the two regulatory agencies, namely SEBI and IRDA. Justify. (UPSC Mains 2013)
Q1. What is SEBI and its purpose?
Ans. SEBI is the regulatory authority for the securities market in India. Its purpose is to protect investor interests, promote market development, and regulate market participants.
Q2. Who controls SEBI?
Ans. SEBI functions as an autonomous body, but its members are appointed by the Union Government of India.
Q3. Where is the headquarter of SEBI?
Ans. SEBI's headquarters is located in Mumbai, India.
Q4. Who appoints the members of SEBI?
Ans. The members of SEBI, including the chairman, are appointed by the Union Government of India.
Q5. What is the difference between SEBI and IRDA?
Ans. SEBI regulates the securities market, while IRDA (Insurance Regulatory and Development Authority) regulates the insurance sector in India.
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