SEBI

(Securities & Exchange Board Of India)

 SEBI is the regulator for
Securities Market in India.

 Established by the Government of India in 1988 through an

executive resolution

 Was subsequently upgraded as a fully autonomous

body (a statutory Board) in the year 1992 with the passing of the
SEBI Act on 30th January 1992.

 In place of Government Control, a statutory and autonomous

regulatory board with defined responsibilities, to cover both
development & regulation of the market, and independent powers
have been set up.
 How SEBI came into picture??
The World Bank and the IMF have introduced a benchmark i.e.,
Financial Services Assessment Programme (FSAP) to strengthen the
monitoring of financial systems.

The FSAP is designed to foster growth by promoting financial system

soundness and financial sector diversity.

The mission of SEBI is to make India as one of the best securities

market of the world and SEBI as one of the most respected regulator in
the world. SEBI endeavors to achieve the standards of FSAP.
 Why do we need a regulatory body for
Investor protection in India?

 India is an ` informationally ' weak market

 Boosting capital market demands restoring the

confidence of lay investors who have been beaten
down by repeated scams

 Progressively softening interest rates and an under

performing economy have eroded investment
options, and require enhanced investing skills.
SEBI is headquartered in the popular
business district of Bandra-Kurla complex in
Mumbai

Regional offices

Northern New Delhi

Eastern Kolkata
Southern Chennai
Western Ahmedabad
 Organization structure
Chandrasekhar Bhaskar Bhave is the sixth
chairman of the Securities Market Regulator.

The Board comprises :

Name Designation

CB Bhave Chairman SEBI

KP Krishnan Joint Secretary, Ministry of Finance
Anurag Goel Secretary, Ministry of Corporate Affairs
Dr G Mohan Gopal Director, National Judicial Academy, Bhopal
MS Sahoo Whole Time Member, SEBI
Dr KM Abraham Whole Time Member, SEBI
Mohandas Pai Director, Infosys
Prashant Saran Whole Time Member, SEBI
 Basic objectives of the Board were identified
as:

· to protect the interests of investors in securities;

· to promote the development of Securities Market;
· to regulate the securities market and
· for matters connected therewith or incidental
thereto.
 Functions and responsibilities:

SEBI has to be responsive to

the needs of three groups,
which constitute the market:

the issuers of securities

the investors
the market intermediaries.
 POWERS & FUNTIONS OF SEBI

1. FUNCTIONS OF SEBI
 Regulation of business in the stock exchanges

 Registration & regulation of the working of intermediaries

 Registration & regulation of mutual funds, venture capital funds &
CI schemes
 Promoting & regulating self regulatory organisations
 Prohibiting fraudulent & unfair trade practices in the securities
market
 Prohibition of insider trading
 Investor education & training of intermediaries
 Inspection & inquiries

 Regulating substantial acquisition of shares & takeovers

 Regulating such functions & exercising such powers under the
provision of SC(Regulation) Act, 1956, as maybe delegated to it by the
central government.
 Levying fees or other charges for carrying out the purposes of this
section
 Conducting research for the above purpose
2.POWER OF INSPECTION
 The board may undertake inspection of any book,
register or other documents of any listed public
company if board believes that company is indulging
in unfair trade practices.

3. POWERS OF COURT
 The discovery & production of books of a/c at such
place and time as board specifies and later on
inspecting them.
 Enforcing attendance of persons and their
examination under oath.
 Issuing commissions for the examination of witness
or documents.
4.POWER IN THE INTERESTS OF SECURITIES
MARKET
For the interest of investors, the board can take
any of measures like:
 Suspend trading of any security in a stock

exchange.
 Prohibit any person associated with securities

market to buy, sell or deal in securities.

 Suspend any office bearer of stock exchange

or other organization from holding his position.

 Retain the proceeds of any transaction which

is under investigation.
5. POWER REGARDING INTEREST OF
INVESTORS

 SEBI may protect investors by

specifying regulations:
 Relating to issue of capital, transfer of
securities and other matters and how these
shall be disclosed by cos.
 prohibit any co from issuing prospectus
 Specify conditions for issue of prospectus.
 Specify requirements for listing and transfer
of securities and other incidental matters.
6.POWER TO ISSUE DIRECTIONS
 In matters of investor protection & orderly
development of securities market.
 Issue directions to any person, class of persons or
company to secure the proper mgt

7.POWERS OF INVESTIGATION
 Where board believes that securities are being dealt
in a manner detrimental to investors or securities
market.
 Investing authority may ask company manager, M.D,
and any intermediary to produce required
documents.
Contd..

 These documents can held in custody by investing

authority for 6 months & returned thereafter.
 Investigating authority may examine the required
person of company or any intermediary under
oath.
 Failing on the above issues, he shall be punishable
with imprisonment up to 1 yr or fine of Rs. 1 crore
or both and may extend fine of Rs. 5 lacs for every
day during which the refusal continuous.
8.POWER TO CEASE AND DESIST
PROCEEDINGS (sec 11D)

 If a person has violated or likely to violate

any provisions of the act, he may be ceased
from committing such violation.
 However, board shall not pass such order in
respect of any listed public company unless
reasonable grounds are there like company
indulging in insider trading or market
manipulation.
9. REGISTRATION OF STOCK BROKERS, SUB-
BROKERS, SHARE TRANSFER AGENTS
 No stock broker, share transfer agent, merchant
banker, underwriter or other intermediary can buy,
sell or deal in securities except under conditions of
certificate of registration obtained from board.

 Application for registration should be in proper

manner and required fees should have been paid.

 The board hold the right for cancellation of certificate

of registration after giving the person a reasonable
opportunity of being heard.
10. PROHIBITION OF MANIPULATIVE &DECEPTIVE
DEVICES, INSIDER TRADING AND SUBSTANCIAL
ACQUISATION OF SECURITIES OR CONTROL
 No person can use or employ any deceptive means

regarding issue, purchase or sale of securities.

 Engage in any act or practice of business which

would be a fraud upon any person and not in
provisions of the act.

 Engage in insider trading

 No person can acquire, control of company or

securities more than the percentage of equity share
capital of the company.
 Penalties and adjudication
1) Penalty for failure to furnish information, return:-

If any person who is required under this act or any rules

regulation made there under.
A) to furnish any document return or report to the board
fails to furnish the same he shall be liable to a penalty of
1 lacs rupees for each day during which such failure
continues or 1 crore whichever is less.
B) to file any return or furnish any information books or
other documents within the time specified fails he shall
be liable to a penalty of 1 lacs rs for each day during
which such failure continues or 1 crore whichever is less.
C) to maintain books of accounts and records fails to
maintain the same he shall be liable to a penalty of 1
lacs rs for each day during which such failure continues
or 1 crore whichever is less.
2) Penalty for failure by any person to enter into
agreement with clients:-
If any person who is registered as an intermediary
under the act fails to enter in an agreement with his
clients he shall be liable to a penalty of 1 lacs rupees for
each day during which such failure continues or 1 crore
whichever is less.
3) Penalty for failure to redress investors grievances
:-
If any listed company or any person who is registered as
 an intermediary after having been called upon by the
board in writing to redress the grievances of
investors fails to redress them with the time
specified liable to a penalty of 1 lacs rupees for each
day during which such failure continues or 1 crore
whichever is less.
4) Penalty for certain defaults in case of mutual
funds:-
If any person who is
A) required under this act to obtain a certificate of
registration from the board for carrying on collective
 investment scheme without obtaining such certificate of
registration he shall be liable to a penalty of 1 lacs
rupees for each day during which such failure continues
or 1 crore whichever is less.
B) fails to comply with terms and conditions of certificate of
registration he shall be liable to a penalty of 1 lacs
rupees for each day during which such failure continues
or 1 crore whichever is less.
5) Penalty for failure to observe rules and
regulation by any asset management company.
Where any asset management company of any a mutual
fund registered under this act fails to comply with any
 of regulation providing for restriction on the activities of
the asset management company shall be liable to a
penalty of 1 lacs rupees for each day during which such
failure continues or 1 crore whichever is less.
6) Penalty for default in case of stock brokers
If any person who is registered as a stock broker fails to
issue contract notes as in the manner and form specified
by the stock exchange of which such a person is a
member, he shall be liable to a penalty not exceeding
five times the amount for which the contract note was
required to be issued by that broker
7) Penalty for insider trading
If any insider either on his own behalf or on the behalf
 of any person deals in securities of a body corporate
listed on any stock exchange on the basis of
unpublished price sensitive information he shall be
liable to a penalty of twenty five crores rupees or three
times the profit whichever is higher.
8) Penalty for non disclosure of acquisition
of shares and takeovers
If any person who is required under this act or any rules
or regulations made there under fails to
1) disclose the aggregate of his share holding in the
board corporate before he acquire any shares in the
body corporate.
2) Make a public offer by sending letter of offer to the
shareholders of the concerned company
2) make a public announcement to acquire shares at a
minimum price
he shall be liable to a penalty of 25 crores or three times
the amount of profits made out of such failure,
whichever is higher.
9) Penalty for fraudulent and unfair trade practices
If any person indulges in fraudulent and unfair trade
practices he shall be liable to a penalty of 25cr or three
times the amount of the profit made out of such
activities whichever is higher.
10)Penalty for contravention where no separate
penalty has been provided
Whoever fails to comply with any provision of this act
the rules or regulations made for which no separate
penalty is there shall be liable to penalty of 1cr.
11. POWER TO ADJUDICATE
for the purpose of adjudicating, the board shall appoint any of its
officers not below the rank of division chief to be an adjudicating
officer for holding an enquiry in the prescribed manner after giving any
person concerned a reasonable opportunity of being heard for the
purpose of imposing any penalty.

12. FACTORS TO BE TAKEN INTO ACCOUNT BY

ADJUDICATING OFFICER

the amount of disproportionate gain or unfair advantage, wherever

quantifiable made as result of default,
The amount of loss caused to an investor or group of investors as a
result of default
The repetitive nature of default.
 Two broad approaches of SEBI

 To integrate the securities market at the national level,

 To diversify the trading products, so that there is an

increase in number of traders including banks, financial
institutions, insurance companies, mutual funds,
primary dealers etc. to transact through the Exchanges.

In this context the introduction of derivatives trading

through Indian Stock Exchanges permitted by SEBI in
2000 AD is a real landmark.
 SEBI has three functions rolled into one body
quasi-legislative, quasi-judicial and quasi-executive.

It drafts regulations in its legislative capacity,

it conducts investigation and enforcement action in its
executive function
it passes rulings and orders in its judicial capacity.
Though this makes it very powerful, there is an appeals
process to create accountability. There is a Securities
Appellate Tribunal which is a three member tribunal and is
presently headed by a former Chief Justice of a High court -
Mr. Justice NK Sodhi. A second appeal lies directly to the
Supreme Court
 Guidelines by SEBI

 Guidelines for issue of debt instruments

 Guidelines for e-IPO’s

Other measures
 Guidelines for merchant bankers

 Guidelines for euro issues

 Guidelines for MF’s & AMC’s
 Guidelines for FII’s
Guidelines for developing financial institutions for disclosure & investor
protection.
 Guidelines for book building, ESOP, employee stock purchase scheme
 Guidelines for preference issues
 Guidelines for external commercial borrowings
 Regulatory measures for stock brokers, sub brokers, underwriters,
portfolio manager, registrar to an issue & share transfer agent, insider
trading, banker to an issue, depositories participant, Venture capital fund
etc.
 SEBI GUIDELINES FOR ISSUE OF SECURITIES

SEBI has issued detailed guidelines in respect of issue of securities to

public.
The guidelines were first issued on 11th June, 1992 and were amended
subsequently from time to time. SEBI has now issued consolidated
guidelines as SEBI (DISCLOSURES AND INVESTOR PROTECTION)
GUIDELINES, 2000 vide its circular no.1 dated 19-1-2000.
These guidelines shall be applicable to all public issues by listed and
unlisted companies, all offers for sale and right issues by listed companies
whose equity share capital is listed, except in case of rights issues where
the aggregate value of securities offered does not exceed Rs.50 Lacs.
ELIGIBILITY NORMS FOR COMPANIES ISSUING SECURITIES

CONDITIONS FOR ISSUE OF SECURITIES

FILLING OF OFFER DOCUMENT

INITIAL PUBLIC OFFERING BY UNLISTED COMPANIES

PUBLIC ISSUES BY LISTED COMPANIES

EXEMPTION FROM ELIGILBILITY NORMS

 Amendments

The Securities and Exchange Board of India Act,

1992 (the SEBI Act) was amended in the years
1995,
1999,
2002
to meet the requirements of changing needs of
the securities market and responding to the
development in the securities market.
 LIMITATIONSOF SEBI

1 The central government has authorised sebi to frame

its rules and regulations for actively monitoring capital
markets. These rules and regulations have to be
approved by government first this cause unnecessary
delays.
2 Sebi will have to seek prior approval for filling criminal
complaints for violation of the regulation this will again
cause delays
3 Sebi has not been given autonomy. Its BOD is
dominated by government nominees.
By:
Anupriya Mongia
Gurpreet Kaur
Richa Babbar
Shifali Aggarwal
Shifali Loi