Securites and Exchange Board of India Act, 1992

Major part of the liberalisation process was the repeal of the Capital Issues (Control) Act, 1947, in May 1992. With this, Government’s control over issues of capital, pricing of the issues, fixing of premia and rates of interest on debentures etc. ceased, and the office which administered the Act was abolished: the market was allowed to allocate resources to competing uses.

However, to ensure effective regulation of the market, Securites and Exchange Board of India Act, 1992 was enacted to establish SEBI with statutory powers for:

(a) protecting the interests of investors in securities,

(b) promoting the development of the securities market, and

(c) regulating the securities market.

Its regulatory jurisdiction extends over companies listed on Stock Exchanges and companies intending to get their securities listed on any recognized stock exchange in the issuance of securities and transfer of securities, in addition to 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 in respect of issues; can issue directions to all intermediaries and other persons associated with the securities market in the interest of investors or of orderly development of the securities market; and can conduct enquiries, audits and inspection of all concerned and adjudicate offences under the Act. In short, it has been given necessary autonomy and authority to regulate and develop an orderly securities market. All the intermediaries and persons associated with securities market, viz., brokers and sub-brokers, underwriters, merchant bankers, bankers to the issue, share transfer agents and registrars to the issue, depositories, Participants, portfolio managers, debentures trustees, foreign institutional investors, custodians, venture capital funds, mutual funds, collective investments schemes, credit rating agencies, etc., shall be registered with SEBI and shall be governed by the SEBI Regulations pertaining to respective market intermediary.

Constitution of SEBI

The Central Government has constituted a Board by the name of SEBI under Section 3 of SEBI Act. The head office of SEBI is in Mumbai. SEBI may establish offices at other places in India.

SEBI consists of the following members, namely:-

(a) a Chairman;

(b) two members from amongst the officials of the Ministry of the Central Government dealing with Finance and administration of Companies Act, 1956;

(c) one member from amongst the officials of the Reserve Bank of India;

(d) five other members of whom at least three shall be whole time members to be appointed by the Central Government.

The general superintendence, direction and management of the affairs of SEBI vests in a Board of Members, which exercises all powers and do all acts and things which may be exercised or done by SEBI.

The Chairman also have powers of general superintendence and direction of the affairs of the Board and may also exercise all powers and do all acts and things which may be exercised or done by the Board.

The Chairman and members referred to in (a) and (d) above shall be appointed by the Central Government and the members referred to in (b) and (c) shall be nominated by the Central Government and the Reserve Bank respectively.

The Chairman and the other members are from amongst the persons of ability, integrity and standing who have shown capacity in dealing with problems relating to securities market or have special knowledge or experience of law, finance, economics, accountancy, administration or in any other discipline which, in the opinion of the Central Government, shall be useful to SEBI.

Functions of SEBI

SEBI has been obligated to protect the interests of the investors in securities and to promote and development of, and to regulate the securities market by such measures as it thinks fit. The measures referred to therein may provide for:-

(a) regulating the business in stock exchanges and any other securities markets;

(b) registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities markets in any manner;

(c) registering and regulating the working of the depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies and such other intermediaries as SEBI may, by notification, specify in this behalf;

(d) registering and regulating the working of venture capital funds and collective investment schemes including mutual funds;

(e) promoting and regulating self-regulatory organisations;

(f) prohibiting fraudulent and unfair trade practices relating to securities markets;

(g) promoting investors’ education and training of intermediaries of securities markets;

(h) prohibiting insider trading in securities;

(i) regulating substantial acquisition of shares and take-over of companies;

(j) calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, mutual funds, other persons associated with the securities market, intermediaries and self- regulatory organisations in the securities market;

(k) calling for information and record from any bank or any other authority or board or corporation established or constituted by or under any Central, State or Provincial Act in respect of any transaction in securities which is under investigation or inquiry by the Board;

(l) performing such functions and exercising according to Securities Contracts (Regulation) Act, 1956, as may be delegated to it by the Central Government;

(m) levying fees or other charges for carrying out the purpose of this section;

(n) conducting research for the above purposes;

(o) calling from or furnishing to any such agencies, as may be specified by

SEBI, such information as may be considered necessary by it for the

efficient discharge of its functions;

(p) performing such other functions as may be prescribed.

SEBI may, for the protection of investors, (a) specify, by regulations for (i) the matters relating to issue of capital, transfer of securities and other matters incidental thereto; and (ii) the manner in which such matters, shall be disclosed by the companies and (b) by general or special orders : (i) prohibit any company from issuing of prospectus, any offer document, or advertisement soliciting money from the public for the issue of securities, (ii) specify the conditions subject to which the prospectus, such offer document or advertisement, if not prohibited may be issued. (Section 11A). SEBI may issue directions to any person or class of persons referred to in section 12, or associated with the securities market or to any company in respect of matters specified in section 11A. if it is in the interest of investors, or orderly development of securities market to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interests of investors or securities market to secure the proper management of any such intermediary or person (Section 11B).

Registration of Intermediaries

The intermediaries and persons associated with securities market shall buy, sell or deal in securities after obtaining a certificate of registration from SEBI, as required by Section 12:

  1. Stock-broker,
  2. Sub- broker,
  3. Share transfer agent,
  4. Banker to an issue,
  5. Trustee of trust deed,
  6. Registrar to an issue,
  7. Merchant banker,
  8. Underwriter,
  9. Portfolio manager,
  10. Investment adviser
  11. Depository,
  12. Participant
  13. Custodian of securities,
  14. Foreign institutional investor,
  15. Credit rating agency,
  16. Collective investment schemes,
  17. Venture capital funds,
  18. Mutual fund, and
  19. Any other intermediary associated with the securities market.

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