Day 38 – Q. 2 Analyze the role of the Securities and Exchange Board of India (SEBI) in regulating the securities market in India. How effective has SEBI been in promoting investor protection and market integrity? Examine.

Analyze the role of the Securities and Exchange Board of India (SEBI) in regulating the securities market in India. How effective has SEBI been in promoting investor protection and market integrity? Examine.

भारत में प्रतिभूति बाजार को विनियमित करने में भारतीय प्रतिभूति और विनिमय बोर्ड (सेबी) की भूमिका का विश्लेषण करें। निवेशक सुरक्षा और बाजार अखंडता को बढ़ावा देने में सेबी कितना प्रभावी रहा है? परीक्षण करें।

Approach

Candidates can start the answer by writing basics on SEBI and explain its role in later part. Also, as per the demand examine its work and effectivity towards investors and market.

Introduction

In April, 1988 the SEBI was constituted as the regulator of capital markets in India under a resolution of the Government of India. Initially SEBI was a non-statutory body without any statutory power. It became autonomous and given statutory powers by SEBI Act 1992.

Body

Role of SEBI:

• To review the market operations, organizational structure and administrative control of the stock exchanges.
• To overlook the registration and regulation of working of market intermediaries such as merchant bankers, portfolio managers, stock broker etc.
• To overlook the registration and regulation of Mutual Funds, Venture Capital Funds and Collective Investment Schemes.
• Prohibiting fraudulent and unfair trade practices in the securities market. Prohibition of Insider Trading and to educate and train the investors.
• To regulate securities market intermediaries: SEBI has the power to regulate the intermediaries for proper functioning of the market. In order to do so it can also restrain persons from accessing the securities market and even prohibit any person from such access.
• To investigate: If SEBI has reasonable grounds to suggest that the any particular transaction or transactions are dealt in a manner which is detrimental for the investor, then it can order anyone to investigate such transactions.

Functioning of the SEBI:

• Corporate debt and securitization market: Despite numerous attempts the debt market volume has increased but it has failed to attract sufficient liquidity.
• Talent pool and market intelligence: In 2012 SEBI had 643 employees whereas US security and exchange commission alone had 1000 people. As we all know human resource is the most important resource for an organisation.
• Enforcement process: The statutory powers of SEBI are at par with a civil court SEBI has made various regulations.
• Deepening capital market: The number of participants in the capital market has not risen much. Still a large section of society does not deal in security market.
• SEBI has done a lot to encourage people to participate in capital market such as abolishing entry load on mutual funds, simplifying KYC norms but it needs to take some stronger steps to deepen participation in capital market.
• Matching up to global standard: Capital markets are growing and the size of SEBI as compared to security market is not sufficient to properly regulate the capital market like its peers (regulators of US and UK) it needs to established self-regulatory organisations. SRO can focus on routine decisions and SEBI can work on more important issues.

Way forward

• The regulator needs to develop a vibrant corporate debt market and securitization market but these largely remain part of over-the-counter market.
• It should work deeper participation in equity by pension, superannuation and gratuity funds, developing a vibrant retail debt segment and reducing the cost of transaction.
• SEBI need to strengthen its surveillance and enforcement functions it needs to ensure that violations do not go unnoticed whether small or large.
• SEBI needs to increase its human resource in both quality and quantity. It needs to significantly improve its market intelligence, technology and talent pool in order to improve its performance.
• There is need of an attitudinal change, indeed, hundreds of inputs about the market being full of crooks necessitating a crackdown and severe intervention would be received.