An In-Depth Analysis of SEBI’s Authority
The Securities and Exchange Board of India was established as a statutory entity by an ordinance on January 30, 1992. The ordinance was passed by both chambers of Parliament on April 1, 1992, although the legislation is deemed to have taken effect from the day the ordinance was issued. The abilities of the SEBI are examined and analysed in this article.
SEBI was established in the same manner as the Securities and Exchange Commission of the United States, which was established under the Securities Exchange Act of 1934 to oversee the securities market and to prevent unfair trade activities on the stock exchange. Because of the securities fraud, there was a sense of urgency to establish SEBI as a capital markets regulator.
The Securities and Exchange Board of India aims to meet the needs of issuers, investors, and intermediates involved in the securities market. SEBI is a quasi-legislative and quasi-judicial organisation with the authority to create rules, conduct investigations, issue decisions, and levy penalties.
What are the significant powers of SEBI?
SEBI has broad powers to carry out the goals of the SEBI Act of 1992. SEBI has the authority to take both preventative and punitive actions in order to safeguard investors and improve the securities market. Circulars, instructions, and press releases are examples of such initiatives. Furthermore, the actions can be implemented if they are carried out in accordance with and advancement of the defined objectives.
SEBI is in charge of overseeing all AMCs and Asset Management Company Registration in the nation. SEBI is the primary authority when it comes to controlling, supervising, and assessing the performance of investment managers. SEBI also has a procedure for resolving complaints and other concerns about asset managers.
SEBI is empowered to take measures to regulate the following:
Regulation of stock exchange business and other securities market
SEBI focuses on preserving the openness, integrity, and correct operation of stock exchanges by different means such as broker registration, increased trading hours, resolving investor concerns, and so on. SEBI also has the authority under the Securities Contract (Regulation) Act of 1956 to give recognition to stock exchanges, supersede stock exchange activity, remove recognition, and so on. The Central Government has delegated these authorities.
Registration and Regulation of securities market intermediaries
SEBI has the authority to create registration regulations, which might include eligibility requirements, capital adequacy standards, a code of conduct, and so on. No one can engage in activities carried out by a SEBI registered intermediary until the certificate of registration is supplied by SEBI. It guarantees that the fit and suitable guidelines are followed.
Registration and regulation of the functioning of the Venture Capital Fund, Collective Investment Schemes
Previously, mutual funds were controlled by RBI standards, which applied only to mutual funds sponsored by banks. SEBI issues a certificate of registration to the mutual fund. It also controls the form and composition of the fund, its AMCs, the registration of trust deeds, and has the authority to regulate various schemes and activities of mutual funds.
Regulation of the self-regulatory organizations
Self-regulatory organisations are charged with becoming the first level regulator for a subset of securities market intermediaries who are members of the organisation. SEBI recognises self-regulatory groups and monitors their operations to ensure that they are adhering to ethical norms. It contributes to investor fairness, accountability, and openness. Association of Investment Bankers of India and Association of Mutual Funds of India are two examples of self-regulatory organisations.
Power to prohibit fraudulent & unfair trade practices in the securities market
The SEBI (Prohibition of fraudulent and unfair dealing in the securities market) Regulations 2003 were notified. Price manipulation, circular trading, inflating, lowering, or fluctuating securities prices, and publishing any incorrect statement or deceptive advertisement are all examples of fraudulent transactions and unfair trade practises defined by SEBI as well as others.
Prohibiting Insider Trading in Securities
SEBI has taken steps to ban securities market players from engaging in insider trading. SEBI drafted the original Prohibition of Insider Trade Regulations in 1992, which were later superseded by the Prohibition of Insider Trading Regulations 2015, which defined an insider, unpublished price sensitive knowledge, trading, and other terms. SEBI established many committees with the goal of improving market integrity and increasing investor trust.
On the suggestion of the TK Viswanathan Committee Report, many modifications to the Prohibition of Insider Trading Regulations were adopted.
Regulation of substantial shares acquisition and companies takeover
SEBI requires open offers and disclosure by the acquisition and any person working in conjunction with such acquirer. It specifies who would be an acquirer, target firm, and so on. What it does is assure that the acquisition mechanism is transparent and accountable. SEBI also requires sufficient disclosures from listed firms’ acquirers and promoters.
SEBI has the authority to impose rules under Section 30(2) of the SEBI Act. Regulations have been established for securities market intermediaries, mutual funds, alternate investment funds, venture capital funds, foreign portfolio investors, insider trading, takeovers, and other securities-related issues. However, it should be remembered that SEBI regulations are both legislative and statutory in nature.
Let’s explore Investigating Powers of SEBI
When it comes to the theory of separation of powers, SEBI’s quasi-judicial activities and decisions are susceptible to appeal, while the Board’s obligations fall to the other side. The board exercises legislative authority by enacting rules, executive power by enforcing regulations enacted by it and taking action against entities that violate the regulations, and judicial power by adjudicating implementation issues. Such authority must be consistent with the constitution and the SEBI Act, and not contradict them.
The SEBI has the authority to order an inquiry if it has cause to suspect that a securities transaction is harmful to investors or the securities market, or if someone breaches the terms of the Act. SEBI also has the authority of a civil court in that it may call and order a person’s attendance, interrogate them, and check records of accounts.
Furthermore, as part of its powers, SEBI can restrict or ban a person from entering the securities market. SEBI can issue such an order even while the inquiry is ongoing. Furthermore, by obtaining a disgorgement order, SEBI can recover illicit gains acquired by a person via illegal activity.
SEBI can also take immediate action against companies that incorporate illegal schemes to generate revenue from retail investors, and it can prohibit a person acting as an intermediary, such as a research analyst, investment advisor, and so on, from soliciting/undertaking an activity in securities, either explicitly or implicitly.
The powers of SEBI have been expanded several times by the Indian parliament. This is due to its critical position in the Indian financial system. SEBI is without a doubt one of India’s most powerful regulatory entities. By regulating the Indian financial industry through its 20 divisions, it plays a significant role in preventing big financial frauds.