FUNCTIONAL REPORT OF SEBI

INTRODUCTION :

The Securities and Exchange Board of India was established on April 12, 1992,
in accordance with the provisions of the Securities and Exchange Board of India
Act, 1992.

SEBI is managed by six members – one chairman (nominated by Central

Government), two members (officers of central ministries), one member (from
RBI) and remaining two members nominated by Central Government.

Securities Exchange Board of India (SEBI) was set up in 1988 to regulate the
functions of securities market. SEBI promotes orderly and healthy development
in the stock market but initially SEBI was not able to exercise complete control
over the stock market transactions.

It was left as a watch dog to observe the activities but was found ineffective in
regulating and controlling them. As a result in May 1992, SEBI was granted
legal status. SEBI is a body corporate having a separate legal existence and
perpetual succession.

Preamble

The Preamble of the Securities and Exchange Board of India describes the basic
functions of the Securities and Exchange Board of India as”…to protect the
interests of investors in securities and to promote the development of, and to
regulate the securities market and for matters connected therewith or incidental
thereto”

Establishment of SEBI
The Securities and Exchange Board of India was established on April 12, 1992,
in accordance with the provisions of the Securities and Exchange Board of India
Act, 1992.

These Guidelines have been issued by the Securities and Exchange Board
of India under Section 11 of the Securities and Exchange Board of India
Act,1992.(a) These Guidelines may be called the Securities and Exchange
Board of India (Disclosure and Investor Protection) Guidelines, 2000.(b) These
Guidelines shall come into force from the date specified by the Board.

AIMS AND OBJECTIVES :

To understand how SEBI works.

The overall objectives of SEBI are to protect the interest of investors and to
promote the development of stock exchange and to regulate the activities of the
stock market. The objectives of SEBI are:

1. To regulate the activities of a stock exchange.

2. To protect the rights of investors and ensuring safety to their investment.

3. To prevent fraudulent and malpractices by having the balance between self-

regulation of business and its statutory regulations.

4. To regulate and develop a code of conduct for intermediaries such as brokers,

underwriters, etc.

METHOD AND METHODOLOGY :

Research Methodology refers to the search of knowledge .one can also define
research methodology as a scientific and systematic search for required
information on a specific topic. The word research methodology comes from the
word “advanced learner’s dictionary meaning of research as a careful
investigation or inquiry especially through research for new facts in my
branch of knowledge, for example, some author has to define
research methodology as systematized effort to gain new knowledge

Primary data collection:

In dealing with the real-life problem it is often found that data at hand are
inadequate, and hence, it becomes necessary to collect data that is appropriate.
There are several ways of collecting the appropriate data which differ
considerably in context of money costs, time and other resources at the disposal
of the researcher

Through personal interviews:-

A rigid procedure was followed and we were seeking answers to many pre-
conceived questions through personal interviews.

Through questionnaire:-

Information to find out the investment potential and goal was found out through
questionnaires.

Through Tele-Calling:-

Information was also taken through telephone calls.

Secondary sources of data:

In the secondary sources of data is used. (Internet, magazine, books, journals)

DETAIL REPORT OF PROJECT :

Initially, SEBI was a nonstatutory body without any statutory power. However,
in 1995, the SEBI was given additional statutory power by the Government of
India through an amendment to the Securities and Exchange Board of India Act,
1992. In April 1988 the SEBI was constituted as the regulator of capital markets
in India under a resolution of the Government of India.

The SEBI is managed by its members, which consists of following:

 The chairman who is nominated by Union Government of India.

 Two members, i.e., Officers from Union Finance Ministry.

 One member of the Reserve Bank of India.

 The remaining five members are nominated by Union Government of India,

out of them at least three shall be whole-time members.

The SEBI performs functions to meet its objectives. To meet three objectives
SEBI has three important functions. These are:

1. Protective functions

2. Developmental functions

3. Regulatory functions.

1. Protective Functions:

These functions are performed by SEBI to protect the interest of investor and
provide safety of the investment.

As protective functions SEBI performs following functions:

(i) It Checks Price Rigging:

Price rigging refers to manipulating the prices of securities with the main
objective of inflating or depressing the market price of securities. SEBI
prohibits such practice because this can defraud and cheat the investors.

(ii) It Prohibits Insider trading:

Insider is any person connected with the company such as directors, promoters
etc. These insiders have sensitive information which affects the prices of the
securities. This information is not available to people at large but the insiders
get this privileged information by working inside the company and if they use
this information to make a profit, then it is known as insider trading, e.g., the
directors of a company may know that company will issue Bonus shares to its
shareholders at the end of the year and they purchase shares from market to
make a profit with bonus issue. This is known as insider trading. SEBI keeps a
strict check when insiders are buying securities of the company and takes strict
action on insider trading.

(iii) SEBI prohibits fraudulent and Unfair Trade Practices:

SEBI does not allow the companies to make misleading statements which are
likely to induce the sale or purchase of securities by any other person.

(iv) SEBI undertakes steps to educate investors so that they are able to evaluate
the securities of various companies and select the most profitable securities.

(v) SEBI promotes fair practices and code of conduct in security market by
taking following steps:

(a) SEBI has issued guidelines to protect the interest of debenture-holders

wherein companies cannot change terms in a midterm.

(b) SEBI is empowered to investigate cases of insider trading and has

provisions for stiff fine and imprisonment.

(c) SEBI has stopped the practice of making a preferential allotment of shares
unrelated to market prices.

2. Developmental Functions:

These functions are performed by the SEBI to promote and develop activities in
the stock exchange and increase the business in stock exchange. Under
developmental categories following functions are performed by SEBI:

(i) SEBI promotes training of intermediaries of the securities market.

(ii) SEBI tries to promote activities of stock exchange by adopting a flexible
and adaptable approach in following way:

(a) SEBI has permitted internet trading through registered stock brokers.

(b) SEBI has made underwriting optional to reduce the cost of issue.

(c) The even initial public offer of primary market is permitted through the
stock exchange.

3. Regulatory Functions:

These functions are performed by SEBI to regulate the business in stock

exchange. To regulate the activities of stock exchange following functions are
performed:

(i) SEBI has framed rules and regulations and a code of conduct to regulate the
intermediaries such as merchant bankers, brokers, underwriters, etc.

(ii) These intermediaries have been brought under the regulatory purview and
private placement has been made more restrictive.

(iii) SEBI registers and regulates the working of stock brokers, sub-brokers,
share transfer agents, trustees, merchant bankers and all those who are
associated with stock exchange in any manner.

(iv) SEBI registers and regulates the working of mutual funds etc.

(v) SEBI regulates takeover of the companies.

(vi) SEBI conducts inquiries and audit of stock exchanges.

The Organisational Structure of SEBI:

1. SEBI is working as a corporate sector.

2. Its activities are divided into five departments. Each department is headed by
an executive director.
3. The head office of SEBI is in Mumbai and it has a branch office in Kolkata,
Chennai, and Delhi.

4. SEBI has formed two advisory committees to deal with primary and
secondary markets.

5. These committees consist of market players, investors associations and

eminent persons.

Objectives of the two Committees are:

1. To advise SEBI to regulate intermediaries.

2. To advise SEBI on an issue of securities in the primary market.

3. To advise SEBI on disclosure requirements of companies.

4. To advise of changes in the legal framework and to make the stock exchange
more transparent.

5. To advise on matters related to regulation and development of the secondary

stock exchange.

These committees can only advise SEBI but they cannot force SEBI to take
action on their advice.

CONCLUSION

The board meeting of the Securities and Exchange Board of India (SEBI) has
diverted all the attention for the moment from the rising and falling of sensex.
SEBI Chairman M Damodaran and the board members will surely try to find
out all the possible ways to save the market from its Participatory Notes (PN)
stand, which created a massive drop in the sensex in a single day in previous
weeks. Though the market recovered initially on October 17 th after a one-
hour halt of trade in the stock exchange, but still the dark clouds have been
hovering around the market.
Foreign Institutional Investors ( FII’s) who purchase Indian stocks from
Indians and sale them as a Participatory Notes. Value of PN depends on the
performance in the market. FIIs are registered with SEBI but not the purchaser
of PNs who can be a terrorist, a money launderer at times and could be bought
by companies to inflate price of its share in the market to increase its market
capitalisations.
SEBI wants companies buying PNs to invest directly by registering with them
to moderate the forex inflow.
Earlier, the market nose-dived on October 17 th after SEBI recommended to
curb PNs. On that instance Finance Minister P. Chidambaram said that
whatever SEBI has recommended would become a law from October 25 th
with or without moderation.
It is believed that SEBI will allow some modification in the recommendations
based on feedback it has received by FIIs.
Various reports say that SEBI might speed up the registration for FII status
and will allow pension funds to register for FII status. Pension Funds are not
regulated unit abroad.
It is also reported that the sub-account holders have confirmed that they want
to go for registration. FIIs handle PNs through sub accounts.
SEBI might allow foreign individual with investment funds of more than $50
million to operate as sub- accounts. In discussions with FIIs SEBI told that
sub–accounts if applied within a week to register as FIIs, it can issue PNs. It
has also received applications from sub- accounts for registrations as FIIs.
The issue related to PNs must be solved as both the watchdog of security
market SEBI and the custodian of funds and monitory policies, Reserve Bank
of India (RBI) are against PNs.
RBI has said, “The main concern regarding issue of PNs are that the nature of
the beneficial ownership or the identity of the investor will not be known,
unlike in the case of FIIs registered with a financial regulator.
Trading of these PNs will lead to multi-layering, which will make it difficult
to identify the ultimate holder of PNs. Both conceptually and in practice,
restriction on suspicious flows enhance the reputation of markets and lead to
healthy flows”.
Market experts say that such measure will be beneficial in the longer term and
will also moderate the suspicious capital inflow in the Indian market.

SUGGESTION

SEBI has been established to protect the interest of investors in securities and to
promote the development of, and to regulate the securities market. Since its
inception SEBI has introduced far reaching reforms in the regulatory framework
for the Securities Market. With a view to further enhance transparency,
efficiency and competitiveness of the market and to bring back the confidence
of investors, SEBI has desired a feed back from the members of the Institute on
various issues in the Capital Market. Members may send their suggestions in the
following areas or any other area, relevant to the development and growth of the
market:

4. Primary Market
5. Secondary Market
6. Depositories
7. Debt Market
8. Mutual Funds
9. Derivatives
10. Takeover Code
11. Investor Education and Awareness