A Project Report submitted to the University Institute

of Legal Studies as a part of the curriculum of Paper-VI:

Business Laws-I (Semester-VII)

Need & origin of SEBI

SUBMITTED TO: SUBMITTED BY:

Ms. Amita Verma Karan Kalia
University Institute of Legal Studies Roll No.: 245/21
Panjab University Section:D

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 ACKNOWLEDGEMENT

The success and outcome of this project required a lot of guidance and assistance from
many people and I am extremely fortunate to have got this all along with the completion
of my project report. Whatever I have done is only due to such guidance and I would
always be grateful to them.

I take this opportunity to record a deep sense of gratitude to my teacher, Ms. Amita
Verma, University Institute of Legal studies, Panjab University, Chandigarh for
her incontestably perfect unmatched guidance, encouragement, valuable suggestions,
and efforts made during the preparation of this project as well as during her lectures
which enabled me to complete this project successfully on the topic,

‘Need & Origin of SEBI’

This has also provided me with an opportunity to do some research and broadened my
understanding of the concepts.

Karan Kalia

Semester-7

245/21
 INDEX
· Introduction …………………………………………………………………... 04
· Reasons for establishment of SEBI …………………………………………… 05
· Objectives of SEBI …………………………………………………………… 06
· Structure of SEBI ………………………...…………………………………… 07
· Functions of SEBI ……………………………………………………..….. 08-10
· Powers of SEBI ……………………………………………………………….. 11
· History & evolution of SEBI …………………………………...…………. 12-13
· SEBI Act ……………………………………………………………………… 14
· Conclusion ……………………………………………………………………. 15
· Bibliography ……………………………………………………………...…... 16

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 INTRODUCTION
SEBI, also known as the Securities and Exchange Board of India was established on 12
April 1992 through the SEBI Act, 1992. It is a non-statutory body established to regulate
the securities market. The headquarters of the board is situated in Bandra Kurla
Complex, Mumbai. SEBI helps in regulating the Indian Capital Market by protecting
the interest of investors and establishing the rules and regulations for the development
of the capital market.

SEBI or the Security and Exchange Board of India is a regulatory body controlled by
the Government of India to regulate the capital and securities market. Before the
Securities and Exchange Board of India, the Controller of Capital Issues was the
regulating body to regulate the market which was controlled by the Capital Issues
(Control) Act, 1947.

Majorly, SEBI controls the issuers of securities, the investors and the market
intermediaries. The Board draft regulations and statutes under its legislative authority,
also pass rulings and orders under its judicial capacity and operate investigations in its
executive limits. SEBI works as a barrier to avoid malpractices related to the stock
market by establishing a code of conduct and promoting the healthy functioning of the
stock exchange. Initially, SEBI didn’t have the authority to regulate the stock exchange,
but in 1992, the Union Government gave statutory powers to SEBI through the SEBI
Act, 1992.

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 REASONS FOR ESTABLISHMENT OF SEBI
During the fall of the 1970s and the rise of the 1980s, the people of India preferred to
work in the Capital Market as the market was trending. Without any authority, problems
like unofficial private placements, the rigging of prices, unofficial self-styled merchant
bankers started violating the rules and regulations of the stock exchange which caused
delays in the delivery of shares. There are various reasons for which SEBI was
introduced. Some of the reasons for its establishment are given as under:

· The capital market had witnessed a tremendous growth during the 1980’s
characterized by the increasing participation of the public.
· This ever-expanding investor population and market capitalization led to a variety
of malpractices on the part of companies, brokers, merchant bankers, investment
consultants and others involved in the securities market.
· The glaring examples of these malpractices include existence of self-styled
merchant bankers, unofficial private placements, rigging of prices, unofficial
premium on new issues, non-adherence of provisions of The Companies Act,
violation of rules and regulations of stock exchanges and listing requirements,
delay in delivering shares etc.

These malpractices and unfair trade practices eroded investors’ confidence and
multiplied investors grievances. The government and the stock exchanges were rather
helpless in redressing the investor’s problems because of lack of proper penal provisions
in the existing legislature. Therefore, the government of India felt an immediate need to
establish a regulatory body to regulate its working and to find solutions for all the
problems the market was going through, as the people were losing interest in the market
and decided to set up SEBI. a separate regulatory body. SEBI was officially established
by the Government of India in the year 1988 and given statutory powers in 1992 with
SEBI Act 1992 being passed by the Indian Parliament.

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 OBJECTIVES OF SEBI
SEBI’s objectives encapsulate a holistic approach to safeguarding investor interests,
ensuring market transparency, and fostering a fair and secure environment for all
participants. Given below are the main objectives of SEBI:

· Investor Protection: One of SEBI’s primary goals is to safeguard the interests

of investors. It enforces regulations that prevent fraudulent and unfair trade
practices, ensuring investors are adequately informed and empowered to make
informed decisions.
· Market Integrity: SEBI works diligently to maintain the integrity of the
securities market. It enforces norms that promote ethical conduct, transparency,
and accountability among market intermediaries, listed companies, and other
participants.
· Regulation and Oversight: SEBI’s mandate includes regulating and overseeing
various market intermediaries, including stock exchanges, brokers, and other
entities. This oversight ensures that these intermediaries operate within
established guidelines and do not compromise market stability.
· Promoting fair practices: SEBI endeavours to create an equitable playing field
for all participants in the market. It introduces and enforces rules that foster fair
practices among companies, intermediaries, and investors, thus minimizing the
scope for market manipulation.
· Market Development: SEBI actively contributes to the development and growth
of the securities market. It introduces reforms and measures that facilitate the
entry of new players, encourage innovation, and improve market infrastructure.
· Enforcement of Regulations: SEBI is vested with the authority to enforce its
regulations. It conducts investigations, takes corrective actions, and imposes
penalties on those who violate market rules, thereby maintaining market
discipline.

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 STRUCTURE OF SEBI
SEBI has a corporate framework comprising of various departments each managed by
a department head. There are about 20 departments under SEBI. Some of these
departments are corporation finance, economic and policy analysis, debt and hybrid
securities, enforcement, human resources, investment management, commodity
derivatives market regulation, legal affairs, and more. The hierarchical structure of SEBI
consists of the following members:

· The Chairman of SEBI is nominated by the Union Government of India.

· Two officers from the Union Finance Ministry will be a part of this structure.
· One member will be appointed from the Reserve Bank of India.
· Five other members will be nominated by the Union Government of India.

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 FUNCTIONS OF SEBI
Protective Functions of SEBI:

Protective functions are used to protect the interest of investors and other financial
participants. These functions are:

· Investor Safeguarding: One of SEBI’s key protective functions is safeguarding

the interests of investors. It formulates and enforces regulations to prevent
fraudulent and unfair trade practices, ensuring that investors are well-informed
and protected.
· Curbing Insider Trading: When the people working in the market start to buy
or sell the securities because they have access to the confidential price which
results in affecting the price of the security is known as insider trading. SEBI
restricted companies to buy their own shares from the secondary market and also
regulates regular check-ups to prevent insider trading and avoid malpractices. By
doing so, it promotes fair play and prevents information asymmetry.
· Prohibition of Fraudulent Activities: SEBI prevents market manipulation,
fraudulent schemes, and activities that can compromise market integrity. It
investigates and takes action against such activities to maintain a level playing
field.
· Promotes fair trade practices: SEBI established rules and regulations and a
certain code of conduct in the securities market to restrict fraudulent and unfair
trade practices.
· Providing awareness/financial education for investors: SEBI conducts
seminars both online and offline to educate the investors about insights into the
financial market and money management.

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Regulatory Functions of SEBI:

Regulatory functions are generally used to check the functioning of the financial
business in the market. They establish rules to regulate the financial intermediaries and
corporates for the efficiency of the market. These functions are:

· Market Intermediary Oversight: SEBI regulates and supervises various

market intermediaries, including stock exchanges, brokers, and depositories, to
ensure their compliance with established norms and practices. Registration of
brokers, sub-brokers, and merchant bankers is controlled by SEBI along with
levying of fees.
· Issuer Regulations: It regulates companies that issue securities to the public,
ensuring that they provide accurate and transparent information to potential
investors. This enables investors to make well-informed decisions. It also
conducts regular inquiries and audits of stock exchanges.

· Listing and Disclosure Norms: SEBI sets listing and disclosure requirements
for companies listed on stock exchanges. This ensures transparency and allows
investors to access necessary information for making investment choices.

Developmental Functions of SEBI:

The development functions are the steps taken by SEBI to improve the security of the
market through technology. The functions are:

· Market Infrastructure Enhancement: SEBI plays a developmental role by

enhancing market infrastructure. It introduces measures to improve trading
systems, settlement mechanisms, and investor services, contributing to the
efficiency of the market. It also provides training sessions to the intermediaries
of the market.

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· Encouraging Innovation: SEBI promotes innovation within the securities
market by allowing the introduction of new financial products and trading
mechanisms, fostering a dynamic and evolving market landscape.

· Investor Education: A vital developmental function of SEBI is investor

education. It seeks to empower investors by providing information and
knowledge about investment opportunities, risks, and market functioning.

· Promotes fair trade practices: SEBI established rules and regulations and a
certain code of conduct in the securities market to restrict fraudulent and unfair
trade practices. It helps maintain the faith of various parties involved.

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 POWERS OF SEBI
The SEBI has three main powers:

i. Quasi-Judicial: SEBI has the authority to deliver judgements related to fraud

and other unethical practices in terms of the securities market. This helps to
ensure fairness, transparency, and accountability in the securities market.

ii. Quasi-Executive: SEBI is empowered to implement the regulations and

judgements made and to take legal action against the violators. It is also
authorised to inspect Books of accounts and other documents if it comes across
any violation of the regulations.

iii. Quasi-Legislative: SEBI reserves the right to frame rules and regulations to
protect the interests of the investors. Some of its regulations consist of insider
trading regulations, listing obligations, and disclosure requirements. These have
been formulated to keep malpractices at bay. For example, SEBI LODR or
Listing Obligation and Disclosure Requirements. This helps in consolidating and
streamlining the provisions of existing listing agreements for several segments of
the financial market like equity shares. This helps in protecting the market from
malpractices and fraudulent trading activities happening at the bay.

Despite the powers, the results of SEBI’s functions still have to go through the
Securities Appellate Tribunal and the Supreme Court of India.

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 HISTORY & EVOLUTION OF SEBI
The history and evolution of SEBI, the Securities and Exchange Board of India,
showcases a transformative journey that beginning in 1988. Over the years, its role and
responsibilities expanded significantly, shaping the landscape of India’s financial
markets.

· Establishment: SEBI was established in 1988 to regulate and supervise the

securities market, addressing the lack of cohesive regulations that had led to
inefficiencies and malpractices.
· Initial Focus: SEBI initially focused on monitoring stock exchanges and market
intermediaries to instil transparency and accountability in their operations.
· Broadened Mandate: Over time, SEBI’s scope expanded to encompass various
vital functions, including overseeing public issuance of securities, ensuring
ethical conduct by companies, safeguarding investor interests, and promoting
financial literacy.
· Reforms and Regulatory Changes: SEBI initiated significant reforms to
enhance transparency, prevent fraudulent activities, and foster investor
confidence. These reforms played a pivotal role in shaping the modern securities
market in India.
· Liberalization Era: During the 1990s and early 2000s, SEBI was crucial in
facilitating India’s economic liberalization by introducing measures to encourage
foreign investments and simplify listing procedures.
· Technological Integration: SEBI embraced technological advancements,
adopting online trading platforms and promoting the dematerialization of
securities. These steps streamlined operations and bolstered market surveillance
capabilities.
· Enforcement and Investor Protection: SEBI’s regulatory authority
strengthened over time, enabling it to enforce regulations, investigate violations,

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 and take corrective actions when necessary. The focus on protecting investor
interests remained paramount.
· Market Integrity and Credibility: SEBI’s journey reflects its proactive
approach to adapting to market dynamics while upholding the twin pillars of
market integrity and investor credibility.

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 SEBI ACT
The Parliament passed the Securities and Exchange Board of India Act,1992 to regulate
and develop the securities market in India. It was further amended to meet the changes
in the developing requirements of the securities market.

Features and Regulations of the Act

SEBI is responsible for maintaining an environment that is free from malpractices to

restore the confidence of the general public who invest their money in the market. It
controls the bylaws of every stock exchange in the country and keeps an eye on all the
books of accounts related to the stock exchange and financial intermediaries to check
their irregularities. The laws and regulations of the SEBI hold significant importance
and must be followed by the those entitled or registered with the stock exchange and
capital market of India.

SEBI Act defines and gives powers to the body. The SEBI Act, 1992 is the supreme
power of the securities market of India and has the authority to make laws and
regulations applicable to all the listed companies, their board of directors, key
managerial personnel of such companies, investors, and all the other companies who are
associated with the security market sector.

Scope of Act

The Preamble of the SEBI Act, 1992 provides that SEBI came into force to cover two
objectives:

o To protect the interests of investors in Securities.

o To promote the development and regulations of the securities market.

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 CONCLUSION
Securities Exchange Board of India aims to create an effective stock-market system for
the safe securities market and encourage responsible and accountable autonomy and
transparency on the part of all players the capital market, who should have disciplined
themselves and observe the rules of the market mechanism, therefore, they can minimize
losses. SEBI strongly believes that the investors are the soul of the securities market and
they need to protect the interests of investors for the development of the capital market.
SEBI deals with all the policies and regulations of the market.

Security Exchange Board of India owns to provide a controller structure which an

effective mobilization and allotment of wealth through capital market structure, which
would encourage effective of the capital market so that it could manage the render
essential services to business and commerce and individual investors in the most
effective economic route, reducing the competition and promote innovation, be
responsive to international growth a structure which is flexible and cost-effective so that
it has clarity to guide, modifications and other changes, and finally turns into trust on
the part of the investors, traders and other users of the stock market by ensuring the
capital market place and is also seen to be, clean and clear to do trading and investment
in a fair manner, transparent and efficient way.

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 BIBLIOGRAPHY
Websites Referred:
· Facts you must know about SEBI; available at: https://blog.ipleaders.in/featur,
es-of-sebi/#Reasons_for_the_Establishment_of_SEBI (Last visited on
November 19, 2023)
· What is SEBI- Objectives, Functions and Structure; available at:
https://www.pw.live/exams/commerce/what- is-sebi/ (Last visited on November
19, 2023)
· The SEBI Role in Indian Stock Market; available at:
https://www.researchgate.net/publication/351599280_The_SEBI_Role_in_India
n_Stock_Market (Last visited on November 19, 2023)

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