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Basics of Stock Market 6: What is SEBI? What is SEBI’s role in the financial market in India?


By now, you have got an idea of What happens after the IPO process. As we saw in the article, SEBI played a major role in shaping our financial markets in India. Let's dig deeper to find who is this SEBI and what is its role in the regulation of the stock market.

The Securities and Exchange Board of India (SEBI) is the regulatory body for the securities and commodity market in India under the watchful eye of the ministry of finance, the government of India. The stock market comes under the securities market, and we’ll learn more about the commodity market in the coming articles.

SEBI was first established in 1988 as a non-statutory body for regulating the securities market and later in 1992 was accorded statutory powers with the passing of SEBI Act 1992 by the Indian parliament. SEBI is headquartered in Bandra Kurla Complex in Mumbai and has Northern, Eastern, Southern, and Western Regional Offices in New Delhi, Kolkata, Chennai, and Ahmedabad respectively.

A Securities Appellate Tribunal (SAT) is constituted to protect the interest of entities that feel aggrieved by Sebi’s decision. SAT consists of a presiding officer and two other members.

Like SEBI in India, United States has the Securities and Exchange Commission (SEC) which is the large independent agency of the United States federal government (like RBI in India), created in the aftermath of the Wall Street Crash of 1929.

Management of SEBI

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

  • The chairman is nominated by the Union Government of India.

  • Two members: Officers from the Union Finance Ministry.

  • One member from the Reserve Bank of India.

  • The remaining five members are nominated by the Union Government of India

Functions of SEBI

Sebi controls activities of stock exchanges, stock market, safeguards the rights of shareholders, and also guarantees the security of their investment (DEMAT accounts). It also aims to check fraudulence by harmonizing its statutory regulations and also enables a competitive professional market for intermediaries

  • To approve by−laws of Securities exchanges.

  • To require the Securities exchange to amend their by−laws.

  • Inspect the books of accounts and call for periodical returns from recognized Securities exchanges.

  • Inspect the books of accounts of financial intermediaries- Auditing.

  • Compel certain companies to list their shares in one or more Securities exchange-IPO processes.

  • Registration of Brokers and sub-brokers

Achievement of SEBI

SEBI is credited for quick movement towards making the markets electronic and paperless by introducing the T+5 rolling cycle from July 2001 and T+3 in April 2002 and further to T+2 in April 2003. What T+2 means is the settlement of shares is done in 2 days after trade day. Here T refers to Trade Day, the day you buy/sell a share. We’ll talk about the settlement of shares at a later point in time.

SEBI eliminated the physical share certificates that were prone to postal delays, theft, and forgery, apart from making the settlement process slow and time-consuming bypassing the Depositories Act, 1996.

SEBI, Exchanges, and Departments

It had asked many of these exchanges to either meet the required criteria or take a graceful exit in a circular dated 2012. SEBI's new norms for Securities exchanges mandate that it should have a minimum net worth of Rs. 1 billion and annual trading of Rs. 10 billion.

SEBI regulates the Indian financial market through its 20 departments.

  • Commodity Derivatives Market Regulation Department (CDMRD)

  • Corporation Finance Department (CFD)

  • Department of Economic and Policy Analysis (DEPA)

  • Department of Debt and Hybrid Securities (DDHS)

  • Enforcement Department – 1 (EFD1)

  • Enforcement Department – 2 (EFD2)

  • Inquiries and Adjudication Department (EAD)

  • General Services Department (GSD)

  • Human Resources Department (HRDM)

  • Information Technology Department (ITD)

  • Integrated Surveillance Department (ISD)

  • Investigations Department (IVD)

  • Investment Management Department (IMD)

  • Legal Affairs Department (LAD)

  • Market Intermediaries Regulation and Supervision Department (MIRSD)

  • Market Regulation Department (MRD)

  • Office of International Affairs (OIA)

  • Office of Investor Assistance and Education (OIAE)

  • Office of the chairman (OCH)

  • Regional offices (ROs)

I am again repeating this, SEBI is one of the most powerful authorities when it comes to financial problems in India. If your start messing with SEBI, then you wouldn’t go far. I will showcase one case scenario where SEBI had to step in to solve the case. The company which I am going to talk about is well known in India and had made a name for itself in the initial days. Let’s get started.

SEBI and SAHARA: The Rise and Fall of Subrata Roy