Securities and Exchange Board of India (SEBI)

Securities and Exchange Board of India (SEBI) was established in 1988, however, it got statutory mandate and powers under the SEBI Act, 1992. Its objective is to protect the interests of investors in securities and to promote the development and regulation of securities market.

Functions

The Key functions of SEBI are as follows:

• Regulating stock exchanges and other securities markets
• Registering and regulating the working of intermediaries who are associated with securities markets in any manner.
• Registering and regulating the working of venture capital funds and collective investment schemes including mutual funds
• promoting and regulating self-regulatory organizations and prohibiting fraudulent and unfair trade practices relating to securities markets.

Achievements of SEBI

Though the government’s support to SEBI has always come in reaction to a crisis or the emergence of new scams and is often found wanting when it is crucially needed, yet SEBI’s has been performing appreciably.

SEBI’s oversight has not only contributed to the exponential growth of the stock market and faster settlements but also extensive use of technology, encouraging disclosures and in extending regulation for the first time over capital market intermediaries through a well designed licensing process. Following are some of its notable achievements:

Dematerialization of shares

SEBI introduced dematerialized holding of shares and securities after the Depositories Act was passed in 1996. It did away with physical certificates that were prone to postal delays, theft and forgery, apart from making the settlement process slow and cumbersome. This also prevented the issue of fake share certificates floating in the market. It enabled electronic trading, with investors and traders even able to work from home.

Faster settlement process

SEBI is credited with quickly moving from a T+5 settlement cycle in 2001 to T+2 in 2003, or two days between the trade and shares being credited to the buyers’ account, down from five.

Stronger and clearer regulations, orders

In the early years, powerful brokers’ lobbies controlled share price movements and could afford to ignore SEBI. That this is no longer the case is, in large part, because of the quality of orders passed by SEBI. The mechanism of drafting new regulations has improved substantially.

Fostering mutual fund industry

While the Indian mutual fund industry has grown manifold from being a monopoly until the early 1990s—when Unit Trust of India, set up in 1964, was the only game in town—their reach remains low outside India’s top 20 cities. SEBI has taken several steps to increase the popularity of mutual fund products and prevent mis-selling of products by distributors.

Other Initiatives

Some of the other initiatives include relaxing know your customer (KYC) norms  for small investors and widening the distribution network in rural India by roping  in postal agents.

Foreign institutional investors

The Indian equity markets were opened to foreign institutional investors, or FIIs, in 1993 and they are now the key driving force behind stock movements. The FII investment ceiling was raised to 49% in March 2001 while the dual approval process for FII registration, by the Reserve Bank of India and SEBI, was scrapped in 2003, when they came under the remit of the SEBI. Since 2004, SEBI has been consistently revising the FII investment limit in both corporate as well as government debt.

SEBI has also been consistently pushing to encourage holders of P-notes to enter the market as registered FIIs.

Merger of FMC with SEBI

In 2015, the Forward Market Commission was merged with SEBI. With this, the regulation of commodity derivatives market has shifted to SEBI under Securities Contracts Regulation Act (SCRA) 1956. The Forward Contracts Regulation Act (FCRA), 1952 got repealed and FMA ceased to exist. With this merger, all three national and six regional commodity exchanges have come under the ambit of national capital market regulator SEBI. This merger has created SEBI has a unified regulator for commodities and capital markets in India.