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SEBI’s Shielding / Protection / Defense

05 Jan 2024 SEBI’s Shielding / Protection / Defense

Posted at 13:41h in Daily current-affairs by
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( This article is a brief summary of the joint editorial of ‘The Economy Times of India’, ‘The Hindu‘ and ‘PIB’. It also includes the suggestions of the YOJNA IAS team. This article is based on the information about UPSC Civil Services Examination specifically on ‘Indian Economy’. This article belongs to the section ‘Growth, Poverty and Development-Related Issues, Government Policies and Interventions, Growth and Development, Securities and Exchange Board of India’. This article is related to ‘Shielding /Protection / Defense of SEBI’ under ‘Daily Current Affairs)’.

General Studies: Growth of Indian economy, poverty and development-related issues, government policies and interventions, growth and development, Securities and Exchange Board of India.

Why in discussion / News ?

The bench of the Supreme Court comprising Chief Justice DY Chandrachud, Justice JB Pardiwala and Justice Manoj Mishra, while delivering the judgment, said – “The Supreme Court of India has the right to enter into the regulatory framework of the Securities and Exchange Board of India (SEBI). Power is limited. Bottom line: The Supreme Court of India has expressed no confidence in the investigation process being conducted by SEBI and there is no basis to transfer the investigation process of this case from the investigation agency constituted by SEBI to the SIT. The Supreme Court should have put pressure on SEBI to do more, rather than reviewing its policy actions. The Court is certainly aware of past instances where it has found that SEBI was not showing promptness in enforcement, the panel of experts appointed in this case has also marked this aspect. After all, ‘justice must not only be done, but must also be seen to be done.’

What was the matter?

Recently a report by Hindenburg Research regarding the shares of Adani Group was released. In this report, Adani Group was accused of manipulating the value of shares, after which a huge fall in the value of shares of listed companies of Adani Group was also recorded. In the Adani-Hindenburg case, the Supreme Court, while giving its decision on 3 January 2024, has given SEBI 3 more months to investigate the remaining 2 cases. At the same time, they have refused to hand over the investigation of the case from SEBI to SIT.

What has the investigation committee constituted by SEBI found so far in the investigation?

On March 2, 2023, the Supreme Court constituted a committee in this matter and SEBI was also given 2 months time to investigate. SEBI was to submit its report by May 2, 2023, but during the hearing, SEBI had asked for an extension of 6 months for the investigation. The Supreme Court bench had extended it till August 2023, meaning SEBI was given a total of 5 months to submit its investigation report. On August 14, 2023, SEBI sought additional time of 15 days from the Supreme Court to complete its investigation and submit the report and on August 25, 2023, SEBI filed the status report of its investigation in the Supreme Court, stating that 22 The investigation of the cases has been completed and the investigation of 2 cases is still incomplete. On November 24, 2023, the Supreme Court, while reserving its decision in this matter, had accepted that there is no need to accept the Hindenburg Report as correct in India right now.

Securities and Exchange Board of India (SEBI):

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

Preamble of SEBI:

The basic functions of SEBI are mentioned in the Preamble of the Securities and Exchange Board of India as follows –

  • To protect the interests of investors investing in securities.
  • To promote and regulate the development of the securities market.
  • To make provision for matters relating to or incidental to the securities market.

What is SEBI ?

The full name of SEBI is Securities and Exchange Board of India. It is a statutory body/institution (a non-constitutional body established by the Parliament) which regulates the functioning of the Indian capital market and also regulates transactions of shares in the stock market and mutual funds. Also controls the issue. Its major function is to protect the interests of investors and develop the Indian capital markets by enacting various rules and regulations from time to time. India’s stock market runs on the guidelines of this institution.

SEBI is an autonomous organization that works under the administration of the Union Finance Ministry.

Historical background of SEBI:

  • Before the establishment of SEBI in India, the Indian capital market was governed by a regulatory authority called the Controller of Capital Issues. Which was given the authority under the Capital Issues (Control) Act, 1947 to resolve and settle all the issues related to the stock market in India. Securities and Exchange Board of India was established on 12 April 1988 and the Government of India gave it statutory recognition on 30 January 1992 under the SEBI Act 1992 through an ordinance. The headquarters of SEBI is located in Mumbai and it also has some regional offices in New Delhi, Kolkata, Bengaluru, Chennai, Kochi, Ahmedabad, Hyderabad, Shimla, Jaipur and Lucknow.

Work of SEBI:

  • SEBI being a statutory body in India, it has the powers to perform many important functions. A list of such powers as described/contained in the regulatory body’s SEBI 1992 Act is given. The core function of SEBI makes it an important body/institution in India as a major securities issuer, protector of the interests of investors and traders and a financial intermediation body. In Section 11 of the Securities and Exchange Board of India Act (Act), the functions of SEBI are mainly divided on three grounds. Which are of the following types –
  • Protective Function
  • Regulatory Functions
  • Developmental Functions

Protective Function:

  • The major objective of the protective function of the Securities and Exchange Board of India is primarily to monitor and monitor the functioning of business in the financial markets. Which includes the following work –
  • The Securities and Exchange Board of India investigates stock price manipulation in India.
  • It prevents and regulates stock insider trading in India from outside India.
  • The Securities and Exchange Board of India, as part of its regulatory functions, promotes fair share trading in India.
  • It makes investors aware of the risks of the stock market by providing them awareness about the risks involved in investing in the stock market in India.
  • As part of its protective function, the Securities and Exchange Board of India prevents and regulates fraudulent and improper securities transactions in the stock market in India.

Regulatory Functions:

  • The Securities and Exchange Board of India, as part of its regulatory functions, protects the interests of SEBI investors and other financial participants investing in the stock market. Which includes the following work –
  • Securities and Exchange Board of India provides guidelines to financial intermediaries and corporate companies or corporate houses in India to function properly and also formulates code of conduct for financial transactions. One of the major functions of the Securities and Exchange Board of India is to scrutinize securities transactions in India and also conduct securities audits.
  • The Securities and Exchange Board of India provides a platform or arrangement of platforms to financial intermediaries and corporate companies or corporate houses in India and investors investing in the stock market so that there are portfolio managers, bankers, stock-brokers, investment-advisers, Merchant bankers, registrars, share-transfer-agents and others could carry out transactions or investments or regulation together.
  • Its regulatory function also includes regulating substantial acquisition of shares and takeovers of companies in a given time frame.

Developmental Functions:

One of the major functions of the Securities and Exchange Board of India also includes developmental work in India. Following are some of the main points of this developmental work –

  • One of the main functions of the Securities and Exchange Board of India is to publish useful information for all and also to provide training to the brokers associated with the stock market and to make those brokers aware of the risks of the stock market.
  • Its developmental work also includes educating, training and making investors aware about investment and the advantages and disadvantages of investment.
  • Another important function of the Securities and Exchange Board of India is to conduct market research and create awareness among the key stakeholders by publishing latest and useful information to the stock market participants and all others who are connected with the stock market.
  • Its developmental functions also include promoting transactions done through proper channels.
  • Another important function of this is to encourage stakeholders and companies and self-regulatory organizations associated with the stock market.
  • One of the developmental functions of the Securities and Exchange Board of India is also to encourage buying and selling of mutual funds through brokers or directly.
  • One of its developmental functions is to promote fair transactions in the stock market.
  • It is SEBI’s job to take suo motu cognizance of frauds committed against investors in the stock market world and take appropriate action on them.

Nature of SEBI:

Securities and Exchange Board of India (SEBI) in its structural form is in the form of a corporate structure consisting of various departments which are managed by the Heads of Department of that department. It is an organization which is managed by its members only. SEBI consists of around 20 departments covering legal affairs, corporate finance, debt and hybrid securities, enforcement, economic and policy analysis, commodity derivatives, market regulation and many other departments. SEBI has a hierarchical structure in a hierarchical manner. Which includes these key members:

  • The SEBI Board consists of a Chairman and several other full-time and part-time members.
  • SEBI also appoints various committees from time to time to investigate the important issues of the time.
  • SEBI primarily consists of a Chairman who is nominated by the Central Government of India.
  • Two members are appointed to SEBI by the Union Finance Ministry of India.
  • A member is also appointed to SEBI by the Reserve Bank of India.
  • Five members are also nominated in SEBI by the Central Government of India.

Jurisdiction and powers conferred by SEBI:

  • Since Securities and Exchange Board of India (SEBI) is a statutory body in India, it has the powers to perform many important functions and its jurisdiction is also wide. A list of such powers as described/contained in the regulatory body’s SEBI 1992 Act is given. The core function of SEBI makes it an important body/institution in India as a major securities issuer, protector of the interests of investors and traders and a financial intermediation body. SEBI has many powers under the Act 1992 so that SEBI can operate the Indian financial market smoothly and powerfully. The Securities and Exchange Board of India (SEBI) is primarily mandated to prevent any kind of fraud in the securities market and to prevent unethical behavior in the financial market. SEBI has the same powers as a civil court. Apart from this, if a person does not agree with the decision or order of the ‘Securities Appellate Tribunal’ (SAT) then he can appeal to the Supreme Court. Therefore, in India, the Securities and Exchange Board of India (SEBI) has the following powers, which it uses from time to time –
  • Quasi-Judicial – Under the quasi-judicial powers given to the Securities and Exchange Board of India (SEBI), SEBI has the power to take decisions if a company, broker or investor commits any fraudulent or unethical behavior in the securities market. These powers facilitate maintaining transparency, accountability and fairness in the securities market.
  • Quasi-Executive – If any individual, corporate or institution violates the rules, guidelines and decisions of SEBI, then SEBI reserves the right to take legal action against it using its quasi-executive powers. If any violation of any rule or regulation is found in it, SEBI is authorized to inspect the accounts and other documents of that company or securities brokers and issue the same to the stock exchange. SEBI also has the power to grant rejection in such a situation.
  • The Chairman of SEBI also has the power to order “Search and Seizure operations”. The Securities and Exchange Board of India (SEBI) may also seek any information such as telephone call data records or contract documents from any individual, corporate, entities in connection with any securities transaction.
  • Quasi – Legislative – Securities and Exchange Board of India (SEBI) has the authority to promulgate rules and regulations to protect the interests of stock market investors in India. Some of its rules include insider trading regulations, listing obligations and disclosure requirements. It prevents and regulates stock insider trading in India from outside India.

Conclusion: / Solution to the problem:

The main objective of the Securities and Exchange Board of India (SEBI) is to keep the Indian financial and stock markets fair and safe. Since the establishment of SEBI, Securities and Exchange Board of India (SEBI) in India has carried out many reforms in the stock market of India through new laws, rules and its guidelines. SEBI keeps incorporating new rules from time to time keeping in mind the needs of the stock market and investors. It works to continuously improve and bring transparency in the stock market so that the Indian financial market remains safe and strong for the investors and all the stakeholders associated with the stock market. At present, SEBI has completely “freed” the stock market from cashless transactions or withdrawals and has now “converted it to electronic transactions”. Due to which now any person can invest in the stock market sitting at home through the internet on his own without the help of any broker. Along with this, the Securities and Exchange Board of India (SEBI) strengthens the Indian securities market by strengthening the regulatory system of the stock market, which is now attracting more investors towards the trading platform of the stock market. It prevents and regulates stock insider trading in India from outside India. Ultimately, the Securities and Exchange Board of India (SEBI) is a powerful body in India that reduces the risks of fraud to investors investing in the securities market and stock market.

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Practice Questions for Preliminary Exam:

Q.1. Consider the following statements with reference to the Securities and Exchange Board of India.

  1. It is a statutory body/institution (a non-constitutional body established by the Parliament), which incorporates and regulates the functioning of the Indian capital market.
  2. The headquarters of SEBI is located in New Delhi.
  3. The Chairman of SEBI also has the power to order “Search and Seizure Operations”.
  4. It prevents and regulates stock insider trading in India from outside India.

Which of the following statement /statements is correct ?

 (A). 1, 2 and 3 only

(B). Only 1, 3 and 4

(C). None of these.

(D). all of which .

Answer – (B).

Practice Questions for Main Exam:

Q.1. Discuss in detail the need and importance of a strong regulatory framework for the capital market in India in line with international standards and principles by the Securities and Exchange Board of India in the light of the changing nature of the financial market.

 

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