SEBI and Securities Market Regulation
The Securities Exchange Board of India (SEBI) is the central regulatory body established under the SEBI Act, 1992 to regulate the securities market in India. It plays a pivotal role in enforcing securities laws, promoting investor protection, and ensuring the orderly growth of the securities market. SEBI is both a regulator and a quasi-judicial authority empowered by several securities law legislations.
Legal Backbone: How SEBI Derives Authority
SEBI functions under the following major legislations:
- SEBI Act, 1992: Grants SEBI the authority to protect investors, regulate securities markets, and take enforcement action.
- Securities Contracts (Regulation) Act, 1956 (SCRA): SEBI regulates trading in securities and the functioning of the stock exchange under this Act.
- Depositories Act, 2013: (In coordination with Ministry of Corporate Affairs) SEBI oversees depositories (NSDL, CDSL) to ensure safe and dematerialized handling of securities.
- Companies Act, 2013: (In coordination with Ministry of Corporate Affairs) SEBI regulates disclosures and governance for listed companies.
Core Functions of SEBI under Securities Laws
Regulatory Role:
- Registration and supervision of stock brokers, merchant bankers, underwriters, mutual funds, portfolio managers, credit rating agencies, etc.
- Framing regulations like SEBI (ICDR), SEBI (LODR), SEBI (PIT), and SEBI (SAST).
- Regulating stock exchanges and ensuring they follow fair trading and surveillance norms.
Developmental Role:
- Promotes the growth of modern financial instruments (like REITs, InvITs).
- Encourages digitalization and dematerialization of securities.
- Enables the growth of mutual funds, SME listings, and Alternate Investment Funds (AIFs).
Protective Role:
- Prohibits insider trading and fraudulent practices.
- Takes actions against unfair trade practices, pump-and-dump schemes, or misrepresentations.
- Launches investor awareness campaigns and redresses investor grievances.
SEBI’s Powers under the SEBI Act, 1992
Investigative Powers:
Can order search, seizure, and investigate intermediaries or companies suspected of violating securities laws.
Quasi-Judicial Powers:
Can issue orders, impose penalties, and pass directions such as freezing bank accounts, suspending trading, debarring entities from raising funds, and initiating prosecution.
Rule-Making Powers:
Issues regulations, guidelines, and circulars binding on all participants in the securities market.
Landmark SEBI Cases Influencing Securities Laws
- Sahara India Real Estate Corp vs. SEBI (2012): SEBI was empowered to regulate even private placements when public interest is involved. Over ₹24,000 crore was collected illegally, and SEBI initiated refund.
- Shivam Water Treaters vs. SEBI (2016): Established that SEBI has power to penalize unlisted public companies that violate securities laws affecting investors.
- Rajiv Gandhi Equity Saving Scheme (SEBI Guidelines): Promoted small investor participation in equity, showcasing SEBI’s developmental role.
SEBI’s Role in Strengthening Securities Laws
- Regular updates to regulations to align with global standards.
- Adoption of technology-driven surveillance systems.
- Whistleblower and informant mechanisms for insider trading cases.
- Initiatives like T+1 settlement, online dispute resolution, and sandbox for fintech regulation.
Conclusion
SEBI is the cornerstone of securities law implementation in India. It doesn’t just regulate — it shapes the capital markets by drafting, enforcing, and evolving securities laws to ensure transparency, investor confidence, and efficient market functioning. Its integrated role across legal, executive, and regulatory spheres makes SEBI indispensable to India’s financial ecosystem.
