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SEBI: Functions, Structure,

Objectives, Powers, Act & Guidelines
Notes for SEBI Gr. A Exam

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Functions of SEBI Free SEBI Grade A e-book

SEBI Grade A Exam

SEBI: Functions, Structure, Objectives,
Powers, Act & Guidelines

About SEBI

• The full form of SEBI is Securities and Exchange Board of India.

• SEBI is a statutory regulatory body established by the Government of India to regulate

the securities market in India and protect the interests of investors in securities.

• It also regulates the functioning of the stock market, mutual funds, etc.

Functions of SEBI

• The Securities and Exchange Board of India (SEBI) is a statutory regulatory body
established by the Government of India in 1992 to regulate the securities market in
India and protect the interests of investors in securities.

• SEBI has the power to regulate and perform functions such as check the books of
accounts of stock exchanges and call for periodical returns, approve by-laws of stock
exchanges, inspect the books of financial intermediaries such as banks, compel certain
companies to get listed on one or more stock exchanges, and handle the registration
of brokers.

Why Was SEBI Formed?

Purpose: SEBI was established to keep a check on unfair and malpractices and protect the
investors from such malpractices.
The organization was created to meet the requirements of the following three groups:
i. Issuers: SEBI works toward providing a marketplace to the investors where they can
efficiently and fairly raise their funds.

ii. Intermediaries: SEBI works towards providing a professional and competitive market
to the intermediaries
Functions of SEBI Free SEBI Grade A e-book

iii. Investors: SEBI protects and supplies accurate information to investors.

Objectives
• To monitor the activities of the stock exchange.

• To safeguard the rights of the investors

• To curb fraudulent practices by maintaining a balance between statutory

regulations and self-regulation.

• To define the code of conduct for the brokers, underwriters, and other
intermediaries.

Powers of SEBI
SEBI carries out the following tasks to meet its objectives:
1. Protective Functions,
2. Regulatory Functions, and
3. Developmental Functions.

1. Protective Functions: Functions that SEBI performs as a part of its protective

functions are:

i. It checks price manipulation.

ii. It bans Insider trading.

iii. It prohibits unfair and fraudulent trade practices.

iv. It promotes a fair code of conduct in the security market.

v. It takes efforts to educate the investors regarding ways to evaluate the

investment options better.

2. Regulatory Functions: As a part of its regulatory functions, SEBI performs the

following role:

i. It has designed a code of conduct, rules, and regulations to regulate the

brokers, underwriters, and other intermediaries.
Functions of SEBI Free SEBI Grade A e-book

ii. SEBI also governs a company’s takeover.

iii. It regulates and registers the workings of share transfer agents, stockbrokers,
merchant bankers, trustees, and others who are linked with the stock
exchange.

iv. It regulates and registers the mutual funds as well.

v. It conducts audits and inquiries of stock exchanges.

3. Developmental Functions: As a part of its developmental functions, SEBI performs the

following role:

i. It facilitates the training of the intermediaries.

ii. It aims at promoting activities of the stock exchange by having an adaptable

and flexible approach.

Structure of SEBI
The Board of SEBI comprises nine members. The Board is an aggregate of the following:
1. One Chairman of the board – appointed by the Central Government of India.
2. One Board member – appointed by the Central Bank, that is, the RBI.
3. Two Board members – hailing from the Union Ministry of Finance.
4. Five Board members – elected by the Central Government of India.

✓ The Chairman of SEBI, in addition to overseeing the Board, also looks over the
Communications, Vigilance, and Internal Inspection Department.

✓ There are four whole-time members in the organizational structure. The whole-time
members are allocated a number of departments that they have to oversee.

✓ Each department is individually headed by an executive director.

✓ The executive directors report to specific whole-time members.

✓ The organizational structure of SEBI consists of more than 25 departments, such as

Foreign Portfolio Investors and Custodians (FPI&C), Corporation Finance Department
(CFD), Information Technology Department (ITD), Department of Economic and Policy
Functions of SEBI Free SEBI Grade A e-book

Analysis (DEPA-I, II, & III), Investment Management Department, Legal Affair
Department, Treasury and Accounts Divisions (T&A), and National Institute of
Securities Market (NISM).

SEBI Act and SEBI Guidelines

SEBI was established as a non-statutory body in 1988, entrusted with observing the stock
market activities.
The SEBI Act of 1922 converted SEBI into a statutory authority with autonomous powers.
The Act provided SEBI with the authority to regulate capital markets, not just observe but
enforce guidelines.

The SEBI Act 1992 covers the following areas:

• Composition and actions of the SEBI Board members

• Powers and Functions of the Board

• Fund sources of SEBI, as in grants made available by the Union Government

• Rules on Penalties and legal pathways

• Defines the judicial authority of SEBI

• The extent of powers of the Union Government to supersede SEBI

SEBI also has to adhere to a list of SEBI guidelines, pertaining to areas such as:

• Employee Stock Option schemes

• Disclosure and Investor Protection norms

• Legal Proceedings

• Anti-money laundering norms

• Listing and delisting of securities

• Opening of trading terminals overseas

Functions of SEBI Free SEBI Grade A e-book

SEBI LODR Regulations 2015

The SEBI (LODR) Regulations, 2015 entails the following:

• Disclosures and obligations that have to be acknowledged by the compliance officers of the
listed company.

• Listing down obligations uniform to all listed companies.

• Distinct obligations for certain types of securities.

• Segregating initial issuance and post-IPO norms.

• Communication of the companies’ fundraising activities.

• Establishing timelines for notifying the exchanges of certain events.

• Bringing SMEs under the ambit of the SEBI (LODR) Regulations

SEBI New Margin Rules

In September 2020, SEBI implemented new rules on margin pledges.

The new margin rules by SEBI mandate the following:

• The stock, being pledged, is to remain in the investor’s de-mat account.

• As the stock is not changing accounts, the benefits from corporate events accrue directly to
the investors.

• Upfront collection of margins by brokers for any purchase or sale of securities, penalizing any
sort of failure to do so.

• Clients could meet the margin requirements by the end of the day, which is now changed to
the beginning of the day.

• Power of Attorney (POA) cannot be assigned in the favour of the brokers for pledging.

• As under the old system, brokers could demand POA from the investors to execute decisions
on their behalf.

• Margin pledge created separately for investors requiring margin.

• Buy Today Sell Tomorrow (BTST) is not allowed anymore for shares bought on margin.
Functions of SEBI Free SEBI Grade A e-book

• Investors are required to honour the delivery of the share (T+2 days is the usual settlement
period).

• Typically, investors would use intraday realized profits to meet the margin requirements,
which is now amended by the new regulations.

• For a BTST trade, it can be initiated only if the net available margin is equal to or greater than
20 percentage of the transaction value.

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