Securities and Exchange Board of India: Powers, Functions and Major Regulations

The Securities and Exchange Board of India (SEBI) is the apex regulator for capital and commodities markets in India. Established on April 12, 1988, as an executive body, it received statutory powers on January 30, 1992, through the Securities and Exchange Board of India Act, 1992. SEBI replaced the Office of the Controller of Capital Issues, which functioned under the Capital Issues (Control) Act, 1947. Operating under the administrative domain of the Union Ministry of Finance, SEBI maintains its headquarters in Mumbai along with regional offices in New Delhi, Kolkata, Chennai, and Ahmedabad. Its core legal mandate is to protect the interests of investors in securities, promote market development, and regulate the securities market.

Historical Evolution and Statutory Framework

Statutory Evolution

• In 1992, the Parliament passed the SEBI Act, making SEBI an autonomous body corporate with perpetual succession and a common seal.
• The Depositories Act, 1996, empowered SEBI to introduce dematerialization of shares, replacing physical share certificates with electronic depository holdings.
• The Securities Laws (Amendment) Act, 2004, strengthened SEBI’s powers to inspect books, search premises, and seize records of suspect entities.
• In 2015, the Forward Markets Commission (FMC) merged with SEBI, repealing the Forward Contracts (Regulation) Act, 1952. This unified the regulation of financial capital markets and commodity derivative markets under SEBI under the Securities Contracts (Regulation) Act, 1956.

Board Composition

• A Chairman appointed by the Central Government.
• Two members drawn from Union Ministries handling Finance and Corporate Affairs.
• One member nominated by the Reserve Bank of India (RBI).
• Five other members nominated by the Central Government, of which at least three serve as whole-time members.

Tripartite Mandate and Regulatory Roles

Regulatory Spectrum

• Issuers of Securities: Ensures a transparent platform for raising capital through clear disclosure norms.
• Investors: Protects rights and capital by curbing market manipulation and offering grievance redressal.
• Market Intermediaries: Regulates brokers, sub-brokers, merchant bankers, custodians, and portfolio managers through licensing and compliance standards.

Functional Nature

• Quasi-Legislative Role: Drafts regulations, guidelines, and circulars governing market conduct.
• Quasi-Executive Role: Conducts audits, inspects records, investigates market abuses, and enforces regulatory provisions.
• Quasi-Judicial Role: Conducts formal hearings, issues cease-and-desist directions, and passes adjudication orders imposing administrative or monetary penalties.

Key Powers under the SEBI Act, 1992

Inspection and Investigation

• Section 11: Empowers SEBI to regulate business operations in stock exchanges, register market intermediaries, and prohibit fraudulent trading practices.
• Section 11B: Authorizes SEBI to issue binding directions to any company, intermediary, or individual to secure proper market management or protect investor interest.
• Section 11C: Grants investigating authority equivalent to a civil court, including power to summon persons, examine witnesses under oath, and inspect accounts.
• Section 11D: Enables SEBI to issue cease-and-desist orders restraining entities from carrying out specific market operations during pending inquiries.

Registration and Intermediary Control

• Section 12: Establishes a compulsory registration regime. No broker, sub-broker, share transfer agent, merchant banker, trustee, or foreign portfolio investor can trade without obtaining a SEBI certificate of registration.
• SEBI holds statutory authority to suspend or cancel registrations upon non-compliance with prescribed codes of conduct or net worth requirements.

Major Regulatory Frameworks

Investor Protection, Surveillance, and Dispute Resolution

Dispute Resolution and Grievance Redressal

• SCORES (SEBI Complaints Redress System) functions as an online portal enabling investors to lodge complaints against listed companies or registered intermediaries.
• SCORES 2.0 features auto-routing of complaints and fixed timelines for resolution.
• Investor Education and Protection Fund (IEPF) and SEBI’s Investor Protection Fund (IPF) support capacity building and awareness workshops.

Market Settlement and Technology Upgrades

• India transitioned from a T+5 settlement cycle in 2001 to T+2 in 2003, T+1 in 2023, and introduced an optional T+0 (same-day) settlement cycle for select liquid stocks.
• Application Supported by Blocked Amount (ASBA) blocks investor funds in bank accounts during IPO applications, releasing money only upon share allotment.
• Social Stock Exchange (SSE) framework enables non-profit organizations and social enterprises to raise funds via Zero Coupon Zero Principal (ZCZP) instruments.

Judicial Appeals

• Section 15K of the SEBI Act establishes the Securities Appellate Tribunal (SAT), a statutory body headed by a retired Supreme Court judge or a former Chief Justice of a High Court.
• Appeals against orders passed by SEBI officers or whole-time members lie before SAT within 45 days.
• Section 15Z provides that appeals against SAT orders lie directly before the Supreme Court of India on questions of law.

Key Facts for Quick Revision

• SEBI was formed as an executive body on April 12, 1988, and became a statutory authority on January 30, 1992.
• The Capital Issues (Control) Act, 1947, was repealed to end merit-based price fixing of shares by the government.
• Headquartered in Mumbai, SEBI operates four regional offices in New Delhi, Kolkata, Chennai, and Ahmedabad.
• The SEBI Board comprises a Chairman, two Ministry of Finance officials, one RBI nominee, and five members appointed by the Central Government.
• The Forward Markets Commission merged with SEBI in 2015, bringing commodity derivatives under capital market regulation.
• Section 11B of the SEBI Act gives SEBI statutory powers to issue binding operational directions to market participants.
• The SAST Regulations mandate an open offer trigger when an acquirer reaches 25% voting rights in a listed target company.
• ASBA ensures investor funds remain in personal bank accounts until IPO allotment takes place.
• India adopted the T+1 settlement cycle across all stock exchanges in January 2023.
• Appeals against SEBI orders are filed with the Securities Appellate Tribunal (SAT), and SAT orders can be challenged in the Supreme Court under Section 15Z.
• SCORES is SEBI’s online platform designed for investor grievance redressal.