What is SEBI?

Securities and Exchange Board of India (SEBI) is a statutory regulatory body entrusted with the responsibility to regulate the Indian capital markets. It monitors and regulates the securities market and protects the interests of the investors by enforcing certain rules and regulations.

SEBI was founded on 12 April 1992, under the SEBI Act, 1992. Headquartered in Mumbai, India, SEBI has regional offices in New Delhi, Chennai, Kolkata and Ahmedabad along with other local regional offices across prominent cities in India.

The objective of SEBI is to ensure that the Indian capital market works in a systematic manner and provide investors with a transparent environment for their investment. To put it simply, the primary reason for setting up SEBI was to prevent malpractices in the capital market of India and promote the development of the capital markets.

Structure of SEBI

SEBI, just like any corporate firm has a hierarchical structure and consists of numerous departments headed by their respective heads. Following is a list of some of the departments of  SEBI:

  • Foreign Portfolio Investors and Custodians
  • Human Resources Department
  • Information Technology
  • Investment Management Department
  • Office of International Affairs
  • Commodity and Derivative Market Regulation Department
  • National Institute of Securities Market

Apart from the department heads, the senior management of SEBI consists of a Board of Directors who are appointed as follows:

  • One chairman nominated by the Union Government of India
  • Two members from the Union Finance Ministry of India
  • One member from the Reserve Bank of India (RBI)
  • Five members nominated by the Union Government of India

Functions of SEBI

The functions and powers of SEBI have been listed in the SEBI Act,1992. SEBI caters to the needs of three parties operating in the Indian Capital Market. These three participants are mentioned below:

  • Issuers of the Securities: Companies that issue securities are listed on the stock exchange. They issue shares to raise funds. SEBI ensures that the issuance of Initial Public Offerings (IPOs) and Follow-up Public Offers (FPOs) can take place in a healthy and transparent way.
  • Protects the Interests of Traders & Investors: It is a fact that the capital markets are functioning just because the traders exist. SEBI is responsible for safeguarding their interests and ensuring that the investors do not become victims of any stock market fraud or manipulation.
  • Financial Intermediaries: SEBI acts as a mediator in the stock market to ensure that all the market transactions take place in a secure and smooth manner. It monitors every activity of the financial intermediaries, such as broker, sub-broker, NBFCs, etc

Powers of SEBI

Securities and Exchange Board of India has the following three powers:

Quasi-Judicial: With this authority, SEBI can conduct hearings and pass ruling judgement in cases of unethical and fraudulent trade practices. This ensures transparency, fairness, accountability and reliability in the capital market. SEBI PACL (Pearl Agrotech Corporation Ltd.) case is an example of this power.

Quasi-Legislative: Powers under this segment allow SEBI to draft rules and regulations for the protection of the interests of the investor. One such regulation is SEBI LODR (Listing Obligation and Disclosure Requirements). It aims at consolidating and streamlining the provisions of existing listing agreements for several segments of the financial market like equity shares. This type of regulation formulated by SEBI aims to keep any malpractice and fraudulent trading activates at bay.

Quasi-Executive: SEBI is authorised to file a case against anyone who violates its rules and regulation. It is empowered to inspect account books and other documents as well if it finds traces of any suspicious activity.

Procedure for registering a mutual fund with SEBI

As per SEBI’s guidelines, the applicant must apply for registration in Form A prescribed under Schedule I of SEBI Regulations 1996. It must be noted that any person who holds equal to or more than 40% of the net worth of the Asset Management Company shall be deemed as a Sponsor and must apply in Form A.

  • An applicant proposing to sponsor a mutual fund must submit an application in the Form A along with a non-refundable fee of Rs.5 lakhs
  • The application will then be examined in correspondence with the eligibility criteria
  • If the sponsor meets the eligibility conditions, it will have to complete the remaining formalities such as including inter alia, executing the trust deed and investment management agreement, setting up a trustee company/board of trustees comprising two-thirds independent trustees, incorporating the asset management company (AMC), contributing to at least 40% of the net worth of the AMC and appointing a custodian
  • Once the mentioned conditions are met, SEBI will issue the registration certificate subject to the payment of registration fees of Rs.25 lakhs.

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