SECURITIES EXCHANGE BOARD OF INDIA (SEBI)

SECURITIES EXCHANGE BOARD OF INDIA (SEBI) The Securities Exchange Board of India (SEBI) was established in April 1988 by order of the government of India to regulate India's securities market, but lacked statutory powers until 1992, when the Securities Exchange Board of India Act was passed. The board has nine members: its chairman and two members are full time; among the part-time members, two are officials of the government ministries of finance and company law matters, and one is from the Reserve Bank of India (RBI), the central bank of the country. The core responsibility of the board is to regulate the securities markets and protect investors' interests. SEBI was given further statutory powers under The Depositories Act of 1996.

SEBI's regulations are statutory in nature, and any infringements are punishable by monetary penalty and/or imprisonment. It has powers to put any market intermediary or participant out of business by suspending or canceling the registration granted to it under its relevant regulations. SEBI can also prosecute the offenders. This serves as an effective deterrent against market manipulation or disruption. SEBI's powers were enhanced significantly in 1995, when it became a quasi-judicial body that can adjudicate breaches to its regulations and impose fines. The affected parties have the freedom to appeal against SEBI's decisions to a three-member tribunal. The verdicts of the tribunal can be challenged only in the Supreme Court.

SEBI regulates stock exchanges, securities markets, stock brokers, subbrokers, share transfer agents, bankers to the issue, trustees of trust deeds, merchant bankers, underwriters, portfolio managers, investment advisers, mutual funds, depositories, depository participants, custodians, foreign institutional investors, and any intermediaries that are connected with the securities markets. Credit rating companies have been brought under SEBI's regulatory oversight to ensure that the rating companies enjoy professional independence and are not subject to unwarranted influence. SEBI enjoys strong powers to prohibit fraudulent and unfair trade practices relating to securities markets. Recently its penal powers have been significantly strengthened to prohibit insider trading in securities. It also regulates substantial acquisitions of shares and the takeover of companies.

Since 1995 the standards of Indian securities markets have improved significantly. Indian markets, once considered risky and inefficient, are now among the best in the world, with state-of-the-art trading and settlement systems. However, only part of the credit for this improvement can go to SEBI. The two most important institutions that have significantly upgraded the quality and safety of the Indian securities markets are the National Stock Exchange of India (NSE) and the National Securities Depository Limited. The record of SEBI in containing market manipulation is also rather patchy. The move to shift to rolling settlement in mid-2001, to avoid manipulation by market players taking advantage of different settlement periods at different exchanges, was taken only at the insistence of the government of India.

Out of the twenty-three stock exchanges, only the NSE and the Bombay Stock Exchange are really functioning, and all others have become practically defunct. The nonfunctioning exchanges are not debarred, however, from listing companies. SEBI has announced the creation of a Central Listing Authority to deal with the competitive devaluation of standards of listing that used to take place, with competition among exchanges to attract companies for listing. The Central Listing Authority has yet to frame its own guidelines and business rules, however. The recent move of SEBI to grant unique identification numbers to all market intermediaries was ill-conceived (attendant complexities were perceived as intrusions into privacy); the intended purpose could have been achieved through an investor database available with the depositories. Therefore, although SEBI has been able to establish itself as the market regulator, it has yet to prove convincingly that it is effective, efficient, and proactive.

R. H. Patil

See alsoCapital Market ; Stock Exchange Markets

BIBLIOGRAPHY

There are two web sites that provide exhaustive information on Indian securities markets and the regulative framework: the Securities Exchange Board of India (http://www.sebi.gov.in/) and the National Stock Exchange of India (http://www.nseindia.com/). The following reports and documents are particularly useful: Securities Exchange Board of India, Annual Reports, 1996–1997 to 2002–2003; Government of India: The Securities Exchange Board of India Act (1992), The Depositories Act (1996), The Securities Contracts (Regulations) Act (1956); and The National Stock Exchange of India's annual publication, "Indian Securities Market, An Overview," for the years 1999 to 2003.