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SEBI: The Purpose, Objective and Functions of SEBI
SEBI: The Purpose, Objective and Functions of SEBI
Functions of SEBI
by Saritha Pujari Education
It was left as a watch dog to observe the activities but was found
ineffective in regulating and controlling them. As a result in May 1992,
check when insiders are buying securities of the company and takes
strict action on insider trading.
(iii) SEBI prohibits fraudulent and Unfair Trade Practices:
SEBI does not allow the companies to make misleading statements
which are likely to induce the sale or purchase of securities by any
other person.
(iv) SEBI undertakes steps to educate investors so that they are able
to evaluate the securities of various companies and select the most
profitable securities.
(v) SEBI promotes fair practices and code of conduct in security
market by taking following steps:
(a) SEBI has issued guidelines to protect the interest of debentureholders wherein companies cannot change terms in midterm.
(b) SEBI is empowered to investigate cases of insider trading and has
provisions for stiff fine and imprisonment.
(c) SEBI has stopped the practice of making preferential allotment of
shares unrelated to market prices.
2. Developmental Functions:
These functions are performed by the SEBI to promote and develop
activities in stock exchange and increase the business in stock
exchange. Under developmental categories following functions are
performed by SEBI:
(i) SEBI promotes training of intermediaries of the securities market.
(ii) SEBI tries to promote activities of stock exchange by adopting
flexible and adoptable approach in following way:
(a) SEBI has permitted internet trading through registered stock
brokers.
(b) SEBI has made underwriting optional to reduce the cost of issue.
SEBI regulations have laid down an eligibility criteria u/s 7, for the
purpose of grant of a certificate of registration with a view to ensure
that players have a sound track record and general reputation of
fairness and integrity in all their business transactions.
Regulation 20(e) states that the AMC shall have a minimum net worth
of Rs.10 crores. This is to serve both as an entry barrier as well as to
enable the AMC to provide for its own infrastructure such as office
space, personnel and systems independent of the sponsor.
Any shortfall in the net worth would have to be made up by the
sponsor immediately. The initial contribution to the net worth should
be in the form of cash and all assets should be held in the name of the
AMC.
This is necessary to bring about a complete arms-length relationship
with the sponsor and its affiliates. In case the AMC wants to carry out
otherfund management businesses, it should satisfy the capital
adequacy requirement for each such business independently.
In case the AMC wishes to float assured return schemes or launch no
load funds, it should satisfy SEBI that its present net worth would be
adequate to meet any financial obligation which may arise; and if
required the net worth should be increased.
The AMC is allowed to deploy its net worth profitably as it may deem
fit, provided that there is no conflict of interest between its manner of
deployment and the interest of the investors in the schemes managed
by it; and this would be overseen by the Trustees.
The AMCs are also allowed to invest in the mutual fund schemes
launched by it; in case an AMC chooses to do so either during the
initial offer period or subsequently in case of open ended schemes, the
AMCs policy in this regard should be clearly disclosed in the
prospectus and in the directors report in the balance sheet of the
relevant scheme of the mutual fund.