Securities and Exchange Board

of India

Presented by
TANAY KUMAR
070346
Agenda

History of SEBI
Legal Framework
Structure

Functions

Penalties & Adjudication

Agenda
Securities Appellate Tribunal
Measures taken by SEBI
Performance of SEBI
 History
 India witnessed phenomenal growth & development of
securities market in 1980s
 The corporates increasingly came to rely on the securities
market for their long term finance requirements
 Securities market came to be firmly integrated with the
financial system of the country
 This gave birth to new intermediaries and institutions in the
securities market
History
 It became necessary to remove trading
malpractices and inadequacies inorder to sustain
the growth in the market
 Looking at this, Government of India accepted
recommendations of the High Powered Committee
to establish an apex body to regulate, control &
supervise the securities market inorder to provide
the investors with an organized and well regulated
market place
 SEBI
 SEBI was set up by Government of India in 1988
 After Economic Liberalization, GOI decided to vest SEBI
with more statutory power to deal effectively with all the
matters relating to capital market
 Since Parliament was not in session, President of India
promulgated SEBI ordinance on 30th Jan 1992
 Ordinance has since been replaced by an act of
parliament entitled SEBI Act, 1992
SEBI
 SEBI is the apex regulatory & development agency
of the capital market and stock exchanges in India

 Originally set up by the Government of India in

1988, it acquired statutory form in 1992 with
Securities and Exchange Board of India Act 1992
being passed by the Indian Parliament
The Preamble of the Securities and Exchange Board
of India Act,1992 describes the basic functions of the
SEBI as

“…..to protect the interests of investors in

securities and to promote the development of, and
to regulate the securities market and for matters
connected therewith or incidental thereto”
Objectives of SEBI

 Investor Protection
 Steady flow of savings
 Fair practices by the Issuers
 Promotion of Efficient Services
 Transparency in Work
 Legal Framework

The Securities Contract (Regulations) Act, 1956

Securities and Exchange Board of India Act,1992

The Depositories Act, 1996

Securities Contracts (Regulation) Amendment Act, 2007         

      
      
Securities and Exchange
Board of India Act,1992
 SEBI Act, 1992 is having retrospective effect and is
deemed to have come into force on January 30,
1992
 Relatively a brief act containing 35 sections, the
SEBI Act governs all the Stock Exchanges and the
Securities Transactions in India
 The Act defines the structure, function and powers
of the Board
Structure of SEBI
Structure of SEBI
SEBI's governing board comprises of:

 the Chairman,

 two members from the ministries of the central

government dealing with finance and law,
 two professional members with experience or
special knowledge of securities market, and
 one member from RBI
 The Board decides questions in the meeting by
majority vote with the Chairman having a second or
casting vote
 All members, except the RBI member, are
appointed by GOI
 Their terms of office, tenure, and conditions of
service is also laid down by GOI
 It can also remove any member from office under
certain circumstances
 Offices of SEBI
 Headquarter of SEBI is located in Bandra-Kurla complex
in Mumbai
 It has three Regional Offices
 Northern office in New Delhi,
 Eastern office in Kolkata and
 Southern office in Chennai
 A new Western Regional Office has been proposed at
Ahmedabad
Functions of SEBI
Functions of the Board
 The functions of SEBI are described under Section
11 of Securities and Exchange Board of India
Act,1992

 Can be classified into:

 Regulatory Functions
 Developmental Functions
 Regulatory Functions
 Regulating the business in stock exchanges and any
other securities markets;
 Registering and regulating the working of stock
brokers, sub-brokers, share transfer agents, bankers to
an issue, trustees of trust deeds, registrars to an issue,
merchant bankers, underwriters, portfolio managers,
investment advisers and such other intermediaries who
may be associated with securities markets in any
manner;
 Regulatory Functions
 Registering and regulating the working of venture
capital funds and collective investment schemes
including mutual funds;
 Promoting and regulating self-regulatory organisations;
 Prohibiting fraudulent and unfair trade practices
relating to securities markets;
 Prohibiting insider trading in securities;
 Regulatory Functions
 Regulating substantial acquisition of shares and take-
over of companies;
 Calling for information from, undertaking inspection,
conducting inquiries and audits of the stock
exchanges, mutual funds, other persons associated
with the securities market intermediaries and self-
regulatory organisations in the securities market;
 Regulatory Functions

 Performing such functions and exercising such powers

under the provisions of the Securities Contracts
(Regulation) Act, 1956(42 of 1956), as may be
delegated to it by the Central Government;
 Levying fees or other charges for carrying out the
purposes of this section;
Developmental Functions
 Promoting investors’ education
 Promoting self-regulating organizations
 Training of intermediaries of security markets
 Promotion of fair practices and code of conduct
for all SROs
 Conducting research and publishing information
useful to all market participants
Functions of SEBI
 SEBI has three functions rolled into one body
◦ Quasi-legislative: drafts regulations in its
legislative capacity
◦ Quasi-judicial: passes rulings and orders in its
judicial capacity
◦ Quasi-executive: conducts investigation and
enforcement action in its executive function

 Though this makes it very powerful, there is an

appeals process to create accountability
Power to make Regulations
 The Board may by notification, make regulations
consistent with SEBI Act and rules to carry out the
purposes of this Act for all or any of the following
matters, namely:-
 The times and places of meetings of the Board and the
procedure to be followed at such meetings quorum
necessary for the transaction of business;
 The terms and other conditions of service of officers and
employees of the Board;
Power to make Regulations

 The matters relating to issue of capital, transfer of

securities and other matters incidental thereto and the
manner in which such matters shall be disclosed by the
companies;
 The conditions subject to which certificate of registration
is to be issued, the amount of fee to be paid for
certificate of registration and the manner of suspension
or cancellation of certificate of registration
Penalties & Adjudication
[u/s 15 of SEBI Act]
Penalties & Adjudication

1) Failure to maintain books of accounts or furnish

information, return, to a recognized stock exchange
2) Failure by any person to enter into agreement with
clients (for intermediaries)
3) Failure to redress investors' grievances (for any listed
company or any person)
4) Failure to observe rules and regulations by an asset
management company
5) Certain defaults in case of mutual
funds

A person who is required to obtain a Certificate of Registration under SEBI

Act/Rules/Regulations

A. Carries on work without obtaining the Certificate of Registration

B. Fails to comply with the terms and conditions of certificate of registration

C. Fails to make an application for listing of its schemes as provided for in the

regulations governing such listing

D. Fails to despatch unit certificates of any scheme in the manner provided in the

regulation governing such despatch

5) Certain defaults in case of mutual
funds
E. Fails to refund the application monies paid by the
investors within the period specified in the regulations
F. Fails to invest money collected by such schemes in
the manner or within the period specified in the
regulations
 Liable to pay a penalty of one lakh rupees for each day
during which such failure continues or one crore rupees,
whichever is less
6) Failure in case of stock brokers
 Fails to issue contract notes

◦ penalty not exceeding five times the amount for which the
contract note was required to be issued by that broker
 Fails to deliver any security or make payment of the amount
due to the investor within the specified time period

◦ Penalty: one lakh rupees for each day during which such failure
continues or one crore rupees, whichever is less
6) Failure in case of stock brokers
 Charges an amount of brokerage which is in excess
of the brokerage specified

◦ Penalty: one lakh rupees or five times the amount

of brokerage charged in excess of the specified
brokerage, whichever is higher
7) Insider Trading
◦ Deals in securities on the basis of any unpublished price
sensitive information

◦ Communicates any unpublished price - sensitive information

◦ Counsels any other person to deal in any securities on the

basis of unpublished price-sensitive information
 Shall be liable to pay twenty-five crore rupees or three times
the amount of profits made out of insider trading, whichever
is higher
8) Non-disclosure of acquisition of shares
and take-overs
Failure to:
 Disclose the aggregate of his shareholding in the body corporate

before he acquires any shares of that body corporate;

 Make a public announcement to acquire shares at a minimum

price;
 Make a public offer by sending letter of offer to the shareholders

of the concerned company;

 Make payment of consideration to the shareholders who sold

their shares pursuant to letter of offer

 Liable to a penalty of twenty-five crore rupees or three
times the amount of profits made out of such failure,
whichever is higher

9) Power to adjudicate
 Board shall appoint any of its officers not below the rank
of a Division Chief to be an adjudicating officer for
holding an inquiry in the prescribed manner after giving
any person concerned a reasonable opportunity of
being heard for the purpose of imposing any penalty
 In case of violation*
The Board may, by an order, for reasons to be
recorded in writing, in the interests of investors or
securities market, take any of the following measures,
either pending investigation or inquiry or on
completion of such investigation or inquiry, namely:-

1. Suspend the trading of any security in a

recognised stock exchange;

*Inserted by the SEBI (Amendment) Act, 2002 u/s 11

2. Restrain persons from accessing the securities market
and prohibit any person associated with securities
market to buy, sell or deal in securities;

3. Suspend any office-bearer of any stock exchange or

self- regulatory organisation from holding such position;

4. Impound and retain the proceeds or securities in

respect of any transaction which is under investigation;
5.Attach, after passing of an order on an application
made for approval by the Judicial Magistrate of the
first class having jurisdiction, for a period not
exceeding one month, one or more bank account
or accounts of any intermediary or any person
associated with the securities market in any
manner involved in violation of any of the
provisions of SEBI Act/rules/regulations.
 Provided that only the bank account or accounts or
any transaction entered therein, so far as it relates
to the proceeds actually involved in violation of any
of the provisions of this Act/rules/regulations shall
be allowed to be attached;
6.Direct any intermediary or any person associated
with the securities market in any manner not to
dispose of or alienate an asset forming part of any
transaction which is under investigation
Securities Appellate Tribunal
Any person aggrieved by an order by

◦ SEBI under the SEBI Act/rules/regulations or

◦ An adjudicating officer

may prefer an appeal in the prescribed form,

accompanied by the prescribed fees, to a SAT
within 45 days from the date on which a copy of
order is received by him
Securities Appellate Tribunal
 The Securities Appellate Tribunal shall have, for
the purposes of discharging their functions under
this Act, the same powers as are vested in a civil
court
A second appeal lies directly to the Supreme Court
and has to be filed within 60 days from the date of
communication of the decision or order of the
Securities Appellate Tribunal to him on any
question of law arising out of such order
Composition of SAT [Section 15 L]
 Securities Appellate Tribunal is a three member
tribunal

 It consists of

◦ a Presiding Officer and

◦ two other Members, to be appointed, by

notification, by the Central Government
Measures taken by SEBI
 Computerization of Stock Exchanges

Automated screen based trading introduced first by

setting up OTCEI and NSE subsequently extended
to BSE
 Expansion of trading terminals of Stock Exchanges
 Dematerialized Trading
 Securities Lending Scheme
Measures taken by SEBI

 Clearing Corporation/settlement guarantee fund

 Buy-back of shares
 Rolling Settlement
Performance of SEBI
Number of Stock Brokers (by
ownership) (as on 31st March)
 Investigation by SEBI

* : Revised; P: Provisional.
Investigation of Cases
 Nature of Investigation cases Taken
Up (2007-08)

* Miscellaneous cases include investigations pertaining to trading in the market after public issue,
illegal carry forwards, non-disclosures under SEBI Regulations, fit & proper, etc.
Type of Regulatory Actions Taken

** Against intermediaries and non-intermediaries

Fees & other charges (Rs Crore)
Fees & other charges (Rs. Crore)
Prosecution launched in cases
Nature of Prosecution Launched
 No. of cases decided by courts*

* Up to March 31, 2008

Appeals before SAT during 2007-08
References
 www.sebi.gov.in

 Annual Report of SEBI (2007-08)

 Indian Financial System: by Vasant Desai
 Financial Markets, Institutions & Financial Service:
by Gomez
 Management Accounting and Financial Analysis:
by Institute of Chartered Accountants of India
Thank You