What is SEBI?
SEBI is essentially a statutory body of the Indian Government that was established on the 12th of April in 1992. It was introduced to promote transparency in the Indian investment market. Besides its headquarters in Mumbai, the establishment has several regional offices across the country including, New Delhi, Ahmedabad, Kolkata and Chennai.
It is entrusted with the task to regulate the functioning of the Indian capital market. The regulatory body lays focus on monitoring and regulating the securities market in India to safeguard the interest of investors and aims to inculcate a safe investment environment by implementing several rules and regulations as well as by formulating investment-related guidelines.
The Structural Set Up of SEBI India
SEBI India follows a corporate structure. It has a Board of Directors, senior management, department heads and several crucial departments.
To be precise, it comprises of over 20 departments, all of which are supervised by their respective department heads, who in turn are administered by a hierarchy in general.
The SEBI’s hierarchical structure comprises of the following 9 designated officers –
- The Chairman – Nominated by the Indian Union Government.
- Two members belonging to the Union Finance Ministry of India.
- One member belonging to the Reserve Bank of India or RBI.
- Other five members – Nominated by the Union Government of India.
The below-mentioned list highlights some of the most important departments of SEBI –
- The Information Technology Department.
- The Foreign Portfolio Investors and Custodians.
- Office of International Affairs.
- National Institute of Securities Market.
- Investment Management Department.
- Commodity and Derivative Market Regulation Department.
- Human Resource Department.
Besides these, other crucial departments take care of legal, financial and enforcement-related affairs.
Powers and Functions of SEBI
Being a regulatory body, SEBI India has several powers to perform vital functions. The SEBI Act of 1992 carries a list of such powers vested in the regulatory body. The functions of SEBI make it an issuer of securities, protector of investors and traders and a financial mediator.
The following pointers offer a brief idea about the same.
- To protect the interests of Indian investors in the securities market.
- To promote the development and hassle-free functioning of the securities market.
- To regulate the business operations of the securities market.
- To serve as a platform for portfolio managers, bankers, stockbrokers, investment advisers, merchant bankers, registrars, share transfer agents and other people.
- To regulate the tasks entrusted on depositors, credit rating agencies, custodians of securities, foreign portfolio investors and other participants.
- To educate investors about securities markets and their intermediaries.
- To prohibit fraudulent and unfair trade practices within the securities market and related to it.
- To monitor company take-overs and acquisition of shares.
- To keep the securities market efficient and up to date all the time through proper research and developmental tactics.
- Quasi-judicial powers:In cases of frauds and unethical practices pertaining to the securities market, SEBI India has the power to pass judgements.
The said power facilitates to maintain transparency, accountability and fairness in the securities market.
- Quasi-executive powers: SEBI has the power to examine the Book of Accounts and other vital documents to identify or gather evidence against violations. If it finds one violating the regulations, the regulatory body has the power to impose rules, pass judgements and take legal actions against violators.
- Quasi-Legislative powers: To protect the interest of investors, the authoritative body has been entrusted with the power to formulate suitable rules and regulations. Such rules tend to encompass the listing obligations, insider trading regulations and essential disclosure requirements. The body formulates such rules and regulation to get rid of malpractices that are prevalent in the securities market.
The Supreme Court of India and the Securities Appellate Tribunal tend to have an upper hand when it comes to the powers and functions of SEBI. All its functions and related decisions have to go through the two apex bodies first.
Mutual Funds Guidelines by SEBI
The Securities and Exchange Board of India Regulations, 1996 is a set of guidelines that have been formulated to manage mutual funds in India. As per the said guidelines, mutual funds in India must register under the Trusts Act, 1882.
Those mutual funds that deal exclusively with the money market must get registered with the RBI. The Asset Management Companies (AMC), which manages mutual funds must be SEBI approved. The trustees of the AMC must ensure that mutual funds are performing as per the regulations. It is also entrusted with the responsibility of monitoring the overall performance of mutual funds.
SEBI India has further issued several mutual funds regulations that the sponsors, asset management companies and shareholders must abide by.
A few of them are mentioned below –
- A mutual fund sponsor, a group of a company or an associate of an AMC cannot hold – 10% or more of the total shareholding and voting rights in an AMC or other mutual fund. An AMC cannot be represented on any other mutual fund’s board.
- In an AMC of a mutual fund, a shareholder cannot hold 10% or more of the total shareholding either directly or indirectly.
- For a sectorial or thematic index, none of the single stocks can have over 35% weight in the said index. While for other indices the cap is 25%.
- When it comes to the top three constituents of the index, their aggregate weight cannot exceed beyond 65%.
- When it comes to an individual constituent of the index, the trading frequency should be at least a minimum 80%.
- Each liquid scheme must have at least 20% in liquid assets like treasury bills, government securities, cash, repo on government securities, etc.
At the end of every calendar year, mutual funds must ensure that they have been in accordance with the guidelines issued by the Securities and Exchange Board of India. It further requires them to make their constituents of the indices public by getting it published in their respective websites.