What is SEBI?

SEBI is a statutory body established on April 12, 1992 in accordance with the provisions of the
Securities and Exchange Board of India Act, 1992.
The basic functions of the Securities and Exchange Board of India is to protect the interests of
investors in securities and to promote and regulate the securities market.
How SEBI come into Existence?
• Before SEBI came into existence, Controller of Capital Issues was the regulatory
authority; it derived authority from the Capital Issues (Control) Act, 1947.
• In April, 1988 the SEBI was constituted as the regulator of capital markets in India
under a resolution of the Government of India.
• Initially SEBI was a non-statutory body without any statutory power.
• It became autonomous and given statutory powers by SEBI Act 1992.
• The headquarters of SEBI is situated in Mumbai. The regional offices of SEBI are
located in Ahmedabad, Kolkata, Chennai and Delhi.
Objectives of SEBI
• SEBI is entrusted with regulating the functioning of the Indian capital market. The
objectives of SEBI as a regulatory body are to monitor and regulate India's securities
market to safeguard investors' interests.
• It aims to inculcate a safe investment environment by implementing several rules and
regulations and formulating investment-related guidelines.
• Furthermore, one of the other main objectives was to avoid malpractices in the Indian
stock market.
What is the Structure of SEBI?
• SEBI Board consists of a Chairman and several other whole time and part time
members.
• The hierarchical structure comprises 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.
• SEBI also appoints various committees, whenever required to look into the pressing
issues of that time.
• Further, a Securities Appellate Tribunal (SAT) has been constituted to protect the
interest of entities that feel aggrieved by SEBI’s decision.
• SAT consists of a Presiding Officer and two other Members.
• It has the same powers as vested in a civil court. Further, if any person feels aggrieved
by SAT’s decision or order can appeal to the Supreme Court. SEBI is a statutory
regulatory body established on the 12th of April, 1992. It monitors and regulates the
Indian capital and securities market while ensuring to protection of the interests of the
investors, formulating regulations and guidelines. The head office of SEBI is at Bandra
Kurla Complex, Mumbai
Functions of SEBI
1. To protect the interests of Indian investors in the securities market.
2. To promote the development and hassle-free functioning of the securities market.
3. To regulate the business operations of the securities market.
4. To serve as a platform for portfolio managers, bankers, stockbrokers, investment
advisers, merchant bankers, registrars, share transfer agents and others.
5. To regulate the tasks entrusted to depositors, credit rating agencies, custodians of
securities, foreign portfolio investors and other participants.
6. To educate investors about securities markets and their intermediaries.
7. To prohibit fraudulent and unfair trade practices within the securities market and related
to it.
8. To monitor company takeovers and acquisition of shares.
9. To keep the securities market efficient and up to date through proper research and
developmental tactics.
POWERS AND FUNCTIONS OF THE BOARD
Under Securities and Exchange Board of India Act, 1992[As amended by the Securities
Laws(Amendment) Act,2014
- S. 11. Functions of Board
- S. 11A. Board to regulate or prohibit issue of prospectus, offer document or
advertisement soliciting money for the issue of securities
- S. 11AA. Collective investment scheme
- S. 11B. Power to issue directions
- S. 11C. Investigation
- S. 11D. Cease and desist.
Sec. 11 - Functions of Board.
(1) Subject to the provisions of this Act, it shall be the duty of the Board to protect
the interests of investors in securities and to promote the development of, and to regulate
the securities market, by such measures as it thinks fit.
(2) Without prejudice to the generality of the foregoing provisions, the measures referred to
therein may provide for—
a) regulating the business in stock exchanges and any other securities markets;
b) 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;
(ba) registering and regulating the working of the depositories, participants, custodians
of securities, foreign institutional investors, credit rating agencies and such other
intermediaries as the Board may, by notification, specify in this behalf;
c) registering and regulating the working of 15[venture capital funds and
collective investment schemes], including mutual funds;(
d) promoting and regulating self-regulatory organisations;
e) prohibiting fraudulent and unfair trade practices relating to securities markets;
 f) promoting investors’ education and training of intermediaries of securities markets;
g) prohibiting insider trading in securities;
h) regulating substantial acquisition of shares and takeover of companies;
i) calling for information from, undertaking inspection, conducting inquiries and audits
of the intermediaries and self-regulatory organisations in the securities market
(ia) calling for information and records from any person including any bank or any
other authority or board or corporation established or constituted by or under any
Central or State Act which, in the opinion of the Board, shall be relevant to any
investigation or inquiry by the Board in respect of any transaction in securities;]
(ib) calling for information from, or furnishing information to, other authorities,
whether in India or outside India, having functions similar to those of the Board,
in the matters relating to the prevention or detection of violations in respect of
securities laws, subject to the provisions of other laws for the time being in force in this
regard:Provided that the Board, for the purpose of furnishing any information to
any authority outside India, may enter into an arrangement or agreement or
understanding with such authority with the prior approval of the Central Government;
j) 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;
k) levying fees or other charges for carrying out the purposes of this section;
l) conducting research for the above purposes;
(la) calling from or furnishing to any such agencies, as may be specified by the Board,
such information as may be considered necessary by it for the efficient discharge
of its functions;]
m) performing such other functions as may be prescribed.
the Board may take measures to undertake inspection of any book, or register, or other
document or record of any listed public company or a public company (not being intermediaries
referred to in section 12) which intends to get its securities listed on any recognised stock
exchange where the Board has reasonable grounds to believe that such company has been
indulging in insider trading or fraudulent and unfair trade practices relating to securities
market.
Can take interim measures In the interest of investors and securities market, suspend trading,
restrain persons from accessing the securities market, suspend office bearers issue directions
to intermediaries not to dispose of or alienate any asset
Sec. 11 B - SEBI has Power to issue directions
Save as otherwise provided in section 11, if after making or causing to be made an enquiry, the
Board is satisfied that it is necessary,—
(i) in the interest of investors, or orderly development of securities market; or
(ii) to prevent the affairs of any intermediary or other persons referred to in section 12
from being conducted in a manner detrimental to the interest of investors or
securities market; or
(iii) to secure the proper management of any such intermediary or person, it may issue
such directions, —
 a) to any person or class of persons referred to in section 12, or associated
with the securities market; or
b) to any company in respect of matters specified in section 11A, as may be appropriate
in the interests of investors in securities and the securities market.
Section 11 C - Power to Investigate
Where the Board has reasonable ground to believe that
a) the transactions in securities are being dealt with in a manner detrimental to the
investors or the securities market; or
b) any intermediary or any person associated with the securities market has violated any
of the provisions of this Act or the rules or the regulations made or directions issued by
the Board thereunder,
It may, at any time by order in writing, direct any person (hereafter in this section referred to
as the Investigating Authority) specified in the order to investigate the affairs of such
intermediary or persons associated with the securities market and to report thereon to the Board.
The Investigating Authority may require any intermediary or any person associated with
securities market in any manner to furnish such information to, or produce such books, or
registers, or other documents, or record before it or any person authorized by it in this behalf
as it may consider necessary if the furnishing of such information or the production of such
books, or registers, or other documents, or record is relevant or necessary for the purposes of
its investigation.
The Investigating Authority may keep in its custody any books, registers, other documents and
record produced under sub-section (2) or sub-section (3) for six months and thereafter shall
return the same to any intermediary or any person associated with securities market by whom
or on whose behalf the books, registers, other documents and record are produced: Provided
that the Investigating Authority may call for any book, register, other document and record if
they are needed again
shall be liable to a penalty which shall not be less than ten lakh rupees but
which may extend to twenty-five crore rupees or three times the amount
of profits made out of insider trading, whichever is higher
Penalty for non-disclosure of acquisition of shares and takeovers
Penalty for fraudulent and unfair trade practices
SEBI Has Power to adjudicate
Establish Securities Appellate Tribunal (shall consist of a Presiding Officer
and two other members)
INSIDER TRADING REGULATIONS MADE BY SEBI
• Insider trading can be understood as an illegal practice of trading in the securities
of the company in a way that has been influenced by having certain “Unpublished
Price Sensitive Information” (UPSI), which is unknown to the public at large.
• A UPSI is any information which is not generally available to the public at large
and once it is published, it might have an effect on the prices of the securities. These
two features act as a test to identify which information can be termed as UPSI.
• Insider trading has been a root cause of many monetary scams which have become
a household name in the share market. It is considered as one of the important areas
to be effectively and efficiently regulated for not only providing for a more
transparent and fair return to the shareholders of the company but also to maintain
public confidence and reliability in the share market to retain the investors.
• The Companies Act, 19562 did not have any provision for insider trading and the
Securities and Exchange Board of India (SEBI), established in the year 1988,
became the regulatory authority to keep in check any circumstances of insider
trading.
• Section 12-A of the SEBI Act, 1992 empowers SEBI to regulate matters of insider
trading and under this section it is also empowered to publish regulations for
regulating insider trading. Due to the power bestowed in SEBI by the virtue of this
section, the SEBI Prohibition of Insider Trading Regulations, 2015 (PIT
Regulations) came into effect. The first Regulations for the same were published in
1992 and they lacked a robust mechanism to trace instances of insider trading owing
to the several loopholes in them. As a step in furtherance to cure this issue, the PIT
Regulations, 2015, further amended in 2018, were formulated to ensure a more
comprehensive and broad mechanism to check for insider trading and ensure no
such instances are left unattended.
• In Rakesh Agrawal v. SEBI, the Court laid down that motive can be an important
element in determining the guilt in insider trading cases.
• Hindustan Lever Limited v. SEBI
• Thomas Committee had pointed out the lack of a special legislation to deal with
“unfair use of insider information” in 1948 itself, it took a few decades to actually
formulate a legislation to curb insider trading.
• In 1979, the Sachar Committee recommended amendments to the companies Act,
1956 to restrict prohibit the dealings of employees. Penalties were also suggested o
prevent the insider trading.
• In 1989 the Abid Hussain Committee recommended that the insider trading
activities may be penalized by civil and criminal proceedings and also suggested
the SEBI formulate the regulations and governing codes to prevent unfair dealings.
GOVERNING REGULATIONS:
• Securities & Exchange Board Of India Act, 1992
• SEBI (Insider Trading) Regulations, 1992
• SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2002
• SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2003
• SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2008
 • SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2011
• SEBI (Prohibition of Insider Trading) Regulations, 2015
Under these Regulations an “Insider” is defined as : “any person who is
(i) a connected person, or;
(ii) in possession of or
(iii) having access to unpublished price sensitive information(UPSI)”
The new regulations have been aimed at making the Indian market more transparent
and provide a level-playing field to all traders and investors.
Section 12 A, SEBI Act, 1992 - Prohibition of manipulative and deceptive devices, insider
trading, and substantial acquisition of securities or control.
No person shall directly or indirectly—
(a) use or employ, in connection with the issue, purchase or sale of any securities listed or
proposed to be listed on a recognized stock exchange, any manipulative or
deceptive device or contrivance in contravention of the provisions of this Act or
the rules or the regulations made thereunder;
(b) employ any device, scheme or artifice to defraud in connection with issue or dealing in
securities which are listed or proposed to be listed on a recognised stock exchange;
(c) engage in any act, practice, course of business which operates or would operate as fraud
or deceit upon any person, in connection with the issue, dealing in securities which are
listed or proposed to be listed on a recognised stock exchange, in contravention
of the provisions of this Act or the rules or the regulations made thereunder;
(d) engage in insider trading;
(e) deal in securities while in possession of material or non-public information
or communicate such material or non-public information to any other person, in a
manner which is in contravention of the provisions of this Act or the rules or
the regulations made thereunder;
(f) acquire control of any company or securities more than the percentage of equity
share capital of a company whose securities are listed or proposed to be listed on a
recognised stock exchange in contravention of the regulations made under this Act.
Section 15 G - Penalty for insider trading.
If any insider who,—
(i) either on his own behalf or on behalf of any other person, deals in securities
of a body corporate listed on any stock exchange on the basis of any
unpublished price-sensitive information; or
(ii) communicates any unpublished price-sensitive information to any person, with
or without his request for such information except as required in the ordinary
course of business or under any law; or
(iii) counsels, or procures for any other person to deal in any securities of any
body corporate on the basis of unpublished price-sensitive information,
shall be liable to a penalty[which shall not be less than ten lakh rupees but which may
extend to twenty-five crore rupees or three times the amount of profits made out of
insider trading, whichever is higher].
CHANGES THROUGH 2020 AMENDMENTS
1. Enhancement of the structured digital database towards seeking and storing additional
details of persons sharing unpublished price sensitive information (“UPSI”)
2. Automation of shareholding disclosures and change in reporting authority for making
disclosures of PIT violations by listed entities, market intermediaries and fiduciaries.
3. Introduction for additional transactional mechanisms as an exception to trading window
restrictions.