8. SEBI and Regulations of the Capital Market

Before the establishment of the securities and exchange board of India, the principal legislations governing the securities market in India were the Capital Issues Control Act 1956 and the Securities Contract Act, 1956.

Securities and Exchange Board of India (SEBI) was established in 1988 and given statutory powers in 1992 through the SEBI Act, 1992. It mandates the SEBI to perform a dual function: investor protection through regulation of the securities market and fostering the development of this market. The SEBI has full autonomy and authority to regulate and develop the capital market.

SEBI has been vested with most of the functions and powers under the Securities Contract Regulation (SCR) Act, which brought stock exchanges, their members, as well as contracts in securities which could be traded under the regulations of the Ministry of Finance. It has also been delegated certain powers under the Companies Act.

Functions of the SEBI are as follow:

1. Regulate the business in stock exchanges and any other securities markets.

2. Register and regulate the working of capital market intermediaries like brokers, merchant bankers, portfolio managers and so on.

3. Register and regulate the working of mutual funds.

4. Promote and regulate self-regulatory organizations.

5. Prohibit fraudulent and unfair trades’ practices in securities markets.

6. Promote investors’ education and training of intermediaries of securities markets.

7. Prohibit insider trading in securities.

8. Regulate substantial acquisition of shares and takeover of companies.

9. Perform such other functions as may be prescribed by the government.

10. Review any intermediary or market participant information.

11. Review books of depository participants, issuers of beneficiary owners.

12. Investigate and inspect books of accounts and record of insiders.

13. Suspend the registration of banker in case of any malpractice.

The government has framed rules under the Securities Contracts Act (SCRA), the SEBI Act and the Depositories Act. The power in respect of the contracts for sales and purchase of government securities, money market securities and ready forward contracts in debt securities are exercised concurrently by the RBI.

The four main legislations governing the capital market are as follows:

1. The SEBI Act, 1992 which establishes the SEBI with four fold objectives of protection of the interests of investors in securities, development of the securities market, regulation of the securities market and matter connected therewith and incidental thereto.

2. The Companies Act, 1956 as amended in 2013 which deals with issue, allotment and transfer of securities, disclosures to be made in public issues, underwriting, rights and bonus issues and payment of interest and dividends.

3. The Securities Contracts Regulation Act, 1956 which provides for regulations of securities trading and the management of stock exchanges.

4. The Depositories Act, 1996 which provides for establishment of depositories for electronic maintenance and transfer of ownership of demat securities.