Sebi: a credible and effective regulator

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SEBI, in its short journey of 25 years has made a remarkable impression on investors as well as capital markets.

Importance of SEBI:

For a growing and dynamic economy like India, capital markets play an important role in not just attracting domestic and foreign investment but also mirror the state of affairs in our country. In order to present the Indian dream most favourably among investors, it is important that our capital markets have a strong and non-manipulative infrastructure and to ensure this, India has its capital market regulator, the Securities and Exchange Board of India – SEBI.

Sebi’s origin and its current hierarchy:

SEBI was constituted on 12th April 1988 as an interim administrative body under the Finance Ministry. Four years later on 4th April 1992 that a notification awarding statutory powers to SEBI was finally issued.

SEBI is a quasi-legislative, quasi-judicial and quasi-executive body. It can draft regulations, conduct inquiries, pass rulings and impose penalties. All decisions taken by SEBI are collectively taken by its Board that consists of a Chairman and eight other members.  The current Chairman of SEBI is Mr. Upendra Kumar Sinha.

Some of the changes introduced by SEBI

Settlement system: SEBI introduced rolling settlement on a T+5 bases for domestic as well as foreign institutional investors in 1998.

Dematerialization of share certificates: SEBI initiated the process of dematerialization of share certificates in 1999. The need for this initiative was felt to avoid the threat of forgery or theft of share certificates coupled with inordinate delay by transfer agents and post offices.

Fostering mutual funds: SEBI regularly issues revised guidelines for mutual fund industry to help them flourish in India. Till early 90s, Unit Trust of India was the only player in India’s mutual fund market. Sebi’s efforts not only encouraged hundreds of mutual funds to enter the Indian markets.

Rolling out red carpet for FIIs: In order to keep a close eye on FII inflow; the task of giving approvals to FII registrations was handed over to SEBI in 2003 and since then SEBI has been consistently revising the FII investment limit in both corporate as well as government debt. In order to discourage FII investments made through P-notes, SEBI has imposed sufficient checks and balances to avoid the flow of black money into the Indian markets.

IPO reforms: SEBI had last year notified wide-ranging reforms in Initial Public Offer -IPO market which included a strict vigil on usage of issue proceeds, greater disclosure by companies and their bankers and allotment of a minimum number of shares to retail investors. Keeping with the times, SEBI has also introduced e-IPO procedure for electronic bidding in public offers to help investors bid for shares in a cost-effective manner.

Surveillance and risk management: In 1996-97, SEBI directed all exchanges to fix the daily price band at 10% and a weekly overall limit of 25% to curb undesirable volatility. To bring about a coordinated trading halt in all equity and derivates market nationwide, SEBI introduced an index based circuit breaker system applicable at 10%, 15% and 20% movement either way.

Grievance redressal and investor awareness: SEBI has a web-based centralized grievance redress system called SEBI Complaints Redress System – SCORES for assisting investors to lodge their complaints in a structured way.

Challenges ahead:

  • Upgrade its manpower and improve its capacities to deal with situations that can arise.
  • Creating a more robust framework to insider trading and strict implementation of buyback norms.
  • Strongly handle the issue of fraudulent collective investment schemes.
  • To ensure that FIIs continue to invest in India and to channelize household savings into the capital market.
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