Context
- Recently, the Securities and Exchange Board of India (SEBI) has intensified its technological crackdown on market manipulators and “finfluencers” to preserve market integrity. Chairman Tuhin Kanta Pandey highlighted the successful deployment of ‘Sudarshan’, an AI-powered surveillance system that has already led to the removal of over 1.2 lakh misleading financial posts.
- Furthermore, SEBI launched the ‘SEBI Check’ tool within the UPI interface to help investors verify registered intermediaries before making payments.
1. Evolution and Legal Status
- Origin: SEBI was first established on April 12, 1988, as a non-statutory body through a government resolution.
- Statutory Status: It was granted statutory autonomous status through the SEBI Act, 1992, following the Harshad Mehta scam to provide the regulator with enforcement powers.
- Headquarters: The main office is located in Mumbai, with regional offices in New Delhi, Kolkata, Chennai, and Ahmedabad.
2. Composition of the Board
The SEBI Board is a multi-member body consisting of nine members:
- Chairman: Nominated by the Union Government of India.
- Two Members: Officers from the Union Ministry of Finance.
- One Member: From the Reserve Bank of India (RBI).
- Five Other Members: Nominated by the Union Government, of which at least three must be whole-time members.
| Note on Appointment: The Chairman is recommended by the Financial Sector Regulatory Appointments Search Committee (FSRASC), headed by the Cabinet Secretary. The final appointment is approved by the Appointments Committee of the Cabinet (ACC). |
3. Functions of SEBI
SEBI operates as a watchdog for the capital markets with three primary objectives:
- Protective Functions: Prohibiting insider trading, preventing price rigging, and promoting fair trade practices while educating investors.
- Developmental Functions: Promoting the training of intermediaries, encouraging self-regulatory organizations (SROs), and modernizing trading infrastructure.
- Regulatory Functions: Registering and regulating stockbrokers, merchant bankers, mutual funds, and credit rating agencies.
4. Triple Powers of SEBI
SEBI is one of the most powerful regulators in India because it combines three types of powers:
- Quasi-Legislative: It drafts regulations and rules for the capital market (e.g., Listing Obligations and Disclosure Requirements).
- Quasi-Executive: It conducts investigations, audits, and inspections. It has the power to call for data, including telephone call records, during investigations into insider trading.
- Quasi-Judicial: It passes rulings and orders. It can impose heavy monetary penalties and bar entities from accessing the capital markets.
5. Regulatory Ambit and Important Mechanisms
- Collective Investment Schemes (CIS): SEBI regulates any money-pooling scheme involving ₹100 crore or more, ensuring they are not fraudulent “ponzi” schemes.
- SCORES: The SEBI Complaints Redress System is a web-based centralized platform for investors to lodge grievances against listed companies or intermediaries.
- Appellate Mechanism: Any entity aggrieved by an order of SEBI can appeal to the Securities Appellate Tribunal (SAT). A further appeal against SAT’s order can be made directly to the Supreme Court of India.
Q. Consider the following statements regarding the Securities and Exchange Board of India (SEBI):
I. It is a statutory body that regulates both the securities market and any money-pooling scheme with a corpus of ₹100 crore or more.
II. The Chairman of SEBI is appointed by a committee specifically headed by the Governor of the Reserve Bank of India.
III. An appeal against the order of the Securities Appellate Tribunal (SAT) lies directly with the Supreme Court of India.
IV. SEBI has the power to act as a quasi-judicial body but lacks the authority to draft its own regulations.
How many of the above statements are correct?
(a) Only one
(b) Only two
(c) Only three
(d) All four
Correct Answer: b (Only two)
• Statement 1 Correct: SEBI is a statutory body (SEBI Act, 1992) and has the authority to regulate Collective Investment Schemes (CIS) with a corpus of ₹100 crore or more.
• Statement 2 Incorrect: The Chairman is recommended by the Financial Sector Regulatory Appointments Search Committee (FSRASC), which is headed by the Cabinet Secretary, not the RBI Governor.
• Statement 3 Correct: Under the SEBI Act, any person aggrieved by an order of the SAT may file an appeal to the Supreme Court on any question of law.
• Statement 4 Incorrect: SEBI is a quasi-legislative body as well, meaning it has the specific power to draft and notify regulations (like the SEBI ICDR or LODR Regulations).
