Securities and Exchange Board of India (SEBI) : Roles and Issues – UPSC GS3

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SEBIs Power and Functions:
  • SEBI is a quasi-legislative and quasi-judicial body which can draft regulations, conduct inquiries, pass rulings and impose penalties.
  • It functions to fulfil the requirements of three categories:
    • Issuers: By providing a marketplace in which the issuers can increase their finance.
    • Investors: By ensuring safety and supply of precise and accurate information.
    • Intermediaries: By enabling a competitive professional market for intermediaries.
  • By Securities Laws (Amendment) Act, 2014, SEBI is now able to regulate any money pooling scheme worth Rs. 100 cr. or more and attach assets in cases of non-compliance.
  • SEBI Chairman has the authority to order “search and seizure operations”.
  • SEBI board can also seek information, such as telephone call data records, from any persons or entities in respect to any securities transaction being investigated by it.
  • SEBI performs the function of registration and regulation of the working of venture capital funds and collective investment schemes including mutual funds.
  • It also works for promoting and regulating self-regulatory organizations and prohibiting fraudulent and unfair trade practices relating to securities markets.

POWERS OF SEBI Quasi- Judicial Power to give judgements on unethical fraudulent activities. Quasi• Executive to implement regulations take legal action against violators. Quasi- Legislative Framing the rules & regulat.ons to protect the interest Of investors

What are the Issues and Related Concerns?
  • There is excessive focus on regulation of market conduct and lesser emphasis on prudential regulation.
  • SEBI’s statutory enforcement powers are greater than its counterparts in the US and the UK as it is armed with far greater power to inflict serious economic injury.
  • It can impose serious restraints on economic activity. This is done based on suspicion, leaving it to those affected to shoulder the burden of disproving the suspicion, somewhat like preventive detention.
  • Its legislative powers are near absolute as the SEBI Act grants wide discretion to make subordinate legislation.
  • The component of prior consultation with the market and a system of review of regulations to see if they have met the articulated purpose is substantially missing. As a result, the fear of the regulator is widespread.
  • Regulation, either rules or enforcement, is far from perfect, particularly in areas like insider trading.
  • The Securities offering documents are extraordinarily bulky and have substantially been reduced to formal compliance rather than resulting in substantive disclosures of high quality.
Way Forward:
  • There is need of an attitudinal change.
  • The foremost objective of SEBI should be cleaning up the policy space in this area of the market.
  • SEBI must give special attention to human resources and matters within the organization. SEBI must encourage lateral entry to draw the best talent.
  • Alignment and fitment of senior employees upon merger of the Forward Markets Commission into Sebi remains an open area of work.
  • Enforcement can be strengthened with continuous monitoring and improving market intelligence.
  • India’s financial markets are still segmented. One regulator can’t be blamed for another’s failure when the remit over a financial product overlaps.
  • In this context a unified financial regulator makes eminent sense to remove both overlap and excluded boundaries.
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