SEBI-THE INDIAN CAPITAL MARKET REGULATOR

Securities and Exchange Board of India (SEBI) – ensures

corporate behavior in alignment with the best global practices.
In the context of globalization, if Indian corporate have to
attract large capital and technology to survive fierce
international competition, it is imperative that they adopt
governance standards acceptable to global institutional
investors

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Phenomenal Growth of Indian Capital Market
An appreciable growth in the capital market in the post-
independence era.

By 1990, the Indian capital market was one of the fastest
growing markets in the world. The number of companies
listed on the stock exchange, close to 6000, was the second
highest after the USA and by 1995, the number rose to
8593.

Presently, there are more than 10,000 listed companies in

the country’s 25 stock exchanges. The shareholding public
is estimated at 20 million.
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 Deficiencies in the Indian Capital Market

Lack of diversity in the financial instruments.

Lack of control over fair disclosure of financial

information.
Poor growth in the secondary market.

Prevalence of insider trading and front running.

Manipulation of security prices.

Existence of unofficial trade in the primary market,

prior to the issue coming into the market.
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 Deficiencies in the Indian Capital Market

Existence of unofficial trade in the primary market,

prior to the issue coming into the market.

Absence of proper control over brokers and sub-

brokers.

Passive role of public financial institutions in checking

malpractice.

High cost of transactions and intermediation, mainly

due to the absence of well-defined norms for
institutional investment.
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 Impact of Globalisation
Power shift as domestic institutions are forced to compete
with the Foreign Institutional Investors (FIIs) who control the
floating stock and are also in control of the Global Depository
Receipts (GDR) market.

Structural issues will come to the fore with a plain message:

“Either reform or despair.”

The individual investor in his own interest will refrain from

both primary and secondary market; he will be better off
investing in mutual funds

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Abolition of Controller of Capital Issues and
Emergence of SEBI
Prior to the setting of SEBI, the Capital Issues (Control) Act,
1947 governed capital issues in India.

The Narasimham Committee on the Reform of the Financial

System in India recommended the abolition of the CCI. It
suggested that SEBI set up in1988 should be entrusted with
the “task of a market regulator to see that the market is
operated on the basis of well-laid principles and
conventions.” SEBI has been empowered to control and
regulate the new issue and old issues market, namely, the
Stock Exchange.

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 Objectives of the Board

The statutory objectives of the SEBI as per the Act

Protection of investors’ interests in securities

Promotion of the development of the securities market

Regulation of the securities market; and

Matters connected therewith and incidental thereto.

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 Powers of the Board
To carry out its responsibilities under the Act, the
Board is clothed with the same powers as are vested in
a Civil Court with respect to the following matters:

The discovery and production of books of account and other

documents at such place and such time as may be specified

by the Board;

 Summoning and enforcing the attendance of persons and

examining them on oath;

Inspection of any books, registers and other documents of

stockbrokers, sub-brokers,Dimple
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share transfer agents. 8
 Power to Issue Directions
The Board is empowered to issue directions to the following
intermediaries:

Stock-brokers, sub-brokers, share transfer agent, banker to an issue,

trustee of trust deed, registrar to an issue, merchant banker,
underwriter, portfolio manager, investment adviser and such other
intermediary who may be associated with securities market;

Depository, depository participant, custodian of securities, foreign

institutional investor, credit rating agency or any other intermediary
associated with the securities market;

 Sponsors of venture capital funds, or collective investment schemes

including mutual funds;
And to any company with regard to matters to be disclosed by the
companies as specified in section 11A.

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Establishment of Securities Appellate Tribunals
The Board is empowered to issue directions to the following
intermediaries:

Stock-brokers, sub-brokers, share transfer agent, banker to an issue,

trustee of trust deed, registrar to an issue, merchant banker,
underwriter, portfolio manager, investment adviser and such other
intermediary who may be associated with securities market;

Depository, depository participant, custodian of securities, foreign

institutional investor, credit rating agency or any other intermediary
associated with the securities market;

 Sponsors of venture capital funds, or collective investment schemes

including mutual funds;
And to any company with regard to matters to be disclosed by the
companies as specified in section 11A.

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 SEBI (Amendment) Bill, 2002

Search and Seizure Powers

Freeze Bank Accounts

Greater Monetary Penalties

More Board Strength

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 SEBI’S ROLE IN PROMOTING CORPORATE GOVERNANCE
According to SEBI’s Chairman: “The Securities and Exchange Board of India has
been focusing on the following areas to improve corporate governance:

Ensuring timely disclosure of relevant information,

Providing an efficient and effective market system,

Demonstrating reliable and effective enforcement,

Enabling the highest standards of governance.

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 SEBI’s Role in the New Era
The SEBI has made progress in a number of areas:
Abolition of capital issues control and retaining the
sole authority for new capital issues;
Regulation and reform of the capital market by
arming itself with necessary authority and powers;

Regulating stock exchanges under Securities

contracts Regulation Act;

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 SEBI’s Role in the New Era
The SEBI has made progress in a number of areas:

Bringing all primary and secondary market

intermediaries under the regulatory framework;

Enforcing companies to disclose all material facts

and specific risk factors associated with projects
while going in for public issues.

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 Primary Market Reforms

Relating to New Issues:

SEBI has introduced various guidelines and regulatory

measures for capital issues. Companies issuing capital in
the primary market are now required to disclose all
material facts and specific risk factors regarding the
projects; they should also give information regarding the
basis of calculation of premium.

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 Primary Market Reforms

Relating to New Issues:

Freedom to Fix Par Value of Shares: SEBI has dispensed

with the requirement to issue shares with a fixed par
value of Rupees 10 and Rupees 100 and has given the
freedom to companies to determine the par value of
shares issued by them.

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 Primary Market Reforms

Guidelines for Tightening the Entry Norms: Accordingly,

a company should have a track record of dividend for a
minimum 3 years out of the immediate preceding 5
years.

Relating to IPOs: SEBI has let companies determine the

par value of shares issued by them. SEBI has permitted
issues of IPOs to go for “book building”, i.e., reserve and
allot shares to individual investors.

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 Primary Market Reforms

 Investor Protection Measures: On June 15 1998, SEBI

advised investors to exercise a greater deal of caution
while investing in plantation companies. Plantation
companies and other collective investment schemes were
directed to obtain credit rating from accredited agencies
prior to the issue of advertisement.

 Cost Reduction Measures: SEBI has made underwriting of

issue optional, subject to the condition that if an issue was
not underwritten and was not able to collect 90 percent of
the amount offered to the public, the entire amount
collected should be refunded to the investors.

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 Primary Market Reforms

 Relating to Private Placement Market: Private placement

market has become popular with issuers because of
stringent entry and disclosure norms for public issues.

 Banker to the Issue under SEBI’s Purview

 Regulations on Acquisitions and Takeovers: SEBI has raised

the minimum application size and also the proportion of
each issue allowed for firm allotment to institutions such as
mutual funds.

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 Primary Market Reforms

Merchant Banking under SEBI’s Jurisdiction:

 Merchant banking has been statutorily brought under
the regulatory framework of SEBI.
 Permission to Set up Private Mutual Funds. The market
regulator has issued fresh guidelines for advertising by
mutual funds.

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 Primary Market Reforms

 Making Companies Provide Authentic Information: SEBI

has advised stock exchanges to amend the listing
agreements to ensure that a listed company furnishes
annual statement to the stock exchange showing the
variations between financial projections and the
projected utilisation of funds in the offer documents and
the actual utilisation.
 Making Companies Comply with Issue Norms: SEBI has
advised stock exchanges to collect from companies
making public issues a deposit of one percent of the issue
amount. This could be forfeited in case of non-
compliance of the provisions of the listing agreement and
non-dispatch of refund orders and share certificates by
registered post within the prescribed time.
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 Primary Market Reforms

 Scrutiny of Offer Documents

 Access to International Capital Market:

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 Secondary Market Reforms

Registration of Intermediaries

 Reconstitution of Stock Exchange Governing Bodies

 Measures to Speed up Settlements
 Regulations on Insider Trading
 Simplification of Procedures
 Regulation of Collective Investment Schemes

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 Secondary Market Reforms

 Introduction of Compulsory Rolling Settlement

 One Point Access to Investors

 Introduction of Takeover Codes

 Trading of Government Securities through Order-driven Screen-based System

De-listing Guidelines

Central Listing Authority

Derivative Trading

Demutualization and Corporatisation of Regional Stock Exchanges

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 SEBI’s SHORTCOMINGS

Lack of Adequate Required Power

Buckles Under Pressure

The Legacy of Nehruvian Socialism Dies Hard

Mammoth Size of the Market and Inefficient handling

Inefficient Standard Regulatory Model

SEBI should Identify Delinquents Speedily and Penalize

 Problems that SEBI has not Tackled

There is a long way to go

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 SUGGESTIONS FOR SEBI’s IMPROVEMENT

To monitor effectively the working of stock exchanges;

To insist on companies for the supply of extensive

information on a regular basis;

To penalize members of stock exchanges who were

found to violate securities laws;

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 SUGGESTIONS FOR SEBI’s IMPROVEMENT

To debar the wrong-doers from any activity in the

stock market and impose on them civil penalties and
initiate criminal proceedings;

To make rules about the manipulative practices;

To move court for checking insider trading; and

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 SUGGESTIONS FOR SEBI’s IMPROVEMENT

To prosecute a company and its directors suo moto,

even without receiving complaints by an aggrieved
investor in respect of supplying inadequate, incomplete
and incorrect information.

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