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Securities and Exchange Board of India Act: An Overview
In accordance with the Securities and Exchange Board of India Act, 1992, the Government of India created the Securities and Exchange Board of India on April 12, 1992, with the goals of developing and regulating the securities market as well as protecting the rights of investors in securities. The Securities and Exchange Board of India (SEBI), which has its main headquarters in Mumbai, Maharashtra, also has four regional offices in Ahmedabad, Chennai, Delhi, and Kolkata. When SEBI was first established in 1988 as a non-statutory agency to oversee the securities market, it later received statutory status on January 30, 1992. Formation
What does the Act Define?
In order to control the securities market, the Securities and Exchange Board of India (SEBI) was originally constituted as a non-statutory entity in 1988. In compliance with the SEBI Act 1992, it received legislative authority on January 30, 1992. On April 12, 1992, SEBI attained autonomy and was immediately established as the Government of India's capital markets regulator. The Security and Exchange Board of India has four regional offices, including one each in New Delhi, Kolkata, Chennai, and Ahmedabad, and its main office is in Mumbai, Maharashtra.
Major Features of the Act
Major features of the SEBI Act include −
Investor protection − SEBI's main goal is to safeguard the rights and interests of stock market participants by directing them toward a positive environment and guarding the money at stake. Avoiding fraud and other trading-related malpractices was SEBI's primary goal when it was established, along with regulating the activities of the stock market.
Promoting just and proper functioning − SEBI was founded to keep the stock exchange and the capital market operating properly. They have been given instructions to monitor the operations of financial intermediaries and effectively control the securities market.
Setting Balance − SEBI must maintain a balance between statutory regulation and the securities industry's self-regulation.
Creating a code of conduct − In order to prevent frauds and other wrongdoings brought on by intermediaries like brokers, underwriters, and other persons, SEBI is needed to create and control a code of conduct. The operations of SEBI cover a broad range of topics. It has the authority to set rules, regulations, directions, and so on for the primary and secondary securities markets. The guidelines and standards of SEBI also apply to intermediaries and certain financial institutions that operate in the securities markets.
The following branches are subject to SEBI regulation −
Participants, depositors, and custodians
Trust deeds and debenture trustees
Insider trading, merchant bankers who work for FIIs, and mutual funds
Share transfer agents, portfolio managers, financial counselors, and registrars of capital issues
Venture capital funds, stockbrokers, sub-brokers, underwriters, bankers to the offerings, and significant share purchases and takeovers.
Critical Analysis of the Act
It publishes policies on information disclosure and operational openness for the protection of investors, issue pricing, bonus and preferential issues, and other financial instruments. The Preamble of SEBI states that the Security and Exchange Board of India's main responsibilities include supporting the growth and regulation of the securities market as well as safeguarding the interests of investors in securities. The following three categories, which together make up the securities market, are also within the purview of SEBI −
Those who issue securities
Intermediaries in the investors market
Mutual fund regulations
The following are prohibited holdings by a sponsor of a mutual fund, an affiliate, or a group firm, which includes the asset management company of a fund: (a) 10% or more of the ownership and voting rights in the asset management company or any other mutual fund. A representative from an asset management business is not permitted on the board of any other mutual fund.
A shareholder is not permitted to directly or indirectly own 10% or more of a mutual fund's asset management business.
A sectoral or thematic index has a 35% weight limit on any single stock and a 25% weight limit on individual stocks.
A minimum trading frequency of 80% is required for each index member.
At the conclusion of each calendar quarter, AMCs are required to assess and assure compliance with the standards. The indexes' components must be made available to the public by being posted on their website.
Prior to debut, SEBI must receive a compliance status report from new funds.
All liquid schemes must hold a minimum of 20% in liquid assets, such as cash, Treasury bills, repo on G-Secs, and government securities (G-Secs).
Each index member is obliged to trade at least 80% of the time. AMCs are expected to evaluate and guarantee compliance with the criteria at the end of each calendar quarter. The elements of the indexes should be published on their website for public access. SEBI must obtain a compliance status report from new funds prior to their launch. Cash, Treasury bills, repo on G-Secs, and government securities must make up at least 20% of the assets held by all liquid schemes (G-Secs).
A minimum of 80% of the time must be spent trading for each index member. At the conclusion of each calendar quarter, AMCs are required to assess and ensure compliance with the requirements. The components of the indexes should be made available to the public on their website. Prior to the launch of new funds, SEBI must receive a compliance status report from such funds. All liquid schemes should hold at least 20% of their assets in cash, treasury bills, repo on G-Secs, and government securities (G-Secs).
Frequently Asked Questions
Q1. What is an example of a Securities and Exchange Board of India regulation (SEBI)?
Ans. By enforcing sanctions, SEBI forbids insider trading and takeover offers.
Q2. Name one safeguard provided by the Securities and Exchange Board of India (SEBI).
Ans. In response, SEBI forbids deceptive advertising, price fixing, and other unfair business activities.
Q3. What is the main function of SEBI development?
Ans. The SEBI carries out research and disseminates data that is beneficial to all market players.
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