Role of SEBI in Indian Capital Market

SEBI is regulator to control Indian capital market. Since its establishment in 1992, it is doing hard work for protecting the interests of Indian investors. SEBI gets education from past cheating with naive investors of India. Now, SEBI is more strict with those who commit frauds in capital market.
The role of security exchange board of India (SEBI) in regulating Indian capital market is very important because government of India can only open or take decision to open new stock exchange in India after getting advice from SEBI.

If SEBI thinks that it will be against its rules and regulations, SEBI can ban on any stock exchange to trade in shares and stocks.

Now, we explain role of SEBI in regulating Indian Capital Market more deeply with following points:

1. Power to make rules for controlling stock exchange :

SEBI has power to make new rules for controlling stock exchange in India. For example, SEBI fixed the time of  trading 9 AM and 5 PM in stock market.

2. To provide license to dealers and brokers :

SEBI has power to provide license to dealers and brokers of capital market. If SEBI sees that any financial product is of capital nature, then SEBI can also control to that product and its dealers. One of main example is ULIPs case. SEBI said, " It is just like mutual funds and all banks and financial and insurance companies who want to issue it, must take permission from SEBI."

3. To Stop fraud in Capital Market :

SEBI has many powers for stopping fraud in capital market.

It can ban on the trading of those brokers who are involved in fraudulent and unfair trade practices relating to stock market.

 It can impose the penalties on capital market intermediaries if they involve in insider trading.

4. To Control the Merge, Acquisition and Takeover the companies :

Many big companies in India want to create monopoly in capital market. So, these companies buy all other companies or deal of merging. SEBI sees whether this merge or acquisition is for development of business or to harm capital market.

5. To audit the performance of stock market :

SEBI uses his powers to audit the performance of different Indian stock exchange for bringing transparency in the working of stock exchanges.

6. To make new rules on carry - forward transactions :

Share trading transactions carry forward can not exceed 25% of broker's total transactions.

90 day limit for carry forward.


7. To create relationship with ICAI :

ICAI is the authority for making new auditors of companies. SEBI creates good relationship with ICAI for bringing more transparency in the auditing work of company accounts because audited financial statements are mirror to see the real face of company and after this investors can decide to invest or not to invest. Moreover, investors of India can easily trust on audited financial reports. After Satyam Scam, SEBI is investigating with ICAI, whether CAs are doing their duty by ethical way or not.

8. Introduction of derivative contracts on Volatility Index :

For reducing the risk of investors, SEBI has now been decided to permit Stock Exchanges to introduce derivative contracts on Volatility Index, subject to the condition that;

a. The underlying Volatility Index has a track record of at least one year.

b. The Exchange has in place the appropriate risk management framework for such derivative contracts.

2. Before introduction of such contracts, the Stock Exchanges shall submit the following:

i. Contract specifications

ii. Position and Exercise Limits

iii. Margins

iv. The economic purpose it is intended to serve

v. Likely contribution to market development

vi. The safeguards and the risk protection mechanism adopted by the exchange to ensure market integrity, protection of investors and smooth and orderly trading.

vii. The infrastructure of the exchange and the surveillance system to effectively monitor trading in such contracts, and

viii. Details of settlement procedures & systems

ix. Details of back testing of the margin calculation for a period of one year considering a call and a put option on the underlying with a delta of 0.25 & -0.25 respectively and actual value of the underlying. Link

9. To Require report of Portfolio Management Activities :

SEBI has also power to require report of portfolio management to check the capital market performance. Recently, SEBI sent the letter to all Registered Portfolio Managers of India for demanding report.

10.  To educate the investors :

Time to time, SEBI arranges scheduled workshops to educate the investors. On 22 may 2010 SEBI imposed workshop. If you are investor, you can get education through SEBI leaders by getting update information on this page.