Introduction

The Securities and Exchange Board of India (SEBI) is India’s principal regulator for the securities market. It exists to protect investors, ensure fair and transparent trading, and promote orderly development of the capital market. SEBI was first set up in 1988, but it became a statutory body only after the SEBI Act, 1992, which strengthened its legal authority in the wake of serious market failures and scams.

Objectives of SEBI

SEBI’s objectives broadly combine investor protection with market development and regulation.

• Protect investor interests and build trust in the market
• Promote orderly growth and development of the securities market
• Regulate market intermediaries and market institutions
• Prevent fraud, manipulation, and unfair trade practices
• Ensure transparency, disclosure, and fair price discovery

SEBI’s Organisational Structure

SEBI is governed by a Board, which reflects representation from the Government and RBI along with expert members.

• A Chairman nominated by the Union Government
• Two members from the Union Ministry of Finance
• One member from the Reserve Bank of India
• Five other members nominated by the Union Government, of which at least three are full-time members

The Central Government has powers to remove members on specified grounds such as insolvency, unsound mind, or conviction for offences involving moral turpitude.

Functions of SEBI

SEBI performs regulatory, protective, and developmental functions. Its functions extend across exchanges, intermediaries, listed companies, and market products.

• Regulates stock exchanges and securities markets
• Registers and regulates intermediaries such as brokers, merchant bankers, portfolio managers, investment advisers, share transfer agents, etc.
• Regulates depositories, custodians, FPIs, credit rating agencies and other market participants
• Regulates mutual funds, collective investment schemes, venture capital funds and related entities
• Prevents and penalises insider trading and fraudulent/unfair trade practices
• Conducts inspections, audits, and compliance checks of market institutions and intermediaries
• Promotes investor education and market awareness
• Undertakes research and policy measures for market development
• Performs delegated functions under the Securities Contracts (Regulation) Act, 1956
• Coordinates information-sharing with domestic and international regulators, subject to approved arrangements

A relevant current compliance function is SEBI’s mandate for the top listed companies to file the Business Responsibility and Sustainability Report (BRSR), which focuses on ESG-related non-financial disclosures.

Powers of SEBI

SEBI has strong enforcement and investigation powers, including powers similar to those of a civil court under the Code of Civil Procedure, 1908, for certain purposes.

• Can summon persons and examine them under oath
• Can require production of books of accounts and documents
• Can inspect books, registers, and records of market entities
• Can investigate suspected market manipulation and violations

During or after investigations, SEBI can also take market-protective actions such as:

• Suspend trading of a security on a recognised stock exchange
• Restrain entities from accessing the securities market
• Prohibit buying, selling, or dealing in securities
• Suspend office-bearers of stock exchanges or self-regulatory organisations
• Impound and retain proceeds or securities linked to suspicious transactions

Securities Appellate Tribunal

To ensure judicial oversight over SEBI’s orders, the SEBI Act provides an appellate mechanism through the Securities Appellate Tribunal (SAT).

• SAT hears appeals against SEBI orders and adjudicating officer decisions
• SAT has powers similar to a civil court for case handling
• A further appeal lies to the Supreme Court, typically within 60 days of SAT’s order

Key Reforms and Achievements

SEBI is widely credited with modernising India’s securities markets and improving safety, transparency, and settlement efficiency.

• Shift to dematerialisation and paperless trading through the Depositories Act, 1996
• Strengthened disclosure and corporate governance norms for listed entities
• Improved settlement systems and market infrastructure
• Enabled faster settlement systems such as the T+1 settlement cycle introduced in India from 2023
• Evolved takeover regulations and market access norms to encourage investment and improve price discovery

Criticisms and Limitations

Despite strong legal powers, SEBI has faced criticism relating to timeliness, enforcement, and surveillance effectiveness in certain cases.

• Allegations of delayed or reactive action in major market failures and scams
• Challenges in detecting and proving insider trading due to information asymmetry and complex networks
• Persistent concerns regarding small-cap manipulation, IPO pricing quality, and intermediary misconduct
• Periodic reputational hits due to conflict-of-interest allegations or perceived regulatory gaps in high-profile controversies

Way Forward

For stronger market trust and better investor protection, SEBI’s improvement areas usually converge around enforcement capacity and surveillance quality.

• Stronger real-time market surveillance using analytics and AI-based anomaly detection
• Faster enforcement and stricter penalties for insider trading and manipulation
• Better IPO pricing and disclosure oversight to protect retail investors
• Higher operational transparency to build public confidence
• Wider investor education focusing on risk, fraud red flags, and grievance systems
• Stronger coordination with other regulators to manage product overlaps and systemic risks