Sebi As A Regulatory Body

INTRODUCTION

In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution, and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. In place of Government Control, a statutory and autonomous regulatory board with defined responsibilities, to cover both development & regulation of the market, and independent powers has been set up. Paradoxically this is a positive outcome of the Securities Scam of 1990-91.

The basic objectives of the Board were identified as:

• to protect the interests of investors in securities;

• to promote the development of Securities Market;

• to regulate the securities market and

• for matters connected therewith or incidental thereto.

Since its inception SEBI has been working targeting the securities and is attending to the fulfillment of its objectives with commendable zeal and dexterity. The improvements in the securities markets like capitalization requirements, margining, establishment of clearing corporations etc. reduced the risk of credit and also reduced the market.

SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility criteria, the code of obligations and the code of conduct for different intermediaries like, bankers to issue, merchant bankers, brokers and sub-brokers, registrars, portfolio managers, credit rating agencies, underwriters and others. It has framed bye-laws, risk identification and risk management systems for Clearing houses of stock exchanges, surveillance system etc. which has made dealing in securities both safe and transparent to the end investor.

Two broad approaches of SEBI is to integrate the securities market at the national level, and also to diversify the trading products, so that there is an increase in number of traders including banks, financial institutions, insurance companies, mutual funds, primary dealers etc. to transact through the Exchanges. In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark.

SEBI appointed the LC Gupta committee in 1998 to recommend the regulatory framework for derivatives trading and suggest bye-laws for Regulation and Control of Trading and Settlement of Derivatives Contracts. The Board of SEBI in its meeting held on May 11, 1998 accepted the recommendations of the committee and approved the phased introduction of derivatives trading in India beginning with Stock Index Futures. The Board also approved the "Suggestive Bye-laws" as recommended by the Dr LC Gupta Committee for Regulation and Control of Trading and Settlement of Derivatives Contracts.

SEBI then appointed the JR Verma Committee to recommend Risk Containment Measures (RCM) in the Indian Stock Index Futures Market. The report was submitted in November1998.

However the Securities Contracts (Regulation) Act, 1956 (SCRA) required amendment to include "derivatives" in the definition of securities to enable SEBI to introduce trading in derivatives. The necessary amendment was then carried out by the Government in 1999. The Securities Laws (Amendment) Bill, 1999 was introduced. In December 1999 the new framework was approved.

Derivatives have been accorded the status of `Securities'. The ban imposed on trading in derivatives in 1969 under a notification issued by the Central Government was revoked. Thereafter SEBI formulated the necessary regulations/bye-laws and intimated the Stock Exchanges in the year 2000. The derivative trading started in India at NSE in 2000 and BSE started trading in the year 2001.

HISTORY

Establishment and incorporation of Board.

1. With effect from such date as the Central Government may, by notification, appoint, there shall be established, for the purposes of this Act, a Board by the name of the Securities and Exchange Board of India.

2. The Board shall be a body corporate by the name aforesaid, having perpetual

succession and a common seal, with power subject to the provisions of this Act, to

acquire, hold and dispose of property, both movable and immovable, and to contract,

and shall, by the said name, sue or be sued.

3. The head office of the Board shall be at Bombay.

4. The Board may establish offices at other places in India.

Management of the Board.

(1) The Board shall consist of the following members, namely

 Chairman;

 two members from amongst the officials of the Ministry of the Central Government dealing with Finance 6[and administration of the Companies Act, 1956(1 of 1956)

 one member from amongst the officials of the Reserve Bank

 five other members of whom at least three shall be the whole-time

 members to be appointed by the central Government.

(2) The general superintendence, direction and management of the affairs of the Board

shall vest in a Board of members, which may exercise all powers and do all acts and

things which may be exercised or done by the Board.

(3) Save as otherwise determined by regulations, the Chairman shall also have powers

of general superintendence and direction of the affairs of the Board and may also

exercise all powers and do all acts and things which may be exercised or done by that

Board.

(4) The Chairman and members referred to in clauses (a) and (d) of sub-section (1)

shall be appointed by the Central Government and the members referred to in clauses (b)