What is SEBI?

 SEBI is a statutory body established on April 12, 1992 in accordance with the
provisions of the Securities and Exchange Board of India Act, 1992.

 The basic functions of the Securities and Exchange Board of India is to protect the
interests of investors in securities and to promote and regulate the securities market.

How SEBI come into Existence?

 Before SEBI came into existence, Controller of Capital Issues was the regulatory
authority; it derived authority from the Capital Issues (Control) Act, 1947.

o In April, 1988 the SEBI was constituted as the regulator of capital markets in
India under a resolution of the Government of India.

 Initially SEBI was a non statutory body without any statutory power.

o It became autonomous and given statutory powers by SEBI Act 1992.

 The headquarters of SEBI is situated in Mumbai. The regional offices of SEBI are
located in Ahmedabad, Kolkata, Chennai and Delhi.

 Background

SEBI introduced the “Securities and Exchange Board of India (Informal Guidance) Scheme,
2003” (the “Scheme”) to offer informal guidance to market participants, including
intermediaries, listed companies, mutual fund trustees, and others, on matters concerning
securities market regulations. The purpose of the Scheme is to make the landscape of
securities market regulations more accessible, transparent, and orderly.

The Scheme was introduced on June 24, 2003, to streamline the process of issuing
clarifications sought by market participants. It was amended in 2004 and 2023 to include
additional categories of entities eligible for the scheme and to mandate digital payment of
application fees.

The Scheme is a mechanism provided by SEBI to offer interpretations and guidance on

specific regulatory provisions in the context of proposed transactions or specific factual
situations. This helps market participants understand how SEBI would view certain actions or
transactions under the existing regulatory framework.

History of SEBI
The establishment of SEBI marked a significant milestone in the history of the securities
market, as it aimed to bring about comprehensive reforms in the capital market and ensure
clarity and investor protection.

Before the formation of SEBI, the regulation of the securities market in India was primarily
overseen by the Controller of Capital Issues (CCI). However, with the changing dynamics of
the financial landscape and the need for a more independent and specialised regulatory body,
SEBI was created.

SEBI was granted autonomous powers through the SEBI Act of 1992, allowing it to regulate
and supervise the securities market in a comprehensive manner. It has undergone several
reforms and enhancements over the years to adapt to the evolving financial landscape. It has
introduced various regulations and guidelines to promote good governance, prevent market
manipulation, and enhance investor confidence.

Organisational structure of SEBI

SEBI has over 20 departments, all of which are supervised by their respective department
heads, which in turn are administered by a hierarchy in general. The regulatory body is
managed by its members, which consist of the following:

 The chairman is nominated by the Union Government of India.

 Two members from the Union Finance Ministry.
 One member from the Reserve Bank of India.
 The remaining five members are nominated by the Union Government of India.

SEBI has its headquarters in Mumbai and has regional offices in New Delhi, Kolkata,
Chennai, and Ahmedabad, along with local offices in Jaipur and Bangalore, and offices at
Guwahati, Bhubaneshwar, Patna, Kochi, and Chandigarh.

Functions of SEBI
SEBI has the following functions

1. Protective Function

2. Regulatory Function

3. Development Function

The following functions will be discussed in detail

Protective Function: The protective function implies the role that SEBI plays in protecting
the investor interest and also that of other financial participants. The protective function
includes the following activities.
a. Prohibits insider trading: Insider trading is the act of buying or selling of the securities by
the insiders of a company, which includes the directors, employees and promoters. To
prevent such trading SEBI has barred the companies to purchase their own shares from the
secondary market.

b. Check price rigging: Price rigging is the act of causing unnatural fluctuations in the price
of securities by either increasing or decreasing the market price of the stocks that leads to
unexpected losses for the investors. SEBI maintains strict watch in order to prevent such
malpractices.

c. Promoting fair practices: SEBI promotes fair trade practice and works towards prohibiting
fraudulent activities related to trading of securities.

d. Financial education provider: SEBI educates the investors by conducting online and offline
sessions that provide information related to market insights and also on money management.

Regulatory Function: Regulatory functions involve establishment of rules and regulations

for the financial intermediaries along with corporates that helps in efficient management of
the market.

The following are some of the regulatory functions.

a. SEBI has defined the rules and regulations and formed guidelines and code of conduct that
should be followed by the corporates as well as the financial intermediaries.

b. Regulating the process of taking over of a company.

c. Conducting inquiries and audit of stock exchanges.

d. Regulates the working of stock brokers, merchant brokers.

Developmental Function: Developmental function refers to the steps taken by SEBI in order
to provide the investors with a knowledge of the trading and market function. The following
activities are included as part of developmental function.

1. Training of intermediaries who are a part of the security market.

2. Introduction of trading through electronic means or through the internet by the help of
registered stock brokers.

3. By making the underwriting an optional system in order to reduce cost of issue.

Powers of SEBI

SEBI wields a spectrum of powers that allow it to function effectively as a regulatory

authority. These powers can be categorised into three broad classifications: quasi-judicial,
quasi-executive, and quasi-legislative.
1. Quasi-judicial powers:

Adjudication authority:

 SEBI possesses quasi-judicial powers, allowing it to adjudicate on matters related to

securities law violations.
 It has the authority to conduct hearings, examine evidence, and pass orders, ensuring a
fair and impartial resolution of disputes within the securities market.

Settlement proceedings:

 SEBI has the power to facilitate settlement proceedings between parties involved in
disputes.
 Through consent orders, SEBI can bring about resolution and enforce compliance
without resorting to prolonged legal processes.

2. Quasi-executive powers:

Enforcement and implementation:

 SEBI is vested with quasi-executive powers, enabling it to enforce compliance with

securities laws and regulations.
 The regulatory body can take actions such as imposing fines, penalties, and other
measures to ensure market participants adhere to prescribed standards.

Conducting investigations:

 SEBI has the authority to conduct investigations into potential violations of securities
laws.
 This quasi-executive power allows SEBI to gather information, inspect records, and
take corrective measures to maintain market integrity.

3. Quasi-legislative powers:

Rule-making authority:

 SEBI possesses quasi-legislative powers, allowing it to formulate and promulgate

rules and regulations for the securities market.
 This authority enables SEBI to adapt to changing market dynamics and enact
measures that foster fair, transparent, and efficient market practices.

The SEBI (Informal Guidance) Scheme, 2003 allows companies or individuals involved in
the securities market to ask SEBI for advice on how to follow its rules. This helps them make
sure they are complying with regulations before making decisions or transactions.

There are two types of advice SEBI can give:

 1. No-Action Letters: SEBI tells you if they will or won't take action against you if you
go ahead with a certain plan or transaction.
2. Interpretive Letters: SEBI explains what a specific rule means in your situation.

Only certain parties, like registered intermediaries (brokers, investment advisers), listed
companies, mutual funds, or companies planning to list on the stock market, can request this
guidance. They need to pay ₹25,000 for SEBI to review their request, and SEBI usually
responds within 60 days.

However, SEBI can refuse to give guidance if the request is too vague, involves hypothetical
situations, or if related issues are already in court. The advice given isn't legally binding,
meaning SEBI might still take a different stance later.

In short, it's a way for market participants to ask SEBI for advice before they act, helping
them avoid breaking any rules.

SEBI - Power to issue Regulations, Rules under

Securities Market
Under the SEBI Act, 1992, the Securities and Exchange Board of India (SEBI) has the
power to issue regulations and rules to protect investors, promote the development of the
securities market, and regulate its functioning. Here’s a simple breakdown:

1. Power to Make Regulations (Section 30 of SEBI Act):

o SEBI can create detailed regulations on various aspects of the securities
market. These regulations cover how companies, brokers, mutual funds, and
other market participants must operate.
o Example: SEBI can set rules for how companies should list shares, or how
insider trading should be prevented.
2. Power to Make Rules (Section 29 of SEBI Act):
o SEBI can propose rules, but these need to be approved by the central
government before they become law.
o These rules help enforce the broader policies laid out in the SEBI Act.
3. Power to Take Action (Section 11 of SEBI Act):
o SEBI has the authority to protect the interests of investors and ensure the
securities market operates fairly. To do this, SEBI can make new guidelines,
conduct inspections, investigate wrongdoing, and penalize those who break
the rules.

In simple terms, SEBI has the legal power to write the specific rules and regulations that
govern how the securities market works, ensuring fairness and transparency for all
participants.

Securities Appellate Tribunal (SAT)

 Body: Statutory body
 Developed under: Section 15K of the Securities and Exchange Board of India (SEBI)
Act.
  Appeal against: Established to hear appeals against orders passed by SEBI or an
adjudicating officer under the SEBI Act. Currently hears appeals against orders by
SEBI, Insurance Regulatory and Development Authority of India (IRDAI), and
Pension Fund Regulatory and Development Authority (PFRDA).

Composition:

 Presiding Officer: Appointed by the Central Government in consultation with the

Chief Justice of India or nominee.
o Requirements: Retired/sitting judge of the Supreme Court or High Court (with
at least seven years of service).
 Two Members: Appointed by the Central Government.
o Requirements: Expertise in securities market, corporate law, economics,
finance, or accountancy.

Tenure:

 Presiding Officer: 5 years from appointment or re-appointment.

 Members: 5 years from appointment or re-appointment.

Powers: SAT has the same powers as a civil court under the Code of Civil Procedure,
including:

 Enforcing attendance of persons

 Requiring discovery/production of documents
 Receiving evidence on affidavits
 Issuing commissions for document/witness examination
 Dismissing applications by default or deciding ex-parte
 Setting aside ex-parte orders or dismissals
 Any other prescribed matters.

Eligibility for Filing an Appeal:

 Any person aggrieved by SEBI or adjudicating officer's order can appeal to SAT.
 Note: No appeal can be made against orders made with party consent.

Time Limit: Appeals must be filed within 45 days of receiving the SEBI or adjudicating
officer’s order.

Appearing Before SAT: Authorized persons like Company Secretaries, Chartered

Accountants (CAs), Cost Accountants, or Legal Practitioners can appear before SAT.

Appeal Against SAT Orders:

 Appeals against SAT's decisions can be made to the Supreme Court within 60 days of
receiving the order.

Functions of the Securities Appellate Tribunal (SAT):

 1. Hearing Appeals: SAT primarily hears appeals against orders passed by the
Securities and Exchange Board of India (SEBI), Insurance Regulatory and
Development Authority of India (IRDAI), and Pension Fund Regulatory and
Development Authority (PFRDA).
2. Providing Legal Recourse: SAT offers a legal platform for individuals and entities to
challenge decisions made by SEBI or other regulatory bodies, ensuring that their
rights are protected and due process is followed.
3. Ensuring Fairness: SAT reviews and evaluates the correctness and fairness of
regulatory actions, such as penalties, directives, or any restrictions imposed by SEBI
or other regulators.
4. Interpreting Securities Laws: SAT plays a key role in interpreting the laws and
regulations governing the securities market, thereby contributing to the development
of case law and providing clarity for market participants.
5. Granting Relief: SAT can grant relief or modify the orders of SEBI, IRDAI, or
PFRDA if the appeal proves that the regulatory body’s decision was incorrect or
unfair.
6. Issuing Orders: SAT has the power to pass orders in cases where the law has been
misapplied or where there are errors in regulatory decisions.
7. Providing Expertise: SAT comprises experts in securities law, finance, and
economics, which helps in ensuring that appeals are handled with the necessary
understanding of market regulations and practices.
8. Maintaining Market Integrity: By offering a platform to address grievances, SAT
helps in maintaining transparency, accountability, and confidence in the regulatory
system, contributing to the overall integrity of the securities market.

Dematerialisation and Rematerialisation of securities (Procedure,

Advantages and Disadvantages

What is Dematerialisation?
Demat or Dematerialisation is the procedure of converting physical copies of shares and
certificates into digital copies. Initially, investors were provided physical certificates of
ownership. The investors were required to keep the physical certificates safe and undamaged.
In case the certificate was damaged or lost, it would result in a loss for the investor or
beneficiaries. However, with the Depositories Act 1996, new rules were implemented, due to
which all unlisted public companies were mandated to issue dematerialised shares only. The
dematerialisation of shares helps investors to conduct transactions promptly and securely.

The Process of Dematerialisation

The process of share dematerialization involves 4 parties. These are

1. The share issuing company

 2. Depository
3. Owner or beneficiary
4. Depository Participant (DP) or brokerage firm

Share issuing company – Any company intending to issue dematerialised shares needs to
revise its Article of Association, regulations for company operation, to deal dematerialised
shares. After revision of regulations, companies must register with a depository.

Depository – Currently, there are two depositories in India: National Securities Depository
Limited (NSDL) and Central Securities Depository Limited (CDSL). The depositories
provide companies with a unique 12 digit International Securities Identification Number to
identify each share and securities. Most dealings between the company and depository are
intermediated by Registrar and Transfer Agents.

Owner or Beneficiary – Under the current rules and regulations, new and old share investors
must open a 'Demat Account.' The investor's actions, such as buying and selling exchange
traded funds (ETFs), stocks, bonds, and mutual funds, are recorded in the registered account.
Investors cannot register for an account on their own directly. Depository participants or
brokerage firms register for demat account on behalf of their client (share owner).

Depository participants (DP) – DP is registered agent of Depositories. They register for

demat accounts for their clients after processing their registration form and documents.

Check: How to Open a Demat account

Steps of Dematerialisation
Step 1 - Investors open demat account with the help of a DP

Step 2 -The investor surrenders physical certificates with a 'Dematerialisation Request Form.'

Step 3 -DP begins processing the request form.

Step 4 -Post-processing of request, all submitted physical certificates are destroyed, and
shares are sent to the depository.

Step 5 -Depository confirms the Dematerialisation of shares to the depository participant.

Step 6 -Converted shares are credited to the registered demat account.

Rematerialisation
An investor can opt to rematerialise their shares even after Dematerialisation.
Rematerialisation is the process of converting the dematerialised shares back to physical
copies of certificates. Some investors opt to rematerialise their share in order to avoid
maintenance charges on their demat account. Post-rematerialisation, the investors can
conduct transactions physically only.

Process of Rematerialisation
Similar to the process of share dematerialisation, investors are required to fill a Remat
Request Form (RRF) with their respective DP. During the process of rematerialisation,
investors cannot trade their shares. The process of rematerialisation is conducted in the
following way:

Step 1 - Investor contacts their respective DP.

Step 2 - Depository participants provide a Remat Request Form (RRF) to the investor.

Step 3 - After receiving the filled RRF depository participant submits the request to the
depository and share issuer and temporarily blocks the investor's account.

Step 4 - After successfully processing the request, the share issuer prints physical certificates
and dispatches the certificates after confirming with the depository.

Step 5 - The blocked balance on the account is debited.

Duration of Process of Dematerialisation and

Rematerialisation
The entire process of Demat and Remat both takes about 30 days from the time of submission
of the request to processing of the request.

Check: List of Documents required to open a demat account

Things to note for Dematerialisation and
Rematerialisation
According to the new rules and regulations, it is mandatory to conduct all transactions
through a registered dematerialisation account.

Transactions undertaken through registered dematerialisation account are faster.

Rematerialisation of shares shifts the authority of the account to the share issuing company.

Rematerialised shares do not require a maintenance cost. However, security threats are higher
compared to dematerialised shares.

Rematerialization of shares shifts the authority of the account to the share issuing company.