Context: Security and Exchange Board of India has ordered the top 100 listed companies to improve disclosure norms and transparency by mandating that they confirm or deny price-sensitive market rumours, and in the case of material board decisions disclose them to exchanges within 30 minutes.. It also allowed Private Equity firms to own stakes in Asset Management Companies that operate mutual funds.
About SEBI
- The Securities and Exchange Board of India was constituted as a non-statutory body on April 12, 1988 through a resolution of the Government of India. The Securities and Exchange Board of India was established as a statutory body in the year 1992 and the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992) came into force on January 30, 1992.
- Basic function: to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
- It consists of one chairman, four whole time members and four part-time members. They together make up the board of SEBI.
- Securities Appellate Tribunal is a statutory body established under the provisions of Section 15K of the Securities and Exchange Board of India Act, 1992 to hear and dispose of appeals against orders passed by the Securities and Exchange Board of India
Broad functions of SEBI
Development functions
- Training of intermediaries
- To promote trading in the security market. For example in permitted internet trading, made underwriting optional etc.
Regulatory functions
- Mandatory registration of brokers , sub brokers , share transfer agents , trustees, merchant bankers and others
- Developed a code of conduct for intermediaries
- Registration and regulating the working of mutual funds
- Regulating takeover of companies
- Audit of stock exchanges
For the discharge of its functions SEBI is given various powers.
Some of these powers are as follows:
1. To approve by- laws of stock exchanges
2. To ask stock exchanges to amend their by- laws
3. Inspect the books of accounts and call for periodical returns from recognised stock
4. Inspect books of accounts of financial intermediaries
5. Compel certain companies to list their shares in one or more stock exchanges
6. Registration of brokers
PROBLEMS AND EMERGING CHALLENGES
SEBI regulations are laws but the process through which regulations are drafted leaves a lot to be desired. Neither regulation making nor post-mortem analysis of regulations is shaped by evidence.
Following are the problems and challenges ahead of SEBI:
Enforcement process
SEBI has made various regulations and issued orders as a civil court but only making regulations and giving orders is not enough if it is not able to enforce the same. SEBI need to strengthen its surveillance and enforcement functions.it needs to ensure that violations do not go unnoticed whether small or large.
Talent pool and market intelligence
In 2012 SEBI had 643 employees whereas the US security and exchange commission alone had 1000 people. As we all know, human resource is the most important resource for an organisation. SEBI needs to increase its human resource in both quality and quantity. It needs to significantly improve its market intelligence, technology and talent pool in order to improve its performance.
Deepening capital market
The number of participants in the capital market has not risen much. Still a large section of society does not deal in the security market. SEBI has done a lot to encourage people to participate in the capital market such as abolishing entry load on mutual funds, simplifying KYC norms but it needs to take some stronger steps to deepen participation in the capital market.
It should work deeper participation in equity by pension, superannuation and gratuity funds, developing a vibrant retail debt segment and reducing the cost of transaction.
Corporate debt and securitization market
Despite numerous attempts the debt market volume has increased but it has failed to attract sufficient liquidity. The regulator needs to develop a vibrant corporate debt market and securitization market but these largely remain part of the over the counter market.
Matching up to global standard
Capital markets are growing and the size of SEBI as compared to the security market is not sufficient to properly regulate the capital market. Like its peers (regulators of US and UK) it needs to establish self-regulatory organisations. They can focus on routine decisions and SEBI can work on more important issues.
Negatively charged
SEBI’s appointment process has always been criticized. Allegations of corruption by SEBI staff are frequently heard. The accountability mechanisms that envelope SEBI are quite poor. It is very important to make the recruitment process fair and transparent.
Reference: World wide journals
Committees constituted for the improvement of capital market regulations and development of corporate governance:
- Narayan Murthy Committee, 2002
- Uday Kotak Committee 2017
- Dr. D B Pathak Committee 2021
- Mahalingam Committee 2022
Various suggestions given by these committees have been incorporated to improve SEBI’s role in the capital market and investors’ protection.