A

PROJECT REPORT ON
SEBI

Under the Esteemed Guidance of

Dr. Meenakshi Sharma
Faculty RNB Global University
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Acknowledgement

Prof. Meenakshi Sharma, project coordinator at RNB Global

University in Bikaner, deserves a heartfelt thank you. Whose
encouragement, direction, and support helped me to gain a
grasp of the topic from the beginning to the end. I appreciate
Mam's contribution to the project's completion.

Lastly, I offer my regards and blessings to all of those who

supported me in any respect during the completion of the
project.

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Executive Summary
The study of a good grasp of SEBI and its laws as they are
really practised in the market is encapsulated in the report.
Along with a detailed examination of SEBI's key ideas and
rules relating to capital markets.

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 S. No. Particulars Page No.

1. Objective & Scope of Project 5

2. Introduction- to the SEBI 6-7

3. Establishment of SEBI 8-10

4. Organizational Structure of SEBI 10-11

6. Functions & Powers of SEBI 11-14

7. Introduction- to the Capital Market 15-19

 Capital Market in India

 Importance of Capital Market

8. Role of SEBI in Capital Market 20-23

11. Advantages & Limitation of SEBI 24-25

12 Conclusion 26

13. Bibliography 27

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Objectives and Scope of Project

Objective
This study was primarily intended to assess SEBI's performance
in relation to the supervision of securities markets by various
intermediaries registered with SEBI, as well as to determine
what types of Investor Protection measures have been
implemented by SEBI for the benefit/protection of investors in
India since 1992.

Scope of the Project

• To learn about SEBI's investor safety measures since its
foundation.
• To determine whether the SEBI has been adequately
regulating the securities markets as an autonomous institution.
• To understand if SEBI's powers and functions are being
carried out appropriately or not.

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I

Introduction
To regulate the Indian stock market and protect investors from
trading malpractices like price ragging and insider trading, etc,
the Government of India established the Security Exchange
Board of India (SEBI) on 11 April 1988. It has it’s headquartered
in Mumbai and it has it’s a regional office in New Delhi,
Ahmedabad, Chennai, and Kolkata. A total of 17 stock exchanges
are currently operating in India, including NSE (National Stock
Exchange) and BSE ( Bombay Stock Exchange). All their stock
exchanges are operated and regulated by SEBI.

SEBI was enacted by the Parliament of India on 4th April 1992,

and it extends to the whole of India. It was commenced and
became an autonomous body of Government of India on 30th
April 1992
It monitors and regulates the Indian capital and securities
market while ensuring to protect the interests of the investors,
formulating regulations and guidelines. The head office of SEBI is
at Bandra Kurla Complex, Mumbai.
SEBI is a market regulator which tries to create a balance in the
day to day stock market activities and for this, there are
regulatory frameworks established by SEBI.  and all exchanges,
including  and BSE are regulated by SEBI guidelines. SEBI has
also opened local offices in Jaipur, Bangalore, Guwahati,
Bhubaneswar, Patna, Kochi and Chandigarh.

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SEBI has also commenced regulating the commodity derivatives
market under the Securities Contract Regulation Act (SCRA)
1956 with effect from September 28 2015, and the Forward
Contracts Regulation Act (FCRA) 1952 got replaced with effect
from September 29 2015.
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 established bye-laws, risk
identification and risk management systems for stock exchange
clearing houses, monitoring systems, and other measures to
make securities trading safe and transparent for end investors.

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Establishment of SEBI
At the end of the 1970s and during 1980s, capital markets were
emerging as the new sensation among the individuals of India.
Many malpractices started taking place such as unofficial self-
styled merchant bankers, unofficial private placements, rigging of
prices, non-adherence of provisions of the Companies Act,
violation of rules and regulations of stock exchanges, delay in
delivery of shares, price rigging, etc.

Due to these malpractices, people started losing confidence in the

stock market. The government felt a sudden need to set up an
authority to regulate the working and reduce these malpractices.
As a result, the Government came up with the establishment of
SEBI.
As a result of market manipulation, investors' trust is destroyed,
and economic growth is harmed. Investors are enticed to make
investment decisions based on inaccurate or misleading
information, resulting in the establishment of a fictitious market
with exaggerated outcomes.
Various financial scandals and security scams were used to
manipulate large sums of money. Manipulators have a deep
understanding of how the system works, and they take use of
this chance to manipulate both the system and the investors.
Thus, the major goal of SEBI's founding is to create an
environment that facilitates effective resource mobilisation and
allocation through India's securities market.

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An environment like this is made up of policy frameworks, rules
and regulations, infrastructures, and practises that are designed
to fulfil the needs of various classes of individuals who are the
market's key actors. Investors, market intermediaries, and
organisations that are securities issuers are only a few of them.
For the Purpose of Investors
Investors get the credit for making the market active. SEBI’s
motive is to provide accurate, authentic, and adequate
information on a regular basis in order to protect investors'
interests and rights. this is done in order to renew the confidence
of investors or the general public in investing their money in the
market.

For the purpose of issuer of securities

The demand of various corporate fields responsible for issuing
securities is a transparent and safe market place where they can
confidently raise the number of funds in an efficient and easy
manner. SEBI works with the goal of being manageable. SEBI
works with the goal of ensuring that issuers have access to a safe
and healthy market place.
For the purpose of Intermediaries.
Intermediaries are those who have the authority to serve as go-
betweens for investors and issuers in any transaction or
agreement. They have been charged with the task of improving
services for issuers and investors.

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SEBI is authorised to create an ever-expanding, professionalised, and competitive market for intermediaries, with an efficient and
suitable infrastructure. Because of the function of intermediaries,
financial transactions become safer and smoother. They are also
referred to as securities market brokers.
Organizational Structure of SEBI
SEBI has a corporate structure that is divided into numerous
departments, each of which is led by a department head. SEBI is
divided into around 20 departments. Corporate finance, economic
and policy research, debt and hybrid securities, enforcement,
human resources, investment management, commodities
derivatives market regulation, legal affairs, and others are just a
few of the departments.

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The SEBI Board consist of nine members-

One Chairman appointed by the Government of India.

Two members who are officers from Union Finance Ministry.
One member from Reserve Bank of India.
Five members appointed by the Union Government of India.

Functions and Powers of SEBI

Functions of SEBI:
SEBI primarily has three functions-

Protective Function
Regulatory Function
Development Function
Protective Functions
As the name suggests, these functions are performed by SEBI to
protect the interest of investors and other financial participants.

It includes-

Checking price rigging

Prevent insider trading
Promote fair practices
Create awareness among investors
Prohibit fraudulent and unfair trade practices

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Regulatory Functions
These functions are basically performed to keep a check on the
functioning of the business in the financial markets.

These functions include-

Designing guidelines and code of conduct for the proper

functioning of financial intermediaries and corporate.
Regulation of takeover of companies
Conducting inquiries and audit of exchanges
Registration of brokers, sub-brokers, merchant bankers etc.
Levying of fees
Performing and exercising powers
Register and regulate credit rating agency
Development Functions
SEBI performs certain development functions also that include
but they are not limited to-

Imparting training to intermediaries

Promotion of fair trading and reduction of malpractices
Carry out research work
Encouraging self-regulating organizations
Buy-sell mutual funds directly from AMC through a broker.

SEBI is primarily set up to protect the interests of investors in the

securities market.
It promotes the development of the securities market and
regulates the business.

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It ensures that investors are educated on the intermediaries of
securities markets.
It monitors substantial acquisitions of shares and take-over of
companies.
SEBI takes care of research and development to ensure the
securities market is efficient at all times.
SEBI provides a platform for stockbrokers, sub-brokers,
portfolio managers, investment advisers, share transfer agents,
bankers, merchant bankers, trustees of trust deeds, registrars,
underwriters, and other associated people to register and
regulate work.
It regulates the operations of depositories, participants,
custodians of securities, foreign portfolio investors, and credit
rating agencies.
It prohibits insider trading, i.e. fraudulent and unfair trade
practices related to the securities market.

Powers of SEBI
The SEBI has three main powers:
Quasi-Judicial: SEBI has the authority to deliver judgements
related to fraud and other unethical practices in terms of the
securities market. This helps to ensure fairness, transparency,
and accountability in the securities market.
Quasi-Executive: SEBI has the authority to enforce the rules
and judgments imposed, as well as to take legal action against
those who break them. It also has the authority to examine
books of accounts and other documentation if it suspects a
breach of the rules.

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3. Quasi-Legislative: SEBI reserves the right to frame rules and
regulations to protect the interests of the investors. Some of its
regulations consist of insider trading regulations, listing
obligations, and disclosure requirements. These have been
formulated to keep malpractices at bay. Despite the powers, the
results of SEBI’s functions still have to go through the Securities
Appellate Tribunal and the Supreme Court of India.
When it comes to stock exchanges, SEBI has the power to
regulate and approve any laws related to functions in the stock
exchanges.

It has the powers to access the books of records and accounts

for all the stock exchanges and it can arrange for periodical
checks and returns into the workings of the stock exchanges.

It can also conduct hearings and pass judgments if there are any
malpractices detected on the stock exchanges.

When it comes to the treatment of companies, it has the power

to get companies listed and de-listed from any stock exchange in
the country.

It has the power to completely regulate all aspects of insider

trading and announce penalties and expulsions if a company is
caught doing something unethical.

It can also make companies list their shares in more than one
stock exchange if they see that it will be beneficial to investors.

Coming to investor protection, SEBI has the power to draft legal

rules to ensure the protection of the general public.

It also has the power to regulate the registration of brokers and

other middlemen who will deal with investors in the market.

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Introduction- to the Capital Market

Capital market is referred to as a place where saving and

investments are done between capital suppliers and those who
are in need of capital. It is, therefore, a place where various
entities trade different financial instruments.

Capital markets basically deal with stocks and bonds in general.

In simple words, any firm is it private or government, is always
in need of funds, so as to finance its various operations to
achieve certain long-term goals. Thus every firm is supposed to
acquire these very funds or capital; for which, it sells stocks and
bonds. These stocks and bonds are basically like shares, all of
which are in the companies name. For instance, when the
government of any country, issues what are known as treasury
bonds, it basically is tapping into the , thereby generating
capital.This process is basically known as the IPO or Initial Public
Offering. Capital Markets are largely divided into two types, the
primary markets, and secondary markets. The companies and
governments sell their securities in the primary market, whereas
the investors trade with these securities in what is known as the
secondary markets. Thus, it is safe to say that the capital
markets are an important area of the finance industry.

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There are two types of capital market:

Capital market is where both equity and debt instrument like

equity shares, preference shares, debentures, bonds, etc. are
bought and sold.

Primary Market:
The primary market is a new issue market; it solely deals with
the issues of new securities. A place where trading of securities
is done for the first time. The main objective is capital formation
for government, institutions, companies, etc. also known as
Initial Public Offer (IPO). Now, let us have a look at the functions
of primary market:
Origination: Origination is referred to as examine, evaluate,
and process new project proposals in the primary market. It
begins prior to an issue is present in the market. It is done with
the help of commercial bankers.

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2.Underwriting: For ensuring the success of new issue there is
a need for underwriting firms. These are the ones who guarantee
minimum subscription. In case, the issue remains unsold the
underwriters have to buy. But if the issues are completely
subscribed then there will be no liability left for them.

3.Distribution: For the success of issue, brokers and dealers

are given job distribution who directly contact with investors.

Secondary Market:
The secondary market is a place where trading takes place for
existing securities. It is known as stock exchange or stock
market. Here the securities are bought and sold by the
investors. Now, let us have a look at the functions of secondary
market:
1. Regular information about the value of security.
2. Offers liquidity to the investors for their assets.
3. Continuous and active trading.
4. Provide a Market Place.

Secondary market deals with the exchange of prevailing or

previously-issued securities among investors. Once new
securities have been sold in the primary market, an efficient
manner must exist for their resale. Secondary markets give
investors the means to resell/ trade existing securities. Another
important division in the capital market is made on the basis of
the nature of security sold or bought, i.e. stock market and bond
market.

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Importance of Capital Market

1. It is only with the help of capital market, long-term funds are

raised by the business community.

2. It provides opportunity for the public to invest their

savings in attractive securities which provide a higher return.

3. A well developed capital market is capable of attracting funds

even from foreign country. Thus, foreign capital flows into the
country through foreign investments.

4. Capital market provides an opportunity for the investing

public to know the trend of different securities and the
conditions prevailing in the economy.

5. It enables the country to achieve economic growth as

capital formation is promoted through the capital market.

6. Existing companies, because of their performance will be able

to expand their industries and also go in for  due to the capital
market.

7. Capital market is the barometer of the economy by which

you are able to study the economic conditions of the country
and it enables the government to take suitable action.

8. Through the Press and different media, the public are

informed about the prices of different securities. This enables
the public to take necessary investment decisions.

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9. Capital market provides opportunities for different
institutions such as , mutual funds, investment trust; etc., to
earn a good return on the investing funds. They employ financial
experts who are able to predict the changes in the market and
accordingly undertake suitable portfolio investments.

10. The capital market facilitates lending to the businessmen

and the government and thus encourages investment. It
provides facilities through banks and nonbank financial
institutions. Various financial assets, e.g., shares, securities,
bonds, etc., induce savers to lend to the government or invest
in industry. With the development of financial institutions,
capital becomes more mobile, interest rate falls and investment
increases.

11. The capital market not only reflects the general condition of
the economy, but also smoothens and accelerates the process of
economic growth. Various institutions of the capital market, like
nonbank financial intermediaries, allocate the resources
rationally in accordance with the development needs of the
country. The proper allocation of resources results in the
expansion of trade and industry in both public and private
sectors, thus promoting balanced economic growth in the
country.

12. The capital market tends to stabilise the values of stocks and
securities and reduce the fluctuations in the prices to the
minimum. The process of stabilisation is facilitated by providing
capital to the borrowers at a lower interest rate and reducing
the speculative and unproductive activities.

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Role of SEBI in 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.

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.

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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 cannot exceed
25% of broker's total transactions.
 90 days limit for carry forward.

Time to time, SEBI arranges scheduled workshops to educate

the investors.

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 :

7. To create a 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.

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 :

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.

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

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Advantages and Limitation of SEBI

Advantages of SEBI
A. It promotes healthy and orderly growth of securities market
and protects investors.
B. It helps in maintaining steady flow of savings into capital
market.
C. It helps in regulating security market and ensures fair
practice by issuers to help them raise resources at minimum
cost.
D. It promotes efficient services by brokers, merchant bankers
and other intermediaries to make them professional and
competitive.
E. It helps and contributes in promoting investor education,
training of intermediaries and it conducts research and provide
information to market participants.
F. SEBI operated to develop the capital market.

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 Limitation of SEBI
Advantages and Limitation of SEBI

Though SEBI has started as a watchdog in protecting investors’

interests, regulating the working of Stock Exchanges and
promoting capital market, still it faces a number of problems in
its working.

Some of these limitations are as follows:

i. The Central Government has authorised SEBI to frame its rules
and regulations for actively monitoring capital markets. These
rules and regulations will have to be approved by the
government first. This will cause unnecessary delays and
interference by the Finance Ministry.

The bureaucratic delays in clearing the rules will hamper the

working of SEBI. The government should direct SEBI to frame or
change the rules as per the demand of the situation so that it is
able to achieve professional efficiency.

ii. SEBI will have to seek prior approval for filing criminal
complaints for violations of the regulations. This will again cause
delays at government level.

iii. SEBI has not been given autonomy. Its Board of Directors is
dominated by government nominees. The Chairman of the Board
has no fixed tenure and can be sacked with three months’
notice. These appointments should be for a fixed tenure to
regulate the SEBI’s working in the long run.

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 Conclusion:
Limitation of SEBI

Though
It is saidSEBI
thathas
the started as a watchdog
stock market is one of in protecting
the indicatorsinvestors’
of a
interests,
country’s regulating the working
economic condition. of Stock
Before SEBIExchanges and
was established,
promoting
there werecapital
very few market, still in
investors it faces
StockaMarket
number of problems
because in
of price-
its working.
fixing, unofficial private placement, delay in making delivery of
share, etc. And it was not considered as a safe place for
Some of these
investment., limitations
Harshad Mehta are
Scam aswas
follows:
an example of this. We
i.can
The
not say that after the establishment ofSEBI
Central Government has authorised SEBI,toevery
frameproblem
its rules
and regulations
is solved for actively
but it has reduced monitoring capital
unfair activities andmarkets.
now theThese
stock
rules and regulations will have to be approved
market is more transparent and safe as compared to before by the
government
because of SEBIfirst.Act,
This1992
will cause
consists unnecessary
of a set of delays and
rules which
interference
regulates thebywhole
the Finance Ministry.
stock market.
The bureaucratic delays in clearing the rules will hamper the
working of SEBI. The government should direct SEBI to frame or
change the rules as per the demand of the situation so that it is
able to achieve professional efficiency.

ii. SEBI will have to seek prior approval for filing criminal
complaints for violations of the regulations. This will again cause
delays at government level.

iii. SEBI has not been given autonomy. Its Board of Directors is
dominated by government nominees. The Chairman of the Board
has no fixed tenure and can be sacked with three months’
notice. These appointments should be for a fixed tenure to
regulate the SEBI’s working in the long run.

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Bibliography:

 https://www.sebi.gov.in/
 https://www.nseindia.com/
 https://nsdl.co.in/
 https://www.wikipedia.org/

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