Reasons for the Establishment of SEBI
During 1980s, there was tremendous growth in the capital market due to increasing participation of public. This led to many malpractices like Rigging of prices, unofficial premium on new issues, violation of rules and regulations of stock exchanges and listing requirements, delay in delivery of shares etc. by the brokers, merchant bankers, companies, investment consultants and others involved in the securities market.
This resulted in many investor grievances. Because of lack of proper penal provision and legislation, the government and the stock i exchanges were not able to redress these grievances of the investors. This (necessitated a need for a separate regulatory body, and hence Securities and Exchange Board of India was established.
Purpose and Role of SEBI
The main objective is to create such an environment which facilitates efficient mobilization and allocation of resources through the securities market. This environment consists of rules and regulations, policy framework, practices and infrastructures to meet the needs of three groups which mainly constitute the market i.e. issuers of securities (companies), the investors and the market intermediaries.
(i) To the Issuers:
SEBI aims to provide a market place to the issuers where they can confidently look forward to raise the required amount of funds in an easy and efficient manner.
(ii) To the Investors:
SEBI aims to protect the right and interest of the investors by providing adequate, accurate and authentic information on a regular basis.
(iii) To the Intermediaries:
In order to enable the intermediaries to provide better service to the investors and the issuers, SEBI provides a competitive, professionalised and expanding market to them having adequate and efficient infrastructure.
(1) Regulation of Stock Exchanges:
The first objective of SEBI is to regulate stock exchanges so that efficient services may be provided to all the parties operating there.
(2) Protection to the Investors:
The capital market is meaningless in the absence of the investors. Therefore, it is important to protect the interests of the investors.
The protection of the interests of the investors means protecting them from the wrong information given by the companies in their prospectus, reducing the risk of delivery and payment, etc. Hence, the foremost objective of the SEBI is to provide security to the investors.
(3) Checking the Insider Trading:
Insider trading means the buying and selling of securities by those people’s directors Promoters, etc. who have some secret information about the company and who wish to take advantage of this secret information.
This hurts the interests of the general investors. It was very essential to check this tendency. Many steps have been taken to check inside trading through the medium of the SEBI.
(4) Control over Brokers:
It is important to keep an eye on the activities of the brokers and other middlemen in order to control the capital market. To have a control over them, it was necessary to establish the SEBI.