📘 5.1 Securities and Exchange Board of India Act, 1992 and Role of SEBI
📌 Definition
The Securities and Exchange Board of India (SEBI) was established on April 12, 1992, under the Securities and Exchange Board of India Act, 1992. The primary objective of SEBI is to protect the interests of investors in securities and to regulate and promote the development of the securities market.
SEBI’s main responsibility is to ensure the smooth and fair functioning of the capital markets in India. This includes overseeing market participants, intermediaries, and the issuance of securities, along with ensuring investor protection.
🔑 Key Responsibilities of SEBI
📝 Inspection & Investigation
SEBI has the authority to inspect, investigate, and enforce compliance with regulations within the securities market. This includes monitoring stock exchanges, brokers, depositories, and other market participants.
⚖️ Enforcement of Laws
SEBI enforces various securities laws and takes action against violations such as price manipulation, insider trading, and other unfair practices. It has powers to conduct investigations, call for information, and penalize violators.
📈 Surveillance and Monitoring
🛡 Market Surveillance
SEBI has set up mechanisms to monitor market activities, including surveillance systems at stock exchanges, to prevent and identify fraudulent activities.
📊 Regular Inspections
SEBI conducts regular inspections of market intermediaries to ensure compliance with prescribed standards. It can also order investigations into specific activities such as insider trading and market manipulation.
💡 Role in Primary Markets
📜 Public Issue Regulations
SEBI plays a key role in ensuring the smooth functioning of primary markets by laying down guidelines and regulations for public securities offerings. These include rules on disclosures, net worth requirements, and lock-in periods for promoters.
🔒 Investor Protection
SEBI ensures that all companies follow disclosure norms and provide investors with the relevant information before making investment decisions. The regulations aim to protect investors from fraud and misleading practices.
📜 SEBI’s Powers and Functions
SEBI has the power to regulate market intermediaries, such as brokers, custodians, merchant bankers, and underwriters, by requiring them to register and meet specific eligibility standards. It also has the authority to penalize non-compliance with regulations.
💡 Example:
SEBI may investigate a case of suspected insider trading by tracking unusual trading activity on a stock exchange. If the investigation confirms the violation, SEBI can impose fines, suspend trading, or take legal action against the offender.
📘 5.2 SEBI Regulations Specifically Aimed at Investor Protection
📌 Definition
SEBI regulations aim to protect investors by prohibiting insider trading and unfair trade practices in the securities markets. These regulations help ensure market integrity and safeguard the interests of investors.
💡 SEBI (Prohibition of Insider Trading) Regulations, 2015
📉 Insider Trading
Insider trading refers to the trading of securities based on unpublished, price-sensitive information. It involves people with access to confidential company information, such as directors, employees, and consultants.
📜 SEBI Guidelines
The SEBI (Prohibition of Insider Trading) Regulations, 2015 require listed companies, intermediaries, and fiduciaries to implement a comprehensive code of conduct to prevent insider trading. This includes appointing a compliance officer and ensuring timely disclosure of holdings by insiders.
🔍 Enforcement and Penalties
⚖️ Investigation & Enforcement
SEBI is empowered to investigate and penalize violations of insider trading regulations. Penalties can include monetary fines, criminal prosecution, and restrictions on transacting in the securities markets.
💰 Investor Protection Fund
Any penalties collected from violations are remitted to SEBI’s Investor Protection and Education Fund (IPEF) to be used for investor education and protection purposes.
💡 Example:
For example, if a director of a company uses confidential information about a potential merger to buy shares before the information becomes public, this would constitute insider trading under SEBI regulations.
📑 SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003
📉 Fraud and Market Manipulation
The SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 aim to prevent market manipulation and fraudulent practices. SEBI investigates cases involving manipulation of securities prices, insider trading, and other deceptive practices.
📜 Fraud Definition
Fraud is defined under SEBI regulations as any act, expression, omission, or concealment that induces another person or their agent to deal in securities, regardless of the intention to gain or avoid a loss.
🔑 Prohibition of Unfair Trade Practices
🚫 Prohibited Dealings
SEBI regulations prohibit manipulative, fraudulent, and unfair trade practices in the securities markets. These include activities like artificial volume creation, price manipulation, and insider trading.
⚖️ Investigation and Penalties
SEBI has the authority to investigate and take action against those involved in unfair trade practices. Penalties for violations can include fines, suspension of trading privileges, or cancellation of registration.
💡 Example:
A trader who artificially inflates the price of a stock by creating fake orders to manipulate the market is violating SEBI regulations. SEBI would investigate and impose penalties, such as fines or suspension of trading privileges.
📘 5.3 Investor Education and Protection Fund (IEPF)
📌 Definition
The Investor Education and Protection Fund (IEPF) is a fund created by the Ministry of Corporate Affairs to promote investor awareness and protect their interests. The IEPF is administered by the Investor Education and Protection Fund Authority, established in September 2016.
💡 Objectives of IEPF
📉 Refund of Unclaimed Money
The IEPF Authority is responsible for making refunds of unclaimed dividends, matured deposits, and debentures to investors. The fund also handles claims related to unpaid money that has remained unclaimed for over seven years.
🎓 Investor Awareness Programs
The IEPF is used to promote investor education through various programs and initiatives. The aim is to increase awareness among investors regarding their rights and responsibilities in the securities market.
💰 Sources of the IEPF
🏛 Government Contributions
The fund receives contributions from the central government, state governments, and various companies and institutions. This ensures its financial strength and capacity to support investor-related activities.
💸 Unclaimed Money
The IEPF is primarily composed of unclaimed dividends, matured deposits, debentures, application money, call money, and interest that have remained unpaid for seven years. These amounts are transferred to the IEPF for use in investor protection and education activities.
📜 Utilization of the IEPF
The fund is utilized to make refunds to investors and support investor education, awareness, and protection programs. The IEPF Authority works to enhance investor confidence by ensuring that their unclaimed funds are refunded, and by providing educational resources to improve market participation.
💡 Example:
If an investor has an unclaimed dividend of ₹5,000 that has remained unpaid for seven years, the amount is transferred to the IEPF. The investor can apply for a refund from the IEPF Authority to retrieve the unclaimed amount.
📘 5.4 SEBI Regulations for Registrars and Transfer Agents
📌 Definition
Registrars and Transfer (R&T) Agents are intermediaries regulated by SEBI, responsible for managing and processing the transfer of securities. These agents must adhere to specific SEBI guidelines that ensure transparency, fairness, and investor protection in securities transactions.
💡 Key Regulations for R&T Agents
📜 SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993
These regulations govern the functioning, responsibilities, obligations, and reporting standards for R&T agents. They ensure proper handling of securities transfers and investor protection in compliance with SEBI guidelines.
📜 SEBI (Intermediaries) Regulations, 2008
This regulation sets the general requirements for all intermediaries, including R&T agents. It defines standards for registration, compliance, conduct, and procedures in case of defaults. It also requires R&T agents to maintain high standards of service and investor protection.
📊 SEBI (Depositories and Participants) Regulations, 2018
📑 Depository Participation
Under these regulations, R&T agents can also become participants in a depository, which is a system used for electronic storage and transfer of securities. The R&T agents must comply with the depository’s regulations and maintain proper records.
💻 Compliance Requirements
- Maintain records and data securely
- Address investor complaints promptly
- Cooperate with regulators during inspections
- Ensure data integrity and protect against misuse
📈 Functions and Obligations of R&T Agents
🔄 Investor Support
R&T agents play a crucial role in managing investor-related activities, including facilitating dematerialization, rematerialization, and transfers of securities. They ensure smooth communication between investors and issuers.
📑 Compliance and Reporting
R&T agents must maintain accurate records of transactions, report to SEBI periodically, and comply with the regulations for stock exchanges and depositories. They must also adhere to strict audit and inspection requirements.
💡 Example:
An investor who wishes to transfer their shares to another individual would submit a request to the R&T agent, who would process the transaction according to the prescribed guidelines and update the shareholder records accordingly. Any discrepancies or issues would be promptly addressed by the R&T agent.
