Founded in 1988, the Securities and Exchange Board of India (SEBI) has the role to protect investors and regulate the financial market. SEBI initiatives in corporate governance are based on the Securities and Exchange Board of India Act and aim to prevent fraudulent practices. The organization is responsible for enforcing rules and regulations to promote orderly development in the stock market. As an investor, you must comply with these rules and follow the code of conduct.
The Indian securities market is one of the most trusted in the world. However, things haven't always been this way. Back in the '80s, everyone was trying to find loopholes in the system and get rich through fraudulent schemes. Today, this market is tightly regulated by the Securities and Exchange Board of India, whose role is to prohibit unfair trade practices and protect investors' interests, among other functions.
The organization became autonomous and got the statutory status in 1992. Soon, it has emerged as the regulator of stock markets in India, overseeing the activities of investors, securities issuers and market intermediaries. SEBI is also responsible for carrying out investor awareness and training programs and regulating major transactions. Furthermore, it monitors credit rating agencies, custodians, bankers, brokers and other financial market players.
Several departments exist within SEBI, including but not limited to the Corporation Finance Department (CFD), the Legal Affairs Department, the Market Regulation Department and the Office of International Affairs. The CFD, for example, oversees all matters related to corporate governance and accounting standards. The Office of Investor Assistance and Education (OIAE), on the other hand, handles investors' complaints, such as those related to the transfer of shares.
Corporate governance encompasses the mechanisms, rules and practices by which companies are operated and controlled. It aims to mitigate conflicts of interest between shareholders and promote ethical decision-making, transparency and integrity at the executive level. The role of SEBI in corporate governance is to ensure these rules are implemented and followed by all parties.
For example, the organization ensures that companies issuing securities use fair practices and disclose relevant information to the shareholders. It also regulates takeovers, listing agreements of stock exchanges, corporate restructurings and more. SEBI guidelines for corporate governance are designed to provide a safe, transparent environment for investors and prohibit fraudulent or unfair practices, like insider trading.
The role of SEBI in ensuring ethical standards among corporations became even more important in 2018 when the organization imposed additional compliance conditions. For instance, big firms will be required to have at least one woman independent director and separate chairpersons and CEOs. Furthermore, listed companies must disclose related-party transactions and hold a specific number of annual general meetings. SEBI initiatives in corporate governance are largely based on the recommendations made by the Kotak committee in March 2018 and aim to enhance transparency.
In addition to its role in corporate governance, SEBI has protective, regulatory and developmental functions. The organization protects investors by prohibiting malpractices related to securities and promoting fair trade practices. Additionally, it aims to educate them on money management, trading and finances in general.
Its regulatory functions have the role to ensure that corporations and financial intermediaries alike follow its guidelines and code of conduct. The end goal is to keep the financial market running smoothly.
The developmental functions of SEBI aim to promote computerized trading and modernize the market infrastructure. These initiatives have led to a reduction in fraud and unfair practices. For example, the organization requires companies that buy or sell stocks to register for a dematerialization (Demat) account online, which helps reduce bureaucracy and simplifies the process of holding investments. The Demat system allows traders to work from anywhere and mitigates the risks associated with paper shares, such as trading delays or thefts.