role of sebi in market management and corporate governance

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Role of SEBI in market management and Corporate Governance

A.VALLIACOUNTS DEPARTMENT



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Introduction to Security Exchange Board of India

(SEBI)• Securities and Exchange Board of India (SEBI) was formed after

the Indian Parliament passed the Securities and Exchange Board of India Act, 1992 in response to the Financial Services Assessment Program.

• SEBI Actually established in the year 1988 and given statutory power in 1992.

• With the growth in the dealings of stock markets, lot of malpractices also started in stock markets such as price rigging, ‘unofficial premium on new issue, and delay in delivery of shares, violation of rules and regulations of stock exchange and listing requirements. Due to these malpractices the customers started losing confidence and faith in the stock exchange. So government of India decided to set up an agency or regulatory body known as Securities Exchange Board of India (SEBI).



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Purpose and Role of SEBI

The main purpose of SEBI is to keep a check on malpractices and protect the interest of investors. It was set up to meet the needs of three groups.

1. Issuers:For issuers it provides a market place in which

they can raise finance fairly and easily.2. Investors:

For investors it provides protection and supply of accurate and correct information.3. Intermediaries:

For intermediaries it provides a competitive professional market.



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The Organizational Structure of SEBI

SEBI is working as a corporate sector. Its activities are divided into five departments. Each department is headed by an executive director. The head office of SEBI is in Mumbai and it has branch office in Kolkata, Chennai and Delhi. SEBI has formed two advisory committees to deal with primary and secondary markets. These committees consist of market players, investors associations and eminent persons.



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• To advise SEBI to regulate intermediaries.• To advise SEBI on issue of securities in

primary market.• To advise SEBI on disclosure requirements of

companies.• To advise for changes in legal framework and

to make stock exchange more transparent.• To advise on matters related to regulation

and development of secondary stock exchange.

• These committees can only advise SEBI but they cannot force SEBI to take action on their advice.

Objectives of the two Committees



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Objectives of SEBI To regulate the activities of stock

exchange. To protect the rights of investors and

ensuring safety to their investment. To prevent fraudulent and malpractices by

having balance between self regulation of business and its statutory regulations.

To regulate and develop a code of conduct for intermediaries such as brokers, underwriters, etc.



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Functions of SEBI

The SEBI performs functions to meet its objectives. To meet three objectives SEBI has three important functions. These are:

i. Protective functions

ii. Developmental functions

iii. Regulatory functions.



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GovernanceThe Securities Exchange Board of India is

essential to corporate governance of India's securities market, as it serves as the central body that ensures investors are protected and the securities market is regulated. Corporate governance is the manner in which companies or market systems operate, including the rules, regulations, policies and standards for accountability, transparency and general corporate integrity.

SEBI in regulating Indian Capital Market more deeply with following points:

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.

The Role of SEBI in Corporate Governance & Capital Market



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



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Contn..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."

3. To Stop fraud in Capital Market SEBI has many powers for stopping fraud in capital market.a.It can ban on the trading of those brokers who are involved in fraudulent and unfair trade practices relating to stock market. b. It can impose the penalties on capital market intermediaries if they involve in insider trading.



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Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



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Contn..

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 can not exceed 25% of broker's total transactions.90 day limit for carry forward.



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Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



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Contn..7. To create 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;



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Contn…

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.

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 report.

10. To educate the investors :

Time to time, SEBI arranges scheduled workshops to educate the investors.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

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Conclusion

As Indian Companies Compete globally for access to capital markets, many are finding that the ability to benchmark against world class organization is essential.Corporate governance and economic development are intrinsically linked, effective corporate governance system promote the development of strong financial systems.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

[email protected]


role of sebi in market management and corporate governance

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