Legal aspects introduced by SEBI to control Stock Markets

SUBMITTED BY: Shivani Mahajan MBA (IFS)

SEBI : INTRODUCTION
In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution, and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. PREAMBLE The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as ..to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto

Legal aspects introduced by SEBI:

1. SEBI

has drawn up a programme for inspecting stock exchanges. The basic objective of such inspections is to improve the functioning of the stock exchanges. 2. SEBI has been authorized to conduct inspections of various mutual funds. Various deficiencies of individual mutual funds have been provided out in the inspection reports and corrective steps have been undertaken to set right these deficiencies.

 3. SEBI has introduced a number of measures to

reform in the primary market. The objective is to strengthen the standards of the disclosure, introduce certain procedural norms for the issuers and intermediaries, and remove the deficiencies, for example an advertisement code has been laid down to ensure that the advertisements are fair and do not contain statements to mislead the investors, a system of appointing the SEBI representatives to supervise the allocation process has been introduced to minimize malpractices in allotment of oversubscribed issues, prudential norms have been laid down for

 4. The process of registration of

intermediaries such as stock brokers and subbrokers have been provided under the provisions of the SEBI Act 1992. The registration is on the basis of certain eligibility norms such as capital adequacy, infrastructure etc. According to the SEBI ( Stock Brokers and Sub-Brokers) Rule 1992 no person can act as a stock-broker for the purpose of buying and selling or dealing in securities, unless he holds a certificate granted by SEBI and conditions for grant of

Merchant Banking has been statutorily brought under the regulatory framework of SEBI. The merchant bankers have to be authorized by SEBI, they are required to abide by the code of conduct which specifies a high degree of responsibility towards inspectors in respect of the pricing and premium fixation of issues. SEBI issued regulations pertaining to Insider Trading in November 1992 prohibiting dealings, communication or counseling in matters relating to insider trading. Such regulations will help in protecting and preserving the markets integrity, and in the long run inspire investors confidence in the market

SEBI has notified the regulations relating to the Mutual Funds. For the first time Mutual Funds are governed by a uniform set of regulations which require them to be formed as trusts and managed by a separate assest management company (AMC) and are supervised by a board of trustees or trustee company. SEBI regulations are intended to ensure that the mutual funds grow on healthy lines and investors interest are protected. Guidelines for tightening the entry norms for companies accessing capital markets were issued by the SEBI on April 16,1996. Accordingly a company should have a track of dividend payment for a minimum period of 3 years . If a manufacturing company does not have a track record, it can access the public issue market provided that project has been appraised by a public financial institution or a scheduled commercial bank.

The Companies ( Amendments) Ordinance (October 31, 1998 and January 7, 1999) allows companies to buy back their own shares subject to regulations laid down by SEBI. A Company can finance its buy back out of (i) its free reserves (ii) proceeds of an earlier issue other than the fresh issue of shares made specifically for buy back purposes.

10 In order to encourage IPOs, SEBI dispensed

with the requirement to issue shares with a fixed par value of Rs 10 and Rs 100 and has given the freedom to the companies to determine the par value of shares issued by them in

11 Measures aimed at strengthening

investor interest and confidence in the secondary market . which sought to strength SEBI by giving better powers for investigation, bringing in larger penalties and better defining concepts like insider trading and market manipulation.

12 In October 2002, an ordinance was formulated

13 In

November 2002, SEBI approved the establishment of a Central Listing Authority which would centralize the listing function which currently takes place at the exchange level.