The 1991 reforms led to multiple upsurge in volume of business in both, the primary and secondary securities market. But the 1992 multicrore securities scam that endangered the stability of entire financial system exposed the gross inadequacies of the existing regulatory system. It was felt that an autonomous, statutory and integrated organization was needed to ensure that capital market functioned smoothly. Towards this end, the Securities and Exchange Board of India, in existence since April, 1988 was given more powers and statutory status. These teeth were provided to SEBI through an ordinance on Jan 30, 1992. The Ordinance was replaced by an Act in April, 1992. With these changes the office of Controller of Capital Issues was abolished and newly empowered SEBI was set up with authority to prohibit ‘insider trading’, regulate ‘substantial acquisition of shares, and takeover of business’. The objectives set for the Board were: (1) investor protection, and (11) promotion and development of the capital market while regulating the functioning of securities market. Certain powers under Securities Contracts (Regulation) Act and Companies Act were also transferred to SEBI. The powers were further enhanced by Securities Law (Amendment) Ordinance of January, 1995. This autonomous organization works under overall administrative supervision of Union Finance Ministry and is accountable to the Parliament.
The SEBI has one chairman and five members. Two of these members are from Central Ministries dealing with Finance and Law; one from the Reserve Bank of India and the remaining two are appointed by the Central Government, who are professionals with experience or special knowledge of the securities market.
Performance of SEBI
1. SEBI’s performance claims, in respect of resolution of investors grievances quite remarkable. In 1991-92 it was able to resolve only 21.61 per cent grievances. This redressal rate has risen to 94.99 per cent in 1992-93. Yet et surveys do show that most of investors (90%) find its redressal ineffective, per cent share holders felt inadequate protection and 70 per cent investors that they suffered losses due to weak investor protection. In any case, it has been able to do much about ‘fly by night’ or ‘sign board’ companies which e vanished into thin air after collecting thousands of crores of Rupees ugh ‘initial public issues’.
2. SEBI has been too busy framing rules, regulations, guidelines norms, share full of provisions for ‘prudential self regulation’ and exceptions. As a result, subsequent classifications have further complicated already incomprehensible targets. Its officials appear to be busy expanding the scope of their own powers through selective interpretation of the rules.
3. It has, generally speaking, not done anything serious to penalise those who cause abnormal fluctuations of stock markets. Even well publicised cases of manipulations have remained unpunished. This erodes the small investors confidence in effectiveness of the organisation. This ineffectiveness may be due to its focus on symptoms rather than looking into root causes. Sometimes, it is suspected of being corporate friendly rather than being a watch-dog to protect investors.
4. To make SEBI more effective, amendments to SEBI Act in 1995 were passed. But even now it is not really an autonomous regulatory authority, as it functions as a branch of some offices of Union Finance Ministry. This kind of situation needs to be overhauled.
Scope, Functions and Powers of SEBI
The scope of SEBI’s activities is rather wide. It is empowered to frame rules, regulations, guidelines and direction etc. in respect of both primary and secondary securities markets. Intermediaries and certain financial institutions operating in securities markets are also subjected to SEBI’s directions and norms. It has powers to regulate:
(i) depositories, participants and custodians;
(ii) debenture trustees and trust deeds
(iii) insider trading
(iv) FII’s merchant bankers and mutual funds
(v) portfolio managers, investment advisors, registrars to capital issues and share transfer agents
(vi) stock broker, sub-brokers, underwriters, bankers to the issues and venture capital funds and
(vii) substantial acquisition of shares and takeovers. It also issues guidelines for
(viii) disclosure of information and operational transparency for investor protection
(ix) pricing of issues, bonus and preferential issues and other financial instruments
(x) firm allotment of and transfer of shares among promoters; and
(xi) development of financial institutions.