Syllabus: Governance: Regulators/ GS-3: Indian Economy and Issues
Context: The Securities and Exchange Board of India (Sebi) recently unveiled a new logo on the occasion of its 35th anniversary.
SEBI has been successful in its functions:
|Function||Example of SEBI’s success|
|Protection of investors’ interests||SEBI has taken action against fraudulent collective investment schemes to protect investors’ interests e.g., Action against the Sahara group (2013)|
|Impressive rise||Assets under the management of mutual funds, the total number of dematerialised accounts, dematerialised turnover, the number of derivatives contracts, etc, have all grown exponentially.|
|The smooth functioning of the securities market||SEBI has introduced online trading platforms and electronic clearing services|
|Regulation of securities market operations||SEBI has introduced regulations for insider trading, delisting of securities, and disclosure and investor protection guidelines|
|Education of investors||SEBI‘s ‘Jan Jagruti Abhiyaan’ to educate investors about the securities market and their rights as investors.|
|Prohibition of fraudulent and unfair trade practices||SEBI has taken action against market manipulations and price rigging. In 2015, SEBI ordered a probe into suspected rigging of the National Stock Exchange’s (NSE) algo-trading systems and imposed a penalty of Rs 1,000 crore on NSE for its role in the co-location case.|
|Ensuring compliance by market participants||In 2018, SEBI fined ICICI Bank and its CEO Chanda Kochhar for violating disclosure norms related to a loan given to Videocon Group.|
|Tackling insider trading||In 2017, SEBI imposed a penalty on Reliance Industries for alleged insider trading in Reliance Petroleum shares in 2007.|
Limitations of SEBI:
SEBI has certain limitations in terms of its reach, enforcement powers, coordination with other regulatory bodies, resources, and keeping up with changing market dynamics. These limitations can create regulatory gaps and overlaps, leading to delays in the resolution of cases.
- SEBI’s alleged inaction in the Ketan Parekh scam and Satyam scandal
- SEBI’s inability to prevent the NSEL scam
- Failure of SEBI’s regulations to prevent the misuse of participatory notes (P-notes) by foreign investors
There is a need for continuous monitoring and improving market intelligence to strengthen enforcement. Also, India’s financial markets are still segmented, and a unified financial regulator may be required to remove overlaps and excluded boundaries.
Discuss the powers and functions of SEBI. What are the major issues faced by the regulatory body for securities and commodity markets in India? Suggest reforms that are needed in its functioning. (250 Words)