PROTECTIVE FUNCTIONS OF SEBI
Securities Exchange Board of India (SEBI) was set up in 1998 to regulate the functions of the securities market. SEBI promotes orderly and healthy development in the stock market transactions. It was left as a watchdog to observe the activities but was found ineffective in regulating and controlling them. As a result in May 1992, SEBI was granted legal status. SEBI is a body corporate having a separate legal existence and perpetual succession.
There are some purpose and role of SEBI are as follows:-
SEBI was set up with the main purpose of keeping a check on malpractices and protests the interest of investors. It was set up to meet the needs of three groups.
(i) Issues:-For issuers it provides a market place in which they can finance fairly and easily.
(ii) Investors:-For investors it provides protection and supply of accurate and correct information.
(iii)Intermediaries:- For intermediaries it provides a competitive professional market.
Objective of SEBI:-
(i) To regulate the activities of the stock exchange/s.
(ii)To protect the right of investors and ensuring safety to their investment.
(iii)To prevent fraudulent and malpractice by having balance between self-regulation of business and its statutory regulations.
iv)To regulate and develop a code of conduct for intermediaries such as brokers, underwriters, etc.
SEBI has three important functions these are:-
(i) Protective function
(ii) Development function
Protective functions are performed by SEBI to protect the interest of investors and provide safety of the investment.
As protective functions, SEBI performs the following functions:-
(i) It checks price rigging:- Price rigging refers to manipulating the prices of securities with the main objective of inflating or depressing the market price of securities. SEBI prohibits such practice because this can defraud and cheat the investors.
(ii) It prohibits Insider trading:-Insider is any person connected with the company such as directors, promoters, etc. These insiders have sensitive information that affects the price of the
securities. SEBI keeps a strict check when insiders are buying securities of the company and takes strict action on insider trading.
(iii) SEBI prohibits fraudulent and unfair trade practice:-SEBI does not allow the companies to male misleading statements that are likely to induce the sale or purchase of securities by any other person.
(iv)SEBI undertakes steps to educate investors so that they are able to evaluate the securities of various companies and select the most profitable securities.
(v) SEBI promotes fair practices and code of conduct in the securities market by taking the following steps.
(a)SEBI has issued guidelines to protect the interest of debenture –holders wherein companies cannot change terms in midterm.
(b) SEBI is empowered to investigate cases of insider trading and has provisions for stiff fines and imprisonment.
(c) SEBI has stopped the practice of making preferential allotment of shares unrelated to market prices.
