Securities and Exchange Board of India
Also written SEBI · Securities and Exchange Board of India (SEBI)
The statutory regulator of India's securities market, set up under the SEBI Act, 1992, to protect investors and to develop and regulate the market. It registers brokers, DPs and mutual funds.
In plain language
SEBI is the referee of the securities market.
It writes the rules for stock exchanges, depositories, brokers, mutual funds and the other firms that handle investors' money, and it registers those firms before they are allowed to operate. It watches whether the rules are followed and acts when they are not.
Its job has three parts, in the booklet's words: protect the interests of investors, promote the development of the securities market, and regulate the securities market. And for the ordinary investor it adds a fourth: it educates investors and helps resolve their complaints.
How it works
Two dates, which the two booklets present differently:
- The Financial Education Booklet (Chapter 14) says SEBI is a statutory body set up by Parliament in 1992, and that it started operations in 1988 through an order of the Government of India.
- The securities-market booklet says SEBI was established on April 12, 1992 in accordance with the provisions of the SEBI Act.
They fit together: SEBI existed from 1988 without statutory powers, and became a statutory body under the SEBI Act in 1992.
The four main laws governing the securities market (securities-market booklet):
- SEBI Act, 1992: gives SEBI statutory powers.
- Companies Act, 2013: issue, allotment and transfer of securities.
- Securities Contracts (Regulation) Act, 1956: recognition and regulation of transactions on stock exchanges.
- Depositories Act, 1996: electronic holding and transfer of demat shares.
What SEBI regulates: stock exchanges, commodity derivatives exchanges, depositories, brokers, depository participants, portfolio managers, merchant bankers, share transfer agents and mutual funds. Intermediaries can function only if registered with SEBI. SEBI examines the prospectus in a public issue.
Where to find it: headquartered in Mumbai, with regional offices in Delhi, Kolkata, Chennai and Ahmedabad. Complaints go through SCORES; the toll-free helpline 1800 266 7575 or 1800 22 7575 works in 8 languages, 9:30 a.m. to 5:30 p.m. on all days, and gives no legal opinion or investment advice.
Beyond the booklet: SCORES has since been upgraded to SCORES 2.0 (2024).
A worked example
Amounts are illustrative.
Three complaints land with Mr Fernandes, a retired teacher in Margao, in one month:
- His broker has not paid him Rs 42,000 from a share sale for three weeks. Brokers are SEBI-registered intermediaries. He first writes to the broker, then the stock exchange, then files on SCORES. This is SEBI's territory.
- His life insurer rejects a claim of Rs 1,50,000. Contracts of insurance go to IRDAI, not SEBI.
- A local chit fund has stopped paying out Rs 60,000. Chit fund business goes to the State Government.
He calls the SEBI helpline to check. The helpline tells him who to approach for the second and third complaints, since it points investors to RBI, IRDAI, PFRDA and MCA for matters outside SEBI's purview. It does not tell him whether to sell his remaining shares: the helpline does not give investment advice.
Why NISM asks about it
Chapter 14 (About SEBI) is SEBI's profile; Chapter 12 (Grievance Redressal Mechanism) covers SCORES and the helpline; Chapter 13 (Grievance Redressal Agencies) tells you which complaints are SEBI's. The securities-market booklet adds the April 12, 1992 date and the four legislations. Expect questions on SEBI's three-part mandate, the 1988-versus-1992 dates, and which regulator handles a given problem.
Common exam traps
- 1988 versus 1992. SEBI started operations in 1988 by Government order; it became a statutory body under the SEBI Act in 1992 (April 12, 1992 in the securities-market booklet).
- SEBI "registers, not approves." Registration of an intermediary is not an endorsement of any product it sells.
- Insurance goes to IRDAI, pensions to PFRDA, bank and NBFC deposits to RBI, chit funds to State Governments. Not SEBI.
- The helpline gives no legal opinion or investment advice.
- Regional offices: Delhi, Kolkata, Chennai, Ahmedabad. Headquarters: Mumbai.
- Commodity derivatives exchanges are regulated by SEBI too, which surprises candidates.
Check yourself
1.When was SEBI set up as a statutory body, and when did it start operations?
- a)Set up by Parliament in 1988; started operations in 1992
- b)Set up by Parliament in 1992; started operations in 1988 through an order of the Government of India
- c)Set up and started operations, both in 1992
- d)Set up by the Reserve Bank of India in 1988
Show the answer
Answer: (b) Set up by Parliament in 1992; started operations in 1988 through an order of the Government of India
"Securities and Exchange Board of India (SEBI) is a STATUTORY BODY SET UP BY THE PARLIAMENT OF INDIA IN 1992 to protect the interests of investors and to regulate and develop the Indian securities market. It STARTED OPERATIONS IN 1988 THROUGH AN ORDER OF GOVERNMENT OF INDIA." The two dates run in the unexpected order — operations first, statute second — which is precisely why an examiner only has to swap two numbers to produce a plausible distractor. The reliable way to hold the pair is by the source rather than the number: a Government of India order came first (1988); an Act of Parliament came second (1992). Chapter 5 corroborates the later date, describing SEBI as "a statutory body established under SEBI Act, 1992" when explaining who regulates commodity derivatives exchanges and brokers.
2.What are the key functions of SEBI?
- a)Protection of investors only
- b)Development of the Indian securities market, regulation of various intermediaries, and protection of the interests of investors
- c)Setting share prices and approving initial public offers
- d)Regulating banks, insurance companies and pension funds
Show the answer
Answer: (b) Development of the Indian securities market, regulation of various intermediaries, and protection of the interests of investors
"The key functions of SEBI are focused upon DEVELOPMENT OF INDIAN SECURITIES MARKET, REGULATION OF VARIOUS INTERMEDIARIES in the securities market and PROTECTION OF THE INTERESTS OF INVESTORS." Three functions — development, regulation, protection — and the purpose sentence gives the same balance: "to protect the interests of investors and to REGULATE AND DEVELOP the Indian securities market." The three are worth understanding rather than merely listing, because they can pull against each other: development wants a market that is easy to enter, regulation wants intermediaries checked and bound, protection wants the investor safe even at the cost of convenience. Option (c) describes something SEBI does not do — Chapter 5 said it "examines the prospectus to see that it MEETS WITH THE REQUIREMENTS OF THE SEBI REGULATIONS", which is neither approval nor price-setting. Option (d) belongs to RBI, IRDAI and PFRDA.
3.Where is SEBI headquartered, and where are its regional offices?
- a)Delhi, with regional offices in Mumbai, Kolkata, Chennai and Ahmedabad
- b)Mumbai, with regional offices in Delhi, Kolkata, Chennai and Ahmedabad
- c)Mumbai only, with no other offices
- d)Delhi and Mumbai jointly, with no regional offices
Show the answer
Answer: (b) Mumbai, with regional offices in Delhi, Kolkata, Chennai and Ahmedabad
"It is HEAD QUARTERED IN MUMBAI with REGIONAL OFFICES IN DELHI, KOLKATA, CHENNAI AND AHMEDABAD and VARIOUS LOCAL OFFICES ACROSS DIFFERENT STATES." Delhi is a regional office, not the headquarters — the natural assumption that a national regulator sits in the capital is what makes option (a) attractive and wrong. Option (c) omits the local office network, which has a practical use: Chapter 12 provided that where a SCORES attachment exceeds 2 MB, the material "can be sent by post to ANY SEBI OFFICE." Remember the four regional cities as a set — Delhi, Kolkata, Chennai, Ahmedabad — since distractors are built by substituting another large city such as Bengaluru or Hyderabad.
Where this is taught
Free preparation for NISM Series SEBI-ICERelated terms
- SCORESSEBI's centralised web-based system for processing investor complaints, on which the company or intermediary must upload an Action Taken Report and the investor can watch the status online.
- Investment adviceAdvice on buying, selling or dealing in securities or investment products, including financial planning. Only a SEBI-registered Investment Adviser may give it for a fee; mass-media commentary is excluded.
- Primary marketThe market where an issuer sells securities to investors for the first time and receives the money itself — the "new issue market", as against the secondary market where investors trade among themselves.
- SCORES 2.0The version of SEBI's online complaint redress system launched on 1 April 2024, which auto-routes complaints, gives the entity 21 calendar days to file an Action Taken Report, and auto-escalates when it does not.
- Reserve Bank of IndiaIndia's central bank, set up on April 1, 1935 under the RBI Act. It runs monetary policy, regulates and supervises banks and NBFCs, is banker to the Government and lender of last resort.
- Toll Free Investor HelplineSEBI's free phone service — 1800 266 7575 or 1800 22 7575 — answering securities-market questions and guiding complaints, in 8 languages, 9:30 am to 5:30 pm every day, without giving legal or investment advice.
- Integrated surveillance mechanismSEBI's combined system for tracking the activities of stock exchanges, brokers, depositories, R&T agents, custodians and clearing agents together, aimed at timely identification of fraudulent activity.
- FiduciariesProfessional firms — auditors, law firms, consultants, banks and similar — that assist or advise a listed company, and whom SEBI's insider trading rules therefore treat the same way as the company's own intermediaries.
- Insider trading code of conductThe comprehensive code SEBI requires listed companies, intermediaries and fiduciaries to maintain under the PIT Regulations, 2015 — a compliance officer, insider disclosures and mandatory reporting of violations.
- Ponzi schemeA fraud that pays earlier investors out of their own money or new investors' money, not real profits. It promises high or unusually steady returns and collapses when new money slows.
- IRDAIThe Insurance Regulatory and Development Authority of India, the regulator of India's insurance sector. It protects policyholders' interests and handles grievances on insurance contracts and ULIPs.
- ProspectusThe offer document a company issues when it raises money from the public. It sets out the company, its promoters, finances, risks, purpose of the issue and terms, so investors can decide.
- Non-Banking Finance CompanyA financial institution — grouped by the booklet with commercial banks under RBI supervision — whose deposit-mobilisation activity, when it goes wrong, is a Reserve Bank of India grievance, not a SEBI one.
- Financial educationAn organised effort — this SEBI booklet is one — to teach the public to manage money; distinct from financial literacy, which is the skill such teaching produces in a reader.
- Unlicensed sellersA Ponzi-scheme warning sign — most such schemes are run by individuals or firms not licensed or registered under state securities laws, even though the law requires investment professionals to be.
- L. C. Gupta CommitteeThe 24-member SEBI committee under Dr. L. C. Gupta, set up in November 1996, that designed India's regulatory framework for derivatives and recommended they be declared securities.
- Governing councilA separate governing body every derivatives exchange or segment must have, on which broker- and clearing-members cannot hold more than 40% of the seats.