Introduction
The supervision and regulation of the stock market in India is carried out by the Securities and Exchange Board of India (“SEBI”) which was established in 1988 and made an autonomous body in the year 1992 under the SEBI Act of 1992[1].
Stocks are a type of security that give a stockholder a share/fraction of ownership in a company entitling him to a proportion of the company’s assets and profits. The unit of stock is “shares”.
When a company intends to raise funds, it issues stock shares allowing investors to purchase them. Before going into the powers and functions of SEBI in regulating the stock market, it is important to know the basic terms and definitions related to it:
A stock exchange is a market where stocks are bought and sold, which can be said to be a subset of securities. A designated Stock Exchange under Section 2 (1) (d) of the Securities Exchange Board of India (Issuing and Listing Debt Securities) Regulations, 2008, is defined as a stock exchange in which securities of the issuer are listed or proposed to be listed and which is chosen by the issuer for the purposes of a particular issue under these regulations”.
National Stock Exchange (NSE), Bombay Stock Exchange (BSE) are the two primary stock markets of India with Nifty and Sensex being their stock market indexes respectively.
An investor is the person who purchases a part of the company as investment, through medium of stocks and becomes a part owner of the company.
A stockbroker is a company or person which does the buying and selling of stocks on behalf of other persons or companies and levies a charge on the same, thereby acting as intermediaries.
The Issuer is the legal entity, i.e. Government, company or investment trust which sell securities to public to fund its own operations. The companies offer securities to the public through an Initial Public Offering, in what is called a Primary Market. Here the companies register themselves to issue shares and raise funds. Secondary Market is one where the stocks can be further traded by investors.
What is SEBI ?
SEBI is a quasi-judicial and quasi-legislative body which regulates, passes rulings, conducts inquiries and imposes penalties; therefore, it not only controls the functioning of the stock market, but also works for prohibiting unfair trade practices in the market.
- SEBI regulates the business in stock market and is responsible for regulation and registration of stock brokers, share transfer agents, sub brokers, merchant bankers and other intermediaries. The opening and closing time of the stock market has been determined by the SEBI, i.e. (9:15 AM to 3:30 PM). Brokers, cannot deal with securities without getting a license from the Board which also holds the right to revoke licenses of brokers who contravene guidelines.
- SEBI promotes investor’s education and training of intermediaries associated with the securities market.
- It is responsible for prohibiting insider trading in securities. It is important to note that a person becomes liable of insider trading if: he or she deals with others on basis of unpublished/confidential price sensitive information or communicates any unpublished price sensitive information or counsels any person to deal in securities of any company on basis of unpublished price sensitive information. Insider trading attracts penalty of up to 25 crores or three times the amount of profit made out of an insider trading activity.
- SEBI is also vested with the power to control mergers, acquisitions and take overs of the companies. At times companies try to manipulate the market and unlawfully buy majority of stakes in other companies, along with such other practices that are prohibited by the SEBI.
For Investors
When investing in securities, investors need to go through KYC (Know-your-client) requirements, prescribed by SEBI for financial intermediaries and financial institutions for knowing clients whereby verification is conducted- of their identity, occupation, financial status and demographic details.
An investor requires a DEMAT account for investment. Mandatory requirements of PAN card/ Aadhar Card, six- month bank statement along with cancelled cheque are to be fulfilled to open a Demat account. Such an account holds the stocks purchased by investor, through services obtained from a stock broker.
SEBI Complaints Redressal System
There will be occasions when an investor may have complaint against a listed company or an intermediary registered with SEBI. Under such circumstances an investor should follow following procedural steps from grievance redressal:
- In event of any complaint regarding the purchase, transfer, registration of name, issuance etc. an investor should first lodge such complaint before the concerned company through a detailed representation. In case they don’t respond within a reasonable time, then one must send a legal notice through an advocate to the listed company.
- In case company is not responding or in case you are not satisfied with their response then an investor can approach SEBI against complaints related to issue and transfer of securities and non-payment of dividend with listed companies.
- If in case the intermediary is causing any problem then also after raising complaint to them, SEBI is to be approached with complaints against the various intermediaries registered with it and related issues.
SEBI entertains complaints against the following entities:
- Alternative Investment Funds
- Bankers to an Issue
- Collective Investment Schemes
- Credit Rating Agencies
- Custodians of Securities
- Debenture Trustees
- Depository Participants
- KYC registration Agencies.
- Listed companies
- Merchant Bankers
- Mutual Funds
- Portfolio Managers
- Registrars to an Issue / Share Transfer Agent
- Stock Brokers/Sub-brokers
- Stock Exchanges • Depository
- Underwriters
SEBI has jurisdiction to regulate the market hence, complaints with respect to market irregularities can also be filed before it like irregularities in trading in shares or manipulation in price or violation of insider trading regulations etc.
How to file complaint before SEBI:
Investors online complaint through the SEBI’s SCORES (Sebi Complaints Redress System) website.
Securities Appellate Tribunal
SEBI has the statutory power to promote and regulate the securities market and it may pass such orders or penalties which cause grievances amongst market players. Further, there may be orders pertaining to the regulation of securities against a listed company. For this reason, the Securities Appellate Tribunal (“SAT”) was established under the SEBI Act, 1992 under Section 15 K for hearing and disposing of appeals against orders passed by SEBI or an order made by an adjudicating officer. The appeal to SAT is filed within a period of 45 days from the date of receiving the copy of the impugned order by the aggrieved party.
An appeal against an order of SAT may be filed before the Supreme Court within a period of 60 days from the date of receiving a copy of the decision or order of SAT.