Role of SEBI in the Capital Market

Capital market is a market for long-term debt and equity shares. In this market, the capital funds consisting of both equity and debt are issued and traded

Capital market is a market for long-term debt and equity shares. In this market, the capital funds consisting of both equity and debt are issued and traded.

Companies in India generally have to function within the provisions of the Companies Act, 2025, administered by the Ministry of Corporate Affairs. However, Publicly listed companies (those companies whose shares of stock are intended to be freely traded on a stock exchange or in the over-the-counter market) in addition, have to comply with the norms and regulations prescribed by the Securities and Exchange Board of India (SEBI), the market regulator.

SEBI has enacted principles of corporate governance which listed companies have to follow. Provisions were introduced through Clause 49 of the Listing Agreement which required companies, among others, to have a certain minimum proportion of independent Directors depending upon whether the Chairman was also the chief executive or not and to have Board sub-committees to deal with an audit, remuneration and investor grievances. But since the inclusion of Clause 49, there have been a series of amendments made to it in order to plug the loopholes and to make it more comprehensive and effective.

Why is a regulation by SEBI required?

Recommendations of the Kumar Mangalam Birla Committee Report shed a clear objective as to why regulation by SEBI was required.

The opening statement mooted strong corporate governance and that it is indispensable for resilient and vibrant capital markets and is an important instrument of investor protection. β€œIt is the blood that fills the veins of transparent corporate disclosure and high-quality accounting practices. It is the muscle that moves a viable and accessible financial reporting structure.”

It also made a well-founded opinion that without financial reporting premised on sound, honest numbers, capital markets will collapse upon themselves.

The Committee’s recommendations have looked at corporate governance from the point of view of the stakeholders and in particular that of the shareholders and investors because they are the raison d’etre for corporate governance and also the prime constituency of SEBI.

β€œThe control and reporting functions of boards, the roles of the various committees of the board, the role of management, all assume special significance when viewed from this perspective. The other way of looking at corporate governance is from the contribution that good corporate governance makes to the efficiency of a business enterprise, to the creation of wealth and to the country’s economy. In a sense both these points of view are related and during the discussions at the meetings of the Committee, there was a clear convergence of both points of view.”

The position at present times

Ever since its inception in 1992, SEBI has undertaken the grandiose task of regulating the capital market, curbing mal-practices and among others, making sure that rules and regulations are followed in the capital market including the stock market. The Kumar Mangalam Birla Committee further solidified the ground for SEBI to function efficiently. The following are some of the regulations that SEBI undertakes:

  • Conducting inquiries and audit of exchanges
  • Designing rules for stock exchange Performing and exercising powers
  • To provide a license to dealers and brokers.
  • Regulation of takeover of companies
  • Levying of fees
  • Making rules for the general code of conduct

πŸ“˜ Role of SEBI in the Capital Market

The Securities and Exchange Board of India (SEBI) is the regulatory authority for the capital markets in India. Established under the SEBI Act, 1992, SEBI is responsible for regulating, developing, and protecting the interests of investors in the securities market.


🏦 What is the Capital Market?

The capital market includes:

  • Primary market – where new securities (IPOs, FPOs) are issued
  • Secondary market – where existing securities are traded (e.g., stock exchanges like NSE/BSE)

🎯 SEBI’s Core Objectives

As per SEBI Act, 1992 – Section 11, SEBI has three key objectives:

  1. Protection of investors
  2. Regulation of securities market
  3. Development of capital market

βœ… Key Roles of SEBI in Capital Markets

1. πŸ“œ Regulator of Stock Exchanges and Market Intermediaries

  • Governs stock exchanges, brokers, depositories, mutual funds, credit rating agencies
  • Ensures transparency, fair trading, and compliance

2. 🧾 Approval of Public Issues (IPOs, FPOs)

  • Reviews and approves draft offer documents
  • Ensures adequate disclosure in prospectus
  • Monitors book building and allotment process

3. πŸ“‰ Monitoring Insider Trading & Market Manipulation

  • Prohibits insider trading and fraudulent trade practices
  • SEBI (Prohibition of Insider Trading) Regulations, 2025
  • Investigates suspicious trading activities

4. πŸ›‘οΈ Investor Protection

  • Educates investors through seminars and publications
  • Operates SCORES – SEBI Complaint Redress System
  • Ensures refunds and compensation in case of fraud

5. πŸ“Š Regulation of Mutual Funds

  • Governs formation, registration, and functioning of mutual funds
  • Frames rules for disclosures, NAV calculation, and investor safety

6. 🏒 Corporate Governance

  • Enforces Listing Obligations and Disclosure Requirements (LODR)
  • Ensures listed companies follow norms for:
    • Board composition
    • Financial disclosures
    • Shareholder rights

7. πŸ” Facilitating Capital Market Reforms

  • Introduces new instruments (REITs, INVITs, Green Bonds)
  • Promotes ease of doing business for startups and foreign investors

🧾 Powers of SEBI

Power Description
Quasi-legislative Can frame rules and regulations
Quasi-judicial Can conduct hearings and impose penalties
Quasi-executive Investigates and enforces action

βš–οΈ Important SEBI Regulations

Regulation Purpose
SEBI (LODR), 2025 Disclosure by listed companies
SEBI (Issue of Capital and Disclosure Requirements), 2025 Governs public issues
SEBI (Prohibition of Insider Trading), 2025 Prevents misuse of price-sensitive info
SEBI (Mutual Funds), 1996 Regulates mutual funds

πŸ“Œ Summary Table

Function SEBI’s Role
IPO Regulation Approves and monitors
Secondary Market Regulates stock exchanges
Investor Protection Handles grievances (SCORES), educates
Insider Trading Detects, prevents, and punishes
Intermediary Licensing Registers and monitors brokers, funds, etc.
Corporate Governance Enforces compliance under LODR

πŸ”š Conclusion

SEBI acts as the watchdog of the Indian capital market. It ensures:

  • βœ… Fairness
  • βœ… Transparency
  • βœ… Efficiency
  • βœ… Investor confidence

By doing so, SEBI builds a secure and vibrant financial market in India.


Would you like:

  • A diagram/chart of SEBI’s functions?
  • A summary PDF for exam prep or classroom?
  • A list of latest SEBI circulars (2025–2025)?

Let me know how you’d like to explore further!

Role of SEBI in the Capital Market

Securities and Exchange Board of India (SEBI)

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