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
Saksham
March 16, 2021

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, 2013, 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. “It 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.

“The 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

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