SEBI: Guarding India's Markets

How the Securities and Exchange Board of India was created after market scandals, what it regulates, and how its rules protect investors.

The Securities and Exchange Board of India, or SEBI, is the regulator of India’s securities markets. Its job is to protect investors, develop markets and regulate the people and companies involved in them.

Origins

SEBI was set up in 1988 as a non-statutory body. After the Harshad Mehta securities scam of 1992, in which a broker manipulated share prices using money diverted from banks, the government gave SEBI statutory powers through the SEBI Act, 1992.

What SEBI regulates

Stock exchanges, such as the NSE and BSE.
Brokers, depositories and other intermediaries.
Mutual funds and portfolio managers.
Investment advisers and research analysts.
Company disclosures and IPOs.
Takeovers and insider trading.

Key reforms

Dematerialisation: moving from paper certificates to electronic shares, reducing fraud.
Faster settlement: India moved to T+1 settlement in 2023, where trades settle the next working day, among the fastest in the world.
Mutual fund reforms: standardised categories, risk labels and limits on costs.
Derivatives rules: after SEBI studies showed that the vast majority of individual traders in futures and options lost money, it tightened rules in 2024 to limit speculation.
Finfluencer rules: restrictions on registered entities partnering with unregistered financial influencers.

Enforcement

SEBI investigates fraud, market manipulation and insider trading. It can impose penalties, ban people from markets and order refunds of unlawful gains. Its orders can be appealed to the Securities Appellate Tribunal.

Criticism

SEBI has faced criticism at times over the speed of investigations and questions about conflicts of interest, showing that regulators themselves need oversight.

For investors

Check that advisers and brokers are SEBI-registered.
Use SEBI’s SCORES platform to file complaints.

The unregistered tip

A social media account promises guaranteed returns from stock tips for a fee. An investor checks SEBI's website and finds the account holder is not registered as an investment adviser. He avoids what turns out to be a scam.

Thinking SEBI guarantees investments won't lose money

SEBI regulates markets and conduct, but investments still carry risk. Investors must understand what they buy.

Key takeaways

SEBI became a statutory regulator in 1992 after the Harshad Mehta scam.
It regulates exchanges, brokers, mutual funds, advisers and disclosures.
Reforms include dematerialisation, T+1 settlement and tighter derivatives rules.
Investors should use SEBI-registered intermediaries and SCORES for complaints.