investor protection

SEBI’s Role In Investor Protection and The Challenges Ahead

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SEBI’s establishment was in the year 1988 but were given statutory power in the year 1992.  The basic aim of SEBI was to protect the investors in securities. There a lot of fraud being committed in the securities market wherein the investor’s money was misused and therefore SEBI was formed.

Herein we will discuss about various steps taken by SEBI for investor protection. They are:

Issue of guidelines:

The first and foremost step taken by SEBI is issuing of various guidelines to the companies, merchant bankers, to various underwriters etc. through the help of these guidelines, SEBI ensures that there is transparency in functioning of the above agencies so that the investors are protected.

Introducing Takeover Code:

It had brought in takeover code which also talks about mergers and amalgamations. This code has issued certain guidelines which will govern the substantial acquisition of shares as well as takeovers. The investors are protected through this because it protects their interests when they are not directly involved with such takeovers.

Bringing Stock Invests:

This new concept by SEBI gives protection to investor in a way that they will now get interest on the application money for the time in between the application money and the allotment of shares.

Awareness Campaigns:

SEBI has made special arrangement for small investors and had for the same organized many conferences, seminars, exhibitions, etc.

Special Measures for Insider Trading:

There were many instances of insider trading which had led SEBI to come up with SEBI (Prohibition and Insider Trading) Regulations, 1992 and necessary steps have been taken by keeping a check on malpractices by those who have better access to information than the investors.[1]

Special Protection to Retail Investors:

As retail investors are not able to identify the risk factors involved in a particular transaction so SEBI had cautioned them to think thoroughly before investing and had advised not to invest in B2 and Z listed companies which are showing huge profits as this result can be doubtful.

SEBI had not only tried to bring reforms through various guidelines to the company, but also had tried to bring reforms in the stock exchanges itself. They are:

  1. There has to be a compulsory audit of stock exchanges, their accounts and their brokers.
  2. The board of directors must include 50% of the members who are non-brokers, public representatives and government representatives.
  3. The Portfolio managers have to keep a separate account for all their clients rather than pooling it under a same account.
  4. A code of ethics had been issued for board of directors of stock exchanges so that a transparency can be maintained.[2]

investor protection

So, we see that the role of SEBI to protect the investors had been improved with the passing of the years. It should be seen that from where it has begun its journey. There were various scams just after SEBI was born such as Harshad Mehta scam etc. It had strengthened its role as regulatory body and with the advent of new technologies it had also gone techno-savvy by bringing in new reforms such as e-broking, share trading through the websites of brokers etc.

Now, the role of SEBI had been acknowledged internationally. Recently, there was a report published by International Organization of Securities Commissions-IOSCO wherein it SEBI’s was described as one of the pillars of the Indian Securities settlement system.[3]

CHALLENGES AHEAD

Though the Companies Act, 2013 and the SEBI regulations and various other measures had provided enough guidelines, procedure and education for investor protection but there are still some lacunae and challenges in order to reach the ultimate goal of investor protection. They are:

Providing the investor with fair deals

This problem can be analyzed by looking at a survey conducted which revealed that 90 per cent of the investors felt that the system of investor complaint mechanism id not effective and many investors have suffered from weak investor protection. This is due to the problem of price rigging which means manipulating the price so that the investors buy the shares which is not the actual price.

Non-regulation of sub-brokers

In India, the market runs on the system of sub broking wherein the sub brokers acts as a middlemen between the investor and the recognized stock exchange brokers. The main brokers are not able to deal with investors directly so to be economical they appoint sub brokers. But the problem with such a system is that these brokers are kept out of the regulatory system. The main problem is that who should be made accountable for any wrong done by sub brokers as the main brokers do not supervise these sub brokers and also they take no responsibility from them.[4]

Misuse of Power of Attorney :

When the investors open an account with brokers sometimes they sign a PoA and as when an account is opened many documents are to be signed so a client along with other documents also sign a PoA in a hurry in that case they sign in a hurry without reading the whole document and the broker may misuse the same by including condition such as debit of shares from the client’s account without providing a deliver instruction slip.

Over-Regulation:

The over regulation of SEBI for the retail investors had excluded them instead of benefiting for the same. There was a newspaper report which say that in the year 2014 BSE Sensex touched a new all time high points but the retail investor who invested over there did not made substantial money out of it.Though the investor protection norms are sufficient but there are no investors who can be benefited out of it. Also, the commissions given to brokers are very low now, so no broker wants to educate the investors about an IPO as their commission now has come down from 2.5% to 0.10%.[5]

References-

[1] Savita .R Giri, Investor’s Protection in Stock Market: A Role of SEBI, Golden Research Thoughts Impact Factor : 2.2052(UIF) Volume-3,Issue-11, May-2014

[2] Dr. KVSN Jawahar Babu; S. Damodar Naidu, Investor Protection Measures by SEBI, Arth Prabandh: A Journal of Economics and Management,Vol.1 Issue 8, November 2012, ISSN 2278‐0629, available at http://prj.co.in/setup/business/paper61.pdf, last seen on (28/08/2016)

[3] SEBI: A Credible and Effective Regulator, available at http://www.newsonair.com/SEBI-A-CREDBLE-AND-EFFECTIVE-REGULATOR.asp, last seen on (24/08/2016)

[4] L.C. Gupta, Challenges before Securities and Exchange Board of India,  Economic and Political Weekly, Vol. 31, No. 12 (Mar. 23, 1996), pp. 751-753+755+757, available at  http://www.jstor.org/stable/4403941

[5] Mahesh Nayak, Fatal Regulation, available at http://www.businesstoday.in/magazine/markets/rules-protecting-indian-investors-hitting-foreign-sentiment/story/208155.html, last seen on (29/08/2016)

SEE ALSO: https://lawyersgyan.com/blog/secondary-market-in-india-its-control-and-management-by-sebi/

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