INTRODUCTION
Securities and Exchange Board of India (SEBI) had been established in India primarily in order to protect the interest of the investors. It makes various rules and regulations in order to control the security market. This role of SEBI becomes more prominent when they are making rules for primary market.
Primary market is the market wherein the securities are traded for the first time. The company makes an Initial Public Offer (IPO) so that it can ask for capital from the public. During this process, many entities such as Department of Company Affairs, Reserve Bank of India, Department of Economic Affairs, SEBI etc. But the role of SEBI is very important.
As the investors investing in the primary market have little knowledge about the company which is first time dealing with public, SEBI’s role become more prominent.
SEBI’s COMPOSITION
In order to do its work, SEBI comprises of a five member board. Among the five members, one member is a Chairperson wherein-
(1) one member is from Ministry of Law
(2) one from Ministry of Finance
(3) one member from Reserve Bank of India
(4) remaining two members from eminent members of industry.
ROLE OF SEBI
Now, the question arises that how SEBI regulates the primary markets. SEBI performs the following roles-
(a) It has set up various departments such as primary market department, issue management department etc. to formulate better policies keeping in mind the specific needs of the market.
(b) There are various parties involved in the functioning of the primary market such as merchant bankers, registrar to issue, underwriters etc.
The SEBI had formulated various guidelines for the working of the intermediaries involved. This is done to ensure that these intermediaries do not take the advantage of their position and cause harm to investors.
(c) As the primary market is all about new issues, SEBI had made some regulations for the same. The company before going for an IPO is required to reveal all the material facts. Also, its is required to reveal risk factors associated with projects . The issue documents of the company are also to be vetted by SEBI.
(d) The SEBI had issued its Issue of Capital and Disclosure Requirements (ICDR) Regulations wherein various provisions are made regarding prospectus. The prospectus is the most important document in an IPO.
It is the document that the prospective investors would be looking for and make a decision. So, SEBI had made it compulsory that all the disclosure requirements are fulfilled. It also ensures that the prospectus does not make any false and misleading promises.
(e) The role of SEBI was put on a question mark when the reports of various instances of insider trading came into limelight. The insiders of the company have some information which is inaccessible to public.
So, those insiders try to exploit the information and modify the information in such a way that the same affects the responsiveness of returns.
When the news of the insider trading comes into public platforms, the confidence of the investors in the securities market was weakened.
In order to ensure that such trading does not occur and if occurs then stringent steps are taken against the culprits, SEBI formulated Prohibition of Insider Trading Regulations.
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