ABSTRACT
This abstract explores the role of the Securities and Exchange Board of India (SEBI) in regulating the Indian securities market, with a focus on its enforcement mechanisms to combat market misconduct and fraud. Established in 1992, SEBI’s mandate encompasses investor protection, market development, and the regulation of securities market activities. To fulfil, these objectives, SEBI employs a multi-pronged approach, including market surveillance, investor education, rulemaking, and robust investigative powers.
SEBI’s enforcement actions encompass a wide range of market misconduct, such as insider trading, market manipulation, fraudulent disclosures, and violations of corporate governance norms. Recent high-profile cases, including the Adani-Hindenburg controversy and the NSE Algo scam, have underscored the complexities and challenges faced by SEBI in investigating and addressing sophisticated forms of market manipulation.
Despite its significant strides, SEBI faces challenges in effectively combating market misconduct. These challenges include the increasing complexity of financial markets, resource constraints, judicial delays, and limitations on investigative powers. To enhance its effectiveness, SEBI needs to:
- Strengthen its investigative capabilities: This includes expanding access to data, enhancing investigative tools, and leveraging technology such as artificial intelligence and machine learning.
- Adapt to the evolving market landscape: This requires continuous monitoring of emerging technologies and market trends, such as algorithmic trading, cryptocurrencies, and decentralized finance, and proactively addressing the associated risks.
- Foster international cooperation: Enhancing collaboration with foreign regulatory authorities is crucial for investigating and prosecuting cross-border financial crimes.
- Enhance transparency and accountability: Strengthening internal controls and promoting public awareness campaigns are essential to build trust and confidence in SEBI’s operations.
By addressing these challenges and continuously improving its enforcement mechanisms, SEBI can play a crucial role in maintaining a fair, transparent, and efficient securities market in India, protecting investor interests, and fostering market integrity.
Keywords: SEBI, MARKET MANIPULATION, ALGO SCAM, FINFLUENCERS, ADANI-HINDENBURG
1.1 INTRODUCTION AND EVOLUTION
SEBI is an authoritative board that controls the capital market. All kinds of transactions are controlled by SEBI. SEBI act was passed in 1992 to protect the interest of investors and to regulate capital market, also to regulate the business of stock exchanges and other security market.
Sebi as a body was present since 1988, it was present as an executive arm of the government under the ministry of finance. From 1988 onwards the country was on its verge for liberalization to open global flow of capital and investments. It also coincided with those reforms of the early 1900’s which the government took place. And then the famous Harshad Mehta case[1] happened which forced the government to come with a statutory body and it in that point in time that Sebi was first passed as an ordinance then later as an act was enacted and Sebi as an autonomous statutory body was brought into force.
Pre-liberalization the role of government executive arms was to regulate and control the use of resources and capital and as per the whims of the government, whatever the government found necessary to do. However, the new money flowing in, foreign investors showing in India, that government centric approach has to be shifted into a market centric approach. With that ran a risk of certain gullible investors, the Indian populous who was not well versed with certain market products which was evident by way the scams unfolded. So, the regulatory powers and functions was strengthened in the hands of Sebi, they were given proper powers to investigate, to adjudicate and also initiate civil and criminal proceedings.
Which was earlier not possible because they had to go through a bureaucratic process under the arm of the ministry of finance through the government of India.
Recent repeated misconduct in the stock market had led to an image of disarray, lack of transparency and fraud dominating the financial sector.[2] Consequent collapses in the stock market have resulted in such a loss of confidence in the minds of investors. Also, in the light of governance scam there might be a need to restructure the policies and implement new process, and hence SEBI was introduced. SEBI is having quasi-executive powers enabling it to enforce compliance with securities laws and regulation. The regulatory body can take actions such as imposing fines, penalties, and other measures to ensure market participants adhere to prescribed standards. Our topic SEBI’s enforcement mechanisms: investigating market misconduct and fraud will tell how SEBI is well equipped with the legal provisions so that it can combat fraudulent activities in the market. As we know that malpractices and fraud can easily destroy security markets for which SEBI has a regulatory framework for market intermediaries and everyone, has to be abide by it, which is provided by SEBI. And hence there will be less scope for negative element.
[1]https://www.moneycontrol.com/news/business/markets/harshad-mehta-scam-in-1992-ushered-regulatory-regime-in-indian-capital-market-5944281.html
[2]https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2293378