Question

Mention the protective functions of SEBI.

Hint:

SEBI’s protective functions include regulating trading activities, preventing insider trading, ensuring proper disclosure, and safeguarding investor interests, all of which contribute to a fair and transparent market environment.

Answer 1

The Securities and Exchange Board of India (SEBI) is the regulatory body for the securities market in India. It plays an important role in protecting the interests of investors and ensuring the orderly development of the securities market. Below are the major protective functions of SEBI: Step 1: Regulating Trading Activities.
SEBI regulates the trading activities in the securities market by setting rules and regulations that promote fair practices. It ensures that all market participants, including brokers, traders, and investors, adhere to ethical and legal standards. SEBI monitors the trading activities and ensures that there is no manipulation of prices or insider trading, which helps maintain market integrity. By regulating market behavior, SEBI aims to create a transparent and trustworthy environment for investors.
Step 2: Preventing Insider Trading.
One of SEBI's most important protective functions is to prevent insider trading, which involves trading based on non-public, material information. Insider trading undermines the integrity of the market, as it gives certain individuals an unfair advantage over others. SEBI has established strict regulations and surveillance mechanisms to detect and prevent insider trading. It ensures that investors have equal access to information, thus promoting fairness in trading activities.
Step 3: Ensuring Proper Disclosure.
SEBI mandates that companies listed on stock exchanges provide timely and accurate disclosures to investors. These disclosures include financial reports, details about the company's performance, risk factors, and other significant events. Proper disclosure enables investors to make informed decisions based on up-to-date and transparent information. This reduces the risk of investors being misled or defrauded and promotes trust in the financial market.
Step 4: Protecting Investor Interests.
SEBI actively works to protect the interests of investors by regulating intermediaries like stockbrokers, mutual funds, and portfolio managers. It sets high standards for the conduct of these market participants and ensures that they follow best practices to safeguard investor funds. SEBI also takes steps to resolve investor complaints and disputes, ensuring that investors have avenues for redressal. This protective role is crucial in promoting investor confidence and enhancing market participation.