Securities and Exchange Board of India (SEBI): Powers, Functions, & Recent Reforms

SEBI temporarily blocked Jane Street from participating in India's securities market, claiming the firm engaged in manipulative trading practices involving index derivatives.

• Important for Prelims & Current Affairs
• Relevant for GS Paper 3 (Indian Economy).
• Essay topics related to financial sector reform.
• Linked to Governance and Policy

The Securities and Exchange Board of India (SEBI) is an autonomous body working under the supervision of the Ministry of Finance. The basic function of SEBI is to protect the interests of investors and to promote and regulate the securities market.

SEBI was first established in the year 1988 as a non-statutory body. However, it was later conferred with statutory powers in 1992. The SEBI Act, 1992, established the Securities and Exchange Board of India as the regulatory body for the securities market.

Before the establishment of SEBI, the regulation of the securities market in India was primarily overseen by the Controller of Capital Issues (CCI) under the Capital Issues (Control) Act, 1947.

However, by the late 1980s, the Indian securities market had grown significantly, and the CCI's limited regulatory framework became increasingly inadequate to address market complexities.

Formation Timeline:

• 1988: SEBI was first established as a non-statutory body for regulating the securities market.

• 1992: Following the Harshad Mehta scam, SEBI gained statutory powers through the SEBI Act, 1992.

• April 12, 1992: SEBI became an autonomous body and was constituted as the regulator of capital markets.

The need for a more empowered regulatory authority became evident in the wake of the Harshad Mehta scam in 1992, which exposed significant loopholes in the financial and stock market systems.

Also read: India’s Q4 GDP Growth: Insights, Trends & Implications

SEBI's primary objectives align with its mandate to regulate, protect, and promote:

• Investor Protection: Ensuring investors are safeguarded from fraudulent activities and unethical practices.
• Market Regulation: Supervising intermediaries, stock exchanges, and market participants.
• Market Development: Facilitating the dissemination of accurate and timely market information.
• Compliance Enforcement: Enforcing compliance with laws and operational standards.
• Innovation Promotion: Introducing innovative financial products and practices.

Tuhin Kanta Pandey is the current chairman of SEBI, who took charge on March 1, 2025. He replaced Madhabi Puri Buch, whose term ended on February 28, 2025. SEBI is managed by its board of members, which consists of nine members:

• The chairman, nominated by the Union Government of India.
• Two members from the Union Finance Ministry.
• One member from the Reserve Bank of India.
• Five members were nominated by the Union Government.

Removal Procedure 

The Central Government of India holds the primary authority to remove SEBI members from office. Under Section 6 of the SEBI Act, 1992, the Central Government shall remove a member from office under specific circumstances: 

• Declared insolvent,
• Being of unsound mind
• Having been convicted of an offence
• Having abused his position.

Regional Presence: SEBI has its headquarters at the business district of Bandra Kurla Complex in Mumbai and has regional offices in New Delhi, Kolkata, Chennai, and Ahmedabad.

Also cover June 2025 Current Affairs Magazine for UPSC – SuperKalam | Download, Practice MCQs & Learn Concepts

SEBI possesses three types of powers that enable comprehensive market regulation:

• Quasi-Legislative Powers: Authority to frame rules and regulations, such as insider trading regulations, listing obligations, and disclosure requirements to protect the interests of investors.

• Quasi-Executive Powers: To enforce regulations and judgments, take legal action against violators, and inspect books of accounts and documents in case of regulatory violations.

• Quasi-Judicial Powers: To deliver judgments on fraudulent and unethical practices in securities markets.

Additional Enforcement Powers
SEBI can move three distinct provisions of law within its enforcement powers:

• Issuing directions and levying penalties under Sections 11(4) and 11B of the SEBI Act.
• Adjudicatory powers under Sections 15A-15J of the SEBI Act.
• Enquiry proceedings under Section 12(3) of the SEBI Act.
• Criminal proceedings under Section 24 of the SEBI Act.

Also read: State Finance Commission (SFC): Role, Challenges, and Importance | UPSC Current Affairs

SEBI executes its mandate through three primary functional categories that ensure comprehensive oversight of India's securities market from development to protection.

1. Protective Functions

• Insider Trading Prevention: Prohibiting company insiders from trading on unpublished price-sensitive information.
• Operating SCORES (SEBI Complaint Redress System): Grievance redressal mechanisms for investor complaints.
• Price Rigging Control: Preventing artificial manipulation of security prices.

2. Regulatory Functions

• Registration and Supervision: Regulating stockbrokers, merchant bankers, portfolio managers, and other intermediaries.
• Listing Requirements: Setting standards for companies seeking to list on stock exchanges.
• Mutual Fund Regulation: Supervising mutual fund operations and NAV calculations.

3. Developmental Functions

• Electronic Trading: Promoting online and digital trading platforms.
• Settlement Efficiency: Implementing T+1 and T+0 settlement cycles.
• Market Expansion: Promoting access to capital markets for smaller companies.

• SAT (Securities Appellate Tribunal) The Securities Appellate Tribunal (SAT) is a statutory body established under Section 15K of the SEBI Act, 1992, to provide an appellate forum for challenging SEBI's orders. The Securities Appellate Tribunal serves as a crucial judicial body providing an appellate mechanism for those aggrieved by SEBI's decisions.      Composition The presiding officer is appointed by the Central Government in consultation with the Chief Justice of India. Qualifications for Presiding Officer: Sitting or retired Judge of the Supreme Court, or Sitting or retired Chief Justice of the High Court, or A sitting or retired High Court Judge with at least 7 years of service.      Jurisdiction      SAT hears appeals against orders of: SEBI: Orders passed by the Securities and Exchange Board of India. PFRDA: Pension Fund Regulatory and Development Authority (since 2014). IRDAI: Insurance Regulatory and Development Authority of India (since 2015).     Powers of SAT Same powers as Civil Court under the Code of Civil Procedure, 1908. Summoning and examining witnesses under oath. Ordering the discovery and production of documents. Reviewing its own decisions.

SEBI faces a complex interplay of legal, operational, and market-structure hurdles that can undermine its effectiveness as India’s capital markets regulator.

• Overcentralized Enforcement Authority: SEBI’s investigative and punitive powers are stronger than those of US and UK regulators, allowing it to suspend trading on mere suspicion, forcing firms to prove their innocence.
• Excessive Focus on Market Conduct Regulation: SEBI tends to emphasise regulation of market conduct (rules, compliance, enforcement) while paying less attention to prudential regulation and broader market health.
• Weaknesses in Regulatory Enforcement: Enforcement is inconsistent, particularly for complex issues like insider trading, which remains widespread and hard to detect.
• Handling of Financial Scandals and Conflicts of Interest: Struggled to swiftly manage high-profile financial scams (e.g., Satyam, IL&FS, NSE co-location), damaging investor confidence.
• Organizational and Resource Limitations: SEBI suffers from limited resources and inadequate staff strength, affecting the effectiveness of market surveillance, enforcement, and timely action against violations.

Despite these challenges, SEBI has undertaken several reforms in recent years. Let’s understand the recent reforms that took place in June 2025. 

SEBI’s 2025 reforms make India’s capital markets quicker, more transparent, easier to follow, and safer for investors, matching top global standards.

Here are the recent reforms SEBI took:

1. ESOP Reforms for Startup Founders: Founders can now retain Employee Stock Option Plans (ESOPs) even after IPO filing, provided there's a one-year gap between ESOP issuance and IPO filing.
2. Special Delisting Route: Introduced fixed-price delisting for Public Sector Undertakings (PSUs) with ≥90% government holding, with ≥15% premium over the floor price.
3. Algorithmic Trading Regulations:

• API-Based Trading Recognition: Retail traders can use broker-provided APIs with unique identifiers for each client.
• Algorithm Classification: White-box (transparent logic) and black-box (opaque logic) algorithms with different registration requirements.
• Broker Accountability: Brokers act as principals while algo providers function as empanelled agents.
• Enhanced Surveillance: Real-time risk controls, order speed thresholds, and mandatory audit trails.

4. Stock Broker Regulatory Updates:

• Digital Audit Framework: Web-based platforms for tracking the audit lifecycle with real-time monitoring.
• Technology Integration: AI-based anomaly detection and blockchain-based audit trails.
• Cross-border Operability: Enhanced framework for international market access.

5. Angel Fund Regulatory Overhaul:

• Accredited Investor Requirement: All angel fund investors must now be Accredited Investors (AIs).
• Revised Investment Limits: Changed from ₹25 lakh-₹10 crore to ₹10 lakh-₹25 crore.
• Concentration Limit Removal: 25% cap on single investee company exposure removed.

These changes will help in modernising India’s capital markets, enhance liquidity, and reinforce investor protection.

Learn about: Participatory Notes in Indian Markets

SEBI has transformed India’s securities market into a trusted, transparent, and dynamic ecosystem. By protecting investors, promoting fair practices, and driving innovation, it has strengthened market confidence and supported economic growth. 

Looking ahead, SEBI will continue to incorporate technology, champion sustainable finance, and deepen market access.

Elevate Your UPSC Prep with SuperKalam!

Discover SuperKalam, your Personal Super Mentor for targeted UPSC preparation. Unlock unlimited MCQs, Practice mains answers with Instant Mains Answer Evaluation, and real-time performance tracking. 

Explore SuperKalam's Resources and set yourself on the path to success!