Golden Research Thoughts
Impact Factor : 2.2052(UIF)
Volume-3 | Issue-11 | May-2014
“INVERSTOR’S PROTECTION IN STOCK MARKERT: A ROLE OF SEBI.”
Savita .R Giri
Research Scholar & Lecture in S.S.L Law College, Gulbarga, and Karnataka State.
ABSTRACT:
Investor protection is one of the most important elements of a thriving
securities market or other financial investment institution. Investor protection focuses on
making sure that investors are fully informed about their purchases, transactions, affairs of the
company that they have invested in and the like. SEBI had issued guidelines for the protection of
the investors through the Securities and Exchange Board of India (Disclosure and Investor
Protection) Guidelines, 2000. Financial markets have an important relationship with economic
development. Regulation has been acknowledged to enable the orderly functioning of the
securities market. The Securities and Exchange Board of India (SEBI) is the regulator charged
with the orderly functioning of the securities market in India, protect the interests of investors
and ensure development of the securities market.
The primary objective of SEBI is to promote healthy and orderly growth of the securities
market and secure investor protection. The Central Government has power to issue directions to
SEBI board, Supersede the board and to call for returns and reports when necessary.
The paper is an attempt to examine a role of SEB, protection of investor in security market,
investor awareness campaign, and for critical appraisal of investor protection measures by SEBI
Volume-3 | Issue-11 | May-2014
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Golden Research Thoughts
Impact Factor : 2.2052(UIF)
Volume-3 | Issue-11 | May-2014
KEYWORDS: Role of SEBI in investors’
protection, investors ‘awareness campaign,
and investor’s protection measures by SEBI.
I. INTRODUCTION:
The Securities and Exchange Board
of India Act, 1992 (the SEBI Act) was
amended in the years 1995, 1999 and 2002
to meet the requirements of changing
needs of the securities market and
Responding to the development in the
securities market. The Primary function of
Securities and Exchange Board of India
under the SEBI Act, 1992 is the protection
of the investors’ interest and the healthy
development of Indian financial markets.
To protect the interests of investors
through proper education and guidance as
regards their investment in securities. For
this, SEBI has made rules and regulation to
be followed by the financial intermediaries
such as brokers, etc. SEBI looks after the
complaints received from investors for fair
settlement. It also issues booklets for the
guidance and protection of small investors.
To regulate and control the business on
stock exchanges and other security
markets. For this, SEBI keeps supervision on
brokers. Registration of brokers and subbrokers is made compulsory and they are
expected to follow certain rules and
regulations.
To bolster awareness among investors
and ring-fence them from possible
frauds, capital markets regulator SEBI plans
to seek additional funds from the
government for strengthening its IPEF
(Investor Protection and Education Fund)
programmes.
SEBI
has
identified
empowerment of investors, strengthening
of enforcement and supervision framework
and
capacity
building
as
among
its core focus
areas
for
2014Volume-3 | Issue-11 | May-2014
15.With expenses towards various investor
protection and education initiatives
estimated to be nearly 55 crore. Investor
Protection and Education Fund (IPEF), set
up by SEBI, had a corpus of 35 crore at the
end of January 2014.
The Securities and Exchange Board of
India is working hard to ensure that the
savings of small investors are not
compromised following the chit fund scams
that have shaken investors’ confidence
across the country, Chairman U. K. Sinha
said here on Wednesday.
Market regulator SEBI may get
greater powers to check money-pooling
frauds by various entities across the
country, as the government is considering a
major overhaul of regulations governing
such schemes. The proposed critical
amendments to the securities laws, would
also involve the capital markets regulator
getting direct powers for attachment of
properties, search and seizure of assets and
powers to seek information from any entity
in relation to its probes against erring
persons and entities.
No doubt, it is very difficult and
herculean task for the regulators to prevent
the scams in the markets considering the
great
difficulty
in
regulating
and monitoring each and every segment of
the financial markets and the same is true
for the Indian regulator also.
But what are the responsibilities of the
regulators to set the system right once
the scam has taken place, especially the
responsibility of redressing the grievances
of the investors so that their confidence is
restored? The redressal of investors’
grievances, after the scam, is the most
challenging task before the regulators all
over the world and the Indian regulator is
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Golden Research Thoughts
Impact Factor : 2.2052(UIF)
Volume-3 | Issue-11 | May-2014
not an exception. SEBI had issued guidelines
for the protection of the investors through
the Securities and Exchange Board of India
(Disclosure and Investor Protection)
Guidelines, 2000.
II. OBJECTIVES OF SEBI
The SEBI has been entrusted with both the
regulatory and developmental functions.
The objectives of SEBI are as follows:
 Investor protection, so that there is a
steady flow of savings into the Capital
Market.
 Ensuring the fair practices by the
issuers of securities, namely, companies
so that they can raise resources at least
cost.
 Promotion of efficient services by
brokers, merchant bankers and other
intermediaries so that they become
competitive and professional.
Investor protection is one of the most
important elements of a thriving securities
market or other financial investment
institution. Simply put, investor protection
is the effort to make sure that those who
invest their money in regulated financial
products are not defrauded by brokers or
other parties. It’s important to note that
unlike government insurance for monetary
deposits, investor and customer protection
does not extend to covering losses when
the securities or products decrease in value.
Investors have to assume the existence of
risk as part of their opportunity for gains.
Investor protection focuses on making sure
that investors are fully informed about their
purchases that insider activity does not
threaten the worth of some portfolios for
the enrichment of others, and those
holdings are not simply “lost” in instances
of brokerage failure.
Volume-3 | Issue-11 | May-2014
III. ROLE\CONTRIBUTION OF SEBI IN
INVESTOR PROTECTION
 ISSUE OF GUIDELINES: SEBI has issued
guidelines to companies (bringing new
issues in the market) Mutual funds,
portfolio managers, merchant bankers,
underwriters, Lead managers, etc. These
guidelines are for bringing transparency in
their operations and also for avoiding
exploitation of investors by one way or the
other. SEBI has introduced a code of
advertisement for public issues for ensuring
fair and truthful disclosures.
In order to reduce the cost of issue, the
underwriting is made optional on certain
terms. These steps are also for the
protection of investors. SEBI keeps watch
on all intermediaries and see that they
follow the guidelines in the right spirit. It
also takes panel actions when the
guidelines are not followed. These steps
give protection to investors.
 PUBLIC INTEREST ADVERTISEMENTS: SEBI
issues public interest advertisements
enlighten investors on the basic features of
various
instruments
and
minimum
precautions they should take before
choosing an investment. The SEBI desires to
create awareness among investors about
their rights and about remedies if problem
arise. It has published some booklets for the
information and guidance of investors.
 DEALING WITH
COMPLAINTS
OF
INVESTORS: The investors can make
complaints to SEBI if they face problems
relating to their investment in industrial
securities and financial assets. SEBI receives
thousands of complaints relating to nonreceipt of refund orders, allotment letters,
non-receipt of dividend or interest and
delays in the transfer of shares and
debentures.
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Golden Research Thoughts
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SEBI is making efforts to solve such
complaints
through
appropriate measures. SEBI is keen to solve
the complaints of investors and wants to
protect their interests. It is committed to
co-operating with various consumers
redressal forum in this regard. Although, a
large number of complaints reaching SEBI
are being redressed, still a large number of
complaints remain un redressed.
INVESTOR EDUCATION: SEBI is aware that
investor education is important for his
protection. It encourages the formation of
investor associations that disseminate
information through newsletters. More
than nine such associations are registered
with SEBI. SEBI is bringing out two monthly
publications for the investors. These are:
(a), SEBI-Market Review, (b) SEBI Newsletter.
These publications are for the education,
guidance and protection of investors.
INVESTOR SURVEYS:
SEBI
has
also
conducted surveys in respect of investment
and opportunities for the benefit of small
investors. The findings of the surveys are
given wide publicity so as to provide proper
guidance to investors regarding their
investment decisions.
INTRODUCTION TO STOCK INVESTS: SEBI
has introduced stock invest as a new
instrument useful while submitting
application for shares. This new instrument
introduced through the co-operation of
banks gives protection to investors as they
get interest on the application money till
the allotment of shares.
DISCLOSURES BY COMPANIES: SEBI has
introduced norms for disclosure of half
yearly unaudited results of companies. It
has also revised the format of prospectus to
provide more information to investors. It
Volume-3 | Issue-11 | May-2014
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also insists that every share application.
Form is accompanied by an abridged
prospectus. The provisions relating to
disclosures are for the information and
protection of small/average investors.
CODE REGARDING TAKEOVERS: SEBI has
now issued code regarding takeovers of
companies, mergers and amalgamations. It
has introduced regulations governing
substantial acquisition of shares and
takeovers and lays down the conditions
under which disclosures and mandatory
public offers have to be made to the
shareholders. Here, the purpose is to
protect the interests of investors even
when they are not directly party to such
takeovers.
IV. INVESTOR PROTECTION MEASURES BY
SEBI
Section 11(2) of the SEBI Act contains
measures available with SEBI to implement
the legislated desire of investor protection.
The measures available with SEBI include
the following:
regulating the business in Stock Exchanges
(SEs) and any other securities markets
registering and regulating the working of
intermediaries like stock brokers, subbrokers, share transfer agents, bankers to
an issue, trustees of trust deeds, registrars
to
an
issue,
merchant
bankers,
underwriters,
portfolio
managers,
investment advisers etc. associated with
securities markets
registering and regulating the working of
the depositories, participants, custodians of
securities, foreign institutional investors,
credit rating agencies and other
intermediaries
registering and regulating the working of
venture capital funds and collective
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Golden Research Thoughts
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investment schemes, including mutual
funds
promoting and regulating self-regulatory
organizations
prohibiting fraudulent and unfair trade
practices relating to securities markets
prohibiting insider trading in securities
regulating substantial acquisition of shares
and takeover of companies
promoting investors’ education and training
of intermediaries of securities markets
Carry out inspection/ audits of the SEs /
intermediaries etc.
call for information from any bank / any
authority / corporation / agencies in respect
of any transaction in securities which is
under investigation or inquiry by SEBI
performing such functions and exercising
such powers under the Securities Contracts
(Regulation) Act, 1956 (SCRA)
levying fees or other charges
conducting research
Performing such other functions as may be
prescribed.
V. INVESTOR AWARENESS CAMPAIGN
The major thrust has been on
educating and informing the small investors
which is clearly evident from the motto that
'An informed investor is a safe investor'.
Keeping complete faith on the above all
endeavors have been made in this direction
including announcing the year 2003 as the
'Jaagte Raho' year and and awareness and
organized more than 1000 investor
conference, exhibitions, mela, seminars,
Union Budget meetings and public meetings
for small investors all over India. More than
5 Lacs investors took part in various
programmes. Till date, more than 2188
workshops have been conducted in around
500 cities/towns across the country.
Volume-3 | Issue-11 | May-2014
o ADVERTISEMENT- SEBI has prepared simple
“dos and don’ts” for investors relating to
various aspects of the securities market. Till
date, over 700 advertisements relating to
various aspects of Securities Market have
appeared in 48 different newspapers/
magazines, covering approximately 111
cities and 9 regional languages, apart from
English and Hindi.
o EDUCATIVE MATERIALS-SEBI has prepared
a standardized reading material and
presentation material for the workshops
o ALL INDIA RADIO- With regard to educating
investors through the medium of radio, SEBI
Officials
regularly
participate
in
programmes aired by All India Radio.
o WEBSITE DEDICATED TO INVESTOR
EDUCATION: http://investor.sebi.gov.in)
o CAUTIONARY MESSAGE ON TELEVISIONWith a view to use the electronic media to
reach out to a larger number of investors, a
short cautionary message, in the form of a
40 seconds filmlet, has been prepared and
the same is being aired on television.
o PROTECTION OF RETAIL INVESTOR: Retail
investors are not in a position to identify
and /or appreciate the risk factors
associated with certain scrip’s or schemes.
With the result they are not able to make
informed investment decisions. SEBI has
strongly requested small investors to take
adequate precaution before investing in any
forthcoming IPO issues. It is observed that 8
out of 37 companies have dubious
promoters and merchant bankers. Investors
also cautioned not to invest in certain B2 &
Z category listed companies who are
declaring excellent quarterly results as its
authenticity is doubtful.
VI. CRITICAL APPRAISAL OF INVESTOR
PROTECTION MEASURES BY SEBI
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Golden Research Thoughts
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Volume-3 | Issue-11 | May-2014
SEBI being a premiere institution for
dealing with the problems relating to
securities has advanced a long way towards
protecting the investors from the hazards of
the predators existing in the market. On the
positive front, many banks sponsored
mutual fund had launched assured return
schemes and lured the investor's huge
contribution. However at the time of
maturity could not match the assured
return. Sponsored bank also tried to raise
their hands eg. Canara Bank, Indian bank,
State Bank of India etc. SEBI gave directive
to sponsor bank to honour the commitment
made by the mutual funds. Shortfall of
more than Rs., 2000 crores was met by
sponsor banks for benefit of small investors.
By beginning of the new millennium
in 2000, SEBI has strengthened and
established itself as an all powerful
regulatory body for the capital market, all
intermediaries in it, SROs, stock Exchanges,
listed companies, Venture Funds, Mutual
Funds etc. These measures include
permission for e-broking, share trading via
net with orders to be routed through the
websites of brokers, acceptance of
Kumarmangalan Birla Report on Corporate
Governance and of K.B. Chandeashekhar
Panel Report on Venture Funds. The SEBI
has given directives to the listed companies
and to the top 150 companies in particular
to observe the code of corporate
governance by March end 2001. The
contrary scenario was that only the big
fishes could escape the net and the small
ones were still striving to uphold their
existence.
It is also pointed that SEBI watchdog is
a dog without teeth. It only wears dentures
to fight against manipulators and finally
those people get away with murder. A
Volume-3 | Issue-11 | May-2014
recent case study is the Essar Steel delisting
story. SEBI watched silently when the
promoters came to the market, didn’t share
profits and left the investors high and dry
and took the cool delisting option. SEBI just
said - it’s as per GOI laws. Do investors need
a SEBI to tell that? Aggrieved investors
comment that Investor Protection is a big
joke and money making exercise. SEBI came
with finger printing and collected close to
100 crores .The scheme was scrapped; then
why money was not returned by SEBI? Had
it been by other market players SEBI would
have demanded them to pay. There is one
yard stick for the Ruler and the other for
the Ruled.
Another area of concern for SEBI is
the practice of clients signing PoAs while
opening accounts with brokers. Account
opening requires clients to sign several
documents, one of which is the PoA. In a
hurry to get over the task of signing, they
often fail to read each and every line of the
huge bunch of papers. In that case, PoAs
are always open to misuse. For instance, a
broker may include in the PoA a clause for
debit of shares from the client’s DEMAT
account without delivery instruction slip,
and an unsuspecting client may sign it.
VII. CONCLUSION: It may be concluded that
SEBI surmounted several obstacles on
the way to development of capital
market with due care for investors’
interests and greater transparency in
the affairs of organizations and stock
exchanges, though not to the extent of
hundred percent. As we have seen that
via different guidelines it had made it
sure that no stone remains unturned in
the path of the mission of protecting the
investors. Investor education campaigns
have been yielding positive results to
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Golden Research Thoughts
Impact Factor : 2.2052(UIF)
Volume-3 | Issue-11 | May-2014
some extent, still lot more needs to be
done. Indian investors have been
steadily fleeing the market, despite the
apparent spread of ‘equity cult’, which
calls for immediate attention of the
apex body to frame and effectively
implement the measures to protect the
interests of investors, and restore their
confidence in the stock market..
REFERENCES:
1. Dr. KVSN Jawahar Babu; & S. Damodahr
Naidu: Investor Protection Measures by
SEBI, A Journal of Economics and
Management Vol.1 Issue 8, November
2012, ISSN 2278‐0629.
2. Manojkumar T. Rathod: Securities and
Exchange Board of India,
International Journal for Research in
Management and Pharmacy (IJRMP)
Vol.2, Issue 3, March 2013 ISSN: 23200901
3. Abhijeet Sexena, AqilRehman, Shilpi
Sharma& Kuldee: Critical Appraisal of
investor protection Meassures by SEBI.
Volume-3 | Issue-11 | May-2014
A Research on Corporate Governance
and SEBI.
4. Anand Singhj Chauhan: Investor
protection and Role of SEBI,
http://www.studymode.com/essays/Inv
estor-Protection-And-Role-Of-Sebi1063239.html.
WEBITES:
5. http://www.bms.co.in/what-is-therolecontribution-of-sebi-in-investorprotection/.
6. http://www.thehindu.com/news/nation
al/sebi-working-hard-to-protectinvestors-interestsinha/article4672931.ece.
7. http://www.thehindu.com/business/Ind
ustry/sebi-may-get-greater-powers-tocheck-moneypoolingfrauds/article4660545.ece?ref=related
News April 27, 2013
8. http://www.thehindubusinessline.com/
markets/sebi-to-seek-extra-funds-forinvestor-protectionprogrammes/article5804919.ece
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