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Steps Taken By the Government to Strengthen SEBI:
In recent years, steps have been taken by the Government to strengthen SEBI for the development of Indian Capital market.
Accordingly, on 25th January 1995, the Government of India promulgated an ordinance for amending SEBI Act, 1992 which was subsequently replaced by an Act of Parliament, in order to arm SEBI with sufficient additional regulatory powers to ensure smooth and orderly development of the Capital market and also to raise its ability for protecting the greater interests of the investors.
Following are some of the important features of this ordinance:
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1. The ordinance enabled SEBI to respond quickly to market conditions so as to reinforce its autonomy. Accordingly, SEBI has been empowered to notify its regulations and to file complaints in courts without having prior approval of the Government.
2. SEBI is now entrusted with regulatory powers over companies in respect of issuance of capital, the transfer of securities and also in other related subjects.
3. The ordinance has empowered SEBI for imposing monetary penalties on capital market intermediaries and other participants for violating in a listed range. Moreover, an adjudicating mechanism is also proposed within SEBI to get rid of penalties and also for constituting a separate tribunal for dealing with cases of appeal against the verdict of adjudicating authority.
4. SEBI has now been given additional power to summon the attendance of and call for documents from different categories of market intermediaries, along with persons engaged in securities market so as to investigate irregularities in the capital market.
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Moreover, in order to protect the investors and to attain smooth development of the securities market, SEBI has now been entrusted with additional power to issue directives to all intermediaries and persons related to security markets.
Recent Measures taken by SEBI:
Moreover, on March 27, 1998, the SEBI has approved the Chadratre Committee on delisting of securities from stock exchanges in total, except for the recommendation to make the listing in regional exchanges optional. Delisting norms had been tightened by permitting compulsory delisting only as per the norms power of the SEBI on delisting of securities from Indian stock exchanges.
Besides on 21st April 1998, the Secondary Market Advisory Committee of Securities and Exchange Board of India (SEBI) suggested allowing provident and pension funds to invest in the secondary market as one of the various measures to revive the market.
The Committee was also of the view that capital gains arising from sale of investments should be exempted from tax if proceeds are re-invested in the capital market and urged that Indian and foreign investors be treated at par with regard to capital gains tax.
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It also suggested an increase in the creeping acquisition limit of two per cent. Investment by provident funds and pension funds in the secondary market could be facilitated by allowing floating of dedicated schemes for them by institutions and mutual funds, which in turn could invest in the securities market.
The committee urged SEBI to recommend to the Government to issue an ordinance allowing the buy-back of share pending enactment of the new companies bill.
The advisory committee agreed with the suggestion of market making committee that institution should set aside funds for trading in Illiquid scrips and thereby stimulate market activity. The Committee also suggested that SEBI would consider expanding the list of scripts eligible for compulsory dematerialized trading by institutional investors.
The Committee also suggested that the stock exchanges should have a target of covering 1000 cities and towns in the country by the year 2000. It also felt that stock exchanges should evolve a satisfactory contingency plan to safeguard against possible disruption in trading. The advisory committee also stressed the need to standardize the minimum risks to be covered by the insurance policies taken by the member of the stock exchanges.
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The Committee also agreed upon the recommendations of the L.C. Gupta Committee on derivatives, it stressed the need for strong regulations, surveillance and investor education. In a move that could protect the interest of small investors and discourage the discriminatory practices benefiting corporate and institutional investors, SEBI issued guidelines on uniform cut-off timing for net asset values of the mutual funds on 12th October, 2006.
Recently in 2007 SEBI is in the process of raising resources for setting up Investor Protection Fund. The fines and penalties levied from the listed companies would be used to set up the fund. The new fund would be on the lines of U.S. security Act. SEBI is also in the process of conducting country-wide massive investor education programme to educate small and retail investors.
SEBI is also in the process of simplifying the process of de-listing of sick and closed down companies.
Recently in July 2013, the President of India promulgated the Securities Laws Amendment Ordinance which has upgraded the powers given to SEBI. Accordingly, the government has allowed SEBI to pass orders like search and seizure, attachment of properties, arrest and detention of defaulters and pass disgorgement directions to recover wrongful gains made in contravention of laws.
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At the same time, the government has also allowed SEBI to seek information from other regulators within India and abroad with retrospective effect, paving way for collection of details pertaining to cases pending for over 15 years now.
In another retrospective change, the individuals and Companies being probed by SEBI can settle their pending investigations such settlements can be undertaken in cases that are currently pending for more than six years.
In order to tackle the growing menace of Ponzi Schemes being floated as Collective Investment Schemes (CIS), the rules have also been amended to classify any money collection of Rs 100 crore or more as CIS operation.
SEBI has now been given power to crack down on illegal investment schemes floated by individuals as well, as against companies only as of now. However, all government-notified schemes would be out of the Collective Investment Scheme framework.
The changes are part of as many as 22 amendments made by the government in three main Acts governing SEBI and its operations the Securities and Exchange Board of India (SEBI) Act, the Securities Contracts Regulation Act (SCRA) and the Depositors Act through a 16 page ordinance.
SEBI has also been given power to pass disgorgement orders for amount equivalent to wrongful gains or to losses averted by contravention of regulations. Besides, the regulator can now enter and search buildings, places, vessels, vehicles and aircraft of defaulters. Its officers can also break open the lock of any door, box, locker, safe almirah etc. to get information from suspected entities.
At the same time, the defaulters can now also seek settlement of pending cases with SEBI with retrospective effect from April 20, 2012.
The ordinance also allows the government to set-up as many special courts, as required, to expedite hearing of cases involving contravention of securities laws.
Thus it is found that the present trend of re-orientation of SEBI is a right step towards the rationalisation of the stock or capital market in India.
Moreover, market regulator SEBI recently proposed to ban brokers from recommending shares to investors based on subjective and arbitrary information, as part of the exercise to guard against insider trading. Brokers are also being prohibited from misusing funds and securities of customers.
Accordingly the guidelines stated, “trading member or their representatives shall not indulge in any fraudulent activities such as forgery, nondisclosure or misstatement of material facts, manipulations and various deceptions.”
The guidelines also specifically prohibit brokers from encouraging investors to indulge in excess trading or speculation, “which is not in accordance with the objectives, risk appetite and financial situation of the client involved.”
With regard to institutional investors, the guidelines make it mandatory for brokers to obtain various types of information regarding the client such as financial status, investment objectives, past investment experience, risk appetite etc..
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