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THE ROLE OF SEBI IN
REGULATING
PRIMARY MARKETS FOR
SECURITIES
NAME: RASHI RATNA BAKSH
ROLL NO: 2017BALLB51
INTRODUCTION
The Securities and Exchange Board of India was established with an objective to create
such an environment which facilitates efficient mobilization and allocation of resources
through the securities market. This environment consists of rules and regulations, policy
framework, practices and infrastructures to meet the needs of three groups which mainly
constitute the market i.e. issuers of securities (companies), the investors and the market
intermediaries. The Securities Market provides a linkage between the savings and the
investment across the entities, time and space. It mobilizes savings and channelizes them
through securities into preferred enterprises.
The primary market allows a channel for sale of new securities, while the secondary market deals in
securities previously issued. The issuer of securities sells the securities in the primary market to raise
funds for investment and/or to discharge some obligation.
The issue of securities by companies can take place in any of the following methods:
• Initial public offer

• Rights issued to the existing shareholders.
• Offer of securities under reservation basis to: foreign partners and collaborators, mutual funds,
merchant bankers, etc.
• Offer to public;
• Bonus Issue
REASONS FOR ESTABLISHMENT OF SEBI
With the growth in the dealings of stock markets, lot of malpractices also started in stock markets such as price rigging,
‘unofficial premium on new issue, and delay in delivery of shares, violation of rules and regulations of stock exchange and
listing requirements. Due to these malpractices the customers started losing confidence and faith in the stock exchange. So
government of India decided to set up an agency or regulatory body known as Securities Exchange Board of India (SEBI).
SEBI was set up with the main purpose of keeping a check on malpractices and protect the interest of investors. SEBI was
given the power to impose monetary penalty, and it derives its power from sec.24 of the companies Act where it has been
empowered to administer the provisions of the sections specified in section 24 in relation to mainly three matters:

• Issue of securities;
• Transfer of securities; and
• Non-payment of dividend

ROLE OF SEBI IN REGULATING DISCLOSURES OF OFFER

DOCUMENTS AND CODE OF ADVERTISEMENT
Offer document’ is a document which contains all the relevant information about the company, promoters, projects, financial
details, objects of raising the money, forms of the issue etc. and is used for inviting subscription to the issue being made by
the issuer. There are various types of offer documents:
1. Draft offer document
2. Red herring prospectus
3. Letter of offer
4. Abridged prospectus
5. Abridged letter of offer
6. Placement documents
ROLE PLAYED BY SEBI
Among many important things one of the most important works of SEBI is to provide safety
to dealings and investment for which transactions are done with adequate transparency
along with strict compliance of rules laid down by SEBI which subsequently provides high
degree of security to transactions at the stock exchange.
As part of SEBI’s efforts to protect investors’ interests, it has initiated many primary market
reforms which include improved disclosure standards in public issue documents,
introduction of prudential norms and simplification of issue procedures.
As a result of that companies are now required to disclose all material facts and risk factors
associated with their projects while making public issue. All issue documents are to be
vetted by SEBI to ensure that the disclosures are not only adequate but also authentic and
accurate.
ima As part of SEBI’s efforts to protect investors’ interests, it has initiated many

Asper sec. 57, SEBI has issued detailed guidelines for the disclosures of full facts in the Prospectus/offer documents by the
issuer companies. It says that along with unveiling all material facts the company has to state the risk aspects associate
while making public issues. In case of the existing companies, financial performance of the company for the last five years,
along with risk factors and management insight of risk factors are also requisite to be there in the prospectus/offer
document.
In addition to regulations regarding the disclosure requirements SEBI also looks into the fact that investor does not get
befooled by misleading advertisement. SEBI has issued guidelines for the same to ensure that the advertisement is truthful,
fair and clear. For e.g. it shall be the responsibility of the Lead Manager to ensure strict compliance with the code of
advertisement by the issuer company.
Advertisements shall be accurate, true, fair, clear, complete, unambiguous and concise. It should not contain statements
which are false, misleading, biased or deceptive, based on assumption/projections. It should not be designed as likely to be
misunderstood, it should not contain statements which directly or by implication or by omission may mislead the investor.
PRESERVING THE SHAREHOLDER’S INTERESTS THROUGH REGULATIONS OVER INTERMEDIARIES
Section 12 of the SEBI Act gives power to grant registration certificates to intermediaries, this provides for compulsory
registration of the various intermediaries associated with the securities market hence all intermediaries, namely, stock broker,
sub-broker, share transfer agent etc. are required to buy, sell, or deal in securities in accordance with the conditions of a
certificate of registration granted by SEBI.
SEBI is also empowered to suspend or cancel a certificate of registration after giving the person concerned a reasonable
opportunity of being heard. The same act confers power to SEBI to issue directives to the intermediaries.
For ensuring that shareholders interest is protected SEBI relies on certification by the merchant banker and others for ensuring
conformity with the regulations set by SEBI.
The provisions cast the responsibility on the issue manager for validating the accuracy of the prospectus as well as for
ensuring that other intermediaries involved in an issue such as the banker and registrar have the required license and that the
underwriter has the financial capacity to provide the service.
ROLE OF SEBI IN REGULATING INSIDER TRADING
There has been an increasing recognition that in order to maintain the confidence of investors in the public securities
market, it is essential that some economic agents who possess an informational advantage over the others do not exploit the
same to derive pecuniary gains for themselves. SEBI describes "Insider trading" as a term which includes both legal and
illegal conduct,
• the legal version is when corporate insiders—officers, directors, and employees—buy and sell stock in their own
companies.
• Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of
trust and confidence, while in possession of material, nonpublic information about the security.
Earlier, the concept of insider trading was limited to the aspect of a company insider tipping of an outsider and the outsider
using the tip and trading in the company’s shares, this constitutes a breach of fiduciary duty owed by the insider to the
company’s shareholders;

CONCLUSION
The Securities and Exchange Board of India Act was passed in 1992, thus giving the regulatory teeth to the body; SEBI was
entrusted with the primary task of protecting the interests of the investors in addition to that SEBI was also entrusted with the
twin objectives of developing and regulating the stock market.
Throughout this whole journey of SEBI’s existence from last 18 years it has tried to find a balance between existing policies
and forming new policies and regulation curbing the loopholes in the existing policies and then implementing them to ensure
that securities market is growing. And it has been successful also in its objective.
In this regard, SEBI has done an excellent job because overall reports show that a lot of investors have definitely improved
due to the policies and steps taken by the regulator to empower investors make informed decisions and facilitate a fair
dealing.

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THE ROLE OF SEBI IN

• Initial public offer

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