How SEBI protects your interest as an investor?

Since the liberalization of capital markets in 1992, SEBI has played a pivotal role in the financial markets in two ways. Firstly, it has focused on protecting the integrity of the market mechanism from any kind of influence. Secondly, SEBI has also focused substantially on protecting the interests of the retail and small investors, who were the most vulnerable to stock market fluctuations in the past. SEBI had undertaken a number of initiatives to protect the interests of the investors. Here is a partial list of measures that SEBI has taken; both in terms of legislations and implementation to ensure that the interests of the small and retail investors are adequately protected in the markets.

Key measures undertaken by SEBI to protect investor interest

  • SEBI has issued guidelines to companies pertaining to (bringing new issues in the market) mutual funds, portfolio managers, merchant bankers, underwriters, lead managers, etc. These guidelines are aimed at for bringing transparency in operations and ensuring better disclosure and responsible actions by principals. In the process, the attempt is to prevent the exploitation of investors one way or the other.
  • SEBI has been instrumental in formulating and implementing 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 regulates all capital market intermediaries by keeping a close watch on all intermediaries and see that they follow the guidelines in the right spirit. It also takes penal actions including disgorgement of losses when the guidelines are not followed.
  • SEBI also issues public interest advertisements to inform and 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 remedies if problem arise. SEBI has also published booklets enlightening the retail investors about the appropriate processes, their rights and precautions to be taken in the stock markets.
  • Today in case of any problems with intermediaries in the capital markets, the small investors are allowed to directly make complaints to SEBI. SEBI receives thousands of complaints relating to non-receipt of refund orders, allotment letters, non-receipt of dividend or interest and delays in the transfer of shares and debentures. SEBI publicly maintains a central database of all such complaints including status of redressal.
  • SEBI has made investor education one of its driving forces to inform and educate investors accordingly. Such programs are crucial to investor protection. SEBI also encourages the formation of investor associations that disseminate useful information through newsletters. These publications are for the education, guidance and protection of investors.
  • SEBI also regularly conducts surveys with respect to investments 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. Such surveys also give SEBI action points to focus on. For example, it was based on a survey of mutual fund investors that it became apparent that most investors had worries over the expense ratios. This eventually led to reduction in mutual fund costs.
  • Introduction of ASBA as a new instrument has been useful while submitting application for shares via IPOs. This new instrument was introduced through the co-operation of banks gives protection to investors as they get interest on the application money till the allotment of shares. Also the money only gets blocked and debited only on the date of allotment. The balance money is automatically released.
  • As an important means of protecting the interests of investors in the capital markets, SEBI has introduced norms for disclosure of quarterly and half yearly unaudited results of companies. It has also revised the format of prospectus to provide more information to investors. It also insists that every share application form be accompanied by an abridged prospectus. Transparency has always been the key to investor protection.
  • SEBI has also issued a detailed SAST code regarding takeovers of companies, mergers and amalgamations. It has introduced regulations governing substantial acquisition of shares and takeovers (SAST) and lays down the conditions under which disclosures and mandatory open offers to the public have to be made to the shareholders. The purpose is to ensure that the small investors are adequately protected.

In additional to the above legislative measures, SEBI has also taken procedural improvements to assist the retail and small investor. Some highlights are as under:

  • SEBI has worked towards substantial simplification of share transfers and allotment procedure in the case of IPOs. It is expected that implementation of the Chandrasekharan Committee recommendations will considerably ease the difficulties faced by investors on account of inordinate delays in share transfers and bad deliveries.
  • SEBI has also made all share transfers to be compulsorily done by demat mode only effective December 05th. This will eliminate any case of frauds in transfer, bad deliveries and signature mismatch cases. No transfers will be permitted of shares that are in physical form.
  • SEBI has also implemented a unique order code number for easy audit trail. All stock exchanges have been required to ensure that a system is put in place whereby each transaction is assigned a unique order code number which is intimated by the broker to his client. Once the order is executed, this number is to be printed on the contract note.
  • Time stamping of contracts is another step taken by SEBI to eliminate chances of frauds. Stock brokers have been required to maintain a record of time when the client has placed the order and reflect the same in the contract note along with the time of the execution of the order. This will ensure that the broker gives due preference in execution of client's order and charges the correct price to his client without taking advantage of any intra-day price fluctuation for himself.

If the stock markets have become a substantially more transparent and safer place to transact, then retail investors have to thank SEBI for the same.