Why in news? Supreme Court asked SEBI and the government to produce the existing regulatory framework in place to protect investors from share market volatility after Adani  Group of stock market manipulation and accounting fraud.

Highlights:

What are the laws governing the market?

• The securities market in India is regulated by four key laws — The Companies Act, 2013, the Securities and Exchange Board of India Act, 1992 (SEBI Act), the Securities Contracts (Regulation) Act, 1956 (SCRA) and the Depositories Act, 1996.

What are the powers of SEBI Act ?

• The SEBI Act empowers SEBI to protect the interests of investors and to promote the development of the capital/securities market, besides regulating it.
• SEBI was given the power to register intermediaries like stock brokers, merchant bankers, portfolio managers and regulate their functioning by prescribing eligibility criteria, conditions to carry on activities and periodic inspections.
• It also has the power to impose penalties such as monetary penalties, including suspending or cancelling the registration.
• The SCRA empowers SEBI to recognise (and derecognise) stock exchanges, prescribe rules and bye laws for their functioning, and regulate trading, clearing and settlement on stock exchanges.

Can SEBI step in to curb market volatility?

• SEBI does not interfere to prevent market volatility, exchanges have circuit filters upper and lower to prevent excessive volatility.
• But SEBI can issue directions to those who are associated with the market, and has powers to regulate trading and settlement on stock exchanges.
• It can also prohibit entities or persons from buying, selling or dealing in securities, from raising funds from the market and being associated with intermediaries or listed companies.

What are the guidelines on fund-raising?

• The Companies Act, regulates the raising capital, corporate governance norms such as periodic disclosures, board composition, oversight management and resolution of investor grievances.
• In order to regulate fund-raising activities, it brought out a set of guidelines called the Disclosure and Investor Protection Guidelines which were thereafter subsumed into a more comprehensive Issue of Capital and Disclosure Requirement Regulations.
• In order to ensure that listed companies followed corporate governance norms, SEBI notified the Listing Obligations and Disclosure Requirements Regulations in 2015.
• The Collective Investment Regulations define a CIS (collective investment scheme) and provide for penal actions against those running unregistered CIS schemes.
• Entities involved in fund-raising through issue of capital such as merchant bankers are also regulated through specific regulations.

What about stock exchanges?

• The term “securities” is defined in the SCRA and powers to declare an instrument as a security remain vested in SEBI.
• SEBI include powers to determine the manner of settlement in stock exchanges (and to keep them with the times for e.g. T+1) and recognising and regulating clearing corporations, central to the management of the trading system.
• An important aspect of the regulation of stock exchanges is also the provision for arbitrating disputes that arise between stock brokers and investors that are clients of such stock brokers.
• The Act also seeks to protect the interests of investors by creating an Investor Protection Fund for each stock exchange.

What are the safeguards against fraud?

• SEBI notified the Prohibition of Fraudulent and Unfair Trade Practices Regulations in 1995 and the Prohibition of Insider Trading Regulations in 1992 to prevent the forms of fraud, market manipulation and insider trading.
• SEBI has been given powers of a civil court to summon persons, seize documents and records, attach bank accounts and property and to carry out investigations.
• Ex: Using these powers, SEBI has acted against entities and individuals like Satyam, Sahara India, Ketan Parekh and Vijay Mallya.
• Appeals against orders of SEBI and the stock exchanges can be made to the Securities Appellate Tribunal (SAT) comprising three members.
• Appeals from the SAT can be made to the Supreme Court.