A Comprehensive guide on Investor Protection Measures of SEBI

The Primary and Secondary Financial Markets are based on investors. They put their money into the stock market in order to support economic growth and market expansion, which will result in higher profits. The basic goal of investor protection is to ensure that investors are properly informed about their purchases, transactions, and corporate activities. The investors control the degree of activity. The Securities and Exchange Board of India (SEBI) was founded with the primary goal of defending the interests of securities investors. Promoting the growth and regulation of the stock market is one of the SEBI’s goals. We will dive into great detail about Investor Protection Measures of SEBI in this article.

Before we move on to discuss about the Investor Protection Measures of SEBI, let’s first discuss about who is Investor? So that we could have better understanding of the measures provided by SEBI.

Meaning of an Investor 

An investor is someone who contributes money to a project or business but does not actively manage or participate in its day-to-day operations. They can be either an individual or a legal entity. He is a person who makes investments in securities like shares, mutual funds, debentures, etc. to make money.

The significance of protecting Investors

The securities market depends heavily on investors. An investor is someone who invests money in the hope of making a profit. For the financial markets to develop well, there must be strong investor protection. It is crucial to safeguard investors’ interests, and doing so has a big impact on how an economy’s financial system is set up. Investor protection includes a variety of policies put in place to safeguard investors’ interests from fraud in the stock market, mutual funds, and other areas. 

Meaning of Investor Protection

A sign of assurance is the investor insurance money. Investor protection, to put it simply, means that, up to a certain extent, you will get your money back if the dealer declares bankruptcy or bows to extortion. When opening a trading account or a record with an internet dealer, it is an important factor to take into account. You typically receive financial backing security when you open an exchange account with a brokerage.

“Investor Protection,” as defined by the SEBI Act, 1992, includes “protecting the interest of the investors in securities and promoting the development of and regulating the securities market, as well as for matters connected therewith or incidental thereto.”

What is SEBI and how SEBI Protects Investor Right?

On April 12, 1992, the Securities and Exchange Board of India was established as a legally binding administrative organization. 

The primary goal of SEBI is to manage and control the Indian commodity and securities markets while developing policies and regulations. SEBI’s headquarters are located at Mumbai’s Bandra Kurla Complex. The corporate structure of SEBI consists of various divisions, each of which is headed by an office head. 

There are more than twenty divisions. These offices include those for company accounts, financial and strategy investigations, obligation and mixture protections, authorization, human resources, executive rumor, product subsidiaries market guidance, legal concerns, etc.

The primary purpose of SEBI is to protect the financial backers’ interests in the protections market are as follows:

• It manages the business while advancing the market for protections. 
• Stockbrokers, sub-dealers, Portfolio managers, speculators, experts in the stock market, brokers, trader financiers, trustees of trust deeds, recorders, guarantors, and other connected people can apply for and manage work through SEBI. 
• It regulates the actions of safes, members, guardians of safeguards, unidentified portfolio financial backers, and FICO rating agencies. 
• It prevents internal trade securities, such as fraudulent and absurd business practices in the insurance industry. 
• It guards against internal exchanges that are fake or unjustified, as determined by the market.
• It ensures that financial backers are informed about the protection’s markets’ intermediaries. 
• It monitors significant company acquisitions and takeovers. 
• In order to ensure that the protections market is continually competent, SEBI engages in new efforts.

A wide range of market participants are covered by SEBI’s regulatory framework, including listed companies, stock exchanges, brokers, and investment advisers. In order to guarantee accountability, fairness, and openness in the securities market, SEBI has adopted a number of regulations. These rules address topics including insider trading, transparency obligations, and market manipulation, among others.

To enhance investor protection in India, SEBI has also implemented a number of initiatives. Enhancing disclosure requirements is one of these measures’ most crucial components. Companies must promptly and completely educate investors about their financial performance, corporate governance policies, and other pertinent information. In order to guarantee that they carry out their responsibilities with integrity and professionally, SEBI has also implemented stiffer rules for auditors and credit rating organizations.

Along with these steps, SEBI has regulated mutual funds and portfolio managers to guarantee that investors have access to a variety of investment options and that these options are managed by qualified and professional organizations. Additionally, SEBI has launched a number of efforts to enlighten investors of their rights and obligations and to motivate them to make wise investment choices.

Investor Protection Measures of SEBI

To periodically ensure investor protection, SEBI has issued a number of procedures and measures. It has issued numerous directives, led numerous investor awareness campaigns, and established the Investor Protection Fund (IPF) to provide investors with compensation. We shall examine the SEBI’s efforts for protecting investors in detail. 

Section 11(2) of the SEBI Act, 1992 outlines the options SEBI has to carry out the law’s mandate for investor protection. It contains:

• Preventing unfair and deceptive trade practices in the securities the market.
• Regulating significant share acquisitions and corporate takeovers.
• Fostering and policing self-governing organizations.
• Governing activity on stock exchanges and other securities markets.
• Encouraging the education of investors and the training of securities market intermediaries.
• Registering them and governing their operation, including that of mutual funds and collective investment plans.

Simplifying the process for Transferring and Allocating Shares

A committee headed by Shri R Chandrasekaran, Managing Director of the Stock Holding Corporation of India Limited, was appointed by SEBI to recommend a process for hastening and streamlining share transfer and issuance. The committee distributed its draught report to a number of market intermediaries for their feedback. The report will be finalized and the required steps will be made to put the recommendations into practice based on the feedback we’ve gotten. It is anticipated that putting the committee’s suggestions into practice will greatly lessen the difficulties investors are currently experiencing as a result of excessive share transfer delays and subpar delivery.

• Unique Order Code Number: Every stock exchange has to make sure that a system is in place where each transaction is given a special-order code number, which is communicated to the client by the broker. This number must be printed on the contract note following the execution of the order.
• Time Stamping of Contracts: Stock brokers are expected to keep track of the time the customer made the order and include that information in the contract note along with the time the order was executed. This will make sure that the broker executes the client’s order with proper consideration and charges the correct price to the client, not profiting from any intraday price fluctuations.
• Function of Sub-brokers: In the past, brokers have operated through a network of sub-brokers that serve as an essential link between them and investors. Only 1,798 sub-brokers have registered with SEBI, despite the fact that the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 require sub-brokers to be registered. The following steps have been taken in an effort to protect investors’ interests and put sub-brokers under the regulatory control of SEBI and the stock exchanges:
  • Under the regulations and bylaws of the stock exchanges, efforts have been undertaken to reestablish the institution of remisier. A remisier, who is registered with the stock exchange, acts as a broker’s agent. He is not, however, authorized to issue a contract or confirmation letter to his investor; rather, the broker does so, and as a result, the broker is fully responsible for that transaction. In this manner, the investor’s interests in relation to the remisier or broker are safeguarded.
  • For all transfer deeds dated June 1, 1997 and later, stock exchanges would treat as bad delivery any transfer deeds bearing rubber stamps on the reverse that are not those of clearing members of stock exchanges, clearing houses, clearing corporations, SEBI registered sub-brokers, and remisiers registered with the stock exchanges.
  • If a sub-broker is not registered with SEBI, a stock broker may not conduct business with him. If a client is not registered with SEBI as a sub-broker or is not accepted as a remisier by the stock market, the broker is responsible for making sure they are not functioning in that role.

• Fund for Investor Protection: The amount of compensation available for a single investor claim stemming from a member broker’s breach of duty has already been raised to Rs. 1 lakh for major stock exchanges, Rs. 25,000 for smaller stock exchanges, including Gauhati, Bhubaneshwar, Magadh, and Madhya Pradesh, and Rs. 50,000 for all other stock exchanges.
• Programme for Investor Awareness: The Securities Market Awareness Campaign was introduced by SEBI in 2003. These programmes are now regularly organized by SEBI to inform and raise investor awareness. The training covers important topics such investor protection funds, mutual funds, tax laws, portfolio management, and the SEBI grievance redressal system. Additionally, it offers workshops on derivatives, Sensex trading, and stock exchanges. In more than 500 cities across the nation, SEBI has now held similar workshops using a variety of media channels, including radio, television, print, and the internet.
• Investor Education and Protection Fund (IEPF) : The Government of India established a fund called the Investor Education and Protection Fund (IEPF) under the Companies Act, 1956 as part of SEBI’s investor safety initiatives. The act mandates that a corporation that has been in operation for seven years must transfer all unclaimed fund dividends, matured deposits and debt securities, share application funds, etc. to the government through IEPF.
• Additional Measures: To protect the interests of investors in securities, SEBI has implemented a number of measures including a screen-based trading system, the dematerialization of securities, T+2 rolling settlement, and numerous regulations to control intermediaries’ issuance and trading of securities, corporate restructuring, etc.

Procedure for Resolving Investor Complaints

Investors’ Services Cell (ISC) has been authorized by BSE to address investor complaints. By resolving investors’ complaints against listed businesses or BSE members, the ISC has significantly contributed to increasing and preserving investors’ trust and confidence.

Investors can file complaints in the Complaint specified format with the relevant Regional Arbitration Centre of BSE. The complaint process will be swiftly concluded if the appropriate complaint is filed at the relevant Regional Arbitration Centre.

Important Point of consideration for Investors

These are the following important point of Consideration for Investors:

• Investors should only work with stock exchanges or intermediaries that have registered with SEBI.
• All investment-related documents, including application forms, contract notes, and acknowledgment slips, should always be kept on file.
• The copies of the documents that investors give to companies should always be kept on hand.
• Important documents must be sent via registered mail or another trustworthy method to ensure delivery.
• Before selling, they must confirm that they are in possession of securities.
• They must make sure to provide trading members or agents with instructions that are clear and understandable.
• They ought to use trading or investment methods that don’t involve taking on much risk.

Challenges faced by SEBI regarding Investor Protection Measures of SEBI

There are still several issues that the Indian securities sector must address. The necessity to balance the interests of various stakeholders, including investors, issuers, and intermediaries, is one of the most pressing concerns. SEBI must make sure that its policies and rules safeguard the interests of investors and other stakeholders while also fostering the growth of the securities market.

Another problem that SEBI faces is the necessity for greater cooperation among regulatory agencies. SEBI needs to work closely with other regulatory authorities, including the Reserve Bank of India and the Ministry of Corporate Affairs, to ensure that its policies and rules are consistent with the country’s broader regulatory structure.

Takeaway

To su4+mmarize, despite the challenges faced, SEBI’s role in encouraging investor safety and market development in India cannot be emphasized. The Indian securities market has expanded tremendously over the years, and SEBI has played an important role in this expansion. SEBI can help establish a more transparent, efficient, and resilient securities market in India by continuing to strengthen its regulatory framework and promote investor education.

Connect to our experts at Legal Window, in case you need assistance in understanding Investor Protection Measures of SEBI, and other measures that our provided by SEBI. We assure you that we will assist you in most efficient manner in clarifying your doubt and counsel you regarding other SEBI Compliances as well.