In India, from securities to money and money to capital, the whole market is incomplete without Securities Exchange Board of India. It is an entity that governs all the sectors of the market. Capital market is basically, a market for raising huge amount of funds for a longer period of time, which is really risky. The market is full of risk, you can make millions and lose millions in a fraction of second and all it needs is willingness to take risks. But the fear of losing something in our mind doesn’t stop us from investing in the market with a hope to gain something and make it big. For the better and the smooth functioning of the market we have SEBI, who is also the care taker of the whole market. It plays a vital role in the capital market so that both, the investor and investee, can benefit from it which means earning huge amount of profits, but the manner in which they should earn shouldn’t be shady. It also requires to cope up with this changing environment, market conditions and to create awareness among people about the capital market.

With this paper an attempt has been made by the authors to explain the concept of capital market and they also try to take out the fear from the minds of the people by making them aware about the SEBI and in the ways SEBI will always help them throughout their journey of buying and selling of shares and bonds, if their hands are clean. More and more investment should be done in the market and people must become aware about functioning of the capital market.


In a layman language market means a place where buyer and seller meet for buying, selling and exchange good and services with some amount of consideration. A market can be either physical or virtual, it can be a small market just of a region or it can be a global one. Well in today’s era the world is fully globalized. Today market can be known as a global village, as each and every individual can buy and sell the things to anyone belonging to any country because of the globalised market. It is even a place where we can find out the price of goods and services as prices of goods and services are established in the market only.

 Way towards capital market!

The term capital market I all enough to tell what it is. Though the word capital has number of meanings and definitions depending upon the situation it is used. But in general it is mainly known as the amount which is invested for the commencing of a business. As it is well known fact that, for commencing any business there is a need of huge amount of cash and other assets as well, and that all investment termed as capital. On the other hand market is a perfect place for buying and selling of goods and services. Therefore capital market is a market for raising and funding long term equity, and with that earning profit. Capital market comes under the head of financial market, as here the commodity is of financial in nature. Capital markets are for long period of time. Capital market in an easy term can be understood as market for raising loan for a long period of time in place of securities that is basically bonds and share.

Capital market can be best understood as a financial market, where the investment can be done directly as well as indirectly. In this market borrowing and lending of the funds take place both for the short period as well as for the long period of time.

With the change in time and technology, the capital market also made some changes and it adopted the new technologies for marketing. The market with new technologies is known as modern capital market. In this modern capital market, one just needs an internet connection in his/her device and then they can go for marketing just by sitting at home. The procedure in secondary capital market are made so easy and simple that even a small trader can go with it, which has made increase in the investment with the capital market.

Capital market is not a new term; this market was brought up by the Britishers in the 18th century, when they came to India for doing trade. So, for trade they need capital which they collect it by issuing securities, and with that capital market came into force. The best part is that our capital market is not as same as the old one, it has number of changes and it is positive point that Indian capital market is known as the one of the best market. The capital markets are not just specific to one’s own country trade, but buying and selling of the securities can be done outside of the country as well.

Capital market basically consists of three things-

  • Commercial banks
  • Development banks
  • Stock exchange

Parties involved

There are basically two parties involved in a capital market-

  1. Investor
  2. Investee
  3. Broker

Investor – a person or an institution that have surplus of capital, and want to invest somewhere so to earn profit. An investor can be an individual person and it cans even an institution. This investor basically wants to make their investment for a long period of a time or we can say that for a longer project.

Investee – a person or an institution that are need of capital funds either to commence with their new project or to continue with the same. They also need fund for a long period of a time.

Broker – a mediator between both the investor and the investee, who used to connect the investor with the investee for selling for securities. Even the banks can be the broker.

So, capital market is a suitable place for both investor and investee of capital to meet and fulfill their needs with each other. And at the same time earn profit with it.

The securities market is regulated by various agencies they are as follows –

  • Department of Economics Affairs (DEA),
  • Department of Company Affairs (DCA),
  • Reserve Bank of India (RBI) and
  • SEBI.

Types of Capital Market

Capital market are broadly divided into two types-

  1. Primary capital market
  2. Secondary capital market

Primary capital market – in this market new stock or bonds are being issued by the company or any other entity directly for the investors. For issuing bonds or stock there is a mechanism and that mechanism is known as ‘underwriting’. The government always used to issue bonds for the investors, whereas companies have option either to go with bonds or even they can issue shares for the investors. In this market the securities are being raised only for once, and even the mechanism is too lengthy, so all the investors and investee don’t find suitable enough to go with the primary capital market. This market is also known as the new issue market, as the securities are issued here for the first time, and then it goes to the secondary market for further resale of the securities. This market is basically dealt by the government and other corporate institutions.

Secondary capital market – in secondary market in spite of new securities the existing one is being sold. The secondary market is more suitable so, more and more investment is being made with this market. As there can be issue of any number of securities without any limit and with that the process is quite easy and simple. From the primary market the securities come in the secondary market. Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the stock exchange. The stock exchanges along with a host of other intermediaries provide the necessary platform for trading in secondary market and also for clearing and settlement. The securities are traded, cleared and settled within the regulatory framework prescribed by the Exchanges and the Securities and Exchange Board of India (SEBI). With the increased application of information technology, the trading platform of the stock exchange is accessible from anywhere in the country through its trading terminals.[1] This market is basically dealt by the banks and other financial institutions.

This market is also known as stock market or stock exchange. As here the securities a kind of stock are resale thousand of time, without any limit.


The importance of capital market is as follows –

  1. It helps to increase the economy of the country. As it is one of the effective source of investment.
  2. It helps the person to raise funds that are in need of it. The funds are for both public and private institutions.
  3. By diversify the risk, it also provides a mechanism for risk management.
  4. It helps the person to earn profit by safely investing the money that has surplus capital.
  5. It is one of the most productive investments.
  6. It also helps in increase the national income of the country.
  7. It also helps the company to give their share to their employees.
  8. It is one of the excellent routes to avoid disinvestment in the country. [2]

SEBI – Care taker of Market

SEBI stand for the Security Exchange Board of India. It’s a body which helps the people in buying and selling of the securities. It acts as a watch dog of the market. It looks after all over the market and makes rules and regulations for the investor, investee and the broker. It was established in the year 1988 and given statutory powers on 12 April 1992 through the SEBI Act, 1992[3]. The body was established by the Government of India on 12th April 1988, but it got its whole and sole power and was enacted in 1992. As in the year 1992 both the house of the Parliament passed the bill and finally SEBI bill turns to the act.  Headquarter, of the SEBI is situated in the business district of Mumbai, in Bandra Kulla Complex. And it has four regional branches in four directions that are New Delhi, Kolkata, Chennai and Ahemdabad. The body also has its offices in some of the cities, such as Jaipur, Guwahati, Patna, Kochi, Chandigarh and Bhubneshwar.

Initially, when the body was framed it doesn’t have any statutory powers, but with its first amendment in the year 1995, by the Government of India the SEBI got its statutory power. And it turns to be only statutory body for buying and selling of the securities all over the country. Well SEBI is a body which is quasi legislative, quasi-executive and quasi-judicial. As it draft rules and regulations and implement it and when required it perform the function of judiciary as well.

Today SEBI has achieved great success. It has tried to make the market safe. SEBI has even tried to be flexible enough and to cope up with the environment and to adopt the new technologies, with that it has tried to make the market paperless.


The SEBI consist total of nine members including the chairman, and among all the members three members have the permanency in the body.

  1. The chairman, nominated by the Union Government of India. The Chairman of the board don’t have any permanent place in the board, the Central Government has whole and sole power to terminate the chairman if required or to appoint any other member as the chairman. But before terminating him a notice is needed to be sent to him a three months before the termination, means a kind of termination letter is being sent by the Central Government to the chairman, regarding the termination.

With that the Chairman also has the power to resign his post if he wants to before the completion of his tenure. But for that he also has a duty bound to send his resignation letter to the Central Government before three months.

The letter both by Government and Chairman for termination and resignation respectively should be in writing. [4]

  1. Other two members from the Union Finance Ministry of the country.
  2. One member is taken from the Reserve Bank of India.
  3. The other five members are nominated by the Union Government of India.

Among the remaining five members, three members are the permanent members of the body. [5]

The Central Government has the power to remove any member from the office under the following circumstances –

  • Member turns to be insolvent.
  • If members is of unsound mind. For removing any member because of unsound is only possible if courts declare the person as unsound.
  • Has committed any kind of offence.
  • Misuse or abuse of power and positions is one of the main reasons for the removal of the member from the board.

With that each and every member of the board has given the right to put his views regarding the claims put upon them. And if such claims are proved to be true then they have to leave the membership of the board and if not proved then they are free to continue with their membership. [6]

Functions of SEBI

The preamble of the Securities Exchange Board of India, 2002 talks about the responsibility and the function of the SEBI. It states “An act to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto.”[7]

The function of SEBI is being discussed under the chapter IV of the Act. As the statutory body the SEBI has powers but with that it has number of functions to perform. The SEBI has to look after the three most important players of the market that are:

  • Investors
  • Investee
  • Intermediaries.

Functions of SEBI

Following are the some of the functions which are required by the SEBI to perform.[8]

  • Protect the interest of the investors in securities.
  • Promotion and the development of the market.
  • Regulation of the security market of the country.
  • Registering and regulating the work of the stock brokers, sub-brokers or any person who may be associated with securities market in any manner.
  • Registering and regulating the working of the depositories or any other participants.
  • Registering and regulating the working of mutual funds.
  • Promotion and regulation of self-regulatory organizations.
  • One of the most important and major function of SEBI is to prohibit any kind of fraud and unfair trade practice in the market.
  • Educating and provide training to the investors and the intermediaries of the securities market5.
  • Prohibition of insider trading in the securities so that the other investor doesn’t have to bear any kind of loss.
  • Regulation of acquisitions of shares and takeover of the companies.
  • Conducting regular inquires and auditing of the entire person associated with this market.
  • The board can ask information to any person at any time where and when required.
  • The SEBI can also impose fines and penalties for breaking down of any rules and regulation relating to the security market.
  • It’s the function of the board to perform proper research of the market.


SEBI has some powers so that it can properly perform its function. Some of the powers of the SEBI are as follows –

  • To make rule and regulation.
  • To make the brokers to register themselves, before being an intermediator between two parties.
  • To execute the laws which are being framed.
  • To act as a judiciary.
  • It also has the power to amend the laws relating to the securities exchange.
  • Compel the companies to list their shares in stock exchange.
  • Can do inspection at any time in the books of account of any broker.

Heads off to SEBI 

SEBI is basically formed to have a good control over the securities market of the country, so that the investors and do investment without any risk and are being protected from ant kind of unfair trade practices. SEBI is the whole and sole controller and the regulator of the Indian capital market. No matter, whether it is money or a capital market the main role of SEBI is to protect the interest of the investors and to educate about the market. And with that also to avoid fraud and take strict actions against those who commit or tries to commit any kind of fraudulent activity.

It’s all because of the hard work and determination of the SEBI, the Indian Capital market is known as one of the best market in the whole world.

Following are the functions and steps which are taken by SEBI for the protection and the smooth functioning of the capital market:

  1. Formation of rules

The first and foremost function of the SEBI is to make rules and regulation for the capital market. A proper rule is required for each and every thing, so that there is a smooth functioning without any kind of confusion. And each and every persons associated with the market are required to follow that rules.

  1. Provide license

As before entering the market as a dealer or a broker it is required to have license. Without license the person won’t be allow to act as a dealer or a broker. As driving license is required to drive a vehicle same is with the capital market. In capital market the SEBI has the power to issue license for the dealer and the broker. And with that it also has the power to take the license away either from the dealer or from the broker.

  1. Avoid frauds

The main function of SEBI is to see that no fraud take place in the market. As because of the frauds the other person has to suffer a heavy loss and because of that there may be fear in the capital market and people will not go for investing in the capital market.

And if there will be any fraud then a huge penalty can be imposed upon the person and even the license can be taken away.

  1. To have a control over the combinations of the companies

Now a day companies are either being taken over or a combined in any form, this combinations are basically of three kinds they are merger, accuqusitions and amalgamations. [9]The SEBI used to have a look upon it and take care of the things that are going. It sees whether combinations are done in a fair and legal means, and if there is any kind of illegal means then the board has the power to take action against it. Any kind of combination which is take place in the capital market should be only for the development of the business rather than harm the market or to have any kind of unfair competition in the market.

  1. To amend the laws

The SEBI has power to amend the laws; even it is the duty of the board to make changes in the law when and where required and to move as per the changing environment.

  1. To educate the investors

Educating investors is one of the prior functions of SEBI. Investors should be educated and made aware through various conferences and seminars. So, that they keep themselves save and can enjoy trading in the capital market without any fear.

  1. Promotion of capital market

Well in this era also, all the people are not aware about the capital market, and if they are aware then also they don’t know how to do trade in the market. So, it is quite necessary to make the people aware about the capital market and how profitable it can be for them so that more and more investment can be brought by this and people can earn huge amount of profit.

  1. Adoption of technologies

With the change in time and environment new technologies are being evolved which make the work of the people quite easier and faster. So, when it’s about securities then people has to follow a long procedure but today SEBI has included new technologies in the market, with that the people sitting anywhere in the corner of the world anytime can do trading in this market just with a click.

As SEBI is already so many functions for smooth functioning of the capital market, but SEBI is not sitting quietly after making the regulations, day by day it’s trying hard so that it can take the Indian capital market in a league of the global markets.

Is SEBI a real care taker?

 Capital market is good but little risky, SEBI is an amazing body as it perform all the three functions of being legislative, executive and judiciary though quasi but it do. Well now the question arise here is that is SEBI is a real care taker of the capital market?

So, the answer of this question can be found with the following case:

Recently, SEBI has suspected tax evasion of Rs 5000-6000 crore. As SEBI being the regulator of the market has used his power properly and performs his function by clamping down a large number of organized syndicates who has set up their shops for converting black money into the legal funds through the stock platform.

The SEBI has banned more than 900 entities from capital market and now this case is being forwarded to the Income Tax Department for further investigation.

This is one of the recent cases, where SEBI has taken immediate step for the protection of the capital market.[10]

Like this SEBI has always tried to take some or other steps for the protection and smooth functioning of the capital market.

The 1992 Scam

This was the first scam which took place after the formation of SEBI. A well known stock broker Harshad M Mehta was in number of financial crimes which took place in the year 1992. He has been found guilty for nine crimes but was convicted only for four. The issue was that the broker was alleged in number of stock manipulation scheme which are financed by worthless banks receipt as at that time banks were not allowed to invest in the equity market, by this illegal means some of the small private banks started to go for investment the two banks whose name was brought in the issue was the Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB) and his firm brokered in ready forward transaction between the banks. From Bombay High Court the case was transferred to the Supreme Court of the country, where it was found that the scam was of 49.99 billion (US$740 million) and with this case the loopholes of the Bombay Stock Exchange was seen. After that SEBI has amended the laws and filled up that loophole.[11]


With the efforts of the SEBI, we can see that today’s Indian capital market is at a position which can be compared with the highly good capital market of the country. Day by day SEBI is proving itself that it is the care taker of the market, and is standing by the side to look after the market and take measures to protect the market..Therefore, SEBI is a real care taker of the capital market, but with that it is also the duty of general people to get them aware with it and before investing anywhere they should check it once. As there is great saying “God helps the one who help themselves”, so, if people won’t take care of themselves then how could SEBI can help them. Therefore the it’s the duty of the people also to be aware about the market and take their steps according to it.

By: Deepshree Chauhan



[2] Pg -44, Chapter 1, Executive Program, Capital Market and Securities Laws, Module II Paper 6, the Institute of Company Secretary of India.


[4] Section 5, Securities And Exchange Board of India Act, 2002

[5] Section 4, Securities And Exchange Board of India Act, 2002

[6] Section 6, Securities And Exchange Board of India Act, 2002

[7] Securities And Exchange Board of India Act, 2002

[8] Section 11, Securities And Exchange Board of India Act, 2002

[9] Section 5, Competition ACT, 2002


[11]“SC upholds Harshad Mehta’s conviction”. Times of India. 14 January 2003. Retrieved 14 October 2012.