Introduction

Stock Markets in India play a predominant role in its efforts in the industrialization. A fair and efficient securities market contributes to a large extent towards industrial development by its many fold operations. Stock exchanges are primarily responsible for mobilizing and channelizing savings of the household sector into productive enterprises. By effectively monitoring available resources, the securities market offered attractive returns and capital appreciation. Slowly and steadily a consciousness has been built up among the common savers on account of several investment opportunities made available in the securities market, though most of them have to rely on the advice of brokers, sub – brokers or specialized agents.

When a common man invests his life long savings in securities for getting better returns it is necessary for him to protect his interest in receiving maximum return by avoiding malpractices prevalent in the stock exchange.

The stock exchange acts as a mirror to the stock market. The share and stock brokers constitute a service sector which renders services for advising intending investors to make investments in various securities profitably.

The Government of India has adopted a conscious policy of widespread share holding in accordance with their socio-economic goals of opening up markets for middle and low income groups. While some of the investors may be professionals, a large number comes from a class which does not have full knowledge of operation of stock exchanges or stock markets. It is necessary to know the working of stock exchanges and securities before placing surplus funds in the stock market. Here we are going to know more about the meaning of stock exchange, the organization and role of stock exchange in the capital market, the functions and powers of SEBI (Securities and Exchange Board of India), the role of SEBI in monitoring the stock exchange.

Meaning of Stock Exchange

Stock Exchanges are the organized securities markets regulating the trading in shares, debentures and other securities in the interest of the investors.

Definition of Stock Exchanges

The Securities Contracts (Regulation) Act, 1956 defines a stock exchange as an association, organization or body of individuals, whether incorporate or not, established for the purpose of assisting, regulating and controlling the business in buying, selling and dealing in securities.

Functions of a Stock Exchanges

The role of a stock exchange in a capital market is as follows:-

(1) Ready and Continuous Market: The stock exchange provides a ready and continuous market for the sale and purchase of securities.

(2) Bank Borrowing Facility: Securities listed on a stock exchange serve as a collateral security when an investor need funds from a bank.

(3) Promotes Capital Formation: Stock Exchanges promotes capital formation as they encourage investors to invest need funds from a bank.

(4) Safety and Fair Dealing: The Stock Exchange operates under rules and regulations framed by the Central Government. The rules and regulations framed by the Central Government are in the interest to ensure safety to the investors and whatever be their dealings, it should a fair one.

(5) Government Funding: Stock Exchanges helps the government to raise funds

by selling shares and debentures.

(6) Creation of Employment Opportunities: Stock Exchange creates a number of employment opportunities to a number of brokers, sub brokers as they are the intermediaries through which shares are being sold.

(7) Evaluation of Securities: Stock Exchanges helps to evaluate the worth of securities, as securities are traded at a certain price on the stock market. Investors are able to determine the real worth of their holdings in the form of shares and debentures which are listed on the stock exchange.

(8) Industrial Development: The capital collected through shares and debentures can be put to industrial use. With the capital, new industries can be started, existing ones can be expanded and modernized and thereby enhancing the industrial development of a country.

(9) Clearing House of Securities: The Stock Exchanges acts as a clearing house of securities. It facilitates easy and quick clearance of transactions of securities between the buyers and the sellers.

(10) Facilitates Flow of Capital: Stock Exchange facilitate the flow of capital to companies who have a high potential to raise substantial funds.

Role of SEBI in monitoring the Stock Exchange

SEBI stands for Securities and Exchange Board of India. It was set up in April, 1988, as a strong need was felt to protect the interest of the investors and to have a systematic and organized working of the securities market.

It started actually functioning when the SEBI Act was passed in 1992. The Act empowered SEBI with necessary powers to regulate the activities connected with marketing of securities and investment of Stock Exchanges, Portfolio Management, Stock Brokers, and Merchant Banking etc.

Objectives of Securities & Exchange Board of India

There are three basic objectives of SEBI. They are as follows:-

(1) Towards Investors: To protect the interest of the investors.

(2) Towards Capital Issuers: It aims at creating a good market environment where capital issuers can raise necessary funds.

(3) Towards Intermediaries: It wants to bring about professionalism among the brokers, stokers and sub – brokers.

Powers and Functions of SEBI

(1) To protect investors Interest: SEBI is formed to protect the interest of the investors. It monitors whether issuing companies, brokers, mutual funds are following the rules and regulations. It also gives a hearing to the investor’s complaints and grievances, if any, against the issuing companies brokers etc.

(2) Regulating Working of Mutual Funds: SEBI regulates the working of mutual funds. It has laid down certain rules and regulations that are needed to be followed. Failure to follow the regulations may lead to cancellation of the registration of a mutual fund.

(3) Regulates Merchant Banking: SEBI has laid down certain regulations in

respect of registration, submission of half yearly results, code of conduct in respect of merchant banking, etc.

(4) Take over and Mergers: SEBI has issued guidelines to protect the interest of the investors in case of take over and mergers.

(5) Restriction on Insider Trading: SEBI restricts insider trading activity. Its regulation states that, no insider shall either on his own behalf or on behalf of any other person may deal in securities of a company listed on any stock exchange on the basis of any unpublished price sensitive information.

(6) Regulates Stock Brokers Activities: SEBI has laid down the regulations in respect of brokers and sub-brokers. Without being a registered member of SEBI, no broker or sub-broker can buy, sell or deal in securities.

(7) Research and Publicity SEBI conducts survey and research in respect of investments and opportunities. It also undertakes to publish two monthly bulletins called SEBI market review and SEBI news letter.

(8) Guidelines on Capital Issues: SEBI has framed certain guidelines on capital issues which are applicable to first public issue of new companies, first public issue by existing private held companies, public issue by existing listed companies.

(9) Portfolio Management: SEBI has laid down certain regulations regarding portfolio management. Without proper registration with SEBI, no person or institution can work as a portfolio manager.

(10) Other functions: There are some other functions also which are as follows:-

(i) It prevents unfair trade practices relating to the securities market.

(ii) It gives training to intermediaries in the securities market.

(iii) It promotes investor’s education.

(iv) It conducts audits of the stock exchanges.

(v) It also conducts inquiries, and inspections.