SEBI and Market Regulation for UPSC

Mandate of SEBI

SEBI was set up in 1988 as an administrative body to oversee India's fledgling securities market. The stock markets in the 1980s were plagued by price rigging, lack of transparency and poor investor protection. In the aftermath of the Harshad Mehta securities scam of 1992 the government realised that a powerful, independent regulator was needed. Parliament enacted the SEBI Act, 1992, which gave the Board statutory authority to regulate all aspects of the securities market. SEBI's threefold mandate, enshrined in section 11 of the Act, is to protect the interests of investors, promote the development of the securities market and regulate its functioning.

The mandate can be understood as a delicate balancing act. On one hand SEBI must encourage capital formation by making it easier for companies to raise money; on the other hand it must ensure that issuers, intermediaries and investors abide by principles of fairness and disclosure. Over the last three decades, the Board has played a key role in modernising India's financial system: it introduced paperless trading through dematerialisation, shortened settlement cycles from T+5 to T+2 and now piloted optional T+0 settlement, and created a wide array of regulations covering mutual funds, portfolio managers, foreign investors, insider trading and takeover codes. SEBI also coordinates with the Reserve Bank of India, Ministry of Finance and other regulators through bodies like the Financial Stability and Development Council to maintain systemic stability.

Beyond market supervision, SEBI's mandate increasingly covers issues of corporate governance, environmental and social responsibility, cybersecurity and investor education. In recent years it has championed ESG disclosures through the Business Responsibility and Sustainability Report (BRSR), strengthened surveillance of algorithmic trading and digital advertisements, and launched nation-wide investor awareness campaigns in multiple languages. The Board's evolving mandate reflects the growing sophistication of India's economy and the need to align domestic rules with global best practices.

Organization of SEBI

SEBI's governance is anchored in its Board of Directors. Under the SEBI Act the Board comprises a chairperson nominated by the central government, two officials from the Ministry of Finance, one member from the Reserve Bank of India and five other members nominated by the government, at least three of whom are full-time members. This composition ensures representation of key stakeholders-government, central bank and independent experts-while maintaining operational autonomy. The chairperson serves as the executive head and is supported by whole-time members who oversee specific departments.

Operationally SEBI functions through several specialised departments. The Market Regulation Department supervises stock exchanges, clearing corporations and depositories, sets trading rules and monitors compliance. The Corporate Finance Department handles public offerings, rights issues, buy-backs and listing obligations, ensuring that companies disclose material information and adhere to the Listing Obligations and Disclosure Requirements (LODR) Regulations. The Enforcement Department investigates insider trading, fraudulent and unfair trade practices and market manipulation; it exercises quasi-judicial powers to pass orders, impose penalties and debar errant entities. The Investment Management Department regulates mutual funds, alternative investment funds (AIFs), portfolio managers and investment advisers. Other verticals include the Office of Investor Assistance and Education (OIAE) for grievance redressal, the Legal Department for rule-making and litigation, the Information Technology Department for surveillance and fintech initiatives, and the Economic and Policy Analysis Department for research and innovation.

To ensure accountability SEBI's decisions can be appealed to the Securities Appellate Tribunal (SAT), an independent body headed by a sitting or retired judge. Appeals from SAT lie with the Supreme Court of India. Internally SEBI has consultative committees and standing advisory groups that include representatives from industry, academia and investors to advise on policy formulation. In March 2025, the Board constituted a High-Level Committee on conflict of interest and disclosures to review governance standards within SEBI itself, signalling a commitment to transparency and ethical conduct.

Functions of SEBI

SEBI's functions span three broad categories: protective, regulatory and developmental. These functions overlap and reinforce one another, ensuring that the securities market grows while remaining fair and transparent. Some key responsibilities include:

• Regulating stock exchanges and market intermediaries: SEBI registers and supervises stock brokers, sub-brokers, merchant bankers, portfolio managers, investment advisers, depositories, custodians, credit rating agencies and other entities. It prescribes capital adequacy norms, codes of conduct and compliance requirements.
• Monitoring public issues and corporate disclosures: The Board vets draft prospectuses, oversees initial public offerings (IPOs), follow-on issues, rights issues and buy-backs, and ensures adherence to the LODR regulations. It mandates continuous disclosure of material events and quarterly financial results.
• Protecting investors and preventing malpractices: SEBI investigates insider trading, price manipulation, front-running and other unfair trade practices. It can impose monetary penalties, suspend trading of securities or debar persons from accessing the market. It runs the SCORES online grievance portal and has launched AI-based surveillance to detect suspicious trades in real time.
• Promoting investor education and awareness: Through the Investor Protection and Education Fund, SMART workshops and the "Investor First" campaign (2025), SEBI conducts seminars, webinars and digital courses to educate investors about financial products, risks and rights.
• Facilitating market development: The Board encourages new products such as Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs) and Social Stock Exchanges. It introduced the T+1 settlement cycle in 2023 and launched an optional T+0 settlement for the top 500 stocks in January 2025, shortening cash settlement and improving liquidity.
• Regulating substantial acquisitions and takeovers: SEBI's Takeover Code lays down thresholds and procedures for open offers when promoters acquire significant stakes in listed companies, protecting minority shareholders.
• Levying fees and conducting research: The regulator collects fees from market participants to fund its operations and undertakes policy research to keep abreast of innovations and global trends.

These functions are executed within a legal framework that includes not only the SEBI Act but also the Securities Contracts (Regulation) Act 1956 (SCRA) and the Depositories Act 1996. Together, they empower the Board to issue regulations, circulars and guidelines. The following table provides a comparative overview of SEBI's protective, regulatory and developmental roles:

Key Regulations and Recent Reforms

Over the years SEBI has issued numerous regulations covering every segment of the securities market. These regulations are periodically amended to reflect evolving business practices, technological advances and investor needs. Some of the most significant regulations and reforms as of 2025 include:

Insider Trading and Market Abuse

The Prohibition of Insider Trading Regulations, 2015 prohibits trading in securities by persons possessing unpublished price sensitive information. In 2025 SEBI expanded the definition of insiders to cover individuals who gain access to confidential information through social media and digital platforms. Firms must maintain structured digital databases of those who have access to sensitive information and disclose trading windows. SEBI has also deployed machine-learning algorithms to detect coordinated manipulation and fraudulent "pump and dump" schemes. Penalties for insider trading can include monetary fines, disgorgement of profits and debarment from the market.

Takeover Code and Substantial Acquisitions

Under the Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011, any entity acquiring 25 % or more of a listed company's voting rights must make an open offer to minority shareholders. The code lays down timelines, pricing norms and disclosure requirements for such offers. It was amended in 2023 to simplify delisting procedures and align thresholds with global standards. By 2025 SEBI has been considering raising the trigger threshold to 30 % for certain sectors to encourage strategic investments while protecting minority shareholders.

Listing Obligations and Disclosure Requirements (LODR)

The LODR Regulations, 2015 are the bedrock of corporate governance. They require listed entities to disclose material events promptly, maintain independent directors, constitute audit and stakeholder committees and adhere to related-party transaction norms. In September 2025 SEBI notified the LODR (Third Amendment) Regulations which, among other things, mandate that corporate actions such as schemes of arrangement, stock splits or consolidation be carried out only in dematerialised form. The amendment strengthened the disclosure framework for not-for-profit organisations listing on the Social Stock Exchange, requiring annual financial and impact reports. It also enhanced impact reporting requirements for social enterprises, signalling SEBI's commitment to responsible capital markets.

Mutual Funds and Portfolio Managers

The Mutual Funds Regulations, 1996 and the Portfolio Managers Regulations, 2020 govern the creation and operation of mutual funds and portfolio management services. Amid the rapid growth of retail participation through systematic investment plans, SEBI introduced several reforms in 2024-25: schemes with similar investment objectives must be merged to reduce overlap; asset management companies must provide clearer disclosure of risks, expense ratios and historical performance; and distributors must share details of commissions and incentives with investors. In 2025 SEBI allowed mutual funds to launch active and passive schemes under one fund house only if they maintain distinct investment strategies, and mandated stress testing for debt schemes. For portfolio managers, the regulator raised net worth requirements, introduced minimum investment amounts and required periodic reporting of portfolio risks.

Alternative Investment Funds and Startup Ecosystem

Alternative Investment Funds (AIFs) such as private equity and hedge funds are regulated under the AIF Regulations, 2012. Recognising the growth of the startup ecosystem, SEBI in 2025 introduced a framework allowing angel funds to co-invest within the same AIF structure and relaxed investment concentration norms. It also strengthened disclosure requirements on leverage and valuation, and created a separate category for social impact funds. Unlisted securities trading platforms must now obtain SEBI registration and abide by disclosure norms similar to those applied to stock exchanges, ensuring that investors in emerging asset classes have comparable protections.

Social Stock Exchange and Not-for-Profit Reporting

In 2020 SEBI introduced the concept of a Social Stock Exchange (SSE) to allow not-for-profit organisations (NPOs) and social enterprises to raise capital transparently. The SSE framework requires NPOs to register with SEBI, maintain audited financial statements and issue impact reports to donors. The 2025 LODR amendments align disclosure timelines for NPOs with income tax returns and mandate value-based impact metrics. Social enterprises listing debt securities on the SSE must now file annual impact reports within 60 days of the financial year end. These measures aim to build investor confidence in the nascent social investment space.

BRSR and ESG Reporting

SEBI's Business Responsibility and Sustainability Report (BRSR) framework has made India a frontrunner in ESG disclosures. Applicable to the top 1,000 listed companies from FY 2023-24, the BRSR requires quantitative and qualitative reporting on nine principles covering ethics, sustainability, employee well-being and stakeholder engagement. In 2025 the regulator introduced the BRSR Core - a standardised set of key performance indicators - and extended reporting to value chain partners representing at least 2 % of procurement or sales. The enforcement of value chain disclosures has been deferred to FY 2025-26 to allow companies time to gather data. SEBI also replaced "assurance" with "assessment or assurance" to ease compliance costs while still promoting third-party verification. These moves align Indian ESG reporting with global frameworks like GRI, SASB and TCFD.

Settlement Cycles and Market Infrastructure

One of SEBI's most visible contributions to market efficiency has been the progressive shortening of settlement cycles. In January 2023 India became one of the first major markets to adopt a T+1 settlement cycle for the equity cash segment. Building on this success, SEBI launched an optional same-day (T+0) settlement in March 2024 for 25 stocks. On 10 December 2024 the regulator announced that from 31 January 2025 the T+0 option would be extended to the top 500 stocks by market capitalisation. The rollout is phased: the bottom 100 of these stocks joined the T+0 regime first, with an additional 100 added each subsequent month. Stock brokers may charge different fees for T+0 and T+1 trades. In May 2025 SEBI extended the timeline for brokerages to implement T+0 settlement systems to 1 November 2025 to ensure smooth participation of institutional investors. The optional T+0 cycle aims to increase liquidity and reduce settlement risk while preserving flexibility for investors who prefer T+1.

Algorithmic Trading, Cybersecurity and Digital Advertising

The rise of algorithmic trading and social media promotions has introduced new risks. SEBI's 2022 framework for algorithmic trading mandates that brokers obtain approvals for algorithms, conduct stress tests and provide kill-switch mechanisms. In March 2025 the regulator extended the compliance deadline under its Cybersecurity and Cyber Resilience Framework by three months, recognising implementation challenges. It also issued a circular requiring all SEBI-registered intermediaries to undergo advertiser verification for ads on social media platforms such as YouTube, Facebook, WhatsApp and X (formerly Twitter). By 30 April 2025, intermediaries had to update their contact information on SEBI's SI Portal, thereby curbing fraudulent "get rich quick" schemes and false trading courses. These measures enhance supervisory vigilance and protect retail investors in the digital era.

Investor Grievance Redressal and Education

Efficient grievance redressal is central to investor confidence. SEBI's SCORES (SEBI Complaints Redress System) portal allows investors to lodge complaints against listed companies and intermediaries. In 2025 the platform was upgraded with artificial intelligence to prioritise complaints and ensure time-bound resolution. SEBI also introduced a fast-track arbitration mechanism for small disputes, enabling investors to seek compensation without resorting to lengthy court processes. The regulator's "Investor First" campaign integrates financial literacy with digital awareness, educating people about the dangers of unregulated investment schemes, cryptocurrency fraud and identity theft. By revamping the Investor Protection and Education Fund and producing content in regional languages, SEBI is bridging the information gap between rural and urban investors.

To sum up, SEBI's regulatory landscape in 2025 is characterised by dynamic reforms, technology-led surveillance and a focus on sustainability. The following table summarises some of the key regulations, their purpose and the year of the latest significant amendment:

For UPSC Prelims vs Mains

Prelims Pointers

• SEBI was given statutory powers through the SEBI Act, 1992. Its tripartite mandate is to protect investors, develop markets and regulate their functioning.
• The Board consists of a chairperson nominated by the central government, two Finance Ministry officials, one RBI representative and five government-nominated members (at least three full-time).
• Important SEBI regulations include the Prohibition of Insider Trading Regulations 2015, the Takeover Code 2011, the Mutual Funds Regulations 1996, the LODR Regulations 2015 and the AIF Regulations 2012.
• In 2025 SEBI rolled out an optional T+0 settlement for the top 500 stocks and strengthened ESG reporting through the BRSR Core and value chain disclosures.
• SCORES is SEBI's online complaint redress system; SAT hears appeals against SEBI orders.

Mains Notes

• Discuss how SEBI balances investor protection with market development. Evaluate its role in promoting financial innovation (REITs, InvITs, social exchanges) while curbing malpractices.
• Analyse the impact of the T+1 and optional T+0 settlement cycles on market liquidity, foreign investor participation and systemic risk.
• Examine SEBI's efforts to enhance corporate governance and ESG reporting. How do the BRSR and LODR amendments align with global sustainability frameworks?
• Assess the effectiveness of SEBI's surveillance in detecting insider trading and algorithmic manipulation. What further steps could be taken to protect investors in the era of fintech?
• Critically evaluate the criticisms of SEBI (e.g., slow action during financial scandals, regulatory overlaps) and suggest reforms to improve accountability and transparency.

Quick Facts

• SEBI became a statutory authority in 1992 and is headquartered in Mumbai.
• The Board's chairperson and members are nominated by the central government; at least three of the five additional members are full-time.
• T+1 settlement for equity trades began in January 2023; optional T+0 settlement for top 500 stocks is being rolled out through 2025.
• The BRSR framework makes ESG reporting mandatory for India's top 1,000 listed companies and introduces the BRSR Core KPIs.
• SCORES has been upgraded with AI-based tracking in 2025, ensuring faster redressal of investor complaints.
• SEBI's Investor Protection and Education Fund finances awareness campaigns, SMART workshops and the "Investor First" initiative.
• The Social Stock Exchange enables not-for-profit entities to raise funds; disclosures align with income tax timelines and impact metrics.
• Mutual fund distributors must disclose commissions and expense ratios; stress testing is mandatory for debt schemes.

UPSC Previous Year Questions (Selected)

The following paraphrased questions reflect how the Union Public Service Commission has tested candidates' understanding of SEBI and market regulation:

1. 2014 Prelims: With reference to SEBI, which of the following functions are correct? 1. Regulating stock exchanges 2. Promoting investor education 3. Issuing currency notes. Answer: Statements 1 and 2 are correct; statement 3 is incorrect because issuing currency notes is the Reserve Bank of India's function.
2. 2017 Mains (GS III): "Investor protection is as important as market development." Discuss the initiatives taken by SEBI to protect investors and examine their impact on market confidence. Answer: Candidates should discuss SCORES, grievance redressal, the Investor Charter, disclosure norms, surveillance measures, and awareness campaigns, and analyse how they reduce fraud and increase participation.
3. 2020 Prelims: Consider the following statements about the Takeover Code: 1. An open offer is mandatory when an acquirer holds 25 % or more shares. 2. The code applies only to private companies. Which of the statements given above is/are correct? Answer: Only statement 1 is correct; the code applies to listed companies.
4. 2023 Prelims: SEBI recently mandated that corporate actions such as stock splits and mergers be executed only in dematerialised form. This reform is part of which regulation? Answer: Listing Obligations and Disclosure Requirements (LODR) Regulations.

Practice MCQs

1. SEBI's primary objectives under the SEBI Act, 1992 include:
   1. Protecting investors' interests
   2. Promoting the development of securities markets
   3. Regulating the securities market
   4. All of the above
2. Which of the following statements about the optional T+0 settlement cycle is correct?
   1. It replaces the T+1 cycle entirely
   2. It is mandatory for all stocks from January 2025
   3. It applies initially to the top 500 stocks and co-exists with T+1
   4. It has been cancelled due to opposition from brokers
3. The Business Responsibility and Sustainability Report (BRSR) requires companies to report on:
   1. Only financial performance
   2. Only environmental metrics
   3. Quantitative and qualitative ESG indicators across nine principles
   4. None of the above
4. Which of the following is not a function of SEBI?
   1. Granting licenses to banks to issue currency
   2. Registering and regulating stock brokers
   3. Investigating insider trading and fraud
   4. Promoting investor education
5. Under the Takeover Code, an acquirer is generally required to make an open offer when their shareholding in a listed company crosses:
   1. 10 %
   2. 15 %
   3. 25 %
   4. 50 %

Answer Key: 1-D; 2-C; 3-C; 4-A; 5-C.

Frequently Asked Questions

What is SEBI and why was it created?

SEBI is the statutory regulator for India's securities market. It was set up in 1988 and given legal powers in 1992 after repeated market scams highlighted the need for an independent authority to protect investors, regulate market intermediaries and foster the orderly development of capital markets.

How is SEBI's board constituted?

The board comprises a chairperson nominated by the central government, two officials from the Ministry of Finance, one representative of the Reserve Bank of India and five other members nominated by the government, of whom at least three are full-time. This structure balances government oversight with operational independence.

What are the major functions of SEBI?

SEBI registers and regulates stock exchanges, brokers, merchant bankers, mutual funds, AIFs and other intermediaries; vets public issues and monitors disclosures; investigates fraud and insider trading; educates investors; promotes new instruments and technologies; and levies fees to fund its operations.

How does SEBI protect investors?

Investor protection is achieved through disclosure requirements, surveillance and enforcement. SEBI requires companies to publish financial results and material events promptly, runs AI-based surveillance to detect manipulation, penalises wrongdoers, operates the SCORES grievance portal and organises awareness programmes to help investors make informed choices.

What are the recent regulatory reforms introduced by SEBI?

Key reforms up to 2025 include the rollout of optional T+0 settlement, the BRSR Core and extended value chain reporting for ESG disclosures, stricter rules on insider trading and algorithmic trading, revised mutual fund norms to reduce scheme duplication, enhanced governance under the LODR amendments and regulatory frameworks for social enterprises and AIFs.

Can SEBI's decisions be challenged?

Yes. Orders passed by SEBI or its adjudicating officers can be appealed before the Securities Appellate Tribunal (SAT). Decisions of SAT can further be challenged in the Supreme Court of India. This appellate mechanism ensures checks and balances on regulatory authority.