The document discusses the role of SEBI (Securities and Exchange Board of India) as the regulator of the Indian stock market and its role in protecting small investors. It outlines SEBI's objectives such as promoting awareness among small investors, educating them about economic trends, and overall economic development. The document then describes some of SEBI's powers and responsibilities, including licensing brokers and dealers, preventing fraud, regulating mergers and acquisitions, auditing stock exchanges, making new rules, and educating investors. It also discusses SEBI's findings related to issues small investors face such as misleading advice, inflated ratings and fees, front-running in high-frequency trading, and companies being bailed out.

1. ROLE OF SEBI (THE REGULATOR) AND CRITICAL EVALUATION
FOR SMALL INVESTORS IN INDIAN STOCK MARKET
Authors1 * Mr Abhishek Pande (Mentor) Orange School of Business, Nagpur.
ABSTRACT
This paper argues that rather than applying the traditional solutions,the regulator
needs to adopt strong measures to protect the interest of small investors,it would be
fair to say that progress that we have made in this period is due largely to effects of
stringent measures adopted by SEBI. The dynamics of economics also plays a pivotal
role in the growth story of industry and commerce.The stock market is important
from both the industry’s point of view as well as the investor’s point of view.
KEYWORDS – acquisitions,derivatives,margins,rating agencies,stocks,volatility index.
LITERATURE OVERVIEW
In 1988 the Securities and Exchange Board of India (SEBI) was established by the
Government of India through an executive resolution, and was subsequently upgraded as a
fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities
and Exchange Board of India Act (SEBI Act)2 on 30th January 1992. In place of Government
Control, a statutory and autonomous regulatory board with defined responsibilities, to cover
both development & regulation of the market.
1
Authors : Mr Abhishek Pande
2
The Securities and Exchange Board of India (SEBI) is the regulatory authority in India established under Section 3 of SEBI
Act, 1992.
1

2. STATEMENT OF THE RESEARCH PROBLEM
This study helps to protect the interests of small investors in security market with the help of
regulator's role and creating awareness about economic indicators.
OBJECTIVES OF THE STUDY
 To highlight the working of regulator with respect to stock markets.
 To promote investors awareness about stock markets.
 To educate small investors and students about the economic downturns of stock
markets.
 To promote overall economic development for sustainable growth.
Since its inception SEBI has been working targeting the securities and is attending to the
fulfillment of its objectives with commendable zeal and dexterity. The improvements in the
securities markets like capitalization requirements, margining, establishment of clearing
corporations etc reduced the risk of credit.
SCOPE OF THE STUDY
This study includes the role of SEBI as a watchdog to manage stocks and securities in indian
market.The study is conducted to analyze the investor's preference and protect his interest
before the interest of the companies trading in indian stock market.To analyze the data
researcher used simple analytical techniques and tools such as pie charts.
RESEARCH DESIGN
Research Design of the study deals with understanding the investor's sentiments and his ability
to protect himself against the recessionary trends that often takes place in stock markets with
special reference to important economic indicators.
2

3. Data required for the study
To carry out the research,conceptual knowledge about investor's risk taking
ability,information about their preferences, choices, investment awareness,with respect to
different companies listed on stock exchange has been taken into consideration.
Data Sources
A. Primary Source
To study the SEBI guidelines for small investors pattern of purchasing shares of listed
companies in stock market,data collected through Primary Source. i.e. Interviews,
discussions & Questionnaires.
B. Secondary Source
The Secondary data have been collected through the books, magazines, broachers, Journal's
& annual general report, socio-economic profile and web sites.
To collect the primary data questionnaire is prepared. This questionnaire consists close-
ended questions. The questionnaire is a siphon off information viz. company preferences,
choices, determinants etc.
Data Analysis
Data collected from Primary and Secondary Sources is analyzed. The analyzed data is
formulated into the tabular and graphical form.
ROLE OF SEBI THE REGULATOR
The contribution of the market regulator has been to create a regulatory environment that
permitted competition to flourish at a time when many companies are not performing up to
the investor's expectation.
To provide license to dealers and brokers :
SEBI has power to provide license to dealers and brokers of stock market. If SEBI see's that
any financial product is of capital nature, then SEBI can also control that product and its
dealers.One of the main example is of ULIP's 3.
3
Unit Linked Insurance Plan
3

4. To stop fraud in stock market :
SEBI has many powers for stopping fraud in capital market.It can ban on the trading of those
brokers who are involved in fraudulent and unfair trade practices relating to stock market.It
can impose the penalties on capital market intermediaries if they are involved in insider
trading.
To Control the mergers,acquisitions and takeover of the companies :
Many big companies in India want to create monopoly in stock market. So, these companies
buy all other companies or deal of merging. SEBI sees whether this merge or acquisition is
for development of business or to harm stock market.
To audit the performance of stock market :
SEBI uses their powers to audit the performance of different Indian stock exchanges for
bringing transparency in there working.
To make new rules on carry - forward transactions :
Share trading transactions carry forward can not exceed 25% of broker's total transactions.
90 day limit for carry forward transactions is set by SEBI.
To create relationship with ICAI4 :
ICAI is the authority for making new auditors of companies. SEBI creates good relationship
with ICAI for bringing more transparency in the auditing work of company accounts because
audited financial statements are mirror to see the real face of company and after this investors
can decide to invest.Moreover,in many cases investor's trust still rely on audited financial
reports.
Introduction of derivative contracts on volatility index :
For reducing the risk of investors,SEBI has now decided to permit derivative contracts on
volatility index, subject to the conditions :
a. The underlying volatility index has a track record of at least one year.
4
Regulates the profession of Chartered Accountants in India.
4

5. b. The exchange has in place the appropriate risk management framework for such derivative
contracts.
c. Before introduction of such contracts, the stock exchange shall submit the following :-
i. Contract specifications.
ii. Position and exercise limits.
iii. Margins5.
iv. The economic purpose it is intended to serve.
v. Likely contribution to market development.
vi. The safeguards and the risk protection mechanism adopted by the exchange to ensure
market integrity, protection of investors and orderly trading.
vii. The infrastructure of the exchange and the surveillance system to effectively monitor
trading in such contracts.
viii. Details of settlement procedures & systems.
ix. Details of back testing of margin calculation for a period of one year considering a call
and a put option on the underlying with a delta of 0.25 & - 0.25 respectively and actual value
of the underlying.
To get reports on portfolio management activities :
SEBI has power to call reports on portfolio management to check the stock market
performance.Recently,SEBI sent the letter to all registered portfolio managers of India for
demanding report.
5
A type of financial collateral used to cover credit risk.
5

6. To educate the investors :
Time to time, SEBI arranges scheduled workshops to educate the investors.The regulator
must also ruthlessly discard those elements of regulatory regime that are not in favour of
small investors.
FINDINGS FROM SEBI
Some of the findings from SEBI with respect to small investors grievances are :
 Financial analysts at major banks promote stocks they know to be worthless,
misleading small investors who rely on their advice.
 Ratings agencies give AAA ratings on debt they know to be in order to gain goodwill
of the issuers—who happen to pay fee's of agencies, violating rating agency's duty to
provide the marketplace with honest evaluations.
 Some executives receive outsized and high compensation packages—the result of
false misleading recommendations of stocks to gain the goodwill of CEO's and
independent directors, thus violating duty to the shareholders of companies for whom
they are working.
 Reputed fund managers charge exorbitant fees that investors have to absorb—fees
that dramatically reduce any possibility of outperforming market and that are set by
captive boards of captive management companies.
 "High-frequency trading6" produces not only reality of a two-tiered market but also
probability of front-running—that is, illegally trading of information not yet widely
known—that eat's possible profit's of small investors being served by these market
players, violating the norms set by SEBI for best available price discovery.
 Airlines stocks are bailed out, costing taxpayers tens of billions of rupees, even
though (as we later learned) the big broking firms knew that airlines stocks were
6
A program trading platform that uses powerful computers to transact a large number of orders at very fast speeds.High-
frequency trading uses complex algorithms to analyze multiple markets and execute orders based on market conditions.
6

7. going down and were able to hedge and cover their positions.Smaller investors are left
holding the stock, and left for picking up the trash.
 The underlying assumption is apparent since information and advice, the very life-
blood of a level playing field, is not where it needs.
 The small investors still doesn't have a fair shot. While there have been case-specific
remedies, the aggregate effect of all the scandal's still hold's the market forces
responsible.
ECONOMIC POINTS TO PONDER
There are many economic points that requires due consideration for a small investor
before he invests his hard earn money in stocks.These economic points act as a
preliminary study for any investor to understand before entering stock market.
 Liquidity situation in a system- Less liquidity situations means shortage of funds in
market,it leads to increase in interest rates consequentally companies cost of funding
increase,it hammers profits of company and share prices of that company goes down
and therefore loss to small investors.
 Climate or monsoon situation- In an agriculture base economy monsoon plays a vital
role,situation of bad monsoon curtails the demand & consumption levels,it adversally
affects profits of companies and therefore loss to small investors & vice versa.
 Inflation rate in the economy- Inflation conditions puts pressure on margins of
companies,(e.g.. of petrol & diesel cost),hence the small investors should monitor
pulse of market with knowing the headline inflation7.
 Technological development- Innovations in companies can increases productivity,this
drives investment and increases profits, pushing growth,hence small investors should
monitor this trend.
7
A measurement of price inflation that takes into account all types of inflation that an economy can experience.
7

8.  Growth rates- Industry growth rates taking place in sectors like
construction,mining,manufacturing,power,auto,banking,metal etc, can provide vital
statistics for small investors if they are updated with proper information.
 National income growth rate for the current year.
 GDP estimates for the upcoming year.
 Increase or decrease in foreign investments.
 Increase or decrease in exports.
 Trade liberalisation,capital mobility & exchange rate policy.
CONCLUSION
Finally we conclude that SEBI the regulator has three functions rolled into one body: quasi-
legislative8, quasi-judicial and quasi-executive. It drafts regulations in its legislative capacity,
it conducts investigation and enforcement action in its executive function and it passes
rulings and orders in its judicial capacity to create accountability for small investors,also
returns in stock market depends on conditions of economy.And a good economy would help
in improving living standards of individuals,who could encash higher returns from stock
market,business as a whole see's increased sales and profit which ultimately drives share
prices for small investors.
8
A quasi-legislative capacity is that in which a public administrative agency or body acts when it makes rules and
regulations.
8

9. REFERENCES
Books
[1] SEBI Guidelines and Listing of Companies – Dr A V Avadhani
[2] Manual Taxmann's SEBI Manual
[3] Financial Management – M Y Khan,P K Jain
[4] A Legal Commentary on Securities Exchange Board of India Act - Sumit Agrawal,Robin
Joseph Baby,edited by Amit Agrawal
[5] Indian Economy – T R Jain, Mukesh Trehan, Ranju Trehan, Dr Rajinder Uppal
[6] Indian Economy - Mishra & Puri
[7] Principles of business economics 2nd edition – Joseph Nellis, David Parker
Websites
[1] NCAER website
[2] www.sebi.gov.in
[3] www.icmrindia.org
[4]www.cmie.com
ANNEXURE
Questionnaire for small Investors
Name of the participant: ________________
Contact number: _____________________
Date: ____/____/____
9

10. Q1. Tell us something about your overall stock market experience?
______________
Q2. Do you think stock market research is essential for investing your money to earn high returns?
Yes
No
Q3. How long have you been indulged into the stock market research and this business?
More than a year
More than three year
More than five years
More than seven years
More than this
Q4. Which of the following mentioned factors play an important role while you finalize a stock company?
Overall reputation
Offered stock market term & conditions
Condition of economy
Current stock quotes
Other, please write: ________________
Q5. You purchase the shares to:
Invest your money wisely
For long term money investment
For high end returns
To invest money regularly
Q6. Which of the following risk factors disturb the stock market continuously?
Corporate drawn
Market value fluctuations
Economic breakdown
10

11. Q7. Which of the methods do you use to conduct a stock market research before investing money into shares?
Internet
Friend’s advice
News paper
Television
Other, please mention: __________________
Q8. Would you like to mention a little more about you stock market expertise?
__________________________
Survey Results
70.00
60.00
out of 100
50.00
40.00
30.00
20.00
10.00
0.00
Different answers
11

12. 60.50 22.88 10.03 3.45 2.82 0.31
Tip from friend
Opinion of analysts in print media 24.68 57.79 5.19 7.79 3.90 0.65
Opinion of experts on TV 13.64 30.30 18.18 34.85 0.00 3.03
Research reports in newspapers/magazines 28.57 16.67 14.29 21.43 9.52 9.52
Research reports on stock market websites 8.33 50.00 0.00 25.00 16.67 0.00
Advice of broker 11.11 55.56 0.00 11.11 22.22 0.00
Total 42.19 33.22 9.63 9.80 3.82 1.33
Regional Disparity
80.00
70.00
60.00 InvestorSaver
50.00
40.00 Households
30.00
20.00 Households
10.00
0.00
Other
Households
Total
Households
InvestorSaver Households Other Total
Households Households Households
Central Region 0.14 2.70 1.14 3.98
Eastern Region 2.62 5.28 1.63 9.53
Northern Region 1.42 10.20 5.80 17.42
North-Eastern Region 0.32 0.66 0.16 1.15
Southern Region 4.84 5.75 11.20 21.79
Western Region 5.88 8.93 4.71 19.51
Total 15.23 33.52 24.63 73.38
12

13. Investment Pattern
Derivative
4%
Bond
Debenture
15%
7%
Mutual IPO
Fund 10%
43%
Secondary
Market
21%
Bond Debenture IPO Secondary Mutual Derivative
Market Fund
All India 14.89 6.94 10.05 21.59 42.89 3.64
Urban 15.07 8.57 8.47 21.25 40.80 5.85
Rural 14.60 4.26 12.66 22.04 46.44 0.00
13