Project report on

A Comparison of SEBI and SEC

In the fulfilment of Master of Business

Administration
(2020-2022)

SCHOOL OF MANAGEMENT STUDIES,

PUNJABI UNIVERSITY, PATIALA

Submitted to: Submitted by:

Dr. Liaqat Ali Kanav Malhotra

20421039
Sr. Topic Page
No. Number
1 Introduction 3
2 India and SEBI 4
3 SEBI’s Role in Investor Protection 5
4 USA and SEC 8
5 SEC’s role in Investor Protection 9
6 Conclusion 13
7 References 14
Index

pg. 2
 Introduction
Without sufficient finances, a corporation cannot expand its operations. The demand for cash
for a company's expansion is met by issuing shares of the company in the market, which are
purchased by investors. This share issuing is a way for the company to raise funds, and in
exchange, investors receive a profit which will eqaute to their investment.

The security market is where you can purchase and sell stocks. These markets must be
controlled since it has been proven time and time again that without proper rules and
regulations, the security market is vulnerable to frauds such as insider trading.

In this report, we will discuss about the governing authorities of the securities market of India
as well as United States of America and how both the governing authorities work to protect
the various investor rights.

pg. 3
 India
Prior to year of1992, there were numerous security market frauds that happened in India. For
their own gains, stockbrokers manipulated the markets. Insider trading, or bringing
confidential information to the public's attention with the potential to alter stock prices, was
also not banned, and brokers took advantage of it. The trading took place on the Bombay
Stock Exchange's floor. On the opening bell, the trading floor was a shambles. With its Rs.
500 crore scandal, the Harshad Mehta Scam shocked the whole economy in 1992. The entire
security market was shown to have flaws.

Security and Exchange Board of India

Prior to 1992, the Security and Exchange Board of India was not a statutory entity. However,
following the 1992 fraud, when the security market's flaws became apparent, the SEBI was
established as a statutory organisation with powers. It put an end to the stockbrokers'
monopoly and market manipulation. The Security and Exchange Board of India Act, 1992
established SEBI as a statutory entity.

SEBI makes sure that investors are safe from corporate fraud. Investor education has also
been taken care of to ensure that investors are not cheated owing to a lack of information.
Material for laymen to learn and comprehend the capital market can be found on SEBI's
website. Furthermore, SCORES, an online portal for filing complaints, has been launched.

SEBI regulates the security market and has quasi-legislative, quasi-judicial, and quasi-
executive authority over the market. SEBI has adopted various laws as a result of its
legislative abilities and its goal of protecting investors. SEBI has passed 50 regulations,
including SEBI Merchant Bankers Regulations, SEBI Underwriters Regulations, SEBI Stock
Broker Regulations, SEBI Insider Trading Regulations, SEBI Underwriting Regulations,
SEBI Investor Protection Regulations, SEBI Intermediaries Regulations, and SEBI Foreign
Portfolio Investment Regulations, among the others.

SEBI, which has extensive expertise of the capital market, has been given quasi-judicial
authority to ensure transparency and fairness. It has the ability to issue orders in the same
way that a judge would. This order might be issued in response to any unethical behaviour.
The Judicial Magistrate must sign off on the order.

pg. 4
When there is a breach of regulations, SEBI's quasi-executive powers extend to scrutinising
an organization's books of accounts. It ensures that the Security Exchange Board of India's
regulations are followed to the letter.

SEBI’s Role in Investor Protection

From time to time, SEBI has issued various techniques and steps to safeguard investor
protection. It has issued a number of directives, organised a number of investor awareness
initiatives, and established an investor protection fund (IPF) to compensate investors. SEBI
establishes a financial backer's boundary through education and attention, allowing them to
make informed decisions. SEBI makes an effort to ensure that the financial donor
understands how to contribute. To put it another way, SEBI guarantees that the investor has
access to and uses the information needed to contribute, as well as evaluates various
investment options to meet his/her/their specific goals.

It assists the investor in determining thier rights and obligations in a certain way, negotiates
through recruited employees and seek assistance if a complaint arises, and so on. Through
financial backer affiliations and market members, SEBI has been putting together financial
backer education and mindfulness courses, as well as pressing market members to sort out
comparable projects. It maintains a well-maintained, far-reaching website for financial
backers' instruction. It uses several forms of media to disseminate various types of warnings.
It responds to queries/questions of financial brokers using various modes like phone, mails,
letters, and in person for those who visit the office of SEBI.

Everything of importance is available in the public domain thanks to SEBI. SEBI ensures that
the market has standards and policies in place to ensure that exchanges are secure. Financial
backer concerns are encouraged to be resolved by SEBI. SEBI has a comprehensive
framework for resolving financial backer complaints against middlemen and registered
companies. It all comes back to the organisations and middlemen who don't modify the
concerns of financial donors by providing them ideas and holding meetings with them.

pg. 5
Investor Education & Protection Fund

The Government of India established the Investor Education & Protection Fund (IEPF) under
the 1956 Company Act as part of its measures relating to investor protection. According to
the laws, a corporation that has been in business for seven years must turn up all unclaimed
fund dividends, matured deposits, and debentures, as well as share application money, to the
government through the IEPF.

Investor Protection Fund

The Interconnected Stock Exchange (ISE) established the Investor Protection Fund (IPF) in
accordance with the Ministry of Finance's standards for investor protection in order to
compensate investors for claims against exchange members (brokers) who have defaulted or
refused to pay. If a member (broker) of the National Stock Exchange (NSE), Bombay Stock
Exchange (BSE), or any other stock exchanges fail to pay the necessary money for the
investments made, the investor can seek any redressal compensation. The level of
remuneration provided to investors has been capped by the stock exchanges. This restriction
was put in place as a result of talks and advice with the IPF Trust. The restriction stipulates
that the amount paid as compensation for a single claim should not be less than INR 1 lakh in
the case of major Stock Exchanges such as BSE and NSE, and INR 50,000 in the case of
lesser Stock Exchanges.

Investor Awareness Program

The slogan of SEBI's investor protection initiatives is "An informed investor is a safe
investor." As a result, in January 2003, SEBI began the Securities Market Awareness
Campaign. SEBI currently holds such workshops on a regular basis to educate and raise
investor awareness. Portfolio management, mutual funds, tax provisions, the Investor
Protection Fund, and SEBI's Investor Grievance Redressal System are among the topics
covered in the guides/rules. It also hosts workshops on derivatives, stock exchange trading,
and the Sensex, among other topics. Over 2000 workshops have been held by SEBI in over
500 cities across the country. The Investor Awareness Program has been promoted by SEBI
in a variety of ways, including print, radio, television, and the Internet.

pg. 6
Unique Order Code Number

All stock trades have been required to ensure the establishment of a framework in which each
exchange is assigned a unique request code number, which is communicated by the merchant
to his consumer. This number is to be imprinted on the agreement note when the request is
executed, ensuring correctness and confidentiality.

Contract Time Stamping

Stock specialist have been instructed to keep a track of the time when the customer filed the
request and to include this information in the agreement note alongside the hour of the
request's execution. This is to ensure that the merchant takes proper consideration in the
execution of the client's structure and charges his customer the correct cost without profiting
from intra-day value changes.

Association of Mutual Funds of India

The Association of Mutual Funds of India (AMFI) is an association of SEBI-registered

mutual funds in India that was founded on August 22nd, 1995. It was established to regulate
everyone in India who sells mutual funds. AMFI registration is required in order to solicit
Mutual Funds, and it regulates the association's members in order to safeguard investors from
unauthorized selling and unfair investment practises.

pg. 7
 United States of America
The Securities and Exchange Commission of the United States of America regulates the
security market in the United States. Prior to the Commission, the state government was
responsible for enforcing the rules and regulations governing the securities industry. These
statutes were dubbed "blue sky laws" by the states. The blue sky laws are state-enacted rules
that deal with security market regulations and the prevention of market fraud. However, these
laws were unable to successfully support the cause for which they were enacted, and the
scams continued. The Securities and Exchange Commission was established in response to
the ineffectiveness of the legislation and the disastrous stock market crash of 1929.

The U.S. Security and Exchange Board Commission

The Securities and Exchange Commission ( SEC) was founded in 1934 and has five divisions
or departments, with its headquarters situated in Washington, DC. The Securities and
Exchange Commission (SEC) operates 11 offices across the United States. The Securities and
Exchange Commission (SEC) was established under the Securities Act of 1933. The Federal
Trade Commission, chaired by Huston Thompson, drafted the Act. The Commission also
made sure that young lawyers with adequate expertise of the field were included in the SEC's
enactment. The Federal Trade Commission enforced the Act when it was enacted in 1933 and
until the Security and Exchange Board Commission was formed.

The SEC is an independent government body with ultimate goal to restore public confidence
in the securities industry, which had been shaken by the stock market disasters. The
commission's main objectives were to improve the system's transparency, integrity, and
fairness, as well as to safeguard investors and prevent corporate fraud. Insider trading was
outlawed completely. Stock registration, deadlines, and trading methods all have their own
set of rules and restrictions. Stock exchanges include the New York Stock Exchange, which
was founded on the concept of physical trading on the trading floor, the Municipal Security
Rulemaking Board, and the NASDAQ Stock Exchange, which is an online trading system.

The SEC works as a legislative body for the securities market, amending, enacting, or adding
new rules to improve the security market's handling. The SEC is also in charge of capital
market intermediaries. If the SEC detects fraud at any moment, it has the authority to refer
the matter to federal authorities for inquiry. It not only refers cases related to federal

pg. 8
investigator, but also gives any information that may be useful to them. This ensures that the
law is followed correctly. The Commission also ensures that the country's and the states'
security regulations are appropriately coordinated. The Securities and Exchange Commission
(SEC) provides investors with the necessary information to make informed investment
decisions.

The Securities and Exchange Commission (SEC) has been set up in such a way that it does
not favour one party over another, in other words, it is non-partisan. A maximum of three
commissioners from the same political party can be chosen. The SEC is made up of five
commissioners, all of whom are appointed by the President. One of the five commissioners is
nominated by the President to serve as the Commission's chairperson. The Commissioners
are appointed for a five-year period.

SEC’s Role in Investor Protection

SEC has implemented a lot of Acts which regulate the securities market of United States of
America which Investor Protection.

Securities Act (1933)

The Securities Act of 1933, also known as the "truth in securities" statute, has two main
goals:

 investors must receive financial and other critical information about securities being
offered for public sale
 deception, misrepresentations, and other forms of fraud in the selling of securities are
prohibited.

Registration’s Purpose

The disclosure of crucial financial information through the registration of securities is a

primary means of achieving these goals of investor protection. Investors, not the government,
can use this information to make informed decisions about whether or not to buy a company's
stock. The SEC requires, but never guarantees, that the information provided is accurate.
Investors who purchase securities and lose money have considerable recovery rights if they
can show that critical information was not disclosed completely or accurately.

pg. 9
Process of Registration

Securities sold in the United States must be registered in general. Companies' registration
forms provide important information while minimising the time and cost of complying with
the law. In general, registration forms ask for the following information:

 a description of the company's assets and operations

 a description of the security to be sold
 information on the company's management
 financial statements audited by independent accountants

Shortly after filing with the SEC, registration statements and prospectuses are made public.
The statements are available on the EDGAR database at SEC’s website if submitted by
domestic companies in the United States. The compliance with disclosure requirements of
registration statements is checked.

The Commission does not require that all securities offerings be registered. Some examples
of exemptions from the registration requirement are:

 Private offerings to a small number of people or organisations

 small-scale issues
 intrastate offerings
 municipal, state, and federal government securities

Securities Exchange Act (1934)

The Securities and Exchange Commission was established as a result of this Act. The SEC is
given sweeping control over all aspects of the securities business by the Act. This includes
the authority to register, regulate, and supervise brokerage firms, transfer agents, and clearing
agencies, as well as securities self-regulatory groups across the country (SROs). SROs
include stock exchanges like the New York Stock Exchange and the American Stock
Exchange. The NASDAQ system is run by the National Association of Securities Dealers,
which is also an SRO.

The Act also recognises and forbids specific types of market behaviour, as well as giving the
Commission disciplinary authority over regulated firms and their associates.

pg. 10
The Act also gives the SEC the authority to require corporations with publicly traded
securities to report information on a regular basis.

Corporate Reporting

Companies having assets north of $10 million and securities held by more than 500
shareholders are required to produce annual and other periodic reports. The public can access
these reports using the SEC's EDGAR database.

Registration of Exchanges & Associations

Exchanges, brokers and dealers, transfer agents, and clearing agencies are among the market
participants who must register with the Commission under the Act. These organisations must
register by submitting disclosure documents that are updated on a regular basis.

Self-regulatory bodies include the exchanges and the National Association of Securities
Dealers (NASD) (SRO). SROs must develop rules that allow members to be disciplined for
unlawful behaviour, as well as steps to preserve market integrity and investor protection.
Before final SEC review and approval, SRO proposed rules are released for public comment.

Trust Indenture Act (1939)

This Act applies to debt securities such as bonds, debentures, and notes that are offered for
public sale. Even though such securities may be registered under the Securities Act, they may
not be offered for sale to the public unless a formal agreement between the issuer of bonds
and the bondholder, known as the trust indenture, conforms to the standards of this Act.

Investment Company Act (1940)

This Act governs the structure of corporations, including mutual funds, that specialise in
investing, reinvesting, and trading in securities and issue their own securities to the general
public. This rule is intended to reduce conflicts of interest that can occur during such
complicated processes. When stock is first sold and then on a regular basis, the Act compels
these corporations to report their financial situation and investing policies to investors. This
Act focuses on providing information to the investing public about the fund and its
investment objectives, as well as the structure and activities of investment companies.

pg. 11
Investment Advisers Act (1940)

Investment advisers are governed under this statute. This Act requires corporations or lone
practitioners compensated for counselling people about securities investments to register with
the SEC and adhere to laws meant to safeguard investors, with some exceptions. Only
advisers with at least $100 million in assets under management or who advise a registered
investment business are required to register with the Commission after the Act was revised in
1996 and 2010. Other investment advisers are usually required to register with the state in
which they have their major place of business.

Securities Investor Protection Act (1970)

The Securities Investors Protection Act(1970) amended the Securities Exchange Act of 1934,
allowing the Securities Investor Protection Corporation to be established (SIPC). The SIPC is
a non-profit, independent corporation sponsored by the US government that requires most
registered brokers and dealers to join under the 1934 Act.

The Securities Investors Protection Act was enacted in 1970 with the goal of increasing
public confidence in securities markets by protecting customers against losses or failures
caused by brokers. As a result, the SIPC maintains reserves to safeguard investors from
brokers who misappropriate their assets, as well as to compensate them if their broker or
dealer goes bankrupt. SIPC funding are made possible by assessments paid to the SIPC by
members based on the gross business they produce from securities sales.

Investors are covered for a sum up to $500,000 under the SIPC, with cash claims limited to
an amount of $250,000. This insurance policy does not cover losses caused by market
fluctuations. When a brokerage firm fails, however, the SIPC assists in the transfer of
accounts from that firm to another member brokerage firm. If the transfer fails, the SIPC
compensates investors for the market value of the lost stock shares or certificates, and the
unsuccessful brokerage company is liquidated.

pg. 12
 Conclusion
The SEC has the authority to conduct investigations if it believes it is necessary to determine
whether someone has violated any provision of its rules or regulations or those of a national
securities exchange. The SEC does have executive power to publish information about these
kind of violations, as well as to investigate any facts, conditions, processes, or matters that it
deems necessary or appropriate to facilitate in enforcement, the prescribing of rules and
regulations, or obtaining information to serve as a basis for recommending additional
legislation on the topics covered by this title. Courts may impose a permanent or restraining
order; levy a civil penalty to be paid by the person who committed the breach; debar directors
and officials; or start obligatory criminal proceedings if a valid showing is made.

SEBI has the authority to request information from, examine, and conduct investigations and
audits of stock exchanges and any people associated with them. SEBI may check any book,
register, or other document or record of a listed public business or a public firm intending to
have its securities listed on any recognised stock market. SEBI can acquire a Judicial
Magistrate's order to search for and seize any relevant papers and records. Following an
inquiry, SEBI may issue an order directing any individual to cease committing or causing any
violation; halt trading, bar individuals from accessing the stock exchange; and restrict
individuals from purchasing, selling or trading in particular securities of the firms on whom
investigations are going on.
After going through all this, we can say that there isn’t any major difference in the working of
SEBI and SEC. Both the organizations work hard to ensure investor protection. Both have
special powers which they can access whenever they feel those are required in order to ensure
justice to the various investors of the country. They help to restore faith of normal investors
in the financial markets.

pg. 13
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pg. 14