Are SEBI Employees Allowed to Trade in Stock Market?

Are SEBI Employees Allowed to Trade in Stock Market?: The Securities Exchange Board of India (SEBI) is an autonomous government body regulating the trading and functioning of stock markets in India. This regulatory body comes under the Ministry of Finance. Many young graduates aim to get into SEBI as Grade A officers. In this blog, we are going to discuss regulations SEBI employees need to follow while working in the organization.

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Why was SEBI Constituted?: Objectives, Power & Functions

SEBI was constituted as a regulatory body as per the Companies Act, of 1956, the Securities Contract (Regulation) Act, of 1956, and the Capital Issues (Control) Act, of 1947. The purpose of SEBI formation is to regularize market trading and securities listing. The government of India gave additional power to SEBI in 1995 as per the SEBI Amendment Act 1992.

Objectives of SEBI Formation

The Preamble of SEBI states the objectives of the formation of this regulatory organization.

Promote the regulation in the share markets.
Promote the regulation and functioning of the securities markets operating in India.
Protect the interests of investors investing money in securities in the Indian share markets.

Structure & Functioning of the Securities Exchange Board of India (SEBI)

The formation and management of the Securities Exchange Board of India (SEBI) is handled by the Ministry of Finance. The board members are appointed in SEBI:

Management of the Board
Chairman of SEBI (Appointment by the Central Government)
2 Members (Appointed from the Union Ministry)
1 Member is from the Reserve Bank of India (RBI)
5 Other Members (Appointed by the Central Government) & 3 Members are full-time members of SEBI

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List of Powers Given to SEBI

SEBI India follows a corporate working structure in the regulation of share markets in India. The structure of SEBI comprises 20 departments which are supervised by the departmental heads (managers) in the organization. We have listed below the most critical departments in SEBI are:

The Information Technology Department
The Foreign Portfolio Investors & Custodians
Office of International Affairs
National Institute of Securities Market
Investment Management Market
Commodity and Derivative Market Regulation Department
Human Resource Department
Legal, Financial & Enforcement Related Affairs

Let us check out the powers given to the Securities Exchange Board of India (SEBI):

Quasi-Judicial Powers: SEBI can pass judgments in cases of fraud and unethical practices conducted in the securities market.
Executive Powers: SEBI examines books of accounts to know if any malpractices were conducted in the organization. If this body found any malpractices then, it holds the right to pass judgment.
Legislative Powers: SEBI acts as an authoritative body that has been entrusted to regulate the functioning and effective execution of rules and regulations in the share markets. This regulatory body tries to eliminate any malpractices in the share markets.

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Can SEBI Employees Trade in the Securities Market?

The securities market in India has developed in the last few decades. Many people invest in stocks to get high returns. SEBI employees are not allowed to invest in the securities market. The employees are prohibited from investing in the share market as per the SEBI (Prohibition of Insider Trading) Regulation 2015. Under this law, any professional working as an MP, board of directors, or associated with the promotor group is prohibited from investing in the securities listed in the security exchange. The amendment in the law was last made in November 2022 with the prohibition of communication of insiders with outside people.

List of Reasons for Not Allowing SEBI Employees to Trade in the Securities Market

SEBI acts as a regulator in the securities market and provides equal footing to investors and traders. Given below are the reasons for not allowing SEBI Employees to trade in the securities market:

SEBI employees play a crucial role in monitoring the crucial activities happening in regulating the securities market. Employees are exposed to a large extent of crucial information. Allowing employees to trade in the securities market will create a conflict of interest between employees and traders.
Most important for not allowing SEBI employees to trade in the securities market is they work closely with the companies. Therefore, the employees working in SEBI fall under the purview of insiders as per Regulation 2 (1) (g) of SEBI (Prohibition of Insider Trading) Regulations, 2015. It would be unfair to allow employees to trade. They possess sensitive information about companies.
Maintaining effective functioning and regulating the share markets is the ultimate objective of SEBI’s existence. If SEBI employees participate in trading activities it may cause malfunctioning and sudden pricing fluctuations in the Indian securities market.

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Summing Up

From the above discussion in the blog post, we conclude that SEBI plays a crucial role in regulating the functioning of the securities market in India. SEBI employees are not allowed to trade in the securities market as an initiative to regularize the organization’s functioning and authenticity.

Frequently Asked Questions

What happens if your family members (parents, in-laws & spouse) invest in shares before you join SEBI?

Employees on joining SEBI have to update the assets and liabilities information in 30 days as per Section 44 (2) of the Lokpal and Lokayuktas Act, 2013.
Every SEBI employee has to file assets and liabilities with the board before July 31st every year.
SEBI employee has to report the transactions of movable assets and securities that happened in his or her name or in the name of family members.

What will happen if your spouse/wife invests in shares before you become a SEBI employee?

The finance/spouse can invest in securities but, upon marriage same rules apply.
These rules and regulations are applicable as per Regulation 65 of SEBI (Employees’ Service) Regulations, 2001.
The employees and their spouses are allowed in mutual funds and long-term savings for investment purposes.

If these violations are not taken care of then, what actions can SEBI take?

SEBI can impose penalties if any employee violates the regulations.
Regulation 79 of the SEBI (Employees’ Service) Regulations, 2001 provides the minor and major penalties imposed on employees for violation of rules.
A list of minor penalties includes censure, withholding of promotion, and withholding of increments of pay.
Some of the major penalties are removal/termination from services and compulsory retirement.
A list of major penalties is discussed in Regulation 80 of the SEBI (Employees’ Service) Regulations, 2001.

Divya Sharma

My Role as a Content Writer in PracticeMock is to craft research based blogs. I ensure that aspirants get accurate information on government exams through blogs.