SEBI, India's capital market regulator, is 25

The Securities and Exchange Board of India (SEBI) celebrates its silver jubilee Friday amid calls that the capital market regulator needs to follow global standards and improve market intelligence, technology and talent pool to beef up the enforcement processes, protect investors and allow the launch of more investment products.

Prime Minister Manmohan Singh and Finance Minister P. Chidambaram will grace the 25th anniversary celebrations in Mumbai.

As the equity culture in the country took roots, the government realised that the capital market needed to be regulated by an independent regulator. Through an executive order in 1988, the government created SEBI. Four years later, the institution got statutory powers after the SEBI Act was passed by Parliament in 1992, the year in which the Rs.5,000-crore Harshad Mehta securities scam hit Indian stock markets.

SEBI has three functions -- regulation-making powers, quasi-judicial or enforcement powers and policy freedom. Now it has been provided with more teeth and its board is fully powered under the Act to enact its own regulation in its jurisdiction areas.

"SEBI has recommended a single regulator for all deposit-taking activities, under whatever name those deposits are being taken. The multiplicity of agencies is adding to the confusion and people are able to take advantage of that. Under the Income Tax Act and the Competition Commission of India Act, they have been given powers to recover. So, we have asked for similar powers," Chairman U.K. Sinha said in a recent interview.

"Second, we have asked for call data records to be made available to us. If two people are conversing on the phone, I don't want to intercept and hear what they are talking about. However, at least the call data record should be given to me; globally, it is available. Third, we have said we should have the power to demand documents and material be produced."

In recent months, the regulator has been seeking to strengthen insider-trading norms, expand its presence through branch offices, work with police and local enforcement agencies, improve corporate governance norms and boost control over deposit-taking firms.

In its 25-year journey, SEBI has earned respect by trying to clean up India's equity cash market, establishing a modern equity derivatives market and transforming the primary market through better processes. Finance Minister Chidambaram said in his budget speech this year: "I believe that India's capital market is among the best regulated markets."

Here's a look at some of the achievements of the capital market regulator:

Dematerialisation of shares: SEBI introduced dematerialised holding of shares and securities after the Depositories Act was passed in 1996. This Act did away with physical certificates, which were prone to postal delays, theft and forgery.

Faster settlement process: It is credited with quickly moving from a T+5 settlement cycle in 2001 to T+2 in 2003. This meant two days between the trade and shares being credited to the buyers' account, down from five.

Fostering mutual fund industry: SEBI has adopted many steps to increase the popularity of mutual fund products and prevent mis-selling of products. Some of the initiatives include know your customer (KYC) norms for small investors. And by banning entry loads for mutual fund schemes in 2009, SEBI curbed mis-selling of mutual fund products as investors would now only voluntarily pay the distributor for advisory service.

Market analysts say although SEBI has the same statutory powers as the civil court has, it has not made much progress in enforcement. Some violations even go unnoticed due to its limited access, insufficient resources or government intervention.

They say the regulator should also establish self-regulatory organizations (SROs), a better and transparent consent order mechanism, and rules over market intermediaries to face key challenges in future.