Question:
State any three protective functions of Securities and Exchange Board of India (SEBI).
State any three protective functions of Securities and Exchange Board of India (SEBI).
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To remember SEBI’s protective functions, associate them with prevention and awareness:
1. Prevent Price Rigging (Unfair practices).
2. Prevent Insider Trading.
3. Promote Investor Education and Fair Codes of Conduct.
Updated On: Jul 18, 2026
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The Correct Option is A
Solution and Explanation
Concept:
The Securities and Exchange Board of India (SEBI) was established to regulate the Indian securities market and protect the interests of investors. Its functions are broadly classified into Regulatory, Development, and Protective functions. The Protective Functions are aimed directly at safeguarding the interests of investors, preventing financial malpractices, and ensuring a fair, transparent trading environment.
Step 1: Prohibition of Fraudulent and Unfair Trade Practices
SEBI strictly prohibits manipulative practices that distort stock prices or deceive innocent retail investors.
• This includes controlling activities like Price Rigging, where certain operators collude to artificially inflate or deflate the market price of a company's shares to make illicit profits.
• It also bars companies or intermediaries from spreading misleading, incomplete, or false statements that could induce people to buy or sell securities based on incorrect information.
Step 2: Prohibition of Insider Trading
Insider trading occurs when individuals close to a company's management use unpublished, price-sensitive information to make personal profits in the stock market.
• Directors, promoters, or top managers have early access to critical company secrets (such as financial results, bonus issues, mergers, or new contracts) before they are released to the public.
• SEBI prevents these insiders from trading in the company's securities or passing on tips to associates during this period, ensuring a level playing field for all investors.
Step 3: Undertaking Steps for Investor Protection and Education
SEBI works proactively to educate and empower investors so they can protect themselves from fraudulent schemes.
• It conducts investor awareness campaigns, publishes educational resources, and hosts workshops to teach the public about market risks, grievance redressal mechanisms, and safe investment strategies.
• Additionally, SEBI enforces a comprehensive Code of Conduct on corporate entities and market intermediaries (such as merchant bankers, brokers, sub-brokers, and mutual fund managers) to ensure they deal with clients ethically and transparently.
SEBI strictly prohibits manipulative practices that distort stock prices or deceive innocent retail investors.
• This includes controlling activities like Price Rigging, where certain operators collude to artificially inflate or deflate the market price of a company's shares to make illicit profits.
• It also bars companies or intermediaries from spreading misleading, incomplete, or false statements that could induce people to buy or sell securities based on incorrect information.
Step 2: Prohibition of Insider Trading
Insider trading occurs when individuals close to a company's management use unpublished, price-sensitive information to make personal profits in the stock market.
• Directors, promoters, or top managers have early access to critical company secrets (such as financial results, bonus issues, mergers, or new contracts) before they are released to the public.
• SEBI prevents these insiders from trading in the company's securities or passing on tips to associates during this period, ensuring a level playing field for all investors.
Step 3: Undertaking Steps for Investor Protection and Education
SEBI works proactively to educate and empower investors so they can protect themselves from fraudulent schemes.
• It conducts investor awareness campaigns, publishes educational resources, and hosts workshops to teach the public about market risks, grievance redressal mechanisms, and safe investment strategies.
• Additionally, SEBI enforces a comprehensive Code of Conduct on corporate entities and market intermediaries (such as merchant bankers, brokers, sub-brokers, and mutual fund managers) to ensure they deal with clients ethically and transparently.
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