SEBI Act 1992

The SEBI Act was enacted by Parliament on 12 April 1992 and came into force on 30 January 1993. It transformed SEBI from a statutory body into a statutory regulator with quasi‑judicial powers, enabling it to protect investor interests, develop the securities market, and regulate market participants.

The Act defines SEBI's jurisdiction over securities, derivatives, mutual funds, and capital market intermediaries. It also empowers SEBI to issue regulations, conduct inspections, and impose penalties for non‑compliance. For an investment adviser, the Act provides the legal backbone for the advisory licence, KYC norms, and suitability obligations.

Exam relevance: The NISM exam frequently asks which sections empower SEBI to intervene, the definition of “securities,” and the statutory duties of an investment adviser under the Act. Remember that the Act is the primary source; SEBI regulations are secondary but derived from it.

• Section 11 – SEBI’s powers to regulate securities markets.
• Section 12 – Power to issue directions to intermediaries.

The Act aims to (i) protect the interests of investors, (ii) promote the development of the securities market, and (iii) regulate its functioning. These three pillars are repeated in many exam questions and form the basis for interpreting SEBI’s actions.

Scope-wise, the Act covers all entities dealing in securities – stock exchanges, brokers, mutual funds, depositories, and investment advisers. It also extends to foreign entities that operate in India, making cross‑border compliance a must‑know area.

Why it matters: If an advisory firm breaches any provision, SEBI can invoke the Act to levy penalties, suspend the licence, or even initiate criminal prosecution. The exam tests your ability to link a breach (e.g., unauthorised recommendation) to the appropriate statutory provision.

The Act is divided into 23 sections and several schedules. The most frequently examined parts are Sections 11 to 15 (regulatory powers), Section 27 (penalties), and Section 35 (offences). Each section is concise but packed with legal language that the exam expects you to paraphrase.

Section 11 empowers SEBI to make rules, while Section 12 allows it to issue directions to any market participant. Section 13 gives SEBI the authority to conduct inquiries and inspections. Section 14 provides for the appointment of adjudicating officers, and Section 15 outlines the power to levy penalties.

Remember: The Act’s schedules contain definitions (e.g., “securities”, “intermediary”) and forms that are often referenced in multiple-choice questions. Memorising the schedule definitions can save time during the exam.

For investment advisers, Sections 11A, 11B, and 11C are crucial. Section 11A deals with the registration of investment advisers, specifying eligibility criteria such as net‑worth, qualifications, and compliance officer appointment. Section 11B outlines the duties of an adviser, including suitability assessment, disclosure of conflicts, and maintenance of records.

Section 11C prescribes the code of conduct, covering advertising standards, fee structures, and the prohibition of insider trading. Non‑compliance attracts penalties under Section 27, which can be up to ₹10 crore or imprisonment, whichever is higher.

Exam tip: Questions often present a scenario and ask which section is violated. Map the scenario to the section by recalling the key verb – “registration” (11A), “duties” (11B), “code of conduct” (11C).

SEBI’s powers are classified into (i) rule‑making, (ii) supervisory, (iii) enforcement, and (iv) adjudicatory. Rule‑making (Section 11) allows SEBI to frame detailed regulations, such as the Investment Advisers Regulations, 2013.

Supervisory powers include inspections (Section 13) and the power to call for information. Enforcement powers let SEBI issue cease‑and‑desist orders, impose fines, or suspend licences under Section 15.

Adjudicatory authority is exercised by the Securities Appellate Tribunal (SAT) as per Section 14. Understanding this hierarchy helps you answer questions on the correct forum for appeals or disputes.

Compliance under the SEBI Act mandates that advisers maintain a robust compliance manual, appoint a compliance officer, and file periodic returns with SEBI. The manual must detail KYC procedures, risk profiling, and record‑keeping standards as per Section 11B.

Advisers must also adhere to the “fit and proper” criteria, which include net‑worth thresholds (₹5 crore for individuals, ₹25 crore for firms) and professional qualifications. Failure to meet these criteria leads to rejection of the registration application under Section 11A.

Exam tip: Questions often ask which document proves compliance. The correct answer is the “Compliance Manual” filed under Section 11B, not the annual audit report.

Since 1992, the SEBI Act has been amended multiple times to keep pace with market evolution. Notable amendments include the introduction of the Investment Advisers Regulations, 2013 (amending Section 11A‑C) and the 2020 amendment that lowered the net‑worth requirement for individual advisers to ₹1 crore.

Recent circulars have clarified the definition of “client” to include non‑resident Indians (NRIs) and introduced stricter cyber‑security norms for advisory platforms. These updates are frequently reflected in exam questions that test the candidate’s awareness of the latest regulatory environment.

Remember: The exam syllabus is updated annually. Always verify that you are studying the latest amendment dates, especially for net‑worth and fee‑disclosure requirements.