Question

Riya, a software engineer wanted to invest a part of her savings in the stock-market. Encouraged by some online discussions, she came across a company ‘Smart-Tech Ltd.’, whose stock price was rising very fast. News began to circulate that company had got a large government contract and she believed that its share price would double soon. Convinced by the positive claims, Riya also invested in the shares of this company. Over the next week, the shares continued to rise but suddenly, the price started crashing. Within days, her investment had lost more than 60% of its value. Riya started researching and discovered that the news about the government contract was false. Securities and Exchange Board of India (SEBI) also took immediate notice of the situation and called for detailed trading information and conducted enquiries and inspections. After examining trading information and conducting enquiries, SEBI found that a group of traders had spread false information to artificially boost the stock price. By taking action against the group of traders, SEBI made it clear that fraudulent and unfair trade practices are strictly prohibited.
Quote lines from the above to identify the two functions being performed by SEBI.

Hint:

Remember: Conducted audits/inspections = Regulatory Function. Banned unfair/fraudulent trade practices = Protective Function.

Answer 1

Correct Answer: 4

Step 1: Recall SEBI's functional categories.
SEBI (Securities and Exchange Board of India) performs three broad categories of functions: Protective, Developmental, and Regulatory. The case highlights two of these.
Step 2: Identify Function 1 - Regulatory Function.
Regulatory functions involve overseeing and supervising the activities of market participants to ensure fair and orderly market conduct.
Step 3: Quote from the case for Regulatory Function.
The line - "called for detailed trading information and conducted enquiries and inspections" - directly describes SEBI exercising its regulatory power to monitor and investigate market activities.
Step 4: Identify Function 2 - Protective Function.
Protective functions involve safeguarding investors from fraudulent, unfair, or manipulative market practices.
Step 5: Quote from the case for Protective Function.
The line - "By taking action against the group of traders, SEBI made it clear that fraudulent and unfair trade practices are strictly prohibited" - directly shows SEBI fulfilling its duty to protect ordinary investors like Riya from manipulation.
Step 6: Conclude.
The two functions of SEBI identified from the case are: (1) Regulatory Function - evident from conducting enquiries and inspections; and (2) Protective Function - evident from taking strict action against the group spreading false information.
\[ \boxed{ \text{SEBI Functions identified: Regulatory (enquiries/inspections) and Protective (action against fraud)} } \]