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 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.
(i) Quote lines from the above to identify the two functions being performed by SEBI.

Hint:

Regulatory functions relate to the 'rules and supervision' of market participants. Protective functions relate to 'investor safety' and 'preventing malpractice'. Always look for words like 'inspection' or 'audit' for regulatory and 'fraud' or 'prohibited' for protective.

Answer 1

Step 1: Identify the concept being tested.
The case is built around the functions performed by SEBI, the Securities and Exchange Board of India, which watches over the stock market so that investors like Riya are not cheated.
Step 2: Explain the concept.
SEBI's Regulatory Functions cover things like registering brokers and agents, laying down rules for trading, and conducting enquiries and audits of stock exchanges. Its Protective Functions exist purely to guard investors, by checking fraudulent and unfair practices such as price rigging and insider trading.
Step 3: Apply the concept to the facts of the case.
When Smart-Tech Ltd's share price shot up on rumours and then crashed, SEBI called for detailed trading information and carried out enquiries and inspections, which is its Regulatory Function in action. When SEBI then took action against the group of traders responsible for spreading the false rumour and manipulating the price, that was its Protective Function, since it directly shielded investors like Riya from loss due to fraud.
Step 4: State the final answer.
Regulatory Function: SEBI called for detailed trading records and conducted enquiries and inspections into the matter. Protective Function: SEBI took action against the group of traders who had rigged the price, protecting investors from unfair practices.