The government and the stock exchange were rather helpless in addressing the investors’ problems because of the lack of proper penal provisions in the existing legislation, so it was decided to set up a regulatory body known as:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Securities and Exchange Board of India (SEBI)
Option (1) Consumer Courts — Incorrect. These are the District, State and National Commissions under the Consumer Protection Act. They settle complaints of consumers of goods and services, not the problems of the securities market.
Option (2) Securities and Exchange Board of India (SEBI) — Correct. In the 1980s the number of investors grew fast, and so did malpractices such as rigging of prices, unofficial premium on new issues and delay in delivery of shares. The laws of the time had no proper penal provisions, so wrongdoers could not be punished. The Government therefore set up SEBI as a separate regulatory body in 1988. It was given statutory powers by the SEBI Act, 1992.
Option (3) Customer Support Services — Incorrect. This is a service a company gives its own customers. It is not a regulator.
Option (4) Redressal Agencies — Incorrect. This is the general name for the consumer commissions. It does not name a securities market regulator.
Note: Although the chapter ‘Financial Markets’ was dropped from the NCERT textbooks during rationalisation, it has stayed in the NTA syllabus every year since 2022, except for 2025, and it is part of the syllabus again from 2026. This question is therefore based on the pre-rationalised NCERT, an extract from which is given below.
NCERT (Pre-rationalised Edition): “Reasons for the Establishment of SEBI … These malpractices and unfair trading practices have eroded investor confidence and multiplied investor grievances. The Government and the stock exchanges were rather helpless in redressing the investor’s problems because of lack of proper penal provisions in the existing legislation. In view of the above, the Government of India decided to set-up a separate regulatory body known as Securities and Exchange Board of India.” |