Understanding SEBI Regulations: Investor Protection in Indian Stock Market
Complete guide to SEBI regulations for investors. Learn about investor protection rules, complaint mechanisms, market regulations, and your rights as an Indian stock market investor.
When Rajesh’s Broker Cheated Him
Rajesh had ₹3 lakh in his trading account. One day, he noticed unauthorized trades—stocks bought and sold without his permission. His broker denied responsibility.
“What can I do?” he wondered. “It’s a big broker, I’m just one investor.”
Then he discovered SEBI SCORES—the online complaint system. He filed a complaint, and within 30 days, SEBI intervened. His broker had to compensate him fully.
This guide explains SEBI regulations—your shield in the stock market.
What is SEBI?
The Regulator
SEBI = Securities and Exchange Board of India
- Established: 1992
- Headquarters: Mumbai
- Role: Regulator of securities markets in India
SEBI’s Mission
| Objective | What It Means for You |
|---|---|
| Protect Investors | Ensures fair treatment |
| Develop Markets | Creates efficient systems |
| Regulate Markets | Prevents manipulation |
Who SEBI Regulates
| Entity | Examples |
|---|---|
| Stock Exchanges | NSE, BSE |
| Brokers | Zerodha, ICICI Direct |
| Mutual Funds | All AMCs |
| Companies | Listed companies |
| Depositories | NSDL, CDSL |
| FPIs | Foreign investors |
| Credit Rating Agencies | CRISIL, ICRA |
Key SEBI Regulations That Protect You
1. KYC (Know Your Customer)
What It Is: Identity verification before opening accounts
Benefit to You:
- Prevents identity theft
- Creates audit trail
- Ensures accountability
Your Responsibility:
- Provide accurate information
- Update if details change
- Keep documents handy
2. Segregation of Client Funds
Regulation: Brokers must keep your money separate from theirs
What It Means:
- Your ₹1 lakh can’t be used by broker for their trades
- If broker goes bankrupt, your money is protected
- Bank accounts must be designated “Client Account”
3. Contract Notes
Regulation: Broker must send contract note within 24 hours of trade
Contract Note Contains:
| Information | Why It’s Important |
|---|---|
| Trade details | Date, time, price |
| Brokerage charged | Verify you’re not overcharged |
| Taxes | STT, GST breakdown |
| Order number | For dispute reference |
Your Action: Save contract notes. They’re legal proof of trades.
4. Investor Grievance Mechanism
Levels of Complaint:
- Broker’s customer service
- Exchange (NSE/BSE)
- SEBI SCORES
- Courts (last resort)
5. Disclosure Requirements
What Companies Must Disclose:
| Disclosure | Frequency |
|---|---|
| Quarterly results | Every 3 months |
| Annual report | Yearly |
| Related party transactions | As they occur |
| Shareholding pattern | Quarterly |
| Corporate announcements | As they occur |
Benefit: You can make informed decisions with this information.
Investor Protection Rules
Trading Account Protection
| Rule | Protection |
|---|---|
| PoA Restriction | Limited power of attorney (revised 2021) |
| Margin Requirement | Prevents over-leveraging |
| Peak Margin | Reported multiple times daily |
| Pledge Mechanism | Your securities can’t be misused |
Demat Account Protection
| Rule | What It Does |
|---|---|
| Nomination | Ensures transfer on death |
| SMS/Email Alerts | Notified of all transactions |
| Freeze Option | Can freeze account if not trading |
| Basic Services Demat | For small investors, limited charges |
Trading Protection
| Rule | Purpose |
|---|---|
| Circuit Breakers | Halt trading if price moves too much |
| Upper/Lower Circuits | Prevent extreme manipulation |
| T+1 Settlement | Faster, reduces counterparty risk |
Circuit Breakers and Trading Halts
Market-Wide Circuit Breakers
When Sensex/Nifty falls:
| Fall | Time of Trigger | Trading Halt |
|---|---|---|
| 10% | Before 1:00 PM | 45 minutes |
| 10% | At or after 1:00 PM | 15 minutes |
| 10% | At or after 2:30 PM | No halt |
| 15% | Before 1:00 PM | 1 hour 45 min |
| 15% | At or after 1:00 PM | 45 minutes |
| 15% | At or after 2:30 PM | Market closes |
| 20% | Any time | Market closes |
Purpose: Prevent panic selling, give time to assess information.
Stock-Specific Circuits
For Stocks in F&O Segment: No daily circuit limits (dynamic price bands)
For Other Stocks: Daily limits based on previous close
| Category | Circuit Limit |
|---|---|
| Most stocks | 20% |
| Some stocks | 10% or 5% |
SEBI SCORES: Your Complaint Platform
What is SCORES?
SCORES = SEBI Complaint Redress System
Online platform to file complaints against:
- Brokers
- Listed companies
- Mutual funds
- Other SEBI-regulated entities
How to File Complaint
Step 1: Go to scores.gov.in
Step 2: Register with:
- Name, PAN, email, mobile
Step 3: File complaint:
- Select entity type (broker, company, etc.)
- Enter entity name
- Describe complaint
- Upload documents
Step 4: Track status online
Timeline
| Stage | Expected Time |
|---|---|
| Acknowledgment | Immediate |
| Entity must respond | 30 days |
| Resolution | 30-45 days typical |
| Escalation option | If not satisfied |
Sample Complaints You Can File
| Issue | Example |
|---|---|
| Unauthorized trades | Broker executed trades without permission |
| Non-receipt of securities | Shares not credited after purchase |
| Dividend not received | Company paid dividend, you didn’t get it |
| Poor service | Broker not responding to queries |
| Excess charges | Overcharged brokerage/fees |
Tips for Effective Complaint
- Be Specific: Dates, amounts, trade IDs
- Attach Proofs: Screenshots, contract notes
- Timeline: When did issue occur
- Previous Attempts: Show you tried with entity first
- Clear Ask: What resolution you want
Understanding Insider Trading Rules
What is Insider Trading?
Trading based on Unpublished Price Sensitive Information (UPSI).
UPSI Includes
| Information Type | Example |
|---|---|
| Financial results | Quarterly profit before announcement |
| Mergers/Acquisitions | Planned acquisition |
| Dividends | Before board declares |
| Change in key management | CEO resignation |
| Major contracts | Large order win |
Who is an Insider?
| Category | Example |
|---|---|
| Connected Persons | Directors, employees, auditors |
| Relatives | Spouse, parents, siblings |
| Anyone with UPSI | Even if accidentally received |
Penalties for Insider Trading
| Penalty Type | Amount |
|---|---|
| Minimum Penalty | ₹10 lakh OR 3x profit made |
| Maximum Penalty | ₹25 crore OR 3x profit made |
| Imprisonment | Up to 10 years |
How It Affects You
As an Investor:
- You’re protected from unfair advantages
- Markets are more level playing field
- Information is disclosed fairly
As an Employee:
- Trading blackout during sensitive periods
- Must follow company’s insider trading policy
- Disclosure requirements for trades
Fraud and Market Manipulation
Types of Market Manipulation
| Type | Description | How It Harms |
|---|---|---|
| Pump and Dump | Inflate price, then sell | Retail buys at top |
| Circular Trading | Fake trades to show volume | Misleads about liquidity |
| Front Running | Trade before client orders | Broker profits at your expense |
| Spoofing | Fake orders to move prices | Artificial price movement |
How SEBI Detects
- Surveillance Systems: AI monitoring unusual patterns
- Data Analytics: Cross-referencing trades
- Whistleblower Mechanism: Tip-offs rewarded
- Exchange Surveillance: Real-time monitoring
Recent Enforcement Examples
| Case | Action |
|---|---|
| Stock manipulators | Banned from market, fines |
| Front running by brokers | License revoked, penalties |
| Audit failures | Debarment of auditors |
Your Rights as an Investor
Right to Information
| Information | Where to Get |
|---|---|
| Company financials | BSE/NSE websites, Annual Reports |
| Shareholding pattern | Exchange websites |
| Insider trading | Disclosures on exchanges |
| Corporate announcements | Exchange websites |
| Mutual fund details | AMC website, AMFI |
Right to Fair Treatment
- Equal access to information
- Same rules for all investors
- No preferential treatment
Right to Redressal
- Complaint mechanisms available
- Time-bound resolution
- Escalation options
Right to Exit
- Sell your holdings anytime (market hours)
- Exit from schemes (with applicable exit load)
- Transfer shares freely
Margin Trading Rules (Post-2021)
What Changed
Peak Margin Reporting:
- Margins checked multiple times daily
- Can’t use morning profit for afternoon trades (same day)
- Must have money before trade, not after
Impact on You
| Before | After |
|---|---|
| Could use full day’s profits | Must have upfront margin |
| Lower margin requirements | Higher margin needs |
| More leverage available | Leverage reduced |
Why This Helps
- Reduces systemic risk
- Prevents broker defaults
- Protects your money from broker’s risky clients
Mutual Fund Regulations
For Your Protection
| Rule | Benefit |
|---|---|
| NAV Transparency | Daily published, verifiable |
| Expense Ratio Caps | Limits what funds can charge |
| Category Classification | Clear what fund invests in |
| Direct Plans | Option to avoid distributor commission |
| No Entry Load | Can’t charge for investing |
| Exit Load Limits | Capped and disclosed |
Fund House Requirements
| Requirement | Purpose |
|---|---|
| SEBI Registration | Authorization to operate |
| Minimum Net Worth | Financial stability |
| Custodian Arrangement | Safeguard assets |
| Regular Disclosures | Transparency |
Recent Regulatory Changes
T+1 Settlement (2022-23)
What Changed: Shares credited next day instead of T+2
Benefit to You:
- Faster access to proceeds
- Reduced counterparty risk
- Can reinvest sooner
Basic Services Demat Account (BSDA)
For Small Investors (holdings < ₹10 lakh):
- Lower annual maintenance charges
- Must have single demat account
- Automatic downgrade to regular if holdings exceed
Digital Nomination
Requirement: Nomination now mandatory for all demat accounts
Process: Can be done online through broker
Why It Matters: Ensures smooth transfer if something happens to you
Protecting Yourself
Before Investing
| Action | Why |
|---|---|
| Check broker registration | SEBI registered only |
| Read risk disclosures | Understand what you’re getting into |
| Understand charges | Avoid surprises |
| Set up alerts | SMS/email for all transactions |
While Investing
| Action | Why |
|---|---|
| Keep records | Contract notes, statements |
| Monitor account | Regular check for unauthorized activity |
| Update KYC | Keep details current |
| Use 2FA | Two-factor authentication |
If Something Goes Wrong
| Step | Action |
|---|---|
| 1 | Contact broker’s customer service |
| 2 | Escalate to compliance officer |
| 3 | Complain to exchange (NSE/BSE) |
| 4 | File on SEBI SCORES |
| 5 | Legal action (last resort) |
Common Investor Concerns
“What if my broker goes bankrupt?”
Protection:
- Client money is segregated
- Investor Protection Fund covers up to ₹25 lakh per client
- SEBI monitors broker financials
“What if company commits fraud?”
Protection:
- SEBI can investigate
- Recovery through attachment of assets
- Criminal prosecution possible
“What if I receive manipulated stock tip?”
Advice:
- Don’t act on unsolicited tips
- Report suspicious messages
- Use SEBI’s app to check registered advisors
“What if broker overcharges me?”
Action:
- Compare with published tariff
- Raise dispute with broker
- File SCORES complaint if unresolved
Important SEBI Resources
Websites
| Resource | URL | Purpose |
|---|---|---|
| SEBI Main | sebi.gov.in | Regulations, circulars |
| SCORES | scores.gov.in | Complaints |
| SEBI IGMS | Any pending complaints | Alternate grievance |
| NSE | nseindia.com | Exchange info |
| BSE | bseindia.com | Exchange info |
Important Documents to Keep
| Document | Retention Period |
|---|---|
| Contract notes | 5 years minimum |
| Account statements | 7 years |
| Tax documents | 8 years |
| KYC documents | Always |
SEBI Registered Entities Check
Before dealing with anyone, verify at:
- SEBI website
- intermediaries.html section
- Search by name/registration number
Your Regulatory Checklist
Account Opening
- Verify broker is SEBI registered
- Read and understand risk disclosures
- Set up transaction alerts
- Complete nomination
- Keep copies of all signed documents
Ongoing
- Check contract notes after every trade
- Verify monthly account statements
- Update KYC if details change
- Monitor for unauthorized transactions
- Keep records organized
If Problem Occurs
- Document everything
- First contact entity’s grievance cell
- Escalate to exchange if unresolved
- File SEBI SCORES as needed
- Know your rights
Risk Disclaimer
Understanding regulations doesn’t eliminate investment risk. Market investments are subject to market risk. This guide is for education only. For specific regulatory queries, consult SEBI’s website or a legal professional.
Summary
SEBI regulations exist to protect you:
- Registration: Only deal with SEBI-registered entities
- Segregation: Your money is protected from broker misuse
- Disclosure: Companies must share information
- Redressal: SCORES is your complaint platform
- Fair Markets: Rules against manipulation protect everyone
Know your rights. Use them when needed. SEBI is on your side.
Social Media Posts
LinkedIn: “In 2020, my colleague lost ₹2 lakh to unauthorized broker trades. He thought he had no recourse. Then he discovered SEBI SCORES. Within 45 days, full recovery. Lesson: Know your rights. SEBI regulations exist to protect investors—but only if you use them. #SEBIIndia #InvestorProtection”
Twitter/X: “Investor protection in India:
✅ Client funds segregation ✅ T+1 settlement ✅ SEBI SCORES for complaints ✅ ₹25 lakh investor protection fund ✅ Mandatory disclosures
Know your rights. Use SEBI if needed. The system works—if you know how to use it. #SEBI”
Instagram: “What to do if your broker cheats you 🚨
Step 1: Document everything 📝 Step 2: Complain to broker’s grievance cell ☎️ Step 3: Escalate to stock exchange 📋 Step 4: File on SEBI SCORES 💻 Step 5: Resolution in 30-45 days ⏱️
SEBI protects investors. Know your rights! 💪
#SEBIIndia #InvestorRights”