Samacheer Kalvi 12th Commerce Chapter 8 Securities Exchange Board of India Exercise Solutions

Q: What is a Demat Account?

A Demat (Dematerialisation) Account holds shares and securities in electronic form instead of physical certificates, eliminating risks of loss, theft, and forgery.

Q: What is Insider Trading?

Insider trading refers to buying or selling securities by directors, promoters, or key personnel who have access to confidential, price-sensitive information about the company.

I. Choose the Correct Answer

Q1. SEBI was established in the year

(a) 1985
(b) 1986
(c) 1988
(d) 1990

Q2. SEBI has its headquarters at

(a) Delhi
(b) Bombay/Mumbai
(c) Chennai
(d) Kolkata

Answer(b) Bombay/Mumbai — SEBI has its headquarters at the Bandra Kurla Complex, Mumbai.

Q3. SEBI was set up as a non-statutory body in

(a) 1985
(b) 1986
(c) 1988
(d) 1992

Q4. The process of converting physical shares into electronic form is called

(a) Rematerialisation
(b) Dematerialisation
(c) Registration
(d) None of the above

Answer(b) Dematerialisation — Dematerialisation is the process of converting physical share certificates into electronic form.

Q5. The number of members in SEBI board is

(a) 2
(b) 4
(c) 3
(d) 5

Answer(c) 3 — Note: The textbook answer lists 3 members. (SEBI's board composition has changed over time; follow the textbook answer for exams.)

Q6. The word 'DEMAT' refers to

(a) Materialisation
(b) Dematerialisation
(c) Registration
(d) Account

Answer(b) Dematerialisation — DEMAT stands for Dematerialisation, which is the process of converting physical securities into electronic form.

Q7. The Depository Act was passed in

(a) 1992
(b) 1994
(c) December 1996
(d) 1998

Answer(c) December 1996 — The Depository Act was passed in December 1996 to provide legal framework for dematerialisation of securities.

Q8. The first company to dematerialise its shares was

(a) Tata Motors
(b) Reliance Industries
(c) Infosys
(d) Wipro

Answer(b) Reliance Industries — Reliance Industries was the first company to dematerialise its shares.

Q9. SEBI regulates the working of

(a) Commercial banks
(b) Mutual funds
(c) Insurance companies
(d) All of the above

Answer(b) Mutual Funds — SEBI regulates mutual funds along with stock exchanges and other securities market intermediaries.

Q10. The expanded form of PAN is

(a) Permanent Account Name
(b) Permanent Account Number
(c) Personal Account Number
(d) Primary Account Number

Answer(b) Permanent Account Number — PAN stands for Permanent Account Number, a 10-digit alphanumeric identity for taxpayers.

II. Choose the Correct Answer (Additional MCQs)

Q1. The SEBI Act was passed in the year

(a) 1988
(b) 1990
(c) 1992
(d) 1995

Q2. The foremost objective of SEBI is

(a) Regulation
(b) Security
(c) Development
(d) Control

Answer(b) Security — The protection of investors' interests (security) is the foremost objective of SEBI.

Q3. SEBI was given statutory powers in

(a) 1988
(b) 1990
(c) 1992
(d) 1995

Q4. The apex body of the securities market is

(a) RBI
(b) BSE
(c) SEBI
(d) NSE

Answer(c) SEBI — SEBI is the apex regulatory body for the securities market in India.

Q5. The number of members in SEBI board including the chairman is

(a) 4
(b) 5
(c) 6
(d) 8

Answer(c) 6 — The SEBI board consists of 6 members including the chairman.

Q6. Find the odd one out among the following ID proofs

(a) PAN card
(b) Voter's ID
(c) Post Card
(d) Passport

Answer(c) Post Card — PAN card, Voter's ID, and Passport are valid identity proofs. Post Card is not accepted as an ID proof.

Q7. Which of the following is not correctly matched?

(a) SEBI — 12 members
(b) DEMAT — Dematerialisation
(c) PAN — Permanent Account Number
(d) NSDL — National Securities Depository Limited

Answer(a) SEBI — 12 members is NOT correctly matched. The SEBI board has 6 members including the chairman, not 12.

Q8. Which of the following statements are correct?

(i) SEBI Act was passed in 1992
(ii) SEBI protects the interests of investors
(iii) SEBI regulates the stock exchange

(a) i and ii only
(b) ii and iii only
(c) i and iii only
(d) All are correct (i, ii, and iii)

Answer(d) All are correct — (i) SEBI Act was passed in 1992, (ii) SEBI protects investor interests, and (iii) SEBI regulates stock exchanges.

III. Match the Following

	Column I		Column II
(i)	SEBI	(1)	Dematerialisation
(ii)	DEMAT	(2)	Supervisory Body
(iii)	PAN	(3)	Permanent Account Number
(iv)	Insider Trading	(4)	Buying and Selling by director

Answer

(i) — 2: SEBI → Supervisory Body
(ii) — 1: DEMAT → Dematerialisation
(iii) — 3: PAN → Permanent Account Number
(iv) — 4: Insider Trading → Buying and Selling by director

IV. Assertion and Reason

Q1. Assertion (A): One can buy or sell any amount of shares through a DEMAT account. Reason (R): DEMAT account holds shares in electronic form at the request of the investor.

(a) Both A and R are true, R is the correct explanation of A
(b) Both A and R are true, R is not the correct explanation of A
(c) A is true but R is false
(d) A is false but R is true

Answer(a) Both A and R are true, and R is the correct explanation of A. Since shares are held in electronic form in a DEMAT account (as stated in R), there is no restriction on the number of shares that can be bought or sold (as stated in A).

Q2. Assertion (A): SEBI is a supervisory body that regulates the stock exchange. Reason (R): SEBI cannot regulate the activities of stock exchanges.

(a) Both A and R are true, R is the correct explanation of A
(b) Both A and R are true, R is not the correct explanation of A
(c) A is true but R is false
(d) A is false but R is true

Answer(c) A is true but R is false. SEBI IS a supervisory body that regulates the stock exchange. The Reason is false because SEBI CAN regulate the activities of stock exchanges — that is one of its primary functions.

V. Very Short Answer Questions

Q1. When was SEBI established?

AnswerSEBI was established in 1988 as a non-statutory body. It was given statutory powers in 1992 through the SEBI Act.

Q2. What are the two objectives of SEBI?

AnswerThe two objectives of SEBI are: 1. Control over brokers: To exercise effective control over the functioning of stock exchanges and their intermediaries (brokers, sub-brokers, etc.). 2. Regulation of stock exchanges: To regulate the activities of stock exchanges and ensure fair and transparent trading practices.

Q3. What is a Demat Account?

AnswerA Demat (Dematerialisation) Account is an account that holds shares and securities in electronic form instead of physical certificates. It eliminates the risks associated with physical certificates such as loss, theft, forgery, and damage.

Q4. Where is the headquarters of SEBI located?

AnswerThe headquarters of SEBI is located at Bandra Kurla Complex, Mumbai.

Q5. What are the ID proofs required for opening a Demat Account?

AnswerThe ID proofs required for opening a Demat Account include: 1. PAN card 2. Voter's ID 3. Passport 4. Driver's license 5. Bank attestation 6. Income Tax returns 7. Electricity bill / Telephone bill 8. Government ID cards

Q6. What is PAN?

AnswerPAN stands for Permanent Account Number. It is a 10-digit alphanumeric identity number issued by the Income Tax Department to all taxpayers. It serves as a unique identifier for tax purposes and is mandatory for financial transactions including opening a Demat Account.

VI. Short Answer Questions

Q1. What is Dematerialisation?

AnswerDematerialisation is the process of converting physical share certificates into electronic form. In this process, the physical certificates are taken back by the depository and destroyed, and an equivalent number of electronic securities are credited to the investor's Demat account. This eliminates the risks of loss, theft, forgery, and damage associated with physical certificates.

Q2. What are the documents required for opening a Demat Account?

AnswerThe following documents are required for opening a Demat Account: 1. Proof of identity (PAN card, Voter's ID, Passport, Driver's license) 2. Proof of address (Electricity bill, Telephone bill, Bank statement) 3. Passport-size photograph 4. Account opening form (filled and signed) 5. Income Tax returns (for address and identity verification)

Q3. What are the powers of SEBI under the Securities Contract Act?

AnswerThe powers of SEBI under the Securities Contract (Regulation) Act include: 1. Grant license: SEBI can grant license to stock exchanges and intermediaries. 2. Direct exchanges to amend rules: SEBI can direct stock exchanges to amend their rules and regulations. 3. Supersede governing body: SEBI can supersede the governing body of a stock exchange if it fails to comply with regulations. 4. Ask for information: SEBI can ask for information from stock exchanges and intermediaries. 5. Suspend business: SEBI can suspend the business of a stock exchange or intermediary. 6. Prohibit contracts: SEBI can prohibit certain contracts in securities that are detrimental to the market.

Q4. What is Insider Trading?

AnswerInsider trading refers to the buying and selling of securities by directors, promoters, or key personnel of a company who have access to confidential, price-sensitive information about the company that is not available to the general public. This gives them an unfair advantage over ordinary investors. SEBI strictly prohibits insider trading to protect the interests of small investors and ensure a fair market.

Q5. What are the three key functions of SEBI?

AnswerThe three key functions of SEBI are:

1. Quasi-legislative: SEBI has the power to frame rules and regulations for the securities market. It can draft guidelines, regulations, and bye-laws to regulate market participants.

2. Quasi-judicial: SEBI has the authority to conduct enquiries and pass judgments on disputes and violations. It can impose penalties, issue directions, and adjudicate on matters related to securities fraud.

3. Quasi-executive: SEBI has the power to enforce its rules and regulations. It can conduct inspections, investigate complaints, and take action against violators including imposing monetary penalties.

VII. Long Answer Questions

Q1. What are the functions of SEBI?

AnswerThe functions of SEBI are:

1. Protection to Investors: SEBI protects the interests of investors by ensuring fair dealings, preventing fraudulent practices, and providing a mechanism for redressal of investor grievances.

2. Regulation of Stock Exchanges: SEBI regulates the functioning of stock exchanges to ensure transparency and fairness in trading.

3. Control over Intermediaries: SEBI exercises control over brokers, sub-brokers, merchant bankers, and other intermediaries to ensure they follow prescribed norms.

4. Registration of Mutual Funds: SEBI registers and regulates mutual funds to protect investors' interests.

5. Prevention of Fraudulent Practices: SEBI prevents fraudulent and unfair trade practices such as insider trading, price rigging, and manipulation.

6. Promotion of Fair Practices: SEBI promotes fair practices and ethical standards in the securities market.

7. Regulation of Underwriting: SEBI regulates the underwriting activities in the securities market.

8. Investor Education: SEBI undertakes investor education and awareness programmes to help investors make informed decisions.

9. Regulation of Substantial Acquisition: SEBI regulates the substantial acquisition of shares and takeovers to protect minority shareholders.

10. Registration and Regulation of Credit Rating Agencies: SEBI registers and regulates credit rating agencies.

11. Regulation of Venture Capital Funds: SEBI regulates venture capital funds and collective investment schemes.

12. Levying Fees and Penalties: SEBI has the power to levy fees and penalties on market participants for violations.

Q2. What are the powers of SEBI?

AnswerThe powers of SEBI are:

1. Powers over Stock Exchanges and Intermediaries:

Answer

SEBI can grant, renew, or cancel licenses of stock exchanges and intermediaries.
It can call for information from stock exchanges and intermediaries.
It can inspect the books and records of stock exchanges and intermediaries.

2. Power to Impose Monetary Penalties:

Answer

SEBI can impose monetary penalties on violators of securities laws.
The penalty amount can range from Rs. 1 lakh to Rs. 1 crore depending on the severity of the violation.

3. Power to Initiate Actions:

Answer

SEBI can initiate actions against persons who violate securities laws.
It can issue directions, prohibit persons from accessing the market, and suspend trading.

4. Power to Regulate Insider Trading:

Answer

SEBI can investigate and take action against insider trading.
It can prohibit persons with access to price-sensitive information from trading in securities.

5. Powers under the Securities Contracts (Regulation) Act:

Answer

Grant license to stock exchanges and intermediaries.
Direct exchanges to amend their rules.
Supersede the governing body of a stock exchange.
Ask for information from market participants.
Suspend business of a stock exchange or intermediary.
Prohibit contracts that are detrimental to the market.

Q3. What are the benefits of Dematerialisation?

AnswerThe benefits of Dematerialisation are:

1. Eliminates Risk of Loss, Theft, and Forgery: Since shares are held in electronic form, there is no risk of physical certificates being lost, stolen, or forged.

2. Reduces Paperwork: Dematerialisation eliminates the need for physical share certificates, transfer deeds, and other paper documents, making transactions faster and more efficient.

3. Automatic Credit from Mergers: When companies merge or consolidate, shares are automatically credited to the investor's Demat account without any manual process.

4. No Stamp Duty: There is no stamp duty on transfer of dematerialised shares, reducing transaction costs.

5. Single Account for Equity and Debt: A single Demat account can hold all types of securities including equity shares, debentures, bonds, and government securities.

6. Buy and Sell Any Amount: Investors can buy or sell any number of shares, even odd lots (not in multiples of 100), through a Demat account. There is no restriction on the quantity of shares traded.

Common Mistakes to Avoid

1. SEBI establishment year vs. statutory year: SEBI was established in 1988 as a NON-STATUTORY body. It was given statutory powers in 1992 through the SEBI Act. Do not confuse these two dates.

2. SEBI vs. RBI: SEBI regulates the SECURITIES market (stock exchanges, mutual funds, brokers). RBI regulates the BANKING sector and monetary policy. Do not mix their roles.

3. SEBI board members: The textbook states 3 members (some questions say 6 including chairman). Follow the textbook answer for each specific question — Q5 says 3, additional MCQ Q5 says 6 including chairman.

4. Demat is not just "opening an account": Dematerialisation is the PROCESS of converting physical certificates to electronic form. The Demat account is WHERE the electronic securities are held. These are related but distinct concepts.

5. Insider trading is NOT just trading by insiders: Insider trading specifically involves trading based on PRICE-SENSITIVE, CONFIDENTIAL information. Not all trading by insiders is illegal — only when it uses information not available to the public.

6. PAN is 10-digit ALPHANUMERIC: PAN is not just a number — it contains both letters and numbers (e.g., ABCDE1234F).

Exam Checklist

[ ] Can you state when SEBI was established (1988) and given statutory powers (1992)?
[ ] Can you list the objectives of SEBI?
[ ] Can you define Dematerialisation and Demat Account?
[ ] Can you list the documents required for a Demat Account?
[ ] Can you explain the three key functions of SEBI (Quasi-legislative, Quasi-judicial, Quasi-executive)?
[ ] Can you list the 12 functions of SEBI?
[ ] Can you list the 5 powers of SEBI?
[ ] Can you explain what Insider Trading is?
[ ] Can you list the 6 benefits of Dematerialisation?
[ ] Can you explain SEBI's powers under the Securities Contract Act?
[ ] Do you know what PAN stands for and its format (10-digit alphanumeric)?

Frequently Asked Questions

SEBI (Securities and Exchange Board of India) is the apex regulatory body for the securities market in India, established in 1988 and given statutory powers in 1992.

Samacheer Kalvi 12th Commerce Chapter 8 Securities Exchange Board of India Exercise Solutions

I. Choose the Correct Answer

II. Choose the Correct Answer (Additional MCQs)

III. Match the Following

IV. Assertion and Reason

V. Very Short Answer Questions

VI. Short Answer Questions

VII. Long Answer Questions

Common Mistakes to Avoid

Exam Checklist

Frequently Asked Questions

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