NISM-Series-X-A: Investment Adviser (Level 1) · Key Regulations

SEBI Act 1992 and Securities Laws for NISM X-A

Updated 11 October 2026 · Fact-checked

The SEBI Act, 1992 created SEBI as the statutory regulator of the securities market. It protects investors, develops the market and regulates intermediaries. The SCRA, 1956 regulates securities trading and stock exchanges. The Depositories Act, 1996 governs dematerialised holding. To solve questions, match each function or power to the right law.

Understand SEBI Act, 1992 and Securities Laws

Three main laws sit at the base of securities regulation in India. Each has a different job. Most exam questions test whether you can match a power or function to the correct law.

The SEBI Act, 1992 set up the Securities and Exchange Board of India as a statutory body. Its preamble-level purpose is threefold: protect the interests of investors in securities, promote the development of the securities market, and regulate the securities market. SEBI registers and regulates intermediaries such as stock brokers, merchant bankers, portfolio managers, mutual funds and investment advisers. It also prohibits fraudulent and unfair trade practices and insider trading, and it promotes investor education and training of intermediaries.

SEBI has quasi-legislative power (it makes regulations), quasi-judicial power (it hears cases and passes orders, including penalties) and executive power (it inspects, investigates, and registers). Its orders can be appealed to the Securities Appellate Tribunal (SAT), and further appeal on a question of law lies to the Supreme Court.

The Securities Contracts (Regulation) Act, 1956 (SCRA) regulates the trading of securities and the working of stock exchanges. It deals with the recognition of stock exchanges, listing, and contracts in securities. It also controls and bans certain contracts, such as those that are not on a recognised exchange. The Central Government and SEBI share powers under it.

The Depositories Act, 1996 provides for the dematerialisation of securities and their transfer by book entry. It sets out the role of depositories (NSDL and CDSL), depository participants and beneficial owners. The Companies Act, 2013 also matters, as it governs public issue of securities by companies, with SEBI regulating the issue and transfer of securities of listed companies.

Key formulas to remember

SEBI Act, 1992 – objectives: Protect investors + Promote market development + Regulate the market; The three-part purpose of SEBI. Exam options often replace one with an unrelated aim such as 'set interest rates'.
SEBI's three powers: Quasi-legislative (regulations) | Quasi-judicial (orders, penalties) | Executive (registration, inspection, investigation); Match the action in the question to the power.
SCRA, 1956 – focus: Regulation of stock exchanges and trading in securities; Think recognition of exchanges, listing and securities contracts.
Depositories Act, 1996 – focus: Dematerialisation and book-entry transfer of securities; Depository, depository participant, beneficial owner.
Appeal route: SEBI order → Securities Appellate Tribunal → Supreme Court; Appeal to the Supreme Court lies on a question of law.

How to solve SEBI Act, 1992 and Securities Laws questions

Use this method for any question on securities laws. It stops you mixing up the Acts.

1Read the question and underline the action or subject: regulating intermediaries, recognising an exchange, holding shares in demat, or hearing an appeal.
2Name the law that owns that subject: SEBI Act for the regulator and intermediaries, SCRA for exchanges and trading, Depositories Act for demat.
3If the question asks about a power, classify it: making rules is quasi-legislative, passing penalty orders is quasi-judicial, inspecting and registering is executive.
4If it asks about appeals, think SAT first, then the Supreme Court.
5Eliminate options that give SEBI a role belonging to another body, such as monetary policy (RBI) or issuing currency.
6Watch for words like 'only', 'always' and 'never'. Prefer the option that fits the plain-words rule.
7Pick the answer. If two options still look right, choose the one that fits the Act's core purpose.

Quickest way: Act-to-subject matching

When to use it: Use when you have under a minute and the question asks which law or body handles something.

Link each law to one keyword: SEBI Act = regulator, SCRA = exchanges and trading, Depositories Act = demat.
Link each power to one keyword: regulations = legislative, orders = judicial, inspection = executive.
Cross out options that mention RBI or Government functions outside securities markets.
Choose the option that matches your keyword.

Common mistakes in SEBI Act, 1992 and Securities Laws

Saying the SCRA created SEBI.
Both are old securities laws and the names sound alike.
Fix: SEBI was given statutory status by the SEBI Act, 1992. The SCRA, 1956 is about exchanges and trading in securities.
Thinking SEBI only protects investors.
Investor protection is the most talked-about aim.
Fix: Remember all three: protect investors, develop the market and regulate the market.
Assigning demat rules to the SCRA.
Demat feels like part of trading.
Fix: Dematerialisation, depositories and beneficial owners come under the Depositories Act, 1996.
Treating SEBI's regulation-making as a judicial power.
Students link any binding output to a court-like role.
Fix: Making regulations is quasi-legislative. Hearing a case and passing an order or penalty is quasi-judicial.
Believing appeals against SEBI orders go directly to the High Court.
Generic legal appeal routes are assumed.
Fix: The first appeal lies to the Securities Appellate Tribunal, and then to the Supreme Court on a question of law.
Giving SEBI control over banks or interest rates.
Confusing SEBI with RBI.
Fix: SEBI regulates the securities market. Banking and monetary policy belong to the RBI.

Worked examples

Example 1

SEBI issues a regulation laying down the eligibility conditions for registering a new class of intermediaries. Which power is SEBI using?
A. Quasi-judicial
B. Quasi-legislative
C. Executive only
D. Appellate

Show the solution

The action is making a regulation, which is a rule of general application.
Making rules and regulations is the quasi-legislative power.
Quasi-judicial is for hearing cases and passing orders, so A is wrong.
Executive is for registration, inspection and investigation of specific entities, so C does not fit a general rule.
SEBI does not act as an appellate body for its own orders, so D is wrong.

Answer: B. Quasi-legislative

Example 2

Which statement correctly distinguishes the SEBI Act, 1992 from the SCRA, 1956?
A. The SEBI Act deals with demat holdings; the SCRA creates SEBI
B. The SEBI Act establishes the regulator and its powers; the SCRA regulates stock exchanges and trading in securities
C. Both Acts only regulate banks
D. The SCRA sets interest rates; the SEBI Act regulates currency

Show the solution

Recall that the SEBI Act gives statutory form to SEBI and sets out its powers and functions.
Recall that the SCRA covers the recognition and working of stock exchanges and securities contracts.
Option A is wrong: demat is under the Depositories Act, and the SCRA did not create SEBI.
Options C and D give banking, interest rate and currency roles that belong to the RBI or Government, so they are wrong.
Only B matches the core purpose of each Act.

Answer: B

Exam tips

Expect matching questions: a function or a power given, and you pick the Act or body. Learn one keyword per Act.
Read negative-style questions such as 'which is NOT a function of SEBI' slowly. Wrong options often show RBI or Government functions.
Know the three powers of SEBI and the appeal route to SAT.
In a 2-mark caselet question, a wrong answer costs more under negative marking, so eliminate options before guessing.
Do not memorise section numbers unless your workbook stresses them. The exam tests purpose and scope more than numbers.

Practice questions from Key Regulations

SEBI Act, 1992 and Securities Laws in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

SEBI Act, 1992 and Securities Laws: frequently asked questions

What are the main functions of SEBI under the SEBI Act, 1992?

SEBI protects the interests of investors, promotes the development of the securities market and regulates it. It registers and supervises intermediaries, prohibits fraud and insider trading, and promotes investor education.

What is the difference between the SEBI Act and the SCRA?

The SEBI Act establishes SEBI and gives it powers over the securities market and its participants. The SCRA, 1956 regulates stock exchanges and trading in securities, including recognition of exchanges and listing.

What does the Depositories Act, 1996 cover?

It provides for holding securities in electronic form and transferring them by book entry. It covers depositories, depository participants and beneficial owners.

Where can you appeal against a SEBI order?

You can appeal to the Securities Appellate Tribunal. A further appeal on a question of law lies to the Supreme Court.