(i) To regulate stock exchange and securities industry to promote their orderly functioning.
(ii) To protect the rights and interests of investors, particularly individual investors and to guide and educate them.
(iii) To prevent trading malpractices and achieve balance between self-regulation by the securities industry and its statutory regulation.

It means buying and selling of securities by those persons(Directors, promoters, etc), who have some secret information about the company and who wish to take advantage of such secret information.This hurts the interests of the general investors. It was essential to check this tendency. Many steps have been taken to check insider trading through the medium of the SEBI.

The stock exchange is an institution which provides a platform for buying and selling of existing securities.
Functions performed by a stock exchange are:
(i) Provides liquidity and marketability to existing securities The primary function of a stock exchange is to provide a ready and continuous market where existing securities can be bought and sold.
This provides both liquidity and cash marketability to already existing securities in the market.
(ii) Pricing of securities Share prices on a stock exchange is determined by the forces of demand and supply.Stock market indices like SENSEX, NSE, etc reflect market direction and indicate day-to-day fluctuations in share prices.
Thus, both buyers and sellers can get constant information about price movements of shares in the market.
(iii) Safety of transactions The membership of a stock exchange is well defined according to the existing legal framework. This ensures that the investment of public is safe and they will get a fair deal in the market.

Money market instruments are more liquid, as, whenever an investor wants to encash the securities of money market, the discount and Finance House of India provides a ready market.

Whereas, the capital market enjoys lesser liquidity and the securities may be less traded in the securities market.Thus, money market instruments are more liquid and may be encashed any time.

(i) 1. Regulatory and protective functions
(i) Registration of brokers, sub-brokers and other players in the market.
(ii) Registration of collective investment schemes and mutual funds.
(iii) Regulation of stock brokers, portfolio exchanges, underwriters and merchant bankers and the business in stock exchanges.
(iv) Regulation of takeover bids by companies.
(v) Levying fee or other charges for carrying out the purposes of the Act.
(vi) SEBI conducts inspections, enquiries and audits of stock exchanges.
(vii) Perform and exercise such power under Securities Contracts (Regulation) Act 1956, as may be delegated by the government of India.
2.Protective Functions
(i) Prohibition of fraudulent and unfair trade practices.
(ii) Controlling insider trading and imposing penalties for such practices.
(iii) Undertaking steps for investor protection.
(iv) Promotion of fair practices and code of conduct in securities market.
(ii) The values which SEBI fulfils are:
(a) Safety.
 (b) Transparency.
(c) Fairness.

Malpractices such as existence of self-styled merchant bankers, unofficial private placements, rigging of prices, unofficial premium on new issues, non-adherence of provisions of the Companies Act, violation of rules and regulations of stock exchanges and listing requirements, delay in delivery of shares, etc. had eroded investors' confidence and multiplied investor grievances. In order to fight with such problems, government established SEBI as a separate regulatory body.
Regulatory Functions
(i) Registration of brokers, sub-brokers and other players in the market.
(ii) Registration of collective investment schemes and mutual funds.
(iii) Regulation of stock brokers, portfolio exchanges, underwriters and merchant bankers and the business in stock exchanges.
(iv) Regulation of takeover bids by companies.
(v) Levying fee or other charges for carrying out the purposes of the Act.
(vi) SEBI conducts inspections, enquiries and audits of stock exchanges.
(vii) Perform and exercise such power under Securities Contracts (Regulation) Act 1956, as may be delegated by the government of India.

Trading procedure on a stock exchange.
(i) Selection of a Broker
The first step is to select a broker, who will buy/sell securities on behalf of the speculator/investor. This is necessary because trading of securities can only be done through SEBI registered brokers, who are members of stock exchange. Brokers may be individuals, partnership firms and corporate bodies.
(ii) Opening Demat Account with Depository
The next step is to open a Demat account. Demat(Dematerialised) account refers to an account which an Indian citizen must open with the depository participant(bank and stock brokers) to trade in listed securities in electronic form. The securities are held in the electronic form by a depository.' Depository' is an institution/organization which holds securities (e.g. shares, debentures, bonds, mutual funds, etc) in electronic form, in which trading is done.
(iii) Placing the Order
The next step is to place the order with the broker. The order can be communicated to the broker either personally or through telephone, cell phone, email, etc.
The instructions should specify the securities to be bought or sold and the price range within which the order is to be executed. Only the securities of listed companies can be traded on the stock exchange.
(iv) Executing the order
According to the instructions of the investor, the broker buys or sells securities. The broker then issues a contract note. A copy of the contract note contains the name and the price of securities, names of the parties, brokerage charges, etc. It is duly signed by the broker.
(v) Settlement
This is the last stage in the trading of securities done by the brokers on behalf of their clients. the mode of settlement depends upon the nature of the contract. Equity spot markets follow a T+2 rolling settlement.
This means that any trade taking place on Monday gets settled by Wednesday. The stock exchange operates from Monday to Friday between 9:55 am and 3:30 pm. Each exchange has its own clearing house, which assumes all settlement risk.