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INTRODUCTION

INTRODUCTION In 1988 the securities and Exchange Board of India (SEBI) was established by the government

In 1988 the securities and Exchange Board of India (SEBI) was established by the government of India through an executive resolution ,and was subsequently upgraded as a fully autonomous body in the year 1992 with the passing of the securities Exchange Board of India Act (SEBI Act )on 30 th January 1992 .

In place of government control ,a statutory and autonomous regulatory board with defined responsibilities ,to cover both development & regulation of the market ,and independent powers has been set up Paradoxically this is a positive outcome of the Securities scam of 1990-

91.

The basic objective of the board was identified as:

  • To protect the interest of the investors in securities.

  • To promote the development of securities market;

  • To regulate the securities and ;

  • For matters connected there with or incidental there to.

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Since its inception SEBI has been working targeting the securities and is attending to the fulfilment of its objectives with commendable zeal and dexterity. The improvements in the securities markets like capitalization requirements, margining, establishment of clearing corporations etc. reduced the risk of credit and also reduced the market.

SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility criteria, the code of obligations and the code of conduct for different intermediaries like, bankers to issue, merchant bankers, brokers and sub-brokers, registrars, portfolio managers, credit rating agencies, underwriters and others. It has framed by-laws, risk identification and risk management systems for Clearing houses of stock exchanges, surveillance system etc. which has made dealing in securities both safe and transparent to the end investor.

Another significant event is the approval of trading in stock indices (like S&P CNX Nifty & Sensex) in 2000. A market Index is a convenient and effective product because of the following reasons:

  • It acts as a barometer for market behaviour;

  • It is used to benchmark portfolio performance;

  • It is used in derivative instruments like index futures and index options;

  • It can be used for passive fund management as in case of Index Funds.

Two broad approaches of SEBI is to integrate the securities market at the national level, and also to diversify the trading products, so that there is

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an increase in number of traders including banks, financial institutions, insurance companies, mutual funds, primary dealers etc. to transact through the Exchanges. In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark.

SEBI appointed the L.C Gupta Committee in 1998 to recommend the regulatory framework for derivatives trading and suggest bye-laws for Regulation and Control of Trading and Settlement of Derivatives Contracts. The Board of SEBI in its meeting held on May 11, 1998 accepted the recommendations of the committee and approved the phased introduction of derivatives trading in India beginning with Stock Index Futures.The Board also approved the "Suggestive Bye-laws" as recommended by the Dr LC Gupta Committee for Regulation and Control of Trading and Settlement of Derivative Contracts. SEBI then appointed the J.R.Verma committee to recommend Risk Containment Measures (RCM) in the Indian stock Index Futures Market .The report was submitted in November 1998.

However the Securities Contracts (Regulation) Act, 1956 (SCRA) required amendment to include "derivatives" in the definition of securities to enable SEBI to introduce trading in derivatives. The necessary amendment was then carried out by the Government in 1999. The Securities Laws (Amendment) Bill, 1999 was introduced. In December 1999 the new framework was approved.

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HISTORY

HISTORY It was formed officially by government of India in 1992 with SEBI act 1992 being

It was formed officially by government of India in 1992 with SEBI act 1992 being passed by the Indian Parliament .SEBI is headquartered in the business district of Bandra Kurla complex in Mumbai, and has northern, eastern, southern and western regional offices in New Delhi, Kolkata, Chennai and Ahmedabad.

Controller of capital issues was the regulatory authority before SEBI came into existence; it derived authority from the capital issues (control) Act 1947.

Initially SEBI was a non-statutory power .However in 1995, the SEBI was given additional statutory power by the government of India through an amendment to the securities and Exchange Board of India Act 1992.

In April,1988 the SEBI was constituted as the regulator of capital market in India under a resolution of the government of India.

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ORGANIZATION STRUCTURE

Upendra Kumar Sinha was appointed chairman on 18 February 2011 replacing C.B Bhave .

ORGANIZATION STRUCTURE Upendra Kumar Sinha was appointed chairman on 18 February 2011 replacing C.B Bhave .

Chairman Mr. Upendra Kumar Sinha.

The Board comprises :-

Name

Designation

Upendra Kumar Sinha

Chairman

M.S.Sahoo

Whole time member

Dr. K.M.Abraham

Whole time member

Prashant Saran

Whole time member

CA.T.V .Mohandas Pai

Director ,Infosys

Dr.Thomas Mathe

Joint Secretary ,Ministry of Finance

V.K.Jairath

Member Appointed

Anand Sinha

Deputy Governor ,Reserve Bank of India

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List of former chairmen

Name

From

To

C.B.Bhave

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February 2008

  • 18 February 2011

M.Damodaran

18 February 2005

18 February 2008

G.N.Bajpai

 

20 February 2002

  • 18 February 2005

D.R.Mehta

21 February 1995

20 February 2002

S.S.Nadkarni

17 January 1994

31 January 1995

G.V.Ramakrishna

24 August 1990

17January 1994

Dr.S.A.Dave

 

12 April 1988

23 August 1990

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SEBI - SEBI OFFICES

The following offices of SEBI may be contacted with regard to investor grievances regarding CIS and for any other information connected there to:

Address of SEBI Offices

Jurisdiction for the companies having their registered offices in

Head Office:

 

Mittal court 'A' Wing, Ground floor 224, Nariman Point, Mumbai 400 021 PH: 2850451, 52, 53, 54, 55 FAX:204 5633

Gujarat, Maharashtra, Madhya Pradesh, Goa, Dadra & Nagar Haveli and Daman Diu

Northern Regional Office:

 

Block No.1, Rajendra Bhawan Rajendra Place, District Centre New Delhi - 110 008 PH: 573 2313, 9784 FAX: 5768992

Haryana, Himachal Pradesh, Jammu & Kashmir, Punjab, Rajasthan, Uttar Pradesh, Delhi and Chandigarh

Eastern Regional Office:

 

FMC Fortuna, 5th Floor, 234/3A AJC Bose Road, Calcutta - 700 020 PH:240 2435, 4307, 6105 FAX: 240 4307

Assam, Bihar, Manipur, Meghalaya, Nagaland, Orissa, West Bengal, Arunachal Pradesh, Mizoram, Tripura, Sikkim and Andaman & Nicobar Islands

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Southern Regional Office:

Andhra Pradesh, Karnataka,

3rd Floor, D'Monte Building, 32 D'Monte Colony, TTK Road, Alwarpet Chennai - 600 018. PH: 499 5676, 5525, 7385, 7480 FAX: 499 8083

Kerala, Tamilnadu, Pondicherry and Lakshadweep & Minicoy.

Investors may however note that as a regulatory body SEBI cannot guarantee or undertake the repayment of money to the investors. It is SEBI's endeavour to educate the investors of the general risk perception of such schemes.

Investors can also approach District Consumer redressed forums in case entities fail to honour their commitments or for any deficiency in service.

Southern Regional Office: Andhra Pradesh, Karnataka, 3rd Floor, D'Monte Building, 32 D'Monte Colony, TTK Road, Alwarpet

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SEBI ADMINISTRATION

The Securities and Exchange Board of India Act, 1992 is having retrospective effect and is deemed to have come into force on January 30, 1992. Relatively a brief act containing 35 sections, the SEBI Act governs all the Stock Exchanges and the Securities Transactions in India.

A Board by the name of the Securities and Exchange Board of India (SEBI) were constituted under the SEBI Act to administer its provisions. It consists of one Chairman and five members.

One each from the department of Finance and Law of the Central Government, one from the Reserve Bank of India and two other persons and having its head office in Bombay and regional offices in Delhi, Calcutta and Madras.

The Central Government reserves the right to terminate the services of the Chairman or any member of the Board. The Board decides questions in the meeting by majority vote with the Chairman having a second or casting vote.

Section 11 of the SEBI Act provides that to protect the interest of investors in securities and to promote the development of and to regulate the securities market by such measures, it is the duty of the Board. It has given power to the Board to regulate the business in Stock Exchanges, register and regulate the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers, etc., also to register and regulate the working of collective

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investment schemes including mutual funds, to prohibit fraudulent and unfair trade practices and insider trading, to regulate take-overs, to conduct enquiries and audits of the stock exchanges, etc.

All the stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deed, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediary who may be associated with the Securities Markets are to register with the Board under the provisions of the Act, under Section 12 of the SEBI Act. The Board has the power to suspend or cancel such registration. The Board is bound by the directions vested by the Central Government from time to time on questions of policy and the Central Government reserves the right to supersede the Board.

investment schemes including mutual funds, to prohibit fraudulent and unfair trade practices and insider trading, to

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INVESTORS KNOWHOW

Any company or a listed company making a public issue or a rights issue of value of more than Rs. 50 lakhs is required to file a draft offer document with SEBI for its observations. The company can proceed further only after getting observations from SEBI. The company has to open its issue within three months from the date of SEBI's observation letter.

Through public issues, SEBI has laid down eligibility norms for entities accessing the primary market. The entry norms are only for companies making a public issue (IPO or FPO) and not for listed company making a rights issue.

The entry Norms are as follows:

Entry Norm I (EN I):

The company shall meet the following requirements.

  • Net Tangible Assets of at least Rs. 3 crores for 3 full years.

  • Distributable profits in atleast three years.

  • Net worth of at least Rs. 1 crore in three years.

  • If change in name, atleast 50% revenue for preceding 1 year should be from the new activity.

  • The issue size does not exceed 5 times the pre- issue net worth.

SEBI has provided two other alternative routes to company not satisfying any of the above conditions to provide sufficient flexibility and also to ensure that genuine companies do not suffer on account of rigidity of the parameters, for accessing the primary Market. They are as under:

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Entry Norm II (EN II)

  • Issue shall be through book building route, with at least 50% to be mandatory allotted to the Qualified Institutional Buyers (QIBs).

  • The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years.

OR

Entry Norm III (EN III)

  • The "project" is appraised and participated to the extent of 15% by FIs/Scheduled Commercial Banks of which at least 10% comes from the appraiser(s).

  • The minimum post-issue face value capital shall be Rs. 10 corer or there shall be a compulsory market-making for at least 2 years. Note: - The company should also satisfy the criteria of having at least 1000 prospective allotters.

The following are exempted from the ENs

  • Private Sector Banks.

  • Public sector banks.

  • An infrastructure company whose project has been appraised by a PFI or IDFC or IL&FS or a bank which was earlier a PFI and not less than 5% of the project cost is financed by any of these institutions.

  • Rights issue by a listed company.

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FAQs on Public Issue

  • Does SEBI approve the contents of the issue?

It is to be distinctly understood that submission of offer document to SEBI should not in any way be deemed or construed that the same has been cleared or approved by SEBI. The Lead manager certifies that the disclosures made in the offer document are generally adequate and are in conformity with SEBI guidelines for disclosures and investor protection in force for the time being. This requirement is to facilitate investors to take an informed decision for making investment in the proposed issue.

  • Does SEBI tag make my money safe?

The investors should make an informed decision purely by themselves based on the contents disclosed in the offer documents. SEBI does not associate itself with any issue/issuer and should in no way be construed as a guarantee for the funds that the investor proposes to invest through the issue. However, the investors are generally advised to study all the material facts pertaining to the issue including the risk factors before considering any investment. They are strongly warned against any 'tips' or news through unofficial means.

  • How does SEBI ensure compliance with DIP?

The Merchant Banker are the specialized intermediaries who are required to do due diligence and ensure that all the requirements of DIP are complied with while submitting the draft offer document to SEBI. Any noncompliance on their part, attract penal action from SEBI, in terms of SEBI (Merchant Bankers) Regulations. The draft offer document filed by Merchant Banker is also placed on the website for public comments.

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Officials of SEBI at various levels examine the compliance with DIP guidelines and ensure that all necessary material information is disclosed in the draft offer documents.

  • With the presence of the Central Listing Authority (CLA), what would be the role of SEBI in the processing of Offer document for an issue?

The Central Listing Authority's (CLA) functions have been detailed under Regulation 8 of SEBI (Central Listing Authority) Regulations, 2003 (CLA Regulations) issued on August 21, 2003 and amended up to October 14, 2003.

In brief, it covers processing applications for letter precedent to listing from applicants; to make recommendations to the Board on issues pertaining to the protection of the interest of the investors in securities and development and regulation of the securities market, including the listing agreements, listing conditions and disclosures to be made in offer documents; and; to undertake any other functions as may be delegated to it by the Board from time to time.

SEBI as the regulator of the securities market examines all the policy matters pertaining to issues and will continue to do so even during the existence of the CLA.

Since the CLA is not yet operational, the reply to this question would be updated thereafter.

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PRIMARY MARKET

The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain bonds through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Primary markets create long term instruments through which corporate entities borrow from capital market.

Features of primary markets are:

  • This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).

  • In a primary issue, the securities are issued by the company directly to investors.

  • The company receives the money and issues new security certificates to the investors.

  • Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.

  • The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public."

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SECONDARY MARKET

Section 3 of SEBI Act protects the interests of the investors in securities and also promotes the development of, and regulates, the securities market and related matters. The following are the financial products/instruments which the secondary market deals with

  • Equity Shares

  • Rights Issue/ Rights Shares

  • Bonus Shares

  • Preferred Stock/ Preference shares

  • Cumulative Preference Shares

  • Cumulative Convertible Preference Shares

  • Participating Preference Share

  • Bond

  • Zero Coupon Bond

  • Convertible Bond

  • Debentures

  • Commercial Paper

  • Coupons

  • Treasury Bills

FAQs on Secondary Market:

  • What is EDIFAR?

In July 2002 SEBI launched Electronic Data Information Filing

and Retrieval System (EDIFAR) in association with National Informatics Center (NIC) to facilitate filing of certain material information/

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documents/statements by the listed companies on line in the EDIFAR web site - www.sebiedifar.nic.in

  • What is a Central Listing Authority?

The Central Listing Authority (CLA) is set up to address the issue of multiple listing of the same security and to bring about uniformity in the

due diligence exercise in scrutinizing all listing applications on any stock exchanges. The functions of CLA as enumerated in SEBI (Central Listing Authority) Regulations, 2003 include:

  • processing the application made by anybody corporate, mutual fund or collective investment scheme for the letter of recommendation to get listed at the stock exchange,

  • making recommendations as to listing conditions, and

  • any other functions that may be specified by the SEBI Board from time to time.

    • What is the exit opportunity available for investors in case a company gets delisted?

SEBI (Delisting of Securities) Guidelines, 2003 provide an exit mechanism, whereby the exit price for voluntary delisting of securities is determined by the promoter of the concerned company which desires to get delisted, in accordance to book building process. The offer price has a floor price, which is average of 26 weeks average of traded price quoted on the stock exchange where the shares of the company are most frequently traded preceding 26 weeks from the date public announcement is made. There is no ceiling on the maximum price.

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For infrequently traded securities, the offer price is as per Regulation20 (5) of SEBI (Substantial Acquisition and Takeover) Regulations. Regarding this, an infrequently traded security is determined in the manner as provided in Regulation 20 (5) of SEBI (Substantial Acquisition and Takeover) Regulations.

  • What is demutualisation of stock exchanges?

Demutualisation refers to the transition process of an exchange from a "mutually-owned" association to a company "owned by shareholders". In other words, transforming the legal structure of an exchange from a mutual form to a business corporation form is referred to as demutualisation. The above, in effect means that after demutualisation, the ownership, the management and the trading rights at the exchange are segregated from one another.

How is a demutualised exchange different from a mutual exchange? The three functions of ownership, management and trading are intervened into a single Group in a mutual exchange. The brokers members of the exchange over here are both the owners and the traders on the exchange and they further manage the exchange as well. A demutualised exchange has all these three functions clearly segregated.

Currently are there any demutualised stock exchanges in India? Yes currently there are two stock exchanges in India

The National Stock Exchange (NSE)

Over the Counter Exchange of India (OTCEI)

These are not only corporatized but also demutualised with segregation of ownership and trading rights of members.

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What steps have been taken by SEBI to give a head start to the process of demutualisation in India? SEBI had formed a Group on Corporatisation and Demutualisation of Stock Exchanges under the Chairmanship of Justice M H Kania, former Chief Justice of India, for advising SEBI on corporatisation and demutualisation of exchanges and to recommend the steps that need to be taken to implement the same. The Group submitted its Report to SEBI on August 28, 2002. SEBI has taken up with Central Government to amend the SC( R) A to effect Corporatisation and Demutualization .

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MUTUAL FUNDS

To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. MF either promoted by public or by private sector entities including one promoted by foreign entities are governed by these Regulations.

SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody. The general power of superintendence and direction over AMC is vested with the trustees.

According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent. They should not be associated with the sponsors. 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.

Increase of load more than the level mentioned in the offer document is applicable only to prospective investments by the MFs. For original investments, the offer document has to be amended to make investors aware of loads at the time of investments.

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FAQs Mutual Funds

  • Can a mutual fund change the asset allocation while deploying funds of investors?

Considering the market trends, any prudent fund managers can change the asset allocation i.e. he can invest higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed in the offer document. It can be done on a short term basis on defensive considerations i.e. to protect the NAV. Hence the fund managers are allowed certain flexibility in altering the asset allocation considering the interest of the investors. In case the mutual fund wants to change the asset allocation on a permanent basis, they are required to inform the unit holders and giving them option to exit the scheme at prevailing NAV without any load.

How long will it take for transfer of units after purchase from stock markets in case of close-ended schemes?

According to SEBI Regulations, transfer of units is required to be done within thirty days from the date of lodgment of certificates with the mutual fund.

  • Can a mutual fund change the nature of the scheme from the one specified in the offer document?

Yes. However, no change in the nature or terms of the scheme, known as fundamental attributes of the scheme e.g. structure, investment pattern, etc. can be carried out unless a written communication is sent to each unit holder and an advertisement is given in one English daily

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having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. The unit holders have the right to exit the scheme at the prevailing NAV without any exit load if they do not want to continue with the scheme. The mutual funds are also required to follow similar procedure while converting the scheme form close-ended to open- ended scheme and in case of change in sponsor.

If mutual fund scheme is wound up, what happens to money invested? In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after adjustment of expenses. Unit holders are entitled to receive a report on winding up from the mutual funds which gives all necessary details.

  • How can the investors redress their complaints?

Investors would find the name of contact person in the offer document of the mutual fund scheme that they may approach in case of any query, complaints or grievances. Trustees of a mutual fund monitor the activities of the mutual fund. The names of the directors of asset Management Company and trustees are also given in the offer documents.

Investors can also approach SEBI for redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up with them till the matter is resolved.

  • What is the procedure for registering a mutual fund with SEBI?

An applicant proposing to sponsor a mutual fund in India must apply in Form A with a fee of Rs.25,000. The application is examined and once

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the sponsor satisfies certain conditions such as being in the financial services business and possessing positive net worth for the last five years, having net profit in three out of the last five years and possessing the general reputation of fairness and integrity in all business transactions, it is required to complete the remaining formalities for setting up a mutual fund.

These include inter alia, executing the trust deed and investment management agreement, setting up a trustee company/board of trustees comprising two- thirds independent trustees, incorporating the asset management company (AMC), contributing to at least 40% of the net worth of the AMC and appointing a custodian. Upon satisfying these conditions, the registration certificate is issued subject to the payment of registration fees of Rs.25.00 lacs for details; see the SEBI (Mutual Funds) Regulations, 1996.

  • What is the procedure for redressal of investor grievances?

When investors send complaints to SEBI, SEBI takes up the matter with the concerned mutual funds and follows up with them till they are resolved.

SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody. The general power of superintendence and direction over AMC is vested with the trustees.

According to SEBI Regulations, two thirds of the directors of trustee company or board of trustees must be independent. They should not be associated with the sponsors. 50% of the directors of AMC must be

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independent. All mutual funds are required to be registered with SEBI before they launch any scheme.

Increase of load more than the level mentioned in the offer document is applicable only to prospective investments by the MFs. For original investments, the offer document has to be amended to make investors aware of loads at the time of investments.

In case of complaints, investors may write to:

Securites and Exchange Board of India, Mutual Fund Dept., Mittal Court 'B' Wing, Nariman Point, Mumbai 400 021

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FUNCTIONS AND RESPONSIBILITIES

SEBI has to be responsive to the needs of three groups ,which constitute the market

  • The issuers of securities

  • The investors

  • The market intermediaries

SEBI has three functions rolled into one body: quasi legislative, quasi- judicial and quasi executive .It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity . Though this makes it very powerful, there is an appeals process to create accountability .There is a securities appellate tribunal which is a three member tribunal and is presently headed by a former chief justice of a high court Mr. Justice NK Sodhi. A second appeal lies directly to the Supreme Court.

SEBI has enjoyed success as a regulator by pushing systematic reforms aggressively and successively .SEBI has been active in setting up the regulations as required under law.

SEBI has also been instrumental in taking quick and effective steps in light of the global meltdown and the Satyam fiasco .It had increased the extent and quantity of disclosures to be made by Indian corporate promoters. More recently, in light of the global meltdown, it liberalized the takeover code to facilitate investments by removing regulatory structures. In one such move, SEBI has increased the application limit for retail investors to Rs 2 lakhs, from Rs 1 lakh at present.

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ROLE OF SEBI IN INDIAN CAPITAL MARKET

SEBI is regulator to control Indian capital market. Since its establishment in 1992, it is doing hard work for protecting the interests of Indian investors. SEBI gets education from past cheating with naive investors of India. Now, SEBI is stricter with those who commit frauds in capital market.

The role of security exchange board of India (SEBI) in regulating Indian capital market is very important because government of India can only open or take decision to open new stock exchange in India after getting advice from SEBI.

If SEBI thinks that it will be against its rules and regulations, SEBI can ban on any stock exchange to trade in shares and stocks.

1. Power to make rules for controlling stock exchange:

SEBI has power to make new rules for controlling stock exchange in India. For example, SEBI fixed the time of trading 9 AM and 5 PM in stock market.

2. To provide license to dealers and brokers:

SEBI has power to provide license to dealers and brokers of capital market. If SEBI sees that any financial product is of capital nature, then SEBI can also control to that product and its dealers. One of main example is ULIPs case. SEBI said, " It is just like mutual funds and all banks and financial and insurance companies who want to issue it, must take permission from SEBI."

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3.

To Stop fraud in Capital Market:

SEBI has many powers for stopping fraud in capital market. It can ban on the trading of those brokers who are involved in fraudulent and unfair trade practices relating to stock market. It can impose the penalties on capital market intermediaries if they involve in insider trading.

  • 4. To Control the Merge, Acquisition and Takeover the companies:

Many big companies in India want to create monopoly in capital market. So, these companies buy all other companies or deal of merging. SEBI sees whether this merge or acquisition is for development of business or to harm capital market.

  • 5. To audit the performance of stock market:

SEBI uses his powers to audit the performance of different Indian stock exchange for bringing transparency in the working of stock exchanges.

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POWERS

For the discharge of its function efficiently, SEBI has been invested with the necessary powers which are:

  • To approve by-laws of stock exchanges.

  • To require the stock exchange to amend their by-laws.

  • Inspect the books of accounts and call for periodical returns from recognised stock exchanges.

  • Inspect the books of accounts of financial intermediaries.

  • Compel certain companies to list their shares in one or more stock exchanges.

  • Levy fees and other charges on the intermediaries for performing its functions.

  • Grant license to any person for the purpose of dealing in certain areas.

  • Delegate powers exercisable by it.

  • Prosecute and judge directly the violation of certain provisions of the companies Act.

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SEBI COMMITTEES

  • Technical Advisory Committee.

  • Committee for review of structure of market infrastructure institutions.

  • Members of the Advisory Committee for the SEBI investor protection and education fund.

  • Takeover Regulations Advisory Committee.

  • Primary Market Advisory Committee (PMAC).

  • Secondary Market Advisory Committee(SMAC)

  • Mutual Fund Advisory Committee.

  • Corporate Bonds & Securitization Advisory Committee

  • Takeover panel.

  • SEBI committee on Disclosures and Accounting Standards (SCODA).

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TAKEOVER

  • Imposing of curbs on off-market deals.

i.

Upto a threshold level of 5 per cent, off-market deals to be

ii.

allowed. Between 5 per cent and 15 per cent, all deals to be made

iii.

only through the stock market. Otherwise, open offer will be attracted. Exception: the "preferential allotment" route with approval from shareholders.

  • Reducing the time limit for completion of the open offer from 4 months at present to 3 months.

  • Putting restrictions on the sale of shares by the acquirer during the open offer period.

  • Independent comment to be given by the board of directors to the shareholders of a target company regarding its future plans.

  • Merchant banker to stop dealing in the shares of the target company, following his appointment as manager to the offer. Also to disclose its shareholding in the offer document.

FAQs on Takeover :

  • What is meant by Takeovers & Substantial acquisition of shares?

When "acquirer" takes the control of the "target company", it is termed as Takeover. When it acquires "substantial quantity of shares or voting rights" of the Target Company, it results into substantial acquisition of shares.

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  • What is a Target company?

A Target company is a listed company whose shares are listed on any stock exchange and whose shares or voting rights are acquired/ being acquired or whose control is taken over/being taken over by an acquirer.

  • Who is an Acquirer?

An Acquirer includes persons acting in concert (PAC) with him i.e. any individual/company/any other legal entity which intends to acquire or acquires substantial quantity of shares or voting rights of Target Company or acquires or agrees to acquire control over the target company.

  • How is "control" defined?

Control is the right to appoint either directly or indirectly or by virtue of agreements or in any other manner majority of directors on the Board of the target company or to control management or policy decisions affecting the target company. However, in case there are two or more persons in control over the target company the cesser of any one of such persons from such control shall not be deemed to be a change in control of management nor shall any change in the nature and quantum of control amongst them constitute change in control of management provided this transfer is done in terms of Reg. 3(1)(e). Also if consequent upon change in control of the target company in accordance with regulation 3, the control acquired is equal to or less than the control exercised by person (s) prior to such acquisition of control, such control shall not be deemed to be a change in control.

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  • Can Acquirer make an offer for less than 20% of shares?

No.

  • Who is required to make a Public Announcement and when is the Public Announcement required to be made?

The Acquirer appoints a Merchant Banker (MB) who has been registered with SEBI before making a PA . PA is required to be made through the said MB. The acquirer is required to make the P.A within 4 working days of the entering into an agreement to acquire shares or deciding to acquire shares/ voting rights of target company or after any such change or changes as would result in change in control over the target company.

In case of indirect acquisition or change in control, the PA is made by the acquirer within 3 months of consummation of such acquisition or change in control or restructuring of the parent or the company holding shares of or control over the target company. The offer price in these cases is determined with reference to the date of the public announcement for the parent company and the date of the public announcement for acquisition of shares of the target company, whichever is higher, in accordance with the parameters mentioned in the Takeover Regulations.

  • What documents are to be filed with SEBI after making a P.A. and when are these documents to be filed?

A copy (hard and soft) of the PA is required to be submitted to SEBI simultaneously with the publication of the same in the newspapers. A draft letter of offer is required to be filed with SEBI within 14 days from the date of Public Announcement along with a filing fee of Rs.50,000/-

32

per letter of offer (payable by Banker's Cheque / Demand Draft) A due diligence certificate as well as registration details as per SEBI circular no. RMB (G-1) series dated June 26, 1997 are also required to be filed along with the draft letter of offer.

33

FOREIGN INSTITUTIONAL INVESTOR

One who propose to invest their proprietary funds or on behalf of "broad based" funds or of foreign corporates and individuals and belong to any of the under given categories can be registered for FII.

  • Pension Funds

  • Mutual Funds

  • Investment Trust

  • Insurance or reinsurance companies

  • Endowment Funds

  • University Funds

  • Foundations or Charitable Trusts or Charitable Societies who propose to invest on their own behalf, and

  • Asset Management Companies

  • Nominee Companies

  • Institutional Portfolio Managers

  • Trustees

  • Power of Attorney Holders

  • Bank

An application for registration has to be made in Form A, the format of which is provided in the SEBI(FII) Regulations, 1995 and submitted with under mentioned documents in duplicate addressed to SEBI as well as to Reserve Bank of India (RBI) and sent to the following address within 10 to 12 days of receipt of application.

34

Address for application:

The Division Chief FII Division Securities and Exchange Board of India, 224, Mittal Court, 'B' Wing, 1st Floor, Nariman Point, Mumbai - 400 021. INDIA.

FAQs on Foreign Institutional Investor:

  • What is the procedure for registration of sub-account?

Annexure B of the Regulations duly filled and signed by the FII and Sub- Account has to be submitted by FII on behalf of the proposed sub- account. With if DD of US$ 1000 favouring "Securities and Exchange Board of India” as fees is to be submitted payable at New York.

  • Is it that all sub-accounts need to be broad-based?

No. Proprietary, Foreign corporates and foreign individuals need not be broad-based.

  • What is the duration required to register sub-accounts?

For registered Foreign Institutional Investor, it takes 3 working days from the date of receipt of complete application and fees.

  • In which name should the securities be registered?

The Foreign Institutional Investor has the choice to register the securities in the following names:

35

  • In the name of the Foreign Institutional Investor if the FII is investing on its own behalf.

  • In the name of the sub-account if the FII is investing on behalf of the sub-account

  • In the name of the Foreign Institutional Investor a/c sub-account if the FII is investing on behalf of the sub-account

    • What is the procedure if the Foreign Institutional Investor/ sub account changes its name?

For registered Foreign Institutional Investor, it has to inform SEBI promptly with the relevant documents supporting the name change. The relevant documents are:

  • Request for change in name by the Foreign Institutional Investor mentioning reasons for name change of the FII and/or sub account.

  • Certificate from the Registrar of Companies, and/or approval from home regulator.

  • Original Registration Certificate issued by SEBI to the Foreign Institutional Investor.

SEBI will issue a no-objection letter in this regard after recording the request of name change. The information regarding name change should be submitted immediately after the change has taken place in the home country and the requisite approval from the home regulator (if needed) has to been taken.

36

  • What is the procedure for transferring a sub-account from one registered Foreign Institutional Investor to another?

If a registered sub-account wishes to transfer from one registered Foreign Institutional Investor to another, then the FII to whom it is proposed to be transferred has to request SEBI with the following documentation.

  • A declaration that it is authorised to invest on behalf of the sub- account.

  • A no-objection letter for the transfer of the sub-account from the transferor FII.

    • What is the procedure for change of local custodian?

In case of change of the local custodian of the FII / sub-account, the change should be intimated to SEBI by the FII. On receipt of no objection from the existing custodian and acceptance from the proposed custodian, the change of custodian would be approved - by SEBI.

  • What is the procedure for registration as FII/sub account fewer than 100% debt route?

The procedure for registration of FII/sub account under 100% debt route is similar to that of normal funds besides a clear statement by the applicant that it wishes to be registered as FII/sub account under 100% debt route. However, Government of India allocates the overall investment limit for 100% debt funds annually. The grant of investment limit for individual 100% debt funds is within this overall limit. The funds have to seek further investment limit in case the limit allotted to them is exhausted and they wish to invest further.

37

  • Can a Foreign Institutional Investor having an existing account with one custodian open an account with other custodian for its sub- accounts?

Yes. A Foreign Institutional Investor having an account with one custodian can open accounts with different custodians for its different sub-accounts. However, one sub-account cannot be custodied with more than one custodian.

  • What is the procedure if an existing sub-account wants to get registered as a Foreign Institutional Investor?

In case if a registered sub-account wishes to get itself registered as a Foreign Institutional Investor, then it will have to apply in Form A to SEBI for the same and has to satisfy all the eligibility criteria norms mentioned in SEBI (Foreign Institutional Investor) Regulations, 1995. It should also submit a letter from the old FII indicating its 'No-objection' to such registration.

  • In case of merger or takeover, in case if the registered Foreign Institutional Investor loses its existence, then can the SEBI FII registration be transferred to the surviving entity?

No. SEBI FII Registration is not transferable. The surviving entity has to obtain fresh registration as an FII from SEBI.

38

DEPOSITORIES AND CUSTODIANS

There are two Depositories and approximately 390 Depository Participants (DP) are registered with SEBI at present.

The two Depositories are:

  • National Securities Depository Limited

  • Central Depository Services (I) Limited

The benefits of availing Depository Services are as follows:

  • A safe, convenient way to hold securities;

  • Instant transfer of securities;

  • Stamp duty is not required on transfer of securities;

  • Elimination of risks associated with physical certificates such as bad delivery , fake securities, Delays, thefts etc.;

  • Reduction in paperwork involved in transfer of securities;

  • Reduction in the cost of transaction,

  • No odd lot problem, even one share can be sold;

  • Facility of nomination;

  • Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately;

  • Transmission of securities is done by DP eliminating correspondence with companies;

  • Credited automatically into demat account of shares, arising out-of bonus or split or consolidation or merger etc.

Opening of an account with any of the depository Participant of any depository is required to avail the services

39

OPENING OF AN ACCOUNT.

The investor has to approach a Depository Participant and fill up an account opening form with the support proof of identity and address.

PROOF OF IDENTITY: Photograph and Signature of investor must be authenticated by investor's bank or by an existing demat account holder. Alternatively, one can submit a copy of a valid Passport, Voters Id Card, Driving License or PAN card with photograph.

PROOF OF ADDRESS: A copy of ration card or passport or voter ID or PAN card or driving license or bank passbook as proof of address.

The investor has to sign an agreement with DP in a depository prescribed standard format, which holds a detail of investor's and DPs rights and duties. DP provides investor with a copy of the agreement and schedule of charges for future reference. The DP opens the account for the investor in the system and give an account number, which is also called BO ID (Beneficiary owner Identification number).

Kindly note that there is no balance of securities required in the account and more than one account in the same name can be opened either with the same DP or with other irrespective of the brokers account.

FAQs on Depositories And Custodians:

  • What is to be done if the investors address changes?

If the Investors address changes it should be immediately informed to his/her DP, who in turn updates the records.

40

  • Can an investor open a single account for securities owned in different ownership patterns?

No. The demat account must be opened in the same ownership pattern in which the securities are held in the physical form. e. g. if one share certificate is in your individual name and another certificate is jointly with some other, two different accounts would have to be opened.

41

DERIVATIVES

Derivatives trading take place under the Securities and Exchange Board of India Act, 1992 and the framework including suggestive bye-law and its Clearing Corporation/House has been laid down by Dr. L.C. Gupta Committee, constituted by SEBI.

Some

of

the

eligibility

conditions

laid

down

by

SEBI

for

Derivative Exchange/Segment and its Clearing Corporation/House are as

follows:

  • The Derivatives Exchange/Segment shall have on-line surveillance capability to monitor positions, prices, and volumes on a real time basis so as to deter market manipulation.

  • The Derivatives Exchange/ Segment should have arrangements for dissemination of information about trades, quantities and quotes on a real time basis through at least two information vending networks, which are easily accessible to investors across the country.

  • The Clearing Corporation/House shall have the capacity to monitor the overall position of Members across both derivatives market and the underlying securities market for those Members who are participating in both.

  • The level of initial margin on Index Futures Contracts shall be related to the risk of loss on the position. The concept of value-at- risk shall be used in calculating required level of initial margins. The initial margins should be large enough to cover the one-day loss that can be encountered on the position on 99% of the days.

42

  • The Clearing Corporation/House shall establish facilities for electronic funds transfer (EFT) for swift movement of margin payments.

  • In the event of a Member defaulting in meeting its liabilities, the Clearing Corporation/House shall transfer client positions and assets to another solvent Member or close-out all open positions.

  • The Clearing Corporation/House should have capabilities to segregate initial margins deposited by Clearing Members for trades on their own account and on account of his client. The Clearing Corporation/House shall hold the clients' margin money in trust for the client purposes only and should not allow its diversion for any other purpose.

  • The Clearing Corporation/House shall have a separate Trade Guarantee Fund for the trades executed on Derivative Exchange / Segment.

Presently, SEBI has permitted Derivative Trading on the Derivative Segment of BSE and the F&O Segment of NSE.

FAQs on Derivatives:

  • What derivative contracts are permitted by SEBI?

  • Index Futures Contractors, introduced in June 2000.

  • Index Options, introduced in June 2001.

  • Stock Options, introduced in July 2001.

43

  • What is minimum contract size?

Not below Rs. 2 Lakhs according to the Standing Committee on Finance, a Parliamentary Committee, at the time of recommending amendment to Securities Contract (Regulation) Act, 1956.

  • What is the lot size of a contract?

Lot size refers to number of underlying securities in one contract. Addition to it, for stock specific derivative contracts SEBI has specified that the lot size of the underlying individual security should be in multiples of 100 and fractions, if any, should be rounded of to the next higher multiple of 100. This requirement of SEBI along with the requirement of minimum contract size makes the basis of arriving at the lot size of a contract.

10% of the number of shares held by non-promoters i.e. 10% of the free float, in terms of number of shares of a company.

It is also specified that when the total open interest in a contract reaches 80% of the market wide limit in that contract, the exchanges would make the price scan range and volatility scan range (specified) double. The exchanges has to continuously review the impact of measures and take further proactive risk containment measures as may be appropriate, including, further increases in the scan ranges and levying additional margins.

44

COLLECTIVE INVESTMENT SCHEMES

At the time of commencement of CIS Regulations i.e. (October 15, 1999), entities operating a collective investment scheme are deemed to be an existing collective investment scheme.

SEBI does not ensure the refund of money invested in defaulting entities registered before October 15, 1999.

By any means the under mentioned do not constitute a CIS where any scheme or arrangement

  • Made or offered by a co-operative society or a society being a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State

  • BeinUnder which deposits are accepted by non-banking financial companies’ a contract of insurance to which the Insurance Act, applies.

  • Providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund and Miscellaneous Provisions Act, 1952.

  • Under which deposits are accepted under section 58A of the Companies Act, 1956 (1 of 1956).

  • Under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society under section 620A of the Companies Act, 1956 (1 of 1956).

  • Falling within the meaning of Chit business as defined in clause (d) of section 2of the Chit Fund Act, 1982 (40 of 1982).

45

  • Under which contributions made are in the nature of subscription to a mutual fund.

Registered with SEBI under the SEBI (Collective Investment Schemes) Regulations, 1999 and incorporated under the provisions of the Companies Act, 1956 whose object is to organise, operate and manage a Collective Investment Scheme forms a Collective Investment Management Company.

These companies can raise funds from the public by launching schemes which has to be credit rated and appraised by appraising agencies. It also has to be approved by the Trustee and contain disclosures according to the Regulations to enable investors to make informed decision. The offer document to the public is issued after 21 days of filing document to SEBI and in return no modifications are suggested by SEBI. The CIS cannot do such.

SEBI is not responsible either for the financial soundness of any scheme for which the offer document has been filed or for the correctness of the statements made or opinions expressed in the offer document. CIMC has to ensure the disclosures.

FAQs on Collective Investment Schemes:

  • What is the procedure for winding up of an existing Collective Investment Scheme?

Existing CIS has to send an information memorandum to the investors who have subscribed to the schemes, detailing the state of affairs of the

scheme, the amount repayable to each investor and the manner in which such amount is determined.

46

This information memorandum has to be signed with date by all the Directors of the scheme. The information memorandum has to state that investors desirous of continuing with the scheme will have to give a positive consent, within 30 days from the date of the information memorandum, to continue with the scheme.

If positive consent is not received from more than 25% of total existing investors, the scheme will wound up and payment made within three months to investors from the date of the information memorandum.

  • Is there some institution, which guarantees repayment of money now?

No. SEBI do not guarantee or undertake repayment to the investors.

  • Whom to approach for Grievance Redressed?

To CIS. If not satisfied then they may write to SEBI. Investors can also approach district consumer redressal forums in case entities fail to honour their commitments or for any deficiency in service. If the cheques are bounced, investors can move the courts under section 138 of the Negotiable Instruments Act as the right to file criminal complaint exclusively vests with the beneficiary of the cheque. Investors should further note that wherever they do not have a right to the land or to the produce arising out of the land such investment may be a deposit and where a company fails to repay the deposits, it attracts the

provisions of section 58A of the Indian Companies Act, 1956. SEBI has no jurisdiction over such deposits.

47

  • What are the mechanisms available to an investor to know about the registration status of various entities either existing or new?

On grant of registration as a collective investment management company, SEBI shall issue a Press Release giving the name and address of the

entities which have been granted registration. Further, the same shall be posted on the SEBI website: www.sebi.gov.in

What are the penal provisions if a registered collective investment management company violates certain provisions of the Regulations? Action in terms of suspension/ cancellation of certificate may be initiated against the entity.

Moreover, SEBI may, in the interests of the securities market and the investors, initiate criminal prosecution under Section 24 of the SEBI Act, apart from passing of directions such as

  • Requiring the person concerned not to collect any money from investor or to launch any scheme;

  • Prohibiting the person concerned from disposing of any of the properties of the scheme acquired in violation of the Regulations;

  • Requiring the person concerned to dispose off the assets of the scheme in a manner as may be specified in the directions;

  • Requiring the person concerned to refund any money or the assets to the concerned investors along with the requisite interest or otherwise, collected under the scheme;

  • Prohibiting the person concerned from operating in the capital market or from accessing the capital market for a specified period.

48

BUY BACK OF SHARES

A company buy back its shares in any one of the under mentioned manners even without shareholders' resolution to the extent of 10% of paid up equity capital and reserves. For 25% buy back, it has to get approved by Shareholders Resolution as specified in Section 77 A of Companies Act, 1956.

  • From the existing shareholders on a proportionate basis through the tender offer;

  • From open market through:

o

Book building process

o

Stock exchange,

  • From odd lot holders.

The listed companies requires intimation to the stock exchange of general meetings and resolutions passed thereof. The informations can be obtained from the stock exchanges.

SEBI issues a press release and the offer document is put on the SEBI website when buyback offer document or public announcement is filed.

49

FAQs on Buy Back of Securities:

  • How does one tender ones Shares for buyback, in the tender offer method?

The company will send a tender/offer form to the shareholders. He/She will have to fill up the form as per the instructions of the company and enclose the documents asked for.

  • How does one participate in the buyback in case one does not receive the tender/offer form?

If one has not received the tender/offer form can make an application on

plain paper stating folio number, name, address, number of shares held, share certificate number, distinctive numbers, number of shares tendered, together with the original share certificate and tender it at the collection centres/registrars.

  • Can you tender your shares for buyback if you are not a registered shareholder?

Yes, but you have to submit the duly executed transfer deed for transfer

of shares in your name, along with the offer form and other relevant documents. It should also be sent to the registrar to the buyback offer.

  • What is the manner in which the company decides the acceptances from each shareholders?

If the shares are tradable compulsorily in demat segment, the acceptances from any investor shall be on a proportionate basis irrespective of the number of shares tendered in the buyback, and irrespective of whether shares are in physical or demat form. If it is not then, the entire shares tendered being less than the minimum market lot shall be accepted in full. Next, the acceptances will be on

50

proportionate basis in a manner to ensure that the acceptances are in market lot. In this case, a draw of lots shall be done, as in public issues.

  • When will the shareholder receive intimation about acceptance of his shares?

Within 15 days from the closure of the offer.

  • When will the shareholder receive the consideration/the share certificate?

Within 21 days from the closure of the buyback offer.

51

REPORTS & DOCUMENTS

SEBI appointed L.C.Gupta Committee on 18th November 1996 to develop appropriate regulatory framework for the derivatives trading and to recommend suggestive bye-laws for Regulation and Control of Trading and Settlement of Derivatives Contracts. The Committee was also to focus on the financial derivatives and equity derivatives. The Committee submitted its report in March 1998.

The Board of SEBI in its meeting held on May 11, 1998 accepted the recommendations and approved the introduction of derivatives trading in India beginning with Stock Index Futures. The Board also approved the "Suggestive Bye-laws" recommended by the LC Gupta Committee for Regulation and Control of Trading and Settlement of Derivatives Contracts. SEBI circulated the contents of the Report in June 98.

The LC Gupta Committee had conducted a wide market survey with contact of several entities relevant to derivatives trading like brokers, mutual funds, banks/FIs, FIIs and merchant banks.

The Committee observation was that there is a widespread recognition of the need for derivatives products including Equity, Interest Rate and Currency derivatives products. However Stock Index Futures is the most preferred product followed by stock index options. An option on individual stocks is the third in the order of preference. The participants took interviews, mostly stated that their objective in derivative trading would be hedging. But there were also a few interested in derivatives dealing for speculation or dealing.

52

GOALS OF REGULATIONS:

Regulatory Objectives LCGC believes that regulation should be designed to achieve specific and well-defined goals. It is inclined towards positive

regulation designed to encourage healthy activity and behaviour.

The

important

recommendations

reproduced here under.

of L.C.Gupta Committee are

Need for coordinated development to quote from the report of the Committee -"The Committee's main concern is with equity based derivatives but it has tried to examine the need for financial derivatives in a broader perspective. Financial transactions and asset-liability positions are exposed to three broad types of price risks, viz:

  • "Equities "market risk", also called "systematic risk" (which cannot be diversified away because the stock market as a whole may go up or down from time to time).

  • "Interest rate risk (as in the case of fixed-income securities, like treasury bond holdings, whose market price could fall heavily if interest rates shot up), and

  • "Exchange rate risk (where the position involves a foreign currency, as in the case of imports, exports, foreign loans or investments).

"The above classification of price risks explains the emergence of (a) equity futures, (b) interest rate futures and (c) currency futures, respectively. Equity futures have been the last to emerge.

53

REGULATORY ROLE OF SEBI:

SEBI will approve rules, bye-laws and regulations. New derivative contracts to be approved by SEBI. Derivative exchanges to provide full details of proposed contract, like - economic purposes of the contract;likely contribution to the market's development; safeguards incorporated for investor protection and fair trading.

Specifications Regarding Trading Stock Exchanges to stipulate in advance trading days and hours. Each contract to have pre-determined expiration date and time. Contract expiration period may not exceed 12 months. The last trading day of the trading cycle to be stipulated in advance.

Sales Practices:

  • Risk disclosure document with each client mandatory

  • Sales personnel to pass certification exam

  • Specific authorisation from clients board of directors/trustees

Trading Parameters:

  • Each order - buy/sell and open/close

  • Unique order identification number

  • Regular market lot size, tick size

  • Gross exposure limits to be specified

  • Price bands for each derivative contract

  • Maximum permissible open position

  • Off line order entry permitted

54

Brokerage:

  • Prices on the system shall be exclusive of brokerage

  • Maximum brokerage rates shall be prescribed by the exchange

  • Brokerage to be separately indicated in the contract note

Margins From Clients:

  • Margins to be collected from all clients/trading members

  • Daily margins to be further collected

  • Right of clearing member to close out positions of clients/TMs not paying daily margins

  • Losses if any to be charged to clients/TMs and adjusted against margins

Other Recommendations:

  • Removal of the regulatory prohibition on the use of derivatives by mutual funds while making the trustees responsible to restrict the use of derivatives by mutual funds only to hedging and portfolio balancing and not for speculation.

  • Creation of derivatives Cell, a derivatives Advisory Committee, and Economic Research Wing by SEBI.

  • Declaration of derivatives as securities under section 2(h)(iia) of the SCRA and suitable amendment in the notification issued by the Central Government in June 1969 under section 16 of the SCRA

  • Consequent to the committee's recommendations the following legal amendments were carried out:

55

Legal Amendments:

Securities Contract Regulation Act Derivatives contract declared as a 'security' in Dec 1999 Notification in June 1969 under section 16 of SCRA banning forward trading revoked in March 2000.

In order to recommend a guideline for effective implementation of the recommendations of LC Gupta Committee Report, SEBI entrusted the task to another Committee, i.e. JR Verma Committee appointed by it.

56

COMPLAINT FORMS

From Shares to Debentures, from Mutual Funds to Custodians, from Brokers to Merchant Bankers from Securities Exchanges to Depositories, anything of everything if you have complaint, please click to the following selective table and leave your grievances here.

Type-I

Refund Order/ Allotment Advise

 

Type-II

Non-receipt of dividend

 

Type-III

Non-receipt of share certificates after transfer

 

Type-IV

Debentures

Type-V

Non-receipt of letter of offer for rights issue

 

Type-VI

Collective Investment Schemes

 

Type-VII

Mutual Funds/ Venture Capital Funds/ Foreign Venture Capital Investors/ Foreign Institutional Investors/ Portfolio Managers, Custodians

Type-VIII

Brokers/ Securities Lending Intermediaries/ Merchant Bankers/ Registrars and Transfer Agents/ Debenture Trustees/ Bankers to Issue/ Underwriters/ Credit Rating Agencies/ Depository Participants

Type-X

Securities

Exchanges/

Clearing

and

Settlement

Organizations/ Depositories

 

Type-IX

Derivative Trading

 

Type-XI

Corporate Governance/ Corporate Restructuring/ Substantial Acquisition and Takeovers/ Buyback / Delisting / Compliance With Listing Conditions

57

PENALTIES AND ADJUDICATION

1) Penalty for failure to furnish information, return, etc.

If any person, who is required under this Act or any rules or regulations made thereunder,-

  • To furnish any document, return or report to the Board, fails to furnish the same, he shall be liable toa penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less];

  • To file any return or furnish any information, books or other documents within the time specified therefor in the regulations, fails to file return or furnish the same within the time specified therefor in the regulations, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less];

  • To maintain books of accounts or records, fails to maintain the same, he shall be liable to penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.

2) Penalty for failure by any person to enter into an agreement with clients.

If any person, who is registered as an intermediary and is required under this Act or any rules or regulations made thereunder to enter into an agreement with his client, fails to enter into such agreement, he shall be liable to penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.

58

3) Penalty for failure to redress investors' grievances.

If any listed company or any person who is registered as an intermediary, after having been called upon by the Board in writing, to redress the grievances of investors, fails to redress such grievances within the time specified by the Board, such company or intermediary shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.

4) Penalty for failure to observe rules and regulations by an asset management company.

Where any asset management company of a mutual fund registered under this Act, fails to comply with any of the regulations providing for restrictions on the activities of the asset management companies, such asset management company shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.

5) Penalty for insider trading.

If any insider who-

  • Either on his own behalf or on behalf of any other person, deals in securities of a body corporate listed on any stock exchange on the basis of any unpublished price sensitive information; or

  • Communicates any unpublished price- sensitive information to any person, with or without his request for such information except as required in the ordinary course of business or under any law; or

59

  • Counsels, or procures for any other person to deal in any securities of anybody corporate on the basis of unpublished price-sensitive information. Shall be liable to a penalty of twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher.

6) Penalty for fraudulent and unfair trade practices.

If any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty of twenty-five crore rupees or three times the amount of profits made out of such practices, whichever is higher.

7) Penalty for contravention where no separate penalty has been provided.

Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a penalty which may extend to one crore rupees.

8) Factors to be taken into account by the adjudicating officer.

While adjudging quantum of penalty under section 15, the adjudicating officer shall have due regard to the following factors, namely:

  • the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;

  • the amount of loss caused to an investor or group of investors as a result of the default;

  • The repetitive nature of the default.

60

SEBIS TIME LINE BENCHMARK

The timelines benchmarks mentioned below is the 'working days' except as otherwise stated. The counting starts from the next day.

Departments

Activities

Depositories And Custodians Division

Fresh registration of depository/depository participants/custodians.

  • 30 days -

Renewal of registration/ cancellation surrenders of depository/depository participants/custodians.

  • 30 days -

Activities

Foreign Institutional Investors Division

Fresh registration

FIIs - 13 days. Sub-account - 3 days.

Renewal of registration

FIIs - 5 days. Sub-account - 3 days.

Activities

Collective Investment Schemes Division

Fresh registration

  • 21 Days.

Renewal of registration/ cancellation.

  • 21 Days.

Observations on the offer documents.

  • 21 days

Activities

Secondary Market Department

Fresh registration - Credit Rating Agency

  • 21 days

61

Fresh registration - Approved intermediary under Stock Lending Scheme

  • 21 days

Fresh registration Brokers

  • 30 days

Fresh registration - Sub- Brokers

  • 30 days

Rule 4 ( c ) approvals for brokers

  • 30 days

Cancellation/surrender of broker /sub brokers

  • 30 days

Activities

Investor Grievances And Guidance Division

Fresh registration

Investors associations - 21 days

Renewal of registration/ cancellation.

Investors associations - 21 days

Processing of applications for release of 1% deposit from stock exchanges

  • 15 days

Processing of payments to investor associations

  • 21 days

Activities

Mutual Funds And Venture Capital Dept.

Approval for Trustees of Mutual Funds

  • 7 days

Applications for foreign securities / ADRs/GD Rs

  • 7 days

Fresh registration

  • 21 days

Change in controlling interest /

  • 21 days

62

conversion from close ended to open ended schemes

 

Observations on the offer documents.

21

days

Activities

Primary Market Department

Fresh registration of intermediaries

21

days

Renewal of registration/ cancellation.

21

days

Observations on the offer

21

days from the date of filing with

documents.

SEBI.

Listing related issues ( Preferential offers, exemption from Rule 19(2)(b) etc)

21

days

Activities

Takeovers Division

Observations on the offer

21

days from the date of filing with

documents.

SEBI

Disposal of an application made u/r 4 (2)

60

days

Examination of Complaints on alleged violations

20

days

Disposal of a report submitted u/r 3(4)

20

days

Activities

All Divisions

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GENERAL INFORMATION GLOSSARY

The Capital Market is probably the most relevant market category to the individual investor. Every moment, a miniscule change here has great effects on the net worth of every investor. Find out in this section, what the terms all mean.

  • Alert:

Some actions of the dealers need control approval. These actions come to control workstation as Alerts. The possible alerts that require control approvals are trade modification, trade cancellation, negotiated trade entry, auction initiation and auction order cancellation.

  • All or None (AON) :

This is one of the Special Terms conditions. An order with this condition should be matched either with the entire order quantity or none at all.

  • At The Opening (ATO) Order:

Market order entered during the Pre-Open period. These orders are priced according to The Capital Market is probably the most relevant market category to the individual investor. Every moment, a miniscule change here has great effects on the net worth of every investor. Find out in this section, what the terms all mean. the calculation of the opening price during the Pre-Open period.

  • Auction Market:

The buy/sell auction for a Capital Market security is managed through the auction market. As opposed to the Normal market where trade matching

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is an on-going process, the trade matching process for auction starts after the auction.

  • Base Price:

The price of a security at the beginning of the trading day which is used to determine the Day Minimum/Maximum and the Operational ranges for that day.

  • Batch:

A period in the trading day for the different markets. Order entry, matching, inquiries and other functions at the workstation are not allowed during this period. The system maintains files and trading parameters and downloads the reports of the trading members during this period and makes the system available for next day.

  • Branch Order Value Limit:

A limit placed on the daily aggregate value of orders entered by dealers or the Branch Manager. Orders entered by dealers or the Branch Manager with value exceeding the Order Value Limit for the branch are not allowed by the system.

  • Broadcast Circuit:

This is a virtual circuit through which the system can send messages to all workstations. In this mode, the system does not await the response from the workstations.

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  • Buyer:

The trading member who has placed the order for the purchase of the securities.

  • Closing Price:

The trade price of a security at the end of a trading day. Based on the closing price of the security, the base price at the beginning of the next trading day is calculated.

  • Competitor:

The auction participant on the same side of the Initiator's order. If the Initiator is a buyer then the competitor enters buy orders for the same security.

  • Control User:

An employee of the exchange who is a user of the Capital Market system having special control privileges. The control user can alter the master files, trading parameters and also perform market monitoring and control operations.

  • Counterparty:

When a trading member enters an order, any other trading member with an order on the opposite side is referred to as the counterparty.

  • Day Minimum/Maximum Range:

The minimum/maximum price range for a security on a trading day. Buy orders outside the Maximum of the range and sell orders outside the

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Minimum of the range are not allowed to be entered into the system. It is calculated as a percentage of the Base price.

  • Day Orders:

If any quantity of a Day order is left untraded, the order is not cancelled by the system until the end of the trading day.

  • Dealer:

A user belonging to a Trading Member. Dealers can participate in the market on behalf of the Trading Member.

  • Derivatives:

Derivatives, such as options or futures, are financial contracts which derive their value off their "underlying" asset. For examples, wheat farmers may wish to contract to sell their harvest at a future date to eliminate the risk of a change in prices by that date. Such a transaction would take place through a forward or futures market.

This market is the "derivative market", and the prices on this market would be driven by the spot market price of wheat which is the "underlying". The terms "contracts" or "products" are often applied to denote the traded instrument.

  • Forward contract:

In a forward contract, two parties agree to do a trade at a future date, at a stated price and quantity. No money changes hands at the time the deal is signed.

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  • Freeze:

Orders entered into the system with price outside the Operational range and orders with quantity greater than the Order Quantity Freeze percentage is sent to the Exchange for approval.

  • Good Till Cancelled (GTC) orders:

If any quantity of a GTC order is left untraded, the order is not cancelled by the system until it is cancelled by the dealer or after a parameterized number of days.

  • Good Till Date (GTD) orders:

If any quantity of a GTD order is left untraded, the order is not cancelled by the system until the Good Till Date mentioned in the order.

  • Immediate or Cancel (IOC):

When a IOC order is entered, the system will immediately try to match this order as much as possible and cancel the remaining quantity, if any at all. In this attempt, the order might find a partial match.

  • Initiator:

The trading member who starts the auction. The Initiator can be a buyer or a seller.

  • Interactive Circuit:

This is a virtual circuit through which the system can send messages to a specific workstation and vice - versa.

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  • Limit order:

Is an order for which the price (limit price) has been specified at the time of making the order entry.

  • Market order:

Is an order for which no price has been specified at order entry.

  • Matching:

When a buy and a sell order satisfy the price - time priority, they can result in a trade. This process is called as matching. The match can be full or partial depending on the order conditions.

  • Minimum Fill (MF):

This is one of the special conditions where a minimum quantity is specified for an order. The quantity of the trade involving an order with a MF attribute should at least be this minimum quantity specified.

  • Negotiated Trade:

Two Trading members can negotiate a trade outside the system. However this trade is accepted by the system only if Control approves. Both the parties enter each side of their trade in the system specifying each other’ identity.

  • Participant:

An entity responsible for the settlement of a trade is deemed to be a participant. Every order in the trading system has a participant associated with it.

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  • Pre-Open:

A time period in the trading day for the Normal market. Trading members are allowed to enter orders during this period. These orders in the system take part in the algorithm for the calculation of the opening price during this period.

  • Print/Report Circuit:

This is a virtual circuit through which the system can download report data to all workstations. In this mode, the system does not await the response from the workstations.

  • Regular Lot:

The minimum quantity of an order entered into the Normal, Spot and Auction markets. The order that does not carry any special conditions (Minimum Fill, All or None) is treated as a regular lot order.

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