FINANCIAL MARKETS

INDIAN FINANCIAL SYSTEM

INTRODUCTION
A system that aims at establishing and
providing a regular, smooth, efficient and cost
effective linkage between depositors and
investors is known as financial system.
The functions of financial system are to
channelise the funds from the surplus units to
the deficit units.

FINANCIAL SYSTEM..
An efficient financial system not only
encourages savings and investments it also
efficiently allocates resources in different
investment avenues and thus accelerates the
rate of economic development.
The financial system of a country plays a
crucial role of allocating scare resources to
productive uses. Its efficient functioning is of
critical importance to the economy.

FINANCIAL SYSTEM.
Financial system is one of the industries in an
economy. It is a particularly important industry that
frequently has a far reaching impact on society and
the economy.
The product of the financial industry is not tangible
rather it is an intangible service. Financial industry as
a whole, produces a wide range of services but all
these services are related directly or indirectly to
assets and liabilities, that is, claims on people,
organization, institutions, companies and government.

..
These are the forms in which people accumulate much of
their wealth.
In simple terms we are referring to paper assets : shares,
debentures, deposits, mortgages and other securities.
Thus, financial system performs certain essential functions
for the economy, including maintenance of payment
system (through which purchasing power is transferred
from one participant to another i.e. from buyer to seller),
collection and allocation of the savings of society, and
creation of a variety of stores of wealth to suit the
preferences of savers.

.
This brief sketch of functions of financial
system gives us its gist.
Performance of these functions pre-supposes
the existence of financial assets, financial
institutions (intermediaries) and financial
markets. A combination of these three
constitute financial system.

FUNCTIONS OF FINANCIAL SYSTEM

a) Capital formation function
b) Allocative function
c) Service function

FINANCIAL CONCEPTS
(i) Financial assets
()Marketable assets
()Non-marketable assets
(ii) Financial intermediaries
()Capital market intermediaries
()Money market intermediaries
(iii) Financial markets
()Unorganised Markets
()Organised Markets
Capital market - (i) Industrial securities market, (ii) Government securities
market and (iii) Long term loans market
Money market (iv) Financial rates of return
(v) Financial instruments

WORKING OF FINANCIAL SYSTEM

DEVELOPMENT OF FINANCIAL SYSTEM IN INDIA

Some serious attention was paid to the development of a sound
financial system in India only after the launching of the planning
era in the country.
At the time of Independence in 1947, there was no strong
financial institutional mechanism in the country.
There was absence of issuing institutions and non-participation of
intermediary financial institutions. The industrial sector also had
no access to the savings of the community.
The capital market was very primitive and shy. The private as
well as the unorganized sector played a key role in the provision
of liquidity. On the whole, chaotic conditions prevailed in the
system.

DEVELOPMENT OF FINANCIAL SYSTEM IN

INDIA..

With the adoption of the theory of mixed economy,

the development of the financial system took a
different turn so as to fulfill the socio-economic and
political objectives.
The Government started creating new financial
institutions to supply finance both for agricultural
and industrial development and it also progressively
started nationalizing some important financial
institutions so that the flow of the finance might be in
the right direction.

Nationalization of Financial Institution

As we know that the RBI is the leader of the financial system. But, it was
established as a private institution in 1935. It was nationalized in 1948.
It was followed by the nationalization of the Imperial Bank of India in 1956
by renaming it as State Bank of India. In the same year, 245 Life Insurance
Companies were brought under Government control by merging all of them
into a single corporation called Life Insurance Corporation of India.
Another significant development in our financial system was the
nationalization of 14 major commercial banks in 1969. Again, 6 banks were
nationalized in 1980.
This process was then extended to General Insurance Companies which
were reorganized under the name of General Insurance Corporation of
India. thus, the important financial institutions were brought under public
control.

Starting of Unit Trust of India

Another landmark in the history of development of our financial system is the
establishment of new financial institutions to strengthen our system and to supply
institutional credit to industries.
The Unit Trust of India was established in 1964 as a public sector institution to collect
the savings of the people and make them available for productive ventures. It is the
oldest and largest mutual fund in India. It is governed by its own statues and
regulations. However, since 1994, the schemes of UTI have to be approved by the
SEBI.
It has introduced a number of open-ended and close-ended schemes. It also provides repurchase facility of units of the various income schemes of UTI are linked with stock
exchanges.
Its investment is confined to both corporate and non-corporate sectors. It has established
the following subsidiaries:
The UTI Bank Ltd., in April 1994.
The UTI Investor Service Ltd., to act as UTIs own Registrar and Transfer agency.
The UTI Security Exchange Ltd.

Establishment of Development Banks

Many development banks were started not only to extend credit
facilities to financial institutions but also to render advisory
services.
These banks are multipurpose institutions which provide medium
and long term credit to industrial undertakings, discover
investment projects, undertake the preparation of project reports,
provide technical advice and managerial services and assist in the
management of industrial units.
These institutions are intended to develop backward regions as
well as small and new entrepreneurs.

Development Banks..

The Industrial Finance Corporation of India (IFCI) was set up in 1948 with
the object of making medium and long term credits more readily
available to industrial concerns in India, particularly under circumstances
where normal banking accommodation is inappropriate or recourse to
capital issue method is impracticable.
At the regional level, State Financial Corporations were established under
the State Financial Corporation Act, 1951 with a view to providing
medium and long term finance to medium and small industries.
It was followed by the establishment of the Industrial Credit and Investment
Corporation of India (ICICI) in 1955 to develop large and medium
industries in private sector, on the initiative of the World Bank. It adopted a
more dynamic and modern approach in industrial financing.
Subsequently, the Government of India set up the Refinance Corporation
of India (RCI) in 1958 with a view to providing refinance facilities to
banks against term loans granted by them to medium and small units. Later
on it was merged with the Industrial Development Bank of India.

Development Banks..
The Industrial Development Bank of India (IDBI) was
established on July 1, 1964 as a wholly owned subsidiary of the
RBI.
The ownership of IDBI was then transferred to the Central
Government with effect from February 16, 1976.
The IDBI is the apex institution in the area of development
banking and as such it has to co-ordinate the activities of all the
other financial institutions.
At the State level, the State Industrial Development
Corporations
(SIDCO)/State
Industrial
Investment
Corporations were created to meet the financial requirements of
the States and to promote regional development.

Development Banks..
In 1971, the IDBI and LIC jointly set up the Industrial
Reconstruction Corporation of India (IRCI) with the main objective
of reconstruction and rehabilitation of sick industrial undertakings.
The IRCI was converted into a statutory corporation in March 1985 and
renamed as the Industrial Reconstruction Bank of India (IRBI).
In 1997, the IRBI has to be completely restructured since it itself has
become sick due to financing of sick industries.
Now, it is converted into a limited company with a new name of
Industrial Investment Bank of India (IIBI). Its objective is to finance
only for expansion, diversification, modernization etc., of industries and
thus it has become a development bank.
The Small Industries Development Bank of India (SIDBI) was set up
as a wholly owned subsidiary of IDBI. It commenced operations on
April 2, 1990. The SIDBI has taken over the responsibility of
administrating the Small Industries Development Fund and the National
Equity Fund.

Development Banks..
Institution for Financing Agriculture
In 1963, the RBI set up the Agricultural Refinance and
Development Corporation (ARDC) to provide refinance support to
banks to finance major development projects such as minor irrigation,
farm mechanization,, land development, horticulture, dairy
development, etc.
However, in July 1982, the National Bank for Agriculture and
Rural Development (NABARD) was established and the ARDC was
merged with it.
The whole sphere of agricultural finance has been handed over to
NABARD. The functions of the Agricultural Credit Department
and Rural Planning and Credit Cell of the RBI have been taken over
by NABARD.

Development Banks..
Institution for Foreign Trade
The Export and Import Bank of India (EXIM Bank)
was set up on January 1, 1982 to take over the operations of
International Finance wing of the IDBI.
Its main objective is to provide financial assistance to
exporters and importers. It functions as the principal
financial institution for coordinating the working of other
institutions engaged in financing of foreign trade.
It also provides refinance facilities to other financial
institutions against their export-import financing activities.

Development Banks..
Institution for Housing Finance
The National Housing Bank (NHB) has been set up on
July 9, 1988 as an apex institution to mobilize resources
for the housing sector and to promote housing finance
institutions both at regional and local levels.
It also provides refinance facilities to housing finance
institutions and scheduled banks.
It also provides guarantee and underwriting facilities to
housing finance institutions. Again, it co-ordinates the
working of all agencies connected with housing.

Stock Holding Corporation of India Ltd. (SHCIL)

Recently in 1987 another institution viz., Stock Holding
Corporation of India Ltd. was set up to tone up the
stock and capital markets in India.
Its main objective is to provide quick share
transfer facilities, clearing services, Depository
services,
support
services,
management
information services and development services
to investors both individuals and corporate.
The SHCIL was set up by seven All India financial
institutions viz., IDBI, IFCI, ICICI, LIC, GIC, UTI and IRBI.

Mutual Funds Industry

Mutual funds refer to the funds raised by financial
service companies by pooling the savings of the
public and investing them in a diversified portfolio.
They provide investment avenues for small
investors who cannot participate in the equities of
big companies. Mutual funds have been floated by
some public sector banks, LIC, GIC and recently by
private sector also.

Venture Capital Institutions

Venture capital is another method of financing in the form of equity
participation. A venture capitalist finances a project based on the
potentialities of a new innovative project. Much thrust is given to
new ideas or technological innovations. Indeed it is a long term risk
capital to finance high technology projects.
The IDBI venture capital fund was set up in 1986. The IFCI has started
a subsidiary to finance venture capital viz., The Risk Capital and
Technology Finance Corporation (RCTC).
Likewise the ICICI and the UTI have jointly set up the Technology
Development and Information Company of India Limited (TDICI)
in 1988 to provide venture capital.
Similarly many State Financial Corporations and commercial banks
have started subsidiaries to provide venture capital. The Indus
Venture Capital Fund and the Credit Capital Venture Fund
Limited come under the private sector.

Credit Rating Agencies

Of late, many credit rating agencies have been established to help investors to
make a decision of their investment in various instruments and to protect
them from risky ventures.
At the same time it has the effect of improving the competitiveness of the
companies so that one can excel the other.
Credit rating is now mandatory for all debt instruments. Similarly, for accepting
deposits, non-banking companies have to compulsorily go for credit rating.
Some of the credit rating agencies established re :
Credit Rating and Information Services of India Ltd. (CRISIL)
Investment Information and Credit Rating Agency of India Ltd. (ICRA)
Credit Analysis and Research Ltd. (CARE)
Duff Phelps Credit Rating Pvt. Ltd. (DCR India)
The rating is confined to fixed deposits, debentures, preference shares and short
term instruments like commercial paper. The establishment of various credit
rating agencies will go a long way in stabilizing the financial system in India by
supplying vital credit information about corporate customers.

WEAKNESSES OF INDIAN FINANCIAL SYSTEM

After the introduction of planning, rapid industrialization
has taken place. It has in turn led to the growth of the
corporate sector and the Government sector.
In order to meet the growing requirements of the
Government and the industries, many innovative financial
instruments have been introduced.
Besides, there has been a mushroom growth of financial
intermediaries to meet the ever growing financial
requirements of different types of customers.
Hence, the Indian financial system is more developed and
integrated today than what it was 50 years ago. Yet, it
suffers from some weaknesses as discussed later

WEAKNESSES OF INDIAN FINANCIAL

SYSTEM
Lack of Co-ordination between different
Financial Institutions
Monopolistic Market Structures
Dominance of Development Banks in
Industrial Financing
Inactive and Erratic Capital Market
Imprudent Financial Practice

Role and Importance of Financial System

in Economic Development
1. It links the savers and investors. This savings investment process is called capital
formation.
2. It helps to monitor corporate performance.
3. It provides a mechanism for managing uncertainty and controlling risk.
4. It provides a mechanism for the transfer of resources across geographical
boundaries.
5. It offers portfolio adjustment facilities (provided by financial markets and financial
intermediaries).
6. It helps in lowering the transaction costs and increase returns. This will motivate
people to save more.
7. It promotes the process of capital formation.
8. It helps in promoting the process of financial deepening and broadening. Financial
deepening means increasing financial assets as a percentage of GDP and financial
broadening means building an increasing number and variety of participants and
instruments.
In short, a financial system contributes to the acceleration of economic development. It
contributes to growth through technical progress.

Financial Engineering
Financial engineering is the use of mathematical
techniques to solve financial problems.
Financial engineering uses tools and knowledge from the
fields of computer science, statistics, economics and
applied mathematics to address current financial issues as
well as to devise new and innovative financial products.
Financial engineering is sometimes referred to as
quantitative analysis and is used by regular commercial
banks, investment banks, insurance agencies and hedge
funds.

Regulatory Bodies
SEBI
Registrar of Companies

SEBI - Securities Exchange Board of India

Securities and Exchange Board of India (SEBI) is the nodal agency to

regulate the capital market and other related issues in India.
It was established in 1988 as an administrative body and was given statutory
recognition in January 1992 under the SEBI Act 1992 which came into force
on January 30, 1992. Before that, the Capital Issues (Control) Act, 1947 was
repealed.
SEBI has been constituted on the lines of Securities and Exchange
Commission of USA.
SEBI is consisting of the Chairman and 8 Members (one member
representing the Reserve Bank of India, two members from the officials of
Central Government and five other public representatives to be appointed by
the Central Government from different fields).
Securities and Exchange Board of India has been playing an active role in
the Indian Capital Market to achieve the objectives enshrined in the
Securities and Exchange Board of India Act, 1992.

SEBI
The major objective of the SEBI :
To provide a degree of protection to the investors and
safeguard their rights and to ensure that there is a steady flow
of funds in the market.
To promote fair dealings by the issuer of securities and ensure
a market where they can raise funds at a relatively low cost.
To regulate and develop a code of conduct for the financial
intermediaries and to make them competitive and
professional.
To provide for the matters connecting with or incidental to the
above.

SEBI
Section 11 of the SEBI Act deals with the powers and functions of the
SEBI
It shall be the duty of Board to protect the interests of
the investors in securities and to promote the
development of and to regulate the securities market
by measures as deemed fit.
To achieve the above, the Board may undertake the
following measures :
1. Regulating the business in stock exchanges;
2. Registering and regulating the working of stock
brokers, sub-brokers, share transfer agents, bankers to
an issue, merchant bankers, underwriters, portfolio
managers;
3. Registering and regulating the working of the
depositories, participants, credit rating agencies;

SEBI Powers & Functions

5. Prohibiting fraudulent and unfair trade practices relating to
securities markets;
6. Promoting investors education and training of intermediaries of
securities markets;
7. Prohibiting insider trading in securities;
8. Regulating substantial acquisition of shares and take-over of
companies;
9. Calling for information from undertaking, inspection, concluding
inquiries and audits of the stock exchanges, mutual funds, other
persons associated with the securities market intermediaries and
self-regulatory organisations in the securities market.

Registrar of Companies
Registrars of Companies (ROC) appointed under Section 609 of
the Companies Act covering the various States and Union
Territories are vested with the primary duty of registering
companies and LLPs floated in the respective states and the
Union Territories and ensuring that such companies and LLPs
comply with statutory requirements under the Act.
These offices function as registry of records, relating to the
companies registered with them, which are available for
inspection by members of public on payment of the prescribed
fee.
The Central Government exercises administrative control over
these offices through the respective Regional Directors.

Legal Framework
Securities Contracts (Regulation) Act
-1956
Securities and Exchange Board of
India Act, 1992
SEBI (Intermediaries) Regulations,
2008
The Depositories Act 1996
Companies Act 2013

Securities Contracts
(Regulation) Act -1956
INTRODUCTION
The securities contracts(regulation)Act,
1956,is an Act to present undesirable in
securities by regulating the business of
dealing therein by providing for certain
other matters connected therewith.
It was enacted by parliament in the
seventh year of the Republic of India(1956)
& extends to the whole of India .

WHAT IT DEALS WITH ?

The [SC(R)A]- Securities contracts
(Regulation) Act deals with :
Stock exchanges ,through a process of
recognition & continued supervision.
Contracts in securities
Listing of securities on stock exchanges.

WHY DID IT COME INTO

EXISTENCE ?
Stock market plays a significant role in
development of the economy.
Stock market facilitates mobilization of
funds from small savings of investors &
channelizes these resources into various
development needs of various sectors of
the economy.
Stock market also provides mechanism for
trading of securities thus ensuring liquidity
to the investment of investors.

CAME INTO EXISTENCE ?......

Thus ,stock market facilitates transactions
in securities
In order to prevent undesirable
transactions in securities ,promote healthy
stock market ,the securities
contracts(Regulation )Act 1956 enacted by
parliament vide act no2
This applying to whole of India

INIDAN REGULATORY FRAMEWORK

SECURITIES ISSUANCE: REGULATORY FRAMEWORK

DEPOSITORI
ES ACT

SCR ACT

SEBI ACT

COMPANIES
ACT

SEBI Rules,
guidelines
Stock
exchanges
Intermediari
es
ISSUER

AMENDMENTS
The SCR act was enacted to form a healthy
market in India.
It controls the securities ,geographical areas
for trading ,licensing of stock exchanges
,constitution & governance of stock exchanges
& listing agreements.
It restricts trading of securities that are not
covered under its definition . There were
several amendments to this act ,its
introduction to further include interests of the
investor.

 Securities contracts (Regulation )Rules,1957

Securities contracts (Regulation)amendments
rules,1996
Securities contracts (Regulation)(Appeal to
securities appellate tribunal)Rules,2000
Securities contracts(regulation)amendments
rules,2001
Securities contracts(regulation)amendments
rules,2003

 Securities law (amendment)act,2005

Securities contracts
(regulation)amendments,2007
Securities contracts(regulation)
(amendment)rules,2010
Securities contracts(regulation)(second
amendment)rules,2010
Securities contracts(Regulation)(stock
exchange & clearing
corporations)regulations,2012.

THE LATEST AMENDMENT

It was made in the year
2012.securities contracts(regulation )
(stock exchanges & clearing
corporation)Regulations,2012[Mumb
ai,20thJune 2012]

IMPLICATIONS IN THE SOCIETY:

Traditionally ,the stock exchanges in India
were organizations formed generally on notfor profit & the trading members besides
rendering various services were also owning
,controlling & managing the stock exchanges.
They were essentially not corporatized &
working on mutual basis.
This type of system had its own merits &
inherent limitations

 However with the passage of time & events

occurring at the various stock exchanges ,a thought
was contemplated as why they should not be
allowed to corporatized & work on demutualization
basis.
The advantage of the new system is that the public
interest of the private interest is regulated to the
background
The primary implications is to stop malpractices.
After this Act ,to a certain extent investors started
trusting the stock exchange.
There was less means of cheating & the government
had control over it .
It reduced serious crises

Securiti
es &
Exchang
e Board
of India,
ACT
1992

INTRODUTION
The Securities and Exchange Board of India
was established by the Government of India
on 12th April 1988 as an interim
administration body to promote orderly and
healthy growth of the securities market and
for investor protection.
It was functioned under the overall
administrative control of the Ministry of
Finance of the GOI.
The SEBI was given the statutory powers on
30th Jan 1992 through an Ordinance.
The Ordinance was later replaced by an Act of
Parliament known as the Securities and
Exchange Board of India Act 1992.

OBJECTIVES
The primary objective of SEBI is to promote healthy
and orderly growth -of the securities market and
secure investor protection. The objectives of SEBI
are as follows:
Regulation of Stock Exchange:
Protection to the Investors
Checking the insider Trading
Control over Brokers

POWERS OF SEBI

Powers of SEBI
Powers

relating

to

stock

exchanges

and

intermediaries:
SEBI

has

wide

powers

regarding

the

stock

exchanges and intermediaries dealing in securities

It can ask information from the stock exchanges and
intermediaries regarding their business transactions
for inspection/scrutiny and other purposes

Powers of SEBI

(Contd)

Powers relating to monetary penalties:

SEBI has been empowered to impose
monetary

penalties

on

capital

market

intermediaries and other participants for a

range of violations
It can even impose suspension of their
registration for a short period

Powers of SEBI
Powers

to

initiate

(Contd)

actions

relating

to

functions assigned:
SEBI has a power to initiate actions in regard to
functions assigned
For example, it can issue guidelines to different
intermediaries or can introduce specific rules
for the protection of interests of investors

Powers of SEBI

(Contd)

Powers under Securities Contracts (Regulation) Act :

For effective regulation of stock exchanges, the Ministry
of Finance issued a Notification on 13 September, 1994
delegating several of its powers under the Securities
Contracts (Regulation) Act to SEBI
SEBI is also empowered by the Finance Ministry to
nominate three members on the Governing Body of every
stock exchange instead of earlier practice of government
making such nominations

Powers of SEBI

(Contd)

Powers to regulate business of stock exchanges

:
SEBI is empowered to regulate the business of stock
exchanges
Intermediaries associated with the securities market
as well as mutual funds, fraudulent and unfair trade
practices relating to securities and regulation of
acquisition of shares and takeovers of companies

Powers of SEBI
Powers

(Contd)

relating

to

insider

trading:
SEBI has power to regulate insider
trading

or

can

regulate

functions of merchant bankers

the

FUNCTIONS
Section 11 of the SEBI Act , there are mainly
two types of functions. They are;
1.Regulatory Functions
2.Developmental Functions

Regulatory Functions
(a) Regulation of stock exchange and self
regulatory organisations.

(b). Registration and regulation of stock brokers, sub-

brokers, registrar to all issue, merchant bankers,

underwriters, portfolio managers and such other
intermediaries who are associated with securities
market.
(c). Registration and regulation of the working of
collective investment schemes including mutual
funds.
(d). Prohibition of fraudulent and unfair trade practices
relating to securities market.
(e). Prohibition of insider trading in securities.
f). Regulating substantial acquisitions of shares and take
over of companies.

Developmental Functions
(a). Promoting investors education.
(b). Training of intermediaries.
(c). Conducting research and published
information useful to all market
participants.
d). Promotion of fair practices. Code of
conduct for self-regulatory organizations.
(e). Promoting self-regulatory organizations.

SEBI GUIDELINES
SEBI has brought out a number of guidelines
separately, from time to time, for primary market,
secondary market, mutual funds, merchant bankers,
foreign institutional investors, investor protection
etc.
1. Guidelines for Primary Market.
(a). New Company: Anew company is one, which has
not completed 12 months commercial production
and does not have audited results. And the
promoters do not have a track record. These
companies have to issue shares only at par.
(b). New Company set-up
When a new company is
companies with a five
consistent profitability and

by Existing Company:
being set-up by existing
year track
record of
a contribution of at least

Continued.
(c). Private and closely held companies: These
having a track record of consistent profitability for at
least three years, shall be permitted to price their
issues freely. The issue price shall be determined
only by the issues in consultation with lead managers
ton the issue.
(d). Existing Listed companies: It will be allowed
to raise fresh capital by freely pricing expanded
capital provided the promoters contribution is
50%on first Rs.100crores of issue, 40% on next
Rs.200 crores, 30% on next Rs 300 crores and 15%
on balance issue amount.

2. Guidelines for Secondary Market:

Stock Exchange
(a) Board of Directors of stock exchange has to be reconstituted so as to
include non-members, public representatives, government representative to
the extent of 50% of total number of members.
(b)Capital adequacy norms have been laid down for members of various stock
exchanges depending upon their turnover of trade and other factors.
(c). Working hours for all stock exchanges have been fixed uniformly.
(d). All the recognized stock exchanges will have to inform about the
transaction within 24 hours.
Brokers
(a). Registration of brokers and sub-brokers is made compulsory.
(b). Compulsory audit of brokers book and filing of audit report with SEBI
have been made mandatory.
(c). In order to ensure that brokers are professionally qualified and financially
solvent, capital adequacy norms for registration of brokers have been
evolved.

Continued.
(d). To bring about greater transparency and accountability in the brokerclient relationship, SEBI has made it mandatory for brokers to disclose
transaction price and brokerage separately in the contract notes issued to
client.
(e). No broker is allowed to underwrite more than 5% of public issue.

3.Foreign Institutional Investors(FII)

(a). Foreign institutional investors have been allowed to invest in
all securities traded in primary and secondary markets.
(b). There would be no restriction on the volume of investment for
the purpose of entry of FIIs.
Holding of single FII will not ecxeed the ceiling of 5% of equity
capital
Tax rate 10% on large capital gain , 30% on short term capital
gains 20 % on dividend

4. Guidelines to issue of Bonus Shares

(a).Issue of bonus shares after any public/rights issue is subject to
the condition that no bonus shall be made which will dilute the
value or rights of holders of debenture, convertible fully or partly.
(b). There should be a provision in the Articles of Association of the
company for issue of bonus shares.

c). The bonus is made out of free reserves built out of the
genuine profits or share premiums collected in cash only.
(d). No bonus issue can be made within 12 months of any
public issue/rights issue.
(e). A company which announces bonus issue after the approval
of the Board of Directors must implement the proposals
within a period of six months from the date of such proposal
and shall not have the option of changing the decision

5.Guidelines for Rights Issue

Where composite issues are made by listed companies, they
can be issued at different prices.
Gaps between the clearance dates of right issues and public
issues should not exceed 30 days.
If right issues of listed companies exceed Rs.50 lakhs, issue
should be managed by an authorized merchant banker.
Underwriting of right issues is not mandatory but as per SEBI
Rules right issues can be underwritten.
No preferential allotment shall be made along with the right
issues.
If the company doesnt receive minimum subscription (90%
of the issue amount) within 120 days from the date of
opening issue, the entire subscription should be refunded
within 128 days with interest @ 15 % p.a. for delay.

 Within 45 days of closure of rights issue,

a report in the prescribed form along with
compliance report duly signed by the
statutory auditor should be forwarded to
SEBI.

 (c). Companies making rights issues are now

permitted to dispatch an abridged letter of
offer, containing disclosures as required in
the abridged prospectus. However, such
companies may provide the detailed letter
of offer to any shareholder upon request.
(d). Again, companies that have filed a draft
offer document with full disclosures can now
come out with further capital issues even
before the shares pertaining to the
document are listed on the brochures.

 All listed companies making rights

issue shall issue an advertisement in
at least two All India newspapers
about the dispatch of letters of offer,
opening date, closing date etc.

6. Guidelines to Debentures
(a).The amount of working capital debenture should not
exceed 20% of the gross current asset.
(b). The debt equity ratio should not exceed 2:1.
(c). The rate of interest can be decided by the company.
(d). Normally debentures above seven years cannot be
issued.
(e). Debentures issued to public have to be secured and
registered.
(f) credit rating is compulsory for all the debentures except
those issued by public sector companies

7.Guidelines for protection of the

Debenture Holders
(a). Servicing of Debentures
(b). Protection of interest of Debenture
Holders
Guidelines for underwriters
Hold certificate of registration granted by
SEBI
Certificate is valid for 3 yrs from the date
of issue
Total underwriting obligations should not
exceed 20 times of his networth
Furnish all statements within 6 months

9. Investor protection
New issues
Prohibition of unfair trade practices
Investor education
Grievance cell
Stock invest
10. Book building
Usual methods of fixing share price
doesnt take into consideration the
investors demands
So goes for book building

11. Buy back of shares

Popular in USA & UK
Company can buy back its own
shares and other securities to the
extent of 25 % of the paid up capital
and free reserves
It is a method of cancellation of the
share capital
It leads to reduction in the share
capital of the company

SEBI (INTERMEDIARIES) REGULATIONS, 2008

In the present regime a dozen regulations govern different categories
of intermediaries. The broad framework of such regulations is similar
to one another.
SEBI in exercise of the powers conferred by section 30 of the
Securities and Exchange Board of India Act, 1992 issued the SEBI
(Intermediaries) Regulations, 2008 which seek to consolidate the
common requirements and put in place a comprehensive framework
which will apply to the intermediaries and prescribe the obligations,
procedure, limitations etc. in so far as the common requirements are
concerned.
The new regulations seek to simplify procedures to make the
registration/ regulation process of intermediaries less burdensome and
cost effective without diluting the regulatory oversight.

THE DEPOSITORIES ACT,

1996

Depository means a company formed and registered

under the Companies Act, 1956 (1 of 1956), and which
has been granted a certificate of registration under subsection (1A) of Section 12 of the Securities and
Exchange Board of India Act, 1992 (15 of 1992);

Certificate
of
commencement
of
business
by
depositories.?
(1) No depository shall act as a depository unless it obtains a
certificate of commencement of business from the Board.
(2) A certificate granted under sub-section (1) shall be in such
form as may be specified by the regulations.
(3) The Board shall not grant a certificate under sub-section (1)
unless it is satisfied that the depository has adequate
systems and safeguards to prevent manipulation of records
and transactions:
Provided that no certificate shall be refused under this section
unless the depository concerned has been given a reasonable
opportunity of being heard.

Agreement between depository and participant.?

(1) A depository shall enter into an agreement with one
or more participants as its agent.
(2) Every agreement under sub-section (1) shall be in
such form as may be specified by the bye-laws.
Services of depository.?Any person, through a
participant, may enter into an agreement, in such form
as may be specified by the bye-laws, with any
depository for availing its services.
Surrender of certificate of security.?(1) Any person
who has entered into an agreement under Section 5
shall surrender the certificate of security, for which he
seeks to avail the services of a depository, to the issuer
in such manner as may be specified by the regulations.
(2) The issuer, on receipt of certificate of security under
sub-section (1), shall cancel the certificate of security
and substitute in its records the name of the depository
as a registered owner in respect of that security and
inform the depository accordingly.

Power of Board to call for information and enquiry.

(1) The Board, on being satisfied that it is necessary in the public
interest or in the interest of investors so to do, may, by order in
writing,
(a) call upon any issuer, depository, participant or beneficial owner to
furnish in writing such information relating to the securities held in a
depository as it may require; or
(b) authorise any person to make an enquiry or inspection in relation to
the affairs of the issuer, beneficial owner, depository or participant,
who shall submit a report of such enquiry or inspection to it within
such period as may be specified in the order.
(2) Every director, manager, partner, secretary, officer or employee of
the depository or issuer or the participant or beneficial owner shall on
demand produce before the person making the enquiry or inspection
all information or such records and other documents in his custody
having a bearing on the subject matter of such enquiry or inspection.

Power of Board to give directions in certain cases.

Save as provided in this Act, if after making or causing to be
made an enquiry or inspection, the Board is satisfied that it is
necessary
(i) in the interest of investors, or orderly development of
securities market; or
(ii)to prevent the affairs of any depository or participant being
conducted in the manner detrimental to the interests of
investors or securities market,it may issue such directions,?
(a) to any depository or participant or any person associated
with the securities market; or
(b) to any issuer, as may be appropriate in the interest of
investors or the securities market.

PENALTY
Offences Whoever contravenes or attempts to contravene or
abets the contravention of the provisions of this Act or any
regulations or bye-laws made thereunder shall be punishable
with imprisonment for a term which may extend to five years, or
with fine, or with both.
Offences by companies
(1) Where an offence under this Act has been committed by a
company, every person who at the time the offence was
committed was in charge of, and was responsible to, the
company for the conduct of the business of the company, as well
as the company, shall be deemed to be guilty of the offence and
shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render
any such person liable to any punishment provided in this Act, if
he proves that the offence was committed without his knowledge
or that he had exercised all due diligence to prevent the
commission of such offence.

Power of Central Government to make rules

(1) The Central Government may, by notification in the Official
Gazette, make rules for carrying out the provisions of this Act.
(2) In particular, and without prejudice to the generality of the
foregoing power, such rules may provide for all or any of the
following matters, namely:
(a) the time within which an appeal may be preferred under
sub-section (1) of Section 23;
(b) the form in which an appeal may be preferred, under subsection (3) of Section 23 and the fees payable in respect of
such appeal;
(c) the procedure for disposing of an appeal under sub-section
(4) of Section 23

Power of Board to make regulations.

(1) Without prejudice to the provisions contained in Section 30 of the
Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board
may, by notification in the Official Gazette, make regulations consistent
with the provisions of this Act and the rules made there under to carry out
the purposes of this Act.
(2) In particular, and without prejudice to the generality of the foregoing
power, such regulations may provide for
(a) the form in which record is to be maintained under clause (i) of subsection (1) of Section 2;
(b) the form in which the certificate of commencement of business shall be
issued under sub-section (2) of Section 3;
(c) the manner in which the certificate of security shall be surrendered under
sub-section (1) of Section 6;
(d) the manner of creating a pledge or hypothecation in respect of security
owned by a beneficial owner under sub-section (1) of Section 12;
(e) the conditions and the fees payable with respect to the issue of certificate
of securities under sub-section (3) of Section 14;
(f) the rights and obligations of the depositories, participants and the issuers
under sub-section (1) of Section 17;
(g) the eligibility criteria for admission of securities in the depository under
sub-section (2) of Section 17

Companies Act, 2013 Important

provisions
The Ministry of Corporate Affairs has
notified 12th September, 2013 as
effective date for 98 sections of the
Companies Act, 2013 vide its
notification dated 12th September,
2013.
Certain important provisions (which
have become effective) are briefly
discussed here

Companies Act, 2013..

Special resolution for borrowing in excess
of paid-up capital and free reserve
Section 180 of the Act, inter alia, requires that
a company cannot borrow in excess of its paidup capital & free reserve unless it is approved
by special resolution.
Section 180 does not exempt a private
company. Hence, a private company is also
required to pass special resolution if its
proposed borrowing with its existing borrowing
exceeds its paid-up capital and free reserves.

Companies Act, 2013..

Associate Company
Section 2 (6) defines Associate Company as the
company in which another company holds at least
20% of total share capital ( and not only equity
capital) or can have significance influence on
business decisions due to agreement or joint
venture.
As per section 2 (76) Related party includes
Associate Company. Hence, contract with Associate
Company will require disclosure/ approval / entry in
statutory register as is applicable to contract with a
Related party.

Companies Act, 2013..

Expert
Section 2 (38) defines an expert as a person
who has authority to issue certificate e.g
Chartered Accountant, Company Secretary.
A stakeholder may claim damage from the
expert under the Act. Hence, an expert
should take utmost care while issuing
certificate/giving advice to a company. An
expert should maintain records to defend
his position if claim is made against him.

Companies Act, 2013..

Free Reserve
Section 2 (43) defines free reserve as
amount available for distribution as
per the latest audited balance sheet
but excludes revaluation reserve and
change due to change in carrying
value of its assets/liability routed
through profit & loss account or
otherwise.

Companies Act, 2013..

Net-worth
Section 2 (57), inter alia, includes securities premium
account but excludes write back of depreciation in
Net-worth.
Officer who is in default
Section 2 (60) includes Key Managerial Personnel ( i.e
MD, CEO, CFO, Company Secretary and other
prescribed persons).
Hence, Key Managerial Personnel should take utmost
care while discharging their respective responsibility
to avoid damage claim, penalty and prosecution
under the Act.

Companies Act, 2013..

Private Company
Section 2 (68) permits a private company to have
total members upto 200 persons.
It also excludes restriction of not accepting
deposits from public, as section 76 permits only
prescribed public company to accept deposit from
public.
As per circular dated 13 th September, 2013,
submissions of Memorandum & Articles of
Associate of a private company to be incorporated
must have clauses as per section 2 (68).

Companies Act, 2013..

Public Company
Section 2 (71) defines public company
to include a private company which is a
subsidiary of a public company. The
private company may have specific
clauses as provided in section 2 (68).
Remuneration
Section 2 (78) provides computation of
perquisites as per Income-Tax Act.

Companies Act, 2013..

Small Company
Section 2 (85) defines a small company as a private
company with paid-up capital not exceeding Rs 50
lakhs or turnover not exceeding Rs 2 cr during
previous financial year.
Small Company is given relaxation from complying
with certain provisions of the Act
Subsidiary Company
Section 2 (87) provides, inter alia, that that if a
company hold more than one half of total share
capital of other company, then the other company
will be subsidiary of the former company. Hence,
target percentage is more than 50% (and not 51%
or more) and holding in total capital including

Companies Act, 2013..

Prohibition on Buy-back of shares
Section 70 prohibit buy back of shares through a
subsidiary company or through an investment
company.
It also prohibits buy back of shares if default is
made in repayment of Fixed Deposit, interest on
Fixed Deposit, redemption of debenture/preference
shares, payment of dividend and repayment of
term loan or interest thereon to a financial
institution/bank. However, it excludes default in
payment of working capital facility/interest from a
bank.

Companies Act, 2013..

Quorum for shareholders meeting
Section 103, inter alia, provides for quorum of 5 to 30
persons depending upon number of members of a public
company. For a private company, quorum will be 2
members.
Chairman of a general meeting
Section 104 provides that members present at the
meeting will appoint one of them as Chairman for the
meeting on show of hands unless the articles of the
company provides otherwise. It is advisable to amend
articles to provide that the Chairman of the Companys
Board will be the Chairman of a general meeting.

Companies Act, 2013..

Appointment of Additional Director
Section 161 permits appointment of a person as
an additional director provided that the person
has not failed to get appointment as a director
in a general meeting.
Contribution to Political parties
Section 182 permits a company which is in
existence for not less than 3 financial years to
contribute, directly or indirectly, an amount not
exceeding 7.5 % of the last 3 years average
profit to political parties.

Companies Act, 2013..

Restriction on non-cash transaction with directors
Section 192 prohibits purchase or sale of asset from/to
the companys director or director of its holding
company, subsidiary company or associate company
unless it is approved by shareholders at general
meeting.
Prohibition on forward dealings in securities of
the company by the director and Key Managerial
Personnel
Section 194 prohibits a companys director and its KMP
to do forward trading in the companys securities.

CODE OF CONDUCT FOR STOCK

BROKERS
A.General.
(1) Integrity: A stock-broker, shall maintain high
standards of integrity, promptitude and fairness in
the conduct of all his business.
(2) Exercise of due skill and care : A stock-broker shall
act with due skill, care and diligence in the conduct
of all his business.
(3) Manipulation : A stock-broker shall not indulge in
manipulative, fraudulent or deceptive transactions
or schemes or spread rumours with a view to
distorting market equilibrium or making personal
gains.

(4) Malpractices: A stock-broker shall not create false

market either singly or in concert with others or indulge
in any act detrimental to the investors interest or which
leads to interference with the fair and smooth
functioning of the market. A stockbroker shall not
involve himself in excessive speculative business in the
market beyond reasonable levels not commensurate
with his financial soundness.
(5) Compliance with statutory requirements: A stockbroker shall abide by all the provisions of the Act and
the rules, regulations issued by the Government, the
Board and the Stock Exchange from time to time as
may be applicable to him.

B. Duty to the Investor.

(1) Execution of Orders: A stock-broker, in his dealings with the clients
and the general investing public, shall faithfully execute the orders for
buying and selling of securities at the best available market price and
not refuse to deal with a Small Investor merely on the ground of the
volume of business involved. A stock-broker shall promptly inform his
client about the execution or non-execution of an order, and make
prompt payment in respect of securities sold and arrange for prompt
delivery of securities purchased by clients.
(2) Issue of Contract Note : A stock-broker shall issue without delay to his
client 72[or client of the sub-broker, as the case may be] a contract
note for all transactions in the form specified by the stock exchange.
(3) Breach of Trust: A stock-broker shall not disclose or discuss with any
other person or make improper use of the details of personal
investments and other information of a confidential nature of the client
which he comes to know in his business relationship.

(4) Business and Commission :

(a)A stock-broker shall not encourage sales or
purchases of securities with the sole object of
generating brokerage or commission.
(b)A stock-broker shall not furnish false or
misleading quotations or give any other false
or misleading advice or information to the
clients with a view of inducing him to do
business in particular securities and enabling
himself to earn brokerage or commission
thereby.

(5) Business of Defaulting Clients :

A stock-broker shall not deal or transact business
knowingly, directly or indirectly or execute an
order for a client who has failed to carry out his
commitments in relation to securities with
another stock-broker.
(6) Fairness to Clients:
A stock-broker, when dealing with a client, shall
disclose whether he is acting as a principal or as
an agent and shall ensure at the same time, that
no conflict of interest arises between him and the
client. In the event of a conflict of interest, he
shall inform the client accordingly and shall not

(7) Investment Advice:

A stock-broker shall not make a recommendation to
any client who might be expected to rely thereon
to acquire, dispose of, retain any securities unless
he has reasonable grounds for believing that the
recommendation is suitable for such a client upon
the basis of the facts, if disclosed by such a client
as to his own security holdings, financial situation
and objectives of such investment. The stockbroker should seek such information from clients,
whenever he feels it is appropriate to do so.

Dealing through Brokers

Open a Bank account
Open De-mat Account and Trading
account with the any broker
Broker will provide Login credentials
Using trader terminals or phone calls
you can buy and sell the shares
Broker will charge certain percentage as
brokerage/commission
Intraday trading and Delivery trading