•SEBI is the regulator for the security Market in India.

• 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 on April 12,
1992 the Securities and Exchange Board Of India was
constituted.
• It was constituted in accordance with the provisions
of the Securities and Exchange Board Of India Act
1992.
 “…To protect the interests of
investors in securities and to
promote the development of,
and to regulate the securities
market and for matters
connected therewith or
incidental thereto”
•The issuers of securities
•The investors
•The market intermediaries.
SEBI has three functions rolled into one body

Quasi-legislative
Quasi-judicial

Quasi-executive
 To protect the interest of the investors in securities
 To promote the development of securities market
 To regulate the securities market

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Regulating the business in stock exchange and
any other securities market
Registering and regulating the workings of
intermediaries associated with securities market
Registering and regulating the working of
collective investment schemes including mutual
funds
Promoting and regulating self-regulatory
organizations
Prohibiting fraudulent and unfair trade practices
in the securities market

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Promoting investors education and training of
intermediaries in securities market
Prohibiting insiders trading in securities
Regulating substantial acquisition of shares and
take-over of companies
Calling for information, undertaking inspection,
conducting enquiries and audits of the stock
exchanges, intermediaries and self-regulatory
organizations in the securities market

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Why Investor’s Protection is
important….
•Investors are the backbone of the securities market.
• They determine the level of activity in the securities
market and the level of activity in the economy.
• Many investors may not possess adequate
expertise/knowledge to take informed investment
decisions. May not be aware of the complete risk-
return profile of the different investment options.
• may not be fully aware of the precautions they should
take while dealing with market intermediaries and
dealing in different securities.
•They may not be familiar with the market mechanism
and the practices as well as their rights and obligations
Scams in Stock
Market….
Some Leading Scams in India
•Harshad Mehta (1991-92)
• Floating Companies Scam
•C R Bhansali (1992-96)
•UTI Scam – Unit 64 – Bailout Package of 3,500-4,000
Crores
•Home Trade – Sanjay Agarwal (2000) – Around 300
Crores Scam
•Securities Scam – Ketan Parekh – Rs 1,500 Crores
Fake Stamp Fraud – Abdul Karim Telgi - Around
30,000 Crores
•DSQ Software – Dinesh Dalmiya (2001) - Around 600
Crores
• IPO Scam – Karvy, Indiabulls (2004-05)
•Satyam – Ramalinga Raju (2009) – Around 12,000
Crores
Steps taken by SEBI to make investors
aware of their rights
•Security Market Awareness Campaign (SMAC) was
started with a motto “An educated investor is a Protected
investor.”
• “Invest with Knowledge” was the message spread by
this campaign.
•Workshops
• Advertisements
• Educative material
• All India Radio – Information provided through AIR
Programs frequently
• Dedicated Website – http://investor.sebi.gov.in
Cautionary message on television.
• Internet based response System
 Primary Mkt. dept.

Issue Mgt. & Intermediaries Dept.

Departments

Secondary Mkt. dept.

Advisory Institutional Invt.

Committees

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 SEBI
regulates

Foreign
Primary Secondary Mutual
Institutional
Market Market Funds
Investment

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Measures undertaken by SEBI:-
 Entry norms
 Promoters’ contribution
 Disclosure
 Book building
 Allocation of shares
 Market intermediaries

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1. Entry norms
a) Track record of dividend payment for minimum 3 yrs
preceding the issue.
b) Already listed companies - when post-issue
networth becomes more than 5 times the pre-issue
networth
c) For Manufacturing company not having such track
record – appraise project by a public financial
institution or a scheduled commercial bank.
d) For corporate body – 5 public shareholders for every
Rs.1 lakh of the net capital offer made to the public
e) Banks – 2 yrs of profitability for issues above par.
Offer documents to companies.

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2. Promoters’ contribution
 Should not be less than 20% of the issued capital.
 Receiving of promoters’ contribution.
 Lock in period as per SEBI.
 Cases of non-under written public issues.

3. Disclosure
draft prospectus
Un audited financial results

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4. Book building
SEBI recommends two-tier under writing system
One of the mode of public issue thru prospectus.
Role of syndicate members and book runners.
Minimum 30 centers.
5. Allocation of shares
Minimum application of shares
Reservation for small investors
Allotment of securities

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6. Market intermediaries
Licensing of merchant bankers
Licensing of underwriters, registrars, transfer
agents, etc.,
Merchant bankers net worth – Rs.5 crores
Segregate fund based from fee based activities.

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 Reforms in the secondary market:-
1. Governing board
2. Infrastructure
3. Settlement & clearing
4. Debt market
5. Price stabilization
6. Delisting
7. Brokers
8. Insider Trading

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1. Governing board
Brokers and non-brokers representation made
50:50
60% of brokers in arbitration, disciplinary &
default committees
For trading members 40% representation

2. Infrastructure
On-line screen based trading terminals

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3. Settlement & clearing
Weekly settlements
Auctions for non-delivered shares within 80 days
of settlement
Advice to set up clearing houses, clearing
corporation or settlement guarantee fund
Warehousing facilities permitted by SEBI.

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4. Debt market segment
Regulates thru SEBI (depository & participants)
regulation Act 1996.
Listing of debt instruments
Invt. Range for FIIs
Dual rating for above Rs.500 million

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5. Price stabilization
Division to monitor the unusual movements in prices.
Monitor prices of newly listed scrip from the first day
of trading.
Circuit breaker system and other monitoring
restrictions could be applied
Imposing of special margins of 25% on purchase in
addition to regular margin.
Price filters
Price bands

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6. Delisting
 On voluntary de-listing from regional stock
exchanges – buy offer to all share holders
 Promoters to buy or arrange buyers for the
securities
 3 yrs listing fees from companies and be kept in
Escrow A/c with the stock exchange.

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Union Govt. allowed-
Foreign Institutional Investors (FIIs)
Non-Resident Indians (NRIs), and
Persons of Indian Origin (PIOs)
to enter into both Primary & Secondary market in India through the portfolio
investment scheme (PIS), under Liberalized policy regime. Under this scheme,
FIIs/NRIs can acquire shares/debentures of Indian companies through the
stock exchanges in India.
Implications:-
Affects the sensex movements
Determines the market indications
Guidelines announced in 1992
In 1993, 12 FIIs got registered
At the end of 1996-97, 439 FIIs were registered
Can trade in securities of listed companies including OTCEI .
The ceiling for overall investment for FIIs:-

24% of the paid up capital of the Indian company

10% for NRIs/PIOs.
20% of the paid up capital in the case of public sector banks, including
the State Bank of India.

Modifications in ceilings:-

The ceiling of 24 % for FII investment can be raised up to sectoral

cap/statutory ceiling, subject to the approval of the board and the
general body of the company passing a special resolution to that
effect.

The ceiling of 10 % for NRIs/PIOs can be raised to 24% subject to the

approval of the general body of the company passing a resolution to
that effect.
The Reserve Bank of India
monitors the ceilings on FII/NRI/PIO investments in Indian
companies on a daily basis.
For effective monitoring of foreign investment ceiling limits,
the Reserve Bank has fixed cut-off points that are two
percentage points lower than the actual ceilings.
FIIs breakup in Indian Capital Market
 According to the 1995 regulations, FIIs should hold certificate
granted by SEBI to trade in Indian stock market.

To grant the certificate the applicant should –

1. Have track record, professional & competence record, financial
soundness, general reputation of fairness and integrity.
2. Regulated by an appropriate foreign regulatory authority.
3. Permission under the provisions of FERA Act 1973.(FEMA -
2006)

Valid up to 5 yrs.
 Is an agency
appointment of the custodian
Maintenance of accounts
Submission of semi-annual reports (SEBI & RBI)
Inspection of accounts

SEBI Guidelines:-

Foreign brokers can operate only on behalf of registered

FIIs.
Execution of orders for sale and purchase of securities
are done by a member of an Indian stock exchange
Time stipulation for transaction b/w custodian &
member of ISE is 48 hrs.
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Regulation:-

Under mutual consent of the shareholders

As per the ceilings
Allotment on the highest price (26 weeks)
Permitted up to 15% of the equity within the ceiling
Holdings of a single FII – increased from 5% to 10% of
the equity of a company

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Exemption from attaching copy of RBI approval with
each market lots.
Allowed to invest in unlisted stocks of any company.
Allowed to invest up to 100% in debt instruments.
Mandatory to settle transactions thru dematerialized
mode for FIIs having securities more than Rs.10 cr.

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 1. Disclosures
2. Dissemination process
3. Settlement
4. Badla trade
5. Special watch
6. Capital adequacy
7. Single authority
8. Stricter registration of brokers

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