THE SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) : THE SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) Objectives of SEBI : 10/10/2009 SAPM 2 Objectives of SEBI To protect the interest of the investors in securities
To promote the development of securities market
To regulate the securities market Functions of SEBI : 10/10/2009 SAPM 3 Functions of SEBI 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 Functions of SEBI : 10/10/2009 SAPM 4 Functions of SEBI 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 Organization of SEBI : 10/10/2009 SAPM 5 Organization of SEBI Departments Primary Mkt. dept. Issue Mgt. & Intermediaries Dept. Secondary Mkt. dept. Institutional Invt. Advisory
Committees SEBI Regulates………. : 10/10/2009 SAPM 6 SEBI Regulates………. SEBI & Primary Market : 10/10/2009 SAPM 7 SEBI & Primary Market Measures undertaken by SEBI:-
Allocation of shares
Market intermediaries Conti……….. : 10/10/2009 SAPM 8 Conti……….. 1. Entry norms
Track record of dividend payment for minimum 3 yrs preceding the issue.
Already listed companies - when post-issue networth becomes more than 5 times the pre-issue networth
For Manufacturing company not having such track record – appraise project by a public financial institution or a scheduled commercial bank.
For corporate body – 5 public shareholders for every Rs.1 lakh of the net capital offer made to the public
Banks – 2 yrs of profitability for issues above par.
Offer documents to companies. Conti……….. : 10/10/2009 SAPM 9 Conti……….. 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.
Un audited financial results Conti……….. : 10/10/2009 SAPM 10 Conti……….. 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 Conti……….. : 10/10/2009 SAPM 11 Conti……….. 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. SEBI & Secondary Market : 10/10/2009 SAPM 12 SEBI & Secondary Market Reforms in the secondary market:-
Settlement & clearing
Insider Trading Conti……….. : 10/10/2009 SAPM 13 Conti……….. 1. Governing board
Brokers and non-brokers representation made 50:50
60% of brokers in arbitration, disciplinary & default committees
For trading members 40% representation
On-line screen based trading terminals Conti……….. : 10/10/2009 SAPM 14 Conti……….. Settlement & clearing
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. Conti……….. : 10/10/2009 SAPM 15 Conti……….. 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 Conti……….. : 10/10/2009 SAPM 16 Conti……….. 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 bands Conti……….. : Conti……….. 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. 10/10/2009 SAPM 17 SEBI and the FIIs : SEBI and the FIIs 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.
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. Slide 19: 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. Monitoring Foreign Investments : Monitoring Foreign Investments 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. Slide 21: FIIs breakup in Indian Capital Market SEBI guidelines for FIIs:- : SEBI guidelines for FIIs:- 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 –
Have track record, professional & competence record, financial soundness, general reputation of fairness and integrity.
Regulated by an appropriate foreign regulatory authority.
Permission under the provisions of FERA Act 1973.(FEMA - 2006)
Valid up to 5 yrs. Custodians : 10/10/2009 SAPM 23 Custodians Is an agency
appointment of the custodian
Maintenance of accounts
Submission of semi-annual reports (SEBI & RBI)
Inspection of accounts
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. Preferential allotment -To boost up the financial resources : 10/10/2009 SAPM 24 Preferential allotment -To boost up the financial resources 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 Recent developments in FIIs : 10/10/2009 SAPM 25 Recent developments in FIIs 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. Critical review of SEBI : 10/10/2009 SAPM 26 Critical review of SEBI Disclosures
Stricter registration of brokers