CYA5B Securities Laws and Market Operations Unit : I - V · Guidelines relating to the functioning...

CYA5B Securities Laws and Market Operations

Unit : I - V

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CYA5B- Securities laws and Market Operations

UNIT – I Features of SEBI Act 1992.

Guidelines relating to the functioning of New Issue Market.

SEBI guidelines for Investor Protection.

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INTRODUCTION Securities law and market operations is the operations of the securities market . i.e., how the transaction takes place in securities market.

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SEBI Act 1992 Introduction : SEBI (Securities and Exchange Board of India) was constituted on

April12,1988 as a non-statutory body. It is an apex body to develop and regulate the stock market in India. SEBI is the regulator for the securities market in India, originally set

up by the Government of India, it acquired statutory form in 1992 with SEBI Act 1992 being passed by the Indian Parliament.

Video Link: SEBI SEBI ACT

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https://youtu.be/iHRlRZhYct4




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Objectives of SEBI

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Functions of SEBI

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Regulatory Functions : To regulate the business in Stock Exchange. Framed rules and regulation and a code of conduct to regulate the intermediaries. Intermediaries have been brought under the regulatory preview. Private placement has been made more restrictive. Conducts enquiries and audit of Stock Exchanges.

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To promote and develop activities in Stock exchange. Increase the business in Stock exchange. Promotes training of intermediaries of the securities market. Permitted internet trading through registered stock brokers. Underwriting made optional to reduce the cost of issue.

Developmental Functions:

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Check price ranging. Prohibits insider trading. Fraudulent and Unfair trade practices. Undertakes steps to educative the investors. Investigate the cases of insider trading.

Protective Functions:

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SECURITIES CONTRACT (REGULATION) ACT - 1956

In order to prevent undesirable transactions in securities and to regulate the working of stock exchanges in the country, the central government enacted the SECURITIES CONTRACTS (REGULATION) ACT in 1956. It came into force on February 20,1957.

The Act applies to the whole India.

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SEBI guidelines relating to New Issue Market Meaning of New Issue : It refers to the set up which helps the industry to raise the funds by issuing different types of securities. These securities are issued to the investors(both individuals as well as institutional) through the mechanism called Primary market or New Issue market. The securities take birth in this market.

EXISTING COMPANIES

PUBLIC ISSUE NEW COMPANY

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SEBI Guidelines for Investor Protection

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UNIT – II Primary market - meaning Functions of New Issue Market. Methods of floatation. Pricing of Issues. Promoters contribution. Offer documents. Underwriting of Issues. Appointment and role of intermediaries.

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Primary Market Meaning : Where a newly issued security is first offered. The issuer may either be a new Company or an existing company. In the new issue market, issuing houses, investment brokers, and underwriters take up the responsibility of selling the stocks to the public. Video Link: Primary Market PRIMARY MARKET

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https://youtu.be/jW2Olp7D8Rk



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Functions of New Issue Market

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Methods of Floatation:

FLOATING NEW ISSUES

PUBLIC ISSUE

OFFER FOR SALE

RIGHT ISSUE

PRIVATE PLACEMENT

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Pricing of Issues Meaning: The issue price of shares is the price at which they are offered for sale when they first become available to the public.

FIXED PRICE BOOK BUILDING DIFFERENTIAL PRICING

KINDS OF PRICING

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PROMOTER:

MEANING : A person or persons who are in control of the company, who are instrumental in the formulation of a plan or programme pursuant to which the securities are offered to the public and those named in the prospectus as promoter(s).

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PROMOTER’S CONTRIBUTION:

PUBLIC ISSUE BY LISTED COMPANIES

PUBLIC ISSUE BY UNLISTED COMPANIES

COMPOSITE ISSUE BY LISTED COMPANIES

20% OF POST ISSUE

20% EITHER OF POST/PROPOSED ISSUE

20% EXCLUDING RIGHT ISSUE

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OFFER DOCUMENTS

MEANING : ‘A offer document is an essential marketing tool for raising capital through equity. It provides a clear, transparent proposal for prospective shareholders, as it explains why they should buy shares or become a member’. Offer document is called ‘Prospectus’ in case of a public issue and ‘letter of offer’ in case of rights issue.

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STRUCTURE OF OFFER DOCUMENTS

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UNDERWRITING

INTRODUCTION: Underwriting is an agreement, entered into, by a company with a financial agency, or individual or partnership firm, in order to ensure that if the public will not subscribe for the entire issue, of shares or debentures, made by the company, the underwriters will do the same.

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TYPES OF UNDERWRITING

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INTERMEDIARIES

MEANING : Firm or person who acts as a mediator on a link between parties to a business deal, investment decision , negotiation etc. Intermediaries usually specialize in specific areas, and serve as a conduct for market and other types of information.

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KINDS OF INTERMEDIARIES

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ROLE OF INTERMEDIARIES 1. MERCHANT BANKERS / LEAD MANAGERS :

Merchant banker means any person / institution who is engaged

in the business of issue management. Either making arrangements regarding selling, buying or

subscribing to securities as manager. Consultant, advisor or rendering corporate advisory services in

relation to such issue management.

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CATEGORY OF MERCANT BANKERS

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ROLE AND RESPONSIBILITIES

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UNDERWRITERS

Under writers are financial institutions who make a firm commitment that they will take up the shares to a certain amount of the public does not subscribe to it. This is an agreement with one or more institutions and guarantee of the marketability of shares. They are appointed by company in consultation with the managers to the issue . They are commission for their service which is known as “Underwriting Commission”.

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BANKERS TO AN ISSUE

Bankers who are engaged in the function of acceptance of application for share and debentures along with the application money to the respect of issue of securities and also refund of application money to the applicant to whom securities could not be allotted.

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BROKERS TO AN ISSUE

Members are responsible for procuring the subscription to the issue from the prospective investors are called “Broker to an issue”. They act a vital connection link between the prospective investors and issuers. Appointment of broker is however not ,compulsory unless permitted by stock exchange. They helps the investors make a right choice of the company for making investment.

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FUNCTIONS

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REGISTRAR TO THE ISSUE (Registrar & Share transfer agent)

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FUNCTIONS

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UNIT – III

Stock exchange – definition, meaning Mechanics of stock market. Types of orders. Screen based / Internet based trading. Settlement procedure. Brokers and types of brokers. Listing.

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HISTORY OF STOCK EXCHANGE

Video Link: Stock Exchange STOCK EXCHANGE STOCK EXCHANGE

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https://youtu.be/Y6i1mYDUrZc

https://youtu.be/b7-qIjXNt7s

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STOCK EXCHANGE:

DEFINITION : The Securities Contracts (Regulations) Act, 1956 defines stock exchange as under: “Stock Exchange is an association, organization or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities”. MEANING : This comes under treasury sector, which provides service to stock brokers and traders to trade stocks, bonds and securities.Stock exchange helps the companies to raise their funds.Therefore the companies needs to list themselves in the stock exchange and the shares will be issued which is known as equity or a ordinary share.

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OBJECTIVES OF STOCK EXCHANGE

Ensuring nationwide trading facility. Ensuring equal access to investors. Enabling shorter settlement cycle and book entry system. Meeting international benchmark and standards.

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FUNCTIONS OF STOCK EXCHANGE

Video Link: Functions of stock exchange FUNCTIONS OF STOCK EXCHANGE 41

https://youtu.be/IYQehYaKTG0

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LIMITATIONS OF STOCK EXCHANGE

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MECHANICS OF STOCK MARKET

Video Link: Trade Cycle MECHANICS OF STOCK BROKER 43

https://youtu.be/Gr8RIsjauhg

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DIFFERENT TYPES OF ORDERS

Video Link: Types of order TYPES OF ORDER 44

https://youtu.be/jPIL8ncYb6Y

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SCREEN BASED TRADING Introduction The trading on stock exchange in INDIA used to take place through

open outcry method without use of information technology for immediate matching or recording of orders.

This was time consuming and inefficient .In order to provide

efficiency, liquidity and transparency, NSE and BSE introduced nation wide online fully automated “SCREEN BASED TRADING SYSTEM”.

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NSE's screen based trading is known as NEAT -National Exchange for Automated Trading . BSE's screen based trading is known as BOLT-Bombay Online Trading. Here the orders are match on the basis of time and price priority

SCREEN BASED TRADING IN INDIA

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HOW TO PLACE ORDER

An investor informs broker to place an order on his behalf. The brokers enters the order through his PC, which runs under windows NT and sends signal to the satellite via VSAT . The signal is directed to mainframe computer at NSE via VSAT at NSE's office. A message relating to the order activity is broad casted to the respective members.

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MECHANISM OF ONLINE TRADING

BSE has main computer which is connected through 'VERY SMALL APERTURE TERMINAL'(VSAT) installed at its office. The main computer runs on a fault tolerant 'STRATUS' mainframe computer at the exchange . Brokers have terminals installed at their premises which are connected through VSAT.

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BROKERS

A stock broker is an intermediary who arranges to buy and sell

securities on the behalf of clients (the buyer and the seller). According to SEBI regulation Act 1992 stock brokers and sub

brokers is member of a stock exchange and requires to hold a certificate of registration from SEBI in order to buy, sell or deal in securities.

INTRODUCTION

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THE PERSON ELIGIBLE TO BECOME BROKER ARE: Individuals.

Partnership firms registered under the Indian

PartnershipAct,1992.

Institutions, including subsidiaries of bank engaged in financial services.

Body corporate including companies as defined in the

Companies Act,1956

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KINDS OF BROKERS JOBBER

TARAWANIWALA

COMMISSION BROKER

REMISERS OR SUB-BROKERS

AUTHORISED CLERKS

Video Link: Unit Borker KINDS OF BROKERS 51

https://youtu.be/0JvOPZ3YzGY

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LISTING OF SECURITIES

Meaning : LISTING refers to the admission of the securities of a company on a recognized stock exchange for trading.

Video Link: Listing LISTING OF SECURITIES

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https://youtu.be/U5oFJxj7kzI

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OBJECTIVES OF LISTING

Provide ready marketability, liquidity and negotiability of securities.

Mobilize savings for economic development. Ensure proper supervisions and control of dealings. Protect interest of investor by ensuring full disclosure .

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MERITS OF LISTING

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DEMERITS OF LISTING Listed companies are subjected to various regulatory measures of

the stock exchange and SEBI. Essential information has to be submitted by the listed companies

to the stock exchange. Annual general meeting and annual reports have to be sent to

large number of shareholders. Public offer that is itself an expensive exercise. But is prerequisite

of the companies shares to be listed.

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MINIMUM ISSUED CAPITAL - 10 CRORES.

APPOINTMENT OF MARKET MAKER

LISTING ON MULTIPLE EXCHANGE

ARTICLES OF ASSOCIATION

PUBLIC OFFER SIZE

QUALIFICATION FOR LISTING

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PROCEDURE OF LISTING An OTCEI member is appointed as a sponsor of the company’s issue. He appraises the project / company on technical, managerial, commercial, economical, and financial aspects

The sponsor determines the price of the company shares offered to the public , members and dealers of the OTCEI.

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The sponsor gets al l statutory consent and compliance with all SEBI

The sponsor registers the issue with OTCEI and places the equity

The listing application has to be made the OTCEI as per its rules and regulations

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UNIT – IV

OTCEI – Meaning, merits, demerits. NSE – Introduction. Market Segments. BSE and NSE Sensex Index.

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Over the counter exchange of India – (OTCEI) INTRODUCTION

Over the counter exchange of India was started in 1992 after the role models of NASDAQ (National association of securities dealers automated quotation). The OTCEI was started with the objective of providing a market for the smaller companies that could not afford for listing fees for the large exchange and did not fulfill the minimum requirements for listing. It aimed at creating a fully decentralized and transparent market. Over the counter means trading across the country in scrip’s. Video Link: OTCEI OTCEI 60

https://youtu.be/pFkEoCcchtI

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FEATURES OF OTCEI

NATIONWIDE REACH

ELIMINATION OF TRADING RING

COMPUTERISED TRADING

EXECUTIVE TRADING

SATELLITE FACILITY

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CYA5B- Securities laws and Market Operations 62

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WHO CAN BE DEALERS

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NATIONAL STOCK EXCHANGE INTRODUCTION : The national stock exchange of India was promoted by leading financial institution at the order of government of India and was incorporated in November 1992 as tax paying company. In April 1993, it was recognized as a stock exchange under the securities contract (regulation) Act 1956. NSE commenced operation in June 1994.

Video Link: NSE NATIONAL STOCK EXCHANGE

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https://youtu.be/ChmDx3EzrAE





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PURPOSE OF NSE Establishing a National wide trading facility for all type of securities.

Ensuring equal access to investor all over the country through an appropriate communication network.

Providing for a fair, efficient and transparent securities market using electronic trading system .

Enabling shorter settlement cycles.

Meeting up with international benchmark and standard.

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ADVANTAGES OF NSE

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ROLE OF NSE

Raising capital for business. Mobilizing savings for investment. Facilitating company growth. Profit sharing. Corporate governance. Indicator of the economy.

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BOMBAY STOCK EXCANGE

INTRODUCTION : Original named as “The Native Share & Stock Brokers Association”. Established in 1875.

In 1995 its fully computerized system .

In 1996 SEBI permitted BSE to extend its BOLT network outside of Mumbai. Video Link: BSE and NSE https://youtu.be/Fo8mbiRGJgQ

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https://youtu.be/Fo8mbiRGJgQ







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STOCK INDEX

A statistical measure of change in an economy or a securities market.

Index based on a statistical compilation of the share prices of a number of representative stocks.

USE OF INDEX Benchmarking index for funds & derivates.

Measure of the health of the economy.

Sensitivity of economy variables on companies. Video Link: Index INDEX

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https://youtu.be/XeV0vycilWY

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S&P CNX NIFTY INDEX

CNX stands for CRISIL NSE. Is made up of 50 companies out of 1600 of NSE. Covers 22 sectors of the Indian economy. Base value is 1000.

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S&P BSE SENSEX

Bombay stock exchange sensitive index. Owned and managed by BSE. Is made up of 30 companies out of 5000 of BSE. Covers 10 sectors of the Indian economy. Base value is 100.

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UNIT – V

Demat. Procedure of Demat. Role of Depositories. Custodial services. Mutual Fund.

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DEMAT ACCOUNT

MEANING : Demat refers to Dematerialized account. Dematerialization is the process of

converting physical shares into electronic format.

Investors surrender his shares and in turn

gets electronic shares in his demat account. An investor who wants to Dematerialize his

shares needs to open a demat account with the depository participants.

Video Link: DEMAT DEMAT ACCOUNT DEMAT ACCOUNT 73

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https://youtu.be/PQ6w9h5O_n0



https://youtu.be/TMFKDTThWQk



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DEMAT - PARTICIPANTS

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DEPOSITORY

A depository is an organization ,which holds the beneficial owner's securities in electronic form through a registered Depository Participants (DP).

To avail of the services offered by a depository ,the investor has to

open an account with it through a registered DP. A depository participants functions is similar to a commercial banks.

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DEPOSITORY PARTICIPANTS

A depository participants (DP) is an agent of the depository who is authorised to offer depository services to the investors.

Financial institutions, banks, custodians and stock brokers complying with the requirements prescribed by SEBI can be registered as DP

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DOCUMENTS REQUIRED FOR DEMAT ACCOUNT To open a Demat account we have to provide documents which fulfill

the requirements of KYC (Know your customer) norms. We have a sign a contract with the stock broker . Generally the documents are:

PAN (compulsory) Bank statement (last 6 month) Address proof Income tax return

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PROCEDURE OF DEMAT FOR AN INVESTOR Fill DRF (Demat request form) available with the DP. Deface the share certificate one wants to dematerialize by

writing across ' Surrenderd for Dematerialization’. Submit the DRF and share certificate to DP. DP would forward them to issuer/ their registrar and transfer

agent. Investor's depository a/c would be credited with the

Dematerialized securities.

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BENEFITS FOR DEMAT

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DRAWBACKS

LACK OF CONTROL

NEED FOR SUPERVISION COMPLEXITY

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MUTUAL FUND

A mutual Fund is a trust that pools together the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities.

Video Link: Mutual Fund MUTUAL FUND Video Link: Mutual Fund MUTUAL FUND

MEANING :

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https://youtu.be/--lyyxTX-SE



https://youtu.be/hjPBaU1qBqA



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ROLE OF MUTUAL FUND

MOBILITY

TAX BENEFITS

BOOST OF CAPITAL MARKET

PROTECTION TO SMALL

INVESTOR

DIVERSIFICATION

ARRIVAL OF FOREIGN MARKET

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ADVANTAGE OF MUTUAL FUNDS

PROFESSIONAL MANAGEMENT TAX BENEFITS

MINIMIZATION OF RISKS

CHOICE OF SCHMES

LOW COSTS LIQUIDITY

RETURN POTENTIAL

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COSTS

DILUTION

TAXES

RISK ASSOCIATED WITH MUTUAL FUND

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CUSTODIAL SERVICES

It is one of the financial services in which a brokerage or other financial institution holds and manages a clients securities or other assets on their behalf.

A custodian provides an investor a place to store the assets with little risks. This reduces the risk of the client losing their assets or having them stolen.

Video Link: Custodial Services CUSTODIAL SERVICES

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https://youtu.be/sFGzB2p7FCA



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BENEFITS OF CUSTODIAL SERVICES

SAFE KEEPING SETTLEMENT

DIVIDEND COLLECTION

TAX RECLAIM SERVICES

FUND ADMINISTRATION

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CYA5B Securities Laws and Market Operations Unit : I - V · Guidelines relating to the functioning...

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