Role Of SEBI In Capital Markets

Role Of “SEBI”Role Of “SEBI”

Submitted By:-Submitted By:-

Patel MitulPatel Mitul

Submitted To:-Pro.Sai Ram

About SEBI….

Malpractices on the part of the companies, Malpractices on the part of the companies, brokers, merchant bankers and various other brokers, merchant bankers and various other agencies.agencies.

Realizing this, SEBI was constituted by the Realizing this, SEBI was constituted by the government in April 1988, and given legal status government in April 1988, and given legal status in 1992. in 1992.

Main Objective is: To protect the interests of the Main Objective is: To protect the interests of the investors and to promote the healthy development of the investors and to promote the healthy development of the capital markets and also ensure it’s regulationcapital markets and also ensure it’s regulation

Function of SEBI

Fair DealingsFair Dealings

A Degree of protectionA Degree of protection

Regulate and Develop a Code of Conduct and Fair Regulate and Develop a Code of Conduct and Fair Practices.Practices.

Powers of SEBI

Periodical returns from Stock Exchange.Periodical returns from Stock Exchange.

Call upon the Stock Exchange.Call upon the Stock Exchange.

Appoint any person for affairs related to Stock Appoint any person for affairs related to Stock Exchange.Exchange.

Amend bye-laws of Stock Exchange.Amend bye-laws of Stock Exchange.

To Compel a public company to list its shares in To Compel a public company to list its shares in any exchange.any exchange.

Guidelines as per SEBI

No prior approval of SEBI is required by the No prior approval of SEBI is required by the companies for raising capital.companies for raising capital.

Companies are allowed to issue capital provided Companies are allowed to issue capital provided

the issues are in conformitythe issues are in conformity..

What is SEBI's Role in an Issue?What is SEBI's Role in an Issue?

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

Does it mean that SEBI recommends an issue?Does it mean that SEBI recommends an issue?

SEBI does not recommend any issue nor does take any responsibility SEBI does not recommend any issue nor does take any responsibility either for the either for the financialfinancial soundness of any scheme or the project for soundness of any scheme or the project for which the issue is proposed to be made or for the correctness of the which the issue is proposed to be made or for the correctness of the statements made or opinions expressed in the offer document.statements made or opinions expressed in the offer document.

Brief Explanation of Capital Brief Explanation of Capital MarketsMarkets

It provides the institutional mechanism for It provides the institutional mechanism for meeting the requirement of funds for meeting the requirement of funds for PSU’s and the Private Sector.PSU’s and the Private Sector.It enables raising of capital through It enables raising of capital through equities, debts and various other types of equities, debts and various other types of financial instruments.financial instruments.They can be further segmented into They can be further segmented into Primary markets, Secondary Markets, Primary markets, Secondary Markets, Debt Markets and the Derivative Markets.Debt Markets and the Derivative Markets.

Role In Primary Markets.Role In Primary Markets.

It is mandatory for the company to file an It is mandatory for the company to file an offer document with Sebi, through an offer document with Sebi, through an eligible merchant banker, at least 21 eligible merchant banker, at least 21 days prior to it’s filing with the registrar of days prior to it’s filing with the registrar of companies.companies.It is mandatory for the issuer to enter into It is mandatory for the issuer to enter into an agreement with the depository for an agreement with the depository for issuance of securities in dematerialized issuance of securities in dematerialized form.form.

Role In Primary Markets (Contd)Role In Primary Markets (Contd)

QIB CategoryQIB Category: SEBI introduced a specific : SEBI introduced a specific allocation of 5 per cent within the QIB allocation of 5 per cent within the QIB category with effect from September 19, category with effect from September 19, 2005. The mutual funds are also eligible 2005. The mutual funds are also eligible for allotment from the balance available for for allotment from the balance available for the QIB category and allotment is done on the QIB category and allotment is done on a proportional basis.a proportional basis.


ECS Facility For RefundsECS Facility For Refunds: In order to : In order to ensure faster and hassle-free refunds, it ensure faster and hassle-free refunds, it was decided to extend the facility of was decided to extend the facility of electronic transfer of funds to public issue electronic transfer of funds to public issue refunds, initially at 15 centers where refunds, initially at 15 centers where clearing houses are managed by RBI. clearing houses are managed by RBI.


Optional grading of IPO’sOptional grading of IPO’s: With a view to : With a view to assisting the investors, particularly the assisting the investors, particularly the retail investors, SEBI has given in-principle retail investors, SEBI has given in-principle approval for grading of IPO’s by the rating approval for grading of IPO’s by the rating agencies at the option of the issuers. agencies at the option of the issuers.


In case of a fixed price issue, a company In case of a fixed price issue, a company is required to disclose the issue price or is required to disclose the issue price or the price band in the offer document filed the price band in the offer document filed with SEBI.with SEBI.

In case of public issue through fixed price In case of public issue through fixed price route, the company at any time of prior to route, the company at any time of prior to filing of prospectus with the Registrar of filing of prospectus with the Registrar of Companies can disclose the issue price.Companies can disclose the issue price.

Role In Secondary MarketsRole In Secondary Markets

Block DealsBlock Deals: In order to facilitate execution : In order to facilitate execution of large trades without impacting the of large trades without impacting the market, the stock exchanges were allowed market, the stock exchanges were allowed to provide a separate trading window for to provide a separate trading window for block deals. BSE and NSE activated this block deals. BSE and NSE activated this window with effect from November 14, window with effect from November 14, 2005.2005.

Role In Secondary Markets (Contd)Role In Secondary Markets (Contd)

Dematerialization ChargesDematerialization Charges: In order to : In order to enable transfer of beneficiary account, enable transfer of beneficiary account, SEBI has advised that no charges be SEBI has advised that no charges be levied when transfer of securities takes levied when transfer of securities takes place, provided that the account holders place, provided that the account holders are the same.are the same.


In order to prevent the misuse of time gap In order to prevent the misuse of time gap between allotment of securities and between allotment of securities and commencement of trading, SEBI advised commencement of trading, SEBI advised depositories that, in case of IPO’s, the depositories that, in case of IPO’s, the ISINs of securities should be activated ISINs of securities should be activated only on the date of commencement of only on the date of commencement of trading on the stock exchanges.trading on the stock exchanges.


Rationalization Of Disclosure Rationalization Of Disclosure requirementsrequirements: SEBI has decided to do : SEBI has decided to do away with the repetitive disclosures in away with the repetitive disclosures in case of rights issues and public issues by case of rights issues and public issues by the listed companies which have a the listed companies which have a satisfactory track record of filing periodic satisfactory track record of filing periodic returns with the stock exchanges.returns with the stock exchanges.


Further Issue of SharesFurther Issue of Shares: SEBI has : SEBI has permitted companies to issue further permitted companies to issue further shares, provided full disclosures as shares, provided full disclosures as regards the total capital to be raised from regards the total capital to be raised from such further issues are made in the draft such further issues are made in the draft offer document. offer document.


Corporate Governance Of Listed Corporate Governance Of Listed CompaniesCompanies: SEBI has advised listed : SEBI has advised listed companies to comply with the revised companies to comply with the revised guidelines on corporate governance, guidelines on corporate governance, including appointment of the independent including appointment of the independent directors, maximum gap between two directors, maximum gap between two Board meetings, sitting fees of the non-Board meetings, sitting fees of the non-executive directors and certification on executive directors and certification on internal control system by the CEO/CFO. internal control system by the CEO/CFO.

Role In Debt Markets.Role In Debt Markets.

It is mandatory for the issuer of the debt It is mandatory for the issuer of the debt instrument to obtain a rating from a credit instrument to obtain a rating from a credit agency and disclose it in the offer agency and disclose it in the offer document, ratings obtained in the last document, ratings obtained in the last three years also need to be disclosed.three years also need to be disclosed.FCD’s with conversion period over 3 FCD’s with conversion period over 3 years are allowed provided the years are allowed provided the conversion is optional with “call” & “put” conversion is optional with “call” & “put” option.option.

Role In Debt Markets (Contd)Role In Debt Markets (Contd)

In case of NCD/PCD, the premium to be In case of NCD/PCD, the premium to be paid, redemption amount, period of paid, redemption amount, period of maturity shall be indicated in the maturity shall be indicated in the prospectus.prospectus.

The issuer can choose to roll over the The issuer can choose to roll over the debentures with or without change in debentures with or without change in interest rate. In such cases exit option is interest rate. In such cases exit option is mandatory for existing debenture holders.mandatory for existing debenture holders.


It is mandatory for the issuer to obtain a It is mandatory for the issuer to obtain a fresh credit rating from an agency within fresh credit rating from an agency within six months prior to date of redemption. six months prior to date of redemption. This rating has to be communicated to the This rating has to be communicated to the holders.holders.

It is mandatory that the above It is mandatory that the above communication be vetted by SEBI with communication be vetted by SEBI with respect to the credit rating.respect to the credit rating.


The disclosures contain the long term The disclosures contain the long term equity to debt ratio, servicing behaviour equity to debt ratio, servicing behaviour with respect to the existing holders.with respect to the existing holders.

It is also mandatory to obtain a certificate It is also mandatory to obtain a certificate from a financial institution about their no from a financial institution about their no objection to a pari passu charge being objection to a pari passu charge being created in favour of the trustee to created in favour of the trustee to proposed debenture issue.proposed debenture issue.

Role In Derivatives MarketsRole In Derivatives Markets

SEBI has mandated the following SEBI has mandated the following conditions for a stock to be included in conditions for a stock to be included in derivatives:derivatives:

Stock shall be amongst the top 500 in Stock shall be amongst the top 500 in terms of average daily market terms of average daily market capitalisation.capitalisation.

The market wide position limit in the stock The market wide position limit in the stock shall not be less than Rs.50 crores. shall not be less than Rs.50 crores.

Role In Derivatives MarketRole In Derivatives Market

Trading has to take place through a Trading has to take place through a screen trading system. screen trading system.

Derivatives Exchange/Segment should Derivatives Exchange/Segment should capability to monitor positions, prices, and capability to monitor positions, prices, and volumes on a real time basis so as to volumes on a real time basis so as to deter market manipulation. deter market manipulation.

It should have arbitration and investor It should have arbitration and investor grievances redressal mechanism.grievances redressal mechanism.

Role In Derivatives Market (Contd)Role In Derivatives Market (Contd)

It is mandatory for the clearing house to It is mandatory for the clearing house to provide guarantee for settlement of trades.provide guarantee for settlement of trades. Clearing Corporation will monitor the Clearing Corporation will monitor the overall position of Members across both overall position of Members across both derivatives market and the underlying derivatives market and the underlying securities market for those Members who securities market for those Members who are participating in both. are participating in both. Establishment of electronic funds transfer Establishment of electronic funds transfer is mandatory.is mandatory.

Role In Derivatives Markets (Contd)Role In Derivatives Markets (Contd)

SEBI has made the following rules for SEBI has made the following rules for protection of investors:protection of investors:Trading Member is required to provide Trading Member is required to provide every investor with a risk disclosure every investor with a risk disclosure document so that investors can take a document so that investors can take a conscious decision to trade in derivatives.conscious decision to trade in derivatives. Investor can demand the trade Investor can demand the trade confirmation slip with his ID in support of confirmation slip with his ID in support of the contract note. the contract note.

Role in Derivatives Markets (Contd)Role in Derivatives Markets (Contd)

Money paid by the Investor towards margins on Money paid by the Investor towards margins on all open positions is kept in trust with the all open positions is kept in trust with the Clearing House/Clearing corporation.Clearing House/Clearing corporation. In the event of default of the Trading/Clearing In the event of default of the Trading/Clearing Member the amounts paid by the client towards Member the amounts paid by the client towards margins are not utilised towards the default of margins are not utilised towards the default of the member.the member.Losses suffered by the Investor, if any, on Losses suffered by the Investor, if any, on settled / closed out position are compensated settled / closed out position are compensated from the Investor Protection Fund, as per the from the Investor Protection Fund, as per the rules, bye-laws and regulations of the derivative rules, bye-laws and regulations of the derivative segment of the exchanges. segment of the exchanges.

Effects Of Measures Taken.Effects Of Measures Taken.

The above measures have resulted in some The above measures have resulted in some discipline in the workings of the markets and discipline in the workings of the markets and provision of protection of safeguards to provision of protection of safeguards to investors.investors.

This has resulted in control of malpractices in This has resulted in control of malpractices in the capital market operations such as rigging of the capital market operations such as rigging of prices, delays in finalizing allotments, prices, delays in finalizing allotments, manipulation of prices before listing, diversion of manipulation of prices before listing, diversion of funds, delays in delivery of shares, have started funds, delays in delivery of shares, have started to yield some dividends. to yield some dividends.

Conclusion.Conclusion.

SEBI has taken steps to bring about SEBI has taken steps to bring about overall improvement in the functioning of overall improvement in the functioning of the capital markets, some require the capital markets, some require attention-attention-

SEBI’s inability to notify regulations SEBI’s inability to notify regulations without government approval and without government approval and prosecute without government sanction. prosecute without government sanction.

Thank youThank you

Role Of SEBI In Capital Markets

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