Role of SEBI in Monitoring Capital Market final 17092011

Role of SEBI in monitoring Indian Capital Market

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2

ICDR Regulations

SEBI Takeover Regulations

Insider Trading Regulations

Buy Back Regulations

Delisting Regulations

FUTP Regulations

Merchant Bankers

Registrar Brokers and Sub-Brokers

Merchant Bankers

Regulations

Registrar and Share Transfer Agent

Regulations

Brokers and Sub-

BrokersRegulations

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ICDR Regulations

SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009

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AN OVERVIEW

SEBI (ICDR) Regulations deals with Issue of Specified Securities by a new Issuer or a Listed Issuer.

Specified Securities :

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STRUCTURE OF ICDR REGULATIONS

SEBI (ICDR) Regulations, 2009

Preferential Issue

Public Issues

General Obligations of Issuer and Merchant

Banker in Public Issue / Right Issue

Right Issues

Bonus Issue

QIP

IDR Issues

Issues by SMEs

Schedules

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WHAT ICDR DOES NOT REGULATE

• Public Issue of Debt Securities

(Regulated by SEBI (Issue and Listing of Debt Securities) Regulations, 2008)

• Issue of ADRs / GDRs

(Regulated by RBI FCCBs and Ordinary Shares [Through Depository Receipt Mechanism] Scheme, 1993 )

• Issue of FCCBs

(Regulated by RBI FCCBs and Ordinary Shares [Through Depository Receipt Mechanism] Scheme, 1993 )

• Issue of shares pursuant to ESOPs

(Regulated by SEBI (Employee Stock Option Plan and Employee Stock Purchase Scheme) Guidelines, 1999)

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“Initial Public Offer” means an

offer of specified securities by an

unlisted issuer to the public

for subscription and

includes an offer for sale

of specified securities to the public

by any existing holders

of such securities in an unlisted issuer;

WHAT IS INITIAL PUBLIC OFFER?

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KEY TERMS OF ISSUE

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IMPORTANT DEFINITIONS

“Anchor Investor" - A QIB who makes an application for a value of 10 crore rupees or more in a IPO made through the book building process

Application Supported by Blocked Amount (ASBA)” - An application for subscribing to a public issue or rights issue, along with an authorisation to Self Certified Syndicate Bank to block the application money in a bank account.

“Book Building” - A process undertaken to elicit demand and to determine at what price to offer an IPO based on demand from institutional investors.

“Green Shoe Option” - An option of allotting equity shares in excess of the equity shares offered in the public issue as a post-listing price stabilizing mechanism

"Red Herring Prospectus" - A prospectus which does not have details of either price or number of shares being offered or the amount of issue.

“Retail Individual Investor” - Investor who applies or bids for specified securities for a value of maximum One Lakh Rupees.

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PUBLIC ISSUES FRAMEWORK

Book Build Issue

Fixed Issue

Type & Procedure

Eligibility Requirements

Allocation of Issue

Pricing Promoters’ Contribution

& Lock-in

Public Issue Framework under SEBI (ICDR)

Regulations

Issue Period

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ELIGIBILITY REQUIREMENTS

Primary Eligibility Requirements

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Alternate Eligibility Requirements:

ALTERNATE ELIGIBILITY REQUIREMENTS

Issue through Book-Building Process with minimum 50% net offer to QIBs

‘Project’ has 15% participation from public financial institutions/scheduled

commercial banks of which 10% comes from appraisers and min. 10%

net offer to QIBs

10 Crores minimum post issue face value capital

2 years of compulsory market making post issue

OR

OR

AND

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OTHER PRE-REQUISITES

• Prospective allottees to be not less than 1000.

• Compulsory IPO Grading by credit rating agency registered with SEBI before filling RHP with ROC

• No outstanding convertible securities or other right which would entitle the existing promoters or shareholders any option to receive equity shares after public offer.

• Firm arrangements of finance, through verifiable means, for 75% of the stated means of finance excluding the amount to be raised through the public issue to be made.

• Partly paid up shares to be made fully paid or forfeited in the manner specified, before the public offering.

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MINIMUM LISTING REQUIREMENTS

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MINIMUM LISTING REQUIREMENT -BSE

New Companies (IPO) Direct Listing

Small Cap Companies Large Cap Companies

Minimum issue size of Rs. 3 crore

Minimum issue size of Rs. 10 crore

No minimum issue size requirement

Market capitalization of not less than Rs. 5 crore

Market capitalization of not less than Rs. 25 crore

Minimum Market Capitalization of the listed capital shall be at least two times of the Paid Up Capital.

Minimum post-issue paid-up capital of Rs. 3 crore

Minimum post-issue paid-up capital of Rs. 3 Crores

A minimum issued and paid up equity capital of Rs. 3 crore .

Minimum income/turnover of Rs. 3 crore in preceding 3 Years

Minimum Net Worth shall be Rs. 20 crore.

Profit Making Track Record for last 3 years

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Small Cap Companies Large Cap Companies

Compulsory due diligence by CA or Merchant Banker. No Requirement of Due Diligence if FIs or SCB has appraised the project in 12 months

A dividend paying track record of atleast 10% for at least the last 3 consecutive years

Minimum No. of Public Shareholders after the Issue shall be 1000.

Minimum 25% public shareholding with not more than 0.5% shareholding with any single shareholding.

At least two years listing record with any of the Regional Stock Exchanges.

Demat trading with CDSL and NSDL.

MINIMUM LISTING REQUIREMENT -BSE

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MINIMUM LISTING REQUIREMENT -NSE


Minimum paid-up capital of Rs. 10 crore

However, if Market Capitalization > Rs. 100 Crore, then Minimum Post-issue paid-up capital is Rs. 5 Crore.

Minimum paid-up capital of Rs. 10 crore and Minimum Market capitalization of Rs. 25 croreORMinimum paid-up capital of Rs. 25 crore ORMinimum Market capitalization of Rs. 50 croreORMinimum Net worth of Rs. 50 Crores in preceding 3 years.

Minimum Market capitalization of Rs. 25 crore

Minimum 3 years of track record of Issuer Company or its promoter company.

Minimum 3 years of track record of Issuer Company or its promoter company.

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Other criteria Dividend payment record in atleast 2 out of the last 3 FY ORDistributable profits in atleast 2 out of the last 3 FY ORMinimum Net worth of Rs. 50 Crores

Other Criteria

MINIMUM LISTING REQUIREMENT -NSE

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TYPE & PROCEDURE

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A COMPARATIVE ANALYSIS

Fixed Price Issue Book-Building Issue

Pre-determination of price / price band, which is made known to the investors

Determination of price on the basis of bids received from the investors. Investors are made known only an indicative floor price / price range.

Demand for the securities offered is known only after the closure of the issue.

Demand for the securities offered can be known everyday as the book is built.

Underwriting is not compulsory in case of Fixed Price Issue

Underwriting is compulsory in case of Book-Built Issue

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PROCEDURE

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PRICING

• Free Pricing – Price to be determined by Issuer in consultation with Lead Merchant Banker

• Differential Pricing

– Retail Individual Investor my be offered shares at less price than that of other categories

– Anchor investors can not be offered shares at less price than any that of other categories

– In case of Composite issue, the price of public issue and right issue can be different.

– In case of alternate method of book building, shares may be issued to employees at lower price.

(the differential pricing shall not be more than 10% of the floor price)

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PRICING

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PRICING

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PROMOTERS’ CONTRIBUTION

Certain specified securities are ineligible for minimum promoters’ contribution04/08/23

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SECURITIES INELIGIBLE FOR MINIMUM PROMOTERS’ CONTRIBUTION

• Securities acquired during the preceding 3 years for consideration other than cash.

• Specified securities acquired during the preceding 1 year at a price below Issue price,

However, if promoters pay the difference, or acquired pursuant to merger etc., then

such securities are eligible.

• Securities allotted to promoters acquired during the preceding 1 year at a price below

Issue price against funds brought in by them in case of conversion of partnership firm

into company.

• Securities pledged with any creditor.

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LOCK-IN OF PROMOTERS’ CONTRIBUTION

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ALLOCATION OF ISSUE – BOOK BUILDING ROUTE

Retail individual investor

QIB

Offer through offer document

Promoters’ Contribution

Issue Size

Non-institutional investor

Anchor Investor

Mutual Funds

ReservationNet offer to

public

Min. 20% of Issue Size


Min. 15% of NOPMax. 50% of NOP Min. 35% of NOP

Min. 5% of NOP Max. 30% of QIB

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ALLOCATION OF ISSUE – FIXED PRICE ISSUE

Other investors

Offer through offer documentPromoters’ Contribution

Issue Size

Retail Individual Investors

ReservationNet offer to

public



Min. 50% of NOP Max. 50% of NOP

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ISSUE PERIOD

Activity Fixed Price Issue

Book-build Issue

Minimum day 3 3

Maximum days 10 7

Maximum number of days issue to be kept open in case of revision in price band

N.A. 10

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RIGHT ISSUE

Right Issue (Where the aggregate value of securities offered is 50 lacs or more)

• Meaning – Issue of shares by a company to its existing shareholders

• Free Pricing

• Issue of Letter of Offer

• Open for subscription for a minimum 15 days and for maximum 30 days

Key Considerations

• Rights Issue vs. Further Public offering

• Extent of Capital Expansion and its impact on EPS

• Increase in Promoters’ shareholding and applicability of SEBI Takeover Code.

• Reservation of rights for convertible instruments.

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ELIGIBILITY CRITERIA FOR RIGHTS ISSUE

• No Outstanding convertible instrument

• Appointment of Merchant Banker

• Clearance of Letter of Offer from Stock Exchange

• Appointment of Registrar to the Issue

• Agreement with Depository

• No Partly Paid up shares

• Application to Recognized Stock Exchange

• Appointment of Designated Stock Exchange

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• Restrictions:

– The following persons are not debarred from accessing the capital market by SEBI

• Issuer Company

• Promoters

• Promoter Group

• Directors

• Persons in control of the Issuer

• Companies in which the above persons are promoter/director

– Issuer company has not defaulted in repayment of convertible debt instruments and is

not in the list of willful defaulters published by RBI.

• Firm arrangements of finance through verifiable means towards stated 75% of the stated

means of finance, excluding the amount to be raised through Right Issue.

ELIGIBILITY CRITERIA FOR RIGHTS ISSUE

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PRICING OF RIGHTS ISSUE

• Pricing of Rights issue is not regulated by SEBI (ICDR) Regulations.

• Generally, price for Rights issue shall be lower than the Market Price, however the gap

between the Market Price and Issue Price is determined on the basis of certain criteria.

• Key Criteria:

– Price Trend of the issuer’s shares during the past 1 year and affect of corporate

announcements on price to remove impact of extra-ordinary price movement.

– Price Maintainable in the long-run

– State of Capital Market – Stable, Volatile, Bullish, Bearish.

– P/E Ratio

– Feasibility of Proposed Plans

– Dividend Policy

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WHAT IS PREFERENTIAL ISSUE

Preferential issue

means

issuance of equity shares to the

promoters, promoter group or

selected group of persons or

any investor(s) on private

placement basis.

Does not include an offer of specified securities made through a public issue, rights issue, bonus issue, ESOS, ESPS or QIP or an issue of sweat equity shares or depository receipts issued in a country outside India or foreign securities.

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APPLICABILITY

The provisions shall not apply where the preferential issue of equity shares is

made:

a)pursuant to conversion of loan or option attached to convertible debt

instruments in terms of sections 81 (3)(4) of the Companies Act, 1956;

b)pursuant to a scheme approved by a High Court

c)in terms of the rehabilitation scheme approved by the BIFR under SICA

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RELEVANT DATE

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CONDITIONS FOR PREFERENTIAL ISSUE

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PRICING OF THE ISSUE

If shares are listed for a period of 6 months or more as on Relevant Date:

•Average of weekly high / low closing prices of shares quoted in SE during 6 months preceding the relevant date

OR

•Average of weekly high / low closing prices of shares quoted in SE during 2 weeks preceding the relevant date

Which ever is higher

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If shares are listed for a period of less than 6 months as on Relevant Date:

•Price at which shares are issued in IPO or value per share arrived in scheme of arrangement, if any

OR•Average of weekly high / low closing prices of shares quoted in SE during the period share have been listed preceding the relevant date

OR•Average of weekly high / low closing prices of shares quoted in SE during 2 weeks preceding the relevant date

Which ever is higher

PRICING OF THE ISSUE

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LOCK-IN OF SPECIFIED SECURITIES

Specified securities Time period of Lock In

Securities allotted to promoter group and the equity shares

allotted pursuant to exercise of options attached to warrants

issued on preferential basis to promoter or promoter group

Three years

Equity shares allotted in excess of the 20% of paid up capital One year

Securities allotted to persons other than promoter group and the

equity shares allotted pursuant to exercise of options attached to

warrants issued on preferential basis to such persons

One year

Shares allotted pursuant to CDR scheme One year

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QIP means allotment of

eligible securities by a listed

issuer to Qualified

Institutional Buyers on

private placement basis in

terms of these regulations.

QUALIFIED INSTITUTIONAL PLACEMENT (QIP)

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QUALIFIED INSTITUTIONAL BUYERS

i. a mutual fund, venture capital fund and foreign venture capital investor

ii. a foreign institutional investor and sub-account

iii. a public financial institution

iv. a scheduled commercial bank;

v. a multilateral and bilateral development financial institution;

vi. a state industrial development corporation;

vii. an insurance company registered with the IRDA

viii.a provident fund with minimum corpus of Rs. 25 crore;

ix. a pension fund with minimum corpus of Rs. 25 crore;

x. National Investment Fund set up by resolution no. F. No. 2/3/2005-DDII dated

November 23, 2005 of the Government of India published in the Gazette of India;

xi. insurance funds set up and managed by army, navy or air force of the Union of India.

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RELEVANT DATE

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ELIGIBILITY CONDITIONS

• Eligible Securities: “Eligible Securities” include equity shares, non-convertible debt

instruments along with warrants and convertible securities other than warrants.

• Eligibility Criteria’s:

• Special Resolution

• Appointment of Merchant Banker

• Minimum Public Shareholding to be maintained

• The equity shares of the same class have been listed on a recognized stock

exchange having nation wide trading terminal for a period of at least one year

before QIP.

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OTHER KEY CONDITIONS

• Restriction on Allotment:

Issue Size

Mutual Fund Other QIBs

Min. 10%

If not Subscribed

Max 50% to single QIB

QIB belonging to the same group or who are under same control shall be deemed to be a single allottee.

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OTHER KEY CONDITIONS

• Minimum Number of Allottees:

• Tenure of convertible instruments issued through QIP is 60 Months.

• Aggregate of proposed QIP and all previous QIP in one FY shall not exceed 5 times of Networth of the Issuer of the previous financial year

• Eligible securities issued through QIP shall not be transferrable for one year except on a recognized Stock Exchange.

Issue Size Number of Allottees

Less than INR 250 Crores 2

More than INR 250 Crores 5

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BONUS ISSUE

Eligibility Criteria’s

•Authorisation in AOA.

•Not default in the payment of interest or principal in respect of fixed deposits or debt Securities.

•Not defaulted in respect of the payment of statutory dues of the employees such as contribution to

provident fund, gratuity and bonus.

•Partly paid shares, if any, are made fully paid up.

•Reservation of bonus shares in favour of the holders of outstanding convertible debt instruments in

proportion to the convertible part thereof.

Source of Bonus Issue

•Bonus issue shall be made out of free reserves built out of the genuine profits or securities premium

collected in cash only.

•Bonus Issue shall not be made out of reserves created by revaluation of fixed assets.

•Bonus Share shall not be issued in lieu of dividend.

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“Main Board” means a recognized stock exchange having nationwide trading

terminals, other than SME exchange;

“Nominated Investor” means a QIB or PE Fund who enters into an agreement with

the merchant banker to subscribe to the issue in case of under-subscription or to

receive or deliver the specified securities in the market-making process;

“SME exchange” means a trading platform of a recognised stock exchange having

nationwide trading terminals permitted by the Board to list the specified securities

issued and includes a stock exchange granted recognition for this purpose but does

not include the Main Board;

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ISSUE AND LISTING OF SHARES BY SMEs

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ISSUE AND LISTING OF SHARES BY SMES

• No need to filing DRHP with SEBI before filing it with ROC or DSE

• SEBI will not give observations on offer document

• 100% underwriting of issue is mandatory.

• Minimum 15% underwriting obligation of Merchant Banker

• Nominated Investors can also underwrite the issue

• Minimum Application Value = Rs. 1 Lac

• Minimum Number of Allottee = 50

• Compulsory Market Making for minimum 3 years

• Promoters’ holding is not eligible for being offered to market maker

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POWERS OF THE BOARD

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AMENDMENTS IN ICDR

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AMENDMENTS IN ICDR

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AMENDMENTS IN ICDR

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New SEBI Takeover Regulations (Yet to be notified)

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NEED OF SEBI TAKEOVER REGULATIONS

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SALIENT FEATURES

AND

Impact

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67

KEY DEFINITIONS

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WhoWho

With PACsWith PACs

OrOr

OrOr

Voting RightsVoting Rights

InIn

Target CompanyTarget Company

EitherEither

OrOr

AcquiresAcquires

DirectlyDirectly IndirectlyIndirectly

Agrees to AcquireAgrees to Acquire

SharesShares OrOr OrOr ControlControl

HimselfHimself

ACQUIRER

As Per TRAC Report

Through PACsThrough PACs OrOr

6804/08/23

ControlControl

IncludesIncludes

Right to Right to

Control the Control the managementmanagement

ExercisableExercisable

Or withOr with

OrOr

By virtue ofBy virtue of

Appoint majority of Appoint majority of directorsdirectors

DirectlyDirectly IndirectlyIndirectly

Control of Policy Control of Policy decisiondecision

IndividuallyIndividually PACPAC

ShareholdingShareholding

CONTROL

Management Management RightsRights

Shareholders Shareholders AgreementAgreement

Voting Voting AgreementAgreement

As per SEBI Press Release dated July 28, 201104/08/23 69

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CHANGE IN CONTROL

As Per TRAC Report

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FREQUENTLY TRADED SHARES

As Per TRAC Report

72

IDENTIFIED DATE

Specified Date Identified Date

A date falling on the 10th business day prior

to tendering period

A date not later than the 30th day from the date of

the PA

As Per TRAC Report04/08/23

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SHARES

• The scope of definition has been Broadened;

• Inclusion of Depository Receipts within the ambit of term shares.

• Holder of the depository receipts is treated at par with the one who acquired the Equity Shares carrying voting rights.

As Per TRAC Report

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INITIAL THRESHOLD

AND

CREEPING ACQUISITION

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INCREASE IN THRESHOLD

INITIAL THRESHOLD

Malaysia Hong Kong Australia U.K.

33% 30% 20% 30%

As per SEBI Press Release dated July 28, 2011

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IMPACT

•A welcome step and aligns more closely with global practices in other countries;

•Beneficial for the Private Equity Players and Investors;

•No Transitional Provision for the promoters holding less than 25%;

•Hostile takeover threat to the listed companies with lower promoter shareholding.;

•Negative Control - Any large investor can acquire some shares from the market to

keep his holding upto 25% which is sufficient to block any Special Resolution and keep

a check on the management;

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CREEPING ACQUISITION


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IMPACT

• It will help the promoters in the consolidation of holdings;

•Flexibility to acquire 10% shares or voting rights within 2 days without

triggering the Open Offer requirement.

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PROMOTER HOLDING IN LISTED COMPANIES

Total Promoter Holding (%)

Companies With Promoter Holding Between

Market Cap Range (Rs.

Mn)

No. of Compani

es

Mean Median 0-15% 15-20% 20-25% 25-30%

0-500 2,477(61.1%)

45.50% 46.40% 274(11.1%)

87(3.5%)

97(3.9%)

138(5.6%)

500-2,000 649(16.0%)

52.60% 54.90% 34(5.2%)

19(2.90%)

12(1.8%)

19(2.9%)

2,000-5,000 312(7.7%)

54.30% 55.00% 10(3.2%)

8(2.6%)

1(0.3%)

10(3.2%)

5,000-10,000 157(3.9%)

52.20% 54.50% 5(3.2%)

1(0.6%)

3(1.9%)

8(5.1%)

10,000 and above

459(11.3%)

55.20% 54.30% 15(3.3%)

5(1.1%)

11(2.4%)

16(3.5%)

Overall 4,054(100%)

48.90% 50.50% 340(8.4%)

120(3.0%)

124(3.1%)

191(4.7%)

Source: TRAC Report

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OPEN OFFER

AND

ITS RELATED CONCEPTS

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INCREASE IN OFFER SIZE

As per SEBI Press Release dated July 28, 2011

82

Offer size (% of total equity capital of Target Company)

FY Total <=20% >20%

2006-07 89 77 12

2007-08 118 100 18

2008-09 113 95 18

2009-10 75 65 10

Total 395 337 58

% of Cases 100% 85.32% 14.68%

OFFER SIZE ANALYSIS

Source: TRAC Report

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FREEDOM TO COMPLETE ACQUISITION UNDER SPA

Existing Regulations Proposed Regulations

Not allowed

Until the completion of offer

formalities.

Allowed

•After a period of 21 days from the date

of PA and

•Subject to acquirer depositing 100%

consideration payable under the Open

Offer in Escrow Account.

This provision will allow the acquire to have the representation in the Target Company even before the completion of open offer and

to exercise the control over it.

As Per TRAC Report

84

ACQUISITION FROM OTHER COMPETING ACQUIRER

Simplified Rules-An ease for Competitive Bidder for control change

Keeping in view the increasing trend of competitive biddings in India this may

be taken as an imperative step as compelling two warring groups to continue

in a company may not be in the interest of the company and smooth passage

to one of the competitive bidders is desirable.

As per SEBI Press Release dated July 28, 201104/08/23

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NON COMPETE FEES

More beneficial for the shareholders as they will be entitled to get the same price as have been received by the promoters/sellers from the

acquirer.

As per SEBI Press Release dated July 28, 201104/08/23

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IMPACT

Shareholder Promoter

Investor Investor + Management+ Control

Thus, Payment of Non compete fees or control premium should be allowed.

87

REDUCTION IN TIME LINE

The timeline for

completion of the open offer

has been reduced from

95 calendar days

To

57 Business Days


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EXEMPTIONS

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NEW EXEMPTIONS INTRODUCED

Increase in shareholding pursuant to Buy Back

As Per TRAC Report

04/08/2390

• Approval of the scheme by shareholders by way of

Special Resolution passed by Postal Ballot; and

• No Change in control.

NEW EXEMPTIONS INTRODUCED

Increase in shareholding pursuant to CDR Scheme

As Per TRAC Report

NEW TAKEOVER REGULATIONS-A WIN WIN SITUTAION

91

• Beneficial for Private Equity Players and Investors.

• More protection for the small shareholders.

• Simplification in the provisions.

• More transparency and removal of ambiguity.

• At par with Global Practices prevalent for M&As.

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COMPARISON OF NEW AND OLD TAKEOVER REGULATIONS

Criteria Old Regulations New Regulations

Press Release dated July 28, 2011

Initial Threshold 15% 25%

Offer Size 20% 26%

Non-Compete Fees Upto 25% of the Offer Price Not allowed

Acquisition from the other

competing acquirer

No provision Available without attracting

Open Offer obligations

Recommendation on offer by

Board of Target Company

Optional Mandatory

Voluntary Offers No specific conditions Introduced subject to certain

conditions.

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Insider Trading Regulations

SEBI (Prohibition of Insider Trading) Regulations, 1992

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It is dealing in the securities

by a Insider,

who has the knowledge of

material “inside” information

which is not known

to the general public

WHAT IS INSIDER TRADING?

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Used to make profit at the expense of other Investors;

Leads to loss of confidence of investor in stock market;

The process corrupts the ‘Level Playing Field’;

It is easier to identify the beneficiaries of insider dealing. But the extent of losses occurred is impossible to calculate.

HOW BAD IT IS ???

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INSIDER

WASWASIS IS

CONNECTED WITH THE COMPANYCONNECTED WITH THE COMPANY

WHO WHO

OROR

OROR

DEEMED TO HAVE BEEN CONNECTEDDEEMED TO HAVE BEEN CONNECTED

ANDAND

WHO IS REASONABLY EXPECTED TO HAVEWHO IS REASONABLY EXPECTED TO HAVE

ACCESS ACCESS HAS RECEIVED HAS RECEIVED HAS HAD ACCESS HAS HAD ACCESS OROR OROR

TOTO

UNPUBLISHED PRICE SENSITIVE INFORMATIONUNPUBLISHED PRICE SENSITIVE INFORMATION 9604/08/23

97

Whether the Auditor and Chartered Accountant (CA) also come within the

ambit of term “Insider”?

Yes

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ANY INFORMATIONANY INFORMATION

OROR

ANDAND

TO A COMPANYTO A COMPANY

LIKELY TO MATERIALLY AFFECT THE PRICE OF SECURITIES OF THE COMPANY

LIKELY TO MATERIALLY AFFECT THE PRICE OF SECURITIES OF THE COMPANY

INDIRECTLYINDIRECTLYDIRECTLY DIRECTLY

WHICH RELATESWHICH RELATES

WHICH IF PUBLISHEDWHICH IF PUBLISHED

PRICE SENSITIVE INFORMATION

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DEEMED PRICE SENSITIVE INFORMATION

Periodical Financial Results of the company;

Intended declaration of dividends;

Issue of securities or buy-back of securities;

Expansion Plans / New projects;

Amalgamation, mergers or takeovers;

Disposal of undertaking;

Changes in policies of the company.

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DISCLOSURE REQUIREMENT

1. On the acquisition of >5% shares and Whenever there is a change of 2% in

shareholding after the acquisition of 5%.

2. On becoming the director or officer and whenever there is a change in holding in

excess of Rs.5 Lakh in value or 25,000 shares or 1% of total shareholding or voting

rights.

Recent Development

On becoming the promoter or part of promoter group and whenever there is a

change in holding in excess of Rs.5 Lakh in value or 25,000 shares or 1% of total

shareholding or voting rights.

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SCHEDULES – MODEL CODE OF CONDUCT

101

SCHEDULE I

MODEL CODE OF CONDUCT

FOR PREVENTION OF INSIDER TRADING

PART A - FOR LISTED COMPANIES

PART B – FOR OTHER ENTITIES

SCHEDULE II

CODE OF CORPORATE DISCLOSURE PRACTICES

FOR

PREVENTION OF INSIDER TRADING

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IMPORTANT TERMS

102

Trading Window

Company shall specify a trading period, to be called "Trading Window", for trading in the company’s securities.

The trading window shall be closed during the time the Price Sensitive information is un-published and shall opened after 24 hours the PSI is made public.

Restricted/Grey List

To restrict trading in certain securities and designate such list as restricted / grey list.

Any security which is purchased or sold by the organisation/firm on behalf of its clients / schemes of mutual funds, etc. shall be put on the restricted / grey list.

Chinese Wall

Chinese Wall policy demarcates “inside areas” from "public areas". The employees in the inside area shall not communicate any PSI to anyone in public area.

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NEED TO KNOW

103

PSI should be disclosed only to those within the company who need the information to discharge their duty.

Limited access to confidential information

Files containing confidential information shall be kept secure.

Computer files must have adequate security of login and pass word etc.

All D/O/E of the Co and their dependants as defined by the company who intend to deal in the securities beyond a limit should pre-clear the transactions.

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104

AMENDMENTS IN INSIDER TRADING REGULATIONS

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105

Buy Back of Securities

SEBI (Buy Back of Securities) Regulations, 1998

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BUY BACK..

106

The repurchase of

outstanding shares (repurchase)

by a company in order to

reduce the number of shares on the

market.

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107

REASON FOR BUY BACK

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108

“Associate” includes a person, -

i. who directly or indirectly by himself or in combination with relatives, exercises

control over the company or,

ii.whose employee , officer or director is also a director, officer or employee of

another company;

“Tender Offer” means an offer by a company to buy back its shares or other

specified securities through a letter of offer from the holders of the shares or other

specified securities of the company.

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GOVERNING PROVISIONS

109

• Section 77A, 77AA, 77B of Companies Act, 1956;

• SEBI (Buy Back of Securities) Regulations, 1998 (For Listed Companies)

• Private Limited Company and Unlisted Public Limited Company (Buy-Back of

Securities) Rules, 1999

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110

BUY BACK AT A GLANCE

• Authorization in AOA;

• Board Resolution - In case the fund utilization in buy back is ≤10%total

paid up equity capital and free reserves;

• Special Resolution - In case the fund utilization in buy back is >10% and

≤25% of the paid up capital (equity plus preference shares) and free

reserves;

• Debt equity ratio should not be more than the 2:1 after such buy-back;

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111

• Filing of Declaration of Solvency with the Registrar and SEBI.

• All the shares or other specified securities for buy-back are fully paid-up;

• Buy-back shall be completed within twelve months from the date of

passing the SR or BR.

• Minimum time of 365 days between two Buy Back offers

• Extinguish and physically destroy the securities bought-back within 7 days

of the last date of completion of buy-back.

BUY BACK AT A GLANCE

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112

SOURCES OF FUNDS

Provided that no buy-back of any kind of shares or other specified securities shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind

of other specified securities.

Section 77A (1) of Companies Act, 1956 states that:

A company may purchase its own shares or other specified securities out of—

OR OR

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113

RESTRICTIONS IN BUY-BACK

• Buy-back of shares shall not be done for delisting of securities from the stock exchange.

• Buy-back shall not be done from any person through

• Negotiated Deals

• Spot Transactions

• Private Arrangements

• No insider trading in securities on the basis of unpublished information relating to buy-back of securities.

• No further issue of same kind of shares or other specified securities within a period of 6 moths except by way of bonus issue or in the discharge of subsisting obligations

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114

METHODS OF BUY-BACK

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PROCESS OF BUY-BACK – TENDER OFFER/ODD -LOT

Special Resolution, if applicable

Board Resolution and Public Notice, if

applicable

Appointment of Merchant Banker

Public Announcement

Filing of Draft Letter of Offer

and Declaration of Solvency with SEBI and STX

Specified Date

Decision for Buy-back

SEBI Clearance & Filing of Final LOO with SEBI & STX and In-

principal Approval

Dispatch of LOO and Advt. in Newspaper

Opening of offer for Buy-back

Opening of Escrow Account

Closure of offer for Buy-back

Verification and Acceptance / Rejection of securities

COMPANY

Payment to Securities

holders

Extinguishment of Certificates

115

Opening of Special Account

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PROCESS OF BUY-BACK – OPEN MARKET PURCHASE THROUGH STOCK EXCHANGE METHOD



applicable


Public Announcement

Daily disclosure to STX about shares bought

back

Filing of copy of Public

Announcement with SEBI and

STX


Fortnightly public notice of shares

bought-back or on 5% buy-back

Payment of Consideration



COMPANY

116

Buy Back to be made only on

SE having nationwide

terminal

BB only through order matching

mechanism except “all or

none”

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PROCESS OF BUY-BACK – OPEN MARKET PURCHASE THROUGH BOOK-BUILDING METHOD



applicable


Opening of Escrow Account

Filing of copy of Public

Announcement with SEBI and

STX

Public Announcement


Opening of offer for Buy-back

Closure of offer for Buy-back

Opening of Special Account

Determination of Price


Payment to Securities holders

COMPANY


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AMENDMENTS IN BUY BACK

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119

Delisting of Securities

SEBI (Delisting of Equity Shares) Regulations, 2009

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120

WHAT IS DELISTING

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121

“Delisting” is totally the reverse of listing.

To delist means permanent removal of securities of a

listed company from a stock exchange. As a

consequence of delisting, the securities of that

company would no longer be tradeable at that stock

exchange.

DELISTING

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122

SALIENT FEATURES

Public shareholders have been defined as the holders of

equity shares other than the

a) Promoters and

b) holders of depository receipts issued overseas against

underlying shares.

Not be applicable to sick companies

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123

• The companies cannot delist their securities from the Exchanges

pursuant to buyback and preferential allotment.

• No shareholders approval, in case the company continues to remain

listed at any of the exchanges having Nationwide trading terminal i.e.

BSE and/ or NSE or any other Exchange specified in this behalf.

SALIENT FEATURES

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124

• The concept of Specified Date has been introduced, which shall not be

later than 30 working days from the date of the Public Announcement.

• The Special Resolution passed for the delisting giving exit option to the

shareholders will be valid for a period of 1 year within which the final

application will be required to be made to the exchange for delisting.

• Special Resolution by way of Postal Ballot

SALIENT FEATURES

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125

• Successful Exit Offer : Under the Regulations, to get delisted, post offer,

the Promoter holding should reach the higher of the following:

– 90% of total issued shares of that class; or

– (pre offer promoter holding +50% of the Offer Size), otherwise the offer

shall be deemed to have failed.

Promoters’ option of not accepting the Offer Price

Promoters/ PAC not allowed to participation in bidding:

SALIENT FEATURES

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126

TYPES OF DELISTING

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127

HOW TO DELIST

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128

Stock Brokers/Sub Brokers Regulation

SEBI (Stock Brokers/Sub Brokers) Regulation,1992

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INTENT

The Stock brokers plays an eminent role in the development of a capital market of any

country and likewise stringent and effective regulation of these market intermediaries

becomes essential. The so called Capital Market Regulator and watchdog SEBI plays

an effective role in regulating these Market Intermediaries and ensuring the

development of a healthy market.

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COVERAGE – SEBI Regulations

130

Through Stock Exchanges

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REGISTRATION

The Registration of Stock Brokers involve two way process:

131

Registration with Stock Exchanges

Registration with SEBI

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ELIGIBILITY

13204/08/23

Other Requirements

133

At the time of registration, Brokers are required to identify :

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VALIDITY OF REGISTRATION

134

Registration of Stock Brokers

is on Permanent Basis

until Surrendered or Suspended

for regulatory actions

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COMPLIANCES

Brokers are required to comply the rules and regulations of the following:

• Stock Exchanges

• SEBI

The compliances of both the authorities can be broadly divided into two parts:

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REGULAR COMPLIANCES

136

SEBI through Stock Exchanges regulates the activities of Stock Brokers to ensure Capital Market integrity and protection of the

interest of the Investors

SEBI GOVERNS:

Day to trading related compliances

Dealing with clients like KYC, Contract Notes, proper authorisation, disclosures,

maintenance of funds & securities.

Compliance with respect to terminals and employee’s on the terminals.

Maintenance of books & accounts and documents

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137

Maintenance of margin requirements Ensuring proper trading (Prevention of fraudulent and unfair transactions) No dealings with unregistered entities To comply with the advertisement guidelines Adherence to Prevention of Money Laundering Guidelines

RECENT Step of SEBI towards Investor Protection and transparency in Capital Markets :SEBI vide circular dated 2nd August 2011 has directed that the details of the transactions done on each trading day shall be sent by the Stock Exchanges to the investors, by the end of each trading day, through SMS and E-mail alerts

REGULAR COMPLIANCES

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EVENT BASED COMPLIANCES

Event based compliances are as follows:

Change in status and constitution

Change in Directors

138

RECENT CIRCULAR ISSUED BY SEBI:

SEBI vide circular dated 03.06.2011 has relaxed the procedural statutory requirements and simplified the restructuring of stock brokers as under:•The requirement of prior approval of SEBI in case of change in status and constitution has been done away with.•Now the stock brokers would only be required to obtain prior approval of Stock Exchanges and SEBI prior approval will only be required in case of Change in Control.

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INSPECTIONS AND AUDITS

• To ensure the proper working by Stock Brokers SEBI as well as Stock

Exchanges from time to time conducts Inspections and Audits of dealing of

stock brokers.

• Also to ensure self governance, SEBI has mandated for all stock brokers, an half

yearly voluntary audits of their business vide circular dated 22nd August, 2008 by

independent CA’s, CS’s & ICWA’s.

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LIABILITIES

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141

FUTP Regulations

SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating To Securities Market) Regulations, 2003

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INTENT

142

Stock Exchanges provides trading platform to a enormous number of buyers and

sellers who come to trade their shares at a fair price and volume discovery, based

on the market forces of demand and supply. However, there can be situations

where a mechanism can be designed to manipulate the stock market transactions in

order to obtain gains through fraudulent and manipulative manner. Thus, stringent

and effective regulations becomes necessary to be formed by the Capital Market

Regulator to protect the interest of the investors.

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MANNER OF DEALING

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ROLE OF SEBI

144

In case of any violation in the provisions of the regulations, Stock

Exchanges intimate the same to SEBI and the capital market

regulator thereof conducts investigation to protect the interest of

investors and securities market.

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LIABILITIES

145

The board may impose the following penalties in case of any violations:

acquired in violation of the regulations

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146

Merchant Bankers Regulations

SEBI (Merchant Bankers) Regulations, 1992

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WHO IS A MERCHANT BANKER

147

Who isWho is

Issue ManagementIssue Management

Engaged in Acting as

Manager, consultant and advisor

Manager, consultant and advisor

Either by making arrangement forEither by making arrangement for

Selling, Buying or Subscribing to Securities

Selling, Buying or Subscribing to Securities

Or rendering

Corporate advisory service in relation to such

issue management

Corporate advisory service in relation to such

issue management

OR

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ELIGIBILITY CRITERIA’S

148

• A body corporate other than a NBFC

• Adequate Infrastructure

• Should have minimum two experienced employees

• Conform to the Capital Adequacy Requirement

• His partner, director or principal officer should not be involved in any litigation

connected with the Securities Market.

• Should be a fit and proper person

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149

CAPITAL ADEQUACY REQUIREMENT

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150

CATEGORIES OF MERCHANT BANKER

Earlier Now

Category 1 – To carry on the business of Issue

Management, to act as advisor, consultant,

manager, underwriter, portfolio manager.

Category 1 – To carry on the business of Issue

Management, to act as advisor, consultant,

manager, underwriter, portfolio manager.

Category 2 – To act as adviser, consultant, co-

manager, underwriter,

portfolio manager

Category 3 – To act as underwriter, adviser,

consultant to an issue.

Category 4 – To act as consultant or advisors to

an issue.

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FEES FOR REGISTRATION

15104/08/23

AMENDMENTS

152

Date Amendments

7 Sept 2006 • Inserted definitions

• Change in Capital Adequacy requirements. Earlier requirements were given

for different categories

• Added conditions for registration as Merchant Banker

• Period of validity of certificate for 3 years

28 May 2007 Revised fees for filing draft offer document

31 March 2008 Revised fees for filing draft offer document

13 April 2010 • Merchant Banker may ensure market making in accordance with Chapter XA

of SEBI (ICDR) Regulations

• Merchant Banker shall underwrite 15% of issue size

• To submit complete particulars of acquisition made in pursuance of

underwriting or market making to the Board on quarterly basis

16 August 2011 Due diligence records to be maintained by merchant bankers in issue

management, takeover, buyback and delisting

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153

Registrar and Transfer Agent

SEBI (Registrars To An Issue And Share Transfer Agents)Regulations, 1993

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AppointedAppointed

To carry on following activities:To carry on following activities:

Collecting Collecting

applications from applications from

investors in respect investors in respect

of an issueof an issue

REGISTRAR TO AN ISSUE

154

REGISTRAR TO AN ISSUE

Keeping proper Keeping proper

record of applications record of applications

and monies receivedand monies receivedor paidor paid

a.a. Basis of allotment Basis of allotment of securities of securities

b.b. Finalising Finalising persons entitled persons entitled to allotment;to allotment;

c.c. Processing Processing allotment letters, allotment letters, and other and other documentsdocuments

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PersonPersonOn behalf of body corporate On behalf of body corporate

MaintainsMaintains

records of holders of records of holders of

securities and deals withsecurities and deals with

transfer and redemption of transfer and redemption of

its securities;its securities;

SHARE TRANSFER AGENT

155

SHARE TRANSFER AGENT

Division of body Division of body corporatecorporate

Performing similar activities Performing similar activities

ifif

Holders of its Holders of its

securitiessecurities ≥ 1 Lakh

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156

CATEGORIES

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157

CAPITAL ADEQUACY REQUIREMENT

≥ Net worthCapital

Adequacy requirement

NET WORTH

The Registrar to an Issue or a Share Transfer Agent, who was granted a Registration certificate, prior to the commencement of the second amendment in 2011, shall raise its networth to the said minimum within a period of three years

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158

VALIDITY OF CERTIFICATE

Certificate of initial

Registration granted

SHALL BE VALID FOR

5 YEARS

from the date of its issue

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159

FEES

OR OR

Particulars Category I Category II

Application of registration Rs. 10,000 Rs. 10,000

At the time of grant of certificate of initial

registration.

Rs. 4,00,000 Rs. 1,33,300

A registrar to an issue and share transfer

agent who has been granted a certificate

of permanent registration, to keep its

registration in force.

Rs. 1,50,000 Rs. 50,000

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AMENDMENTS

160

Date Amendments

17 Sept 1997 Registrar to an Issue not to act as such for an associate

5 Jan 1998 Criteria of fit and proper person

7 Sept 2006 • Inserted new definitions

• Added conditions for registration as Registrar and STA

5 July 2011 Initial registration shall be valid for 5 years

Grant of certificate of permanent registration

Revision of fees

16 August 2011 Networth requirement for Category I and Category II increased to Rs.

50,00,000 and Rs. 25,00,000 respectively.

Registrar and STA shall raise its networth within 3 years from such

commencement

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161

Pavan Kumar Vijay

Managing Director

Corporate Professionals Capital Private LimitedSEBI Registered Merchant Banker

Regn. No.: INM000011435D-28, South Extension -I,

New Delhi-110 049Ph: +91.11.40622200; FAX: +91.11.40622201

THANK YOU

04/08/23

Role of SEBI in Monitoring Capital Market final 17092011

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