SEBISECURITIES EXCHANGE BOARD OF INDIAHead quartered in popular business district of Bandra-Kurla complex in Mumbai

Statutory bodyTwin objectives: investor

protection & market developmentFormulate rules and regulations

to foster development

OBJECTIVES OF SEBISEBI ordinance in parliament –

gave status to SEBI in 1992As per preamble of SEBI 3 main

obj:To protect the interests of

investors in securitiesTo promote the development of

securities marketTo regulate the securities market

FUNCTIONS OF SEBIRegulate SE / any securities

market businessRegistering & regulating the

working of brokers, sub-brokers, share transfer agents, portfolio managers, investment advisers & other intermediaries

Registering and regulating working of collective investment schemes

Promote & regulate self-regulatory orgn

Prohibit fraudulent & unfair trade practices in the securities market

Promote investors education & training intermediaries

Prohibit insiders tradingRegulate substantial acquisition &

take-oversCall for info, undertake inspection,

conduct enquiries & audits of SE, intermediaries & self-regulatory orgns

ORGANISATION OF SEBIDEPARTMENT RESPONSIBILITY

PRIMARY DEPT POLICY MATTERS, REDRESSAL OF INVESTORS’ GRIEVANCES & GUIDANCE

ISSUE MANAGEMENT & INTERMEDIARIES DEPT

REGISTRATION, REGULATION & MONITORING OF INTERMEDIARIES & SCRUTINY OF OFFER DOCUMENT

SECONDARY MARKET DEPT POLICY MATTERS, PRICE MONITORING, MARKET SURVEILLANCE, PREVENTION OF INSIDER TRADING & BROKER’S REGISTRATION

INSTITUTIONAL INVESTMENT

MFs, FIIs, MERGERS, ACQUISITIONS

Apart from above depts – legal & investigation depts, separate advisory committees for primary & secondary market

SEBI’S ROLE IN THE PRIMARY MARKETTo protect interests of the

investors & bring back small investors to market – several measures

Entry & disclosure norms tightened

Allocation & promoter’s contribution regulated

1. ENTRY NORMSCo – with track record of min 3 yrs of

dividend payment before issue If listed co – its post-issue networth should

become 5 times of its pre-issue networth If mfg co – no track record – enter if its

project is appraised by a public fi or scheduled commercial bank

Issuing co shud have atleast 5 public shareholders for every rs.1 lakh of the net capital offer made

SEBI wont vet offer docu of co with track rec of 3 yrs consistent dividend pymt

Offer docu seeking listing in OTCEI wont be vetted

2. PROMOTER’S CONTRIBUTIONContribution by those described in the

prospectus as promoters, directors, friends, relatives & associates

Shudn’t be less than 20% of issued cptl

To be received before public issue; if issue size > rs.100 cr – prom contbn to be brought in atleast 50% before opening issue & balance after calls made

Not more than 20% of contribn in public / preferential issue would be locked in for 5 years

If non-underwritten public issue – promo to bring in own money or subscription within 60 days from issue closure

3. DISCLOSUREDraft prospectus filed with SEBI – made

as public docu for transparencyDraft prospectus to provide all info to

investors regd:◦Present co position◦Future prospect & risk factors associated

with co investmentAs per C.B.Bhave committee – SEBI

advised all listed co to publish unaudited financial results on a quarterly basis

4. BOOK BUILDINGMode of public issueGuidelines w.r.to 100% book-building in

an issue of security to public thru prospectus

Two-tier underwriting systemSyndicate members responsible for

primary underwriting & book runners liable for default

Atleast 30% book building centres with syndicate members being present at each centre

5. ALLOCATION OF SHARESTo bring back small investors (who

applied for 1000 or fewer shares) – minimum subscription reduced from 500 to 200

Proportionate allotmentAtleast 50% reservation for small

investorsAllotment within 30 days from closure15% p.a interest to be paid if

application money not refunded within specified period (if not allotted)

6. MARKET INTERMEDIARIESLicensing of merchant bankers based on

capital adequacy or track record in capital market activities

Other finl intermediaries (underwriters, registrars & transfer agents) to be licensed

Right to inspect records of intermediariesMB categories ii, iii & iv abolishedMerchant banker is one who handles public

issue & manages themWith a networth of rs.5 crores during renewalFrom dec 7, 1997 MB advised to segregate

fund based & fee based activities to prevent mismanagement of investors funds

GUIDELINES FOR SECONDARY MARKETImpt areas are:Governing boardInfrastructureSettlement & clearingDebt marketPrice stabilisationDelistingBrokersInsider trading

1. GOVERNING BOARD OF SEReconstituted by SEBIBroker & non-broker rep made as 50:5060% of non-broker rep made in

arbitration, disciplinary & default committees

Regulations w.r.to public reps & govt nominees in the governing board issued; as non-participants they should ensure impartial & fair governance

Only 40% rep of trading members in the governing council of derivatives

2. INFRASTRUCTURETo sophisticate trading SEBI

established NSE with online screen based trading terminals

Allowed se to expand its terminals outside jurisdiction

Recognition to new SE allowed subject to the conditions of on line screen based trading

3. SETTLEMENT & CLEARINGCarry forward transactions withdrawn

& weekly settlements introducedAll SE to setup clearing houses,

clearing corporation or settlement guarantee fund to expedite dematerialisation

Warehousing facility permitted; facilitates large orders to be executed in parts with a single contract note in the end of trading cycle

4. DEBT MARKET Wholesale debt market segment in

NSE enables traders to trade in debt instruments

Allowed dematerialisation of govt securities

Allowed listing of debt instruments even if co’s equity was not listed earlier

Mandatory credit rating of debt instruments

Dual rating for issue size above Rs.500 mn – to avoid credit rating shopping

Cr rating shopping – not disclosing adverse rating but seek a favourable rating from other agency

Not allowed to get rating from an agency which is its associated firm

5. PRICE STABILISATIONSEBI set up a division in to monitor unusual

price movements (in coordination with SE)Monitor new scrips from 1st dayFor new scrips – if abnormal price variation

– special margin of 25% or more on purchases

Intraday margin, gross / net exposure margin, market to market margin, concentration margin & special markgings – imposed on traders to reduce price volatility

6. DELISTINGTightened delisting norms like:On voluntary delisting from

regional SE – co shud make buy offer to all Sh.Hold in that region

Promoters shud buy / arrange buyers for security

Listing fee of 3 years shud be taken from co on delisting & kept in escrow account with SE

7. BROKERS AND SEBIRegistration based on eligibility,

infra facility, past experience & capital adequacy

Regn fee to be paidCode of conduct – laid down for

brokersCode ensure not to indulge in

malpractice and manipulation

Code deals with brokers’ duty:◦Execution of orders◦Issue of contract note◦Breach of trust◦Fairness to clients◦Investment advice

Contract not shud show transparency in dealings regarding price, brokerage, service tax etc

Contract note & bills to be passed on time – if not penalties

To furnish SEBI audited B/S & P&L a/c within 6 months of each accounting period

Broker – preserve accounts & records for atleast 5 years

SEBI – inspect records – appoints qualified auditors for that

Regional offices set up by SEBI to attend complaints against brokers & SE (in New Delhi, Chennai, Calcutta & Mumbai)

Disciplinary actions against erring brokers

Penalty of suspension of registration if stock brokers:◦Violates provisions of act◦Not follows code of conduct◦Fails to furnish info to board◦Furnishes false / wrong info◦Not submits periodical returns◦Not cooperates any enquiry◦Fails to resolve investor complaints

◦Indulges in manipulating price◦Guilty of misconduct◦Deteriorates his financial position◦Fails to pay fees◦Violates conditions of registration◦His membership suspended by SEBI

Cancellation of registration if violates insider trading regulations, guilty of fraud / criminal offence

Sub-brokers – registration with SEBI mandatory;

Agreement b/w broker & sub-brokerSecurity deposit with stock broker

8. INSIDER TRADINGUsing one’s access to unpublished

price sensitive info ahead of othersEg: hll – merger with broke bond

Lipton India in 1996 – prior to announcement both scrips – hectic trading; after announcement – prices declined

To prevent – “SEBI insider trading regulation 1992”

SEBI prohibits an insider from dealings