THE SECURITIES AND EXCHANGE BOARD

OF INDIA (SEBI)

04/10/23 SAPM2

Objectives of SEBI

• To protect the interest of the investors in securities

• To promote the development of securities market

• To regulate the securities market

04/10/23 SAPM3

Functions of SEBI

Regulating the business in stock exchange and any other securities market

Registering and regulating the workings of intermediaries associated with securities market

Registering and regulating the working of collective investment schemes including mutual funds

Promoting and regulating self-regulatory organizations

Prohibiting fraudulent and unfair trade practices in the securities market

04/10/23 SAPM4

Functions of SEBI

Promoting investors education and training of intermediaries in securities market

Prohibiting insiders trading in securities

Regulating substantial acquisition of shares and take-over of companies

Calling for information, undertaking inspection, conducting enquiries and audits of the stock exchanges, intermediaries and self-regulatory organizations in the securities market

04/10/23 SAPM5

Organization of SEBI

Departments

Primary Mkt. dept.

Issue Mgt. & Intermediaries Dept.

Secondary Mkt. dept.

Institutional Invt.AdvisoryCommittees

04/10/23 SAPM6

SEBI Regulates……….

SEBIregulates

PrimaryMarket

Secondary Market

MutualFunds

Foreign InstitutionalInvestment

04/10/23 SAPM7

SEBI & Primary Market

Measures undertaken by SEBI:-• Entry norms• Promoters’ contribution• Disclosure• Book building• Allocation of shares• Market intermediaries

04/10/23 SAPM8

Conti………..

1. Entry normsa) Track record of dividend payment for minimum 3 yrs

preceding the issue.b) Already listed companies - when post-issue networth

becomes more than 5 times the pre-issue networthc) For Manufacturing company not having such track

record – appraise project by a public financial institution or a scheduled commercial bank.

d) For corporate body – 5 public shareholders for every Rs.1 lakh of the net capital offer made to the public

e) Banks – 2 yrs of profitability for issues above par.Offer documents to companies.

04/10/23 SAPM9

Conti………..

2. Promoters’ contribution Should not be less than 20% of the issued capital. Receiving of promoters’ contribution. Lock in period as per SEBI. Cases of non-under written public issues.

3. Disclosure draft prospectus

Un audited financial results

04/10/23 SAPM10

Conti………..

4. Book building

SEBI recommends two-tier under writing system

One of the mode of public issue thru prospectus.

Role of syndicate members and book runners.

Minimum 30 centers.

5. Allocation of shares

Minimum application of shares

Reservation for small investors

Allotment of securities

04/10/23 SAPM11

Conti………..

6. Market intermediaries

Licensing of merchant bankers

Licensing of underwriters, registrars, transfer agents, etc.,

Merchant bankers net worth – Rs.5 crores

Segregate fund based from fee based activities.

04/10/23 SAPM12

SEBI & Secondary Market

Reforms in the secondary market:-

1. Governing board

2. Infrastructure

3. Settlement & clearing

4. Debt market

5. Price stabilization

6. Delisting

7. Brokers

8. Insider Trading

04/10/23 SAPM13

Conti………..

1. Governing board

Brokers and non-brokers representation made 50:50

60% of brokers in arbitration, disciplinary & default committees

For trading members 40% representation

2. Infrastructure

On-line screen based trading terminals

04/10/23 SAPM14

Conti………..

3. Settlement & clearing

Weekly settlements

Auctions for non-delivered shares within 80 days of settlement

Advice to set up clearing houses, clearing corporation or settlement guarantee fund

Warehousing facilities permitted by SEBI.

04/10/23 SAPM15

Conti………..

4. Debt market segment

Regulates thru SEBI (depository & participants) regulation Act 1996.

Listing of debt instruments

Invt. Range for FIIs

Dual rating for above Rs.500 million

04/10/23 SAPM16

Conti………..

5. Price stabilization

Division to monitor the unusual movements in prices.

Monitor prices of newly listed scrip from the first day of trading.

Circuit breaker system and other monitoring restrictions could be applied

Imposing of special margins of 25% on purchase in addition to regular margin.

Price filters

Price bands

Conti………..

6. Delisting On voluntary de-listing from regional stock exchanges

– buy offer to all share holders Promoters to buy or arrange buyers for the securities 3 yrs listing fees from companies and be kept in

Escrow A/c with the stock exchange.

04/10/23 SAPM17

SEBI and the FIIsUnion Govt. allowed-

Foreign Institutional Investors (FIIs)

Non-Resident Indians (NRIs), and

Persons of Indian Origin (PIOs)

to enter into both Primary & Secondary market in India through the portfolio investment scheme (PIS), under Liberalized policy regime. Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian companies through the stock exchanges in India.

Implications:-

Affects the sensex movements

Determines the market indications

Guidelines announced in 1992

In 1993, 12 FIIs got registered

At the end of 1996-97, 439 FIIs were registered

Can trade in securities of listed companies including OTCEI.

The ceiling for overall investment for FIIs:-

24% of the paid up capital of the Indian company

10% for NRIs/PIOs.

20% of the paid up capital in the case of public sector banks, including the State Bank of India.

Modifications in ceilings:-

The ceiling of 24 % for FII investment can be raised up to sectoral cap/statutory ceiling, subject to the approval of the board and the general body of the company passing a special resolution to that effect.

The ceiling of 10 % for NRIs/PIOs can be raised to 24% subject to the approval of the general body of the company passing a resolution to that effect.

Monitoring Foreign Investments

The Reserve Bank of India

monitors the ceilings on FII/NRI/PIO investments in Indian companies on a daily basis.

For effective monitoring of foreign investment ceiling limits, the Reserve Bank has fixed cut-off points that are two percentage points lower than the actual ceilings.

FIIs breakup in Indian Capital Market

SEBI guidelines for FIIs:-

According to the 1995 regulations, FIIs should hold certificate granted by SEBI to trade in Indian stock market.

To grant the certificate the applicant should –

1. Have track record, professional & competence record, financial soundness, general reputation of fairness and integrity.

2. Regulated by an appropriate foreign regulatory authority.

3. Permission under the provisions of FERA Act 1973.(FEMA - 2006)

Valid up to 5 yrs.

04/10/23 SAPM 23

CustodiansIs an agencyappointment of the custodianMaintenance of accountsSubmission of semi-annual reports (SEBI & RBI)Inspection of accounts

SEBI Guidelines:-

Foreign brokers can operate only on behalf of registered FIIs.Execution of orders for sale and purchase of securities are done by a member of an Indian stock exchangeTime stipulation for transaction b/w custodian & member of ISE is 48 hrs.

04/10/23 SAPM 24

Preferential allotment -To boost up the financial resources

Regulation:-

Under mutual consent of the shareholders

As per the ceilings

Allotment on the highest price (26 weeks)

Permitted up to 15% of the equity within the ceiling

Holdings of a single FII – increased from 5% to 10% of the equity of a company

04/10/23 SAPM 25

Recent developments in FIIs

Exemption from attaching copy of RBI approval with each market lots.

Allowed to invest in unlisted stocks of any company.

Allowed to invest up to 100% in debt instruments.

Mandatory to settle transactions thru dematerialized mode for FIIs having securities more than Rs.10 cr.

04/10/23 SAPM 26

Critical review of SEBI

1. Disclosures

2. Dissemination process

3. Settlement

4. Badla trade

5. Special watch

6. Capital adequacy

7. Single authority

8. Stricter registration of brokers