Presentation on theme: "Investor Protection and Empowerment"— Presentation transcript:
1 Investor Protection and Empowerment ACG Cross Training Seminar May 29, 2012
2 DisclaimerSEBI, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the presenter / author and do not necessarily reflect the views of SEBI.
3 Functions of Securities Market Channelizing savings into financing for real sector.To raise capital for new investmentAn alternative to bank finance (CM Model – Issuer – investor structure vis-à-vis – saver – borrower model)Means for transferring risk and diversifying risk exposureEfficient Securities Market contributes to economic growth.
4 Evolution of Indian Capital Markets Long History – stock trading first started in 1830sBSE established in 1875 – oldest exchange in AsiaAhmedabad SE formed in 1894, Calcutta SE formed in 1908, Madras SE in 1920Bombay Securities Contracts (Control) Act, 1925Capital Issues (Control) Act, 1947
5 Legal Framework Companies Act, 1956 Securities Contracts (Regulation) Act, 1956Securities Contracts (Regulation) Rule, 1957Establishment of SEBI by Government ordinance in 1988SEBI Act 1992 – Creation of SEBI as statutory independent & quasi-judicial regulatory bodyDepositories Act 1996
6 SEBI & it’s mandate Preamble to SEBI Act, 1992 Established by Government ordinance in 1988Given statutory status on February 21, 1992Preamble to SEBI Act, 1992“An Act to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto”
7 Regulatory FrameworkFrom control of capital to freedom to issue capitalMerit to disclosureGiving market greater role in shaping resource allocationSingle & Independent Regulator.Regulation of product, market, institution / intermediaryCompetitive neutralityRegulation & DevelopmentQuasi Judicial powersAccountability
8 Types of InstrumentsEquity Shares – buy and sale of shares on stock exchange or on spot basis off-market. Transactions either as trader or investor.Debt securities – Govt securities, Corporate Bonds and DebenturesDerivatives - are contracts which derive their value from the spot price of a given “underlying”. which can include anything like currencies, commodities, securities, index of the prices of securities, debt instruments, interest rates etc.Futures - legally binding agreement to buy or sell the underlying at a future dateOptions - gives the buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying at a predetermined price within or at end of a specified period.
9 Product Traded In Secondary Market EquityDebtGovt. Securities (non-repo)DerivativesIndex Futures & OptionsStock Futures & OptionsExchange Traded Currency FuturesExchange Traded Interest Rate FuturesMutual Funds / ETFsDerivatives on Foreign Equity Indices
10 Indian Securities Markets Secondary Market NSE occupies 5th position in terms of notional turnover (US$ 455 Billion) and 2rd position in terms of total volume (91.39 million) among derivatives exchanges globally (based on February 2012 trading data).India stands 1st in Stock Futures, 13th in Index Futures, 5th in Stock Options and 4th in Index Options in World Derivatives Market (in terms of turnover)DetailsNSEBSENo. of Listed Companies (as on Feb 29, 2012)16445122Market Capitalization (` crore) (as on Feb 29, 2012)62,33,25063,56,697Turnover (Cash) (Apr 11 – Feb12) ((` crore)25,38,4116,04,780Turnover (F&O) (Apr 11 – Feb 12) (` crore)2,83,70,5015,79,758
11 Indian Securities Market Market Participants Merchant Bankers200Stock Exchanges21Brokers10263Sub Brokers77626Mutual Funds49Foreign Institutional Investors1781Venture Capital Funds208Depositories2Depository Participants850Portfolio Managers249As on Feb 29, 2012
13 Regulatory process Pro active as well as reactive approach Extensive consultation with market participants & other regulatorsClarification of policies through Informal Guidance SchemePosting of all rules, regulations, circulars and data on the SEBI web siteDissemination of orders passed by SEBI, Securities Appellate Tribunal and the Supreme Court, through the SEBI web-site
14 Regulation of Intermediaries Licensing standardCertification of associated personPrudential regulationInternal controls and risk managementBusiness conduct RulesMarket conduct RulesProcedure for dealing with failure of market intermediary
15 Regulation of Market Efficiency and credibility of the markets Integrity of trading.Transparency of tradingProper management of large exposure, default risk and market disruption.Risk ManagementClearing and settlement – fair, effective and efficient.To detect and deter manipulation and unfair trade practices.
16 Regulatory NormsTo ensure that investors get clear, accurate information for their investment in financial products (information asymmetry)Safeguarding & Maintenance of functioning of competitive framework.Protect investors from hidden fees, abusive terms & deceptive practices.
17 Regulatory Norms Financial Literacy Suitability and appropriateness Investors responsible for risks & rewardsPrevention of potential systemic risks.
18 Regulatory Norms Effective Surveillance to ensure: transparency, fairness and integrity in the marketstrue and fair price discoveryprompt detection of market manipulation and other market abusesPrompt investigation and timely actionSuitable policy intervention
19 Regulatory Norms Monitoring / Surveillance Stock Watch System Price volume movementsPosition / exposure / concentration monitoringCorporate developmentsFilings under Insider Trading & Takeover RegulationsRumour VerificationStock Watch SystemOnline monitoring through alertsOffline monitoring through day-end and periodic reports
20 Regulatory Norms Continuous Disclosure of all material news Corporate GovernanceAccountsSalient feature of B/S, P&LQuarterly Interim Financial ReportsConsolidated Financial Statements, Cash flow Statement, Related party transactionMinimum level of shareholdingDisclosure of shareholding / ownershipUtilization of Issue proceedsResponding to market rumoursDisclosure of Bulk / Block deals
21 Regulatory NormsAccounting Standards close to International Standards.Corporate Governance Guidelines made mandatory for listed companiesIssue of Capital and Disclosure Requirements (ICDR) Regulations, replaced the previous Disclosure and Investor Protection (DIP) guidelines .Automated Screen based Trading from 1994Moved from physical securities to dematerialisation in % securities traded in demat form
22 Regulatory NormsAccount period settlement to Rolling settlements in 2000Introduction of derivatives trading in 2000 – now we have the largest single stock futures market in the worldAdequate risk containment measures in place - Real time VaR based margining and strict exposure monitoring mechanismEfficient clearing and settlement mechanismCircuit filter for individual scrips and market wide index based circuit breakerEnhanced Surveillance Standards - Integrated Market Surveillance System (IMSS)
23 International Scenario Protection at Trading Member LevelBankruptcy of a Major Global Financial Broker MF GlobalMoving towards Client Level Protection
24 Indian Risk Management Scenario Order has to be entered in specific client code which is mapped to unique identification (Permanent Account Number – PAN)Margins- upfront client level portfolio based initial margins and mark to market collected before start of next days tradingVolatility parameters revised multiple times a dayOnline and real time monitoring of positions and margins.Minimum Liquid Networth to be maintained at any point of timeAutomatic deactivation of trading terminalsClient level details & segregation at CC level being considered
25 Regulatory Measures Protection incase of Public Issue of Securities Issue of Capital and Disclosure Requirements (ICDR) Regulations- Eligibility Norms for Issuer- Pricing Norms- Disclosure Requirements (IPO/FPO)
26 Regulatory Measures Protecting Investors Funds and Securities Client’s money in a separate accountRestriction on use of funds from client’s accountRestriction on use of constituent beneficiary accountProvide statement of accounts for funds and securities to all the clientsPeriodic reconciliation and settling of running accountsPenalty for violation of norms
27 Regulatory Measures Protecting Investors Interest Disclosure of Proprietary trading / fundingMaintenance of separate codes for each client and proprietary tradesTimely issue of Contract Notes by brokers – exchange also sends to select clients on random basisFacility of sms alertsTrade Verification facility on exchange websiteFacility to freeze demat account
28 Regulatory Measures Administrative mechanism of Capital Cushions Protection in case of a Default-Settlement Guarantee FundInvestor Protection FundInvestor Complaint Resolution through Conciliation and Arbitration Mechanisms
29 Regulatory MeasuresProcessing of Investor Complaints in SEBI Complaints Redress System (SCORES)Centralized database of all complaints.Online movement of complaints to the concerned intermediariesOnline upload of Action Taken Reports (ATRs) by the concerned entitiesOnline viewing by investors of action on the complaints and its current status.
30 Regulatory MeasuresInvestor Protection and Education Fund created for the following purpose-Educational activities including seminars, training, research and publications.Awareness programmesAiding investors’ associations recognized by the Board to undertake legal proceedingsInvestor Education and Awareness ProgramsToll free help line
31 Present StatusIndia continues to be high growth economy in a world beset with recessionLarge domestic market and strong internal demandSecurities market infrastructure and practices among the best in the worldHigh global interest in investing in India
32 ROAD AHEAD Needs to be addressed Financial literacy Financial inclusionReaching out to the retail investorBroadening and deepening the marketsBetter quality of intermediation