THE SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

Objectives of SEBI To protect the interest of the investors in securities To promote the development of securities market To regulate the securities market 2 5/23/2018 SAPM

Promoting and regulating self-regulatory organizations 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 3 5/23/2018 SAPM

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 4 5/23/2018 SAPM

Issue Mgt. & Intermediaries Dept. Organization of SEBI Primary Mkt. dept. Issue Mgt. & Intermediaries Dept. Departments Secondary Mkt. dept. Advisory Committees Institutional Invt. 5 5/23/2018 SAPM

SEBI Regulates………. 6 5/23/2018 SAPM

SEBI & Primary Market Measures undertaken by SEBI:- Entry norms Promoters’ contribution Disclosure Book building Allocation of shares Market intermediaries 7 5/23/2018 SAPM

Conti……….. 1. Entry norms Track record of dividend payment for minimum 3 yrs preceding the issue. Already listed companies - when post-issue networth becomes more than 5 times the pre-issue networth For Manufacturing company not having such track record – appraise project by a public financial institution or a scheduled commercial bank. For corporate body – 5 public shareholders for every Rs.1 lakh of the net capital offer made to the public Banks – 2 yrs of profitability for issues above par. Offer documents to companies. 8 5/23/2018 SAPM

Conti……….. 2. Promoters’ contribution 3. Disclosure 9 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 9 5/23/2018 SAPM

Conti……….. 4. Book building 10 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 10 5/23/2018 SAPM

Conti……….. 6. Market intermediaries 11 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. 11 5/23/2018 SAPM

SEBI & Secondary Market Reforms in the secondary market:- Governing board Infrastructure Settlement & clearing Debt market Price stabilization Delisting Brokers Insider Trading 12 5/23/2018 SAPM

Conti……….. On-line screen based trading terminals 13 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 13 5/23/2018 SAPM

Conti……….. 14 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. 14 5/23/2018 SAPM

Conti……….. 15 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 15 5/23/2018 SAPM

Conti……….. 16 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 16 5/23/2018 SAPM

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. 17 5/23/2018 SAPM

SEBI and the FIIs Union 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 – Have track record, professional & competence record, financial soundness, general reputation of fairness and integrity. Regulated by an appropriate foreign regulatory authority. Permission under the provisions of FERA Act 1973.(FEMA - 2006) Valid up to 5 yrs.

Custodians Is an agency appointment of the custodian Maintenance of accounts Submission 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 exchange Time stipulation for transaction b/w custodian & member of ISE is 48 hrs. 5/23/2018 SAPM 23

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 5/23/2018 SAPM 24

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. 5/23/2018 SAPM 25

Critical review of SEBI Disclosures Dissemination process Settlement Badla trade Special watch Capital adequacy Single authority Stricter registration of brokers 5/23/2018 SAPM 26