SEBI

SEBI

Regulatory Bodies

i)

SEBI for Capital Market Activities

ii) IRDA for Insurance Activities iii) RBI for Banking & Finance iv) PFRDA for Provident Fund / Investment

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Regulatory Framework of Securities Market

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Company Law Regulations It mainly relates to i) Memorandum of Association (Objects / Capital Structure)

ii)
iii) iv) v) vi) vii) viii)

Articles of Association (Board/Meetings/Powers/Duties etc.)

Issue of Capital (at par / premium / discount) Calls on Shares Voting Rights Prospectus Right Issue / Debenture Issue Allotment of Shares & issue of Share Certificate

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Securities Contracts (Regulation) Act

It provides apparatus for i) Regulation of Stock Markets Requisition, Inquiries, Supervision, Annual Reports, Clearing Corp., Bye-Laws etc.

ii) Preventing undesirable transactions in securities iii) Corporatization and Demutualization of S/E

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Securities Contract (Regulations) Rules

Main elements are i) ii) iii) Recognition of Stock Exchange Qualification for Membership Contract between Members of Recognized Stock Exchange

iv)
v) vi) vii) viii)

SEBI Nominee
Audit of Members Account Inquiries Submission of Periodical Reports Listing of Securities

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SEBI (1988, Became Statutory Body in 1992)

Objectives
i) ii) iii) iv) Creation of environment for raising money from Capital Market Maintain Liquidity & Safety of Securities in the Market Protection of Investors interest Promote Development and Regulate Securities Market

Regulatory Role
i) ii) iii) iv) Market Transparency through Disclosure Standards Fixing corporate Governance Standards Market Safety through margin system & surveillance Market Surveillance - Policy Formation for Surveillance - Oversee Surveillance System of Stock Exchange - Prepare Reports/Studies on Market Movement - Announcement of daily price bands

SEBI

SEBI An Establishment
i) ii) iii) iv) Chairman 2 members 1 Member 5 Members Appointed by Govt. (Presently Mr. Bhave) Representing MOF Nominated by RBI Nominated by Govt. (of which atleast 2 are whole-time)

Departments Of SEBI SEBI manages its affairs through about 24 different Departments which are functionally demarcated. The main Departments are Investigation Department, Integrated Surveillance Department, Enforcement Department, Market Regulation Department, Investment Management Department (FIIs & Custodian and MF), Market Intermediatory Regulation and Supervision, Investment Department (VC + Port Managers), Department of Eco & Policy Analysis, Corporation Finance Department. Enquiry & Adjudication Department, Derivatives & New Products Department, Systems Ltd. etc. etc.

SEBI - Powers & Functions

1. Stock Exchange Approval of Bye-Laws and Registration / Recognition of S/E and periodical returns. Registration and Regulate
Stock Brokers / players / intermediaries Depositories, DP, Custodian Credit Rating Agencies Mutual Funds VC Funds and Collective Investment Scheme FIIS Custodians

2.

3. Investors Production
Prohibits fradulent & unfair trade practices including insider trading

Regulate substantial acquisition of shares & acquisition.

Product interest of investors & promote education / training

4. Others
Decide on levy of fees and other charges / penalties Constitution of SAT

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SEBI Powers & Functions

SEBI would have the same powers as vested in a Civil Court under the Code of Civil Procedure in respect of the following In exercising these powers, the SEBI would have the same powers as vested in a civil court under the Code of Civil Procedure, in respect of the following matters, namely: The discovery and production of books of accounts and other documents, at such place and time as may be specified by it; Inspection of any books, register and other documents of any person at any place Inspection of any books, register, or other document or record of the company Issuing commissions for the examination of witnesses or documents.

i)

ii)
iii) iv)

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SEBI Powers & Functions

The SEBI may, by an order, for reasons to be recorded in writing, in the interests of investors or the securities market, take any of the following measures, either pending or on completion of an investigation/inquiry, namely: Suspend the trading of any security in a recognised stock exchange. Restrain persons from accessing the securities market and prohibit any person associated with the securities market to buy, sell or deal in securities. Suspend any office-bearer of any stock exchange or self-regulatory organisations from holding such position. Impound and retain the proceeds or securities in respect of any transaction which is under investigation. Attach Bank Account for one month under specified circumstances. Direct not to dispose of or alienate asset under specified circumstances.

a. b. c. d. e. f.

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SEBI Measures Introduced

Disclosure Norms Automation of Stock Exchange Functioning Setting-up Depositories Depositories Act 1996 NSDL/CDSL Trading Mechanism & Preventing Market Failures Creation of Settlement Guarantee Fund in Stock Exchanges Shortening of settlement time from 15 days to T+2

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Powers to adjudicate - SEBI

Since 1995, SEBI is empowered to appoint officer (not below rank of Div. Chief) as adjudicating officer to hold enquiries, determine penalties with respect to i) Amt. of disproportionate gain or unfair advantage made as a result of default\ ii) Loss caused to investor as a result of default iii) Repeatative nature of default All sums realised by way of penalties to be credited to Consolidated fund of India Penalties are leviable only on being satisfied that the person has failed to comply with various provisions of SEBI Rules/Regulations

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Penalties under SEBI

1. 2. 3. 4. Failure to furnish information & return Failure to enter into Agreement with Client Failure to redress Investors Grievances For Stock Brokers - Failure to issue Contract Notes (as per SEBI) - Failure to deliver securities/make payment - Charging brokerage in excess of prescribed limit 5. Rs. 1 Lac p.d. subject to max. Rs. 1 Cr. Rs. 1 Lac p.d. subject to max. Rs. 1 Cr. Rs. 1 Lac p.d. subject to max. Rs. 1 Cr.

Rs. 1 Lac p.d. subject to max. Rs. 1 Cr.

Rs. 1 Lac p.d. subject to max. Rs. 1 Cr. Rs. 1 Lac p.d. or 5 times of excess charged whichever is higher

For Mutual Fund - Certain Defaults in Case of Mutual Funds/Collective Investment Schemes Default in not a) Obtaining a Certificate of Registration b) Complying with the terms and conditions of the Certificate of Registration c) Failing to make an application for listing of schemes d) Dispatching the Unit Certificates e) To refund application money f) Failing to invest collected money Rs. 1 lac each day such failure continuous or Rs. 1 Cr. whichever is less

6. For Asset Management Co. - Failure to observe Rules/Regulation

Rs. 1 Lac p.d. or Rs. 1 Cr. Whichever is less

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7. Insider Trading i) Deals in securities on behalf of self or others on the basis of unpublished price-sensitive information ii)

Rs. 25 Crs. or 3 times of profit whichever is higher

Communicates price-sensitive information (except required under the Law) Rs. 25 Crs. or 3 times of profit whichever is higher Rs. 25 Crs. or 3 times of profit whichever is higher

8. Non-Disclosure of Acquisition of shares

9. Fraudulent and unfair Track Practices

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Securities Appelate Tribund (SAT)

i) ii) iii) iv) Appeal against an order of SEBI or adjudicating officer in 45 days Governed by The Priciples of Natural Justice and SEBI Act SAT Not bound by the procedure laid down by the code of Criminal Procedure SAT is vested with the same powers as vested in a Civil Court in respect of the following. SAT is deemed to be a Civil Court and procedure would be deemed to be a judicial proceeding. * Summoning the attendance of any person and examine him on oath * Requiring the discovery & production of documents * Issuing commissions for the examination of witness/document * Dismissing an application for default or deciding it ex-parte * Receiving evidence on affidevits No Civil Court would have juridiction to entertain any suit/proceedings which fall within the powers of SAT/adjudicating officer No injection can be granted by the Court in respect of any action taken/to be taken by SAT/adjudicating officer Appeal against the order of SAT can be filed with the Supreme Court in 60 days.

V) VI) VII)

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OMBUDSMAN/STIPENDARY OMBUDSMAN Regulations, 2003

1 or more ombudsman Stipendary ombudsman i.e. for specific matter for specific territory Complaint can be made within 6 months after approaching the Co. POWERS To receive complaints against intermediatory/listed Co. for i) Non-receipt of refund order ii) Non-receipt of allotment letter iii) Non-receipt of share-Certificate iv) Non-receipt of dividend, interest, interest for delayed refumd v) Non-receipt of Annual Reports, Redemption Amount, Letter of Offer etc. Non-Transfer of Securities by Issuer Any grivience of Public Offer/Right/Bonus Issue

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The complaint can be dismissed if Frivolous Matter settled by SEBI or ombudsman or any proceedings are pending/going on or decree/award already passed Have settlement by mutual agreement & pass the order in 1 month; otherwise to hear the case & pass order within 3 months. Appeal for review of order can be made by the obligation of payment with the deposit of 75% of the obligation of payment. SEBI to decide the matter within 45 days & award has to be implemented within 30 days. Compensation with interest @12% can be awarded by SEBI/ombudsman If award is not implemented, the party will be liable or face suspension/delisting of securities/debarment from accessing securities market/dealing in securities or an action for cancellation/suspension of registration.

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MAJOR REFORMS IN PRIMARY MARKET

General Merit based regime to Disclosure based regime. Disclosure & Investor Protection (DIP) Guidelines issued. Banks/FIs/PSUs allowed to raise funds from Primary Market. Corporate Governance Guidelines issued. Guidelines for Private Placements of Debts issued. Shares allotted on preferential basis as well as preallotment holding are subject to look-in of 6 months. Accounting standards are close to international standard. SEBI promoted Self-Regulatory Organisation (SRO).

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MAJOR REFORMS IN PRIMARY MARKET

Public Issue Pricing determinable by the Market System of Proportional allotment introduced. Discretionary allotment system to QIB withdrawn. Freedom to fix face value of shares below Rs. 10/- per share only in cases where the issue price is Rs. 50/- or more MF Mutual Funds encouraged, both in Public & Private sector. Separate allocation of 5% to domestic MF within QIB category. Retail Investor Allocation to retail investor increased from 25% to 35%

FIIs FIIs allowed to invest in primary issues within the Sectoral limits(including G-Sec).

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Major Reforms in Secondary Market

Stock Exchange Order driven, fully automatic, screen based trading introduced. Corporatisation & demutualisation of S/E notified. Regular Inspection of Stock Exchange. Stock Exchange Traded Derivatives introduced. Comprehensive Surveillance system. Corporates Guidelines issued on Listing Agreement between Stock Exchange and Corporates.

Major Reforms in Secondary Market

Stock Exchange Intermediaries Mandatory registration Capital adequacy norms specified for the brokers. Brokers Inspection

SEBI

Trading Settlement Cycled shortened to T+2. Prohibition of fraudulent & unfair trade practices including insider trading. Regulation on Substantial Acquisition of Shares & Take-Overs. Margin Trading, Short Selling and Securities lending / borrowing schemes introduced. Comprehensive risk management system (Capital adequacy, trading & exposure limit, margin requirement, on-line position monitories, automatic disablement of terminals) put in place. Comprehensive surveillance system.

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Major Reforms in Secondary Market

General Depositories Act enacted Guidelines on Corporate Governance issued. Settlement and Trade Guarantee Fund/Investor Protection Fund setup. Securities Appellate Tribunals set-up.

FIIs/MFs MF & FII to enter Unique Client Code pertaining to the present entity, at the order entry level, and enter the UCC for individual Schemes/Sub accounts on the post-closing session. Straight through Processing introduced and made mandatory for institutional trades. FIIs allowed to invest in Indian Capital since 1992.

SEBI Securities Market Regulations & Guidelines in Force

1. 3. 5. 6. 8. 10. 12. 14. 15. 17. 18. 19. 21. 22. 23. 25. 26. 28. 29. Regulations SEBI (Stock Brokers and Sub-Brokers Regulations) 2. SEBI (Prohibition of Insider Trading) Regulations SEBI (Merchant Bankers) Regulations 4.SEBI (Portfolio Managers) Regulations SEBI (Registrars to an Issue and Share Transfer Agents) Regulations SEBI (underwriters) Regulations 7. SEBI (Debenture Trustees) Regulations SEBI (Bankers to an Issue) Regulations 9. SEBI (Foreign Institutional Investors) Regulations SEBI (Custodian of Securities) Regulations 11. SEBI (Depositories and Participants) Regulations SEBI (Venture Capital Funds) Regulations 13. SEBI (Mutual Funds) Regulations SEBI (Substantial Acquisition of Shares and Takeovers) Regulations SEBI (Buy-Back of Securities) Regulations 16. SEBI (Credit Rating Agencies) Regulations SEBI (Collective Investment Schemes) Regulations SEBI (Foreign Venture Capital Investors) Regulations SEBI (Procedure for Board Meeting) Regulations 20.SEBI (Issue of Sweet Equity) Regulations SEBI (Procedure for Holding Equity by Enquiry Officer and Imposing Penalty) Regulations. SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations SEBI (Central Listing Authority) Regulations 24. SEBI (Ombudsman) Regulations SEBI (Central Database of Market Participants) Regulations SEBI (Self-Regulatory Organisation) Regulatory 27. SEBI Intermediaries Regulation 2008 SEBI Securitised Debt Instrument Regulation, 2008. SEBI Issue and Listing of Debt Instruments Regulation, 2008

SEBI

Guidelines 1. SEBI (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines 2. Guidelines for opening of Trading Terminals Abroad 3. SEBI (Disclosure & Investor Protection) Guidelines 4. SEBI (Delisting of Securities) Guidelines 5. SEBI (STP Centralised Hub and STP Service Providers) Guidelines 6. Comprehensive Guidelines for Investor Protection Fund/Customer Protection Fund at Stock Exchanges 1. 2. Schemes Securities Lending Scheme SEBI (Informal Guidance) Scheme

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BUY/BACK OF SHARE/SECURITIES
1. Companies Act permit buy-back of shares/specified securities provided a) The Articles of Association must permit it b) Authorisation by a special resolution in general meeting c) Ceiling of 25% of paid-up capital & Free Reserves. d) Ratio of Debt : Equity not to exceed 2:1. e) Buy-back by not through subsidiary/investment Companies. f) Not allowed in case of default in payment of deposit, Term Loan, Debenture redemption/Preference share

2. SEBIs Rules & Guidelines to be complied with. 3. Buy-back may be from

Existing shareholders on proportionate basis Open Market Odd Lots Employees, pursuant to a scheme of stock option/sweet equity issued for consideration other than cash

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4. Buy-Back forms are Tender Offer : Offer by a Co. of Buy-Back through Letter of Offer, from the holders of securities on proportionate basis. Odd-lot : Provisions of Tender offer apply. Open Market : Through Stock Exchange and book building process 5. Procedure Special resolution in General Meeting of shareholders OR Through a Board Resolution A copy of special Resolution to be filed with SEBI/Concerned S/E within 7 days of the date of passing resolution. In case of Board Resolution, a public announcement should be preceded by a notice within two days & copy with explanatory statement to be field with SEBI.

6. Tender Offer An offer by a Co. of Buy-Back through Letter of Offer from the holders of the securities on proportionate basis.

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The explanatory Statement/Public Announcement should discuss Max. price of Buy-Back Quantum of Buy-back Details of Promoters Transactions in last 6 months Offer to remain open for Min. 15 days & Max. 30 days The date of offer should not be earlier than 7 days or later than 30 days from the specified date Offer to reach shareholders before opening date In case of non-fulfillment of obligations by the Co. the enscrow a/c to be forfeited by SEBI The Co. to pay consideration within 7 days from acceptance of offer Security Certificates to be destroyed within 15 days of acceptance and certificate to be issued to SEBI
7. Open Market The buy back from the OPEN Market may be through S/E and book-building process. The Buy-Back through a Stock Exchange can be made only on a Stock exchange with nation wide trading terminals and through the order matching mechanism. The maximum price at which the buy-back would be made should be specified. Information on a daily basis regarding purchases for the buy-back should be given to the Stock Exchange and published in a national daily on a fortnightly basis and every time an additional 5 percent of the buy-back has been completed. The provisions pertaining to the extinguishment of certificates in the case of a tender offer are also applicable in this method.

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The public announcement in case of buy-back through book building should contain a detailed methodology of the book building process, the manner of acceptance, the details of the bidding centers and so on. The offer should remain open for 15-30 days. The final (highest) buy-back price, based on the acceptance received, should be paid to all holders whose shares/securities have been accepted for buy-back. The provisions pertaining to the verification of acceptances, opening of a special account, payment of consideration and extinguishment of certificates, applicable to a tender offer, are also applicable to this method.