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9.sebi in Capital Market Issues
9.sebi in Capital Market Issues
9.sebi in Capital Market Issues
forManagers
LESSON
17
SEBI IN CAPITAL MARKET ISSUES
CONTENTS
17.0AimsandObjectives
17.1Introduction
17.2ObjectivesoftheSEBI
17.3EntityofSEBI
17.4OrganisationalGridoftheSEBI
17.5PowersandFunctionsofSEBI
17.6RoleofSEBI
17.6.1PromotersContribution
17.6.2Disclosures
17.6.3BookBuilding
17.6.4AllocationofShares
17.6.5MarketIntermediaries
17.6.6DebtMarketSegment
17.6.7Brokers
17.6.8SuspensionofaBroker
17.6.9RecentDevelopments
17.7CriticalReviewofSEBI
17.8LetusSumup
17.9LessonendActivity
17.10Keywords
17.11QuestionsforDiscussion
17.12SuggestedReadings
17.1 INTRODUCTION
240
Duringthelate80,theGOIdecidedtoreplacetheControllerofCapitalIssuesAct,by
wayofinductingtheSecuritiesExchangeBoardofIndia,inordertointroducethe
regulatoryenvironmentintheIndiancapitalmarket,topavewayforthepromotionof
congenialandconduciveclimaticconditionfortheinvestingpublic.HencetheGovernment
ofIndiahasinstitutedthesupremeauthoritySEBItomonitorandcontroltheproceedings
ofthecapitalmarketinthecountry.
SEBIinCapitalMarketIssues
Toreplacetheofficeofthefollowingmajoractsofimplementationandtoattain
thefollowingobjectives:
v
ControlofCapitalIssuesAct(1947)
TheCompaniesAct(1956)issue,allotmentofthesecuritiesanddisclosures
SecuritiescontractregulationAct(1956)tocontroloverthestockexchanges
InMay,1992thecontrollerofissueofcapital,pricingoftheissues,fixingpremia
andratesofdebentureswereceasedinoperation,providedtheSEBIwas
promulgated.
v
Protectingtheinterestoftheinvestors
Promotingthedevelopmentofthesecuritiesmarket
Regulatingthesecuritiesmarket
Itwasregisteredwiththecommonsealandwiththepowertoacquire,holdand
disposeanyproperty
Powertosueortobesuedinitsownname
TheHeadofficeissituatedinMumbai;inadditiontheregionalofficeswere
establishedinthefollowingmetropolitancitiesvizKolkata,ChennaiandDelhi,to
monitorandcontrolthecapitalmarketoperationsacrossthecountry
Sixmembersinthecommittee
Headedbythechairman
OnemembereachfromtheministriesofLawandFinance
OnememberfromtheofficialsofReserveBankofIndia
Twonomineesfromthecentralgovernment
Itcontains4differentdepartmentsvizPrimarydepartment,Issuemanagementand
intermediariesdepartment,SecondarydepartmentandInstitutionalInvestmentdepartment
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Frequentconductofresearchactivities
Toconductanyenquirywhichwarrantsthesituationtosafeguardtheinterestof
theinvestors
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AccountingandFinance
forManagers
Entrynormsforthecompaniesatthemomentofraisingthecapitalfromthe
market:
Thecompaniesareexpectedtoproduce3yearsdividendtrackrecordof
v
precedingtheissue.
Attheentrylevel,immediatelyafterlisting,importantpointtobeensuredis
v
thatPostissueofnetworthshouldbe5timesgreaterthanthePreissue
networth.
Ifitisamanufacturingcompanywithoutanytrackrecord,wantstoraiseany
v
capitalfromthemarket,theappraisalhastobedonethroughdevelopment
banksorcommercialbanks.
Havingthreeyearstrackrecord,theSEBInevervetsofferdocumentofthe
v
issueofcapital.
Promoter'scontributionshouldnotbelessthan20%andshouldbemadebefore
theissue.
IfthesizeoftheissuesisRs.100cr50%ofthecontributionshouldbemade
beforetheopeningofissueandtheremainingshouldbepaidbeforethecallsare
madetotheinvestors.
17.6.2 Disclosures
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Acc.BhavecommitteeFinancialresultsi.e.,unauditedandauditedfinancialresults
shouldbepublished.
Riskfactorsandpositionsofthecompanyshouldbehighlightedindetailinthe
prospectus.
75%routewasspecifiedattheearlymomentintheprocessofbookbuilding.Then
thebookbuildingprocesswasopenedto100%routetothepublic.
Sufficientopportunitiesaretobefurnishedtotheinvestorstorepresentthroughthe
terminaltotakepartintheprocessofBookbuilding.
Thecompanyduringtheprocessrequires30centersatleastforbookbuildingprocess
toraisethesharecapitalfromthemarket.
242
TheMinimumapplicationwas100Nosforsubscribingtheissueofsharecapital.
ThentheMinimumapplicationwashikedto500Nos.ThenSEBIhasfeltthatthe
Minimumapplicationwastoohigh,whichdidnotpavethesmallinvestorstowithin
theavailablesurplus,thentheminimumapplicationbroughtdownto200Nos.
Smallinvestorsarewhohold1000sharesorfewsecurities
Allotmentshouldbedonewithin30daysfromthedateofclosureoftheissue.
Duringthenonallotmentoftheshares,thecompanyshouldrefundtheamountof
theapplicationmoney.
SEBIinCapitalMarketIssues
Thevariousmerchantbankcategorieswereabolished.Eachcategoryofissue
intermediaryisrequiredtoundergoforspecificregistrationprocess.
LeadmanagerswhomanagetheissueofcapitalshouldhaveanetworthofRs.5cr.
Depositorysystemforthedebtsecuritieswereintroduced
Dematfacilitywasspecificallyintroducedforthegovernmentsecurities
Listingofdebtsecuritiesneednotrelyupontheequitylistingintherespective
stockexchange
FIIswerepermittedtoinvest100%inthedebtinstrumentsoftheIndiancompanies
Fortheissuanceofdebtinstrumentstheratinghasbeenmandatory
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Minimumtworatingsshouldbeobtainedfortheissueofdebtinstrumentmorethan
Rs.500cr.
Ratingagencyshouldnotbeassociatedwiththefirmofissuingcompany
17.6.7 Brokers
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RegistrationisgivenMemberofanystockexchangekeyfactorsof
registrationofficespace,previousexperience,manpower,sellingorbuyinginsecurities
Codeofconductexecutionoforders,fairnessofdealswiththeinvestors,issueof
contractnote
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Financialstatementsshouldbesubmittedwithin6monthsoftheaccountingperiod
BookofaccountsAminimumof5yearstobepreserved
RegionalofficesEstablishmentonlywithreferencetoattendthecomplaintsof
thesmallinvestorsatspeedyrateKolkata,ChennaiandDelhi
SEBI'sfinalcontrollingmeasureissuspensionandcancellationoftheregistration
subjecttocertainconditions
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Suspensionpermanentdismissalisleadingtocancellationofregistrationdueto
theproblemcaused
Violationofrulesandregulations
Failstosubmitthetrueandfairinformationaccordingtothenormsofdisclosures
Untowardconductwiththeinvestor
Guiltofmisconduct
Poorfinancialstatusofthebrokersdeterioration
Stockexchangefeesfailtopayontimetotherequirement
Suspensionofthemembership
243
AccountingandFinance
forManagers
Indulgesinanyactofinsidertradingofsecurities
Convictedofaanycriminaloffence
SubBroker
Subbrokertoobtaintheregistration
Agreementinbetweenbroker&subbroker
DepositshouldbemadewithBroker
Transferofsecuritieswithoutregistrationofbearingstampsconsideredasbad
deliveriesintheangleofstockexchangesJuly1,1997.
RBIapprovalcopyisexempted
FIIsarepermittedtoinvestupto100%indebtmarketfunds
FIIswhichhavesecuritiesworthofRs100crormorethanmandatoryrequirement
istosettlethetransactiononlythroughdematmode
FIIs/NRIs/OCB30%oftheequityofthecompanyinaccordancewiththeunion
budget199798
ItwashikedbytheUnionFinanceMinisterduringthebudget2000
Check Your Progress
WhatstepshavebeentakenbySEBIregardingallocationofshares?
DisclosuresTopresentinformationonlyfortheinterestofinvestors
Disseminationprocesstodisclosetheinformationrequiredwhichleadstoundue
delay.TherouteofdisseminationoftheinformationshouldbethroughSEBIto
publicandbyconsideringthetimewastage,thewebsitesweresuggestedfor
facilitatingtheinvestors.
TheSettlementforNSEareWednesdayTuesday,andinthecaseofBSE
MondayFriday
Leadstomorearbitragetransactionswhichleadtogreaterfluctuationsintheopening
andclosingpricesofthesecurities
Badlatradehasbeenbannedduetodetrimentaltotheinvestors
Specialwatchsystemhastobeintroducedtotheinternationalstandards
Capitaladequacy:Thecapitalrequiredtobemaintainedislessthanforintermediaries
butatthesametimethecapitaladequacyshouldbetothetradingvolumeofthem
onlyinordertoavoidthedefaultriskoftheinvestors.
244
TheGovtofIndiahasinstitutedthesupremeauthoritySEBItomonitorandcontrolthe
proceedingsofthecapitalmarketinthecountry.TheSEBIhasbeengivenadditional
powersandfunctionswithreferencetocivilcourtprocedure1908toregulatethecapital
market.RecentDevelopmentsRBIapprovalcopyisexempted.FIIspermittedtoinvest
upto100%indebtmarketfunds.FIIswhichhavesecuritiesworthofRs100crormore
thanmandatoryrequirementistosettlethetransactiononlythroughdematmode,FIIs/
NRIs/OCB30%oftheequityofthecompanyinaccordancewiththeunionbudget
199798.Itwashikedbytheunionfinanceministerduringthebudget2000.
SEBIinCapitalMarketIssues
17.10 KEYWORDS
Broker:memberofthestockexchange,facilitatestheclienttobuyandsellonbehalfin
thestockmarket
Sub-broker:whoassiststhebrokeranddoesthebuyingandsellingtransactionsforthe
clientthroughthebrokerinthestockexchange
Arbitrage:Buyingthesecurityatlesserpriceatonestockexchangeanddisposingthem
offathigherpriceatanotherstockexchangeduringthesamemoment
Lead manager:Whotakesactiveroleintheprocessofissuemanagement.
WhenSEBIwasestablished?Forwhat?
BrieflyhighlighttheobjectivesoftheSEBI.
ExplaintheroleofSEBIinadministeringtheprimarymarket.
Explaintheimportantenactmentsonthemarketintermediariesofthestockmarket.
ElucidatetherecentdevelopmentswiththehelpofSEBImandate.
WhatarethestepstakenbySEBItosuspendtheregistrationofabroker?
Whythecompaniesareexpectedtohighlightabouttheprospectsandriskfactors
oftheissuewithrelevancetotheproject?
245