Market Players - Slides

Securities and Investment Laws
- Capital Market Players
• Who are the various players involved in

capital market?
• What are their roles in Capital Market?
• What are the laws governing these

players?
1
• Who are the various players involved in capital

market?
– Players involved in Capital Market can be grouped
into following categories:
• Principal Payers - Issuer - Promoter – Holder
of Securities - Investor
• Intermediaries - Merchant Banker; Debenture

Trustee; Depositories; Stock Exchanges &
Stock Broker; Underwriter; Banker to an issue;
Registrar to an issue …etc.
All intermediaries are generally governed by

SEBI (Intermediary) Regulations, 2008, but they
have their specific regulations as well dealing
with their subject matter.
2
Merchant Syndicate Stock
Banker Depositories
Members Exchange
Issuer
Company Flow of securities
Investor
Flow of funds
Banker to Registrar Stock

an Issue to an Issue Broker
3
• Principal Players
– Issuer Company
• Section 23 of the Companies Act, 2013 - Only Public limited
Company – Private Companies cannot raise capital from public
• Regulation 5 of the SEBI ICDR Regulations, 2018 – Bar against issuer

companies
• Regulation 6 of the SEBI (ICDR) Regulations 2018 (earlier

Regulation 26 of the SEBI (ICDR) Regulation 2009) provide for the
eligibility of the issuer company
– Net tangible assets
– Pre-tax operating profit
– Net worth
– Issue size
However on the above basis issuer is not barred from accessing

capital market if they does not meet threshold – Impacts only in
channel for public offer – Fixed Price or Building 4
– Promoter and Promoter Group Members
• Promoter control and manage the affairs of the
issuer entities and pay an instrumental role in
raising funds from public.
• Promoters are controlling shareholders and

securities law imposes restrictions and obligations
on promoters
• Investors decision is based on the strength of the

promoters and their contribution
5
• Regulation 2(oo) [Earlier Regulation 2(za)] ICDR
Regulations, 2018- “promoter” includes:
• (i) who has been named as such in a draft offer

document or offer document or is identified by the
issuer in the annual return referred to in section 92 of
the Companies Act, 2013; or
SEBI (SAST) Regulations, 2011 – Reg. 2(e)“control”
includes the right to appoint majority of the
directors or to control the management or policy • (ii) who has control over the affairs of the issuer,
decisions exercisable by a person or persons acting directly or indirectly whether as a shareholder, director
individually or in concert, directly or indirectly,
including by virtue of their shareholding or
or otherwise;
management rights or shareholders agreements or
voting agreements or in any other manner.
• (iii) in accordance with whose advice, directions or
instructions the board of directors of the issuer is
accustomed to act
6
• Aswin Doshi v. SEBI (2002) SAT
– Even though a person is not in control of the
company he can still be a promoter if he has
promoted the company or is named in the offer
document as promoter. Any person who are
This observation was in 2002. However, lot of
refinement in regulation has taken place and not it may
instrumental in the formulation of a plan or
not required for a person to be in formulation of a plan programme of the company are included as
or programme of the company. – See discussion on
Enam Securitties Pvt. Ltd. v. SEBI, (2012)SAT promoter even though such person may not be
in control of the company or have any
substantial holding in the said company.
– Promoter of the issuer companies can consist of

both individuals as well as body corporate.
7
There is no subjective evaluation for identifying promoter • Promoter Group [Reg. 2(pp) of ICDR, 2018]
group members and issuer company do not have any
discretion in determining the members who will be part of
the group – See SEBI Informal Guidance in Sun
Pharmaceutical Industries Ltd., (January 10, 2010) – Individual
» immediate relatives
» body corporate in which 20% or more of the
equity share capital is held by promoter or
immediate relative
» body corporate in which above body corporate
holds 20% or more
» HUF or firm in which the aggregate share of
the promoter and their relatives is equal to or
more than twenty per cent. of the total capital;
8
• Promoter Group
– Body corporate
» Subsidiary and holding
» Body corporate in which promoter holds 20% or more
» Body corporate which holds 20% of promoter
» Body corporate in which a group of individuals or
SEBI (SAST) Regulations, 2018 – Reg.2(q) – “Persons acting companies or combinations thereof acting in concert,
in concert” - persons who, with a common objective or
purpose of acquisition of shares or voting rights in, or
which hold twenty per cent. or more of the equity share
exercising control over a target company, pursuant to an capital in that body corporate and such group of
agreement or understanding, formal or informal, directly or
indirectly co-operate for acquisition of shares or voting rights in,
individuals or companies or combinations thereof also
or exercise of control over the target company holds twenty percent. or more of the equity share capital
of the issuer and are also acting in concert; and 9
• Regulation 5 of ICDR 2018 [Earlier Regulation 4 of
2009 Regulations]– if promoter is barred to access the
capital market- issuer cannot participate in the capital
market
• Promoter have obligation to disclose material

information (See Reg. 24(4) of ICDR Regulations, 2018)
• Promoter require to contribute 20% of shareholding

locked in for three years (See Reg. 16 for IPO and Reg. 112
r/w 113 for FPO – ICDR, 2018)
• Promoter liable to pay compensation– (See Section 35 of

Companies Act 2013)
10
– Holder of Securities
• Holders of existing securities who offer to sell
their ownership stake to the public through public
offer is commonly known as “offer for sale”.
Section 23 of the Companies Act, 2013 - • Section 28 of the Companies Act, 2013 states that
Explanation.—For the purposes of this Chapter,
"public offer" includes initial public offer or further
“…any document by which the offer for sale to public is
public offer of securities to the public by a company, or made shall, for all purposes, be deemed to be prospectus
an offer for sale of securities to the public by an issued by the company.”
existing shareholder, through issue of a prospectus.
• Regulation 2(bbb) of ICDR Regulation, 2018 – Selling

Shareholder - means any shareholder of the issuer who is
offering for sale the specified securities in a public issue in
accordance with these Regulations;
• See also, Regulation 105 of ICDR Regulation, 2018 for

requirement in Further Public Offer.
11
Investors:
• Investors in the capital market can be any person competent to contract
under Contract Law – however treatment of person resident outside
India is different which we will see in later modules.
• Eligible investors are categorised on the basis of the different investor

classes which invest in IPOs.
– Retail individual Investor - Regulation 2 (1) (vv) of ICDR 2018
[Earlier 2(1) (ze) of ICDR 2009] - applies or bid for the value not
more than 2 lakh – only individuals not companies
– Non- Institutional Investor - Regulation 2 (1) (jj) of ICDR 2018

[Earlier 2(1) (w) of ICDR 2009] – Not a qualified institutional
buyer and applies or bid for more than 2 lakhs
– Qualified Institutional Buyer - Regulation 2(1) (ss) of ICDR 2018

[Earlier Reg. 2(1)(zd) of ICDR] 12
Investors:
– Qualified Institutional Buyer
» a mutual fund, venture capital fund[, Alternative Investment
Fund, foreign portfolio investor other than Category III foreign
portfolio investor and foreign venture capital investor registered
with the Board;
» public financial institution / a scheduled commercial bank;
» a multilateral and bilateral development financial institution;
» a state industrial development corporation;
» an insurance company
» a provident fund with minimum corpus of twenty five crore
rupees;
» a pension fund with minimum corpus of twenty five crore
rupees;
» National Investment Fund
» insurance funds set up and managed by army, navy or air force
of the Union of India;]
» insurance funds set up and managed by the Department of 13
Posts, India;]
Principal Players
Investors:
– ANCHOR investor
» A category off shoot of QIB
» Regulation 2(1)(c) of ICDR, 2018 [same as earlier] - a

qualified institutional buyer who makes an application for
a value of ten crore rupees or more in public issue made
through book building process or up to two crore rupees
in case of public offer by small and medium enterprises.
» SEBI introduced the concept of anchor investor in 2008

wherein QIBs were permitted to anchor an issue and
acquire a sizeable portion of the total offering made in
the IPO before other investors start bidding for the issue.
(See, Schedule XIII Para 10 of ICDR, 2018)
14
Intermediaries:
Lead Manager / Merchant banker -
• The public issue of corporate securities involves basically
three functions, namely (1) origination of the issue (2) risk
bearing and risk averting and (3) marketing of the securities.
• Merchant banker as ‘issue manager’ to the public issue plan,

coordinate and control the entire issue activities and direct
different intermediaries to contribute to the success of the
issue.
15
Intermediaries:
• Reg. 2(cb) SEBI (Merchant Banker) regulations 1992 - Any person
who is engaged in the business of issue management either by
making arrangements regarding selling, buying or subscribing to
securities or acting as manager, consultant, adviser or rendering
corporate advisory service in relation to such issue management.
• The issuer company can appoint more than one merchant banker
for the issue.
16
Intermediaries:
• Regulation 23(1) of ICDR 2018 [Earlier Reg. 5(1) of ICDR, 2009] -
The issuer shall appoint one or more merchant bankers, which are
registered with the Board, as lead manager(s) to the issue.
• Clause (4) of the above provision provides - “The issuer shall, in
consultation with the lead manager(s), appoint other intermediaries
which are registered with the Board after the lead manager(s) have
independently assessed the capability of other intermediaries to
carry out their obligations.”
• Issuer must enter into agreement with Merchant Banker - Schedule

II of the ICDR regulation provide for form agreement
17
Intermediaries:
Lead Manager / Merchant banker - Reg. 2(cb) SEBI (Merchant Banker)
Regulations, 1992
• In Enam Securities v. SEBI – Securities Appellate Tribunal
observed that –
– Merchant Banker is an expert body which is also a point of contact
between the regulator i.e. Board and the corporate entity on whose
behalf it is working. Therefore, a merchant banker is the eyes and ears
of the regulator whose responsibility is to ensure that the corporate
entity utilising its services is acting in accordance with the laid down
norms and in case of violation, bring the violation to the notice of the
regulator for appropriate action.
• NOTE: Students are encouraged to go through SEBI (Merchant

Banker) Regulations, 1992
18
Intermediaries:
Lead Manager / Merchant banker
• Schedule I of the ICDR Regulations provides an indicative
outline for activities to be conducted by merchant Banker :
– Assisting issuer in finalising the capital structure of the issuer
post IPO and advice on relative components and formalities
such a composition debt and equity, type of securities to be
offered etc.;
– Drafting and design of the offer document and publicity
material;
– Selection of various agencies connected with the issue
– Assisting issuer in marketing;
– Post issue activities – finalising allotment, listing of securities
on stock exchange, refunds if any;
– Lead merchant banker also has responsibilities to underwrite
to subscribe securities in case of under –subscription in an
issue 19
Intermediaries:
Underwriter:
• Underwriter means a person who engages in the business of underwriting
of an issue of securities of a body corporate.
• Underwriting is an arrangement whereby certain parties assure the issuing
company to take up shares, debentures or other securities to a specified
extent in case the public subscription does not amount to the expected
levels.
• Minimum subscription: Reg. 45 of ICDR 2018 [Earlier Reg. 14 of ICDR
2009].
• For this purpose, an arrangement (agreement) will be entered into

between the issuing company and the assuring party such as a financial
institution, banks, merchant banker, broker or other person.
• Underwriting. Regulation 40 of ICDR, 2018 [ earlier Reg. 13 – ICDR,

2009]
20
Intermediaries:
Stock Exchanges
• Section 40(1) of the Companies Act, 2013 mandates that every
company making a public offer are required to make an application
to one or more recognised stock exchanges for listing of securities.
• Rule 19(4) of SCRA Rules – an application for listing shall be
necessary in respect of all new issues of any class or kind of
securities of a company to be offered to the public.
• Reg. 7(1)(a) ICDR 2018 – Issuer making an IPO has to ensure that
it has made an application to one or more stock exchanges to seek
an in-principle approval for listing of its specified securities on such
stock exchanges and has chosen one of them as the designated
stock exchange
• Reg. 28 of the SEBI (LODR) Regulations – Issuer have to obtain in

principle approval from Stock exchange for issue 21
Intermediaries:
Stock Exchanges
– Stock Exchange is a place where the stocks, shares and other
securities are bought and sold.
– Section 2(j) of SCRA: “Stock Exchange”
• any body of individuals, whether incorporated or not,
constituted before corporatisation and demutualisation under
sections 4A and 4B, or
• a body corporate incorporated under the Companies Act, 1956
whether under a scheme of corporatisation and
demutualisation or otherwise,
for the purpose of assisting, regulating or controlling the business of

buying, selling or dealing in securities
- A Stock exchanged is also required to be registered with SEBI to

be called as “Recognised Stock Exchange” 22
Intermediaries:
Stock brokers
- Regulation 2(gb) of the SEBI (Stock Brokers and Sub-brokers)

Regulations 1992 defines ‘Stock Broker’ simply as a member of a
recognized Stock Exchange.
- Regulation 2(gc) of the above regulations defines a Sub-Broker as

any person, not being a member of a stock-exchange, who acts on
behalf of a Stock Broker as an agent, or otherwise, for assisting
the investors in buying, selling or dealing in securities through
such Stock Brokers. - NOTE: Sub broker Category is discontinued by SEBI
from August, 2018
- No Stock Broker sell or deal in securities unless he holds a

certificate of registration granted by SEBI in terms of Sec 12 of
the SEBI Act. [Regulation 3 of SEBI (Stock Broker Regulations,
23
1992)
Intermediaries:
Stock brokers
• Eligibility: Under Regulation 5 of the SEBI (Stock Brokers & Sub-
Brokers) Regulations, 1992 SEBI takes the following factors into
consideration before granting certificate to Stock Broker. That
whether the Stock Broker-
- is eligible to be admitted as a member of a stock exchange;
- has the necessary infrastructure like adequate office space, equipment
and manpower to effectively discharge his activities;
- has any past experience in the business of buying, selling or dealing in
securities;
- is subjected to disciplinary proceedings under the rules, regulations and
bye-laws of a stock exchange with respect to his business as a Stock
Broker involving either himself or any of his partners, directors or
employees;
- is a fit and proper person under the SEBI (Criteria for Fit and Proper
24
Person) Regulations, 2004
Intermediaries:
Stock brokers
• In Nikhil Kanshanlal Vakharia v. SEBI (2008) 7 SCC 336 wherein the

father of appellant was registered member of the Bombay Stock
Exchange and by virtue of this registration a partnership firm
consisting of father, appellant, his wife, son and daughter in law was
formed to carry on broker’s business but entire turnover was relatable
to registered member i.e. appellant’s father. Father nominated his son
to continue registration after his death. It was held that registration is
not hereditary and thus not transferable by succession. There is no
provision to this effect in the Act, Rules and Regulations. Appellant
is bound to obtain fresh registration and pay requisite fee as per the
Regulations.
25
Intermediaries:
Registrars to an issue and Share Transfer Agents
- ‘Registrar to an Issue’ means the person appointed by a body
corporate or any person or group of persons to carry on the
following activities on its or his or their behalf i.e.: Reg. 2(f) of
SEBI (Registrar to Issue and Share Transfer Agent), Regulations,
1993
- (i) collecting application for investor in respect of an issue;
- (ii) keeping a proper record of applications and monies
received from investors or paid to the seller of the securities;
- (iii) (a) assisting body corporate or person or group of persons
in determining the basis of allotment of the securities in
consultation with the stock exchange; (b) finalising the list of
person entitled to allotment of securities (c) processing and
dispatchment of allotment letters, refund orders or certificates
and other related documents in respect of the issue; 26
Intermediaries:
Registrars to an issue and Share Transfer Agents
- ‘Share Transfer Agent’ - Reg. 2(g) of SEBI (Registrar to Issue and
Share Transfer Agent), Regulations, 1993
27
Intermediaries:
Banker to an Issue:
- Appointed by Lead Manager
- Regulation 2(aa) of SEBI (Banker to an Issue) Regulations, 1994
defines a “banker to an issue” means a scheduled bank
carrying on all or any of the following activities:
- Acceptance of application and application monies;
- Acceptance of allotment or call monies;
- Refund of application monies;
- Payment of dividend or interest warrants.
- Section 40 of the Companies Act, 2013 the money received

pursuant to the issue in the special public issue accounts are to be
kept in escrow and to be released to bank accounts of issuer
companies only after the issuer has obtained listing permission for
its securities on the recognised exchange. 28
Intermediaries:
Depository
- A Depository is the place where the shares are held in an
electronic form (dematerialised form)
- As per Section 2 of the Depositories Act, 1996, Depository

means a company formed and registered under the Companies
Act and which has been granted a certificate of registration under
Section 12(1A) of the SEBI Act 1992.
- Section 29 of the Companies Act, 2013 - public offer of securities

can only be made of securities which are in the dematerialised
form.
• Reg. 7(1)(b) of ICDR 2018 - Issuer making IPO has to ensure

that it has entered into an agreement with a depository for
dematerialisation of the specified securities already issued and 29
proposed to be issued;
Intermediaries:
Depository
- Regulated by SEBI (Depositories and Participant) Regulations,
1996
- There are two Depositories in India National Securities
Depository Limited (NSDL) and Central Depository Services
Limited (CDSL). Under the provisions of Depositories Act, these
Depositories provide various services to investor and other
participants in the capital market.
- Under the provisions of Depositories Act, these Depositories

provide various services to investors and other participants in the
capital market. - account opening – dematerialization - re-
materialisation - settlement of trades - advanced facilities like
pledging, distribution of non-cash corporate actions, distribution
of securities to allottees in case of public issues. 30
Intermediaries:
Depository Participant
- A depository can provide depository services only through a
Depository Participant.
- A Depository Participant (DP) is described as an agent of the

depository or intermediary between the depository and the
investors.
- Dematerialised certificates of an investor are converted to an

equivalent number of securities in electronic form and credited
into the investor's account with his/her DP.
- DP in order to function in the depository system has to get

registered with SEBI under Section 12(1A) of the SEBI Act 1992
31
Intermediaries:
Debenture Trustee:
– Section 71 (5) Companies Act, 2013 - No company shall issue a
prospectus or make an offer or invitation to the public or to its
members exceeding five hundred for the subscription of its
debentures, unless the company has, before such issue or offer,
appointed one or more debenture trustees and the conditions
governing the appointment of such trustees shall be such as may
be prescribed.
– Reg. 15. (1) – SEBI ILDS 2008 - A trust deed for securing the
issue of debt securities shall be executed by the issuer in favour
of the debenture trustee within three months of the closure of
the issue.
– Reg. 2 (bb) SEBI (Debenture Trustee) Regulations 1993 -
“debenture trustee” means a trustee of a trust deed for securing 32
any issue of debentures of a body corporate;
Intermediaries:
Duties of the Debenture Trustee include:
– Call for periodical reports from the body corporate, i.e., issuer
of debentures.
– Take possession of trust property in accordance with the
provisions of the trust deed.
– Enforce security in the interest of the debenture holders.
– Ensure on a continuous basis that the property charged to the
debenture is available and adequate at all times to discharge
the interest and principal amount payable in respect of the
debentures and that such property is free from any other
encumbrances except those which are specifically agreed with
the debenture trustee.
33
Intermediaries:
Duties of the Debenture Trustee include:
– Exercise due diligence to ensure compliance by the body
corporate with the provisions of the Companies Act, the
listing agreement of the stock exchange or the trust deed.
– To take appropriate measures for protecting the interest of the
debenture holders as soon as any breach of the trust deed or
law comes to his notice.
– To ascertain that the debentures have been converted or
redeemed in accordance with the provisions and conditions
under which they are offered to the debenture holders.
– Inform the Board immediately of any breach of trust deed or
provision of any law.
– Appoint a nominee director on the board of the body
corporate when required
34
Note: students are advised to refer reading material and allied rules and
regulations
35

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Securities and Investment Laws

- Capital Market Players

• Who are the various players involved in

• What are their roles in Capital Market?

• What are the laws governing these

• Who are the various players involved in capital

• Intermediaries - Merchant Banker; Debenture

All intermediaries are generally governed by

Banker to Registrar Stock

• Regulation 5 of the SEBI ICDR Regulations, 2018 – Bar against issuer

• Regulation 6 of the SEBI (ICDR) Regulations 2018 (earlier

However on the above basis issuer is not barred from accessing

• Promoters are controlling shareholders and

• Investors decision is based on the strength of the

• (i) who has been named as such in a draft offer

– Promoter of the issuer companies can consist of

• Promoter have obligation to disclose material

• Promoter require to contribute 20% of shareholding

• Promoter liable to pay compensation– (See Section 35 of

• Regulation 2(bbb) of ICDR Regulation, 2018 – Selling

• See also, Regulation 105 of ICDR Regulation, 2018 for

• Eligible investors are categorised on the basis of the different investor

– Non- Institutional Investor - Regulation 2 (1) (jj) of ICDR 2018

– Qualified Institutional Buyer - Regulation 2(1) (ss) of ICDR 2018

» Regulation 2(1)(c) of ICDR, 2018 [same as earlier] - a

» SEBI introduced the concept of anchor investor in 2008

• Merchant banker as ‘issue manager’ to the public issue plan,

• Issuer must enter into agreement with Merchant Banker - Schedule

• NOTE: Students are encouraged to go through SEBI (Merchant

• For this purpose, an arrangement (agreement) will be entered into

• Underwriting. Regulation 40 of ICDR, 2018 [ earlier Reg. 13 – ICDR,

• Reg. 28 of the SEBI (LODR) Regulations – Issuer have to obtain in

for the purpose of assisting, regulating or controlling the business of

- A Stock exchanged is also required to be registered with SEBI to

- Regulation 2(gb) of the SEBI (Stock Brokers and Sub-brokers)

- Regulation 2(gc) of the above regulations defines a Sub-Broker as

- No Stock Broker sell or deal in securities unless he holds a

• In Nikhil Kanshanlal Vakharia v. SEBI (2008) 7 SCC 336 wherein the

- Section 40 of the Companies Act, 2013 the money received

- As per Section 2 of the Depositories Act, 1996, Depository

- Section 29 of the Companies Act, 2013 - public offer of securities

• Reg. 7(1)(b) of ICDR 2018 - Issuer making IPO has to ensure

- Under the provisions of Depositories Act, these Depositories

- A Depository Participant (DP) is described as an agent of the

- Dematerialised certificates of an investor are converted to an

- DP in order to function in the depository system has to get

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