Investor Protection 1

VIVEK COLLEGE OF COMMERCE
SEBI’S ROLE IN INVESTOR PROTECTION

CHAPTER-I
INTRODUCTION
The Securities and Exchange Board of India Act, 1992 (the SEBI Act) was amended
in the years 1995, 1999 and 2002 to meet the requirements of changing needs of
the securities market and Responding to the development in the securities
market. The Primary function of Securities and Exchange Board of India under the
SEBI Act, 1992 is the protection of the investors’ interest and the healthy
development of Indian financial markets.
To protect the interests of investors through proper education and guidance as
regards their investment in securities. For this, SEBI has made rules and regulation
to be followed by the financial intermediaries such as brokers, etc. SEBI looks
after the complaints received from investors for fair settlement. It also issues
booklets for the guidance and protection of small investors. To regulate and
control the business on stock exchanges and other security markets. For this, SEBI
keeps supervision on brokers. Registration of brokers and sub-brokers is made
compulsory and they are expected to follow certain rules and regulations.
To bolster awareness among investors and ring-fence them from possible frauds,
capital markets regulator SEBI plans to seek additional funds from the
SEBI’s ROLE IN INVESTOR PROTECTION Page 1

government for strengthening its IPEF (Investor Protection and Education Fund)
programmes. SEBI has identified empowerment of investors, strengthening of
enforcement and supervision framework and capacity building as among its core
focus areas for 2014-15.With expenses towards various investor protection and
education initiatives estimated to be nearly 55 crore. Investor Protection and
Education Fund (IPEF), set up by SEBI, had a corpus of 35 crore at the end of
January 2014.
The Securities and Exchange Board of India is working hard to ensure that the
savings of small investors are not compromised following the chit fund scams that
have shaken investors’ confidence across the country, Chairman U. K. Sinha said
here on Wednesday.
Market regulator SEBI may get greater powers to check money-pooling frauds by
various entities across the country, as the government is considering a major
overhaul of regulations governing such schemes. The proposed critical
amendments to the securities laws, would also involve the capital markets
regulator getting direct powers for attachment of properties, search and seizure
of assets and powers to seek information from any entity in relation to its probes
against erring persons and entities.
No doubt, it is very difficult and herculean task for the regulators to prevent the
scams in the markets considering the great difficulty in regulating and monitoring
each and every segment of the financial markets and the same is true for the
Indian regulator also.
But what are the responsibilities of the regulators to set the system right once the
scam has taken place, especially the responsibility of redressing the grievances of
the investors so that their confidence is restored? The redressal of investors’

grievances, after the scam, is the most challenging task before the regulators all
over the world and the Indian regulator is not an exception. SEBI had issued
guidelines for the protection of the investors through the Securities and Exchange
Board of India (Disclosure and Investor Protection) Guidelines, 2000.
II. OBJECTIVES OF SEBI

The SEBI has been entrusted with both the regulatory and developmental
functions. The objectives of SEBI are as follows:
Investor protection, so that there is a steady flow of savings into the Capital
Market.
Ensuring the fair practices by the issuers of securities, namely, companies so that
they can raise resources at least cost.
Promotion of efficient services by brokers, merchant bankers and other
intermediaries so that they become competitive and professional.
Investor protection is one of the most important elements of a thriving securities

market or other financial investment institution. Simply put, investor protection is
the effort to make sure that those who invest their money in regulated financial
products are not defrauded by brokers or other parties. It’s important to note
that unlike government insurance for monetary deposits, investor and customer
protection does not extend to covering losses when the securities or products
decrease in value. Investors have to assume the existence of risk as part of their
opportunity for gains. Investor protection focuses on making sure that investors
are fully informed about their purchases that insider activity does not threaten

the worth of some portfolios for the enrichment of others, and those holdings are
not simply “lost” in instances of brokerage failure.
III.
ROLE\CONTRIBUTION OF SEBI IN INVESTOR PROTECTION
ISSUE OF GUIDELINES: SEBI has issued guidelines to companies (bringing new

issues in the market) Mutual funds, portfolio managers, merchant bankers,
underwriters, Lead managers, etc. These guidelines are for bringing transparency
in their operations and also for avoiding exploitation of investors by one way or
the other. SEBI has introduced a code of advertisement for public issues for
ensuring fair and truthful disclosures.
In order to reduce the cost of issue, the underwriting is made optional on certain
terms. These steps are also for the protection of investors. SEBI keeps watch on
all intermediaries and see that they follow the guidelines in the right spirit. It also
takes panel actions when the guidelines are not followed. These steps give
protection to investors.
PUBLIC INTEREST ADVERTISEMENTS: SEBI issues public interest advertisements

enlighten investors on the basic features of various instruments and minimum
precautions they should take before choosing an investment. The SEBI desires to
create awareness among investors about their rights and about remedies if
problem arise. It has published some booklets for the information and guidance
of investors.

DEALING WITH COMPLAINTS OF INVESTORS: The investors can make complaints

to SEBI if they face problems relating to their investment in industrial securities
and financial assets. SEBI receives thousands of complaints relating to non-receipt
of refund orders, allotment letters, non-receipt of dividend or interest and delays
in the transfer of shares and debentures. SEBI is making efforts to solve such
complaints through appropriate measures. SEBI is keen to solve the complaints of
investors and wants to protect their interests. It is committed to co-operating
with various consumers redressal forum in this regard. Although, a large number
of complaints reaching SEBI are being redressed, still a large number of
complaints remain un redressed.
INVESTOR EDUCATION: SEBI is aware that investor education is important for his
protection. It encourages the formation of investor associations that disseminate
information through newsletters. More than nine such associations are registered
with SEBI. SEBI is bringing out two monthly publications for the investors. These
are: (a), SEBI-Market Review, (b) SEBI News-letter.
These publications are for the education, guidance and protection of investors.
INVESTOR SURVEYS: SEBI has also conducted surveys in respect of investment

and opportunities for the benefit of small investors. The findings of the surveys
are given wide publicity so as to provide proper guidance to investors regarding
their investment decisions.
INTRODUCTION TO STOCK INVESTS: SEBI has introduced stock invest as a new

instrument useful while submitting application for shares. This new instrument

introduced through the co-operation of banks gives protection to investors as

they get interest on the application money till the allotment of shares.
DISCLOSURES BY COMPANIES: SEBI has introduced norms for disclosure of half

yearly unaudited results of companies. It has also revised the format of
prospectus to provide more information to investors. It
also insists that every share application. Form is accompanied by an abridged
prospectus. The provisions relating to disclosures are for the information and
protection of small/average investors.
CODE REGARDING TAKEOVERS: SEBI has now issued code regarding takeovers of
companies, mergers and amalgamations. It has introduced regulations governing
substantial acquisition of shares and takeovers and lays down the conditions
under which disclosures and mandatory public offers have to be made to the
shareholders. Here, the purpose is to protect the interests of investors even when
they are not directly party to such takeovers.
. INVESTOR PROTECTION MEASURES BY SEBI
Section 11(2) of the SEBI Act contains measures available with SEBI to implement
the legislated desire of investor protection. The measures available with SEBI
include the following:
 regulating the business in Stock Exchanges (SEs) and any other securities
markets

 registering and regulating the working of intermediaries like stock brokers,

sub-brokers, share transfer agents, bankers to an issue, trustees of trust
deeds, registrars to an issue, merchant bankers, underwriters, portfolio
managers, investment advisers etc. associated with securities markets
 registering and regulating the working of the depositories, participants,
custodians of securities, foreign institutional investors, credit rating
agencies and other intermediaries
 registering and regulating the working of venture capital funds and
collective investment schemes, including mutual funds
 promoting and regulating self-regulatory organizations
 prohibiting fraudulent and unfair trade practices relating to securities
markets
 prohibiting insider trading in securities
 regulating substantial acquisition of shares and takeover of companies
 promoting investors’ education and training of intermediaries of securities
markets
Carry out inspection/ audits of the SEs / intermediaries etc.
call for information from any bank / any authority / corporation / agencies in
respect of any transaction in securities which is under investigation or inquiry by
SEBI
performing such functions and exercising such powers under the Securities
Contracts (Regulation) Act, 1956 (SCRA)
levying fees or other charges
conducting research
Performing such other functions as may be prescribed.
INVESTOR AWARENESS CAMPAIGN

The major thrust has been on educating and informing the small investors which
is clearly evident from the motto that 'An informed investor is a safe investor'.
Keeping complete faith on the above all endeavors have been made in this
direction including announcing the year 2003 as the 'Jaagte Raho' year and and
awareness and organized more than 1000 investor conference, exhibitions, mela,
seminars, Union Budget meetings and public meetings for small investors all over
India. More than 5 Lacs investors took part in various programmes. Till date, more
than 2188 workshops have been conducted in around 500 cities/towns across the
country.
 ADVERTISEMENT- SEBI has prepared simple “dos and don’ts” for investors
relating to various aspects of the securities market. Till date, over 700
advertisements relating to various aspects of Securities Market have
appeared in 48 different newspapers/ magazines, covering approximately
111 cities and 9 regional languages, apart from English and Hindi.
 EDUCATIVE MATERIALS-SEBI has prepared a standardized reading
material and presentation material for the workshops
 ALL INDIA RADIO- With regard to educating investors through the medium
of radio, SEBI Officials regularly participate in programmes aired by All
India Radio.
 WEBSITE DEDICATED TO INVESTOR EDUCATION:
http://investor.sebi.gov.in)
 CAUTIONARY MESSAGE ON TELEVISION- With a view to use the electronic
media to reach out to a larger number of investors, a short cautionary

message, in the form of a 40 seconds filmlet, has been prepared and the
same is being aired on television.
 PROTECTION OF RETAIL INVESTOR: Retail investors are not in a position
to identify and /or appreciate the risk factors associated with certain
scrip’s or schemes. With the result they are not able to make informed
investment decisions. SEBI has strongly requested small investors to take
adequate precaution before investing in any forthcoming IPO issues. It is
observed that 8 out of 37 companies have dubious promoters and
merchant bankers. Investors also cautioned not to invest in certain B2 & Z
category listed companies who are declaring excellent quarterly results as
its authenticity is doubtful.
CRITICAL APPRAISAL OF INVESTOR PROTECTION MEASURES BY SEBI
SEBI being a premiere institution for dealing with the problems relating to
securities has advanced a long way towards protecting the investors from the
hazards of the predators existing in the market. On the positive front, many banks
sponsored mutual fund had launched assured return schemes and lured the
investor's huge contribution. However at the time of maturity could not match
the assured return. Sponsored bank also tried to raise their hands eg. Canara
Bank, Indian bank, State Bank of India etc. SEBI gave directive to sponsor bank to
honour the commitment made by the mutual funds. Shortfall of more than Rs.,
2000 crores was met by sponsor banks for benefit of small investors.
By beginning of the new millennium in 2000, SEBI has strengthened and
established itself as an all powerful regulatory body for the capital market, all
intermediaries in it, SROs, stock Exchanges, listed companies, Venture Funds,
Mutual Funds etc. These measures include permission for e-broking, share trading

via net with orders to be routed through the websites of brokers, acceptance of
Kumarmangalan Birla Report on Corporate Governance and of K.B.
Chandeashekhar Panel Report on Venture Funds. The SEBI has given directives to
the listed companies and to the top 150 companies in particular to observe the
code of corporate governance by March end 2001. The contrary scenario was that
only the big fishes could escape the net and the small ones were still striving to
uphold their existence.
It is also pointed that SEBI watchdog is a dog without teeth. It only wears
dentures to fight against manipulators and finally those people get away with
murder. A recent case study is the Essar Steel delisting story. SEBI watched
silently when the promoters came to the market, didn’t share profits and left the
investors high and dry and took the cool delisting option. SEBI just said - it’s as per
GOI laws. Do investors need a SEBI to tell that? Aggrieved investors comment that
Investor Protection is a big joke and money making exercise. SEBI came with
finger printing and collected close to 100 crores .The scheme was scrapped; then
why money was not returned by SEBI? Had it been by other market players SEBI
would have demanded them to pay. There is one yard stick for the Ruler and the
other for the Ruled.
Another area of concern for SEBI is the practice of clients signing PoAs while
opening accounts with brokers. Account opening requires clients to sign several
documents, one of which is the PoA. In a hurry to get over the task of signing,
they often fail to read each and every line of the huge bunch of papers. In that
case, PoAs are always open to misuse. For instance, a broker may include in the
PoA a clause for debit of shares from the client’s DEMAT account without delivery
instruction slip, and an unsuspecting client may sign it.

Chapter-II
SEBI REFORMS ON STOCK EXCHANGES

The reforms are briefly summarized below:
1. Compulsory audit and inspection of stock exchanges and their member brokers
and their accounts.
2. Transparency in the prices and brokerage charged by brokers by showing them
in their contract notes.
3. Board of Directors of stock exchanges has to be reconstituted so as to include
non-brokers, public representative, and Govt. representatives to the extent of
50% of the total number of members.
4. Regulation of Portfolio management Schemes (PMS1): SEBI has already
tightened PMS norms by making it mandatory for portfolio managers to keep
separate accounts of clients rather than keeping their investments in pool
account. Earlier, PMS providers used to open 'pool PMS' as a common account
under one head, put money received from a set of clients in it and then
invest the same on behalf of the whole group. This move is aimed at ensuring that
portfolio managers handled clients’ money in a transparent manner.
5. Capital adequacy norms have been laid down for members of various stock
exchanges separately and depending on their turnover of trade and other factors.
6. Applications Supported by Blocked Amount (ASBA) in case of IPO: SEBI has
introduced a supplementary process of applying in public issues, viz. ASBA
process. ASBA is an application
for subscribing to an issue, containing an authorisation to block the application
money in a bank account with a bank which offers the facility of applying through

the ASBA process. The bank shall then block the application money in the bank
account specified in the ASBA, on the basis of an authorization given by the
account holder. The application money shall remain blocked in the bank account
till finalisation of the basis of allotment in the issue or till withdrawal / failure
of the issue or till withdrawal / rejection of the application.
7. Contents of Offer Document: In addition to the disclosures specified in
Schedule II of the Companies Act, 1956, the prospectus shall also contain all
material information which shall be true and adequate so as to enable the
investors to make informed decision on the investments in the issue.
8. IPO grading/credit rating2: Grading of all IPO of equity shares or other
securities convertible into equity shares is mandatory. Grading shall be obtained
from at least one credit rating agency registered with SEBI and shall be disclosed
in the Prospectus or Red Herring Prospectus.
9. Promoters' contribution and the lock in requirements: SEBI has also plugged
loop holes in the computation of promoters' contribution and the lock in
requirements thereof. Henceforth, securities pledged by the promoters with
banks and financial institutions as collaterals, will not be eligible in the
computation of promoters' contribution, thus upholding the spirit of the
legislation. Further, the promoters' locked in securities can now be pledged with
banks or However, investors don’t find this move to be sufficient. That is why
many investor representatives have approached SEBI, saying that only separate
accounts won’t help and that they should be able to see transactions in
their accounts. Lots of complaints have also come from NRI investors. In view of
these complaints, SEBI is now contemplating linking investor accounts in PMS to

depositories, so that PMS investors can see transactions taking place in their
accounts run by portfolio managers.
IPO grading is a relative assessment of the fundamentals of the company
comprising primarily the management quality, business prospects, corporate
governance, financial performance and compliance track record. However, it
is not a comment on the pricing of the equity. Thus a company with the highest
grade could turn out to be a poor investment if the issue is overpriced. The
investor could in fact, become all the more vulnerable if he were to blindly
go by grades and hence the need to caution him on the constraints of the grading
exercise. financial institutions only if the purpose of the loan is to finance one or
more objects specified in the issue thereby preventing misapplication of pledging
for any other purposes.
10. Prohibition of Insider3 Trading: SEBI (Prohibition of Insider Trading)
Regulations, 1992
[Insider Trading Regulations] deals with prohibition on dealing, communicating or
counseling on matters relating to insider trading based on unpublished Price
sensitive information4 etc.
The following shall be deemed to be price sensitive information
 periodical financial results of the company;
 intended declaration of dividends (both interim and final);
 issue of securities or buy-back of securities;
 any major expansion plans or execution of new projects;
 amalgamation, mergers or takeovers;
 disposal of the whole or substantial part of the undertaking; and
 significant changes in policies, plans or operations of the company

11. SEBI Code of Ethics for Directors: The securities and Exchange Board of India
(SEBI) has formulated a code of ethics for directors and functionaries of stock
exchanges aimed at establishing professional and ethical standards for creating a
fair and transparent market place.
The silent features of this code of ethics includes Fair ness and transparency in
dealing with the matters relating to the exchange and investors
• Prohibition on dealing in securities in proprietary accounts by elected off ice
bearers such
as President, Vice President, Treasurer etc.
• Disclosure of dealing in securities by functionaries and directors of exchange,
• Avoidance of conflict of interest in decision-making
• Compliance with the regulatory laws exercising due diligence in the
performance of duties.
"Insider" means any person who, is/was connected/deemed to have been
connected with the company, and who is reasonably expected to have access to
unpublished price sensitive information in respect of securities of the company, or
has received or has had access to such unpublished price sensitive information.
"Price sensitive information" has been defined to mean any information which is
directly or indirectly related to a company and which if published is likely to
materially affect the price of securities of company.
12. Investors Grievances Redressal Cell: SEBI also takes up grievances against the
various intermediaries registered with it and related issues.
GIVEN BELOW ARE TYPES OF GRIEVANCES FOR WHICH INVESTORS COULD

APPROACH SEBI

Type-I : Refund Order/ Allotment Advise

Type-II: Non-receipt of dividend.
Type-III: Non-receipt of share certificates after transfer.
Type-IV: Debentures.
Type-V: Non-receipt of letter of offer for rights.
Type VI: Collective Investment Schemes
Type VII: Mutual Funds/ Venture Capital Funds/ Foreign Venture
Capital Investors/ Foreign Institutional Investors/ Portfolio Managers, Custodians.
Type VIII: Brokers/ Securities Lending Intermediaries/ Merchant
Bankers/ Registrars and Transfer Agents/ Debenture Trustees/ Bankers to Issue/
Underwriters/
Credit Rating Agencies/ Depository Participants
Type IX: Securities Exchanges/ Clearing and Settlement Organizations/
Depositories
Type X: Derivative Trading
Type XI: Corporate Governance/ Corporate Restructuring/ Substantial Acquisition
and
Takeovers/ Buyback / Delisting / Compliance with Listing Conditions.
13. ACTION AGAINST DIRECTORS OF VANISHING COMPANIES
Emergence of Vanishing companies has shaken investors’ faith to the core. Matter
was campaigned and representations made to ensure that such cases do not
occur in future, resulting in SEBI forming a committee examining and exploring
various courses of action such as including authenticated photographs, passport

numbers, PAN number etc. of the promoters / directors at the time of

incorporation and in the prospectus along with monitoring the end use of
funds.
14. REDUCTION IN D-MAT CHARGES

One of the major grievances in this Information Technology environment affecting
the investors was dematerlisation charges being very high as compared to
keeping securities in physical form. This was limiting many investors in getting
their securities converted to D-mat form. Matter was taken up and resulted in
reduction of D-mat charges benefiting lakhs of investors where 90% of the
securities in India are traded through NSDL.
15. TACKLING FALSE PROMISE OF ASSURED RETURNS BY BANKS SPONSORED

MUTUAL FUNDS
Many banks sponsored mutual fund had launched assured return schemes and
lured the investor's huge contribution. However at the time of maturity could not
match the assured return. Sponsored bank also tried to raise their hands eg.
Canara Bank, Indbank, State Bank etc. Campaigned and fought heavily the matter
with the SEBI / mutual fund / finance ministry and insisted that all the assured
returns should be paid to the investors. Due to the intervention SEBI gave
directive to sponsor bank to honour the commitment made by the mutual funds.
Shortfall of more than Rs. 2000 crores was met by sponsor banks for benefit of
small investors.

16. COMPENSATION FROM INVESTOR PROTECTION FUND

Investor protection fund of stock exchange provided for Rs.5 lacs / 10 lacs
compensation per client in case of default by the broker. The same was
interpreted by stock exchange as applicable per sub broker. Thereby all the clients
of a sub broker were getting benefit of Rs.10 / Rs.5 lacs in aggregate only. Took up
the issue with the stock exchanges and insisted upon applicability of the limit vis-
à-vis client of a sub broker and not per sub broker. In case of Century consultants
defaults at least 100 clients took benefit of this and avoided losses of more than
10 crores.
CRITICAL APPRAISAL OF INVESTOR PROTECTION MEASURES BY SEBI

SEBI being a premiere institution for dealing with the problems relating to
securities has advanced a long way towards protecting the investors from the
hazards of the predators existing in the market. On the positive front, many banks
sponsored mutual fund had launched assured return schemes and lured the
investor's huge contribution. However at the time of maturity could not match
the assured return. Sponsored bank also tried to raise their hands eg. Canara
Bank, Indbank, State Bank of India etc. SEBI gave directive to sponsor bank to
honour the commitment made by the mutual funds. Shortfall of more than
Rs.,2000 crores was met by sponsor banks for benefit of small investors.
By beginning of the new millennium in 2000, SEBI has strengthened and
established itself as an all powerful regulatory body for the capital market, all
intermediaries in it, SROs, stock Exchanges, listed companies, Venture Funds,
Mutual Funds etc. These measures include permission for e-broking, share trading

via net with orders to be routed through the websites of brokers, acceptance of
Kumarmangalan Birla Report on Corporate Governance and of K.B.
Chandeashekhar Panel Report on Venture Funds. The SEBI has given directives to
the listed companies and to the top 150 companies in particular to observe the
code of corporate governance by March end 2001. The contrary scenario was that
only the big fishes could escape the net and the small ones were still striving to
uphold their existence. It is also pointed that SEBI watchdog is a dog without
teeth. It only wears dentures to fight against manipulators and finally those
people get away with murder. A recent case study is the Essar Steel delisting
story. SEBI watched silently when the promoters came to the market, didn’t
share profits and left the investors high and dry and took the cool delisting option.
SEBI just said - its as per GOI laws. Do investors need a SEBI to tell that? Aggrieved
investors comment that Investor Protection is a big joke and money making
exercise. SEBI came with finger printing and collected close to 100 crores .The
scheme was scrapped; then why money was not returned by SEBI Had it been by
other market players SEBI would have demanded them to pay .There is one yard
stick for the Ruler and the other for the Ruled. Another area of concern for SEBI is
the practice of clients signing PoAs while opening accounts with brokers. Account
opening requires clients to sign several documents, one of which is the
PoA. In a hurry to get over the task of signing, they often fail to read each and
every line of the huge bunch of papers. In that case, PoAs are always open to
misuse. For instance, a broker may include in the PoA a clause for debit of shares
from the client’s DEMAT account without delivery instruction slip, and an
unsuspecting client may sign it

Chapter-III
PROTECTION OF INVESTORS IN PRIMARY MARKET (IPOs) THROUGH ISSUE OF

CAPITAL AND DISCLOSURE REQUIREMENTS (ICDR)
SEBI has wide powers to regulate the securities market and to protect the interest
of investors in primary market as well as secondary market. The board has powers
to regulate the functioning of stock broker, sub brokers or other intermediaries,
so that investor’s money cannot be lost by malpractices or in other way. The
investment through primary market by investors deemed to the first step in this
most technical securities market. Therefore, it is primary duty of the SEBI to
protect their rights and interest at the first stage. SEBI has issued soon after it was
brought into existence in 1992 as a statutory body, a number of circulars and
guidelines on disclosure and investor protection and has been amending and
improving them from time to time to meet and deal with contraventions of the
Act and distortions and malpractices in the market “To Protect the Interest of
Investors and Shareholders”. These guidelines have been revised and
consolidated in early 2000 as a compendium on SEBI (Disclosure & Investor
Protection) Guidelines, 2000. SEBI has been emphasizing on the importance of
disclosure standards for corporate in disseminating relevant and correct
information to the investors. With this view SEBI has appointed a committee
under the chairmanship of Shri C B Bhave to suggest measures for improving the
continuing disclosure standards by corporate and timely dissemination of price
sensitive information to the public. The committee submitted its report t the SEBI.
Previously Issue of Securities has been dealt with by SEBI (DIP) Guidelines
2000. Presently Issue of Securities is regulated by SEBI (Issue of Capital and
Disclosure Requirements) Regulations, 2009. SEBI (DIP) Guidelines have

been replaced by these Regulations of 2009. These regulations are called the
Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2009. These regulations shall apply to the
following:
(a) a public issue;
(b) a rights issue, where the aggregate value of specified securities
offered is fifty Lakh rupees or more;
(c) a preferential issue;
(d) an issue of bonus shares by a listed issuer;
(e) a qualified institutions placement by a listed issuer;
(f) an issue of Indian Depository Receipts.
Generally, people invested through IPOs, so in this chapter we will discuss the
applicability of ICDR Regulation on IPOs and how they help in protection of
interest of investors. People are investing through IPOs without having much
knowledge about process of IPO, its pricing, offer documents, understanding
the offer documents, ASBA process, how to file application etc. They
applied for securities on the advice of near friends or some other persons. I
extremely hope that this chapter will give an understanding to investor and
shareholder who want to invest their valuable money through IPO and how
ICDR regulations [Securities and Exchange Board of India (Issue of Capital
and Disclosure Requirements) Regulations, 2009] are helpful for them. This
chapter covers the process of IPO, application process of ASBA, how much
information available in market to an investor (Disclosures requirement by
ICDR regulations), Grading of IPO & how it is helpful to investor, Who are
intermediaries, filing of complaints etc.

The primary market provides the channel for sale of new securities. The issuer
of securities sells the securities in the primary market to raise funds for
investment and/ or to discharge. In other words, the market wherein resources
are mobilised by companies through issue of new securities is called the
primary market. These resources are required for new projects as well as for
existing projects with a view to expansion, modernisation, diversification and
upgradation.
The issue of securities by companies can take place in any of the following
methods:-
a. Initial public offer (IPO) (securities issued for the first time to the public by
the company);
b. Further issue of capital;
c. Rights issue to the existing shareholder (on their renunciation, the shares can
be sold by the company to others also);
d. Offer of securities under reservation/ firm allotment basis to;
(i) foreign partners and collaborators,
(ii) mutual funds
(iii) merchant bankers
(iv) banks and institutions
(v) non resident Indians and overseas corporate bodies
(vi) Employees.
e. Offer to public
f. Bonus Issue.
The primary market is of great significance to the economy of a country. It is
through the primary market that funds flow for productive purposes from

investors to entrepreneurs. The latter use the funds for creating new products
and rendering services to customers in India and abroad. The strength of the
economy of a country is gauged by the activities of the Stock exchanges.
The primary market creates and offers the merchandise for the Secondary
Market.
Red herring prospectus
A red herring prospectus (RHP) is a preliminary registration document that is
filed with SEBI in the case of bookbuilding issue which does not have details
of either price or number of shares being offered or the amount of issue. This
means that in case price is not disclosed, the number of shares and the upper
and lower price bands are disclosed. On the other hand, an issuer can state the
issue size and the number of shares are determined later. In the case of bookbuilt
issues, it is a process of price discovery as the price cannot be determined
until the bidding process is completed. Hence, such details are not shown in
the Red Herring prospectus filed with ROC in terms of the provisions of the
Companies Act. Only on completion of the bidding process, the details of the
final price are included in the offer document. The offer document filed
thereafter with ROC is called a prospectus.
Sahara India Real Estate Corporation Ltd. Vs. Union of India (UOI)157 through
The Secy. Ministry of Corporate Brief facts - The dispute arises with the Petitioner
Company from the stage when Sahara Prime City Limited, a listed Company filed
its draft Red Herring Prospectus with SEBI for its IPO on 29.9.2009. It appears that
after receipt of Red Herring Prospectus from Sahara Prime City Limited, SEBI

wrote a letter dated 12.5.2010 to the Petitioner Company SIRECL, regarding draft
Red Herring Prospectus filed by Sahara Prime City Limited, with averments that
SEBI received complaints alleging that SIRECL had filed prospectus with the
Registrar of Companies and had allegedly issued Optional Fully Convertible
Debentures, violating statutory requirements. The SEBI sought certain details
regarding the OFCDs issued by SIRECL. Before the said letter, the SEBI sent
letter dated 4.2.2010, to M/s. Enam Securities Pvt. Ltd., calling for certain
information regarding Bonds issuance by the Petitioner Company to SIRECL
and Sahara Housing Investment Corporation Limited (SHICL).
An interim measure, the operation of the impugned order contained the writ
petition is stayed with liberty to SEBI to proceed with the inquiry but no final
decision shall be taken. However, the Registrar of Companies/Central
Government is directed to proceed with the controversy at their end,
investigate in the interest to shareholders and submit a status report by the next
date of listing. The Petitioners shall provide all necessary required information
to the Registrar of Companies in terms of notice dated 21.9.2010 and
14.10.2010 expeditiously say within three weeks. In case Registrar arrives to
the conclusion that it is a case of public company then, shall proceed in
accordance to law and also inform the SEBI.

CHAPTER-IV
PROTECTION OF INVESTORS IN SECONDARY MARKET THROUGH SECURITIES

CONTRACTS REGULATION ACT
India currently has two major stock exchanges--the National Stock Exchange,
established in 1994, and the Bombay Stock Exchange (BSE), the oldest stock
exchange in Asia, established in 1875. Until 1992 the BSE had a monopoly,
marked with inefficiencies, high costs of intermediation, and manipulative
practices, so external market users often found themselves disadvantaged. The
economic reforms of the early nineties created four new institutions: the
Securities and Exchanges Board of India (SEBI), the National Stock
Exchange, the National Securities Clearing Corporation, and the National
Securities Depository. The National Stock Exchange (NSE) is a limited
liability company owned by public sector financial institutions and now
accounts for about two-thirds of the stock trading in India, as well as virtually
all of its derivatives trading. The National Securities Clearing Corporation is
the legal counter-party to net obligations of each brokerage firm, and thereby
eliminates counter-party risk and the possibility of payments crises. It follows
a rigorous ‘risk containment’ framework involving collateral and intra–day
monitoring. The NSCC, duly assisted by the National Securities Depository,
has an excellent record of reliable settlement schedules since its inception in
the mid-1990s. The Securities and Exchanges Board of India has introduced a
rigorous regulatory regime to ensure fairness, transparency and good practice.
For example, for greater transparency, the SEBI has mandated disclosure of all
transactions where the total quantity of shares is more than 0.5% of the equity

of the company. Brokers must disclose to the Stock Exchange, immediately

after trade execution, the name of the client and other trade details, and the
Exchange must then disseminate this information to the general public on the
same day. The new environment of improved transparency, fairness, and
efficient regulation led BSE to also become a transparent electronic limit order
book market in 1996, with an efficient trading system similar to the NSE.
Equity and equity derivatives trading in India has skyrocketed to record levels
over the last ten years. Currently, about 5000 companies are listed and traded on
NSE and/or BSE. While the dollar value of trading on the Indian stock exchanges is
much lower than the dollar value of trading in Europe or the United States, it is
important to note that the number of equity trades on BSE/NSE is about ten times
greater than that of Euronext or the London Stock Exchange, and of the same
order of magnitude as thatof NASDAQ and the New York Stock Exchange.
Similarly, the number of derivatives trades on NSE is several times greater than
that of Euronext or London, and is comparable to US derivatives exchanges.
The number of trades is an important indicator of the extent of investor
interest and participation in equities and equity trading, and provides
important incentives for improving corporate governance practices in India.
Listing agreement is very important document for investor protection.
Listing of Securities on Indian Stock Exchanges is essentially governed by
the provisions in the Companies Act, 1956, the Securities Contracts
Regulation Act 1956, the Securities Contracts (Regulation) Rules
1957,Rules, bye laws, Regulations concerned stock exchanges, listing
agreement entered into by the issuer and stock exchange and circulars
/guidelines issued by the Central Government and SEBI. The Securities

Contract (Regulation) Act, 1956 contains main provisions regarding

recognition of stock exchanges and listing of securities. Therefore, it is
essential to discuss the provisions of SCRA in details.
In previous chapter we have discussed the issue of IPO (primary market). In
this chapter, we will discuss the regulation in secondary market. Before going
to discuss the regulatory provision, we have take a look about secondary
market’ meaning. The Secondary market is the market for previously issued
securities or financial instruments. The secondary market enables those who
hold securities to adjust their holdings in response to changes in their
assessment of risk and return. They also sell in securities for cash to meet their
liquidity needs. The price signals, which subsume all information about the
issuer and his business including, associated risk, generated in the secondary
market, help the primary market in allocation of funds.
The trading in secondary market is through recognised stock exchanges for

example Bombay stock Exchange, National stock exchange etc. Besides the
SEBI, the stock exchanges’ working are regulated and recognised by the
Securities Contracts (Regulation) Act, 1956.

Procedure for imposing penalties
SEBI’s Power to adjudicate - For the purpose of adjudging under

sections 23A, 23B, 23C, 23D, 23E, 23F, 23G and 23H, the Securities and
Exchange Board of India shall appoint any officer not below the rank of a
Division Chief of the Securities and Exchange Board of India to be an
Adjudicating officer for holding an inquiry in the prescribed manner after
Giving any person concerned a reasonable opportunity of being heard for the
Purpose of imposing any penalty.
While holding an inquiry, the adjudicating officer shall have power to
summon and enforce the attendance of any person acquainted with the facts
and circumstances of the case to give evidence or to produce any document,
which in the opinion of the adjudicating officer, may be useful for or relevant
to the subject-matter of the inquiry and if, on such inquiry, he is satisfied that
the person has failed to comply with the provisions of any of the sections
specified in sub-section (1), he may impose such penalty as he thinks fit in
accordance with the provisions of any of those sections. All sums realized by way
of penalties under this Act shall be credited to the
Consolidated Fund of India207.
Offences- if any person contravenes or attempts to contravene or abets the

contravention of the provisions of this Act or of any rules or regulations or
bye-laws made there under, for which no punishment is provided elsewhere in
this Act, he shall be punishable with imprisonment for a term which may
extend to ten years, or with fine, which may extend to twenty-five crore rupees
or with both. If any person fails to pay the penalty imposed by the
adjudicating officer or fails to comply with any of his directions or orders, he
shall be punishable with imprisonment for a term which shall not be less than
one month but which may extend to ten years, or with fine, which may extend
to twenty-five crore rupees, or with both.
Composition of certain offences- Notwithstanding anything contained

in the Code of Criminal Procedure, 1973 (2 of 1974), any offence punishable
under this Act, not being an offence punishable with imprisonment only, or
with imprisonment and also with fine, may either before or after the institution
of any proceeding, be compounded by a Securities Appellate Tribunal or a
court before which such proceedings are pending
Offences by companies- Where an offence has been committed by a

company, every person who, at the time when the offence was committed, was
in charge of, and was responsible to, the company for the conduct of the
business of the company, as well as the company, shall be deemed to be guilty
of the offence, and shall be liable to be proceeded against and punished
accordingly.

Chapter-V
Investor’s Rights Relating To Dividends, Income from Collective
Investment Scheme and Mutual Funds-
Title to dividends - It shall be lawful for the holder of any security
whose name appears on the books of the company issuing the said security to
receive and retain any dividend declared by the company in respect thereof for
any year, notwithstanding that the said security has already been transferred by
him for consideration, unless the transferee who claims the dividend from the
transferor has lodged the security and all other documents relating to the
transfer which may be required by the company with the company for being
registered in his name within fifteen days of the date on which the dividend
became due.
Right to receive income from mutual fund - It shall be lawful for the
holder of any securities, being units or other instruments issued by any mutual
fund, whose name appears on the books of the mutual fund issuing the said
security to receive and retain any income in respect of units or other
instruments issued by the mutual fund declared by the mutual fund in respect
thereof for any year, notwithstanding that the said security, being units or
other instruments issued by the mutual fund, has already been transferred by
him for consideration, unless the transferee who claims the income in respect
of units or other instruments issued by the mutual fund from the transferor has
lodged the security and all other documents relating to the transfer which may

Chapter-VI
PROTECTION OF INVESTOR’S INTEREST THROUGH
REGULATION OF STOCK BROKERS
The intermediaries and persons associated with securities market shall buy, sell or
deal in securities after obtaining a certificate of registration from SEBI, as required
by Section 12 of SEBI Act. Trading in securities market requires some link from
intermediaries to client and stock exchange. Therefore, it is necessary to watch on
the working of these intermediaries. The Stock brokers are very important link
between stock exchanges and investor. Hence, in the exercise of powers
conferred by section 30 of the Securities and Exchange Board of India Act, 1992,
the board has made regulation to regulate the working of Stock Broker and Sub
brokers. In this chapter, we will discuss the regulations of stock broker and
sub broker imposed by the SEBI.
Registration of Stock Broker: Investor’s interest protection
Process of registration - For working with stock exchanges, stock broker’s

registration is mandatory. A stock broker applies in the prescribed format212 for
grant of a certificate through the stock exchange or stock exchanges, as the case
may be, of which he is admitted as a member213. The stock exchange forwards
the application form to SEBI as early as possible as but not later than thirty
days from the date of its receipt.
SEBI takes into account for considering the grant of a certificate all matters
relating to buying, selling, or dealing in securities and in particular the
following, namely, whether the stock broker

(a) is eligible to be admitted as a member of a stock exchange,

(b) has the necessary infrastructure like adequate office space, equipment
and man power to effectively discharge his activities,
(c) has any past experience in the business of buying, selling or dealing in
securities,
(d) is subjected to disciplinary proceedings under the rules, regulations and
bye-laws of a stock exchange with respect to his business as a stockbroker
involving either himself or any of his partners, directors or
employees, and
(e) is a fit and proper person.
General Obligation and responsibilities of stock brokers
Every Stock Broker shall keep and maintain the following books of account,
records and documents, namely:—
a) Register of transactions (Sauda Book);
b) Clients ledger;
c) General ledger;
d) Journals;
e) Cash book;
f) Bank pass book;
g) Documents register containing, inter alia, particulars of securities
received and delivered in physical form and the statement of
account and other records relating to receipt and delivery of
securities provided by the depository participants in respect of
dematerialized securities;]
h) Member’s contract books showing details of all contracts entered

into by him with other members of the same exchange or

counterfoils or duplicates of memos of confirmation issued to such
other members;
i) Counterfoils or duplicates of contract notes issued to clients;
j) Written consent of clients in respect of contracts entered into as
principals;
k) Margin deposit book;
l) Registers of accounts of sub-brokers;
m) An agreement with a sub-broker specifying the scope of authority,
and responsibilities of the Stock Broker and such Sub-broker;
n) An agreement with the sub-broker and with the client of the sub broker
to establish privacy of contract between the stock broker and
the client of the sub-broker.
Duty to the investor

1. Execution of Orders: A stock-broker, in his dealings with the clients
and the general investing public, shall faithfully execute the orders for
buying and selling of securities at the best available market price and
not refuse to deal with a small investor merely on the ground of the
volume of business involved. A stock-broker shall promptly inform his
client about the execution or non-execution of an order, and make
prompt payment in respect of securities sold and arrange for prompt
delivery of securities purchased by clients.
2. Issue of Contract Note: A stock-broker shall issue without delay to his
client or client of the sub-broker, as the case may be a contract note for

all transactions in the form specified by the stock exchange.

3. Breach of Trust: A stock-broker shall not disclose or discuss with any
other person or make improper use of the details of personal
investments and other information of a confidential nature of the client
which he comes to know in his business relationship.
4. Business and Commission:
(a) A stock-broker shall not encourage sales or purchases of securities
with the sole object of generating brokerage or commission.
(b) A stock-broker shall not furnish false or misleading quotations or
give any other false or misleading advice or information to the
clients with a view of inducing him to do business in particular
securities and enabling himself to earn brokerage or commission
thereby.
5. Business of Defaulting Clients: A stock- broker shall not deal or transact
business knowingly, directly or indirectly or execute an order for a
client who has failed to carry out his commitments in relation to
securities with another stock-broker.
6. Fairness to Clients: A stock-broker, when dealing with a client, shall
disclose whether he is acting as a principal or as an agent and shall
ensure at the same time that no conflict of interest arises between him
and the client. In the event of a conflict of interest, he shall inform the
client accordingly and shall not seek to gain a direct or indirect personal
advantage from the situation and shall not consider clients' interest
inferior to his own.
7. Investment Advice: A stock- broker shall not make a recommendation to

any client who might be expected to rely thereon to acquire, dispose of,
retain any securities unless he has reasonable grounds for believing that
the recommendation is suitable for such a client upon the basis of the
facts, if disclosed by such a client as to his own security holdings,
financial situation and objectives of such investment. The stock-broker
should seek such information from clients, wherever he feels it is
appropriate to do so.
PROCEDURE FOR ACTION IN CASE OF DEFAULT
Liability for contravention of the Act, rules or the regulations

A stock broker or a sub-broker who contravenes any of the provisions of the
Act, rules or regulations framed there under shall be liable for any one or more
of the following actions—
i. Monetary penalty under Chapter VIA of the Act.
ii. Penalties as specified under Chapter V of the Securities and
Exchange Board of India (Intermediaries) Regulations, 2008
including suspension or cancellation of certificate of registration as
a stock broker or a sub-broker,
iii. Prosecution under section 24 of the Act.
Liability for monetary penalty .

A stock broker or a sub-broker shall be liable for monetary penalty in respect
of the following violations, namely—

(i) Failure to file any return or report with the Board.

(ii) Failure to furnish any information, books or other documents
within 15 days of issue of notice by the Board.
(iii) Failure to maintain books of account or records as per the Act, rules or
regulations framed there under.
(iv) Failure to redress the grievances of investors within 30 days of receipts of
notice from the Board.
(v) Failure to issue contract notes in the form and manner specified by the Stock
Exchange of which such broker is a member.
(vi) Failure to deliver any security or make payment of the amount due to the
investor within 48 hours of the settlement of trade unless the client has agreed in
writing otherwise.
(vii) Charging of brokerage which is in excess of brokerage specified in the
regulations or the bye-laws of the stock exchange.
(viii) Dealing in securities of a body corporate listed on any stock exchange on his
own behalf or on behalf of any other person on the basis of any unpublished price
sensitive information.
(ix) Procuring or communicating any unpublished price sensitive information
except as required in the ordinary course of business or under any law.
(x) Counseling any person to deal in securities of any body corporate on the basis
of unpublished price sensitive information.
(xi) Indulging in fraudulent and unfair trade practices relating to securities.
(xii) Execution of trade without entering into agreement with the

Liability for prosecution

A stock broker or a sub-broker shall be liable for prosecution under section 24
of the Act for any of the following violations, namely:—
(i) Dealing in securities without obtaining certificate of registration from the
Board as a stock broker or a sub-broker.
(ii)Dealing in securities or providing trading floor or assisting in trading outside the
recognized stock exchange in violation of provisions of the Securities Contracts
(Regulation) Act, 1956 or rules made or notifications issued there under.
(iii) Market manipulation of securities or index.
(iv) Indulging in insider trading in violation of Securities and Exchange Board of
India (Prohibition of Insider Trading) Regulations, 1992.
(v) Violating the Securities and Exchange Board of India
(Prohibition of Fraudulent and Unfair Trade Practices relating to Securities
Market) Regulations, 2003.
(vi) Failure without reasonable cause—
a. to produce to the investigating authority or any person authorized by him in
this behalf, any books, registers, records or other documents which are in his
custody or power.
b. to appear before the investigating authority personally or to answer any
question which is put to him by the investigating authority.
c. to sign the notes of any examination taken down by the investigating authority.
(vii) Failure to pay penalty imposed by the adjudicating officer or failure to comply
with any of his directions or orders.

Chapter-VII
PROTECTION OF INVESTOR’S INTEREST FROM INSIDER

TRADING
In its publication released during the year 1991 and entitled “Securities and
Exchange Board Of India- objectives, Functions and Activities” the SEBI
stated: “Insider trading is one of the ills which plague our system today, and
there is no legal provision to curb it. In absence of a regulatory framework,
insider trading fuels illegitimate speculation in the Stock exchanges and places
the average investor at a great disadvantage. SEBI is working towards a
separate legislation for dealing with insider trading.” In December 1991, the SEBI
issued a Consultative Paper containing Draft Insider Trading Regulations in which
it suggested stringent measures to curb the practice of insider trading and
deterrent punishment to those who would indulge in it.
Insider trading is the use for gain of secret information about publicly traded
investments by those who are privy to that information and who should not
be taking advantage of their knowledge of that information. The common
investors are denied the same opportunities as the insider dealers to make
profits because they do not have access to the information which the insiders
have. It is easier to identify the beneficiaries of insider dealing than the
persons who lose thereby. The extent of losses occurring is impossible to
calculate. Insider dealing also leads to loss of confidence of investors in
stock market as they feel that the market is rigged and only the few who have
inside information benefit and make profits from their investments.
SEBI had framed the Insider Trading Regulations with the approval of the

Central Government under the Securities and Exchange Board of India Act,
1992 which were notified in the Gazette of India, Extraordinary, Part III,
Section 4 on 19th November 1992.
With a view to strengthening the existing Insider Trading Regulations and to
create a framework for prevention of insider trading, a committee was
constituted by SEBI under the Chairmanship of Shri Kumar Mangalam Birla.
The recommendations of the Committee were considered by the SEBI Board
and the amended regulations notified in the Gazette on 20th February 2002.
Securities and Exchange Board of India (Prohibition of Insider Trading)
Regulations, 1992 (hereinafter referred to as `the Regulations') seek to
govern the conduct of the insiders, connected persons and persons who are
deemed to be connected persons on matters relating to Insider Trading.
Ìnsider trading' is the buying or selling or dealing in the securities of a listed
company by a director, officer, an employee of the firm or by any other
person such as internal auditor, statutory auditor, agent, advisor, analyst,
consultant, etc., who has knowledge of material ìnside' information not
available to the general public. The dealing in securities by an ìnsider' is
illegal when it is predicated upon the utilization of 'insider' information to
profit at the expense of other investors who do not have access to the same
information. The prices of most securities reflect the available public
information about those companies. Hence, any investor who acts on nonpublic
information does so at the cost of public confidence in the securities
market and in the process corrupts the `level playing field'.

SEBI’s suggestion for Internal Code of Conduct- The Cohen Committee on

company law reform in England had observed: “Even if legislation is not entirely
successful in suppressing improper transactions, a high standard of conduct
should be maintained , and it should be generally realised that a speculative profit
made as a result of special knowledge not available to general body of
shareholders in a company is improperly made.” In tune with the Cohen
Committee’s stress on ‘high standard of conduct’ in regard to insider dealing, the
SEBI, by its Press Release issued on 19 August, 1992, insisted on framing ‘internal
code of conduct’ to check the practice of insider trading. In this context , SEBI has
recently written to the banks, financial institutions , stock exchanges, mutual
funds, merchant bankers and other intermediaries and professional bodies such
as the Institute the Chartered Accountants of India, Institute of Companies of
India, Institute of Const and Works Accountants of India and Chambers of
Commerce about the desirability of evolving an internal code of conduct and
setting up appropriate internal procedures and checks and balances in these
institutions and among the members of the professional bodies, to ensure that
their employees or members , as the case may be, who may from time to time be
privy to unpublished price sensitive information regarding companies listed on
the stock exchanges in the normal course of business, do not use such
information for the purpose of trading in the securities of such companies or
companies belonging to the same group for the purpose of personal profit or
avoidance of loss. SEBI’I has suggested that companies may be advised to work
out or prescribe internal norms under advised to them.

1. Identification of types or information which could be

considered to be price sensitive information in relation to
the business of the company and its subsidiaries and
associates companies, e.g.:-
a) Earnings forecast or material changes therein;
b) Proposal for mergers and acquisitions;
c) Significant changes in investment plans
d) Acquisition or loss of a significant contract
e) Significant disputes with major suppliers, consumers or
sub contractors;
f) Significant decision effecting the product pricing,
profitability, etc.
2. Identification of employees – officers or sections of
employees/ officers of the company who are likely to have
access to such information and considered as insiders.
3. Nominations of an officer or officers who would give
clarifications to the employees of the company on their
ability to deal with its shares without attracting the charges
of insider trading.
4. The controls on handling the price sensitive information
identified above and the publication of such information,
where ever possible, so as to eliminate the non public
character of such information.
5. The norms to be followed by all officers and employees of
the company in dealing with the company’s own shares,

such as prescribing time period (before and after the declaration of periodical
financial results) in which the company employees and officers may not deal in
the company’s share, the time period the company employees and officers must
wait before dealing in the company’s shares after any price sensitive information
has been made public, other Directors on the Board of Company, etc.
6. Declaration of purchase and sale of the company shares to be obtained from
employees and officers including transactions done by the relatives of employees
and officers.
7. The procedure to be laid down for handling information which may affect the
price of the securities of other companies in situations such as mergers,
takeovers, etc. The above items have been given only as illustrative and do not
form any exhaustive list of items that made to be covered.
SEBI’s Anti – Insider Trading Regulations:- By the promulgations of the Securities

and Exchange Board of India (Insider Trading) Regulations, 1992
(“the Regulations” for short), SEBI has attempted to give a concrete shape, by a
legislative measure, to one of the specific functions which section 11 of the
Securities and Exchange Board of India Act, 1992 (“the SEBI Act” for short)
requires SEBI to discharge. The object of this measure is to prevent and curb the
menace of insider trading in securities. To remedy the malady of insider trading,
the Regulations provides for various measures. In particulars, Regulations render
insider trading a criminal offence in certain circumstances, punishable under the
SEBI Act .

Instances of misuse of price sensitive information – Some US, UK and

China cases on Insider Trading- In Securities and Exchange Commission Vs Texas
gulf Sulphur Co241 a test hole drilled by Texas Gulf Sulphur Company in Ontario
indicated a high copper and zinc concentrationSeveral of company’s officials and
employees who knew this discovery and their friends began to buy large
quantities of the company’s stock and, thereupon the company’s management
issued a press note stating that the rumours of the discovery were exaggerated
and stated that they were possibly misleading. Subsequently the news about the
success of the hoe drilling became widespread and the price of the stock soured
to mere that double their price. The court of appeal held the directors and
insiders were liable to refund to the company the profits made by them and they
were also liable in damages to the parties who had suffered loss. In Diomond V
Oreamuno242 a shareholder f Management Assistance Inc (MAI) filed a suit for an
account of profits made by the directors and offices in breach of their fiduciary
duty. He charged them of having used inside information acquired by them by
virtue of their position in the company. It was alleged that the directors by taking
advantage of their position and access to inside information made improper gains
and the claim of the plaintiff against them was upheld. In Walton Vs V Morgan
Stanley243 the Kennecott Copper Corporation was considering buying Olinkraft, a
paper manufacturer. The investment banking house of Morgan Stanley began
negotiations with Olinkraft on Kennecott’s behalf, but Kennecott changed its mind
about the deal. Nevertheless, the close up view Morgan Satanley had dained of
Olinkraft stock to capitalize on this possibility, John Mansville did indeed make a
bid for Olinkraft, and Morgan Stanley reaped a handsome profit. A company
called Joshep Stocks & Sons

(Holdings) Limited was the object of a takeover bid. Mrs Titheridge was secretary
the chairman of the merchant bank which was advising he bidding company. She
passed information to her husband who dealt in securities of Joshep Stocks in
December 1980. Both Mr. and Mrs. Titheridge pleaded guilty to insider dealing
and were convicted. They were each ordered to pay a 4,000 pound fine244. In US
three guys were prosecuted for insider trading. They have pocketing $34 million
for 17 years. One was the student of law at New York University and he had
access to confidential information about planned corporate mergers,
thereafter he called his friends and made plan to deal in those securities
The recent publication of news under the headline
“China Insider Trading Thrives with Selective Data Leaks”,
on Saturday February 12, Shi read on an internet chat forum that January inflation
would be lower than forecast 4.9%. Two friends had heard the same, says Shi,
who set a strategy to sell shares into a rally he anticipated as the figure spread.
Therefore, China must curb the leaks because they give an unfair
advantage to investors who get the information first
Price Sensitive Information
the “price sensitive information” means any information which relates directly or
indirectly to a company and which if published is likely to materially affect the
price of securities of company. The following shall be deemed to be price sensitive
information . periodical financial results of the company;
ii. intended declaration of dividends (both interim and final);
iii. issue of securities or buy-back of securities;
iv. any major expansion plans or execution of new projects.

v. amalgamation, mergers or takeovers;

vi. disposal of the whole or substantial part of the undertaking;
vii. and significant changes in policies, plans or operations of the
company; The information should, however, affect the price of securities
materially, i.e. substantially, considerably, greatly, significantly, to a great extent.
The effect of the information on the price should be ‘material’. Material
fact means any important piece of information that a member of the
company must disclose to the member to enable him to decide whether or
not to vote on the resolution and which way to vote if he wishes to do so.
In the case of Rakesh Aggarwal Vs SEBI260, the court held that the
information must be such that it is not generally known or published by
the company, and it is likely to materially affect the price of the
company’s securities. The word “deemed” is sometimes used in a statute
to put beyond doubt a particular construction that might otherwise be
uncertain or to give a comprehensive description that includes what is
obvious , what is uncertain and what is, in the ordinary sense,
Offences, penalties and punishment
Violation of provisions relating to insider trading. According to Regulation 4 any

insider who deals in securities in contravention of the provisions of regulation 3 or
3A shall be guilty of insider trading
Penalty for insider trading and adjudication- Section 15 G of the SEBI Act
prescribes penalty for insider trading, but it covers only insiders. It does not cover
persons who have dealt in securities by using unpublished price sensitive
information obtained by them from insider as contemplated in Regulation 3(ii).

According to section 15G, if any insider indulges in any of the acts mentioned
therein, he shall be liable to a penalty of Rs. 25 crore or three times the amount of
profits made by the insider out of the act of insider trading, whichever higher.
Offences of Insider trading and punishment – Any contravention of the SEBI
Regulations will be an offence under the SEBI Act and the person committing an
offence will be, on conviction, punishable under section 24 of that Act which
provides that whoever contravenes or attempts to contravene or abets the
contravention of the provisions of the Act or any rules or any regulations made
thereunder, shall be punishable with imprisonment for a term which may extend
to ten years, or with fine which may extend to Rs. 25 Crore or with both.

Chapter-VIII
PROTECTION OF INVESTOR’S INTEREST FROM FRAUDULENT
AND UNFAIR TRADE PRACTICES
Before the enactment of SEBI Act, 1992, the securities markets were full of
fraudulent trade practices. The investors and shareholder lost their faith in
this market and moved to withdraw their investment, by searching other
avenues. In the beginning years of SEBI, to stop fraudulent trade activities
from securities market was major task. As the nature of securities market
was very technical. Due to the ignorance of legal provisions, investors were
not able to know the trend of market. Some miscreants have obtained the
advantage of ignorance and technicalities and make monies by making false
statements, by spreading rumours in markets, concealment of material facts,
connivance with other agents etc. It was necessary to stop those practices in
securities market to take back the confidence of investor and to protect the
rights of investors.
Therefore, in exercise of the powers conferred by section 30 of the Securities
and Exchange Board of India Act, 1992, the Board makes regulation, namely
the Securities and Exchange Board of India (Prohibition of Fraudulent and
unfair Trade Practices relating to Securities Market) Regulations, 2003 . These
SEBI Regulations prohibiting the Fraudulent and Unfair Trade Practices relating to
Securities Market have been divided various heads namely Definitions,
Prohibition of certain dealings in securities, suspension or cancellation of
Registration etc. In this chapter, we will study how these regulations curb the
menace of fraudulent and unfair trade practices. Before going to those provisions,
we have to study the definitions defined under these regulation.
Prohibition of manipulative, fraudulent and unfair trade practices.

(1) No person shall indulge in a fraudulent or an unfair trade practice in securities.
(2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade
practice if it involves fraud and may include all or any of the
following, namely :—
(a) indulging in an act which creates false or misleading appearance of trading in
the securities market;
(b) dealing in a security not intended to effect transfer of beneficial ownership but
intended to operate only as a device to inflate, depress or cause fluctuations in
the price of such security for wrongful gain or avoidance of loss;
(c) advancing or agreeing to advance any money to any person thereby inducing
any other person to offer to buy any security in any issue only with the intention
of securing the minimum subscription to such issue;
(d) paying, offering or agreeing to pay or offer, directly or indirectly, to any person
any money or money’s worth for inducing such person for dealing in any security
with the object of inflating, depressing, maintaining or causing fluctuation in the
price of such security;
(e) any act or omission amounting to manipulation of the price of a security;
(f) publishing or causing to publish or reporting or causing to report by
a person dealing in securities any information which is not true or
which he does not believe to be true prior to or in the course of dealing in
securities;
(g) entering into a transaction in securities without intention of performing it or
without intention of change of ownership of such security;

(h) selling, dealing or pledging of stolen or counterfeit security whether in physical

or dematerialized form;
(i) an intermediary promising a certain price in respect of buying or selling of a
security to a client and waiting till a discrepancy arises in the price of such security
and retaining the difference in prices as profit for himself;
(j) an intermediary providing his clients with such information relating to a
security as cannot be verified by the clients before their dealing in such security;
(k) an advertisement that is misleading or that contains information in a distorted
manner and which may influence the decision of the investors;
(l) an intermediary reporting trading transactions to his clients entered
Into on their behalf in an inflated manner in order to increase his commission and
brokerage;
(m) an intermediary not disclosing to his client transactions entered into on his
behalf including taking an option position;

Chapter-IX
PROTECTION OF INVESTOR THROUGH CORPORATE GOVERNANCE
The Securities and Exchanges Board of India has introduced a rigorous
regulatory regime to ensure fairness, transparency and good practice. For
example, for greater transparency, the SEBI has mandated disclosure of all
transactions where the total quantity of shares is more than 0.5% of the equity
of the company. Brokers must disclose to the Stock Exchange, immediately
after trade execution, the name of the client and other trade details, and the
Exchange must then disseminate this information to the general public on the
same day. The new environment of improved transparency, fairness, and
efficient regulation led BSE to also become a transparent electronic limit order
book market in 1996, with an efficient trading system similar to the NSE.
Equity and equity derivatives trading in India has skyrocketed to record levels
over the last ten years.
Liberalization of the Indian economy began in 1991. Since then, we have
witnessed wide-ranging changes in both laws and regulations, and a major
positive transformation of the corporate sector and the corporate governance
landscape. Perhaps the single most important development in the field of
corporate governance and investor protection in India has been the
establishment of the Securities and Exchange Board of India in 1992 and its
gradual and growing empowerment since then. Established primarily to
regulate and monitor stock trading, it has played a crucial role in establishing
the basic minimum ground rules of corporate conduct in the country. Concerns
about corporate governance in India were, however, largely triggered by a
spate of crises in the early 1990’s—particularly the Harshad Mehta stock

market scam of 1992--followed by incidents of companies allotting preferential

shares to their promoters at deeply discounted prices, as well as
those of companies simply disappearing with investors’ money Committee for
corporate governance: It was stated in press release of
SEBI 2000 that
“Corporate Governance is an important instrument of investor protection, and
it is therefore a priority on SEBI’s agenda. The development of capital market
is dependent on good corporate governance without which investors do not
repose the confidence in the companies. It is imperative for the companies to
maximize the shareholders value and wealth. Hence, to further improve the
level of corporate governance, need was felt for a comprehensive approach at
this stage of development of capital market, to accelerate the adoption of
globally acceptable practices of corporate governance. This would ensure that
the Indian investors are in no way less informed and protected as compared to
their counterparts in the best development capital market.
In the above context, the SEBI appointed a Committee on Corporate
Governance under the Chairmanship of Shri Kumar Mangalam Birla, a
member, SEBI Board. The members of the committee consisted of
academicians, management experts, and representatives of investor
association, Chamber of Commerce, stock exchanges and SEBI. The report of
the committee was considered and adopted by SEBI Board in its meeting held
on January 25, 2000. The recommendations are to be implemented through the
amendment to listing agreement of the stock exchanges. Internationally listing
agreement has been used in most markets to implement corporate governance
in the listed companies. Accordingly, today SEBI has issued directions to

stock exchanges to amend the listing agreement in this regard .”
Clauses 49 of Listing Agreement Regarding Corporate Governance

The company agrees to comply with the following provisions:
I. Board of Directors
(A) Composition of Board
(i) The Board of directors of the company shall have an optimum combination of
executive and non-executive directors with not less than fifty percent of the
board of directors comprising of non-executive directors.
(ii) Where the Chairman of the Board is a non-executive director, at least one-
third of the Board should comprise of independent directors and in case he is an
executive director, at least half of the Board should comprise of independent
directors. Provided that where the nonexecutive Chairman is a promoter of the
company or is related to any promoter or person occupying management
positions at the Board level or at one level below the Board, at least one-half of
the Board of the company shall consist of independent directors.
(iii) the expression ‘independent director’ shall mean a non-executive
director of the company who:
a. apart from receiving director’s remuneration, does not have any material
pecuniary relationships or transactions with the company, its promoters, its
directors, its senior management or its holding company, its subsidiaries and
associates which may affect independence of the director;
b. is not related to promoters or persons occupying management positions at the
board level or at one level below the board;
c. has not been an executive of the company in the immediately
preceding three financial years;
d. is not a partner or an executive or was not partner or an executive during the

preceding three years, of any of the following:
i) the statutory audit firm or the internal audit firm that is associated with the
company, and
ii) the legal firm(s) and consulting firm(s) that have a material association with the
company.
e. is not a material supplier, service provider or customer or a lessor or lessee of
the company, which may affect independence of the director.
f. is not a substantial shareholder of the company i.e. owning two percent or
more of the block of voting shares.
g. Is not less than 21 years of age.
(iv) Nominee directors appointed by an institution, which has invested in or
lent to the company shall be deemed to be independent directors.
(B) Non executive directors’ compensation and disclosures
All fees/compensation, if any paid to non-executive directors, including
independent directors, shall be fixed by the Board of Directors and shall require
previous approval of shareholders in general meeting. The shareholders’
resolution shall specify the limits for the maximum number of stock options that
can be granted to nonexecutive directors, including independent directors, in any
financial year and in aggregate.
The requirement of obtaining prior approval of shareholders in general meeting
shall not apply to payment of sitting fees to non-executive directors, if made
within the limits prescribed under the Companies Act, 1956 for payment of sitting
fees without approval of the Central Government.

Limit for commission to Non executive Directors- The limit on remuneration

payable to directors other than managing director and
whole time directors within the overall limit of 11% is as follows:
(i) 1% of the net profit if the company
Code of Conduct
(i) The Board shall lay down a code of conduct for all Board
members and senior management of the company. The code of
conduct shall be posted on the website of the company.
(ii) All Board members and senior management personnel shall
affirm compliance with the code on an annual basis. The Annual
Report of the company shall contain a declaration to this effect
signed by the CEO.
Report on Corporate Governance

(i) There shall be a separate section on Corporate Governance in
the Annual Reports of company, with a detailed compliance
report on Corporate Governance. Non-compliance of any
mandatory requirement of this clause with reasons thereof and
the extent to which the non-mandatory requirements have been
adopted should be specifically highlighted. The suggested list
of items to be included in this report is given in Annexure- I C
and list of non-mandatory requirements is given in Annexure –I D.

Chapter-X
INVESTOR EDUCATION & PROTECTION FUND AND INFORMAL

GUIDNACE SHCEME
Education is the tool in the hands of investors; by using it they can secure their
money in securities market. “An educated investor is protected investor”. If
the investors know the provisions of securities market, its rules and regulation,
then the SEBI’s half task will be completed. Therefore, to achieve its object to
protect the rights of investors and shareholders, SEBI has to make investor
educated. However, to complete this task, it requires the fund. That’s why
investors education and protection fund is established to educate the investor,
how to protect their rights in securities market.
The SEBI in exercise of powers conferred by section 30 of the Act, 1992 and
to protect the interest of investor and shareholder makes the regulation for
investor protection and education fund. This regulation contains the fund,
which is used solely for the purpose to educate the investor, to conduct the
awareness programme and other incidental matters. Therefore, these
regulations are called the Securities and Exchange Board of India (Investor
Protection and Education Fund) Regulations, 2009.

The amount to be credited in the fund –

The following amounts shall be credited to the Fund:-
(a) contribution as may be made by the Board to the Fund;
(b) grants and donations given to the Fund by the Central Government, State
Regulation 3 of the SEBI (Investor protection and Education Fund) Regulation,
2009 Regulation 4 ibid
(c) Government or any other entity approved by the Board for this purpose;
(d) proceeds in accordance with the sub-clause (ii) of clause(e) of sub-regulation
(12) and the sub- regulation (13)of regulation 28 of the Securities and Exchange
Board of India (Substantial Acquisition of Shares and Takeovers) Regulations,
1997;
(e) security deposits, if any, held by stock exchanges in respect of
public issues and rights issues, in the event of de-recognition of
such stock exchanges;
(f) amounts in the Investor Protection Fund and Investor Services
Fund of a stock exchange, in the event of de-recognition of such
stock exchange;
(g) interest or other income received out of any investments made
from the Fund;
(h) such other amount as the Board may specify in the interest of
investors.
Utilisation of Fund - The Fund shall be utilised for the purpose of
protection of investors and promotion of investor education and awareness.
The Fund may also be used for the following purposes, namely:-
(a) educational activities including seminars, training, research and

publications, aimed at investors;

(b) awareness programmes including through media - print, electronic, aimed at
investors;
(c) funding investor education and awareness activities of Investors’ Associations
recognized by the Board;
(d) aiding investors’ associations recognized by the Board to undertake legal
proceedings in the interest of investors in securities that are listed or proposed to
be listed. Legal Proceeding means any proceedings before a court or tribunal
where one thousand or more investors are affected or likely to be affected by:-
(i) mis-statement, misrepresentation(ii) non-receipt of securities allotted or refund of
application monyes paid by them;
(iii) non-payment of dividend;
(iv) default in redemption of securities or in payment of interest in terms of the
offer document;
(v) fraudulent and unfair trade practices or market manipulation;
(vi) such other market misconduct which in the opinion of the Board may be
deemed appropriate; but does not include any proceeding where the Board is a
party or where the Board has initiated any enforcement action.

SEBI’s INFORMAL GUIDANCE SCHEME

Circular :MRD/POLICY/IG/NR/41005/2005, dated 20-5-2005, issued by
Market Regulation Department, SEBI.
In most of the regulations, rules & circulars, SEBI has imposed various
responsibilities upon intermediaries, company, mutual fund trustees, acquirer
etc. It is very difficult for them also to understand these rules and regulations
with the interpretation of SEBI objective. SEBI is using all its powers and
means only to protect the interest of investors and shareholders and guide
them at every stage. But various persons other than investors i.e. companies,
intermediaries etc. want to take help from the Board, so that they can take
preventive measures to protect the rights of investors and shareholders.
Therefore, to accomplish its object “TO DEVELOP THE SECURITIES
MARKET” SEBI issued informal guidance scheme to help these entities or
persons in informal way.
The Securities and Exchange Board of India issued, under section 11(1) of
SEBI Act, 1992, the Securities and Exchange Board of India (Informal
Guidance) Scheme, 2003 for better regulation and orderly development of the
securities market, so that investor’s interest and rights can be protected at pre
stage. Through this scheme any intermediary or other concern may get their
concept clear from SEBI. It will help to take guard on interest of investors and
shareholders. This scheme helps the seeker in informal way.

Chapter-XI
Investor Assistance and Education

Redressal of Investors Grievances
SEBI has in place a comprehensive mechanism to facilitate redressal of grievances
against intermediaries registered by it and against companies whose securities
are listed or proposed to be listed on stock Exchanges. The office of Investor
Assistance and Education (OIAE) acts as the single window interface, interacting
with investors seeking assistance of SEBL. Investors can submit their grievances in
any form i.e. plain paper, card, via email etc, at the Head Office at Mumbai of at
any of the Regional Office at Delhi, Chennai, Kolkata and Ahmedabad. Besides,
grievances can also be filed in standardized forms that are available at all its
offices. Investors also have the option to electronically file their grievances
through the SEBI website (www.sebi.gov.in). All complaints received by SEBI
(excluding those which refers/ pertain to investigation) are individually
acknowledged with unique number, which facilitates tracking.
Dedicated investor helpline telephone numbers ate available for investors
seeking general guidance pertaining to securities markets and to provide
assistance in filling grievances. Dedicated personnel manning the helpline also
guide the investors in filing up the grievance submission forms as well as in
determining the appropriate authority if their grievance is outside the purview
of SEBI. The grievances lodged by investors are taken up with the respective
listed companies and are continuously monitored. The company is required to
respond in prescribed standard format in the form of Action Taken Report

(ATR). Upon the receipt of ATR the status of grievances is updated. Where
the response of the company is insufficient/inadequate, follow up action is
initiated. Grievances pertaining to brokers and depository participants
are taken up with concerned stock exchange and depository for redressal and
monitored through periodic report obtained from the stock exchanges and
depositories. Grievances pertaining to other intermediaries are taken up with
them directly for redressal.
During 2009-10, SEBI receive 32,335 grievances from investors and resolved
42,742 grievances as compared to 57,580 grievances receive and 75,989
grievances resolved in 2008-09. As on March 31, 2010 there were 1,60,593
grievances pending resolution as compared to 1,71,000 unresolved grievances
as on March 31, 2009. These include 1,22,713 complaints where appropriate
regulatory action have been initiated.
SEBI is launching its financial literacy drive targeting the
following groups
 School Children
 College students
 Middle Income Group
 Executives
 Housewives/ Housing Societies
 Retirement Planning
 Self Help Group (s)

Chapter-XII
SCORES (SEBI Complaints Redress System)
SEBI is in the process of upgrading the investor grievance redressal mechanism.

The upgraded mechanism would be a web-based. Centralized grievances redress
system for SEBI. The software for the new system is being developed by the
National Informatics Centre (NIC), Ministry of Information Technology, New Delhi.
The salient features of the new system are:
a) Centralised complaints tracking system for entire SEBI.
b) Grievance pertaining to any of the Regional Offices of SEBI can be lodged from
anywhere.
c) All complaints and Action Taken Report to be in electronic mode
d) Action taken and the current status of the complaint can be accessible to the
investor, online.
e) Facility for online updation of Action Taken Reports.
Investor Grievances against Suspended Companies

It was observed that several companies who fail to redress investor grievance and
compiling with listing agreement with stock exchange and letters addressed to
them are returned measures despite trading in their shares have been suspended
by the stock exchanges. It was also observed that some of these companies were
active in their business and filing their return with Registrar of Companies to avoid
declaring them as vanishing companies and subsequent regulatory actions.

As recommended by a sub-committee constituted in this regard,

following course of action are taken:
BSE and NSE display on their respective websites the names of

the companies suspended as on date and the name of directors
with their DIN/PAN, compliance officers and promoters of
such companies on the date of suspension. SEBI would insist on a declaration
from the directors of the companies for public issues that they were not a
director of any suspended companies. To begin with BSE and NSE shall identify
the suspended companies which are active by filing return with Register of
Companies and issue notices to them for non-compliance and issue notices to
them for non-compliance of investor grievances and non-compliance of listing
agreement. BSE and NSE shall submit a report to SEBI in respect of each
such suspended compliance Officers which fails to redress the compliance Officers
fails to redress the complaints for appropriate regulatory actions by SEBI.
Investor Assistance
SEBI provides assistance/guidance to investors by replying to their queries
received through the following modes:
a) Telephone (Investor Helping 91-22-26449188/26449199/40599188/40459199
at Head office and through board lines at the Regional Offices.
b) E-mail (investorcomplaints@sebi.gov.in)
c) Investor visiting SEVI Officers
d) Letters
e) Grievance from in the SEBI Website.
Assistance so rendered to investor was augmented by providing

relies to the commonly sought queries by investors on the

webside as FAQs. Further, SEBI is in the process of launching
a toll free helpline to answer the queries of investor.
India at 7th spot on investor protection; ahead of US, Japan
In a big thumbs-up to reforms in laws governing companies and capital market

regulations here, India has been ranked 7th for minority investor protection --
ahead of developed countries like the US, Japan, France and Germany.
New Zealand has topped the list and is followed by Hong Kong, Singapore, UK and
Malaysia, as per a sub-ranking released by the World Bank today as part of its
annual Doing Business Report.
While Ireland has been ranked at sixth place in terms of 'protecting minority
investors', India, Canada and Albania have jointly been placed at seventh position.
India's ranking in terms of investor protection stood much lower at 21st position
last year. World Bank said that the rank has improved on account of various
reforms launched in India over the past year.
Major countries ranked below India include France (17th), Korea and Italy (21st),
the US (25th), Japan (35th), Germany (51st), Australia (71st) and Switzerland
(78th).
India is ranked best among the BRICS nations, out of which South Africa is 17th,
Brazil 35th and Russia at 100. China is much lower at 132nd place.
Protection of minority investors is one of the ten sub- rankings based on which
the World Bank has prepared the overall 'ease of doing business' ranks for 189
countries, where India has been ranked 142nd.
"India strengthened minority investor protections by requiring greater disclosure
of conflicts of interest by board members, increasing the remedies available in
case of prejudicial related-party transactions and introducing additional
safeguards for shareholders of privately held companies," the Bank said.

CONCLUSION
The Capital Market Regulator, SEBI has carefully developed good stability
mechanisms to keep the Market functioning with stability and sustainability.
There are difficulties, but the Capital Market Regulator devises careful working
strategies to overcome them. Such strategies come in the form of rules,
regulations and innovative market reforms. SEBI has been granted powers by the
Law Courts and the Government of India which helps its machinery to function as
expected. SEBI is very much engaged in the education of investors and the careful
training of all Capital Market participants. This is the source of stability and
sustainability in the Indian Capital Market. The situation of the Indian Capital
Market is evidence of the fact that investors’ interest is well protected. They
should have confidence in the market and invest without fear of abnormal or
excess losses. The evidence in the corporate management environment indicates
that the Securities and Exchange Board of India (SEBI) can make Rules and
Regulations on good Corporate Governance for companies, but it is very difficult
to force them to implement such Rules and Regulations. Some directors
deliberately abuse Corporate Governance Rules and Regulations, while others
inadvertently Act on the spur of the moment and take unnecessary risks,
motivated by high interest benefits. It is only discovered that there exist an abuse
of Corporate Governance in a any corporate body, when risk taking goes wrong.
This means that corporate bodies abuse Corporate Governance Rules and

Regulations more often, because of the advantage of very high benefits. This is
typically a practice that prevails in the banking environment. It is a bad practice,
but very difficult to stamp out.
Foreign Institutional Investors’ (FII) investments in the India Capital Market are
small compared to their global portfolios and the markets could be adversely
affected by shifting FII preferences based on inter-country risk-return
comparisons. Consequently, a concerted effort is needed to widen the base of the
equity market. However, this is being done by SEBI. The fact that its reforms and
modernizations are moving the Indian Capital Market into a stable and
sustainable situation is of great importance. Such a move will go a long way to
attract more Foreign Institutional Investors. In addition, globalization, technology
and good innovation have rapidly changed the Indian Capital Market, making it an
attractive investment destination to world investors. Findings revealed that the
Indian Capital Market was functioning very smoothly, than ever before. The scams
are greatly reduced and the Indian Capital Market was functioning at its optimum
point. Its stability has come as a result of the important reforms brought in by
SEBI. They have proved to be remarkable and keep the market sustainable now
and in the future. This was exemplary, meaning that the Indian Capital Market
should provide a benchmark for the world’s financial markets in the future.

BIBLOGRAPHY
WEBSITES
www.sebi.gov.in
www.nseindia.com
www.nsdl.co.in
www.wikipedia.com
www.google.co.in
REFERENCE BOOKS
• Investment and securities market in India
By Dr. V.A. Avadhani-(Himalaya publishing House 1999)
• Capital markets of India -An Investor’s guide
By Alan.R. Kanuk-(Wiley publications)


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VIVEK COLLEGE OF COMMERCE

SEBI’S ROLE IN INVESTOR PROTECTION

SEBI’s ROLE IN INVESTOR PROTECTION Page 1

SEBI’s ROLE IN INVESTOR PROTECTION Page 2

II. OBJECTIVES OF SEBI

Investor protection is one of the most important elements of a thriving securities

SEBI’s ROLE IN INVESTOR PROTECTION Page 3

ROLE\CONTRIBUTION OF SEBI IN INVESTOR PROTECTION

ISSUE OF GUIDELINES: SEBI has issued guidelines to companies (bringing new

PUBLIC INTEREST ADVERTISEMENTS: SEBI issues public interest advertisements

SEBI’s ROLE IN INVESTOR PROTECTION Page 4

DEALING WITH COMPLAINTS OF INVESTORS: The investors can make complaints

INVESTOR SURVEYS: SEBI has also conducted surveys in respect of investment

INTRODUCTION TO STOCK INVESTS: SEBI has introduced stock invest as a new

SEBI’s ROLE IN INVESTOR PROTECTION Page 5

introduced through the co-operation of banks gives protection to investors as

DISCLOSURES BY COMPANIES: SEBI has introduced norms for disclosure of half

. INVESTOR PROTECTION MEASURES BY SEBI

SEBI’s ROLE IN INVESTOR PROTECTION Page 6

 registering and regulating the working of intermediaries like stock brokers,

INVESTOR AWARENESS CAMPAIGN

SEBI’s ROLE IN INVESTOR PROTECTION Page 8

SEBI’s ROLE IN INVESTOR PROTECTION Page 9

SEBI’s ROLE IN INVESTOR PROTECTION Page 10

SEBI REFORMS ON STOCK EXCHANGES

SEBI’s ROLE IN INVESTOR PROTECTION Page 11

SEBI’s ROLE IN INVESTOR PROTECTION Page 12

SEBI’s ROLE IN INVESTOR PROTECTION Page 13

GIVEN BELOW ARE TYPES OF GRIEVANCES FOR WHICH INVESTORS COULD

SEBI’s ROLE IN INVESTOR PROTECTION Page 14

Type-I : Refund Order/ Allotment Advise

SEBI’s ROLE IN INVESTOR PROTECTION Page 15

numbers, PAN number etc. of the promoters / directors at the time of

14. REDUCTION IN D-MAT CHARGES

15. TACKLING FALSE PROMISE OF ASSURED RETURNS BY BANKS SPONSORED

SEBI’s ROLE IN INVESTOR PROTECTION Page 16

16. COMPENSATION FROM INVESTOR PROTECTION FUND

CRITICAL APPRAISAL OF INVESTOR PROTECTION MEASURES BY SEBI

SEBI’s ROLE IN INVESTOR PROTECTION Page 17

SEBI’s ROLE IN INVESTOR PROTECTION Page 18

PROTECTION OF INVESTORS IN PRIMARY MARKET (IPOs) THROUGH ISSUE OF

SEBI’s ROLE IN INVESTOR PROTECTION Page 19

SEBI’s ROLE IN INVESTOR PROTECTION Page 20

SEBI’s ROLE IN INVESTOR PROTECTION Page 21

SEBI’s ROLE IN INVESTOR PROTECTION Page 22

SEBI’s ROLE IN INVESTOR PROTECTION Page 23

PROTECTION OF INVESTORS IN SECONDARY MARKET THROUGH SECURITIES

SEBI’s ROLE IN INVESTOR PROTECTION Page 24

of the company. Brokers must disclose to the Stock Exchange, immediately

SEBI’s ROLE IN INVESTOR PROTECTION Page 25

Contract (Regulation) Act, 1956 contains main provisions regarding

The trading in secondary market is through recognised stock exchanges for

SEBI’s ROLE IN INVESTOR PROTECTION Page 26

Procedure for imposing penalties

SEBI’s Power to adjudicate - For the purpose of adjudging under

Offences- if any person contravenes or attempts to contravene or abets the

Composition of certain offences- Notwithstanding anything contained

Offences by companies- Where an offence has been committed by a