SEBI

The SEBI was established in 1988 but was

only given regulatory powers on April 12,
1992, through the Securities and Exchange
Board of India Act, 1992.
 Objectives of SEBI:
 1. To regulate the activities of stock exchange.
 2. To protect the rights of investors and
ensuring safety to their investment.
 3. To prevent fraudulent and malpractices by
having balance between self-regulation of
business and its statutory regulations.
 4. To regulate and develop a code of conduct
for intermediaries such as brokers,
underwriters, etc.
 Functions of SEBI:
A. Regulatory Functions :
• Regulation of stock exchange and self regulatory organizations.
• Registration and regulation of stock brokers, sub-brokers, registrar
to all issue, merchant bankers, underwriters, portfolio managers
and such other intermediaries who are associated with securities
market.
• Registration and regulation of the working of collective
investment schemes including mutual funds.
• Prohibition of fraudulent and unfair trade practices relating to
securities market.
• Prohibit insider trading in securities.
• Regulating substantial acquisitions of shares and take over of
companies.
B. Developmental Functions :
• Promote investor’s education.
• Training of intermediaries.
• Conducting research and published
information useful to all market participants.
• Promotion of fair practices. Code of
conduct for self regulatory organizations.
• Promoting self regulatory organizations.
 Powers of SEBI:
• Power to call periodical returns from recognized stock exchanges.

• Power to call any information or explanation from recognized stock exchanges or their members.

• Power to direct enquiries to be made in relation to affairs of stock exchanges or their members.

• Power to grant approval to bye-laws of recognized stock exchanges.

• Power to make or amend bye-laws of recognized stock exchanges.

• Power to compel listing of securities by public companies.

• Power to control and regulate stock exchanges.

• Power to grant registration to market intermediaries.

• Power to levy fees or other charges for carrying out the purpose of regulation.

• Power to declare applicability of Section 17 of the Securities Contract (Regulation) Act is any state

or area to grant licences to dealers in securities.

 SEBI Guidelines for Primary Market :

• New Company : A new company is one (a) which has not completed 12 months commercial
production and does not have audited results and (b) where the promoters do not have a track
record.
• These companies will have to issue shares only at par.
• New Company set up by Existing Company : When a new company is being set up by existing
companies with a five year track record of consistent profitability and a contribution of at least 50%
in the equity of new company, it will be free to price its issue i.e., it can issue its share at
premium.
• Private & Closely held Companies : The private and closely held companies having a track record of
consistent profitability for at least three years, shall be permitted to price their issues freely. The
issue price shall be determined only by the issues in consultation with lead managers to the issue.
• Existing Listed Companies : The existing listed companies will be allowed to raise fresh capital by
freely pricing expanded capital provided the promoter’s contribution is 50% on first Rs.100 crores of
issue, 40% on next Rs.200 crores, 30% on next Rs.300 crores and 15% on balance issue amount.
• Reservation of issues :
• Permanent employees - 10%
• Indian Mutual Funds - 20%
• Foreign Institutional Investors - 15%
• Development Financial Institutions20%
• Shareholders of group of companies 10%
 SEBI Guidelines for Public Issue :
• Abridged prospectus has to be attached with every application.
• A company has to highlight the risk factors in the prospectus.
• Objective of the issue and cost of project should be mentioned in the prospectus.
• Company’s management, past history and present business of the firm should be
highlighted in the prospectus.
• Particulars in regard to company and other listed companies under the same management
which made any capital issues during the last three years are to be stated in the
prospectus.
• Justification for premium, in the case of premium is to be stated.
• Subscription list for public issues should be kept open for a minimum of three days and a
maximum of 10 working days.
• The collection centers should at least 30 which include all centers with stock exchanges.
• Collection agents are not to collect application money in cash.
• The quantum of issue, whether through a right or public issue, shall not exceed the
amount specified in the prospectus. No retention of over subscription is permissible under
any circumstances.
 Contd..
• A compliance report in the prescribed form should be submitted to SEBI within 45 days from the
date of closure of issue.
• Minimum number of shares per application has been fixed at 500 shares of face value of Rs.100
• The allotments have to be made in multiples of tradable lot of 100 shares of Rs.10 each.
• Issues by way of bonus, rights etc. to be made in appropriate lots to minimize odd lots.
• If minimum subscription of 90% has not been received, the entire amount is to be refunded to
investors within 120 days.
• The capital issue should be fully paid up within 120 days.
• Underwriting has been made mandatory.
• Limit of listing of companies issue in the stock exchange has been increased from Rs.3 crores to
Rs.5 crores.
• The gap between the closure dates of various issues viz. rights and public should not exceed 30
days.
• Issues should make adequate disclosure regarding the terms and conditions of redemption,
security conversion and other relevant features of the new instrument so that an investor can
make reasonable determination of risks, returns, safety and liquidity of the instrument. The
disclosure shall be vetted by SEBI in this regard.
 SEBI Guidelines on Book Building :
• The option
available of 100%
only to book
those building
issuer shall be which
companies
propose to make
above Rs.100 an issue of capital of and
crores.
• Book
than building
the shall be
promoters for the portion
contribution and other
allocation
made
company to permanent
and employees
shareholders of of promoting
the the issuer
companies
shareholders in of
case of acompanies
group new company in andof
case
existing companies.
• The issuingBanker
Merchant company as shall appoint
book runner's) category
and I
their
names shalltobeSEBI.
submitted mentioned
The lead inmerchant
the draft prospectus
banker
shall act
‘Syndicateas the
Members’ Lead Book
who runner
shall be may
from appoint
those
intermediaries
are permitted towho
carryareon
registered
activity with
as SEBI who
the
‘underwriter’.
• The
the draft
Lead prospectus
Merchant Bankers.shall be filed with SEBI by
• The issuer company,
observations, if any, after
on receiving
the offer final
document from
SEBI make an advertisement in newspapers.
information in the advertisement shall contain : The
• the date of opening and closing of the bidding.
• the method and process of bidding.
• The namesasand
members well addresses
as bidding ofterminals
the syndicate
for
accepting bids.
 Contd…
• The Book runner’s and the company shall determine the issue price based on the bids received
through syndicate members. On determination of the price, the number of securities to be
offered shall be determined.
• Once the final price is determined all those bidders whose bids have found to be successful
shall become entitled for allotment of securities.
• On determination of the entitlement, the information regarding the same shall be intimated
immediately to the investors.
• The offer shall remain open for subscription from public for a period of at least three working
days after completing all requirement of advertisement and dispatch of issue material to Stock
Exchanges. During the time when the offer is open, the investors who have received an
intimation of entitlement of securities shall submit the application forms along with the
application money.
• Arrangement shall be made by the issuer for collection of the applications by appointing
mandatory collection centre depending upon the size of the issue.
• Allotment shall be made not later than 15 days from the closure of the issue failing which
interest at the rate of 15% shall be paid to the investors.
• A final book of demand showing the results of allocation process shall be maintained by
the book runners.
• SEBI shall have the right to carry out an inspection of the records, books and documents
relating to the Book building process.
 BONUS ISSUE :
• There should be a provision in the Articles of Association of the Company for issue of bonus shares.

If not, the company should pass a resolution at the General Body Meeting, making provision for

capitalization of profits. The proposal for bonus issues is recommended by the Board of Directors

and then approved in the General Body Meeting.

• The bonus is made out of free reserves built out of the genuine profits or share premiums collected

in cash only.

• Reserves created by revaluation of fixed assets are not permitted to be capitalized.

• The declaration of bonus issue in lieu of dividend is not to be made.

• Bonus issues are not permitted unless the partly paid shares existing are fully paid up.

• No bonus issue will be permitted if there is sufficient reasons to believe that the company has

defaulted in respect of payment of statutory dues to the employees such as provident fund, gratuity,

bonus, etc. Further, no bonus issue is permitted if the company defaults in payment of principal or

interest on fixed deposits or on debentures.

• No bonus issue can be made within 12 months of any public
issue / rights issue.
• A company which announces bonus issue after the approval of the
Board of Directors must implement the proposals within a period of
six months from the date of such proposal and shall not have the
option of changing the decision.
• Consequent to the issue of bonus shares, if the subscribed and paid
up capital exceed the authorized share capital, a resolution shall be
passed by the company at its general body meeting for increasing
the authorized capital.
• 10. Issue of bonus shares after any public/ rights issue is subject
to the condition that no bonus shall be made which will dilute the
value or rights of a holders of debenture, convertible fully or partly.
 Foreign Institutional Investors(FII)
• Foreign institutional investors have been allowed to invest in
all securities traded in primary and secondary markets.
• There would be no restriction on the volume of investment
for the purpose of entry of FIIs.
• The holding of single FII in a company will not exceed the
ceiling of 5% of the equity capital of a company.
• Disinvestment will be allowed only through stock exchanges in
India.
• FIIs have to pay a concessional tax rate of 10 per cent on
large capital gain (more than one year) and 30 per cent on
short term capital gains. A tax rate of 20% on dividend and
interest is prescribed.