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SEBI

Introduction

to

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 THRUST OF SEBI’s

 REGULATION OFEQUITY MARKET

PRIMARY MARKETACCESS : RESTRICTED

INSTRUMENTS :

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 History :

The Securities and ExchangeBoard of India was established

by the government of India on12 April 1988 as an interimadministrative body topromote orderly and healthy

growth of the securitiesmarket and for investorprotection.

It was to function under the

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History :

The SEBI was given astatutory status on 30 Jan

1992 through an ordinance.The ordinance was later

replaced by an Act of 

Parliament known as theSecurities and Exchange Boardof India Act 1992.

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Reasons for theestablishment of SEBI

The capital market had witnesseda tremendous growth during the1980’s characterized by theincreasing participation of thepublic.

This ever expanding investor

population and marketcapitalization led to a variety of malpractices on the part of 

companies, brokers, merchantbankers, investment consultants

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Continued…

The glaring examples of thesemalpractices include existence of self styled merchant bankers,unofficial private placements,rigging of prices, unofficialpremium on new issues, non

adherence of provisions of TheCompanies Act , violation of rulesand regulations of stock exchanges and listing

requirements, delay in delivering

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Continued…

The government and the stock exchanges were rather helplessin redressing the investorsproblems because of lack of proper penal provisions in theexisting legislation.

Therefore the GOI decided to setup SEBI a separate regulatorybody

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PURPOSE & ROLE OFSEBI :

To the issuers it aims to providea market place in which they canconfidently look forward toraising finances they need in aneasy fair and efficient manner.

To the investors it provides

protection of their rights andinterests through adequateaccurate and authentic

information and disclosure of information on a continuous

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Continued…

To the intermediaries it offers acompetitive , professionalizedand expanding market withadequate and efficientinfrastructure so as to renderbetter service to investors and

issuers.

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Objectives:

To regulate stock exchanges andthe securities industry and topromote their orderlyfunctioning.

To guide , educate and protectthe rights and interests of 

individual investors.

To prevent trading malpracticesand achieve a balance between

self regulation by the securities

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 Continued…

To regulate and develop a codeof conduct and fair practices bybrokers , merchant bankers witha view to make them competitiveand proffesional.

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 Functions of SEBI :

REGULATORY FUNCTIONS

ØRegistration of brokers and

sub brokers and otherplayers in the market

ØRegistration of collective

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Regulatory functions :

ØProhibition of fraudulent andunfair trade practices

ØControlling insider tradingand takeover bids and

imposing penalties for suchpractices

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Organization structure

The activities of SEBI have beendivided into 5 operationaldepartments.

Each department is headed by anExecutive Director

apart from its head office atMumbai SEBI has regional officesin Kolkata, Chennai, Delhi toattend to investor complaints

and liaise with the issuers,

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Continued…

SEBI has formed 2 advisorycommittees –

ØPrimary market advisorycommittee

ØSecondary market advisorycommittee

These committees are non

statutory in nature and SEBI is

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• Announcing guidelines for parking

of funds in short-term deposits of scheduled commercial banks (SCBs)by mutual funds, the regulator saidthat investment cap would also take

into account the deposit schemes of the bank's subsidiaries.

•

The SEBI has also defined 'shortterm' for funds' investmentpurposes as a period not exceeding91 days.

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b

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NFOs can only beinvested at the close of 

the NFO period :Earlier, Mutual funds would keep

an NFO open for 30 days, and theminute they received their first

cheque, the money would bedirectly invested in the market;creating a skewed accounting for

those that entered later sincethey get a fixed NFO price.

The market regulator hascorrected this by extendingA lication Su orted b Blocked

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By the ASBA process one cancontinue to earn interest in the

bank account until the NFO closes(remember there is usually norejection or “oversubscription” in a

mutual fund NFO) which meansthat the cheque goes for clearingafter the NFO has closedirrespective of when it was sent.The fund manager will be able toinvest once the NFO closes. 

Di id d l

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Dividends can now onlybe paid out of actually

realized gains :It will reduce both the quantum

of dividends announced, and themeasures used by MFs to garner

investor money using dividend asa carrot to entice new investors.

E i M l F d l

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Equity Mutual Funds playa more active role in

corporate governanceThis will help mutual fundsbecome more active and not justthat, they must reveal, in their

annual reports from next year,what they did in each “vote”.

SEBI has now made it mandatory

for funds to disclose whetherthey voted for or against moves(suggested by companies inwhich they have invested) suchas mer ers, demer ers,

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Securities lending byMutual Funds

Mutualfunds

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•The specifications regarding thevaluation of the collateral have

been prescribed in the guidelinesto minimize the risk involved insecurities lending transactions. To

ensure adequate checks andbalances regarding the securitieslending transactions, therequirement of reporting totrustees and SEBI have beenstipulated.

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