SEBI

Securities Contract act-1956

In order to prevent undesirable transactions in securities and to regulate the working of stock changes in the country, the central government enacted the Securities Contracts (Regulation) Act in 1956.

It came into force on February 20, 1957.The Act applies to the whole India

Provisions and applicability of the act

Grant of recognition of stock exchange Withdrawal of recognition Government control over trading methods Power of recognized stock exchange to make rules

restricting voting rights Power of central government to direct rules to be made or

to make rules. Power of recognized stock exchanges to make bye-laws. Power of Securities and Exchange Board of India to make

or amend bye-laws of recognized stock exchanges. Nominees of SEBI on governing body

SEBI Act-1992

SEBI (Securities Exchange Board of India) was constituted on April 12, 1988 as a non-statutory body.

It is an apex body to develop and regulate the stock market in India.

SEBI is the regulator for the securities market in India , original set up by the govt. of India in 1988, it acquired statutory form in 1992 with SEBI Act,1992 being passed by the Indian Parliament.

Features of SEBI

Shall be a body corporate with perpetual succession an common seal with power to acquire hold and dispose of property.

HQ will be in Mumbai and may establish offices at other places in India.

Chairman and members of board will be appointed by the central government.

Government can prescribe terms of offices and other conditions of service of the board and chairman.

Primary duties of the board is to protect the interest of the investors.

Functions of SEBI

The SEBI act 1992 has entrusted with two functions they are

Functions

Regulatory functions

Developmental function

Regulatory function Regulation of stock exchanges and self regulatory

organizations. Registration and regulation of stock brokers , sub-

brokers , registrars of all issues, merchant bankers, underwriters, portfolio managers..etc

Registration and regulation of the working of collective investment schemes including mutual funds.

Prohibition of fraudulent and unfair trade practices relating to securities market.

Prohibiting of insider trading. Regulating substantial acquisition of shares and

takeovers of the company.

Developmental function

Promoting investors education. Training of intermediaries. Conducting research and publishing

information useful to all market participants. Promoting of fair practices. Promotion of self regulatory organizations

Organization and Management

The general superintendence, direction and management of the SEBI shall vest in the Board of members. Those members exercise all powers and do all acts and things which may be exercised by the Board (SEBI)

Central government has power to issue direction to the board on the policy matters and shall supersede the board in the event of default by the Board

The board shall consists of following members: Chairman Two members, one from amongst the officials of the

central government dealing with finance and another from the administration of companies act of 1956.

One members from amongst the officials of the reserve bank of India.

Five other members of whom at least three shall be the whole-time members to be appointed by the central government.

Departments of SEBI

Primary Market

Issue Management

and Intermediaries

Secondary Market

Institutional Investment

1.Primary Market Department: It deals with all policy matters and regulatory issues relating to primary market.

2.Issue Management and Intermediaries Departments: This department is concerned with inspection of offer documents and other things like registration, regulation and monitoring of issue related to intermediaries.

3.Secondary Market Department: It looks after all the policy and regulatory issues for the secondary market; administration of the major stock exchanges and other matters related to it.

4.Institutional Investment Department: It concerned with framing policy for foreign institutional investors.

SEBI Guidelines

Primary market Secondary market Foreign institution investor price issue bonus issue debentures Underwriters Buy back of shares

Secondary marketStock Exchange:- Board of Directors of stock exchange have to be

reconstituted so as to include non-members ,public represtatives , government representatives to the extent of 50% of total number of members

Working hours for all stock exchanges have been fixed to be from 12.00noon to 3.00 pm.

All the recognized stock exchanges will have to inform about the transaction within 24 hrs.

Guidelines have been issued for introducing the system of market making in less liquid scrip's in a phased manner in all stock exchanges

Brokers:- Registration of Broker & Sub-broker is

compulsory Broker should be professionally qualified and

financially solvent. Compulsory audit of broker’s book and filing of

audit report with SEBI have been made mandatory.

No broker is allowed to underwrite more than 5%of public issue.

To bring about greater transparency and accountability in broker - client relationship.

Primary market1. Minimum offering of 25% of post issue capital to the public.

This requirement was relaxed to 10% first for IT sector, later it was relaxed to all the sectors.

2. IPO of issue size up to 5 times of pre-issue , shall be allowed only to those companies having consistent track record of making profit at least for 5 years.

3. For issue above Rs. 100 corers book building route has been made compulsory for comp. making IPO.

4. Time for finalizing the allotment of shares and refund has been reduced from 30 to 15 days.

5. Issue shall open within 12 months from the date of issue of observation letter by SEBI.

6. Should disclose price band at least 2 working days before opening of bid by announcement in all newspapers in which pre-issue advt. was released.

Foreign Institutional Investors All foreign institutional investors including pension funds,

mutual funds, asset management companies and portfolio managers were permitted to invest in Indian capital market fulfilling the following conditions:-

The FIIs are required to obtain certificate of registration from the SEBI. For grant of certificate SEBI checks the applicants track record, professional competence, financial soundness, experience, general reputation of fairness and integrity.

They have to obtain approval from RBI under Foreign Exchange Regulation Act (FERA), 1973.

Certificate of registration is granted for period of 3 years and after it can be renewed.

FIIs are permitted to invest in securities in the primary and secondary markets including shares, debentures

Bonus issue

SEBI has announced the following guidelines for the issue of bonus shares

The article of association of the company should contain provisions for the issue of shares.

Bonus issue is capitalisation of profit, Bonus shares should be issued from free reserves created out of genuine profits or share premiums collected

Any reserve created through revaluations of fixed assets cannot be capitalised

Bonus shares cannot be issued in lieu of dividend At the time of issuing, bonus shares, there should not be

partly paid up shares

There should not be any default on the part of the company in payment of statutory dues to employees such as provident fund, gratuity, bonus etc. similarly, there should not be default in payment of interest on fixed deposits or interest or principal amount thereof

There should be a gap of at least 12 months between the public or right issue and bonus issue

The proposal of bonus issue must be implemented within six months from the date of such approval by the Board of Directors

If the issue of bonus shares results in excess of subscribed and issued capital over the authorised capital resolution will be passed at the general body meeting for increasing the authorised capital

No bonus issues will be made if it dilutes the rights of debenture holders whose debentures are convertible fully or partly.

Debentures

The debt equity ration should not exceed 2:1, which means the amount of debentures can be two times the equity capital

The rate of interest payable on debentures can be decided by the company

Debentures should be redeemed on the expiry of seven years from the date of allotment. Debentures above seven years cannot normally be issued. Non convertible debentures may be redeemed at 5% premium

Debentures issued to public should be secured and registered

A debenture redemption fund should be created for non convertible debentures

SEBI insists on prior licensing of debenture trustees. Trust deed should be ready within 6 months from the date of allotment.

Underwriters

Only those holding certificate of registration, issued by SEBI can act as underwriters

The certificate of registration is valid for three years from the date of issue

The underwriting obligation accepted by the underwriter should not exceed 20 times of his net worth

In the event of inadequate subscription from the public, the company shall inform the underwriter about his liability towards subscription, within 30 days of receipt of such intimation, the underwriter should subscribe to such securities

The underwriter should, within six months from the end of financial year, submit the document as required by SEBI

The underwriter should preserve his books of accounts and records for a minimum period of five years.

Buy back of shares

Companies Act allows the promoters of the companies to buy back the company’s own shares and other securities to the extent of 25% of the paid up capital and free reserves.

Buyback is financed out of company’s free reserves, securities premium account

Buyback has the effect of cancellation of share capital of the company already issued

Ex: reduction in equity base, repayment of surplus cash to shareholders, increase in share value etc.

SEBI and Investor Protection

Investor protection is a wide term which stands for various measures introduced to protect the investors from malpractices of companies, brokers, merchant bankers, issue managers, registrars, of new issues etc.

As all investments have some inherent risks, an investor should be cautious while investing his money in securities.

apart from this personal risk, investors have to be safeguarded against the malpractices of companies, brokers etc.

Complaints against members of stock exchanges and Complaints against companies listed for trading on the stock

exchanges As per rules, stock exchanges cannot certain the complaints

against sub-brokers, agents, merchant bankers issue managers etc.