Securities and Exchange Board

8/8/2019 Securities and Exchange Board

1/21

Securities And Exchange BoardSecurities And Exchange Board

ofofIndiaIndia

Presented By-

Srikant

Adithya

Buddhini


2/21

Back to history:Back to history:y Stock market regulation a pre- independence

phenomenon.y The objective was to ensure orderly and healthy growth

of capital markets.

y To avoid undue congestion or over crowding of public

issues.y Set-up of Controller of Capital Issues(CCI).

y Enactment ofSecurities Contracts(Regulations) Act withprovisions relating to the issue of prospectus, disclosureof accounting, and financial information, listing ofsecurities, etc.

y During the sixth year plan period, the securities marketshowed a potential not only to mobilise the savings ofthe household but also to allocate for industrial

development.


3/21

Malpractices in securities Market:Malpractices in securities Market:

y Manipulation of security prices.

y Price Rigging.

y Insider trading.

y Delay in settlement.

y Delay in listing.


4/21

Deficiencies In The Market:Deficiencies In The Market:

Lack of diversity in financial instruments.

Disclosure of financial information.

Preponderance of speculative trading.

Poor liquidity.

Lack of control over brokers.


5/21

Securities And Exchange Board of IndiaSecurities And Exchange Board of Indiay It was set-up on April 12, 1988 as a non statutory

body.

y Later, a separate legislation was made in the name of

Securities and Exchange Board of India Act, 1992

conferring statutory powers.

Objectives:

To protect the interest of investors for steady flow

of savings into the capital market.

To regulate the securities market nad ensure fair

prices by issuers of security.

To promote efficient services by brokers, merchant

bankers, and other intermediaries.


6/21

Functions:Functions:

Regulatory Functions:a. Regulation of stock exchange and self

regulatory organisation.

b. Registration and regulation of stock brokers,

sub-brokers, merchantbankers, underwriters,

portfolio managers and intermediaries.

c. Prohibition of fraudulent and unfair trade

practices.

d. Prohibition of insider trading in securities.

e. Regulating substantial acquisition of shares

and take over of companies.


7/21

Developmental functions:

a. Promoting investors education.

b. Promoting self regulatory organisations.

c. Training of intermediaries.

d. Promotion of fair practices. Code ofconduct for self regulatory organisations.

e. Conducting research and published

information useful to all market participants.


8/21

Powers: Power to call periodical returns from recognised

stock exchange. Power to call any information from stock

exchanges or their members.

Power to direct enquiries to be made in relation

to affairs of stock exchanges. Power to grant approval or make of bye laws of

recognised stock exchanges.

Power to control and regulate stock exchanges.

Power to grant registration to marketintermediaries.

Power to compel listing of securities bycompanies.


9/21

OrganisationOrganisation::y It provides statutory board consisting of six members.

y

The chairman and two members to be appointed bycentral government.

y One member be appointed by Reserve Bank Of India,and two members having experience in securitiesmarket be appointed by central government.

Division ofSEBI into 4 operational departments:

Primary market department.

Issue management and intermediaries department.

Secondary market department.

Institutional investment department.


10/21

SEBISEBI Guidelines:Guidelines:y Guidelines for primary market: (Public Issue) Prospectus has to be attached with application. Company has to highlight the risk factors.

Companys management, past history and presentbusiness of the firm should be highlighted.

Subscription of public issues should be kept open for amin. of 3 days and max. of 10 days.

The collection centers should be at least 30 whichinclude all centers with stock exchanges.

Collection agents not to collect application money incash.

Minimum no. of shares per application has been fixedat 500 shares of face value of Rs.100.

Underwriting has been made mandatory.


11/21

The compliance report in the prescribed form shouldbe submitted to the SEBI in 45 days from the date ofclosure of issue.

The allotment have to be made in multiples of tradablelot of 100 shares of Rs. 10 each.

If the minimum subscription of 90% has not beenreceived, the entire amount has to be refunded to the

investors within 120 days.

The capital issue should be fully paid up in 120 days.

Limit of listing companies issue on the stock exchangehas been increased to Rs. 5 crores.

The gap between the closure dates of various issuesviz. rights and public should not exceed 30 days.

Issues should make adequate disclosure regarding theterms and conditions of redemption, conversion, etc

so that an investor can take decision properly.


12/21

Guidelines for secondary market:Guidelines for secondary market: Stock Exchange:a. All the recognised stock exchanges will have to inform about the

transactions in 24 hours.

b. Capital adequacy norms have to be laid down for members ofvarious stock exchanges depending upon their turnover.

c. Working hours of all stock exchanges have been fixed uniformly.

d. Board of directors of the stock exchange has to be reconstitutedto the extent of 50% of total no. of members.

Brokers:a. Registration of brokers and sub-brokers is made compulsory.

b. Compulsory of brokers book and filing of audit report with SEBI

have been made mandatory.c. No broker is allowed to underwrite more than 5% of public

issue.

d. SEBI has made it mandatory for brokers to disclose transactionprice and brokerage separately for transparency.


13/21

Guidelines for Foreign Institutional Investors:Guidelines for Foreign Institutional Investors:

Foreign Institutional Investors have been allowed

to invest in all securities traded in primary andsecondary markets.

There would be no restriction on the volume ofinvestment for the purpose of entry of FIIs.

The holding of single FII in a company will notexceed the ceiling of 5% of the equity capital ofcompany.

Disinvestment will be allowed only trough stockexchanges in India.

FIIs have to pay a concessional tax rate of 10percent on large capital gain (more) than oneyear and 30% on short term capital gains. A taxrate of 20% on dividend and interest is

prescribed.


14/21

Guidelines for Bonus Issue:Guidelines for Bonus Issue:((w.e.fw.e.f April 13, 1994)April 13, 1994) There should be provision in the articles of association of the

company for issue of BS or if not then should pass

resolution in general body meeting. The bonus is made out of free reserves built out of genuine

profits or share premiums collected in cash only.

Reserves created by revaluation of fixed assets are notpermitted to be capitalised.

Bonus shares are not allowed till the shares are fully paid andalso within 12 months of any public issue/rights issue.

No bonus issue is allowed if the company defaults anystatutory dues, payment of interest to debenture holders.

Issue of BS after any public/ rights issue is subject to thecondition that no bonus shall be made which will dilute therights of debentures.

Consequent to the issue of BS, if the subscribed and paid upcapital exceed the authorised capital, then a resolution has to

be passed at its general body meeting.


15/21

Guidelines for Rights Issue:Guidelines for Rights Issue:

Public and rights issue can made at different prices as

composite issue. Appointment of merchant banker is not mandatory

for less than 50 lakhs.

Minimum subscription of 90% should be received in120 days from the date of issue.

No preferential allotment shall be made along with therights issue.

Underwriting of rights issue is not mandatory.

Over subscription must not be retained.

Promoters contribution should be 20% in the rightsissue and it should not fall.

Advertisement regarding the issue should me made inat least two all India newspapers.

Compliance report within 45 days of the closure of

the rights issue should be forwarded to the SEBI.


16/21

Guidelines for debentures and holders:Guidelines for debentures and holders: The amount of working capital debentures should not

exceed 20% of current assets.

The debt equity ratio should not exceed 2:1.

Credit rating is compulsory for all debentures issuedexcept by PSUs.

Debentures above 7 years cannot be issued.

Debentures issued to the public have to be securedand registered.

Debenture redemption reserve is to be set up out ofprofits of the company.

Withdrawal from the DDR will be permitted onlyafter 10% of the liability is redeemed.

The security should be created within six monthsfrom the date of issue of debentures . It can becreated within 12 months provided 2% of penal

interest is paid to debenture holders.


17/21

Guidelines for underwriters:Guidelines for underwriters: No person can act as underwriter unless he holds

certification of registration granted by SEBI.

The certificate of registration is valid for the periodof three years.

The total underwriting obligations should notexceed 20 times of his net worth.

The books of account should be maintained for aperiod of 5 years.

In the case of devolvement the underwriters shouldsubscribe to the securities within 30 days of theintimation of the company.

The underwriter should furnish within the period of6 months from the end of Financial Year a copy ofbalance sheet, profit & loss A/c, capital adequacystatement and various other documents to SEBI.


18/21

Guidelines for investor protection:Guidelines for investor protection: The issuing company should provide fair and

correct information at the time of new issue. Allotment process should be transparent.

No delay in refund or dispatch of sharecertificates.

Risk factors and highlights should be fairly stated. Both stock exchange and companies are

responsible for investor protection.

SEBI regulates insider trading by imposing 5 lakhsof penalty for those who indulge.

SEBI has registered with active investorsassociation and have also come up with investorgrievance cell to solve investors complaints.


19/21

Guidelines on Book building:Guidelines on Book building: The book building method uses investors demand for

share at various prices as an important input to arriveat offer price.

Retail investor- is one who applies for not more thanRs.1 lakh securities.

Qualified institutional buyer- is any financial institution/

bank/ mutual fund/ FII/ venture capital who also bidsfor securities.

Red herring prospectus- it does not have details ofeither price or no. of shares, it is disclosed day justprior to date of issue.

Offer document- a kind of prospectus, it has to be filedwith the registrar of stock exchanges and companies.

In book building issue the issuer is required to indicateprice band, the lower end is called floor price andhigher end is called cap price. And the mid of two is

called as cut off price.


20/21

Guidelines on buy back of shares:Guidelines on buy back of shares: Buyback is cancellation of shares. It leads to reduction

in share capital.

Why buy back?a. To reduce equity base for flexibility.

b. To prevent take over bids.

c. To return surplus cash to shareholders.

d. To maintain a target capital structure.e. To increase the underlying share value.

The companies can buy back through: tender offers,open offers, Dutch auction, reverse rights issue,employee stock option.

No company is allowed to withdraw the buybackoffer once it is announced.

The buy back should be done only in cash andescrow A/c should be maintained.

Companies buying through stock exchange mustdisclose the purchase details daily.


21/21

// THANK

YOU!!

//

Securities and Exchange Board

Documents

Transcript of Securities and Exchange Board