ESTABLISHMENT OF SEBI

The Securities and Exchange Board of India was enacted on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.

PREAMBLE- OBJECTIVE

The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as"...to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto“

Stops fraudulent matters of stock market.

LOCATION

Jurisdiction : Government Head Quarters: Mumbai, Maharashtra www.sebi.gov.in

BOARD

Shri U K SINHACHAIRMAN

chairman@sebi.gov.in      

Shri PRASHANT SARAN

Shri RAJEEV KUMAR AGARWAL

Shri S RAMAN

WHOLE TIME MEMBER

WHOLE TIME MEMBER 

WHOLE TIME MEMBER

psaran@sebi.gov.in

agarwal@sebi.gov.in

ramans@sebi.gov.in

ORGANIZATION’S STRUCTURE

The Board shall consist of the following members, namely:- a Chairman & Two members.

One from amongst the officials of the Ministry of the Central Government dealing with Finance and second from administration of the Companies Act, 1956.

One member 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 .

STOCK MARKET -SCAMS IN INDIA Harshad Mehta scam - Rs 4,000 crore – Conviction - sentenced 5 years

rigorous imprisonment and a fine of 25000. Harshad Mehta scam Discovered: In 1992 Modus Operandi: Used money from banks to make personal gains via investment in shares.

CRB Scam - Rs 1,200 crore - Bhansali spent three months in jail in 1997. He is out now but nobody knows where he lives and if they do, they are not snitching. Discovered: 1996 Modus Operandi: Raised public money through FDs, MFs and debentures via non-existent firms and invested them in stocks for personal use.

Ketan Parekh Scam - Rs 800 crore - Conviction - 1 year sentence. 2001,Modus Operandi: Circular trading in selected stocks via borrowed money from banks to manipulate share prices.

Satyam Scam - Rs 14,162 crore –case is going on Discovered: The top management of the software company cooked up accounts to show inflated sales, profits and margins from 2003 to 2008.

SCAMS

Sahara Housing Bonds - Rs 24,029 crore - case is going on Discovered: 2009-2010Modus Operandi: Bonds issued to 29.6 million investors without following - Sebi regulations and investor protection measures mentioned therein

Speak Asia - Rs 2,200 crore - investigation is going on Ram Sumiran Pal

Discovered: 2012Modus Operandi: Investors were asked to subscribe to an e-magazine for a certain sum, after which they became eligible to answer surveys and got paid for each survey.

Saradha Scam - Rs 10,000 crore – investigation is going on Sudipta -Sen Discovered: 2013 Modus Operandi: Ran multiple investment schemes collecting money from nearly 1.4 million investors in West Bengal and Odisha

NSEL Scam - Rs 5,600 crore - investigation is going on      Even regulator/police catch the culprit they will get away maximum 5 to 6 years of prison.

Jignesh Shah Discovered: 2013 Modus Operandi: Investors were wooed by offering fixed returns on paired contracts with agri and industrial commodities as underlying. the stocks were missing and money was allegedly siphoned by so-called borrowers

SCRA -ACT 1956

The Securities Contracts (Regulation) Act, 1956 “Act” was enacted in order to prevent undesirable transactions in securities and to regulate the working of stock exchanges in the country.

The provision of the Act came into force with effect from 20th February, 1957 vide Notification No. SRO 528 dated 16th February, 1957.

The main parts of the Act are as follows and the powers of Central Government with regard to this Act are exercisable by SEBI:

(A) Recognised Stock Exchanges     (B) Penalties

OBJECTIVES OF SEBI: The overall objectives of SEBI are to protect the interest of

investors and to promote the development of stock exchange and to regulate the activities of stock market. The objectives of SEBI are:

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 promote efficient services of brokers, merchant bankers, and other intermediaries, so that, they become competitive and professional

5. To regulate and develop a code of conduct for intermediaries such as brokers, underwriters, etc.

6. To regulate the securities market and ensure fair practices.

PURPOSE AND ROLE OF SEBI:

SEBI was set up with the main purpose of keeping a check on malpractices and protect the interest of investors. It was set up to meet the needs of three groups.1. Issuers:For issuers it provides a market place in which they can raise finance fairly and easily.2. Investors: sec 27 power to issue directionsFor investors it provides protection and supply of accurate and correct information.3. Intermediaries:For intermediaries it provides a competitive professional market.

FUNCTIONS OF BOARD- SEC 11-20 PROTECTIVE FUNCTIONS:

(i) It Checks Price Rigging: Price rigging refers to manipulating the prices of securities with the main objective of inflating or depressing the market price of securities. SEBI prohibits such practice because this can defraud and cheat the investors.

(ii) It Prohibits Insider trading: Insider is any person connected with the company such as

directors, promoters etc. These insiders have sensitive information which affects the prices of the securities. This information is not available to people at large but the insiders get this privileged information by working inside the company and if they use this information to make profit, then it is known as insider trading, e.g., the directors of a company may know that company will issue Bonus shares to its shareholders at the end of year and they purchase shares from market to make profit with bonus issue. This is known as insider trading. SEBI keeps a strict check when insiders are buying securities of the company and takes strict action on insider trading.

(iii) SEBI prohibits fraudulent and Unfair Trade Practices: SEBI does not allow the companies to make misleading statements

which are likely to induce the sale or purchase of securities by any other person.

FUNCTIONS

(iv) SEBI undertakes steps to educate investors so that they are able to evaluate the securities of various companies and select the most profitable securities.

(v) SEBI promotes fair practices and code of conduct in security market by taking following steps:

(a) SEBI has issued guidelines to protect the interest of debenture-holders wherein companies cannot change terms in midterm.

(b) SEBI is empowered to investigate cases of insider trading and has provisions for stiff fine and imprisonment.

(c) SEBI has stopped the practice of making preferential allotment of shares unrelated to market prices.

Protects investors interests of investors in securities and to regulate securities market.

Has o power to issue commissions for examination of witnesses and documents

REGULATORY FUNCTIONS Regulation of stock exchange and self regulatory organizations. Registration and regulation of stock brokers, sub-brokers,

Registrars to 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.

Prohibition of insider trading Regulating substantial acquisition of shares and takeover of

companies. promoting investors' education and training of intermediaries of

securities markets; 

DEVELOPMENTAL FUNCTIONS These functions are performed by the SEBI to promote and

develop activities in stock exchange and increase the business in stock exchange. Under developmental categories following functions are performed by SEBI:

(i) SEBI promotes training of intermediaries of the securities market. Promoting investor’s education.

Conducting research and publishing information useful to all market participants.

Promotion of fair practices. Promotion of self regulatory organizations

(ii) SEBI tries to promote activities of stock exchange by adopting flexible and adoptable approach in following way:

(a) SEBI has permitted internet trading through registered stock brokers.

(b) SEBI has made underwriting optional to reduce the cost of issue.

(c) Even initial public offer of primary market is permitted through stock exchange.

POWER OF SEBI

Investigation

Discovery of docs/summon any person/suspend business of SE.

Inspects books/accounts/for periodical returns from recognized stock exchanges.

Inspects the books of accounts of financial intermediaries Prohibits company issuing prospectus. Compel certain companies to list their shares in 1or more

stock exchanges. Registration of stock brokers, sub-brokers, share

transfer agents, etc. Cease and Desist proceedings

Prosecute and judge directly the violation of provision of company act.

DEPARTMENT OF SEBI

Market Intermediaries Regulation and supervision department (MIRSD)

Market Regulation Department (MRD) Derivatives and new product department

(DNPD) Corporation finance department (CFD) Investment Management department (IMD) Integrated Surveillance Dept (ISD) Legal Affairs Department (LAD)

GUIDELINES OF SEBI

Eligibility norms for companies Issuing security Company- Public issue- draft prospectus- SEBI

Board- Eligible merchant banker- at least 21 days prior before sent to ROC..

Pricing by companies issuing securities A listed company whose equity shares are

listed on stock exchange may freely price its equity shares and convertible shares

Per issue: obligations: standard of due diligence and adequacy of disclosure of offer docs

Contents of offer documents.-

PENALTIES 15A-15J 15A. Penalty for failure to furnish

information, return-penalty of one lakh rupees for each day during which such failure continues or one crore rupees.

Penalty for failure by any person to enter into an agreement with clients.

Penalty for failure to redress investors' grievances- 1 lakh – 1crore

Penalty for failure in case of stock brokers – 1lakh – 1 crore

Penalty for insider trading – 25 crore Penalty for non-disclosure of acquisition of

shares and take-overs

15K.ESTABLISHMENT OF SECURITIES APPELLATE TRIBUNALS

a) summoning and enforcing the attendance of any person and examining him on oath; 

(b) requiring the discovery and production of documents;  (c) receiving evidence on affidavits;  (d) issuing commissions for the examination of witnesses

or documents;  (e) reviewing its decisions;  (f) dismissing an application for default or deciding it ex

parte;  (g) setting aside any order of dismissal of any application

for default or any order passed by it ex parte;  (h) any other matter which may be prescribed.

A STOCK EXCHANGE

A stock exchange is a form of exchange which provides services for stock brokers and traders to buy or sell stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends.

MARKET

Primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries.

The secondary market, is also called aftermarket, is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold After the initial issuance, investors can purchase from other investors in the secondary market.

Stock Market Intermediaries service providers. Their role is link different segments of the market. SEBI has introduced a number of intermediaries equipped with specialised skills and expertise to be available to the common investors, to carry out and assist them with a package of investment services. It is the role of SEBI to approve, register all these intermediaries and to regulate their functioning to provide a risk-free environment in the Stock Market.

Underwriting refers to the process that a large financial service provider (bank, insurer, investment house) uses to assess the eligibility of a customer to receive their products (equity capital, insurance, mortgage, or credit). The name derives from the Lloyd's of London insurance market.

MERCHANT BANKER

Merchant Bankers play a very important role in the IPO process of EMERGE and also have a role in Post listing phase. Their responsibilities are higher on the EMERGE platform as in addition to the conventional role of managing and underwriting the IPO, they are also responsible for ensuring market making for a period of three years from the IPO.

Educating the applicant company Preparing the new applicant's prospectus and other

related listing documents. Display of offer document on website Market Making arrangement-brokers of SME exchange Underwriting arrangement Arrangement with nominated investors