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SEBI & STOCK
EXCHANGES
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ESTABLISMENT
In 1988 the securities and exchange board of india
was established by government of india through an
executive resolution and was subsequently upgradedas a fully autonomous body (a statutory body) in the
year 1992 with the passing of securities and
exchange board of india act (SEBI act) on 30th janury
1992
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SEBI head quateredin popular businessdistrict of bandra-kurla complex in
mumbai
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Salient features of SEBI act 1992
Shall be a body corporate with perpetual succession ancommon seal with power to acquire hold and dispose of
property.
HQ will be in Mumbai and may establish offices at otherplaces in India.
Chairman and members of board will be appointed by thecentral government.
Government can prescribe terms of offices and otherconditions of service of the board and chairman.
Primary duties of the board is to protect the interest of theinvestors.
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Amendments
Can undertake inspection of any books.
Issue commission for the examinations of witness of
documents. Power to regulate or prohibit issue of prospectus.
Power to prohibit manipulative and deceptive devices.
Penalties levied under the act have been enhanced.
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Objectives of SEBI
The primary objective of SEBI is to promote healthy and orderly
growth of the securities market and secure investor protection.
The objective of SEBI are as follows:- To protect the interest of investors, so that , there is a steady
flow of savings into to the capital market.
To regulate the securities market and ensure fair practices.
To promote efficient services by brokers , merchant bankersand financial intermediaries, so that, they become competitive
and professional.
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Functions of SEBI
The SEBI act 1992 has entrusted with two functions they
are
1. Regulatory functions and
2. Developmental functions
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Regulatory functions
Regulation of stock exchanges and self regulatory organizations.
registration and regulation of stock brokers , sub-brokers ,
registrars of all issues, merchant bankers, underwriters, portfoliomanagers..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.
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Developmental functions
Promoting investors education.
Training of intermediaries.
Conducting research and publishing information useful to allmarket participants.
Promoting of fair practices.
Promotion of self regulatory organisations.
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Powers of SEBI
Power to call periodical returns from recognized stock
exchanges .
Power to compel listing of securities by public companies. Power to levy fees or other changes for carrying out the
purposes of regulation.
Power to call information or explanation from recognized
stock exchanges or their members. Power to grant approval to bye-laws of recognized stock
exchanges.
Power to control and regulate stock exchanges.
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Power to direct enquiries to be made in relation to affairs of
stock exchanges or their members.
Power to make or amend bye-laws of recognized stockexchanges.
Power to grant registration to market intermediaries
Power to declare applicability of section 17 of the securities
contract (regulation) act 1956 in any state or area to grantlicenses to dealers
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Structure of SEBI
the board shall consists of following members:-
1. Chairman
2. Two members, one from amongst the officials of the centralgovernment dealing with finance and another from the
administration of companies act of 1956.
3. One members from amongst the officials of the reserve bank
of india.4. five other members of whom atleast three shall be the
whole-time members to be appointed by the central
government.
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Model code of conduct
code of conduct:- the code of conduct has to be strictlyobserved and those employees, officers, or directors of thecompany who violate the code of conduct will be subject todisciplinary action by SEBI or by the company.
Duty of officers:- every listed company has to employ acompliance officer who as to report to MD or CEO of thecompany.
Security;- confidential files should be protected and keptsecure. these pertain to all files but especially computer filesand passwords, which are likely to have sensitive priceinformation.
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Closed trading window:- every company should have a closedtrading window period when no trade take places. It should beclosed period when the annual P&L and b/s have been declared,
when dividends have to be declared and amalgamations have tomade.
Open trading window:- SEBI has also provided that tradingwindows would open only after 24 hours of making sensitive priceavailable to the public.
Information;- to avoid insider trading practices each listed companyhas to provide sensitive information on a continous basis to thestock exchange.
Problems:- SEBI deals with the problems faced by the investors.These are dealt with the investor grievance cell.
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Investor grievance
Investor grievance are usually due to delays in dispatch of
allotment letters, refund orders, misleading statements in
advertisements or in the prospectus, delay in transfer ofsecurities, non-payment of interest or dividend.
These grievance are dealt with either SEBI or department of
company affairs.
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Ombudsman
SEBI issued ombudsman regulation in 2003 to provide fair andtransperent system of redressal of grievance.
These regulation empower an investor to get redressal against both
the company and the intermediaries. Complaints dealt by ombudsman act are1. Delays in receiving refund orders, allotment letters, dividend or
interest.2. Non-receipt of dividend, certificates, bonus shares, annual reports,
refunds in allotment or redemption of mutual fund unit.3. Non-receipt of letter of offers in respect of buy back of shares or
incase of delisting.4. Complaints against grievance against intermediaries or listed
companies.
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Rights of investor
To participate and to vote in annual general meetings and right to
receive a notice for them or their proxy to attend the meeting.
To receive dividend, right shares , bonus offers , from the company,after there approval of the board.
To receive and inspect minutes of the meeting.
To receive balance sheet , P&L account , auditors report , and
directors report.
To receive allotment letters and share certificates.
To requisition an extra ordinary general meeting.
To apply for winding up of the company.
To proceed in civil or criminal proceedings against the company.
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Stock Exchange Market
The expression 'stock market' refers to the market that
enables the trading of company stocks (collective shares),
other securities, and derivatives. Bonds are still traditionallytraded in an informal, over-the-counter market known as the
bond market. Commodities are traded in commodities
markets, and derivatives are traded in a variety of markets
(but, like bonds, mostly 'over-the-counter').
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Importance of Stock Market
Acts as sources for companies to raise money.
Clearinghouse for each transaction
Facilitates economic growth
Indicator of share prices and other assets of a
company
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Role and Functions Of StockMarket
Established for the purpose of assisting, regulating and controllingbusiness of buying, selling and dealing in securities
Provides a market for the trading of securities to individuals and
organizations seeking to invest their saving or excess funds throughthe purchase of securities
Provides a physical location for buying and selling securities thathave been listed for trading on that exchange
Establishes rules for fair trading practices and regulates the trading
activities of its members according to those rules Ensure transparency by providing information to the investor and
helps in intelligent decision making about the particular stockbased on information
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Benefits of Listing
Visibility
Market support
Investors confidence
Increased demand for products and services
Overall increase in profitability
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Delisting
Stock exchange can delist companies for a number of
reasons including :-
Merger with another company
Solvency problems
Failure to comply with exchange rules
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Desirable Characteristics of astock market
Availability of information Market efficiency
Prices react quickly to new information
Liquidity
Small price fluctuations
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Financing the exchange
Transaction fees paid by members for each order executed
Fees paid by firms when their securities are originally listed
Annual fees by firms
Entrance fees from new members Sale of historic trading and market information
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Major Challenges for stockexchanges
Cross border trading
Issuers and investors are expanding their horizons beyond their home
markets
Investors becoming much more demanding
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