What is SEBI?

What is SEBI? SEBI is the regulator for the security Market in India. In 1988 the
Securities and Exchange Board of India (SEBI) was established by the
Government of India through an executive resolution, and was subsequently
upgraded as a fully autonomous body on April 12, 1992 the Securities and
Exchange Board Of India was constituted. It was constituted in accordance with
the provisions of the Securities and Exchange Board Of India Act 1992.

Preamble:

Preamble “…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” 3 SEBI GUIDELINES

Functions of SEBI:

Functions of SEBI The Board is responsible for the securing the interests of
investors in securities and to facilitate the growth of and to monitor the securities
market in an appropriate manner. To monitor and control the performance of stock
exchange and derivative markets. Listing and monitoring the functioning of stock
brokers, sub brokers, share transfer agents, bankers to an issue, trustees of trust
deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers,
investment advisers and others associated with securities markets by any means.
Monitoring and Controlling the functioning of venture capital funds and mutual
funds. Forbid unjust and dishonest trade practices in the security markets and
forbid insider trading in the security market. Undertake periodic audits of stock
exchanges, mutual funds, individuals and self regulatory organizations associated
with the security market. 4 SEBI GUIDELINES
Why Investor’s Protection is important…! :

Why Investor’s Protection is important…! 5 SEBI GUIDELINES

Background:

Background Investors are the backbone of the securities market. They determine
the level of activity in the securities market and the level of activity in the
economy. Many investors may not possess adequate expertise/knowledge to take
informed investment decisions. May not be aware of the complete risk-return
profile of the different investment options. may not be fully aware of the
precautions they should take while dealing with market intermediaries and dealing
in different securities. They may not be familiar with the market mechanism and
the practices as well as their rights and obligations. 6 SEBI GUIDELINES

Scams in Stock Market…! :

Scams in Stock Market…! 7 SEBI GUIDELINES

Some Leading Scams in India:

Some Leading Scams in India Securities Scam – Harshad Mehta (1991-92)

Floating Companies Scam – C R Bhansali (1992-96) UTI Scam – Unit 64 –
Bailout Package of 3,500-4,000 Crores Home Trade – Sanjay Agarwal (2000) –
Around 300 Crores Scam Securities Scam – Ketan Parekh – Rs 1,500 Crores Fake
Stamp Fraud – Abdul Karim Telgi - Around 30,000 Crores DSQ Software –
Dinesh Dalmiya (2001) - Around 600 Crores IPO Scam – Karvy, Indiabulls
(2004-05) Satyam – Ramalinga Raju (2009) – Around 12,000 Crores. 8 SEBI
GUIDELINES

Steps taken by SEBI to make investors aware of their rights :

Steps taken by SEBI to make investors aware of their rights 9 SEBI

GUIDELINES

Slide 10:

Security Market Awareness Campaign (SMAC) was started with a motto “An
educated investor is a Protected investor.” “Invest with Knowledge” was the
message spread by this campaign. Workshops Advertisements Educative material
All India Radio – Information provided through AIR Programs frequently
Dedicated Website – http://investor.sebi.gov.in Cautionary message on television.
Internet based response System… 10 SEBI GUIDELINES

Slide 11:

11 SEBI GUIDELINES Source : www.sebi.gov.in

Issue of Securities:

Issue of Securities Dos Read the Prospectus/ Abridged Prospectus and carefully
note. Risk factors pertaining to the issue. Financials of the issuer. Object of the
issue. Outstanding litigations and defaults, if any. IPO Grading. Basis of issue
price. Business Overview. Background of promoters Instructions before making
application Don'ts Do not fall prey to market rumors Do not go by any
implicit/explicit promise made by any one. Do not invest based on bull run of the
market index/scripts of other companies in same industry/issuer company. Do not
bank upon the price of the shares of the issuer company to go up in the short run.
12 SEBI GUIDELINES Source : www.sebi.gov.in

Investing in Derivatives:

Investing in Derivatives Dos Go through all rules, regulations, bye-laws and

disclosures made by the exchanges. Trade only through Trading Member (TM)
registered with SEBI or authorized person of TM registered with the exchange.
ensure that the contract note has been issued by the TM of the authorized person
only Know your rights and duties vis-à-vis those of Trading Member. Go through
details of Client-Trading Member Agreement. Don'ts Do not start trading before
reading and understanding the Risk Disclosure Documents. Do not trade on any
product without knowing the risk and rewards associated with it. 13 SEBI
GUIDELINES Source : www.sebi.gov.in

Collective Investment Scheme:

Collective Investment Scheme Dos Before investing ensure that the entity is
registered with SEBI. Read the offer document of the scheme especially the risk
factors carefully. Check the viability of the project. Check and verify the
background/expertise of the promoters. Ensure that the Collective Investment
Management Company has the necessary infrastructure to carry out the scheme.
Check the credit rating of the scheme and tenure of the rating. Check for the
appraisal of the scheme and read the brief appraisal report. Read carefully the
objects of the scheme. Don'ts Do not invest in any CIS entity not having SEBI
registration. Do not get carried away by indicative returns. Do not invest based on
market rumours. 14 SEBI GUIDELINES Source : www.sebi.gov.in

Brokers and Sub-brokers:

Brokers and Sub-brokers Dos Deal only with SEBI registered Brokers. Ensure that
brokers have valid registration certificate Ensure that he is permitted to transact in
the market. State clearly who will place orders on your behalf. Insist on client
registration form to be signed by intermediary before commencing any operations
Read terms and conditions before entering into a agreement Make sure you sign
all the pages of the agreement Insist on valid contract notes for trades done each
day. Insist on bill for every settlement Ensure that all the necessary details like
broker’s name, trade time and number etc. are distinctly shown on a contract note..
Contd… 15 SEBI GUIDELINES Source : www.sebi.gov.in

Brokers and Sub-brokers:

Brokers and Sub-brokers Dos Contd… Insist on periodical statement of accounts.

Issue cheque/drafts in the name of intermediary only. Ensure receipt of payment
within 48 hours of payout In case of disputes, file written complaint to
intermediary, Stock Exchage/SEBI within a reasonable time. Familiarize yourself
with the rules, regulations and circulars issued by SEBI before carrying out any
transaction. Give clear and unambiguous instructions to the broker / sub broker.
Keep record of all the instructions given to brokers / Sub brokers. Keep track of
your portfolio in your demat A/c on a regular basis. 16 SEBI GUIDELINES
Source : www.sebi.gov.in
Brokers and Sub-brokers:

Brokers and Sub-brokers Don'ts Do not deal with unregistered intermediaries. Do

not pay more than approved brokerage to the intermediaries Do not undertake
deals for others Do not neglect to set out in writing, orders for higher value given
over phone. Do not accept blank delivery instructions slip while meeting security
pay-in obligations. Do not accept unsigned/duplicate contract note/confirmation
memo. Do not accept contract note/confirmation memo signed by any
unauthorised person. Do not delay payment/deliveries of securities to broker/ sub-
broker. Do not get carried away by luring advertisements, if any. Do not be led by
market rumours or get into shady transactions. 17 SEBI GUIDELINES Source :
www.sebi.gov.in

Investing in Mutual Funds:

Investing in Mutual Funds Dos Read the offer document carefully before
investing. Note that investments in Mutual Funds may be risky. Mention your
bank account number in the application form. Invest in a scheme depending upon
your investment objective and risk appetite. Note that Net Asset Value of a
scheme is subject to change depending upon market conditions. Insist for a copy
of the offer document/key information memorandum before investing. Note that
past performance of a scheme is not indicative of future performance. Past
performance of a scheme may or may not be sustained in future. Keep track of the
Net Asset Value of a scheme, where you have invested, on a regular basis. Find
out about the investment profile provided in portfolio disclosures which is
available on half yearly basis. 18 SEBI GUIDELINES Source : www.sebi.gov.in

Investing in Mutual Funds:

Investing in Mutual Funds Don'ts Do not invest in a scheme just because
somebody is offering you a commission or other incentive, gifts etc. Do not get
carried away by the name of the scheme/Mutual Fund. Do not fall prey to
promises of unrealistic returns. Do not forget to take note of risks involved in the
investment. Do not hesitate to approach concerned persons and then the
appropriate authorities for any problem. Do not deal with any agent/broker dealer
who is not registered with Association of Mutual Funds in India (AMFI). Avoid
herd mentality while buying / selling into mutual fund schemes. Do not leave out
KYC details in your application forms. That will make the forms liable for
rejection. Do not rush into making investments that do not match your risk taking
appetite and investment goals. Investors should be wary of concentrating their
mutual fund portfolio in one particular asset class and not diversifying across
various types of scheme profiles. 19 SEBI GUIDELINES Source :
www.sebi.gov.in

Dealing in Securities:

Dealing in Securities Dos Transact only through Stock Exchanges. Deal only
through SEBI registered intermediaries. Complete all the required formalities of
opening an account properly (Client registration, Client agreement forms etc). Ask
for and sign “Know Your Client Agreement”. Read and properly understand the
risks associated with investing in securities / derivatives before undertaking
transactions. Assess the risk – return profile of the investment as well as the
liquidity and safety aspects before making your investment decision. Ask all
relevant questions and clear your doubts with your broker before transacting.
Invest based on sound reasoning after taking into account all publicly available
information and on fundamentals. Give clear and unambiguous instructions to
your broker / sub-broker / depository participant. Be vigilant in your transactions.
20 SEBI GUIDELINES Source : www.sebi.gov.in

Dealing in Securities:

Dealing in Securities Don'ts Given the benefits of trading on stock exchange it is

advisable to avoid off-market transactions. Do not deal with unregistered
intermediaries. Do not fall prey to promises of unrealistic returns. Do not invest on
the basis of hearsay and rumors; verify before investment. Do not forget to take
note of risks involved in the investment. Do not be misled by rumours circulating
in the market. Do not be influenced into buying into fundamentally unsound
companies (penny stocks) based on sudden spurts in trading volumes or prices or
non authentic favorable looking articles / stories. Do not follow the herd or play on
momentum - it could turn against you. Do not be misled by so called hot tips. Do
not try to time the market. Do not hesitate to approach the proper authorities for
redressal of your doubts / grievances. 21 SEBI GUIDELINES Source :
www.sebi.gov.in