SEBIAnnual Report

This Report is in conformity with the format as per the Securities and Exchange Board of India (Annual Report)
Rules, 1994, notified in Official Gazette on April 7, 1994.
MEMBERS OF THE BOARD

(As on March 31, 2010)
C B BHAVE CHAIRMAN Members appointed under Section 4(1)(d) of the SEBI Act, 1992 (15 of 1992) M S SAHOO WHOLE TIME MEMBER K M ABRAHAM WHOLE TIME MEMBER PRASHANT SARAN WHOLE TIME MEMBER G MOHAN GOPAL Director National Judicial Academy Bhopal T V MOHANDAS PAI Director Infosys Technologies Limited Bangalore Members nominated under Section 4(1)(b) of the SEBI Act, 1992 (15 of 1992) R BANDYOPADHYAY Secretary Ministry of Corporate Affairs Government of India K P KRISHNAN Joint Secretary Ministry of Finance Department of Economic Affairs Government of India Member nominated under Section 4(1)(c) of the SEBI Act, 1992 (15 of 1992) USHA THORAT Deputy Governor Reserve Bank of India 5
MEMBERS OF THE SEBI BOARD

(As on March 31, 2010)
C B BHAVE Chairman
M S SAHOO Whole Time Member
K M ABRAHAM Whole Time Member
PRASHANT SARAN Whole Time Member
G MOHAN GOPAL Director National Judicial Academy Bhopal
T V MOHANDAS PAI Director Infosys Technologies Limited Bangalore
R BANDYOPADHYAY Secretary Ministry of Corporate Affairs Government of India
K P KRISHNAN Joint Secretary Ministry of Finance Department of Economic Affairs Government of India 7
USHA THORAT Deputy Governor Reserve Bank of India
CHAIRMAN, WHOLE TIME MEMBERS AND EXECUTIVE DIRECTORS
Left to Right : Sitting : Dr. K.M. Abraham, Whole Time Member, Shri C.B. Bhave, Chairman, Shri M.S. Sahoo, Whole Time Member, Shri Prashant Saran, Whole Time Member.
Standing : Dr. K.N. Vaidyanathan, Executive Director, Shri Ananta Barua, Executive Director, Dr. Pradnya Saravade, Executive Director, Smt. Usha Narayanan, Executive Director, Shri J. Ranganayakulu, Executive Director, Shri J.N. Gupta, Executive Director, Shri P.K. Nagpal, Executive Director.
CONTENTS
Page No. List of Tables ..................................................................................................................................... List of Charts .................................................................................................................................... List of Boxes ...................................................................................................................................... List of Abbreviations ....................................................................................................................... PART ONE: POLICIES AND PROGRAMMES 1. 2. GENERAL MACRO-ECONOMIC ENVIRONMENT .................................................... REVIEW OF POLICIES AND PROGRAMMES ............................................................. I. II. III. IV. V. VI. VII. VIII. IX. X. Primary Securities Market .......................................................................................... Secondary Securities Market ...................................................................................... Corporate Debt Market ............................................................................................... Mutual Funds................................................................................................................ Portfolio Managers ....................................................................................................... Foreign Institutional Investors ................................................................................... Takeovers ....................................................................................................................... Delisting ......................................................................................................................... Investor Assistance and Education ........................................................................... Retrospect and Prospects ............................................................................................ 1 6 7 12 21 21 26 27 28 29 29 36 vi x xi xii
PART TWO: REVIEW OF TRENDS AND OPERATIONS 1. PRIMARY SECURITIES MARKET.................................................................................... I. II. III. IV. 2. I. II. III. Resource Mobilisation ................................................................................................. Sector-wise Resource Mobilisation ............................................................................ Size-wise Resource Mobilisation ............................................................................... Industry-wise Resource Mobilisation ....................................................................... SECONDARY SECURITIES MARKET .................................................................. Equity Market in India ................................................................................................ Performance of Sectoral Indices................................................................................. Turnover in the Indian Stock Market ....................................................................... i 38 38 40 41 43 44 44 46 49
CONTENTS
Page No. IV. V. VI. VII. VIII. IX. X. 3. Market Capitalisation .................................................................................................. Stock Market Indicators .............................................................................................. Volatility in Stock Markets ......................................................................................... Trading Frequency ....................................................................................................... Activities of Stock Exchanges..................................................................................... Dematerialisation ......................................................................................................... Derivatives Market in India........................................................................................ 50 51 54 56 59 60 62 73 73 75 76 81
TRENDS IN THE BOND MARKET .................................................................................. I. II. Corporate Bond Market .............................................................................................. Wholesale Debt Market ...............................................................................................
4. 5.
MUTUAL FUNDS .................................................................................................................. FOREIGN INSTITUTIONAL INVESTMENT.................................................................
PART THREE: REGULATION OF SECURITIES MARKET 1. INTERMEDIARIES ............................................................................................................... I. II. III. IV. V. VI. VII. VIII. IX. X. 2. Streamlining the Registration Process of Intermediaries ...................................... Registered Intermediaries other than Stock Brokers and Sub-brokers ............... Registration of Stock Brokers ..................................................................................... Registration of Sub-brokers ........................................................................................ Recognition of Stock Exchanges ................................................................................ Registration of Foreign Institutional Investors and Custodians of Securities ... Registration of Collective Investment Schemes ...................................................... Registration of Mutual Funds .................................................................................... Registration of Venture Capital Funds ..................................................................... Fees and Other Charges .............................................................................................. 86 86 86 86 90 90 92 93 93 93 94 95 95 95
CORPORATE RESTRUCTURING ..................................................................................... I. II. Substantial Acquisition of Shares and Takeovers ................................................... Buyback.......................................................................................................................... ii
CONTENTS
Page No. 3. SUPERVISION ....................................................................................................................... I. II. III. 4. Inspection of Market Intermediaries ........................................................................ Inspection of Stock Exchanges................................................................................... Follow-up Inspection Reports.................................................................................... 96 96 97 98 98 98 99 99 99 100 100 100 101 111 112 112 115 116 116 119 120 121 121 123 123 123
SURVEILLANCE .................................................................................................................... I. II. III. IV. V. VI. VII. VIII. Mechanism of Market Surveillance .......................................................................... Surveillance Actions .................................................................................................... Surveillance Measures................................................................................................. Significant Market Movements during 2009-10 ...................................................... Integrated Market Surveillance System ................................................................... Data Warehousing and Business Intelligence System ........................................... Implementation of Wadhwa Committee Report .................................................... Enforcement ..................................................................................................................
5.
INVESTIGATION .................................................................................................................. I. II. III. Process of Investigation............................................................................................... Trends in Investigation Cases .................................................................................... Regulatory Action ........................................................................................................
6.
ENFORCEMENT OF REGULATIONS .............................................................................. I. II. III. IV. V. VI. Enquiry and Adjudication .......................................................................................... Market Intermediaries ................................................................................................. Regulatory Actions against Mutual Funds .............................................................. Regulatory Actions under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ..................................................................................... Regulatory Actions against FIIs ................................................................................. Regulatory Actions against Stock Brokers and Sub-brokers ................................
7.
PROSECUTION ..................................................................................................................... I. Trends in Prosecution .................................................................................................. iii
CONTENTS
Page No. II. III. IV. 8. Nature of Prosecution ................................................................................................. Disposal of Prosecution Cases ................................................................................... Litigations, Appeals, Consent and Compounding ................................................. 127 127 128 130
RESEARCH ACTIVITIES.....................................................................................................
PART FOUR: REGULATORY CHANGES 1. REGULATORY DEVELOPMENTS .................................................................................... I. II. III. 2. New Regulations .......................................................................................................... Amendments to Existing Rules/Regulations ........................................................... Other Notifications ....................................................................................................... 132 132 134 140 141 141 144 145 151
SIGNIFICANT COURT PRONOUNCEMENTS ............................................................. I. II. III. IV. Supreme Court.............................................................................................................. High Courts................................................................................................................... Securities Appellate Tribunal ..................................................................................... Proposed Amendments ...............................................................................................
PART FIVE: ORGANISATIONAL MATTERS 1. 2. 3. SEBI BOARD .......................................................................................................................... AUDIT COMMITTEE ........................................................................................................... HUMAN RESOURCES ......................................................................................................... I. II. III. IV. V. VI. 4. Staff Strength, Recruitment and Deputation ........................................................... Training and Development ......................................................................................... Internship....................................................................................................................... Promotions .................................................................................................................... Enhancement of Staff Pay, Allowance and Benefits ............................................... Disciplinary Matters .................................................................................................... 153 153 153 154 154 155 155 155 155 156 156
NATIONAL INSTITUTE OF SECURITIES MARKETS................................................ I. Certification of Associated Persons in the Securities Markets.............................. iv
CONTENTS
Page No. II. III. IV. V. VI. 5. 6. 7. 8. Financial Literacy and Investor Education .............................................................. Corporate Governance ................................................................................................ Executive Education .................................................................................................... Securities Market Education....................................................................................... Research Studies ........................................................................................................... 156 156 156 157 157 157 157 158 158 158 159 160 160 161 161 161 161 161 162 165
VIGILANCE ............................................................................................................................ PROMOTION OF OFFICIAL LANGUAGE..................................................................... INFORMATION TECHNOLOGY ...................................................................................... INTERNATIONAL CO-OPERATION ............................................................................... I. II. III. IV. V. VI. VII. VIII. SEBI Association with G20 /FSB work and other Multi-lateral Agencies .......... Association with IOSCO ............................................................................................. MoU Agreements signed during 2009-10 ................................................................ MMoU and MoU Requests ......................................................................................... Technical Assistance..................................................................................................... SEBIs Participation in the International Training Programmes ........................... Visits by Foreign Delegations/Dignitaries to SEBI ................................................. Study Visits for Overseas Regualtors Organised by SEBI.....................................
9.
PARLIAMENTARY QUESTIONS ......................................................................................
10. RIGHT TO INFORMATION ACT ..................................................................................... CHRONOLOGY OF MAJOR POLICY INITIATIVES BY SEBI ...........................................
LIST OF TABLES
Table No. 1.1 1.2 1.3 1.4 1.5 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 2.14 2.15 2.16 2.17 2.18 2.19 2.20 2.21 2.22 2.23 2.24 2.25 2.26 2.27 2.28 Name Page No. 2 3 4 30 31 39 40 40 41 42 43 45 48 48 49 50 51 52 53 53 55 55 56 57 58 59 60 61 61 62 62 64 65
National Income (at 2004-05 prices) .......................................................................... GDP (at Factor Cost) by Economic Activity (at 2004-05 prices) ........................... Gross Domestic Savings and Investment ................................................................. Status of Investor Grievances Received and Redressed......................................... Type-wise Status of Grievances Awaiting Redressal .............................................. Resource Mobilisation through Public and Rights Issues ..................................... Resource Mobilisation through Qualified Institutions Placement ...................... Sector-wise Resource Mobilisation ............................................................................ Size-wise Resource Mobilisation ................................................................................ Mega Issues in 2009-10 ................................................................................................ Industry-wise Resource Mobilisation........................................................................ Major Indicators of Indian Stock Markets ................................................................ Major Stock Indices and their Returns...................................................................... Sectoral Stock Indices and their Returns .................................................................. Exchange-wise Cash Segment Turnover................................................................... Turnover at BSE and NSE: Cash Segment................................................................ City-wise Turnover of Top 10 Cities in Cash Segment during 2009-10 .............. Market Capitalisation at BSE ...................................................................................... Market Capitalisation at NSE ..................................................................................... Selected Ratios relating to Stock Market .................................................................. Price-Earnings Ratio ..................................................................................................... Price to Book-Value Ratio ............................................................................................ Average Daily Volatility of Benchmark Indices ...................................................... Trends in Daily Volatility of International Stock Market Indices during 2009-10............................................................................................................... Trading Frequency of Listed Stocks .......................................................................... Share of Brokers, Securities and Participants in Cash Market Turnover ............ Trading Statistics of Stock Exchanges ....................................................................... Turnover of Subsidiaries of Stock Exchanges .......................................................... Depository Statistics: Equity Shares .......................................................................... Depository Statistics: Debenture/Bonds and Commercial Paper ......................... Cities according to Number of DP Locations: Geographical Spread .................. Trends in Turnover and Open Interest in Equity Derivatives .............................. Product-wise Derivatives Turnover at NSE and BSE ............................................. vi
LIST OF TABLES
Table No. 2.29 2.30 2.31 2.32 2.33 2.34 2.35 2.36 2.37 2.38 2.39 2.40 2.41 2.42 2.43 2.44 2.45 2.46 2.47 2.48 2.49 2.50 2.51 2.52 3.1 3.1a 3.2 Name Page No. 66 66 67 67 68 69 69 73 73 74 74 75 75 76 77 77 78 79 80 81 81 82 83 85 87 87 87
Trends in Index Futures at NSE and BSE ................................................................. Trends in Single Stock Futures at NSE and BSE ..................................................... Trends in Index Options at NSE and BSE ................................................................ Trends in Stock Options at NSE and BSE ................................................................ Shares of Various Classes of Members in Derivatives Turnover at NSE and BSE ................................................................................................................. Trends in Currency Futures Segment ....................................................................... Share of Top 10 Members in Currency Derivatives Segment of NSE, BSE and MCX-SX .......................................................................................................... Trends in Turnover and Open Interest in Interest Rate Derivatives (10 Year Notional Coupon Bearing GoI Security Futures) at NSE....................... Secondary Market: Corporate Bond Trades ............................................................. Settlement of Corporate Bond Trades ....................................................................... Private Placement of Corporate Bonds reported to NSE and BSE....................... Business Growth on the Wholesale Debt Market Segment of NSE ..................... Instrument-wise Share of Securities Traded in Wholesale Debt Market Segment of NSE ............................................................................................................ Share of Participants in Turnover of Wholesale Debt Market Segment of NSE Mobilisation of Resources by Mutual Funds ........................................................... Sector-wise Resource Mobilisation by Mutual Funds during 2009-10 ................ Scheme-wise Resource Mobilisation and Assets under Management by Mutual Funds as on March 31, 2010 ......................................................................... Number of Schemes by Investment Objectives ....................................................... Trends in Transactions on Stock Exchanges by Mutual Funds ............................ Unit Holding Pattern of All Mutual Funds as on March 31, 2010 ....................... Unit Holding Pattern of Private and Public Sector Mutual Funds as on March 31, 2010 .................................................................................................... Investment by Foreign Institutional Investors......................................................... Investment by Mutual Funds and Foreign Institutional Investors ...................... Notional Value of Open Interest of Foreign Institutional Investors in Derivatives during 2009-10 ......................................................................................... Registered Intermediaries other than Stock Brokers and Sub-brokers ............... Intermediaries other than Stock Brokers and Sub-brokers in the Process of Registration................................................................................................. Registered Stock Brokers ............................................................................................. vii
LIST OF TABLES
Table No. 3.2a 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.9a 3.10 3.11 3.12 3.13 Name Page No. 87 88 90 90 91 91 92 93 93 93 94 94
Stock Broker and Sub-broker Applications in the Process of Registration as on March 31, 2010 .................................................................................................... Classification of Stock Brokers in Cash Segment on the Basis of Ownership ... Number of Registered Members in Equity Derivatives Segment during 2009-10............................................................................................................... Number of Members Registered in Currency Derivatives Segment during 2009-10............................................................................................................... Registered Sub-Brokers................................................................................................ Stock Exchanges with Permanent Recognition........................................................ Renewal of Recognition Granted to Stock Exchanges during 2009-10 ................ Number of Registered FIIs, Sub-accounts and Custodians ................................... Status of Registration of FII, Sub-accounts and Custodians during 2009-10 ..... Mutual Funds Registered with SEBI ......................................................................... Registered Venture Capital Funds ............................................................................. Fees and other Charges ............................................................................................... Status of Draft Letters of Offers for Open Offers Filed under Regulation 18(1) of SEBI (SAST) Regulations, 1997 and Takeover Panel Applications during 2009-10............................................................................................................... Open Offers and Exemptions from Open Offers .................................................... Buyback Cases during 2009-10 ................................................................................... Inspection of Stock Brokers/Sub-brokers .................................................................. Inspection by Stock Exchanges/Clearing Corporation ........................................... Inspection of other Market Intermediaries .............................................................. Number of Surveillance Actions during 2009-10 .................................................... Investigations by SEBI ................................................................................................. Nature of Investigations Taken Up and Completed............................................... Type of Regulatory Actions Taken............................................................................. Enquiry and Adjudication during 2009-10 ............................................................... Age-wise Analysis of Enforcement Actions-u/s 11, 11B and 11D of SEBI Act (As on March 31, 2010) ............................................................................... Age-wise Analysis of Enforcement Actions - Enquiry Proceedings (As on March 31, 2010) ................................................................................................ Age-wise Analysis of Enforcement Actions - Adjudication Proceedings (As on March 31, 2010) ................................................................................................
95 95 96 97 97 97 99 112 114 115 116 117 117 118
3.14 3.15 3.16 3.16a 3.17 3.18 3.19 3.20 3.21 3.22 3.23a 3.23b 3.23c
viii
LIST OF TABLES
Table No. 3.23d 3.23e 3.24 3.25 3.26 3.27 3.28 3.29 3.30 3.31 3.31a 3.32 3.33 3.34 3.35 4.1 5.1 5.2 5.3 5.4 5.5 5.6 5.7 Name Page No. 119 120 120 120 124 124 127 127 128 128 129 130 130 130 131 136 153 155 161 162 162 163 163
Age-wise Analysis of Enforcement Actions - Prosecution Proceedings (As on March 31, 2010) ................................................................................................ Age-wise Analysis of Enforcement Actions-Summary Proceedings under SEBI Act (As on March 31, 2010) ............................................................................... Enquiry and Adjudication Proceedings Initiated against Stock Brokers/ Sub-brokers during 2009-10 ........................................................................................ Enquiry and Adjudication Proceedings Initiated against other Intermediaries during 2009-10 ................................................................................... Prosecutions Launched ................................................................................................ Region-wise Data on Prosecution Cases as on March 31, 2010 ............................ Nature of Prosecutions Launched as on March 31, 2010....................................... Number of Prosecution Cases decided by the Courts as on March 31, 2010 .... Court Cases where SEBI was a Party during 2009-10 ............................................ Appeals before the Securities Appellate Tribunal during 2009-10 ....................... Disposals of Appeals by Securities Appellate Tribunal ......................................... Appeals under Section 15Z of the SEBI Act against the Orders of Securities Appellate Tribunal during 2009-10 ............................................................................ Consent Applications filed with SEBI during 2009-10 ........................................... Compounding Applications filed by the Accused in Criminal Courts during 2009-10............................................................................................................... Receipt and Disposal of Applications under Consent and Compounding Process during 2009-10 ................................................................................................ Revision of Fees ............................................................................................................ Board Meetings during 2009-10 ................................................................................. Promotion of SEBI Officials during 2009-10 ............................................................ Parliamentary Queries Received/Raised ................................................................... Break-up of Parliamentary Queries Received and Replied by SEBI during 2009-10............................................................................................................... Queries/Points Raised by Various Committees and Replied by SEBI during 2009-10 .................................................................................................... Status of Application under RTI Act during 2009-10 ............................................. Number of Issues Raised/Replied in RTI Queries ..................................................
ix
LIST OF CHARTS
Chart No. 1.1 1.2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 3.1 3.2 3.3 3.4 3.5 3.6 Name Page No. 3 5 39 41 44 46 47 47 54 58 63 65 83 84 89 89 113 114 115 116
Share of Components of GDP (at Factor Cost) ................................................. Share of Types of Savings in Financial Savings of the Household Sector ... Share of Broad Categories of Issues in Resource Mobilisation...................... Sector-wise Resource Mobilisation ..................................................................... Movement of Benchmark Stock Market Indices (2009-10) ............................. Year-on-Year Returns: International Indices (2009-10)..................................... Movement of Sectoral Indices of BSE (2009-10) ............................................... Movement of Sectoral Indices of NSE (2009-10) .............................................. P/E Ratio of International Stock Market Indices ............................................. Annualised Volatility of International Stock Market Indices (2009-10)........ Derivatives Turnover vis--vis Cash Market Turnover (2009-10) .................. Product-wise Share in Derivative Turnover at NSE and BSE ........................ Trends in Foreign Institutional Investment ....................................................... Net Institutional Investment and Monthly Average Sensex and Nifty Values .................................................................................................... Ownership Pattern of Stock Brokers (As on March 31, 2010) ........................ Percentage Share of Stock Brokers (By Ownership) (As on March 31, 2010) ......................................................................................... Investigation Cases ................................................................................................ Nature of Investigation Cases Taken Up (2009-10) .......................................... Nature of Investigation Cases Completed (2009-10) ....................................... Type of Regulatory Actions Taken......................................................................
LIST OF BOXES
Box No. 1.1 1.2 1.3 1.4 1.5 2.1 2.2 3.1 3.2
Name
Page No. 7 8 12 18 23 70 71 109 129
Salient Features of Pure Auction Method in Public Offerings ............................... Introduction of Concept of Anchor Investors in Public Offerings ....................... Convergence of Indian Accounting Standards with IFRS ....................................... 10-Year Notional Coupon-bearing Government of India (GoI) Security Futures No Entry Load for Mutual Fund Investments .......................................................... Currency Options ........................................................................................................... Comparative Study of Futures on USD: INR versus OTC Currency Forward Market ............................................................................................ IPO Irregularities and Reallocation of Disgorged Amount..................................... Consent and Compounding Scheme of SEBI ............................................................
This Report can also be accessed on internet http://www.sebi.gov.in
Conventions used in this Report Rs. Lakh Crore Million Billion NA : : : : : : Rupees Hundred thousand Ten million Ten lakh Thousand million/hundred crore Not Available
Differences in total are due to rounding off and sometimes they may not exactly add up to hundred percent. Source of Tables, Charts and Boxes where not mentioned, is SEBI. xi
ABBREVIATIONS
AGM AMC AMFI AML AP APEC APRC ASBA ATR AUC AUM BO bps BTST CBSE CDD CDR CDSC CDSL CEO CFO CFT CFTC CIC CIS CISA CISM CLB CM CRA CRR CSO DFSA DIP DPs DTC Annual General Body Meeting Asset Management Company Association of Mutual Funds in India Anti-Money Laundering Authorised Persons Asia Pacific Economic Co-operation Asia Pacific Regional Committee Application Supported by Blocked Amount Action Taken Report Assets Under Custody Assets Under Management Beneficiary Owner Basis Points Buy Today Sell Tomorrow Central Board of Secondary Education Customer Due Diligence Corporate Debt Restructuring Contingent Deferred Sales Charge Central Depository Services (India) Limited Chief Executive Officer Chief Financial Officer Combating Financing of Terrorism Commodities Futures Trading Commission Central Information Commission Collective Investment Scheme Certified Information System Auditor Certified Information Security Manager Company Law Board Clearing Members Credit Rating Agency Cash Reserve Ratio Central Statistical Organisation Dubai Financial Services Authority Disclosure and Investor Protection Depository Participants Direct Tax Code xii
ABBREVIATIONS
DvP DWBIS ECNs EGM ELSS EMC ESOS ESPS ETF FoF F&O FAQs FATF FCD FCFS FEMA FFMS FII FIIs FIMMDA FIU-IND FMCG FPOs FRBM FSC FSF FVCI GDCF GDP GDS GETF GNI GNP GoI IA IAD Delivery Vs Payment Data Warehousing and Business Intelligent System Electronic Contract Notes Extraordinary General Meeting Equity Linked Saving Scheme Emerging Markets Committee Employee Stock Option Scheme Employee Share Purchase Scheme Exchange Traded Fund Fund of Funds Futures and Options Frequently Asked Questions Financial Action Task Force Fully Convertible Debenture First Come First Served Foreign Exchange Management Act Financial Markets Service of Russian Federation Foreign Institutional Investment Foreign Institutional Investors Fixed Income Money Market and Derivatives Association of India Financial Intelligence Unit - India Fast Moving Consumer Goods Follow-on Public Offerings Fiscal Responsibility and Budget Management Act Financial Services Commission Financial Stability Forum Foreign Venture Capital Investor Gross Domestic Capital Formation Gross Domestic Product Gross Domestic Savings Gold Exchange Traded Fund Gross National Income Gross National Product Government of India Investors' Associations Investor Awareness Division xiii
ABBREVIATIONS
ICAI ICCL ICDM ICDR IDR IFIE IFRS IMF IMSS INR IOSCO IPEF IPO IRDA ISD IT ITF JPY KYC LAF MCX-SX MFs MIMPS MMoU MoF MoU MSS MWPL NASDAQ NAV NBFC NCAER NCD NDP NFO NGO Institute of Chartered Accountants of India Indian Clearing Corporation Ltd. Indian Corporate Debt Market Issue of Capital and Disclosure Requirements Indian Depository Receipt International Forum for Investor Education International Financial Reporting Standards International Monetary Fund Integrated Market Surveillance System Indian Rupee International Organisation of Securities Commissions Investor Protection and Education Fund Initial Public Offer Insurance Regulatory and Development Authority Integrated Surveillance System Information Technology Implementation Task Force Japanese Yen Know Your Client Liquidity Adjustment Facility MCX Stock Exchange Mutual Funds Manner of Increasing and Maintaining Public Shareholding in Stock Exchanges Multilateral Memorandum of Understanding Ministry of Finance Memorandum of Understanding Market Stabilisation Scheme Market Wide Position Limits National Association of Securities Dealers Automated Quotations Net Asset Value Non-Banking Financial Company National Council of Applied Economic Research Non Convertible Debenture Net Domestic Product New Fund Offer Non-Government Organisations xiv
ABBREVIATIONS
NIC NISM NNI NNP NOC NRIs NSCCL NSDL ODI OECD OIAE OMO OSD OTC P/B ratio P/E ratio PA PAC PAN PCD PFUTP PMLA PoA PSU QIB QIP RBI RII RoC RSEs RTA RTGS RTI SAARC SAI National Informatics Centre National Institute of Securities Markets Net National Income Net National Product No Objection Certificate Non-Resident Indians National Securities Clearing Corporation Ltd. National Securities Depository Limited Offshore Derivatives Instrument Organisation for Economic Co-operation and Development Office of Investor Assistance and Education Open Market Operations Officer on Special Duty Over the Counter Price to Book-Value Ratio Price-Earnings Ratio Public Announcement Person-Acting-in-Concert Permanent Account Number Partly Convertible Debenture Prevention of Fraudulent and Unfair Trade Practices Prevention of Money Laundering Act Power of Attorney Public Sector Undertaking Qualified Institutional Buyer Qualified Institutional Placement Reserve Bank of India Retail Individual Investors Registrar of Companies Regional Stock Exchanges Registrar to an Issue and Share Transfer Agent Real Time Gross Settlement Right to Information South Asian Association for Regional Cooperation Statement of Additional Information xv
PNs/P-Notes Participatory Notes
ABBREVIATIONS
SAT SC(R)A SC(R)R SCB SCM SCODA SCORES SCSB SEBON SEC SID SLB SMAC SRO SS&SHA STP T-Bills TC TM TRAC UPSI USD UTI MF VaR VCF WDM WPI Securities Appellate Tribunal Securities Contracts (Regulation) Act Securities Contracts (Regulation) Rules Scheduled Commercial Bank Self Clearing Member SEBI Committee on Disclosures & Accounting Standards SEBI Complaints Redress System Self Certified Syndicate Banks Securities Board of Nepal Securities and Exchange Commission Scheme Information Document Securities Lending and Borrowing Secondary Market Advisory Committee Self Regulatory Organisation Share Subscription and Shareholder Agreement Straight Through Processing Treasury Bills Technical Committee Trading Member Takeover Regulations Advisory Committee Unpublished Price Sensitive Information United States Dollar UTI Mutual Fund Value at Risk Venture Capital Fund Wholesale Debt Market Wholesale Price Index
xvi
Part One: Policies and PART ONE: POLICIES AND PROGRAMMESProgrammes
The Annual Report of the Securities and Exchange Board of India (SEBI) for 2009-10 articulates the policies and programmes of SEBI and its working and operations during the financial year as per the format prescribed by the Securities and Exchange Board of India (Annual Report) Rules, 1994. During the year, SEBI continued to pursue its three statutory objectives, namely: (a) protection of the interests of investors in securities, (b) promotion of the development of the securities market and (c) regulation of the securities market. SEBI pursues these objectives in a transparent manner in consultation with the regulated entities. Advisory Committees have been constituted in all major areas of work. Consultation on major policy issues is carried out by putting discussion papers in public domain and seeking comments from public. All its decision/orders are placed on its website. The agenda papers of the Board are put on the website. In line with the stated objectives, this Report provides the manner in which SEBI discharged its responsibilities and exercised its powers during the year in furtherance of the objectives enshrined in (a) the Securities and Exchange Board of India Act, 1992, (b) the Securities Contracts (Regulation) Act, 1956 (c) the Depositories Act, 1996 and (d) the relevant provisions of the Companies Act, 1956. The Report also provides a review of the developments in the Indian securities market during 2009-10, in the context of changing dynamics of securities market regulations. Against the backdrop of increasing integration of global financial markets, SEBI channelised its efforts to bring out regulations to withstand the domestic and global developments. SEBI, in its attempt to 1
strengthen the existing regulatory framework, policies and programmes, introduced new guidelines and regulations to promote orderly growth of securities market while ensuring transparency, efficiency, fairness, safety and integrity.
1.
GENERAL MACRO-ECONOMIC ENVIRONMENT
Indian economy remained one of the fastest growing economies in the world, as it managed to come out of the slowdown, post global financial crisis, during 2009-10. According to revised estimates of Central Statistical Organisation (CSO), real GDP grew at 7.4 percent in 2009-10 in comparison to 6.7 percent in 2008-09 (Table 1.1). The services sector continued to be the main driver of growth in India, albeit at a moderate rate, with a growth of 8.3 percent in 2009-10 compared to 9.3 percent in 2008-09. Growth in the industrial sector was at 10.4 percent, where manufacturing activities recorded a growth of 10.8 percent in 2009-10 compared to 3.2 percent in 2008-09 (Table 1.2). The agricultural sector registered a subdued growth of 0.2 percent in 2009-10 compared to a growth of 1.6 percent in 2008-09. The share of agriculture and allied activities in overall GDP declined from 15.7 percent in 2008-09 to 14.6 percent in 2009-10 (Chart 1.1). The share of services sector rose from 64.4 percent to 64.9 percent while the share of industry remained stable around 20.0 percent. During the first three years of the Eleventh Plan period (2007-12), Indias real GDP grew at 7.8 percent per annum (average) equaling that of the Tenth Plan period (2002-07). Factors that contributed towards the acceleration in manufacturing activities were strong domestic demand, improved investment climate and turnaround in exports
Annual Report 2009-10
Table 1.1: National Income (at 2004-05 prices)

(Rs.crore) Item 1 A. Estimates at Aggregate Level 1. National Product 1.1 Gross National Income (GNI) at factor cost 1.2 Net National Income (NNI) at factor cost 2. Domestic Product 2.1 Gross Domestic Product (GDP) at factor cost 2.2 Net Domestic Product (NDP) at factor cost B. Estimates at Per Capita Level 1. 2. 3. Population (million) Per Capita NNI at factor cost (Rs.) Per Capita GDP at factor cost (Rs.) 1,138 (1.4) 30,316 (8.0) 34,213 (7.7) 1,154 (1.4) 31,821 (5.0) 36,005 (5.2) 1,170 (1.4) 33,588 (5.6) 38,155 (6.0) 38,93,457 (9.2) 34,67,041 (9.1) 41,54,973 (6.7) 36,88,991 (6.4) 44,64,081 (7.4) 39,54,861 (7.2) 38,76,386 (9.6) 34,49,970 (9.5) 41,38,174 (6.8) 36,72,192 (6.4) 44,39,702 (7.3) 39,29,853 (7.0) 2007-08 2008-09 (Quick Estimates) 3 2009-10 (Revised Estimates) 4
Note: Figures in the parentheses are percentage change over the previous year. Source: Central Statistical Organisation.
due to gradual global recovery following the financial meltdown. A rise in growth rate for capital goods indicated momentum in industrial activity. Automobiles, machinery and equipment other than transport equipment, rubber and plastic products, wool and silk textiles and chemicals and chemical products registered acceleration in 2009-10. Consumer goods sector saw an uptick in growth rate due to strong demand observed in the durables segment. Also, growth in intermediate goods, basic goods and infrastructure sector gathered strength. During 2009-10, services sector continued to remain the largest contributor to GDP. In terms of growth during 200910, construction, trade, hotel, transport and communication recorded improved growth 2
rate. However, community, social and personal services and financing, insurance, real estate and business services witnessed deceleration in growth rate during 2009-10. As per the CSO data on Indias savings and investments, Indias Gross Domestic Savings (GDS) as proportion of GDP at market prices decreased from 36.4 percent in 2007-08 to 32.5 percent in 2008-09 on account of weakness in saving performance by the public sector and to a marginal extent by private corporate sector. Public sector savings decreased from 5.1 percent in 2007-08 to 1.4 percent in 2008-09 and private corporate sector savings declined marginally from 8.7 percent in 2007-08 to 8.4 percent in 2008-09. Savings of household sector remained stable at 22.6 percent in
Part One: Policies and Programmes
Table 1.2: GDP (at Factor Cost) by Economic Activity (at 2004-05 prices)
2007-08 Industry 2008-09 (Quick Estimates) 2009-10 (Revised Estimates)
(Rs.crore) Percentage Change over Previous Year 2008-09 2009-10 6 1.6 1.6 3.2 3.9 3.1 5.9 7.6 10.1 13.9 9.3 6.7 0.2 10.6 10.8 6.5 10.4 6.5 9.3 9.7 5.6 8.3 7.4
1 1. 2. 3. 4. Agriculture, Forestry & Fishing Mining and Quarrying Manufacturing Electricity, Gas and Water Supply
2 6,40,315 97,201 6,29,446 78,776 8,05,423 3,14,298 10,08,603 6,37,223 4,87,595 24,47,719 38,93,457
3 6,50,461 98,745 6,49,635 81,866 8,30,246 3,32,782 10,84,764 7,01,338 5,55,382 26,74,266 41,54,973
4 6,51,901 109,182 7,19,975 87,199 9,16,356 3,54,541 11,85,190 7,69,390 5,86,703 28,95,824 44,64,081
Industry (2+3+4) 5. 6. 7. 8. Construction Trade, Hotels, Transport and Communication Financing, Insurance, Real Estate and Business Services Community, Social and Personal Services
Services (5+6+7+8) GDP at Factor Cost Source: Central Statistical Organisation.
Note: Construction as per RBI classification comes under services sector.
2008-09. The Gross Domestic Capital Formation (overall investment) at 34.9 percent of GDP in 2008-09, exceeded GDS by 2.4 percentage points reflecting net inflow of foreign savings. Deposits continued to remain a major component of financial assets of the households. The share of deposits in total financial savings increased to 58.5 percent in 2008-09 from 52.2 percent in 2007-08 (Chart 1.2). On the contrary, households claims on
Government declined from 3.0 percent in 2006-07 to minus 3.1 percent in 2008-09. There is a visible shift in the pattern of household financial savings moving from claims on Government to deposits because of better returns from various types of term deposits offered by banks and financial institutions. During 2008-09, other major components of financial savings were contractual savings at 29.6 percent (insurance at 20.1 percent and provident and pension funds at 9.5
Table 1.3: Gross Domestic Savings and Investment

Item 1 1. Household Sector Savings a) 2. 3. 4. 5. 6. 7. a) Financial Assets b) Physical Assets Private Corporate Sector Savings Public Sector Savings Gross Domestic Savings (GDS) Net Capital Inflow (+)/ Outflow (-) Gross Domestic Capital Formation (GDCF) Final Consumption Expenditure Private Final Consumption Expenditure Amount in Rupees crore 2005-06 2 8,58,705 4,21,319 4,37,486 2,77,493 89,845 12,26,044 44,604 12,70,648 25,62,100 21,58,349 4,03,751 2006-07 3 9,80,195 4,69,051 5,11,144 3,42,130 152,463 14,74,788 45,524 15,20,312 29,22,391 24,77,209 4,45,182 2007-08@ 4 11,20,221 5,52,725 5,67,496 4,31,588 2,49,660 18,01,469 64,430 18,65,899 33,40,702 28,25,356 5,15,346 2008-09* 5 12,61,332 5,81,428 6,79,904 4,70,256 79,997 18,11,585 1,32,743 19,44,328 38,79,958 32,26,826 6,53,132 Percent of GDP at current market prices 2005-06 6 23.17 11.36 11.80 7.49 2.42 33.08 1.20 34.28 69.13 58.23 10.89 2006-07 7 22.88 10.95 11.93 7.99 2.56 34.43 1.06 35.49 68.22 57.82 10.39 2007-08@ 8 22.64 11.17 11.47 8.72 5.05 36.41 1.30 37.71 67.52 57.10 10.42 2008-09* 9 22.63 10.43 12..20 8.44 1.44 32.50 2.38 34.88 69.60 57.89 11.72
b) Government Final Consumption Expenditure Memo Items Savings Investment Balance (4-6) Public Sector Balance# Private Sector Balance# a) Private Corporate Sector b) Household Sector Investment in Shares and Debenture
-44,064 -2,03,343 1,99,451 -2,21,768 4,21,219 30,735
-45,524 -2,07,315 1,89,751 -2,79,300 4,69,051 58,598
-64,430 -1,92,517 1,88,318 -3,64,407 5,52,725 89,134
-1,32,743 -4,44,244 3,43,307 -2,38,121 5,81,428 19,349
-1.20 -5.49 5.38 -5.98 11.36 0.86
-1.06 -4.84 4.43 -6.52 10.95 1.40
-1.30 -3.89 3.81 -6.36 11.17 1.90
-2.38 -7.97 6.16 -4.27 10.43 0.40
@ : Provisional Estimates.* : Quick Estimates.# : Investment figures are not adjusted for errors and omissions. Source: Central Statistical Organisation, Reserve Bank of India.
percent), followed by currency at 12.5 percent. Investment in shares and debentures by the households as a proportion of financial savings decreased significantly from 12.4 percent in 2007-08 to 2.6 percent in 2008-09. Further investment in shares and debentures by the households as proportion of GDP (at market prices) declined from 1.9 percent to 0.4 percent during the same period. Bank credit during 2009-10 witnessed moderate flow as the economy experienced a challenging environment following global financial crisis. Credit was struggling to pick up in the first half of 2009-10 as corporates in order to fund their expansion plans resorted to non-bank sources for alternatives, notably primary capital market, to take advantage of the pent up investor appetite and internal accruals. There was also a moderation in demand for credit from oil marketing companies as global crude oil prices witnessed a fall following a contraction in global demand post financial crisis. As the economic recovery became increasingly more broad-based, with industrial output exhibiting particularly strong acceleration in
recent months, there was a significant revival in credit demand since November 2009. Nonfood credit started picking up from the later half of 2009-10 reaching a year-on-year peak of 16.9 percent in March 2010 as corporates faced increasing demand following a recovery in manufacturing and consumer durables. According to disaggregated provisional data released by the Reserve Bank of India (RBI), the year-on-year growth in bank credit to industry declined alongwith real estate, while credit to agriculture and housing witnessed an uptick. Liquidity condition remained easy for the larger part of 2009-10 as banks faced lower credit demand as the working capital needs of corporates went down. The surplus liquidity in the domestic markets, partly induced by unwinding of the Market Stabilisation Scheme (MSS) balances, prevailed during almost the entire financial year 2009-10. The key drivers of liquidity during the first half of 2009-10 were open market operations (OMO) to manage the Government borrowing programme coupled with MSS unwinding. The situation was
further accentuated following a lower forex demand from oil marketing companies as global crude oil prices declined. Flushed with funds, banks increasingly parked money with RBI through reverse repo window and also increased their exposure to mutual funds for better returns. As easy liquidity was fuelling inflationary expectations during second half, RBI increased cash reserve ratio (CRR) by 75 basis points in February 2010 and increased repo and reverse repo rates by 25 basis points in March 2010 to anchor the same. Stock prices in India recovered during 2009-10 in keeping with the recovery in global financial markets. Stock prices witnessed an upsurge, particularly in the month of October 2009, when global stock markets were at a peak. Stock market recovery was witnessed with the BSE Sensex closing above the 14,000 mark on May 18, 2009 post announcement of election results. Thereafter, it witnessed a brief correction to close at 13,400 on July 13, 2009 before embarking on an upward trajectory. It recorded its highest close at 17,701 on January 06, 2010. BSE Sensex recorded an increase of 80.5 percent and Nifty 73.8 percent in endMarch 2010 over end-March 2009. Rates in the money market hovered around the lower bound of Liquidity Adjustment Facility (LAF) corridor for a better part of 2009-10 due to the surplus liquidity sloshing around the system. In contrast to the low interest rates that prevailed in money markets, the yield on government bonds hardened in the first half of 200910 reflecting the concerns of stimulus led large fiscal deficit and the rising inflationary expectations. Following the aggressive stance by RBI to anchor inflationary expectations in the later half, interest rates crept up across the term structure in the government securities markets. The secondary market yield on 106
year government securities hardened and reached a peak of over eight percent during March 2010. Inflation on an year-on-year basis, measured by variation in the Wholesale Price Index (WPI), was 9.9 percent at the end of March 2010 compared to 1.2 percent at the end of March 2009. On an average basis, the inflation rate was 3.7 percent in 2009-10 compared to 8.4 percent in the previous year. Prices of manufactured products (weight: 63.8 percent in WPI) rose by 7.1 percent compared to 2.3 percent a year ago. Following the hardening of international crude oil prices in the last six months of the financial year 200910, fuel group recorded a rise of 12.7 percent in 2009-10 as against a fall of six percent in the previous year. The rise in overall prices was mainly attributed to food articles registering a rise of 16.7 percent in 2009-10 following a poor monsoon. Indias import bill decreased during 2009-10 both on account of crude oil as well as non-oil imports. As a result, trade deficit too narrowed during 2009-10. Bulk of trade deficit was financed through net receipts under invisibles, particularly through remittances from the Indian migrant workers abroad. Indias foreign exchange reserves increased by USD 25 billion to USD 277 billion during 200910. The inflow of funds from foreign direct investment recorded an increase and external commercial borrowings recorded a fall. The Rupee appreciated vis--vis US dollar during the better part of 2009-10.
2.
REVIEW OF POLICIES AND PROGRAMMES
SEBI initiated a number of policies and programmes during 2009-10 which are presented in this Section under nine major heads viz., primary securities market,
secondary securities market, corporate debt market, mutual funds, portfolio managers, foreign institutional investors, takeovers, delisting and investor assistance and education. The section concludes with retrospect and prospects.
I.
Primary Securities Market
An efficient primary market is critical for resource mobilisation by corporates to meet their growth and expansion plans. Indian primary market witnessed renewed activity in terms of resource mobilisation and number of issues during 2009-10, building it further from its relatively subdued pace in 2008-09. In view of the recovery witnessed in equity markets post global financial crisis, companies entered the primary market and investors response to public issues was encouraging in 2009-10
when compared to 2008-09. Equity capital was raised to the tune of Rs.55,055 crore through 73 issues during 2009-10, higher than Rs.14,720 crore mobilised through 46 issues during 2008-09. The ongoing reforms in the primary market further helped in maintaining the investors confidence. An analysis on number of issues made, amount mobilised, size and composition of issues and industrywise resource mobilised is presented in Part Two of this report. Following were the major policy initiatives taken by SEBI relating to the primary market during 2009-10: i. Introduction of Pure Auction Method in Public Offerings
In order to enable better price discovery and to maximise the amount which could be raised by an issuer, SEBI introduced the pure
Box 1.1: Salient Features of Pure Auction Method in Public Offerings

a. The issuer mentions the floor price in the red herring prospectus or in the alternative, it announces the floor price at least one working day before opening of the bid in all the newspapers in which the pre-issue advertisement was released. Qualified institutional buyers bid at any price above the floor price. The bidder who bids at the highest price is allotted the number of securities that he has bid for and then the bidder who has bid at the second highest price and so on, until all the specified securities on offer are exhausted. Allotment is made on price priority basis for qualified institutional buyers. Allotment to retail individual investors, noninstitutional investors and employees of the issuer are made proportionately at the floor price. The issuer may place a cap either in terms of number of specified securities or percentage of issued capital of the issuer that may be allotted to a single bidder. g. The issuer may decide whether a bidder be allowed to revise the bid upwards or downwards in terms of price and/or quantity. The issuer may decide whether a bidder be allowed single or multiple bids. Higher price realisation for the issuer and consequently higher issue proceeds. Investors, who are able to analyse an issue in more detail, and understand the management, the business model and the business parameters in a better fashion, bid more accurately and at a higher price for the issue. This means that potential investors are more likely to do a detailed research before deciding to invest in the issue and therefore, the issue potentially gets subscription from more informed investors. Issue may be able to attract higher quality of investors vis--vis the traditional proportionate allotment since the investors know that they may be able to get a higher allotment based on their bid price rather than everyone getting allotment based on the number of securities applied for.
h.
b. c.
Benefits of the method: a. b.
d. e.
c.
f.
auction method in further public offerings by listed entities. In this method the QIB bidders are free to bid at any price above the floor price. The bidder who bids at the highest price is allotted the number of securities that he has bid for and then the bidder who has bid at the second highest price and so on, until all the specified securities on offer are exhausted. Allotment is made on price priority basis and at differential prices. Allotment to retail individual investors, noninstitutional investors and employees of the
issuer is made proportionately at the floor price. ii. Introduction of Concept of Anchor Investors in Public Offerings
In order to ensure certain minimum levels of subscription from qualified institutional buyers (QIBs) even in a relatively bearish market, SEBI introduced the concept of Anchor Investors in public offering. Such investors are expected to offer stability to the issue by subscribing to the issue before
Box 1.2: Introduction of Concept of Anchor Investors in Public Offerings

SEBI has introduced the concept of Anchor Investors in public offering. Salient features of this concept are as under: a. b. An Anchor Investor makes an application of a value of at least Rs.10 crore in the public issue. Allocation to Anchor Investors is subject to a minimum number of two such investors for allocation of upto Rs.250 crore and five such investors for allocation of more than Rs.250 crore. c. Upto thirty percent of the portion available for allocation to qualified institutional buyers is available to anchor investor(s) for allocation/ allotment (anchor investor portion). d. e. f. One-third of the anchor investor portion is reserved for domestic mutual funds. The bidding for Anchor Investors opens one day before the issue opening date. Anchor Investors pays a margin of at least 25 percent on application with the balance to be paid within two days of the date of closure of the issue. g. h. Allocation to Anchor Investors is completed on the day of bidding by Anchor Investors. If the price fixed as a result of book building is higher than the price at which the allocation is made to Anchor Investor, the Anchor Investor l. k. j. i. brings in the additional amount. However, if the price fixed as a result of book building is lower than the price at which the allocation is made to Anchor Investor, the excess amount shall not be refunded to the Anchor Investor and the Anchor Investor shall take allotment at the price at which allocation was made to it. The number of shares allocated to Anchor Investors and the price at which the allocation is made, is made available in public domain by the merchant banker before opening of the issue. There is a lock-in of 30 days on the shares allotted to the Anchor Investor from the date of allotment in the public issue. Neither the merchant bankers nor any person related to the promoter/promoter group/merchant bankers in the concerned public issue can apply under Anchor Investor category. The parameters for selection of Anchor Investor shall be clearly identified by the merchant banker and shall be available as part of records of the merchant banker for inspection by the Board. The applications made by qualified institutional buyers under the Anchor Investor category and under the Non Anchor Investor category may not be considered as multiple applications.
the bid is open to other categories of the investors. iii. Rationalisation of Regulatory Framework for Issuance of Indian Depository Receipts (IDRs) In order to facilitate issuance of IDRs and to bring in necessary liquidity in trading of IDRs, the regulatory framework has been suitably modified to enable participation of FIIs and Mutual Funds in IDRs. SEBI has also notified a simplified Model Listing Agreement for IDRs of issuer companies from the countries whose securities market regulators are signatories to the Multilateral Memorandum of Understanding of IOSCO. The provisions of this model Listing Agreement are aligned with the listing requirements of the issuers home countries so as to avoid additional regulatory burden or cost for the issuer company. Further, in order to align the disclosure requirements pertaining to issuance of IDRs with the Companies (Issue of Indian Depository Receipts) Rules, 2004, amendments relating to disclosure of financial information in the offer document in respect of the accounting standard to be adhered to and the format of disclosures and extent of applicability of SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009 to issuances of IDRs have been carried out. iv. Making Issue Process More Efficient
a)
Rationalisation of Disclosure Requirements: The disclosure requirements for further public issues and rights issues by listed companies were almost as rigorous as those for initial public offerings. Considering that much of the information about listed entities are already in public domain and investors trade day to day on the basis of such available information, it was considered necessary to rationalise disclosure norms for further public issues and rights issues by listed entities so that the time taken for putting together the disclosure documents as well the number of pages is reduced which can result in overall time and cost saving for companies. It is expected that the quantity of disclosures in the letter of offer for a rights issue will come down by about 25 percent on account of the rationalisation. Smoothening the Payment/Refund Process in Issues: In its continuing endeavour to make the existing public issue process more efficient, SEBI had introduced application supported by blocked amount (ASBA) (ASBA PhaseI) as a supplementary facility to retail individual investors for applying in public issues. In order to enable more investors to make use of the ASBA process in public issues, ASBA facility has now been extended to all investors other than qualified institutional buyers. This is expected to further improve the efficiency of the issue process. Additionally, to encourage ASBA, there was a need to have a uniform incentive structure and level playing field between the respective intermediaries, i.e. syndicate members for non-ASBA and self certified syndicate banks (SCSBs) for ASBA. Therefore, SEBI directed merchant
b)
For issuers, capital market access should be easy, cost effective and time efficient. This is all the more necessary when issuers are competing in the markets across the globe. In order to make our markets competitive, SEBI has been constantly reviewing various rules and procedures to make issue process simpler, at the same time safer and cost effective. Some of the major initiatives in this area include: 9
bankers to ensure that both ASBA and non-ASBA applications should be treated at par while paying commission to the concerned intermediaries for the work undertaken by them. v. Strengthening the Regulatory Framework Governing Public Offerings In order to have a greater enforceability of the regulatory framework relating to issue of capital by companies and to streamline the disclosures while also taking into account changes in market design, the erstwhile SEBI Disclosure and Investor Protection Guidelines (DIP Guidelines) governing public offerings were replaced by the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR Regulations). There were certain changes made in the ICDR Regulations vis--vis the provisions contained in DIP Guidelines, on account of: (a) removal of redundant provisions of DIP Guidelines, (b) modifications on account of change in market design and (c) bringing more clarity to the existing provisions of DIP Guidelines. vi. Uniform Procedure for Dealing with Unclaimed Shares It was brought to the notice of SEBI that there is a large quantum of shares issued pursuant to the public issues, which remains unclaimed i.e. which could not be allotted to the rightful shareholder despite the best efforts of the registrar to an issue or the issuing company and that there is no uniform practice for dealing with such shares. In view of this, SEBI decided to provide a uniform procedure for dealing with unclaimed shares. Accordingly, a new Clause 5A has been inserted in the equity listing agreement, as per which, in respect of shares issued but remain unclaimed in the escrow account, the issuer follows the following procedure: a) The registrar to an issue sends at least three reminders at the address given in 10
the application form as well as captured in depositorys database asking for the correct particulars and if no response is received, the unclaimed shares are credited to a demat suspense account with one of the depository participants, opened by the issuer for this purpose. b) The issuer maintains details of shareholding of each individual allottee whose shares are credited to such suspense account. As and when the allottee approaches the issuer, the issuer credits the shares lying in the suspense account to the demat account of the allottee to the extent of the allottees entitlement after proper verification of the identity of the allottee. The voting rights on such shares remain frosen till the rightful owner claims the shares. Further, any corporate benefits in terms of securities accruing on such shares viz. bonus shares, split etc., are also credited to such demat suspense account. The issuer discloses the details of such unclaimed shares in its Annual Report.
c)
d)
e)
vii. Listing of Securities Issued through IPO on at least One Stock Exchange with Nationwide Trading Terminals In order to provide greater liquidity in securities of companies after the IPO, it was mandated that an unlisted company making an IPO shall list the securities being issued through the IPO on at least one stock exchange having nationwide trading terminals. viii. Prohibition on Issuance of Shares with Superior Rights In order to curb misuse especially by promoter/promoter group to increase their
control and voting rights in the company by way of issuing shares with superior voting rights to themselves which could have adversely affected the rights of other shareholders, clause 28A was inserted in the equity Listing Agreement to prohibit listed companies from issuing shares with superior rights as to voting or dividend vis--vis the rights on equity shares that are already listed. ix. Disclosure of Details of the Allottees in the Qualified Institutional Placements (QIP) and Shareholding Pattern of Issuer Companies
iv.
Companies whether listed or unlisted, whose net worth exceeds Rs.1,000 crore.
Phase II
April 1, 2013
Companies, whether listed or unlisted, whose net worth exceeds Rs.500 crore but does not exceed Rs.1,000 crore. Listed companies which have a net worth of Rs.500 crore or less. a. Unlisted companies which have a net worth of Rs.500 crore or less and whose shares or other securities are not listed on stock exchanges outside India. SMEs
Phase III
April 1, 2014
IFRSs would not be applicable for
In order to make information regarding details of those allottees in QIP who have been allotted more than five percent of the securities offered in the QIP as well as on the shareholding pattern of issuers before and after the QIP available to the general public, SEBI directed stock exchanges to make this information available on their websites along with the final placement document. x. Adoption of International Financial Reporting Standards (IFRS)
b.
The roadmap for convergence with IFRS in respect of insurance companies, banking companies and non-banking finance companies is as follows:
Category of Company 1. 2. (i) Insurance Companies Banking Companies All scheduled commercial banks and those urban co-operative banks (UCBs) which have a net worth in excess of Rs.300 crore April 1, 2013 Applicable Date April 1, 2012
After detailed deliberations on the various implementation challenges, especially those related to legal and accounting framework, transitional issues, and sector specific concerns, the following roadmap for convergence with IFRS has been finalised by the Core Group:
Phase Date Applicable to i. ii. Companies which are part of NSE Nifty 50 Companies which are part of BSE Sensex 30
(ii) UCBs which have a net worth April 1, 2014 in excess of Rs.200 crore but not exceeding Rs.300 crore (iii) UCBs which have a net worth not exceeding Rs.200 crore and Regional Rural banks (RRBs) 3. (i) Non-Banking Financial Companies (NBFCs) All NBFCs which are part of April 1, 2013 NSE-Nifty 50, BSE-Sensex 30, IFRS not applicable, may adopt voluntarily.
Phase I April 1, 2011
iii. Companies whose shares or other securities are listed on stock exchanges outside India
11
and have a net worth in excess of Rs.1,000 crore (ii) All listed NBFCs and those April 1, 2014 unlisted NBFCs which do not fall in the above category and which have a net worth in excess of Rs.500 crore (iii) Unlisted NBFCs which have a net worth of Rs.500 crore or less IFRS not applicable, may adopt voluntarily.
acquire. In order to address these concerns, SEBI decided that with effect from May 1, 2010, the margin collected shall be uniform across all categories of investors.
II. Secondary Securities Market

Secondary market witnessed revival following sharp fall in the previous year in the wake of global financial crisis that had plunged global equity markets. Investors regained confidence and the Indian market rallied post announcement of general election results during May 2009. Following were the major policy initiatives taken by SEBI relating to the secondary market during 2009-10: i. Trading Hours on Stock Exchanges: With a view to align Indian markets with those of the international markets to facilitate assimilation of any economic information that may flow in from other global markets, SEBI, vide circular dated October 23, 2009, decided to permit the stock exchanges to set their trading hours (in the cash and derivatives segments) subject to the condition that The trading hours are between 9 am and 5 pm, and
xi.
Introduction of Uniform Margin Payment for all Categories of Investors in Public Issues
Retail individual investors and noninstitutional investors were required to pay entire application money upfront while applying in public issues while qualified institutional buyers (QIBs) could apply by paying only 10 percent of the application money as margin on their application. This resulted in a non-level playing field for retail individual investors and non-institutional investors vis--vis the QIBs. It also resulted in an inflated demand in public issues since the lower margin enjoyed by QIBs led them to put in larger bids than they intended to
Box 1.3: Convergence of Indian Accounting Standards with IFRS

The International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) are increasingly being recognised as the global financial reporting standards. Convergence with IFRS has gained worldwide momentum in recent years. India being an important emerging global economy, the Ministry of Corporate Affairs (MCA) has committed to convergence of Indian Accounting Standards with IFRS from April 1, 2011. The MCA, which is spearheading the plan of convergence in India, has set up a High Powered Core Group comprising various stakeholders, including SEBI, for convergence with IFRS by 2011. The Core Group is supported by two sub-groups. The first sub-group headed by Shri Y.H. Malegam, Chairman, National Advisory Committee on Accounting Standards is identifying changes required in various laws, regulations and Indian Accounting Standards for convergence with IFRS and has prepared a clear roadmap for achieving the same. The second sub-group of CFOs under the chairmanship of Shri Mohandas Pai, Director, Infosys and Member, SEBI Board, is interacting with various stakeholders in order to understand their concerns on the issue of convergence with IFRSs, identifying problem areas and ascertaining the preparedness of the stakeholders for such convergence.
12
The exchange has in place risk management system and infrastructure commensurate to the trading hours.
NSE and BSE have fixed their trading hours in the equity and equity derivatives segment from 9:00 am-3:30 pm as compared to the earlier 9:55 am-3:30 pm. ii. PAN Requirement for Transfer of Shares in Physical Form
which are traded in the compulsory dematerialised mode was done away with and accordingly, short deliveries, if any, of the shares traded on cum-basis shall be directly closed out. In case of such direct close-out, the mark-up price would be 10 percent. iv. Comprehensive Risk Management Framework for the Cash Market
For securities market transactions and off-market/private transactions involving transfer of shares in physical form of listed companies, it was made mandatory for the transferee(s) to furnish copy of PAN card to the company/registrar to an issue and share transfer agent (RTA) for registration of such transfer of shares. In case of transmission/transposition of physical shares it was made mandatory for the transferees(s) to furnish a copy of PAN card in the following cases: Deletion of name of the deceased shareholder(s), where the shares are held in the name of two or more shareholders. Transmission of shares to the legal heir(s), where deceased shareholder was the sole holder of shares. Transposition of shares when there is a change in the order of names in which physical shares are held jointly in the names of two or more shareholders.
It was observed that in some instances such as buy transactions, the margins levied exceeded the amount needed to cover the maximum possible risk, thereby leading to a scenario where the buyer ended up paying more margins than his actual pay-in obligation. Therefore, it was clarified that in case of a buy transaction in cash market, VaR margins, Extreme loss margins and mark to market losses together shall not exceed the purchase value of the transaction. In sale transactions, the existing practice will continue. v. Disclosure of Investor Complaints and Arbitration Details on Stock Exchange Website
Transferees shall include all surviving holders, legal heir(s) and all existing shareholders respectively in the above instances. iii. Abolition of No-delivery Period for all Types of Corporate Actions No-delivery period for all types of corporate actions in respect of the securities 13
Based on the feedback received from investors and their associations to bring in more transparency in the grievance redressal available in the stock exchanges, it was decided that stock exchanges shall henceforth disclose the details of complaints lodged by clients/investors against trading members and companies listed in the exchange, on their website. The aforesaid disclosure shall also include details pertaining to arbitration and penal action against the trading members. vi. Disclosure of Investor Complaints and Arbitration Details on Depositories
Based on the feedback received from investors and investor associations to improve transparency in the grievance
redressal mechanism, it was decided that the depositories shall henceforth disclose the details of complaints lodged by beneficiary owners (BOs)/investors against depository participants (DPs) on their website. The aforesaid disclosure shall also include details pertaining to arbitration and penal action against the DPs. vii. Securities Lending and Borrowing (SLB) Framework Based on the feedback received from the market participants, the tenure of contracts in Securities Lending and Borrowing was increased upto a maximum period of 12 months from a contract period of 30 days. Further, the Approved Intermediary (Clearing Corporation/Clearing House) has been provided with the flexibility to decide the tenure. Also the provision of early recall/ repayment of shares for the lender/borrower has been introduced. viii. Market Access through Authorised Persons With a view to enable the investors to access the stock markets, SEBI, vide circular dated November 6, 2009, introduced the concept of Authorised Persons (AP). AP appointed by a stock broker can access the trading platform of a stock exchange as an agent of a stock broker. A stock broker may appoint one or more APs after obtaining prior approval of the stock exchange concerned for each such person. The approval as well as the appointment shall be for specific segment of the exchange. The presence of AP in small towns/ remote areas will provide greater accessibility to the investors to trade in stock markets. The investors from these areas will be able 14
to approach the broker through the APs. As an agent of the stock broker, AP may provide administrative assistance in procurement of documents and settlement. No funds or securities of clients shall go to the account of the AP. The clients shall be registered with stock broker and the funds and securities of the clients shall be settled directly between the stock broker and clients. All documents like contract notes, statement of funds and securities would be issued to the clients by stock broker directly. Thus, while the investors would be able to invest or trade in the stock markets through the APs, the stock brokers themselves would continue to be responsible for the funds and securities of the investors and thus protecting their interests. ix. Transparency in Dealing between a Client and Stock Broker and Strengthening of Know Your Client (KYC) Norms
SEBI received representation from several Investors Associations regarding the problems faced by the investors because of the complex registration documents that are signed by the investors for trading in the securities market. There were also sometimes complaints from investors against the stock brokers alleging misuse of their funds and securities, non receipt of electronic contract notes (ECNs), unauthorised trading in their accounts, etc. It was observed that a majority of the complaints were arising mainly due to certain authorisations taken by the stock brokers from the clients, e.g., running account authorisation and authorisation to the stock brokers to create email ID on behalf of the clients. Therefore, with a view to instill greater transparency and discipline in the dealings between the clients and the stock brokers,
SEBI, vide circular dated 3rd December, 2009, issued the following guidelines: a) Unless specifically agreed to by a client, the settlement of funds/securities shall be done within 24 hours of the pay out. However, a client may specifically authorise the stock broker to maintain a running account. In such cases the authorisation shall be renewed at least once a year and shall be dated. The client may revoke such authorisation at any time. The stock broker shall compulsorily settle the running account on monthly/quarterly basis as desired by the clients and send them a statement of account to that effect. The stock broker shall not create email IDs for the clients desirous of receiving ECNs. The client desirous of receiving ECNs shall create/provide his own email ID to the stock broker. The stock broker shall disclose its policy and procedure with regard to applicable brokerage rate, refusal of order for penny stocks, setting up clients exposure limits, deregistering a client, imposition of penalty/delayed payment charges, to avoid complaints from the investors, etc. The stock broker shall clearly distinguish between mandatory and non-mandatory clauses in the registration documents. Any authorisation sought in nonmandatory part by the stock broker shall be a separate document and shall have specific consent of the client. The clauses in non-mandatory part shall not be in contravention of any of the clauses in the mandatory documents. All the documents in both mandatory and non-mandatory part shall be printed in a minimum font size of 11 for easy readability for the investors. 15
e)
The client shall indicate in the KYC form, the stock exchange as well as the market segment where it intends to trade so as to avoid complaints of unauthorised trading by the brokers in its account. In-person Verification of Clients
x.
SEBI in the year 2008 had mandated the in-person verification of the clients. It was advised that in person verification shall be carried out by the staff of the stock brokers in case of trading account and by the staff of the depository participant (DP) in case of beneficial owner (BO) account. SEBI received suggestions from the market participants regarding repeated verification of the same clients by both DP and stock broker which in most cases are either the same entity or holding/subsidiary company of the other. Accordingly, SEBI, vide circular dated January 18, 2010, clarified that the in person verification done for opening BO account by a DP will hold good for opening trading account by a stock broker and vice versa, if the stock broker and DP is the same entity or if one of them is the holding or subsidiary company of the other. The guidelines would enable the intermediaries to avoid duplication of efforts without compromising the exercise of due diligence on their part. xi. Enhanced Supervision of Members
b)
c)
d)
As part of its continuous pursuit for improving the functioning of the stock brokers and maintaining the integrity of the market, SEBI issued a master circular dated March 17, 2010 updating the earlier circulars concerning the oversight of members. This circular mandates the stock exchanges/ clearing corporations to inspect all active members in various segments every year.
The circular also updates and brings out the common irregularities observed by SEBI during its inspection of stock brokers and accordingly, the stock exchanges/clearing corporations have been advised to ensure that their members avoid these violations/ deficiencies. Further, the stock brokers are required to carry out internal audit by practicing chartered accountants/cost accountants/ company secretaries on a half yearly basis. According to the circular mandating the halfyearly internal audit, the internal auditor shall submit the audit report to the member, who shall place it before its Board of Directors/ Proprietor/Partners and shall forward the same along with para-wise comments to the respective stock exchange/clearing corporation within three months from the end of the half year period. The stock exchanges are required to intimate SEBI the details of action taken by them, within six months from the end of the half year period With a view to update with the latest developments and improve the quality of audit further, National Institute of Securities Markets (NISM), with the support from SEBI, stock exchanges and depositories, organised workshops for training the internal auditors. These workshops received a good response from the broking as well as the auditors community. xii. Enhancing the Competency Level of the Employees of the Intermediaries a) Certification of Person Engaged or Employed by RTA:
engaged with the various activities of RTA. This will ensure that only certified persons are employed by the registrar to an issue or share transfer agent and thus, they will be better equipped to carry out the operations effectively. b) Certification of Approved Users and Sales Personnel of the Trading Members of the Currency Derivatives Segment:
SEBI vide notification dated May 13, 2009 mandated the requirement of Series-I: CD Certification for all the approved users and sales personnel of the trading members of the currency derivatives segment. This will ensure that only certified persons are employed by the trading members and thus, they will be better equipped to carry out the dealing and sales operations skillfully and effectively. c) Certification of Approved Users and Sales Personnel of the Trading Members in Interest Rate Futures:
SEBI has been taking steps to enhance the competency level of the employees of the stock brokers, which would enable them to discharge their responsibilities effectively in the interest of investors. In this regard, SEBI assigned the job of creating a certification module for the approved users and sales personnel of the trading members in interest rate futures to NISM. xiii. Credit Rating Agencies SEBI has taken various measures to strengthen the functioning of credit rating agencies (CRAs). a) Vide circular dated 6th January, 2010, SEBI has mandated a half yearly internal
SEBI vide notification dated September 4, 2009 mandated the requirement of obtaining the certification specified by NISM by the employees engaged or to be 16
audit for credit rating agencies to be conducted by Chartered Accountants, Company Secretaries or Cost and Management Accountants who are in practice and who do not have any conflict of interest with the CRA. The audit shall cover all aspects of CRA operations and procedures, including investor grievance redressal mechanism, compliance with the requirements s t ip u lated in th e SE B I A ct a n d Regulations made thereunder and guidelines issued by SEBI from time to time. b) SEBI (Credit Rating Agencies), Regulations, 1999 have been amended so that any change in status or constitution in CRAs resulting in their change of control, change in managing director/ whole time director etc. would require prior approval of SEBI.
lot sizes with many of the lot sizes expressed as odd numbers. This created confusion among the market participants. Accordingly, vide circular dated January 8, 2010, the lot size of the derivative contracts on individual securities has been standardised so that only eight fixed lot sizes continue to exist in the market. c) Expiry Date for Equity Derivative Contracts: With a view to permit market participants to have varying hedging tenures, SEBI vide circular dated November 13, 2009 allowed stock exchanges the flexibility to set any day of the month as expiry date for equity derivative contracts. The equity derivative contracts trading on NSE would continue to expire on last Thursday of the month, while BSE has chosen to let its equity derivative contracts expire on the Thursday falling two weeks prior to the last Thursday of the expiry month. Revised Eligibility Criteria for Inclusion of Stocks in the Equity Derivatives Segment: SEBI on April 20, 2009 revised the eligibility criteria for inclusion and exclusion of stocks in the equity derivatives segment. As per the new criteria, the stocks median quarter-sigma order size, over the last six months, shall not be less than Rs. five lakh instead of Rs. one lakh and the market wide position limit in the stock shall not be less than Rs.100 crore instead of Rs.50 crore. Further, in terms of the revised criteria for exclusion of stocks in the equity derivatives segment, the stocks median quarter-sigma order size, over the last six months, shall be
xiv. Policy Initiatives for Derivatives a) Exchange Traded Currency Derivatives: Exchange-Traded Currency Futures on USD-INR pair started trading on NSE, BSE and MCX-SX on August 29, 2008, October 1, 2008 and October 7, 2008 respectively. In consultation with RBI, vide circular dated January 19, 2010, eligible stock exchanges have been permitted to introduce currency futures on three established currency pairs: Euro-INR, Pound Sterling-INR and Japanese YenINR. Trading of futures on these new currency pairs started at NSE and MCXSX on February 01, 2010. b) Standardised lot Size for Derivative Contracts: It was observed that periodic alignment of contract size of equity derivatives resulted in numerous 17
d)
less than Rs. two lakh instead of Rs. one lakh and the market wide position limit shall be less than Rs.60 crore instead of Rs.45 crore. Based on the revised eligibility criteria, upto March 31, 2010, 53 stocks were excluded and 11 stocks were included in the equity derivatives segment of NSE, while 17 stocks were excluded and 15 stocks were included in the equity derivatives segment of BSE. e) Derivatives on Volatility Index: SEBI decided, in principle, to allow the stock exchanges to introduce derivatives on Volatility Indexes which have a suitable track record. Options Contracts with Longer Life/ Tenure: SEBI decided, in principle, to
allow the stock exchanges to introduce options with tenure of upto five years. g) Physical Settlement on Derivatives: SEBI decided, in principle, to allow the stock exchanges to introduce physical settlement of equity derivatives. Exchange Traded Interest Rate Futures: Pursuant to the issue of SEBI circular dated August 28, 2009 regarding introduction of exchange traded 10-Year Notional coupon bearing GoI security futures with physical settlement, trading in the 10-Year Notional coupon bearing GoI security futures started on NSE on August 31, 2009.
h)
f)
Further, based on feedback received from exchanges, SEBI permitted exchanges to set any period of time during the delivery
Box 1.4: 10-Year Notional Coupon-bearing Government of India (GoI) Security Futures
The RBI-SEBI Standing Technical Committee submitted its Report on Interest Rate Futures on June 17, 2009 detailing the product design, margins, position limits and risk management measures for 10Year Notional Coupon-bearing Government of India (GoI) Security Futures. Trading in the 10-Year Notional coupon bearing GoI security futures started on NSE on August 31, 2009. The salient features of the product are as below: Product Features: 1. Underlying is the 10-year notional coupon-bearing GoI security with notional coupon of seven percent. The trading hours are from 9 am to 5 pm on all working days from Monday to Friday and the contract size is Rs. two lakh. The quotation is similar to the quoted price of the GoI security. The day count convention for interest payments is on the basis of a 360-day year, consisting of 12 months of 30 days each and half yearly coupon payment. The maximum maturity of the contract is for 12 months. The Contract Cycle consists of four fixed 6. quarterly contracts for entire year, expiring in March, June, September and December. 5. The delivery month is the last month of the expiring contract, i.e., March, June, September and December and last delivery day is the last business day of the delivery month. The Exchanges have also been allowed to set any period of time during the delivery month as the delivery period for the deliverable grade securities. Exchanges to select their own basket of securities from the eligible deliverable grade securities. The deliverable grade securities are the GoI securities maturing at least 7.5 years but not more than 15 years from the first day of the delivery month, with a minimum total outstanding stock of Rs.10,000 crore. The conversion factor for deliverable grade security is equal to the price of the deliverable security (per rupee of the principal), on the first day (calendar day) of the delivery month, to yield seven percent with semiannual compounding.
2.
3.
7.
4.
18
Box 1.4: 10-Year Notional Coupon-bearing Government of India (GoI) Security Futures (contd.)
8. Invoice price of the respective deliverable grade security is the futures settlement price times a conversion factor plus accrued interest. Last trading day is the seventh business day prior to the last business day of the delivery month. 3. Calendar Spread Margin: Calendar spread margin is Rs.2,000 per month of spread.
9.
Position Limits: 1. Client Level: The gross open positions of the client across all contracts shall not exceed six percent of the total open interest or Rs.300 crore whichever is higher. The exchange will disseminate alerts whenever the gross open position of the client exceeds three percent of the total open interest at the end of the previous days trade. Trading Member level: The gross open positions of the trading member across all contracts shall not exceed 15 percent of the total open interest or Rs.1,000 crore whichever is higher. Clearing Member level: No separate position limit is prescribed at the level of clearing member. FIIs: The total gross long (bought) position in cash and Interest Rate Futures markets taken together shall not exceed their individual permissible limit for investment in government securities and the total gross short (sold) position, for the purpose of hedging only, should not exceed their long position in the government securities and in Interest Rate Futures, at any point in time.
10. The daily settlement price (DSP) is the closing price of the 10-year Notional Coupon-bearing GoI security futures contract on the trading day. (Closing price = Weighted Average price of the futures for last half an hour). In the absence of last half an hour trading, the theoretical price would be considered as the DSP. Margin System: 1. Initial Margin: Initial Margin is subject to a minimum of 2.3 percent of the value of the futures contract on the first day of trading in 10-Year notional coupon-bearing GoI Security Futures and 1.6 percent of the value of the futures contract thereafter. Extreme Loss Margin: Extreme loss margin of 0.3 percent of value of gross open positions of the futures contracts to be deducted from liquid assets of the clearing member.
2.
3. 4.
2.
month as the delivery period for the deliverable grade securities. xv. Committee for Review of Ownership and Governance of Market Infrastructure Institutions (MIIs) A Committee, under the Chairmanship of Dr. Bimal Jalan (former Governor of Reserve Bank of India), has been constituted to look into the ownership and governance norms for stock exchanges, clearing corporations and depositories (collectively termed as MIIs). The other members of the Committee are: 1. Dr. K P Krishnan, Joint Secretary, Ministry of Finance, Govt. of India 19
2. 3. 4. 5. 6.
Shri Kishore Chaukar, Managing Director, Tata Industries Mr. Uday Kotak, Managing Director, Kotak Mahindra Bank Prof. G. Sethu, National Institute of Securities Market Dr. K. M. Abraham, Whole Time Member, SEBI Shri J.N. Gupta, Executive Director, SEBI (Member Secretary).
The terms of reference of the committee are to review and make recommendations on the following issues: a) Ownership structure of stock exchanges and clearing corporations,
b) c) d)
Board composition of stock exchanges and clearing corporations, Listing and governance of stock exchanges and clearing corporations, Balance between regulatory and business functions of stock exchanges and clearing corporations, in the context of their for profit status Relationship between stock exchanges and clearing corporations, Relationship between stock exchanges and technology providers, and Competition policy for stock exchanges and clearing corporations.
e) f) g)
stock exchanges that have no trading for a period of six months or more shall resume trading only after ensuring that adequate and effective trading systems, clearing and settlement systems, monitoring and surveillance mechanisms, risk management systems are in place and have also complied with all other regulatory requirements stipulated by SEBI from time to time. Further, the stock exchanges shall resume trading only after obtaining prior approval from SEBI. xvii. Limitation Period for Filing of Arbitration Reference a) In terms of the bye-laws of the Stock Exchange the limitation period for referring complaint/claim//difference/ dispute is six months. Based on the feedback received from the market participants and recommendation of Secondary Market Advisory Committee (SMAC), SEBI vide its circular dated December 2, 2009 mandated that the limitation period of six months shall be computed from the end of the quarter during which the disputed transaction(s) were executed. In addition to the above, while computing the said limitation period the time taken in settlement of claims, complaints, differences, disputes through the Investors Grievances Redressal Committee mechanism of the Exchange will be excluded. Further a period of one month from the date of receipt of complaint by the broker or the actual time taken by the broker to resolve the complaint whichever ends earlier, will also be excluded. Further, it was noted that in certain cases the arbitration application were
The Committee may also make recommendations on other relevant issues inter-alia as it finds necessary. The Committee held its first meeting on March 15, 2010. During the meeting, the Committee inter alia decided to form a sub-committee to have a consultative process (through questionnaire) with MIIs, market participants and users on the issue of ownership and governance of MIIs and include depositories under the scope of the committee since they form part of the Financial Market Infrastructure institutions. xvi. Prior Approval for Re-commencement of Trading on the Stock Exchanges With the completion of corporatisation and demutualisation of stock exchanges, some of the stock exchanges on which there was no trading over the past several years, have generated renewed trading interest and are in the process of resuming trading for their revival. It was felt that the regulatory changes introduced by SEBI in the interim may not have been complied by the exchanges. In light of the above, SEBI vide circular dated October 7, 2009 has stipulated that the 20
b)
c)
rejected on the ground of exceeding limitation period without going into reasons thereof, which were not in interest of the investors. In view of above, it was decided that:
the the the the
SEBI (Issue and Listing of Debt Securities) Regulations, 2008. iii. Clearing and Settlement of Corporate Bonds Settlement of bond trades was earlier being done only on bilateral basis between the counterparties. With a view to remove counterparty risks from the settlement process, SEBI has evolved a clearing and settlement mechanism for corporate bond trades through the clearing corporations which are subsidiaries of NSE and BSE. To facilitate clearing and settlement through the two clearing corporations, real time gross settlement system (RTGS) connectivity was given to the two clearing corporations, viz. National Securities Clearing Corporation Ltd. (NSCCL) and Indian Clearing Corporation Ltd. (ICCL) by RBI in June and October 2009 respectively. In October 2009, SEBI made it mandatory for all trades in corporate bonds between mutual funds, FIIs/sub-accounts, venture capital funds, foreign venture capital investors, portfolio mangers, and RBI regulated entities as specified by RBI to be cleared and settled through NSCCL or ICCL, effective from December 1, 2009. RBI issued a similar circular to all its regulated entities. Insurance Regulatory and Development Authority (IRDA) also issued similar circular to IRDA regulated entities. Now, clearing and settlement takes place on DvP-1 basis usually on T+1 day and in case of failure by one party to pay, the funds/securities are returned to the counterparty.
The stock exchange can extend the limitation period by a further period of three months. However, this is subject to stock exchange obtaining sufficient documentary proof in this regard and recording the reasons for the same in writing.
III. Corporate Debt Market

i. Simplified Listing Agreement for Debt Securities
In May 2009, SEBI issued a simplified listing agreement for debt securities. The Agreement has two parts Part A for issuers with listed equity and Part B for issuers who have no listed equity. For issuers with listed equity, minimal incremental disclosures specific to the debt issue prescribed in Part-A of the agreement need to be complied with. For issuers whose equity is not listed and who seek listing of their debt securities, detailed disclosure norms are prescribed in Part-B of the Agreement. ii. Applicability of Debt Securities Regulations
In June 2009, SEBI clarified that the issue of debt securities, convertible, either partially or fully or optionally into listed or unlisted equity, are guided by the disclosure norms in terms of the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009. It was also clarified that the issue and listing of non-convertible debt securities, whether issued to the public or privately placed shall be in accordance with the provisions of the 21
IV. Mutual Funds

Mutual funds after witnessing redemption pressures during later half of 2008-09 post global credit crisis witnessed
renewal of investors interest in terms of mobilisation of resources through new fund offerings as well as existing schemes. SEBI has taken the following initiatives to improve the functioning of mutual funds: i. Guidelines for Investment by Mutual Funds in IDRs
market conditions. During 2009-10, the discretionary mark ups/downs were returned to their levels specified in 2000/2002. Further, it was decided that, the Chief Executive Officer (whatever his designation may be) of the Asset Management Company shall give prior approval to the use of discretionary mark up or down limit. b) Valuation of Debt and Money Market Instruments
It was clarified that mutual funds can invest in IDRs [Indian Depository Receipts as defined in the Companies (Issue of Indian Depository Receipts) Rules, 2004] subject to compliance with the SEBI (Mutual Funds) Regulations, 1996 and guidelines issued thereunder, specifically investment restrictions as specified in the Seventh Schedule of the Regulations. ii. Money Market Instruments Brought under the Investment Limits
To ensure that the value of money market and debt securities in the portfolio of mutual fund schemes reflects the current market scenario, the provisions regarding valuation of certain securities were modified, as under: Valuation of money market and debt securities with residual maturity of upto 91 days: All money market and debt securities, including floating rate securities, with residual maturity of upto 91 days shall be valued at the weighted average price at which they are traded on the particular valuation day. When such securities are not traded on a particular valuation day, they shall be valued on amortisation basis. The floating rate securities with floor and caps on coupon rate and residual maturity of upto 91 days shall be valued on amortisation basis taking the coupon rate as floor. Valuation of money market and debt securities with residual maturity of over 91 days: All money market and debt securities, including floating rate securities, with residual maturity of over 91 days shall be valued at weighted average price at which they are traded on the 22
The Mutual Funds (Second Amendment) Regulations, 2009 prescribed that no mutual fund schemes can invest more than 30 percent of their assets in money market instruments of an issuer. However, such limit shall not be applicable for investments in Government securities, treasury bills and collateralised borrowing and lending obligations. iii. Valuation a) Valuation of Debt Securities by Mutual Funds
Debt securities are valued by Mutual Funds in terms of spread indicated by specified rating agencies. Mutual Funds have been given discretionary mark up or down detailed in guidelines issued in the years 2000 and 2002. These varied from -25 bps to +100 bps (basis points). These discretionary mark ups were increased considerably in 2008 to accommodate for the great variation in the values of securities on account of volatile
particular valuation day. When such securities are not traded on a particular valuation day, they shall be valued at benchmark yield/matrix of spread over risk free benchmark yield obtained from agency(ies) entrusted for the said purpose by Association of Mutual Funds in India. iv. Mutual Funds - Empowering Investors through Transparency in Payment of Commission and Load Structure
the upfront commission to distributors will be paid by the investor directly to the distributor, based on his assessment of various factors including the service rendered by the distributor. c) Of the exit load or contingent deferred sales charge (CDSC) charged to the investor, a maximum of one percent of the redemption proceeds shall be maintained in a separate account which can be used by the AMC to pay commissions to the distributor and to take care of other marketing and selling expenses. Any balance shall be credited to the scheme immediately. The distributors shall disclose all the commissions (in the form of trail commission or any other mode) payable to them for the different competing schemes of various mutual funds from amongst which the scheme is being recommended to the investor.
In order to empower the investors in deciding the commission paid to distributors in accordance with the level of service received, to bring about more transparency in payment of commissions and to incentivise long term investment, it was decided that: a) b) There shall be no entry load for all mutual fund schemes. The scheme application forms shall carry a suitable disclosure to the effect that
d)
Box 1.5: No Entry Load for Mutual Fund Investments

Mutual funds are an avenue for investors who would like to diversify their risks and avail of the services of professional fund managers. Retail investments are pooled into a MF scheme with defined investment objective and deployed into securities investments. For investment services provided by asset management companies (AMC), two types of expenses were charged to investors, upfront expenses popularly called sales load (or entry load) and annual scheme expenses. Besides, a few schemes also charge an exit load. Many mutual fund investors avail the services of a distributor who also acts as financial adviser. The adviser is expected to assist investors in choosing schemes that suit their respective risk return appetite besides assisting him in making an application. Till 2009, the schemes charged an entry load as a percentage of amount invested. This entry load was deducted from the total amount invested and was generally passed on to distributors by AMC. Investor, in effect, did not have any say in the commission that was paid to the distributor from entry load. This gave rise to a situation of potential conflict of interest. The distributor being likely to choose schemes which would give him better sales incentives rather than schemes which would be best suited to the customer. As repeated investments by investor would entitle distributor to more commissions, he was likely to encourage investors to sell existing mutual fund investments and buy new mutual fund units. This churning was neither to the advantage of investor nor to the mutual fund industry. The Report on Reform of Mutual Funds in India (2004) by Cadogan Financial, UK has highlighted that power of distributors transforms the basis of competition as majority of consumers(investors) rely heavily on their advisers and as a consequence, the real customer for the product provider the asset management
23
Box 1.5: No Entry Load for Mutual Fund Investments

company - tends to be the adviser, rather than the consumer(investor). As distribution agents play twin roles, that of an advisor to investor and point of sale for the AMC products, the potential conflict of interest between a distributor providing financial advice to the investors and his role as an agent of the AMCs has seized the attention of various jurisdictions besides India. In UK, according to Retail Distribution Review (2008), a report by Financial Services Authority (FSA) asserts that there needs to be a distinction between advice and sales. Accordingly, advisers need to be independent in their remuneration that is determined without product provider influence. FSA has set out reduction of commissions paid by product provider in stages with year 2013 as final time line for complete detachment of advisor remuneration from product providers remuneration. In Australia, Future of Financial Advice reforms have been undertaken to tackle conflicts of interest that had threatened advice
(contd.)
quality and caused mis-selling of products. This reform measure in Australia envisages advisers having their own "product neutral" charges. In India, no entry load on investments made directly by the investors (not routed through any distributor), was mandated on December 31, 2008. Subsequently, in cases of all mutual fund investments, it was felt that to empower the investor in deciding commissions paid to the distributors and also ensure transparency in commissions being paid, the amount of payment should be decided by investor depending on level of service received, not by AMC (as was in form of entry load). Hence, it has been decided that from August 1, 2009 there shall be no entry load for all MF schemes. Upfront commission to distributors is to be paid by the investor to the distributor directly depending on quality of service rendered. It is expected that this would segregate the streams of payment for the two roles of distributor, a point of sale for the AMC and an adviser to the investor.
v.
Exit Load - Parity among All Classes of Unit Holders
It was observed that the mutual funds were making distinction among the unit holders by charging differential exit loads based on the amount of subscription. In order to have parity among all classes of unit holders, it was decided that no distinction among unit holders shall be made based on the amount of subscription while charging exit loads. Further, it was decided that the parity among all classes of unit holders in terms of charging exit load shall be made applicable at the portfolio level. vi. Systems Audit of Mutual Funds
Information System Auditor (CISA)/Certified Information Security Manager (CISM) qualified or equivalent auditor. The systems audit shall be comprehensive encompassing audit of systems and processes. Accordingly, the AMCs were advised to conduct systems audit of mutual funds once in two years and to place the systems audit report and compliance status before the Trustees of the mutual fund. The systems audit report/findings alongwith trustee comments shall be communicated to SEBI. vii. Facilitating Transactions in Mutual Fund Schemes through the Stock Exchange Infrastructure The need for enhancing the reach of mutual fund schemes to more towns and cities was widely felt. To address this issue, units of mutual fund schemes were permitted to be transacted through registered stock brokers of 24
Considering the importance of systems audit in the technology driven asset management activity, it was decided that mutual funds shall have a systems audit conducted by an independent Certified
recognised stock exchanges. The convenience of stock exchange mechanism would also be available now to mutual fund investors. viii. Transactions through Some Mutual Fund Distributors and Compliance with the SEBI Circular on Anti Money Laundering (AML) As all documentation related to the investor, including Know Your Client, Power of Attorney (PoA) in respect of transactions/ requests made through some mutual fund distributors was not available with the AMC/ RTA of the AMC, it was reiterated that the requirements as mentioned in the master circular ISD/AML/CIR-1/2008 dated December 19, 2008 issued by SEBI is applicable to the mutual funds/AMCs and hence maintaining all the documentation pertaining to the unitholders/investor is the responsibility of the AMC. Pending completion of documentation, Mutual Funds are required to exercise great care and be satisfied of investor bonafides before authorising any transaction, including redemption, on such accounts/folios. The trustees were instructed to confirm to SEBI of the steps taken to address the above. ix. Association of Mutual Funds in India (AMFI) Guidelines for Change of Mutual Fund Distributor
his distributor and/or go direct, without compelling that investor to obtain an NoC from the existing distributor. x. Standard Warning in Advertisements by Mutual Funds
In order to improve the manner in which the standard warning message is conveyed to the investors, it was decided that: a) The standard warning in audio-visual advertisement shall be displayed as Mutual Fund investments are subject to market risks, read all scheme related documents carefully. No addition or deletion of words shall be made in the standard warning.
b)
It was emphasised that both the visual and the voice over of the standard warning will be run for at least five seconds. xi. Additional Mode of Payment through Applications Supported by Blocked Amount (ASBA) in Mutual Funds and Reduction in New Fund offer (NFO) Period In its continuous endeavor to make the public issue process efficient, SEBI has introduced ASBA facility to NFOs of mutual funds which investors have been enjoying for subscription to public issue of equity capital of companies. It shall co-exist with the current process, wherein cheques/demand drafts are used as a mode of payment. The banks which are in SEBIs list shall extend the same facility in case of NFOs of mutual fund schemes to all eligible investors in mutual fund units. Mutual funds shall ensure that adequate arrangements are made by RTA for the implementation of ASBA.
a)
Unwarranted hardship was caused to investors in mutual fund schemes who wished to switch from an existing mutual fund distributor to either another mutual fund distributor or opt to deal direct, since some AMCs insisted on the investor procuring a No Objection Certificate (NOC) from the existing distributor for this switch over. Therefore, the AMCs were advised to ensure compliance with the instruction of the investor informing his desire to change 25
b)
It was decided that the present limit of maximum NFO period of 30 days in case of open ended schemes and 45 days of close ended scheme be reduced to 15 days (except ELSS schemes). Mutual funds/AMCs shall use the NFO proceeds only on or after the closure of the NFO period. The mutual fund shall allot units/refund of money and dispatch statements of accounts within five business days from the closure of the NFO and all the schemes (except ELSS) shall be available for ongoing repurchase/sale/trading within five business days of allotment.
xiii. Role of Mutual Funds in Corporate Governance of Public Listed Companies With a view to improving corporate governance, it was decided that AMCs shall disclose their general policies and procedures for exercising the voting rights in respect of shares held by them on the website of the respective AMC as well as in the annual report distributed to the unit holders. Further, henceforth the AMCs are also required to disclose on the website of the respective AMC as well as in the annual report distributed to the unit holders, the actual exercise of their proxy votes in the AGMs/EGMs of the investee companies. xiv. Fund of Funds Scheme AMCs were entering into revenue sharing arrangements with offshore funds in respect of investments made on behalf of Fund of Funds schemes which created conflict of interest. It was decided that henceforth AMCs shall not enter into any revenue sharing arrangement with the underlying funds in any manner and shall not receive any revenue by whatever means/head from the underlying fund. Any commission or brokerage received from the underlying fund shall be credited into concerned schemes account.
xii. Non-availability of Unit Premium Reserve for Dividend Distribution Since, it was observed that some mutual funds were using unit premium reserve for distribution of dividend, SEBI clarified that: a) When units of an open-ended scheme are sold, and sale price is higher than face value of the unit, part of sale proceeds that represents unrealised gains shall be credited to a separate account (unit premium reserve) and shall be treated at par with unit capital and the same shall not be utilised for the determination of distributable surplus. When units of an open-ended scheme are sold, and sale price is less than face value of the unit, the difference between the sale price and face value shall be debited to distributable reserves and the dividend can be declared only when distributable reserves become positive after adjusting the amount debited to reserves as per para 2(a) (ix) of Eleventh Schedule of SEBI (Mutual Funds) Regulations. 26
b)
V.
i.
Portfolio Managers
Non-Pooling of Securities in Clients Accounts
In August 2008, the SEBI (Portfolio Managers) Regulations, 1993 were amended to ensure that each clients listed securities and funds are kept separately. To ensure compliance with this requirement, portfolio
managers were advised that clients securities held in a pool account as on May 11, 2009 shall be frozen with respect to any further transactions. While fresh purchases on behalf of such clients were not permitted, selling and transfer of securities from such accounts was allowed. Subsequently, the portfolio managers were advised that they may discontinue the services to clients who were not co-operating for opening separate client accounts, after serving at least three notices, and return the securities/funds to the client and maintain records of the same. ii. Handling of Funds of Portfolio Management Clients
client-wise accounts with the bank accounts on daily basis.
VI. Foreign Institutional Investors (FIIs)

i. Allocation of Debt Investment Limits SEBI has been following various allocation methodologies over a period of time for allotment of debt investment limits to FIIs and Sub-accounts. For some time, allocation was done on a quota basis. At present, debt limit allocation is done on a periodical basis as and when sufficient limits are available for allotment. Based on the allocations and the utilisation of the allocated debt limits by the entities, a status of utilisation is drawn. If sufficient limits are available for allocation, the same are again put up for allocation through prevalent allocation procedures. The allocation of the limits and its utilisation status is drawn from respective custodians of the entities. A combination of two methods viz. open bidding and first come first served (FCFS) is used for allocation of debt limits. However during 2009-10 in corporate debt category all the allocation was through FCFS only. Details of debt limits allocated to FIIs and sub-account though these two processes in this financial year are:
Maximum Limit (Rs.cr.) 1000 249 800 249 300 50 Minimum Limit (Rs.cr.) 250 0 250 0 50 0
T h e S E B I ( Po r t f o l i o M a n a g e r s ) Regulations, 1993 mandate the segregation of clients funds and portfolio of securities. In June 2009, it was clarified that portfolio managers may keep the funds of all clients in a separate bank account maintained by the portfolio manager subject to conditions such as: (a) clear segregation of each clients fund through back office records, (b) non use of funds of one client for another client, (c) maintaining accounts with separate clientwise data for their funds and providing statement to clients for such accounts at least on monthly basis; and (d) reconciliation of
Date of Allocation process May 15, 2009 May 19, 2009 September 08, 2009 September 09, 2009 December 17, 2009 December 17, 2009 Debt Category Government debt Government debt Government Debt Government Debt Government Debt Government Debt
Type of Allocation Process Bidding FCFS Bidding FCFS Bidding FCFS
27
D u rin g th e year, an a mou n t of Rs.1,01,76,900 was received as bidding fees, which has been remitted to the Consolidated Fund of India.
amendments, as deemed fit. The Committee is called the Takeover Regulations Advisory Committee (TRAC) and comprises the following members: 1. Mr. C. Achuthan, former Presiding Officer of the Securities Appellate Tribunal Chairman of TRAC Mr. Kumar Desai, Advocate Mr. Somasekhar Sundaresan, Advocate. Partner, J. Sagar Associates Mr. Kaushik Chatterjee, Group CFO, Tata Steel Mr. Y. M. Deosthalee, CFO, Larsen & Toubro Limited Mr. Raj Balakrishnan, Managing Director, DSP Merrill Lynch Limited Mr. Sourav Malik, Executive Director, Kotak Investment Banking Mr. A K Narayan, President, Tamil Nadu Investors Association Prof. N. Venkiteswaran, IIM, Bangalore
VII. Takeovers
i. Interpretative Circular to Clarify the Applicability of Provisions of Regulations 11 (2)
2. 3. 4. 5. 6. 7. 8. 9.
To facilitate consolidation of holdings, SEBI had amended regulation 11 (2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (SAST Regulations) on October 30, 2008 so as to allow a creeping acquisition of up to five percent to persons holding 55 percent or more but less than 75 percent of the shares or voting rights in a company. However, SEBI received representations from market participants/listed companies seeking clarity on interpretation of the aforesaid provision, particularly regarding the applicable time-frame under the said provision. The same was, accordingly, clarified by SEBI, vide an interpretative circular dated August 6, 2009. The said circular, inter-alia, provided that an acquirer holding 55 percent to 75 percent of the shares or voting rights in a company may further acquire upto a maximum of five percent in such company, in one or more tranches, without any restriction on the time-frame within which the same can be acquired. ii. Ta k e o v e r R e g u l a t i o n s A d v i s o r y Committee
10. Ms. Usha Narayanan, Executive Director, Corporation Finance Department, SEBI 11. Mr. J. Ranganayakulu, Executive Director, Legal Affairs Department, SEBI 12. Ms. Neelam Bhardwaj, General Manager, Corporation Finance Department Division of Corporate Restructuring, SEBI Member Secretary of TRAC. The committee has since been meeting regularly and has held eight meetings till date. The TRAC has also sought public comments/suggestions on the existing SAST Regulations and the same are under its consideration. The committee is expected to submit its report to SEBI soon. The said report may pave way for the next level of reforms in the Indian Takeover Code. 28
SEBI constituted a 12 member expert Committee on September 4, 2009 under the Chairmanship of Mr. C. Achuthan, former Presiding Officer of the Securities Appellate Tribunal, to examine the Takeover Regulations and to suggest suitable
VIII. Delisting
i. Delisting of Equity Shares SEBI (Delisting of Equity Shares) Regulation, 2009 (i.e. the Regulations) has been notified on June 10, 2009 which has come in place of SEBI (Delisting of Securities) Guidelines, 2003. The regulations provide the framework for a listed company to delist its securities either voluntarily or compulsorily. The framework envisages that delisting shall happen in a transparent and time bound process prescribed in the regulations and the same has been monitored/administered by the respective stock exchanges. No documents/ report required to file with SEBI. Main features of SEBI (Delisting of Equity Share) Regulation, 2009 are: a) Compulsory Delisting:
reverse book building method etc. Further the company can go for delisting only if the total post offer shareholding of the promoter (along with Persons acting in concert) is higher of ; 90 percent of the total issued shares of that class Or The aggregate percentage of pre-offer promoter shareholding (along with persons acting in concert) and 50 percent of offer size. Other Provisions:
c)
Stock exchanges can compulsorily delist the companies for non-fulfilling of listing conditions, after following the due procedure laid down in the regulations. The procedure involves stock exchanges issuing public notice before delisting, inviting objections from public, appoint an independent valuer selected from its panel of expert valuers, for determination of fair value, making efforts to trace the promoters so that the promoter can acquire shares of public shareholders at fair price, and passing delisting order etc. b) Voluntary Delisting:
Regulations also provide (i) timelines for delisting proceedings, (ii) disclosures in Public Announcement and letter of offer (iii) special provisions to facilitate delisting of small companies. (iv) a gap of five years for re-listing. (v) prohibition on delisting in certain circumstances viz. unless a period of three years has lapsed from date of listing, if there are outstanding convertible instruments, if public holding is reducing below the minimum public holding requirement, pursuant to buyback or preferential allotment. d) Delisting Offers in terms of Delisting Regulations, 2009:
The listed company is allowed to go for voluntary delisting of its shares from the stock exchanges after following the procedure which involves inter-alia, taking prior approval from the Board of directors of the company, prior approval from the public shareholders of the company through special resolution, making a public announcement for delisting, discovering the exit price through 29
As per the information received from the stock exchanges (i.e. BSE and NSE) five voluntary delisting offers have been made in terms of the Regulations.
IX. Investor Assistance and Education

i. Redressal of Investors Grievances SEBI has in place a comprehensive mechanism to facilitate redressal of grievances against intermediaries registered by it and against companies whose securities are listed or proposed to be listed on stock
exchanges. The Office of Investor Assistance and Education (OIAE) acts as the single window interface, interacting with investors seeking assistance of SEBI. Investors can submit their grievances in any form i.e. plain paper, post card, via e-mail etc., at the Head Office at Mumbai or at any of the Regional Offices at Delhi, Chennai, Kolkata and Ahmedabad. Besides, grievances can also be filed in standardised forms that are available at all its offices. Investors also have the option to electronically file their grievances through the SEBI website (www. sebi.gov.in). All complaints received by SEBI (excluding those which refers/pertain to investigation) are individually acknowledged with unique number, which facilitates tracking. Dedicated investor helpline telephone numbers are available for investors seeking general guidance pertaining to securities markets and to provide assistance in filing grievances. Dedicated personnel manning the helpline also guide the investors in filing up the grievance submission forms as well as in determining the appropriate authority for their first recourse. Guidance is also provided to approach the appropriate authority if their grievance is outside the purview of SEBI. The grievances lodged by investors are taken up with the respective listed
companies and are continuously monitored. The company is required to respond in prescribed standard format in the form of Action Taken Report (ATR). Upon the receipt of ATR the status of grievances is updated. Where the response of the company is insufficient/inadequate, follow up action is initiated. Grievances pertaining to brokers and depository participants are taken up with concerned stock exchange and depository for redressal and monitored through periodic report obtained from the stock exchanges and depositories. Grievances pertaining to other intermediaries are taken up with them directly for redressal. During 2009-10, SEBI received 32,335 grievances from investors and resolved 42,742 grievances as compared to 57,580 grievances received and 75,989 grievances resolved in 2008-09. As on March 31, 2010 there were 1,60,593 grievances pending resolution as compared to 1,71,000 unresolved grievances as on March 31, 2009. These include 1,22,713 complaints where appropriate regulatory actions have been initiated. Types of investors grievances received and redressed, as on March 31, 2010, are given in the Table 1.4 and type-wise status of grievances awaiting redressal is provided in Table 1.5.
Table 1.4: Status of Investor Grievances Received and Redressed

Year Grievances Received Year-wise 2007-08 2008-09 2009-10 54,933 57,580 32,335 Cumulative 26,16,980 26,74,560 27,06,895 Grievances Redressed Year-wise 31,676 75,989 42,742 Cumulative 24,27,571 25,03,560 25,46,302 Pending Grievances Cumulative Action Initiated* 1,33,354 1,21,887 1,22,713 Pending 56,055 49,113 37,880
* Action has been initiated u/s 11B, 15C or prosecution launched.
30
Table 1.5: Type-wise Status of Grievances Awaiting Redresssal

Type Particulars Pending as on March 31, 2008 3 61,648 1,09,076 1,766 15,119 Pending as on March 31, 2009 4 38,498 1,09,121 1,669 18,602 Pending as on March 31, 2010 5 37,755 1,09.373 1,974 9,879
I to V Complaint against listed companies VI Non Reciept of Investment & Returns thereon (CIS) VII Mutual Funds, Venture Capital Funds, Foreign Venture Capital Funds, Portfolio Managers, FIIs, Custodians etc. VIII Brokers, Sub-brokers, Merchant Bankers, Debenture Trustees, Registrar and Transfer Agents, Bankers to Issue, Underwriters, Credit Rating Agencies, Depository Participants, etc. IX Stock Exchanges, Clearing and Settlement Organisations, Depositories etc.
264 24 1,512
258 24 2,828
293 2 1,317
X Derivative Exchanges and related organisations etc. XI Corporate Governance, Restructuring, Substantial Acquisition and Takeovers, Buyback, Delisting, Compliance with Listing Conditions etc. Total no. of Grievances Awaiting Redressal
1,89,409
1,71,000
1,60,593*
* Includes 1,22,713 grievances where action has been initiated u/s 11B, 15C or prosecution launched.
ii.
Regulatory Action against Companies and its Directors for Non-redressal of Investor Complaints Top 100 companies in terms of number of unresolved grievances were identified and were vigorously followed up for resolving grievances. Adjudication proceedings under section 15C of SEBI Act were initiated against the following 13 companies which failed to redress investor complaints, after having been called upon by SEBI to redress the same.
Name of the Company ICES Software Ltd. Enkay Texofood Industries Ltd. Motorol Enterprise Ltd. Steelco Gujrat Ltd. Gujarat Investment Castings Ltd. 1. 2. 3. 4. 5.
Sl. No. 6. 7. 8. 9. 10. 11. 12.. 13.
Name of the Company Akar Laminators Ltd Dharnendra Industries Ltd Indu Nissan Oxo Chemical Industries Ltd Kanel Oil & Export Industries Ltd Nexus Software Ltd Indo American Optics Ltd Jayant Vitamins Ltd Pankaj Agro Protinex Ltd
a)
b)
Sl. No.
Out of the above proceedings, in the following three cases, the adjudication proceedings are completed and penalty has been levied for non-redressal of investor grievances:
Name of the Company Enkay Texofood Industries Ltd. Steelco Gujrat Ltd. Pankaj Agro Protinex Ltd. Penalty Amount (in Rs.) 30,00,000 5,00,000 2,00,000
SI. No. 1. 2. 3.
31
c)
In addition to the above adjudication proceedings, notice has also been issued to the following 33 companies and its 150 directors under section 11(4)(b) of the SEBI Act, 1992, why they shall not be debarred from accessing securities market till they resolve investor grievances, for their failure to redress the investor grievances and respond to SEBIs notices to redress complaints:
Name of the Company AEC Enterprises Limited Bhuvan Tripura Industries Limited Binaca Synthetic Resins Ltd Chicago Software Industries Limited D R Industries Ltd Dharnendra Overseas Ltd Goodearth Synthetics Ltd Hindustan Industrial Chemicals Ltd Indo American Credit Corporation Ltd Ishwar Medical Service Ltd Kolar Information Technologies Ltd Nexus Software Ltd Panjwani Packaging Ltd Prakash Fortan Softech Ltd Rane Computers Consultancy Ltd Solid Carbide Tools Ltd Toheal Pharmachem Ltd Vatsa Corporations Ltd Aashi Industries Ltd Akar Laminators Ltd Dharnendra Industries Ltd Enkay Texofood Industries Ltd Gujarat Investment Castings Ltd ICES Software Ltd Indo American Optics Ltd Indu Nissan Oxo Chemical Industries Ltd
Sl. No. 27. 28. 29. 30. 31. 32. 33.
Name of the Company Jayant Vitamins Ltd Kanel Oil & Export Industries Ltd Motorol Enterprise Ltd Pankaj Agro Protinex Ltd Pioneer Embroideries Ltd Steelco Gujrat Ltd Topline Shoes Ltd
Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26.
iii. SCORES (SEBI Complaints Redress System) SEBI is in the process of upgrading the investor grievance redressal mechanism. The upgraded mechanism would be a web-based, centralised grievance redress system for SEBI. The software for the new system is being developed by the National Informatics Centre (NIC), Ministry of Information Technology, New Delhi. The salient features of the new system are: a) b) Centralised complaints tracking system for entire SEBI. Grievance pertaining to any of the Regional Offices of SEBI can be lodged from anywhere. All complaints and Action Taken Report to be in electronic mode Action taken and the current status of the complaint can be accessible to the investors, online. Facility for online updation of Action Taken Reports. Issuance of No Objection Certificate
c) d)
e)
iv.
Companies raising capital through public issue of securities are required to deposit one percent of the issue amount 32
with the designated stock exchange, which is released by the stock exchange only after SEBI issues a No Objection Certificate (NOC). One of the criteria for issuance of NOC to the companies is the satisfactory redressal of all investor grievances received by SEBI against the company. In 2009-10, 76 NOCs were issued to applicant companies. In 34 Cases, NOCs were not issued as the applications were incomplete or due to unsatisfactory record of grievance redressal on their part. v. Investor Grievances against Suspended Companies
were not a director of any suspended companies. To begin with BSE and NSE shall identify the suspended companies which are active by filing return with Register of Companies and issue notices to them for non-redressal of investor grievances and non-compliance of listing agreement. BSE and NSE shall submit a report to SEBI in respect of each such suspended company and their Directors and Compliance Officers which fails to redress the complaints for appropriate regulatory actions by SEBI. Securities and Exchange Board of India (Investor Protection and Education Fund) Regulations, 2009
It was observed that several companies who fail to redress investor grievances and compiling with listing agreement with stock exchanges and letters addressed to them are returned undelivered, are not taking any remedial measures despite trading in their shares have been suspended by the stock exchanges. It was also observed that some of these companies were active in their business and filing their return with Registrar of Companies to avoid declaring them as vanishing companies and subsequent regulatory actions. As recommended by a sub-committee constituted in this regard, following course of actions are taken: BSE and NSE display on their respective websites the names of the companies suspended as on date and the names of directors with their DIN/PAN, compliance officers and promoters of such companies on the date of suspension. SEBI would insist on a declaration from the directors of the companies who are coming for public issues that they 33
vi.
T h e R e g u l a t i o n s g o ve r n i n g t h e administration of the Investor Protection and Education Fund (IPEF), were notified on May 19, 2009. These Regulations inter alia provide for amounts that can be credited to the fund, its utilisation and also an Advisory Committee for recommending utilisation of the fund. During the year 2009-10, the Advisory Committee met thrice and provided inputs and suggestions which are under various stages of implementation. vii. Investor Awareness Division (IAD) A separate division namely, the I n ve s t o r Awa r e n e s s D i v i s i o n ( I A D ) , was created to rejuvenate and to bring focused attention on the activities of the Board pertaining to investor education and awareness. IAD also handles work pertaining to financial literacy initiatives of the Board.
viii. Investor Assistance SEBI provides assistance/guidance to investors by replying to their queries received through the following modes: a) Telephone (Investor Helpline 91-2226449188/26449199/40459188/40459199 at Head office and through board lines at the Regional Offices. E-mail (investorcomplaints@sebi.gov.in) Investors visiting SEBI Offices Letters Grievance form in the SEBI Website. b)
b) c) d) e)
providing investors the wherewithal to make informed choice, stock exchanges and depositories are disclosing in their website the details of complaints lodged by clients/investors against trading members, companies listed in the exchange and depository participants. The aforesaid disclosure also includes details pertaining to arbitration and penal action against the trading members and depository participants. Client Registration Procedure: With a view to instill greater transparency and discipline in the dealings between the clients and the stock brokers, SEBI has prescribed requirements related to dealings between a client and stock broker. Some of the prescribed requirements are client registration procedure, minimum font size of the agreement, mandatory documents, specific consent from clients for nonmandatory documents, periodic settlement of running accounts, display of all the documents executed by a client, clients position, margin and other related information, statement of accounts on the web-site owned by broker, etc. S e n d i n g C l i e n t s Tr a d e D e t a i l s by Exchanges: To pre-empt the unauthorised trading by some brokers in their clients account, NSE, BSE and MCX-SX have started sending daily clients trade details directly to a few randomly selected clients for their verification and reporting of any unauthorised trade or discrepancies in trade. Disseminating Regulatory Orders and Arbitration Awards by Exchanges: To ensure transparency and to improve
Assistance so rendered to investors was augmented by providing replies to the commonly sought queries by investors on the website as FAQs. Further, SEBI is in the process of launching a toll free helpline to answer the queries of investors. ix. Investors Associations
Informed investment decisions by investors have been the key thrust of the investor protection initiatives of the Board. Towards educating investors and to spread awareness, SEBI continues it association with Investors Associations (IA) who play a role in this regard by conducting investor education workshops. Educative material developed by SEBI was distributed in these workshops. At the end of March 2010, there were 22 IAs that were recognised by SEBI. The feedback/suggestions from the IA are used as inputs for policy decisions of the Board. Some of the measures pursuant to the feedback and suggestions received from the IA include: a) Disclosure of Complaints details at Stock Exchanges and Depositories Websites: To ensure transparency in grievance redressal and to improve the general functioning of the market by 34
c)
d)
the general functioning of the market by providing investors the wherewithal to make informed choice, all stock exchanges were advised to post all their regulatory orders and arbitration awards issued against listed companies and clearing/trading members on their websites. e) Guidelines Obtaining Power of Attorney (PoA): To prevent unfair practice of insisting PoA from all clients and misuse of PoA obtained by some brokers and depository participants, SEBI has issued a set of guidelines to be followed by brokers and depository participants for obtaining PoA only if it is required by clients. Wa i v e r o f a r b i t r a t i o n f e e : B S E has waived the fees for arbitration proceedings for claims up to Rs.10 lakh for clients as being followed by NSE. Investor Grievance Redressal Committees at Regional Centres: NSE has set up Investor Grievance Redressal Committees at all its regional centres at par with BSE. Financial Literacy School Programs
18 schools have implemented the program in their schools and more schools are expected to implement in the coming years. SEBI has also taken up with Central Board of Secondary Education (CBSE) to introduce financial literacy in school syllabus as an essential life skill at school level. b) Association with Non-Government Organisations (NGOs)
f)
g)
SEBI explored the possibility of associating with NGOs and other entities, having experience in the field of financial literacy. SEBI has partnered with Meljol, an NGO having experience in the field of promoting child rights and financial education in schools. The pilot program to cover 14,550 students in 281 schools through 196 trained teachers in Akola and Thane districts of Maharashtra, has commenced. This program covers schools in rural and tribal areas of Maharashtra, having high concentration of children from underprivileged communities. c) SEBI is launching its financial literacy drive targeting the following groups; School children College students Middle Income Group Executives Housewives/Housing Societies Retirement Planning Self Help Group(s)
x. a)
SEBI initiated financial literacy program for school students jointly with NISM in 2008-09 and positioned it as an important life skill at the school level targeting 8th and 9th standard students. In 2009-10 this initiative was taken further in which 72 teachers from 36 schools were trained through 2 workshops. Study material in the form of kits were distributed. About 1600 such kits were distributed. Participant teachers were given the training kits free of cost and were also presented a certificate of participation. During the year, 35
The program aims at imparting understanding of financial concepts to the targeted groups. Under the guidance of the Advisory Committee for the IPEF, the material for the aforesaid target group is under preparation and the programs will be conducted by Resource Persons empanelled
for the purpose. Empanelment of Resource Person for the western region has already commenced. These empanelled Resource Persons would also supplement the investor education programs that are conducted through IAs recognised by SEBI, stock exchanges, depositories and trade bodies like AMFI, Association of National Exchange Members etc.
registering price rise. Besides FIIs, mutual funds and retail investors increased their positions in the secondary market. Due to strong global and domestic macro-economic fundamentals, overall market sentiment was buoyant throughout the major part of the year. Derivatives market in India witnessed buoyant activity during 2009-10. In equity derivatives segment, there were five indices and 190 stocks as underlying on which derivates contracts were traded as on March 31, 2010. Turnover in equity derivatives segment of NSE increased by 60.4 percent to Rs.1,76,63,665 crore during 2009-10 over the previous fiscal. Currency futures market saw introduction of contracts on new currency pairs namely, Euro-Indian Rupee (INR), Pound Sterling-INR and Japanese YenINR apart from the existing US Dollar-INR ones from February 1, 2010. Turnover in the currency futures segment of NSE was Rs.17,82,608 crore during 2009-10 against Rs.1,62,563 crore during 2008-09 (Aug. 2008 Mar. 20009). Turnover in currency futures at MCS-SX stood at Rs.19,44,654 during 2009-10 against Rs.1,48,826 crore during 2008-09 (Oct. 2008 - Mar. 2009). The primary market witnessed improved activity during 2009-10. The number of companies which accessed the primary market was 76 in 2009-10 compared to 47 in 2008-09. Amount mobilised was Rs.57,555 crore during 2009-10, as against Rs.16,220 crore mobilised during 2008-09. The number of Initial Public Offerings (IPOs) increased to 39 in 2009-10 from 21 in 200809 and the number of rights issue increased to 29 from 25 during the same period. Resource mobilisation through the Qualified Institutions Placement Mode (QIP) gained prominence during 2009-10 as 62 issues raised Rs.42,729 crore compared to 2 issues raising Rs.189 crore duing 2008-09. 36
X.
i.
Retrospect and Prospects

Retrospect
Indian economy, after witnessing a slowdown during 2008-09 due to global financial crisis recovered at a moderated pace of 7.4 percent. The increase in manufacturing and industrial activity pulled up the overall growth rate amidst improved global business environment. The securities market recovered with the BSE Sensex closing above the 14,000 mark on May 18, 2009 post announcement of election results. Thereafter, it witnessed a brief correction to close at 13,400 on July 13, 2009 before embarking on an upward trajectory. It recorded its highest close at 17,711 on March 30, 2010. Nifty recorded its highest close at 5,303 on the same day. BSE Sensex increased (year-on-year) by 80.5 percent and Nifty by 73.8 percent in end-March 2010 over endMarch 2009. Turnover in the cash segment of NSE increased by 50.4 percent to Rs.41,38,023 crore and in BSE it was up by 25.3 percent to Rs.13,78,809 crore, reflecting increased activity in Indian markets. Reflecting the price appreciation, market capitalisation (of BSE) to GDP ratio and the traded value (of BSE and NSE together) to GDP ratio increased to 100 percent and 89.5 percent, respectively in 2009-10 from 55.4 percent and 69.1 percent a year ago. The recovery in securities market was broad-based with a majority of the sectors
There was a net inflow of resources to mutual funds during 2009-10. With private sector mutual funds contributing a major part of the mobilisation, there was a net inflow of resources to all mutual funds at Rs.83,080 crore in 2009-10 compared to a net outflow of resources of Rs.28,296 crore in 2008-09. The exposure of mutual funds to debt securities increased vis--vis equity. The FIIs continued to invest in Indian market. The number of SEBI registered FIIs went up to 1,713 by end March 2010 from 1,635 a year ago. Their net purchase in equities was USD 23,248 million in 2009-10 against a net sales of USD 10,324 million in the previous year. ii. Prospects
friendly and to mitigate risks associated with the system. As part of its efforts to make the market more efficient, transparent, cost effective and safe, the measures like in person verification of clients, regulation of credit rating agencies, introduction of several exchange traded derivatives, standardising the contracts size, revision of trading hours, etc have been initiated by SEBI. In its endeavour for development of corporate debt market, number of initiatives have been introduced and some more measures are in the offing in coming years. A series of measures have been introduced for mutual funds for empowering the investors so that the mutual fund industry can become more resilient and achieve sustainable growth. Investor assistance and investor education are the prime objectives of SEBI as a regulator. As part of the investor education initiatives, SEBI has launched many initiatives during the past one year through organising seminars, workshops, investors meet etc. This would help in achieving financial inclusion for the investors in the country. It has introduced financial literacy programmes in schools curriculum in collaboration with NISM. In years to come, it proposes to launch many such programmes for investor education and financial literacy. In the coming years, SEBI would continue its efforts, with a clear objective of investor protection through investor education and market development. The broad direction in which SEBI plans to move will be guided by twin beacons i.e., reduction of transaction costs and cutting down the time taken in completing the transactions.
The Indian Securities market remained stable during 2009-10, as the global markets too witnessed improved stability with indication of prospects of firm recovery. However, fiscal concerns remain strong as sovereign risks continue to be a cause of concern in some European countries. SEBI would continue with its efforts to deepen and widen the Indian market and take appropriate regulatory measures to make them resilient enough to withstand volatility. SEBI has been pursuing to its objectives of investor protection, investor education, and market developments. During the year, it has initiated a series of policy initiatives in primary market to make the market investor friendly and to mitigate risks. Among the others, the measures include introduction of the concept of anchor investor, introducing pure auction in the FPO process, extension of ASBA mechanism and strengthening of the regulatory framework governing public offerings. It would continue to work towards making the issue process transparent, investor
37
Annual Report 2009-10 PART TWO:
REVIEW OF TRENDS AND OPERATIONS

plans by corporates and poor investor response had led to a sharp fall in the number of issues and amounts raised through the primary market.
Indian securities markets witnessed sharp turnaround in 2009-10. Where as the markets were in downswing in 200809 in consonance with the downward spiral in global equity markets triggered by international financial crisis, beginning of the financial year 2009-10 witnessed upward swing in the market. Fresh upward movement was triggered following unambiguous results in the union elections and a period of stability across the market got initiated. The upward swing following the election results was so sudden and strong that Indian stock exchanges were shut down temporarily due to operation of circuit filters. In global arena, concerns for deepening of recession pervaded in the developed economies got replaced with concerns for a double dip. However, as the year progressed, the picture at global markets became better. Foreign Institutional Investors (FIIs) made a record net purchase in the Indian equity market in 2009-10, of Rs.1,42,658 crore surpassing the previous high of 200708 inflows (Rs.66,179 crore). This reflects confidence in Indian economy and the same was also highlighted in Economic Survey 2009-10. Large FII inflows in the country led to strengthening of Rupee against US Dollar. There was a substantial improvement in the resource mobilisation by corporates in the primary market in 2009-10 compared to the previous year. Similarly, mobilisation of resources by mutual funds exceeded redemptions resulting in substantial inflows.
I.
Resource Mobilisation
During 2009-10, 76 issues accessed the primary market and raised Rs.57,555 crore through public (47) and rights issues (29) as against 47 issues which raised Rs.16,220 crore in 2008-09 through public (22) and rights issues (25) (Table 2.1). Due to better financial environment, there were 39 IPOs during 2009-10 as against 21 during 2008-09. The amount raised through IPOs during 2009-10 was significantly higher at Rs.24,696 crore as compared to Rs.2,083 crore during 2008-09. The share of public issues in the total resource mobilisation increased to 85.6 percent during 2009-10 from 22.1 percent in 2008-09 whereas share of rights issues declined from 77.9 percent in 2008-09 to 14.5 percent in 2009-10 (Chart 2.1). Chart 2.1 represents the relative share of the three modes of resource mobilisation namely, IPOs, FPOs, and rights issues. It is observed that the share of IPOs has ranged from 12.8 percent to 85.1 percent; FPOs from zero percent to 80.9 percent and rights issues from 4.3 percent to 77.9 percent. There were three public issues of nonconvertible debentures (NCDs) amounting to Rs.2,500 crore in 2009-10 as compared to a single issue of Rs.1500 crore in 2008-09 which shows better appetite among investors for NCDs in 2009-10 as compared to previous year. In order to make Indian markets more competitive and efficient and to facilitate quicker resource mobilisation by companies from institutional investors, an additional 38
1.
PRIMARY SECURITIES MARKET
The primary market segment witnessed positive trend during 2009-10. Earlier, in 200809, the volatility in stock markets, slowdown in economic growth, slackening of expansion
Part Two: Review of Trends and Operations
Table 2.1.: Resource Mobilisation through Public and Rights Issues

Particulars No. 1 1. Public Issues (i)+(ii) (i) Public Issues (Equity/PCD/FCD) of which IPOs FPOs (ii) Public Issues (Bond/NCD) 2. 3. Rights Issues Total (1+2) 21 0 1 25 47 3 2,083 0 1,500 12,637 16,220 48 39 5 3 29 76 9 24,696 20,041 2,500 8,319 57,555 11,756 12.84 0.00 9.25 77.91 100.00 0.30 42.91 34.82 4.34 14.45 100.00 20.43 2 22 21 2008-09 Amount (Rs.crore) 3 3,583 2,083 No. 4 47 44 2009-10 Amount (Rs.crore) 5 49,236 46,736 Percentage Share in Total Amount 2008-09 6 22.09 22.09 2009-10 7 85.55 85.55
Memo Item Offer for Sale* *All offers for sale are initial public offers, hence are already counted under IPOs.
mode for listed companies to raise funds from domestic market in the form of Qualified Institutional Placement (QIP) was introduced in May 2006. Securities which can be issued 39
through QIP are equity shares or any securities other than warrants, which are convertible into or exchangeable with equity shares.
QIP as a mode of resource mobilisation picked up pace during 2007-08 raising Rs.25,525 crore from the market. However, it declined in 2008-09 to Rs.189 crore reflecting the general subdued trend in primary markets. Similarly, number of companies accessing QIP route also declined from 36 in 2007-08 to two in 2008-09. In contrast to the previous financial year, 2009-10 proved to be a better year for QIP issues. In 2009-10, Indian companies raised Rs.42,729 crore by way of 62 QIP issues which is the highest amount raised under QIP route in last three years (Table 2.2). The reason for decline in resource mobilisation through QIP route in 2008-09 was delay of expansion plans and conservation of cash by Indian companies to counter uncertainty in the global markets.
II. Sector-wise Resource Mobilisation

Sector-wise classification reveals that 70 private sector and six public sector issues mobilised resources through primary market during 2009-10 as compared to 47 private sector issues in 2008-09. These companies raised Rs.57,555 crore though 76 issues in 2009-10 as compared to Rs.16,220 crore through 47 issues in 2008-09 (Table 2.3). The share of private sector in total resource mobilisation declined from 100 percent in 2008-09 to 45.9 percent in 2009-10 (Chart 2.2). The analysis of last eight years since 2002-03 reveals that 2008-09 was the only financial year wherein the public sector companies did not participate in resource mobilisation through primary market.
Table 2.2: Resource Mobilisation through Qualified Institutions Placement

2007-08 Particulars 1 Total of which Companies listed at BSE Companies listed at NSE 36 34 25,525 24,679 1 2 75 189 62 61 42,729 42,484 No. 2 36 Amount (Rs.crore) 3 25,525 No. 4 2 2008-09 Amount (Rs.crore) 5 189 No. 6 62 2009-10 Amount (Rs.crore) 7 42,729
Table 2.3: Sector-wise Resource Mobilisation

Sector No. 1 Private Public Total 2 47 0 47 2008-09 Amount (Rs.crore) 3 16,220 0 16,220 No. 4 70 6 76 2009-10 Amount (Rs.crore) 5 26,438 31,117 57,555 Percentage Share in the Total Amount 2008-09 6 100.00 0.00 100.00 2009-10 7 45.94 54.06 100.00
40
III. Size-wise Resource Mobilisation

About 87.7 percent of resource mobilisation was through public issues of issue-size above Rs.500 crore during 2009-10 compared to 78.1 percent during the previous financial year (Table 2.4). Also, the number of issues under category of issues having size of Rs.500 crore or above increased to 21 in 200910 from six in 2008-09. Table 2.4: Size-wise Resource Mobilisation
Issue Size No. 1 < Rs.5 crore Rs.5 crore & <Rs.10 crore Rs.10 crore & < Rs.50 crore Rs.50 crore & <Rs.100 crore Rs.100 crore & <Rs.500 crore Rs.500 crore Total 2 1 1 21 6 12 6 47 2008-09 Amount (Rs.crore) 3 3 7 509 445 2,591 12,664 16,220
The average size of the issue more than doubled in 2009-10 to Rs.757 crore from Rs.345 crore in 2008-09. Not only the average size of issues improved substantially in 200910, but also the fact that issues under Rs.100 crore constituted just 2.2 percent of total resources mobilisation shows that bigger issues were clearly the flavour of the market. There were 30 mega issues in 2009-10
2009-10 No. 4 1 3 18 9 24 21 76 Amount (Rs.crore) 5 2 24 596 636 5,824 50,474 57,555
Percentage Share in the Total Amount 2008-09 6 0.02 0.04 3.14 2.74 15.98 78.08 100.00 2009-10 7 0.00 0.04 1.04 1.10 10.12 87.70 100.00
41
as compared to nine mega issues in 2008-09 (Table 2.5). These 30 mega issues mobilised
Rs.54,039 crore which amounts to 93.9 percent of Rs.57,555 crore total resource mobilisation during the year.
Table 2.5: Mega Issues in 2009-10*

Name of the Entity 1
Type of Issue
2
Type of Instrument
3
Date of Opening of Issue

4
Offer Size (Rs.crore)

5
Percentage Share in Total Amount

6
Shriram Transport Finance Limited Adani Power Limited NHPC Limited L&T Finance Limited Oil India Limited Pipavav Shipyard Limited The Tinplate Company of India Limited Television Eighteen India Limited Wire and Wireless India Limited Fortis Health Care Limited India Bulls Power Limited Den Networks Limited Cox And Kings (India) Limited D.B. Corp. Ltd. JSW Energy Limited Godrej Properties Limited Jubilant Foodworks Limited DB Realty Limited Religare Enterprises Limited NTPC Limited Hathway Cable & Datacom Limited L&T Finance Limited REC Limited United Bank of India NMDC Ltd IBN18 Broadcast Ltd IL&FS Transporation Networks Ltd Shree Ganesh Jewellery House Ltd Videocon Industries Ltd Adani Enterprises Ltd TOTAL (Mega Issues)
Public IPO IPO Public IPO IPO Rights Rights Rights Rights IPO IPO IPO IPO IPO IPO IPO IPO Rights FPO IPO Public FPO IPO FPO Rights IPO IPO Rights Rights
NCD Equity Equity NCD Equity Equity Rights & FCDs Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity NCD Equity Equity Equity Equity Equity Equity Equity Equity
27-Jul-09 28-Jul-09 7-Aug-09 18-Aug-09 7-Sep-09 16-Sep-09 17-Sep-09 29-Sep-09 29-Sep-09 30-Sep-09 12-Oct-09 28-Oct-09 18-Nov-09 11-Dec-09 7-Dec-09 9-Dec-09 18-Jan-10 29-Jan-10 1-Feb-10 3-Feb-10 9-Feb-10 9-Feb-10 19-Feb-10 23-Feb-10 10-Mar-10 10-Mar-10 11-Mar-10 19-Mar-10 29-Mar-10 31-Mar-10
1,000.00 3,016.52 6,038.55 1,000.00 2,777.25 498.67 374.32 504.06 449.86 997.12 1,529.10 364.46 610.39 384.22 2,700.00 468.85 328.72 1,500.00 1,814.31 8,478.75 666.00 500.00 3,529.94 324.97 9,967.30 509.53 700.00 371.01 1,156.33 1,478.52 54,038.75
1.85 5.58 11.17 1.85 5.14 0.92 0.69 0.93 0.83 1.85 2.83 0.67 1.13 0.71 5.00 0.87 0.61 2.78 3.36 15.69 1.23 0.93 6.53 0.60 18.44 0.94 1.30 0.69 2.14 2.74 100.00
* An issue of Rs.300 crore and above is referred to as Mega Issue.
42
The largest mega issue during 2009-10 was of a Public Sector Undertaking (PSU), namely, NMDC Limited (Rs.9,967.3 crore) which was followed by again PSUs, namely, NTPC Ltd (Rs.8,478.8 crore) and NHPC Ltd (Rs.6,038.6 crore). This was part of Government of Indias disinvestment plan under which Government offloaded part of its stake in NMDC and NTPC through FPOs and in NHPC through IPO. The combined size of these three issues constituted almost half (45.3 percent) of the total resources mobilised by all companies in 2009-10 through mega issues.
IV. Industry-wise Resource Mobilisation

Industry-wise classification reveals that Power sector accounted for 43.9 percent of total resource mobilisation in the primary market (Table 2.6) as number of power sector companies, namely, Adani Power, Indiabulls Power, NTPC, NHPC etc, accessed the primary market. The power sector was followed by Banks/FIs with 5.5 percent, Cement and Construction with 4.8 percent and Entertainment sector with 4.3 percent. In terms of number of issues, Entertainment
Table 2.6: Industry-wise Resource Mobilisation

2008-09 Industry No. Amount (Rs.crore) 3 0 3 4 0 0 2 3 0 3 1 0 0 2 0 2 5 22 47 0 80 218 0 0 1,156 1,966 0 144 42 0 0 958 0 100 710 10,845 16,220* Percentage Share in the Total Amount 4 0.00 0.49 1.34 0.00 0.00 7.13 12.12 0.00 0.89 0.26 0.00 0.00 5.91 0.00 0.62 4.38 66.86 100.00 No. 2009-10 Amount (Rs.crore) 6 3,138 2,780 36 1,156 50 2,461 1,826 443 1,002 315 35 39 25,293 0 0 237 18,742 57,555* Percentage Share in the Total Amount 7 5.45 4.83 0.06 2.01 0.09 4.28 3.17 0.77 1.74 0.55 0.06 0.07 43.95 0.00 0.00 0.41 32.56 100.00
1 Banks/Fls Cement & Construction Chemical Electronics Engineering Entertainment Finance Food Processing Healthcare Information Technology Paper & Pulp Plastic Power Printing Telecom Textile Miscellaneous Total
5 6 8 1 1 1 9 2 2 2 4 1 1 6 0 0 3 29 76
* Figures for 2009-10 include three NCDs worth Rs.2,500 crore; all other issues were equity issues. Similarly, there was one NCD worth Rs 1,500 in 2008-09; all other issues were equity issues.
43
sector led the pack with nine issues during 2009-10 as compared to Textile sector seeing the highest number of five issues during 2008-09.
2. I.
SECONDARY SECURITIES MARKET Equity Market in India
2009 (Chart 2.3). The BSE Sensex increased 7819 points to close at two year high level at 17528 on March 31, 2010 from 9709 on March 31, 2009. The S&P CNX Nifty also increased 2228 points to close at 5249 points at the end of March 2010 over 3021 at the end of March 2009 mainly driven by higher growth rate, positive sentiments in market, better global environment, and FII inflows. Indian markets had recorded substantial decline and volatility in 2008-09. However, the environment improved in 2009-10 and got better with every subsequent quarter. In tandem with the increase in stock prices in 2009-10, there was a significant increase in turnover and market capitalisation across the board (Table 2.7). In the cash segment, the turnover at BSE and NSE increased by 25.4 percent and 50.4 percent respectively during 2009-10 as compared to decline witnessed at BSE and NSE by 30.3 percent and 22.5 percent,
Equity markets witnessed significant uptrend during 2009-10 as compared to downward and volatile trend in 2008-09. However, at times, the domestic markets reflected the uncertainties in international financial market during the financial year under review. Markets were characterised by some bouts of volatility during the year, but it rewarded investors by giving five year best return in 2009-10. The BSE Sensex and S&P CNX Nifty appreciated by 80.5 percent and 73.8 percent, respectively, over March 31,
44
Table 2.7: Major Indicators of Indian Stock Markets

Item 1 A. Indices BSE Sensex Year-end Average S&P CNX Nifty Year-end Average S&P CNX 500 Year-end Average B. Annualised Volatility *(percent) BSE Sensex S&P CNX Nifty C. Total Turnover (Rs.crore) Cash Segment (All-India) of which BSE NSE Derivatives Segment of which BSE NSE D. Market Capitalisation (Rs.crore) @ BSE NSE E. P/E Ratio @ BSE Sensex S&P CNX Nifty S&P CNX 500 13.65 14.3 13.13 21.32 22.33 19.41 -32.12 -30.68 -26.48 56.19 56.15 47.83 30,86,075 28,96,194 61,65,619 60,09,173 -39.94 -40.38 99.79 107.49 11,775 1,10,10,468 234 1,76,63,665 -95.14 -15.89 -98.01 60.43 11,00,074 27,52,023 1,10,22,243 13,78,809 4,13,82,023 1,76,63,889 -30.32 -22.50 -17.33 25.34 50.36 60.26 38,52,079 55,16,833 -24.91 43.22 43.58 41.54 29.16 29.41 2295 2951 4313 3810 -40.02 -27.97 87.95 29.10 3021 3731 5249 4658 -36.20 -23.81 73.76 24.84 9709 12366 17528 15585 -37.94 -25.37 80.53 26.03 2008-09 2 2009-10 3 Percentage Variation over the Previous Year 2008-09 4 2009-10 5
* Annualised volatility is calculated by multiplying the standard deviation of the logarithmic returns with the square root of the number of trading days for the period. @ As on March 31 of the respective year. Source: Various Stock Exchanges.
respectively during 2008-09. Derivatives turnover showed substantial decline at BSE by 98.1 percent while that at NSE gained by 60.4 percent over the previous year. In 2009-10, global equity markets improved significantly and some markets especially emerging markets showed sharp 45
turnaround. This was unlike the situation witnessed in 2008-09 when the global equity markets were dominated by the financial turmoil and the signs of severe recession inflicted by the deteriorating financial markets. During 2009-10, all the equity markets witnessed uptrend, however, in different
magnitude. The upward trend was the highest for BUX index of Hungary (118.9 percent) followed by Argentina IBG (112.7 percent) and Russian CRTX index (104.8 percent). However, the Indian benchmark indices namely BSE Sensex and S&P CNX Nifty gave year on year return of 80.5 percent and 73.8 percent respectively in 2009-10.
II. Performance of Sectoral Indices

There was an across the board increase in broad-based and sectoral indices in 200910. Among the broad-based indices of shares listed on BSE, BSE 100, BSE 200 and BSE 500 recorded an increase of 88 percent, 93 percent and 97 percent respectively over the previous year (Chart 2.5). Similarly, among the indices of shares listed on NSE, the S&P CNX 500, CNX Nifty Junior and CNX Midcap increased by 88 percent, 148 percent and 126 percent respectively in 2009-10 (Table 2.8). 46
The BSE Small-cap index recorded an increase of 161.7 percent in 2009-10. Among the sectoral indices, highest increase was recorded by BSE Metal index (210.2 percent), BSE Consumer Durables (159.7 percent) and BSE Auto index (150.6 percent) (Table 2.8 and 2.9). While the metal index reflected the strengthening of metal prices, the general upward trend in the economy and industrial production got reflected in increase in the capital goods and auto indices. The movement of sectoral indices at NSE is depicted in Chart 2.6. During 2009-10, the highest increase was witnessed in CNX IT (152.6 percent), followed by CNX Bank (128.9 percent) and CNX Petrochemicals (114.7 percent). Of the other indices at NSE, the highest increase was witnessed in CNX Nifty Junior (148.2 percent), followed by Nifty Midcap 50 (131.2 percent), and CNX Midcap (126.1 percent).
47
Table 2.8: Major Stock Indices and their Returns

Year/ Month 1 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 BSE Sensex 2 13072 15644 9709 17528 11403 14625 14494 15670 15667 17127 15896 16926 17465 16358 16429 17528 Percentage Variation 3 15.89 19.68 -37.94 80.53 17.45 28.26 -0.90 8.11 -0.02 9.32 -7.19 6.48 3.18 -6.34 0.43 6.69 BSE 100 4 6587 8233 4943 9300 5804 7620 7572 8177 8226 8930 8333 8915 9230 8708 8759 9300 Percentage Variation 5 11.57 24.99 -39.96 88.14 17.42 31.29 -0.63 7.99 0.60 8.56 -6.69 6.98 3.53 -5.66 0.59 6.18 S&P Percent- CNX PercentCNX age Mid-cap age Nifty Variation Variation 6 3822 4735 3021 5249 3474 4449 4291 4636 4662 5084 4712 5033 5201 4882 4922 5249 7 12.31 23.89 -36.20 73.75 14.99 28.07 -3.55 8.05 0.55 9.05 -7.32 6.81 3.35 -6.13 0.82 6.64 8 4850 6241 3408 7705 3861 5354 5427 5950 6118 6713 6580 7149 7419 7202 7167 7705 9 1.32 28.68 -45.40 126.12 13.30 38.66 1.38 9.64 2.82 9.73 -1.99 8.65 3.77 -2.92 -0.48 7.50 S&P CNX 500 10 3145 3826 2295 4313 2663 3580 3470 3764 3840 4119 3853 4145 4329 4156 4128 4313 Percentage Variation 11 8.09 21.65 -40.02 87.94 16.03 34.43 -3.08 8.48 2.02 7.25 -6.45 7.59 4.43 -4.00 -0.69 4.50
Note: Indices relate to closing values as on the last trading day of the respective year/month. Source: BSE, NSE.
Table 2.9: Sectoral Stock Indices and their Returns

Year/ Month 1 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 CNX IT 2 4353 5181 2319 5856 2771 3206 3498 4330 4618 5122 5049 5364 5818 5594 5767 5856 Percentage Variation 3 48.92 19.02 -55.25 152.55 19.50 15.71 9.09 23.80 6.66 10.91 -1.43 6.25 8.47 -3.85 3.08 1.55 CNX Bank 4 4662 5309 4133 9460 5131 7416 7339 7545 7432 8812 8439 9047 9030 8652 8723 9460 Percentage Variation 5 31.79 13.88 -22.15 128.87 24.14 44.53 -1.04 2.80 -1.50 18.58 -4.24 7.21 -0.19 -4.19 0.82 8.45 CNX PSE 6 2554 2484 2454 3766 2690 3784 3428 3686 3728 3791 3566 3873 4104 4000 3907 3766 Percent- BSE Oil Percentage and Gas age Variation Variation 7 47.97 -2.74 -1.22 53.5 9.61 40.70 -9.41 7.52 1.13 1.69 -5.92 8.61 5.96 -2.53 -2.32 -3.61 8 4919 6419 7053 10159 8133 10419 9390 9480 9775 10476 9434 10283 10471 9939 9596 10159 9 61.07 30.49 9.88 44.04 15.31 28.12 -9.88 0.96 3.11 7.17 -9.94 8.99 1.83 -5.08 -3.45 5.87 BSE FMCG 10 2211 1739 2036 2831 2095 2097 2263 2738 2554 2576 2809 2872 2792 2725 2662 2831 Percentage Variation 11 110.07 -21.35 17.08 39.05 2.90 0.10 7.92 20.99 -6.72 0.86 9.05 2.24 -2.79 -2.40 -2.31 6.35
Note: Indices relate to closing values as on the last trading day of the respective year/month. Source: BSE, NSE.
48
III. Turnover in the Indian Stock Market

In tandem with the upward trend in equity prices, there was an increase in the trading volumes in stock exchanges in 200910. During 2009-10, turnover of all stock exchanges in the cash segment increased by 43.3 percent to Rs.55,18,470 crore from Rs.38,52,579 crore in 2008-09 (Table 2.10). BSE and NSE together contributed 99.9 percent of the turnover, of which NSE accounted for 74.9 percent in the total turnover in cash market whereas BSE accounted for 24.9 percent
to the total. Apart from NSE and BSE, the only two stock exchanges which recorded turnover during 2009-10 were Calcutta Stock Exchange Ltd. and UPSE. There was hardly any transaction on other stock exchanges. Month-wise, BSE and NSE together recorded the highest turnover in June 2009 followed by July 2009 and May 2009 (Table 2.11). City-wise distribution of turnover of cash segments at NSE and BSE indicates the all-India spread of the stock markets (Table 2.12). As in the earlier years, Mumbai/Thane
Table 2.10: Exchange-wise Cash Segment Turnover

(Rs.crore) Stock Exchange 1 Recognised Stock Exchanges Ahmedabad BSE Bangalore Bhubaneswar Cochin Coimbatore Delhi Gauhati ISE Jaipur Calcutta Ludhiana Madras MPSE NSE OTCEI Pune UPSE Vadodara Total Source: Various Stock Exchanges. Nil 11,00,074 Nil Nil Nil Nil Nil Nil Nil Nil 393 Nil Nil Nil 27,52,023 Nil Nil 89 Nil 38,52,579 Nil 13,78,809 Nil Nil Nil Nil Nil Nil Nil Nil 1612 Nil Nil Nil 41,38,023 Nil Nil 25 Nil 55,18,470 Nil 24.99 Nil Nil Nil Nil Nil Nil Nil Nil 0.03 Nil Nil Nil 74.98 Nil Nil 0.00 Nil 100.00 2008-09 2 2009-10 3 Percentage Share (2009-10) 4
49
Table 2.11: Turnover at BSE and NSE: Cash Segment

BSE Year/Month 1 2005-06 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 * Over previous period. Source: BSE, NSE. Turnover 2 8,16,074 9,56,185 15,78,857 11,00,075 13,78,809 88,943 1,28,542 1,59,195 1,38,986 1,22,319 1,24,220 1,14,007 1,05,142 98,082 1,17,084 82,510 99,779 Percentage Variation* 3 57.33 17.17 65.12 -30.32 25.34 27.45 44.52 23.85 -12.69 -11.99 1.55 -8.22 -7.78 -6.71 19.37 -29.53 20.93 Turnover 4 15,69,558 19,45,285 35,51,037 27,52,023 41,38,023 2,66,697 3,82,561 4,82,414 4,26,143 3,64,969 3,65,063 3,62,969 3,24,477 2,92,900 3,38,443 2,45,143 2,86,246 NSE Percentage Variation* 5 37.67 23.94 82.55 -22.50 50.36 31.51 43.44 26.10 -11.66 -14.36 0.03 -0.57 -10.60 -9.73 15.55 -27.57 16.77
(Rs.crore) Total Turnover 6 23,85,632 29,01,471 51,29,894 38,52,098 55,16,833 3,55,639 5,11,103 6,41,608 5,65,129 4,87,288 4,89,283 4,76,976 4,29,619 3,90,983 4,55,527 3,27,653 3,86,024
accounted for the largest share in the turnover of BSE (72.9 percent) and NSE (54.5 percent). At NSE, Delhi/Ghaziabad accounted for 14.9 percent of the turnover followed by Kolkata/ Howrah at 8.3 percent and Ahmedabad at 6.9 percent. The top five cities accounted for 86.5 percent of turnover at NSE during 2009-10 compared to 62.4 percent in 2008-09. At BSE, Mumbai/Thane was followed by Ahmedabad (5.1 percent) and Delhi/New Delhi (4.6 percent) in largest share in the turnover of BSE. The share of top five cities in BSE was 86.6 percent as against 24.2 percent in 2008-09. 50
IV. Market Capitalisation

The market capitalisation of BSE increased by 99.8 percent to Rs.61,65,619 crore in 2009-10 from Rs.30,86,075 crore in 2008-09 (Table 2.13). The upward trend in the stock markets resulted in similar trend in market capitalisation of many indices in 2009-10. Among the indices of BSE, increase in market capitalisation was the highest for Bankex (136.9 percent), BSE PSU (82.6 percent) and BSE Teck (80.3 percent) over the previous year (Table 2.13). However, in terms of absolute value, among these three
Table 2.12: City-wise Turnover of Top 10 Cities in Cash Segment during 2009-10
BSE City Turnover (Rs.crore) 2 10,05,228 (7,95,079) 69,316 (52,447) 63,345 (31,478) 44,163 (41,557) 12,865 (9,499) 11,909 (NA) 10,253 (NA) 9,333 (8,845) 8,784 (7,387) 7,677 (7,575) Percentage Share in All-India Turnover 3 72.91 (20.64) 5.03 (1.36) 4.59 (0.82) 3.10 (1.08) 0.93 (0.25) 0.86 (NA) 0.74 (NA) 0.68 (0.23) 0.64 (0.19) 0.56 (0.20) City NSE Turnover (Rs.crore) 5 22,55,944 (15,37,142) 6,15,731 (4,12,082) 3,41,892 (2,54,199) 2,87,884 (1,45,149) 76,230 (47,680) 71,360 (49,596) 69,272 (54,280) 59,790 (20,881) 56,650 (35,115) 26,549 (NA) Percentage Share in All-India Turnover 6 54.52 (39.90) 14.88 (10.70) 8.26 (6.60) 6.96 (3.77) 1.84 (1.24) 1.73 (1.29) 1.67 (1.41) 1.45 (0.54) 1.37 (0.91) 0.64 (NA)
1 Mumbai/Thane Ahmedabad Delhi/New Delhi Rajkot Jaipur Vadodara Jodhpur Kolkata Noida Pune
4 Mumbai/Thane Delhi/Ghaziabad Kolkata/Howrah Ahmedabad Hyderabad/Secunderabad/ Kukatpally Ghaziabad/Noida/ Sahibabad Chennai Cochin/Ernakulam/Parur/ Kalamaserry/Alwaye Rajkot Bangalore
Note: Figures in the parentheses pertain to 2008-09. Source: BSE, NSE.
indices, BSE PSU led the pack with market capitalisation of Rs.17,33,662 crore followed by BSE Teck at Rs.7,40,817 crore and BSE Bankex at Rs.5,54,127 crore . At NSE, market capitalisation increased by 107.5 percent to Rs.60,09,173 crore from Rs.28,96,194 crore at the end of March 2009 (Table 2.14). At NSE, among sectoral indices, increase in market capitalisation was the highest for CNX Pharma (101.1 percent). This was 51
followed by CNX Bank (41.6 percent) and CNX IT (13.3 percent).
V.
Stock Market Indicators
The market capitalisation to GDP ratio is an important parameter for evaluation of stock markets. The liquidity of the market can be measured by the traded value to GDP ratio, i.e., value of the shares traded to GDP at current market prices. Excluding 2008-09, since 2003-04, there has been a considerable improvement in the market capitalisation to
Table 2.13: Market Capitalisation at BSE

(Rs.crore) Year/ Month 1 2005-06 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Source: BSE. All PercenListed tage Companies Variation 2 30,22,190 35,45,041 51,38,014 30,86,075 61,65,619 35,86,978 48,65,045 47,49,934 51,39,942 52,85,657 57,08,337 53,75,920 57,95,209 60,81,308 59,25,725 59,04,929 61,65,619 3 77.94 17.30 44.94 -39.94 99.79 16.23 35.63 -2.37 8.21 2.83 8.00 -5.82 7.80 4.94 -2.56 -0.35 4.41 BSE Sensex 4 14,24,112 17,11,241 22,23,701 15,07,742 26,17,900 17,49,781 22,23,427 21,73,722 23,66,735 23,82,064 25,85,666 24,10,886 25,50,770 26,49,482 24,89,139 24,73,985 26,17,900 Percentage Variation 5 96.28 20.16 29.95 -32.20 73.63 16.05 27.07 -2.24 8.88 0.65 8.55 -6.76 5.80 3.87 -6.05 -0.61 5.82 BSETECK 6 4,68,278 7,17,127 6,81,431 4,10,923 7,40,817 4,86,969 5,75,626 5,86,524 6,64,172 6,92,954 7,43,821 6,47,931 6,80,833 7,35,137 7,09,110 7,09,555 7,40,817 Percen- BANKEX Percen- BSE PSU Percentage tage tage Variation Variation Variation 7 65.81 53.14 -4.98 -39.70 80.28 18.51 18.21 1.89 13.24 4.33 7.34 -12.89 5.08 7.98 -3.54 0.06 4.41 8 2,19,894 2,57,026 3,77,020 2,33,895 5,54,127 2,91,794 4,23,308 4,19,443 4,31,931 4,26,119 5,06,276 4,90,375 5,25,448 5,25,662 5,09,564 5,14,026 5,54,127 9 42.74 16.89 46.69 -37.96 10 7,48,614 7,22,517 11,53,034 9,49,211 11 44.98 -3.49 59.59 -17.68 82.64 12.02 43.84 -5.99 5.59 0.20 9.12 -5.71 8.80 4.29 -0.61 -2.74 0.98
136.91 17,33,66,2 24.75 10,63,26,2 45.07 15,29,39,7 -0.91 2.98 -1.35 18.81 -3.14 7.15 0.04 -3.06 0.88 7.80 14,37,775 15,18,191 15,21,219 16,59,968 15,65,140 17,02,865 17,75,970 17,65,199 17,16,821 17,33,662
GDP ratio. The BSE market capitalisation to GDP ratio had improved from 43.4 percent in 2003-04 to 100.0 percent in last financial year. Similarly, at NSE also the ratio has increased from 40.5 percent to 97.5 percent over the same period (Table 2.15). Moreover, uptrend in the stock market in 2009-10 led to substantial increase in market capitalisation to GDP ratios of BSE and NSE. It increased to almost double of its value from the previous year figures at both the exchanges. The turnover to GDP ratio was the highest in 2009-10 under derivatives segment. The all-India cash turnover to GDP ratio 52
increased to 89.5 percent in 2009-10 from 69.1 percent in 2008-09. In the derivative segment also, the turnover to GDP ratio increased from 197.7 percent in 2008-09 to 286.6 percent in 2009-10. The valuation of the shares might be gauged from the price-earning ratio. The AS 30 index of Australia and NASDAQ Composite of the U.S. had the highest P/E ratio in 2009-10. Among the indices of emerging markets analysed, SHCOMP index of China and TWSE index of Taiwan had higher P/E ratio in 2009-10 than that of Indian benchmark indices (Chart 2.7).
Table 2.14: Market Capitalisation at NSE

Year/ Month 1
2005-06 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10
All listed Companies 2

28,13,201 33,67,350 48,58,122
Percentage Variation 3
77.42 19.70 44.27
S&P CNX Nifty 4

15,90,155 19,09,448 28,48,773 18,92,629 15,25,162 21,78,436 27,89,789 11,64,138 12,60,547 12,77,107 13,96,214 13,22,328 14,62,989 15,14,579 14,25,638 14,28,908 15,25,162
67.09 20.08 49.19 -33.56 -19.42 15.10 28.06 -58.27 8.28 1.31 9.33 -5.29 10.64 3.53 -5.87 0.23 6.74
CNX Mid Cap 6

3,38,927 3,41,869 4,62,665 2,73,627 317,619 3,10,089 4,30,068 4,36,038 4,80,036 5,06,016 5,57,592 5,82,128 6,35,930 6,62,951 6,43,030 2,91,021 3,17,619
128.98 0.87 35.33 -40.86 16.08 13.33 38.69 1.39 10.09 5.41 10.19 4.40 9.24 4.25 -3.00 -54.74 9.14
CNX IT
53.22 20.89 -23.33 -37.45 13.25 19.50 15.73 9.12 24.03 6.71 10.91 -0.94 6.33 8.49 -3.82 -54.20 1.57
CNX Bank
PercenS&P Percentage CNX tage Varia- Pharma Variation tion 11

46.44 14.25 53.02 -36.06 41.59 24.14 44.56 -1.00 2.80 -1.49 18.60 -3.47 7.31 -0.15 -3.27 -38.88 8.50
8
3,48,096 4,20,814 3,22,637 2,01,810 2,28,558 2,41,164 2,79,108 3,04,564 3,77,738 4,03,065 4,47,057 4,42,871 4,70,908 5,10,892 4,91,363 2,25,035 2,28,558
10
2,00,503 2,29,084 3,50,535 2,24,132 3,17,351 2,78,240 4,02,210 3,98,204 4,09,362 4,03,271 4,78,285 4,61,666 4,95,434 4,94,701 4,78,508 2,92,483 3,17,351
12
1,47,124 1,46,394 1,41,314 1,09,604 2,20,330 1,22,723 1,38,377 1,41,176 1,53,404 1,56,245 1,77,979 1,77,838 1,93,249 2,03,710 1,95,422 2,01,975 2,20,330
13
57.98 -0.50 -3.47 -22.44 101.02 11.97 12.75 2.02 8.66 1.85 13.91 -0.08 8.67 5.41 -4.07 3.35 9.09
28,96,194 -40.38 60,09,173 107.49 33,75,025 45,64,572 44,32,596 48,16,459 49,75,800 53,53,880 50,24,830 54,30,088 56,99,637 57,82,965 57,55,305 60,09,173 16.53 35.25 -2.89 8.66 3.31 7.60 -6.15 8.07 4.96 1.46 -0.48 4.41
Note: NSE index calculation methodology shifted from capital weighted to free float capital weighting method w.e.f. June 26, 2009. Source: NSE.
Table 2.15: Selected Ratios relating to Stock Market

Year BSE Market Capitalisation to GDP Ratio 2 43.44 54.32 84.41 85.51 109.47 55.36 100.02 NSE Market Capitalisation to GDP Ratio 3 40.53 50.71 78.57 81.22 103.51 51.95 97.49
(Percent) Total Turnover to GDP Ratio Cash Segment (BSE + NSE) 4 58.71 53.40 66.76 70.02 109.32 69.10 89.50 Derivatives Segment (BSE+NSE) 5 77.64 82.12 134.74 178.86 284.06 197.73 286.56
1 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Sources: Central Statistical Organisation and Various Stock Exchanges.
53
At the end of March 2010, the P/E ratio of BSE Sensex and S&P CNX Nifty were 21.3 and 22.3 respectively as compared to 13.7 and 14.3 respectively as on March 31, 2009 (Table 2.16). The P/E ratio of Indian indices witnessed significant increase in May 2009 after the results of Union Government elections were declared and steadily increased thereafter. However, towards the last quarter, there was marginal decline in the valuations of majority of broad based and sectoral indices. Price to book value ratio is the ratio of market value of equity to the book value of equity. There was an increase in the P/B ratio of indices in 2009-10 compared to 2008-09. The P/B ratio was the highest for the CNX IT index at 7.2, followed by BSE 100 at 4.1, and
the benchmark indices, BSE Sensex and S&P CNX Nifty at 3.9 and 3.7, respectively (Table 2.17).
VI. Volatility in Stock Markets

Average daily volatility of a stock or index is measured by calculating the standard deviation of logarithmic returns during a certain period. In 2009-10, the stock markets around the world displayed lesser volatility as compared to 2008-09. Month-wise, average daily volatility in the Indian benchmark indices was the highest in May 2009 (Table 2.18). The lowest volatility in the benchmark indices was noticed during March 2010. The annualised volatility of BSE Sensex decreased from 43.6 percent in 2008-09 to 29.2 percent in 2009-10. Similar trend was also 54
Table 2.16: Price-Earnings Ratio

Year/ Month* 1 2005-06 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 BSE Sensex 2 20.92 20.33 20.11 13.65 21.32 15.94 19.87 19.02 20.35 20.45 22.19 20.21 21.53 22.36 20.32 20.15 21.32 BSE 100 3 20.08 17.64 19.95 15.30 21.08 17.77 23.51 21.02 21.82 21.85 23.28 21.22 21.48 22.39 20.96 20.68 21.08 S&P CNX Nifty 4 20.26 18.40 20.63 14.30 22.33 16.53 20.82 19.97 20.68 20.94 22.90 20.45 22.37 23.17 21.00 20.92 22.33 CNX Mid Cap 5 23.09 15.58 14.75 9.77 15.03 11.09 15.52 13.48 13.82 14.50 15.98 14.11 15.54 16.14 14.01 14.00 15.03 CNX IT 6 46.47 32.35 17.94 11.49 23.53 13.45 15.22 16.60 19.37 20.23 22.44 21.19 22.43 24.34 22.67 23.17 23.53 CNX Bank 7 15.31 14.15 16.16 7.69 17.72 9.29 12.93 12.80 12.15 11.96 14.19 13.28 14.16 14.14 13.58 16.33 17.72 CNX PSE 8 13.66 10.61 13.47 18.13 15.28 19.80 23.59 18.39 18.43 18.82 19.13 14.66 15.96 16.92 15.58 15.85 15.28
* As on last trading date of the respective year/month. Source: BSE, NSE.
Table 2.17: Price to Book-Value Ratio

Year/ Month* 1 2005-06 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 BSE Sensex 2 5.13 5.07 5.18 2.66 3.90 3.02 3.67 3.50 3.78 3.80 4.13 3.82 4.05 4.20 3.71 3.68 3.90 BSE 100 3 4.37 4.43 4.98 2.46 4.02 2.82 3.66 3.50 3.76 3.79 4.08 3.79 4.08 4.25 3.90 3.87 4.02 S&P CNX Nifty 4 5.15 4.87 5.09 2.50 3.70 2.87 3.63 3.56 3.73 3.66 3.76 3.53 3.56 3.65 3.43 3.46 3.70 CNX Mid Cap 5 4.39 3.06 2.97 1.32 2.72 1.50 2.06 2.05 2.13 2.10 2.31 2.34 2.54 2.65 2.56 2.52 2.72 CNX IT 6 11.96 11.68 6.17 3.54 7.21 4.24 4.38 4.78 5.83 6.13 6.70 6.65 7.05 7.56 7.27 7.10 7.21 CNX Bank 7 2.58 2.24 2.88 1.20 2.54 1.50 2.13 2.07 1.90 1.87 2.22 2.14 2.30 2.30 2.22 2.34 2.54 CNX PSE 8 3.12 2.70 3.08 2.24 3.08 2.45 3.46 3.13 3.37 3.40 3.12 2.93 3.17 3.36 3.27 3.20 3.08
* As on last trading date of the respective year/month. Source: BSE, NSE.
55
Table 2.18: Average Daily Volatility of Benchmark Indices

(Percent) 2009-10 1 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 BSE Sensex 2 2.12 4.20 1.75 2.21 1.78 0.90 1.08 1.57 1.01 0.98 1.15 0.68 S&P CNX Nifty 3 2.18 4.15 1.92 2.22 1.78 0.92 1.08 1.58 1.05 1.03 1.18 0.70 BSE 100 4 2.16 3.96 1.89 2.21 1.78 0.88 1.10 1.57 0.98 1.10 1.16 0.67 BSE Small Cap 5 2.68 3.04 2.45 2.29 1.68 0.99 1.42 1.68 0.85 1.64 1.31 0.82 BSE 500 6 2.16 3.79 1.95 2.18 1.73 0.86 1.12 1.55 0.93 1.14 1.14 0.65
Note: Volatility is measured in terms of standard deviation and is computed from the logarithmic returns based on closing values of indices as on the last date of the month. Source: BSE, NSE.
observed for S&P CNX Nifty, which recorded annualised volatility of 29.4 percent in 2009-10 compared to 41.5 percent in the previous year. An international comparison of volatility in stock returns indicates that volatility was lesser in 2009-10 in both emerging and developed markets (Table 2.19 and Chart 2.8) as compared to that in 2008-09. During 2009-10, volatility was high in majority of the markets in the month of April 2009 and May 2009 as compared to other months in the year. As per Bloomberg data, Indian markets were the third most volatile in the world. Among the developed markets, the annualised volatility was high in Hong Kong (27.3 percent) followed by Germany DAX (22.8 percent) and Europe DJ Stoxx (22.6 percent). Among the emerging markets, annualised volatility was higher for Russia (46.1 percent), Hungary (31.9 percent) followed by Indian indices.
VII. Trading Frequency

Liquidity in stock markets is measured by the trading frequency of listed stocks at BSE and NSE. The number of securities listed at the end of March 2010 was 8,072 at BSE. At NSE, the number of securities listed was 1,359 as on March 31, 2010. Trading frequency improved at both the stock exchanges in 200910 over the previous financial year. During 2009-10, the number of securities traded in BSE was 3,371 as compared to 3,246 in 2008-09 (Table 2.20). Similarly, the number of securities traded in NSE was higher at 1,401 in 2009-10 compared to 1,301 in 2008-09. The percentage share of securities traded at BSE above 100 days marginally increased from 87.2 percent in 2008-09 to 88.6 percent in 2009-10. At NSE, this percentage decreased from 97.8 percent in 2008-09 to 92.9 percent in 2009-10. The percentage share of securities traded for less than 10 days was 4.1 percent at BSE and 0.9 percent at NSE in 2009-10. 56
Table 2.19: Trends in Daily Volatility of International Stock Market Indices during 2009-10
(Percent) Country Index Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Annualised Volatility 13 14 15 17.02 19.81 17.98 22.58 21.80 22.77 17.87 22.21 27.33 21.23
1 USA USA UK Europe France Germany Australia Japan Hong Kong Singapore
2 DJIA Nasdaq FTSE 100 DJ Stoxx CAC DAX AS30 NKY HIS STI
3 1.71 2.02 1.78 2.05 1.97 2.08 1.41 1.95 2.77 1.95
6 1.24 1.32 1.20 1.56 1.50 1.64 1.17 1.34 1.74 1.32
7 0.89 1.13 0.93 1.33 1.22 1.39 1.12 1.41 1.78 1.51
8 0.75 0.95 0.89 1.04 1.02 1.16 0.98 1.36 1.52 0.88
9 1.19 1.35 1.26 1.59 1.51 1.61 1.20 1.17 1.46 0.91
10 0.88 1.03 1.25 1.44 1.45 1.39 1.28 1.22 1.79 0.93
11 0.65 0.75 0.98 1.04 0.98 0.98 0.69 1.30 1.00 0.57
12 0.92 1.16 0.87 1.15 1.13 1.13 0.86 1.23 1.23 0.97
DEVELOPED MARKETS 1.54 1.14 1.70 1.38 1.24 1.25 1.46 1.69 1.46 1.61 1.60 1.77 1.42 1.41 1.84 1.39 2.15 1.95 2.48 1.46 1.02 0.41 1.03 0.59 0.98 0.57 1.47 0.82 1.45 0.78 1.11 0.71 1.13 0.51 1.40 0.83 1.51 1.05 0.95 0.69
EMERGING MARKETS Taiwan Russia Malaysia TWSE CRTX KLCI 2.01 3.29 1.13 1.95 1.15 2.22 1.78 3.08 4.52 0.92 0.92 2.48 1.46 1.92 1.94 1.33 1.13 1.63 1.40 2.39 1.83 1.30 0.76 2.59 2.48 2.24 2.07 1.95 2.01 2.22 2.21 1.46 1.28 1.82 1.59 4.20 1.75 4.15 1.92 1.21 3.74 0.75 1.32 1.53 1.75 1.36 1.42 1.07 2.00 2.16 1.45 1.84 0.67 1.38 2.21 2.22 1.26 3.04 0.63 1.51 1.32 2.91 1.22 1.26 0.59 2.51 1.65 1.48 1.34 0.77 1.18 1.78 1.78 1.04 2.15 0.49 0.88 1.03 1.79 0.96 0.98 1.13 1.85 0.99 1.06 1.41 0.60 1.07 0.90 0.92 1.01 3.08 0.53 0.91 1.81 1.49 1.05 2.31 0.99 1.72 1.28 1.15 2.09 0.82 1.41 1.08 1.08 1.09 2.82 0.40 0.93 1.62 1.77 0.92 1.40 0.94 2.10 2.22 1.05 1.51 0.93 1.22 1.57 1.58 0.71 1.95 0.38 0.57 1.10 1.41 0.68 1.07 0.54 1.30 1.89 1.05 0.93 0.69 0.81 1.01 1.05 1.30 2.43 0.53 0.97 0.80 1.40 0.77 1.13 0.74 1.51 0.99 0.93 1.36 0.65 1.03 0.98 1.03 1.38 0.83 1.94 1.19 0.52 0.65 0.95 0.69 0.86 1.05 0.99 1.07 1.08 0.68 1.61 0.82 0.76 0.53 1.80 1.33 1.26 1.33 1.08 1.01 1.63 0.67 0.94 0.66 0.89 0.42 1.15 0.68 1.18 0.70 22.37 46.02 11.06 21.23 22.36 26.62 18.73 24.95 14.05 31.85 27.61 22.51 27.05 14.58 21.10 29.16 29.41
South Korea KOSPI Thailand China S. Africa Brazil Colombia Hungary Egypt Indonesia Argentina Chile Mexico India India SET
SHCOMP 1.69 JALSH IBOV IGBC BUX HERMES JCI IBG IPSA MEXBOL BSE Sensex 1.86 1.82 0.84 2.41 1.86 2.02 2.36 0.92 2.25 2.12
S&P CNX 2.18 Nifty
Source: Bloomberg Financial Services.
57
Table 2.20: Trading Frequency of Listed Stocks

Trading Frequency (Range of Days) 1 Above 100 91-100 81-90 71-80 61-70 51-60 41-50 31-40 21-30 11-20 1-10 Total Source: BSE, NSE. 2008-09 BSE No. of Shares Traded 2 2,831 29 32 21 24 25 33 34 32 38 147 3,246 Percentage of Total 3 87.22 0.89 0.99 0.65 0.74 0.77 1.02 1.05 0.99 1.17 4.53 100.00 NSE No. of Shares Traded 4 1,273 5 4 0 1 2 4 4 2 3 3 1,301 Percentage of Total 5 97.85 0.38 0.31 0.00 0.08 0.15 0.31 0.31 0.15 0.23 0.23 100.00 BSE No. of Shares Traded 6 2,986 22 26 24 27 21 30 29 28 39 139 3,371 Percentage of Total 7 88.58 0.65 0.77 0.71 0.80 0.62 0.89 0.86 0.83 1.16 4.12 100.00 No. of Shares Traded 8 1301 15 3 9 2 23 6 6 9 14 13 1,401 2009-10 NSE Percentage of Total 9 92.86 1.07 0.21 0.64 0.14 1.64 0.43 0.43 0.64 1.00 0.93 100.00
58
Share of top 10 brokers in annual cash market turnover in 2009-10 at NSE and BSE was 23.5 and 22.5 percent respectively. Share of top 10 securities in annual cash market turnover in 2009-10 at NSE and BSE was 26.2 and 22.9 percent respectively. At NSE, contribution in annual cash market turnover in 2009-10 reveals that proprietary trades, domestic institutions (excluding mutual funds), FIIs, and Mutual Funds contributed 26.4 percent, 2.9 percent, 13.2 percent and 3.9 percent respectively whereas others (including individuals, partnership firms, HUFs, Trusts, NRIs, etc) contributed 53.5 percent. Similar at BSE annual cash market turnover data for 2009-10 shows that proprietary trades, domestic institutions (excluding mutual funds), FIIs, and Mutual Funds contributed 22.9 percent, 1.5 percent, 6.3 percent and 2.4 percent respectively whereas others (including individuals, partnership firms, HUFs, Trusts, NRIs, etc) contributed 67.1 percent (Table 2.21).
VIII. Activities of Stock Exchanges

Over the years, NSE and BSE have emerged as the nation-wide stock exchanges of the country contributing more than 99 percent of the total turnover. Apart from NSE and BSE, only Calcutta Stock Exchange Ltd. and UPSE reported some transactions (Table 2.22). The number of shares traded and delivered increased at BSE, NSE, and Calcutta Stock Exchange Ltd. The value of shares delivered also increased at these stock exchanges. Of the total shares traded, NSEs share was 65.9 percent, followed by BSE which constituted 33.9 percent of the total shares traded. NSE had a share of 74.6 percent in the total value of shares delivered followed by BSE with 25.4 percent share. Majority of the other stock exchanges were inactive and their operations were confined to their subsidiaries, which, have taken membership of BSE and NSE.
Table 2.21: Share of Brokers, Securities and Participants in Cash Market Turnover
S. No. 1. 2. 3. Particulars Share of Top 10 Brokers in annual cash market turnover in 2009-10 Share of Top 10 Scrips/securities in annual cash market turnover in 2009-10 Share of participants in annual cash market turnover in 2009-10 (i) Proprietary trades 26.39 2.92 13.21 3.99 53.48 100.00 22.89 1.48 6.23 2.39 67.01 100.00 Percentage Share NSE 23.48 26.15 BSE 22.52 22.87
(ii) Domestic Institutions (excluding MFs) (iii) FIIs (iv) MFs (v) Others* Total of (i) to (v)
* Others include individuals, partnership firms, HUFs, public and private companies/bodies corporate/Society, Statutory bodies, NRIs, Overseas Corporate Bodies, FDI/FCVF and PMS.
59
Table 2.22: Trading Statistics of Stock Exchanges

Stock Exchange 1 Ahmedabad BSE Bangalore Bhubaneswar Calcutta Cochin Coimbatore Delhi Gauhati ISE Jaipur Ludhiana Madras MPSE NSE OTCEI Pune UPSE Vadodara Total Shares Traded (Lakh) 2008-09 2 Nil 7,39,600 (34.26) Nil Nil 235 (0.01) Nil Nil Nil Nil Nil Nil Nil Nil Nil 14,18,928 (65.73) Nil Nil 23 (0) Nil 21,58,786 2009-10 3 Nil 11,36,513 (33.99) Nil Nil 551 (0.02) Nil Nil Nil Nil Nil Nil Nil Nil Nil 22,05,878 (65.99) Nil Nil 5.34 (0) Nil 33,42,947 Shares Delivered (Lakh) 2008-09 4 Nil 1,96,330 (39.28) Nil Nil 219 (0.04) Nil Nil Nil Nil Nil Nil Nil Nil Nil 3,03,299 (60.68) Nil Nil 0.29 (0) Nil 4,99,848 2009-10 5 Nil 3,63,578 (43.39) Nil Nil 404 (0.05) Nil Nil Nil Nil Nil Nil Nil Nil Nil 4,73,952 (56.56) Nil Nil 0.03 (0) Nil 8,37,934 Value of Shares Delivered (Rs.crore) 2008-09 6 Nil 2,30,332 (27.38) Nil Nil 372 (0.04) Nil Nil Nil Nil Nil Nil Nil Nil Nil 6,10,498 (72.57) Nil Nil 0.17 (0) Nil 8,41,202 2009-10 7 Nil 3,11,364 (25.34) Nil Nil 788 (0.06) Nil Nil Nil Nil Nil Nil Nil Nil Nil 9,16,460 (74.59) Nil Nil 0.04 (0) Nil 12,28,612
Recognised Stock Exchanges
Note: Figures in parentheses indicate percentage to total. Source: Various Stock Exchanges.
The turnover of many of the subsidiaries increased in 2009-10 over the previous financial year. Turnover of subsidiaries during 2009-10 was Rs.2,54,435 crore compared to Rs.1,71,721 crore in 2008-09. This indicated an increase of 48.2 percent (Table 2.23).
Limited (CDSL). The depositories have set up nation-wide network with proper infrastructure to handle the securities deposited or settled in dematerialised mode in the Indian stock markets. The number of companies signed up for dematerialisation in NSDL rose from 7,801 in 2008-09 to 8,124 in 2009-10 (Table 2.24). Similarly, at CDSL, the number of companies signed up increased from 6,213 in 2008-09 to 6,805 in 2009-10. The number 60
IX. Dematerialisation
There are two depositories in India viz., National Securities Depository Limited (NSDL) and Central Depository Services
Table 2.23: Turnover of Subsidiaries of Stock Exchanges

Stock Exchange 1 Ahmedabad Bangalore Bhubaneswar Cochin Delhi ISE Jaipur Ludhiana Madras MPSE OTCEI Pune UPSE Vadodara Total Source: Various Stock Exchanges. No. of Subsidiary/ies 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Name of the Subsidiary Turnover of Subsidiary (Rs.crore) 2008-09 3 Recognised Stock Exchanges ASE Capital Markets Ltd. BgSE Financials Ltd. Bhubaneswar Shares and Securities Ltd. Cochin Stock Brokers Ltd. DSE Financial Services Ltd. ISE Securities and Services Ltd. JSEL Securities Ltd. LSE Securities Ltd. MSE Financial Services Ltd. MPSE Securities Ltd. OTCEI Securities Ltd. PSE Securities Ltd. UPSE Securities Ltd. VSE Stock Services Ltd. 20,932 15,965 Nil 6,276 2,862 35,196 8,009 52,373 1,303 3,818 1,627 NA 2,242 21,118 1,71,721 28,547 22,796 Nil 6,827 3,344 45,726 9,934 1,01,863 1,253 3,966 1,678 3,134 3,082 22,285 2,54,435 36.38 42.79 Nil 8.78 16.84 29.92 24.04 94.50 -3.84 3.88 3.13 NA 37.47 5.53 48.17 4 2009-10 5 6 Percentage Variation
of dematerialised shares in NSDL went up by 24.4 percent from 28,28,700 lakh in 200809 to 35,11,378 lakh in 2009-10. In CDSL, the number of shares dematerialised rose
by 10.1 percent from 7,08,200 lakh in 200809 to 7,79,500 lakh in 2009-10. In both the depositories, there was a substantial increase in the value of shares settled in dematerialised
Table 2.24: Depository Statistics: Equity Shares

Particulars 1 Companies Signed up (Numbers) Companies Available for Demat (Numbers) Demat Quantity of Shares (lakh) No. of Shares Settled in Demat (lakh) Value of Shares Settled in Demat (Rs.crore) Market Capitalisation of Companies in Demat (Rs.crore) Source: NSDL, CDSL. NSDL 2008-09 2 7,801 7,801 28,28,700 5,43,543 10,88,895 31,10,345 2009-10 3 8,124 8,124 35,11,378 8,68,089 14,97,880 61,84,326 2008-09 4 6,213 6,213 7,08,200 2,06,147 2,23,989 31,43,729 CDSL 2009-10 5 6,805 6,805 7,79,500 4,62,545 4,29,869 62,19,652
61
mode. While in NSDL, the total value of demat settled shares increased by 37.6 percent from Rs.10,88,895 crore in 2008-09 to Rs.14,97,880 crore in 2009-10, the same in case of CDSL increased by 91.9 percent from Rs.2,23,989 crore in 2008-09 to Rs.4,29,869 crore in 2009-10. Apart from the shares, dematerialisation facility is also offered for other instruments like commercial paper and bonds. The total dematerialised value of the commercial paper increased at both NSDL and CDSL (Table 2.25). At NSDL, dematerialised value of commercial paper rose from Rs.48,922 crore in 2008-09 to Rs.76,927 crore in 200910. However, the dematerialised value of commercial paper at CDSL declined from Rs.1,139 crore in 2008-09 to Rs.884 crore in 2009-10. Dematerialised value of debentures/ bonds increased both at NSDL and CDSL in 2009-10. The geographical coverage of depository participants (DPs) of NSDL and CDSL also widened in 2009-10. The DPs of NSDL were available at 1,255 cities in 2009-10 as compared to 946 cities in 2008-09 (Table 2.26). Similarly, in case of CDSL, DPs were available
Table 2.26: Cities according to Number of DP Locations: Geographical Spread

No. of DP Locations 1 1-10 11-20 21-50 51-100 > 100 Total NSDL CDSL
2008-09 2009-10 2008-09 2009-10 2 815 66 42 14 9 946 3 1,095 67 62 17 14 1,255 4 716 39 42 6 12 815 5 951 45 48 9 14 1,067
Note: The number of DP locations at CDSL, includes locations that have back office connected centres of the DPs. Source: NSDL, CDSL.
at 1,067 cities in 2009-10 as compared to 815 cities in 2008-09.
X.
A.
Derivatives Market in India

Trends in Equity Derivative Market
Exchange traded derivatives form an important segment of Indian stock markets. The derivatives markets have grown substantially over the years in India. Trading
Table 2.25: Depository Statistics: Debentures/Bonds and Commercial Paper

Debentures/Bonds Particulars 2008-09 NSDL 1 No. of Issuers No. of Active Instruments Demat Value (Rs.crore) Source: NSDL, CDSL 2 481 6,613 5,85,427 CDSL 3 277 4,432 21,671 2009-10 NSDL 4 532 6,604 7,16,728 CDSL 5 309 4,578 31,382 Commercial Papers 2008-09 NSDL 6 118 506 48,922 CDSL 7 25 110 1,139 2009-10 NSDL 8 173 765 76,927 CDSL 10 23 100 884
62
in derivatives is dominated by NSE, which has a share of more than 99 percent of the total turnover. Over the years, derivatives market has generated turnover substantially higher than that of the equity segment. During 2009-10, turnover of derivatives market was 4.6 times of the cash turnover on all-India equity exchanges (Chart 2.9). The turnover in the derivatives segment at NSE recorded a mixed trend during 200910 (Table 2.27). The highest turnover was recorded in November 2009 (Rs.16,61,816 crore) followed by July 2009 (Rs.15,73,509 crore) and February 2010 (Rs.15,69,877 crore). Growth in the derivatives turnover at NSE was the highest in June 2009 when turnover rose by 24.8 percent, followed November 2009 (10.1 percent) and April 2009 (9.9 percent). The average daily turnover at NSE in 2009-10
increased by 59.1 percent to Rs.72,097 crore from Rs.45,311 crore in 2008-09. The total number of contracts traded in the derivative segment of NSE rose marginally by 3.4 percent to 67,92,93,922 in 2009-10 from 65,73,90,497 in 2008-09, whereas, at BSE, the number of contracts traded declined substantially from 4,96,502 in 2008-09 to 9,026 in 2009-10. The value of the contracts traded in the derivative segment of NSE increased by 60.4 percent to Rs.1,76,63,665 crore in 2009-10 from Rs.1,10,10,468 crore in 2008-09, whereas the turnover at the derivatives segment of BSE declined to Rs.234 crore in 2009-10 from Rs.11,775 crore in 2008-09. The open interest in the derivative segment increased by 69.8 percent to Rs.97,978 crore at the end of 200910 from Rs.57,705 crore at the end of 2008-09.
63
Table 2.27: Trends in Turnover and Open Interest in Equity Derivatives

Number of Contracts Year/Month NSE 1 2005-06 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Source: BSE, NSE. 2 15,76,19,271 21,68,83,573 42,50,13,200 65,73,90,497 67,92,93,922 5,62,10,317 4,82,85,515 5,24,08,197 6,68,27,086 5,96,70,387 5,25,01,332 5,57,09,794 6,27,65,075 5,54,24,003 5,31,01,821 6,04,29,963 5,59,60,432 BSE 3 203 17,81,220 NSE 4 48,24,250 73,56,271 BSE 5 9 59,007 11,775 234 1.85 7.95 0.14 0.09 0.02 0.03 0.00 0.03 3.83 209.71 9.67 0.75 Turnover (Rs.crore) Open Interest at the End of the Year/Month No. of Contracts NSE 6 10,28,003 17,91,387 22,82,671 32,27,759 34,89,790 27,53,069 23,05,330 25,27,295 24,67,693 29,55,633 32,39,338 33,36,784 33,90,368 27,56,002 35,65,510 33,40,490 34,89,790 BSE 7 0 408 3,175 22 0 8 1 1 0 1 1 0 0 25 0 0 0 Notional Turnover (Rs.crore) NSE 8 38,469 38,710 48,900 57,705 97,978 57,076 64,823 58,987 62,474 75,134 88,791 83,327 91,419 77,760 93,194 88,141 97,978 BSE 9 0 13 74 0 0 0.17 0.02 0.02 0.00 0.03 0.02 0.00 0.00 0.61 0.00 0.00 0.00
74,53,371 1,30,90,478 2,42,309 4,96,502 1,10,10,482 9,026 1,76,63,665 113 393 3 4 1 1 0 1 147 7935 399 29 11,43,363 12,27,253 15,31,981 15,73,509 14,73,646 13,88,378 15,10,418 16,61,816 15,24,982 14,90,297 15,69,877 15,68,148
Open Interest is calculated as at the end of the respective year/month.
A clear-cut change was seen in the product composition and turnover in the derivatives market in India (Table 2.28). Futures in general and single stock futures, in particular, used to dominate derivatives product in India with over 86 percent share in total derivatives turnover every year. However, the picture has been changing in last couple of years in favour of Index Options. During 2009-10, the largest share in the total derivatives turnover has been contributed by Index options with 45.5 percent share in it whereas the share of index options in the total turnover in 2008-09 was 33.9 percent. In 2009-10, Index options were followed by Single Stock Futures (29.4 64
percent) and Index Futures (22.3 percent). The share of single stock options improved from 2.1 percent in 2008-09 to 2.9 percent in 200910 (Chart 2.10). Product-wise share in the open interest shows that the notional value of outstanding contracts was the highest for Index Options (Rs.47,808 crore) followed by single Stock Futures (Rs.32,053 crore), Index Futures (Rs.14,979 crore), and Stock Options (Rs.3,137 crore). The tables 2.29 to 2.32 show the product-wise trends in the derivative market in India during the recent years. The transactions undertaken by tradingcum-clearing members constituted 57.2
Table 2.28: Product-wise Derivatives Turnover at NSE and BSE

Year/Month 1 2005-06 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Source: BSE, NSE. Index Futures 2 31.38 34.52 29.19 32.42 22.27 26.39 25.86 22.65 24.34 24.86 21.78 21.82 21.88 21.61 20.06 20.82 17.11 Index Options 3 7.02 10.77 10.41 33.89 45.45 39.69 35.08 35.62 44.57 44.70 43.87 44.33 49.13 49.62 46.69 53.97 53.77 Single Stock Options 4 3.74 2.63 2.74 2.08 2.86 2.75 2.54 3.25 2.46 2.46 3.08 3.00 2.63 2.81 3.45 2.63 3.28 Single Stock Futures 5 57.87 52.08 57.66 31.60 29.41 31.17 36.52 38.49 28.64 27.98 31.27 30.84 26.37 25.96 29.80 22.58 25.85
(Percent) Total 6 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
65
Table 2.29: Trends in Index Futures at NSE and BSE

Year/ Month NSE 1 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 2 8,14,87,424 15,65,98,579 21,04,28,103 17,83,06,889 1,86,62,382 1,66,17,516 1,62,07,959 1,82,71,805 1,68,92,217 1,30,32,242 1,36,15,447 1,51,78,552 1,33,37,833 1,20,56,359 1,38,91,843 1,05,42,734 BSE 3 16,38,779 71,57,078 4,95,830 3,744 113 39 1 4 1 1 0 0 27 3,130 399 29 Number of Contracts Turnover (Rs.crore) NSE 4 25,39,575 38,20,667 35,70,111 39,34,389 3,01,764 3,17,415 3,46,934 3,82,924 3,66,312 3,02,425 3,29,610 3,63,523 3,29,496 2,98,849 3,26,871 2,68,266 BSE 5 55,491 2,34,660 11,757 96 1.9 0.7 0.0 0.1 0.0 0.0 0.0 0.0 0.7 82.1 9.7 0.7 Open Interest at the End of the Year/Month No. of Contracts NSE 6 6,50,893 6,70,209 8,28,369 5,81,510 8,02,994 6,10,963 4,94,438 5,22,157 5,67,883 5,81,318 6,43,593 5,84,375 5,20,508 7,11,723 5,55,095 5,81,510 BSE 7 402 3,138 22 0 25 8 1 1 0 1 1 0 0 25 0 0 Notional Turnover (Rs.crore) NSE 8 12,453 15,484 12,060 14,979 13,532 13,335 10,294 11,938 12,945 14,394 14,804 14,724 13,175 16,867 13,485 14,979 BSE 9 13.00 73.44 0.31 0.00 0.43 0.17 0.02 0.02 0.00 0.03 0.02 0.00 0.00 0.61 0.00 0.00
Source: BSE, NSE.
Table 2.30: Trends in Single Stock Futures at NSE and BSE

Year/ Month Number of Stocks NSE 1 2005-06 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 2 116 155 228 250 190 234 233 233 183 180 180 179 179 179 179 190 190 BSE 3 76 89 3 3 0 0 1 1 0 0 0 0 1 1 1 0 0 Number of Contracts NSE 4 8,09,05,493 10,49,55,401 20,35,87,952 22,15,77,980 14,55,91,240 98,58,642 95,28,178 1,11,27,649 1,55,00,535 1,31,13,118 1,31,57,621 1,40,44,526 1,32,60,546 1,13,07,332 1,25,46,679 1,07,25,789 1,14,20,625 BSE 5 12 1,42,433 2,95,117 299 6 0 2 2 0 0 0 0 1 0 1 0 0 Turnover (Rs.crore) NSE 6 27,91,721 38,30,972 75,48,563 34,79,642 51,95,247 3,56,383 4,48,155 5,89,657 4,50,632 4,12,363 4,34,119 4,65,829 4,38,220 3,95,954 4,44,134 3,54,485 4,05,316 BSE 7 0.48 3,516 7,609 9 0 0 0 0 0 0 0 0 0 0 0 0 0 Open Interest at the End of the Year/Month No. of Contracts Notional Turnover (Rs.crore) NSE 8 6,25,926 7,39,380 10,86,267 5,11,334 9,90,917 4,66,755 4,48,935 7,93,175 7,72,633 8,47,450 8,72,616 9,33,703 9,07,402 8,69,188 9,32,444 9,14,821 9,90,917 BSE 9 0 6 37 0 0 0 0 0 0 0 0 0 0 0 0 0 0 NSE 10 24,670 18,513 21,143 15,722 32,053 17,036 22,907 21,468 22,878 25,603 28,470 26,845 28,489 28,787 28,938 28,012 32,053 BSE 11 0 0.14 0.97 0 0 0 0 0 0 0 0 0 0 0 0 0 0
66
Table 2.31: Trends in Index Options at NSE and BSE

Year/ Month NSE 2 1,29,35,116 2,51,57,438 5,53,66,038 21,20,88,444 34,13,79,523 2,68,81,970 2,14,95,541 2,41,89,642 3,17,86,743 2,85,35,857 2,50,74,041 2,66,71,252 3,29,65,274 2,95,25,940 2,70,84,605 3,45,88,704 3,25,79,954 BSE 3 100 2 1,161 373 5,276 0 352 0 0 0 0 0 0 120 4,804 0 0 Number of Contracts Turnover (Rs.crore) NSE 4 3,38,469 7,91,913 13,62,111 37,31,502 80,27,964 4,53,788 4,30,515 5,45,643 7,01,247 6,58,757 6,09,076 6,69,591 8,16,408 7,56,677 6,95,860 8,47,236 8,43,167 BSE 5 3.2 0.06 39 9 138 0 7 0 0 0 0 0 0 3 128 0 0 Open Interest at the End of the Year/Month Number of Contracts NSE 6 1,28,688 3,81,910 4,91,593 18,09,483 18,19,841 14,51,237 12,14,579 11,47,201 11,13,135 14,48,202 17,08,203 16,85,089 18,09,087 13,25,294 18,37,471 17,97,659 18,19,841 BSE 7 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Notional Turnover (Rs.crore) NSE 8 4,379 7,297 11,636 27,402 47,808 25,357 27,100 24,698 25,874 33,830 43,420 39,721 45,530 34,470 44,897 44,370 47,808 BSE 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
1 2005-06 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10
Source: BSE, NSE.
Table 2.32: Trends in Stock Options at NSE and BSE

Year/ Month Number of Stocks NSE 1 2005-06 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 2 116 155 228 250 190 234 233 233 183 180 180 179 179 179 179 190 190 BSE 3 76 89 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Number of Contracts NSE 4 52,40,776 52,83,310 94,60,631 1,32,95,970 1,40,16,270 8,07,323 6,44,280 8,82,947 12,68,003 11,29,195 12,37,428 13,78,569 13,60,703 12,52,898 14,14,178 12,23,627 14,17,119 BSE 5 2 6 15 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Turnover (Rs.crore) NSE 6 1,80,270 1,93,811 3,59,137 2,29,227 5,06,065 31,427 31,168 49,746 38,706 36,214 42,758 45,387 43,666 42,855 51,454 41,285 51,398 BSE 7 0.1 0.19 0.3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Open Interest at the End of the Year/Month No. of Contracts NSE 8 27,108 19,204 34,602 78,573 97,522 32,083 30,853 92,481 59,768 92,098 77,201 74,399 89,504 41,012 83,872 72,915 97,522 BSE 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Notional Turnover (Rs.crore) NSE 10 1,024 447 636 2,521 3,137 1,152 1,480 2,527 1,784 2,756 2,508 1,957 2,677 1,328 2,492 2,274 3,137 BSE 11 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Source: BSE, NSE.
67
percent of the total turnover of the F&O segment in 2009-10. The percentage share in the traded value by trading-cum-self clearing members and trading members was 28.9 percent and 13.9 percent, respectively (Table 2.33).
crore) followed by NSE (Rs.17,82,609 crore) and BSE (Rs.0.04 crore) (Table 2.34). At NSE, the share of top ten members in volumes of currency derivatives segment increased to 72.1 percent at the end of March 2010 from 56.8 percent at the end of March 2009. Their share in open interest of currency derivatives segment was 35.3 percent at the end of March 2010 as compared to 34.3 percent at the end of March 2009. The share of top ten members in volumes and open interest at MCX-SX were 60.5 percent and 35.9 percent, respectively at the end of March 2010. In BSE, the share of top ten members in volume and open interest fell to zero after being 100 percent in May 2009 (Table 2.35).
B.
Trend in Currency Derivatives Market
Currency futures trading commenced in India on August 29, 2008 at NSE. Later, MCXSX and BSE were also granted permission on October 7, 2008 and October 1, 2008 respectively to start trading in currency derivatives. During 2009-10, total turnover was the highest at MCX-SX (Rs.19,44,654
Table 2.33: Shares of Various Classes of Members in Derivative Turnover at NSE and BSE
Turnover (Rs.crore) Month Trading Members Trading cum Clearing Members 3 Trading cum Self Clearing Members 4 Total Trading Members Percentage Share Trading cum Clearing Members 7 Trading cum Self Clearing Members 8
2005-06 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Source: BSE, NSE.
24,94,557 30,60,253 45,50,533 33,99,848 48,99,892 3,11,617 3,35,173 4,25,716 4,14,784 4,11,775 3,97,284 4,47,173 4,76,271 4,31,298 3,88,140 4,29,623 4,31,038
49,80,025 79,52,147 1,53,60,489 1,24,60,554 2,02,12,013 13,07,989 14,25,574 17,84,780 18,59,383 17,15,255 16,17,988 17,28,626 18,63,460 17,16,852 17,02,573 17,55,387 17,34,147
21,73,918 38,18,532 67,56,714 61,84,083 1,02,15,902 6,67,123 6,93,773 8,53,465 8,72,851 8,20,262 7,61,484 8,45,035 9,83,901 9,01,823 8,90,310 9,54,763 9,71,111
96,48,501 1,48,30,932 2,66,67,736 2,20,44,486 3,53,27,807 22,86,729 24,54,521 30,63,961 31,47,018 29,47,292 27,76,756 30,20,835 33,23,632 30,49,972 29,81,023 31,39,772 31,36,296
25.85 20.63 17.06 15.42 13.87 13.63 13.66 13.89 13.18 13.97 14.31 14.80 14.33 14.14 13.02 13.68 13.74
51.61 53.62 57.60 56.52 57.21 57.20 58.08 58.25 59.08 58.20 58.27 57.22 56.07 56.29 57.11 55.91 55.29
22.53 25.75 25.34 28.05 28.92 29.17 28.27 27.85 27.74 27.83 27.42 27.97 29.60 29.57 29.87 30.41 30.96
68
Table 2.34: Trends in the Currency Futures Segment

MCX-SX Month/ Year No. of Turnover Open Contracts (Rs.crore) interest Traded at the end of Month 2 2,98,47,569 40,81,66,278 75,47,128 1,20,53,551 1,41,98,087 1,81,88,940 1,86,48,790 2,26,36,371 3,28,49,655 3,46,66,197 4,25,13,360 6,35,91,431 6,47,73,311 7,64,99,457 3 1,48,826 19,44,654 37,858 58,469 67,985 88,290 90,292 1,09,666 1,53,630 1,61,641 1,98,498 2,92,345 3,22,635 3,63,345 4 990 1,951 532 987 931 1,665 2,363 1,992 2,235 2,340 1,985 2,758 2,531 1,951 NSE No. of Turnover Open Contracts (Rs.crore) interest Traded at the end of Month 5 6 7 1,313 1,964 1,039 1,504 1,285 1,531 1,933 1,739 2,109 2,297 1,896 2,852 2,976 1,964 3,27,38,566 1,62,563 37,86,06,983 17,82,609 78,51,502 39,386 1,36,82,468 66,431 1,57,24,507 75,363 1,98,88,011 96,523 1,86,72,623 90,396 2,22,51,896 1,07,789 3,22,67,958 1,50,843 3,37,94,926 1,57,554 4,10,04,341 1,91,415 6,02,23,714 2,76,742 5,21,12,185 2,46,875 6,11,32,852 2,83,292 BSE No. of Turnover Open Contracts (Rs.crore) interest at Traded the end of Month 8 1,82,469 8 2 6 0 0 0 0 0 0 0 0 0 0 9 869 0.04 0.01 0.03 0 0 0 0 0 0 0 0 0 0 10 0 0 0 0 0 0 0 0 0 0 0 0 0 0
1 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10
Source: NSE, BSE, MCX-SX.
Table 2.35: Share of Top 10 members in Currency Derivatives Segment of NSE, BSE and MCX-SX
Share of top 10 members in percentage Year/Month Open Interest 1 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Source: NSE, BSE, MCX-SX. 2 36.59 36.52 39.23 41.41 44.53 40.68 45.26 42.91 42.09 42.79 43.43 39.64 40.92 35.28 NSE Volume 3 50.62 69.38 57.53 57.34 60.20 62.72 65.48 69.37 74.92 74.47 77.14 77.49 69.40 72.04 Open Interest 4 99.80 100.00 100.00 100.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 BSE Volume 5 99.79 100.00 100.00 100.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 MCX-SX Open Interest 6 53.77 35.87 43.57 60.51 56.20 55.50 51.17 48.69 50.77 47.46 45.95 41.46 46.17 35.87 Volume 7 59.75 53.19 68.32 70.28 67.19 62.35 54.12 55.19 53.27 54.03 63.02 63.30 60.10 60.53
(Percent)
69
Box 2.1: Currency Options

Currency options trading began in the 1970s in the venue of the listed futures and options markets of Chicago, Philadelphia, and London. Trading was concentrated in currency options on only a handful of major exchange rates. A structural change occurred in the 1990s, when the bulk of trading in currency options migrated upstairs to bank dealing rooms, to the detriment of the organised exchanges. Once installed in the domain of the inter bank foreign exchange market, option trading exploded in volume. Further, currency options began to key off of the full gamut of exchange rates. A currency option is similar to a stock or an index option except that the underlying asset is a currency rather than a stock or an index. In a currency option, the buyer of option gets the right but not the obligation to buy (call option) or sell (put option) a predetermined amount of currency against the other at a predetermined exchange rate on or before a predetermined date in future. The buyer of an option is called holder whereas the seller of an option is called writer. The holder enjoys asymmetrical payoff unlike a symmetrical payoff in case of a futures contract. The market for currency options is the deepest in terms of trading volumes and most liquid of all types of options markets in the world. One reason for this is that the currency options are attractive investments for speculators since they require a limited investment and do not have any risk other than losing the premium paid up front. This limited downside and unlimited upside makes currency options as popular trading instruments. Currency options are predominantly traded over the counter (OTC) and are subjected to lesser regulations as compared to exchange traded products. However, Chicago Mercantile Exchange, the International Securities Exchange, and Philadelphia Stock Exchange which have permitted exchange traded currency options. Outside USA, currency options are traded on centres including Singapore, Amsterdam, Paris and Brussels. In the United States, exchange-traded foreign exchange options were introduced in 1982. The Securities and Exchange Commission (SEC) has jurisdiction over options on foreign currencies traded on national securities exchanges, while the Commodity Futures Trading Commission (CFTC) regulates options on foreign currency futures and options on foreign currencies traded on exchanges that are not securities exchanges. Exchange-traded currency options, like exchangetraded futures, utilise standardised contracts with respect to the amount of the underlying currency, the exercise price, and the expiration date. Transactions are cleared through the clearinghouses of the exchanges on which they are traded, and the clearinghouses guarantee each party against default of the other. In general, the option buyer who has no further financial obligation after he has paid the premium is not required to make margin payments. On the contrary, the option writer who takes all the financial risk is required to put up initial margin and to make additional (maintenance) margin payments if the market price moves adversely to his/her position. It is difficult to be precise about overall size of currency options market because the majority of trading in currency options is done over the counter and never gets reported. However, some rough estimates are reported in a survey done by the Bank for International Settlements (BIS) every three years. As per latest triennial survey available, BIS survey 2007, the average daily turnover of currency options more than doubled from USD 87 billion in 1998 to USD 212 billion in 2007. Thus, there is significant increase in the use of currency options among traders. As per previous triennial BIS surveys, the average daily turnover of currency options in 2001 and 2004 were USD 60 billion and 117 billion respectively which shows decline in traded volumes at the start of new millennium but they have picked up speed after dot com burst. The RBI-SEBI Standing Technical Committee is working on the operational framework for introduction of exchange traded currency options on USD-INR currency pair.
70
Box 2.2: Comparative Study of Futures on USD: INR versus OTC Currency Forward Market
Background: Currency futures trading (USD/INR pair), in India started on August 29, 2008 on the National Stock Exchange (NSE), followed by trading on MCX Stock Exchange (MCX-SX) and thereafter on Bombay Stock Exchange (BSE). Trading in currency futures, however, mainly takes place on NSE and MCX-SX. A comparison of the two markets i.e. Exchange traded futures and the OTC currency forward market in USD:INR has been carried out based on the following parameters: (i) Turnover in USD: INR futures vis--vis OTC currency forward market. (ii) Bid-Ask spread in exchange traded USD:INR market vis--vis OTC currency forward market. (iii) Difference in the futures and forward rates for USD: INR for same duration contracts. Turnover in USD: INR futures vis--vis OTC forward market: It can be seen from the Table below that the exchange traded Indian currency futures market has grown considerably since trading started in August 2008. The turnover in USD:INR futures as a percentage of OTC currency forward turnover has increased from 7.2 percent in November, 2008 to 80.4 percent in October, 2009. Share of Turnover in USD:INR futures to the OTC currency forward turnover
Month Forward turnover INR/Other currency ($ billion) Exchange (NSE + MCX-SX) turnover ($ billion) Exchange (NSE + MCX-SX) turnover as percentage of OTC forward turnover 7.19 10.50 15.09 21.10 21.13 21.07 May09 June09 July09 August09 September09 October09* 75.10 76.21 65.35 62.62 62.22 80.99 25.74 29.92 38.08 37.32 44.89 65.12 34.31 39.26 58.27 59.60 72.15 80.40
Source: RBI, NSE, MCX-SX (BSE has no trading in currency derivative products) *Data for OTC market available till Oct09
Bid Ask spread in Exchange traded USD: INR market vis--vis OTC currency forward market: The bid ask spread gives an indication of the cost and ease with which a contract can be traded. A narrow (tight) bid ask means that the costs of entering and exiting a trade are low. Consequently, a liquid market requires the bid ask spread to be narrow. It can be observed from the Table below that around 95 percent of the trading at NSE and 99 percent of trading at MCX-SX in USD: INR futures takes place at a narrow spread of less than or equal to half a paisa as against only 7 paise for OTC currency forward market. Comparison of the best bid ask quotes (for September 2009) between OTC currency forward and USD: INR futures for near month contract at NSE and MCX-SX
Spread Interval (INR) 0.0025 <= 0.005 <= 0.01 <= 0.02 <= 0.03 <= 0.04 <= 0.05 <= 0.1 Cumulative Forward Cumulative NSE USD: INR futures 62.98 94.74 99.92 99.98 99.98 99.99 99.99 100 Cumulative MCX-SX USD: INR futures 88.58 98.97 99.93 100 100 100 100 100
0.58 6.53 49.25 99.54 100 100 100 100
November08 December08 January09 February09 March09 April09
87.77 89.60 65.66 61.29 92.04 73.24
6.30 9.38 9.89 12.92 19.40 15.40
Source: NSE and MCX-SX For OTC Market: Reuters For currency futures: NSE trade data and MCX-SX trade data
71
Box 2.2: Comparative Study of Futures on USD: INR versus OTC Currency Forward Market (contd.)
Difference in the futures and forward rates on USD: INR for same duration contracts: The Graph below plots the difference between one month futures and forward rates on USD: INR, for the same duration contracts. It can be seen that the rates in the two markets are getting gradually aligned. Based on the above comparison between the Exchange traded USD: INR futures and OTC currency forward market, the following can be concluded: (a) The turnover in USD: INR futures, both in absolute terms, as well as a percentage of OTC currency forward turnover, has been increasing ever since the inception of the currency futures trading. (b) Almost all the trading in Exchange traded USD: INR futures market takes place at a spread of less than or equal to half a paisa, whereas the comparable figure for the currency forward market is around 7 paise. (c) While the USD: INR futures and the forward rates diverged at the beginning of trading in the futures market; the rates have gradually converged which reflects disappearance of arbitrage opportunities between the two markets.
C.
Trends in Interest Rates Derivatives
Trading in 10 Year Notional coupon bearing Government of India (GoI) security Futures started at NSE on August 31, 2009. 72
The trends in turnover and open interest in Interest Rate Derivatives (10 Year Notional coupon bearing GoI security Futures) at NSE is depicted in Table 2.36.
Table 2.36: Trends in Turnover and Open Interest in Interest Rate Derivatives (10 Year Notional coupon bearing GoI security Futures) at NSE
Year/Month No. of contracts 1 2009-10 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 2 1,60,894 14,559 79,648 21,198 18,134 11,687 6,443 3,124 6,101 Total Turnover (Rs.crore) 3 2,975 267 1,473 394 337 215 119 57 111 Open Interest at the end of the year/month No. of Contracts 4 758 1,893 4,952 6,128 6,600 2,305 2,576 3,547 758 Notional Turnover (Rs.crore) 5 14 35 92 114 124 42 48 65 14
3. I.
TRENDS IN THE BOND MARKET Corporate Bond Market
The trend in corporate bond markets, viz., OTC trades and trades reported on the exchanges is shown in Table 2.37. The number of trades in corporate bonds during 2009-
10 increased by 68.5 percent in comparison to 2008-09. In comparison to increase in number of trades, increase in the volume of trades during 2009-10 is very significant. This increase is mainly attributed to increase in volume of trades reported at FIMMDA by 218.5 percent followed by NSE at 206.9 percent and BSE at 42.9 percent.
Table 2.37: Secondary Market: Corporate Bond Trades

Month/Year No. of Trades 1 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 2 8,327 7,408 545 660 639 669 665 765 852 728 386 542 416 541 BSE Amount (Rs.crore) 3 37,320 53,323 2,721 2,832 3,047 4,615 4,573 6,113 6,896 5,818 3,234 4,696 4,097 4,681 No. of Trades 4 4,902 12,522 1,306 1,077 776 1,220 841 1,099 1,512 1,246 855 1,050 740 800 NSE Amount (Rs.crore) 5 49,505 1,51,920 17,112 10,688 8,637 12,549 13,187 12,365 12,101 15,548 6,810 15,354 9,747 17,820 No. of Trades 6 9,501 18,300 1,025 933 961 1,247 1,041 1,059 1,289 1,091 1,717 2,472 2,111 3,354 FIMMDA Amount (Rs.crore) 7 61,535 1,95,955 11,692 7,072 7,066 10,343 7,120 8,470 10,477 10,050 20,546 32,569 25,925 44,624
Source: NSE, BSE and FIMMDA.
73
With effect from December 1, 2009, it has been made mandatory for all trades in corporate bonds between mutual funds, FIIs/ sub-accounts, venture capital funds, foreign venture capital investors, portfolio mangers, and RBI regulated entities as specified by RBI to be cleared and settled through the exchange clearing corporations, NSCCL or ICCL. IRDA has also issued similar directions. Table 2.38: Settlement of Corporate Bond Trades
NSE Month Total No. of Trades Settled 2 1,438 2,230 2,063 3,191 Settled Value (Rs.crore) 3 17,300.51 31,396.86 26,977.29 44,331.21
The value of corporate bond trades settled through the clearing corporations has gone up from Rs.17,704 crore in December 2009 to Rs.47,216 crore in March 2010 (Table 2.38). The issuers have raised Rs.2,12,635 crore in private placement during 2009-10 which is 22.7 percent higher from Rs.1,73,281 crore in 2008-09 (Table 2.39). Although the year has seen a number of public issues, private
BSE Total No. of Trades Settled 4 55 85 112 212 Settled Value (Rs.crore) 5 403.57 1,244.06 949.93 2,884.91
Total Total No. of Trades Settled 6 1,493 2,315 2,175 3,403 Total Settled Value (Rs.crore) 7 17,704.08 32,640.92 27,927.22 47,216.12
1 Dec-09 Jan-10 Feb-10 Mar-10 Source: NSE, BSE.
Table 2.39: Private Placement of Corporate Bonds reported to NSE and BSE
(Rs.crore) Month Listed only on NSE No. of Issues 1 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Source: NSE, BSE. 2 580 699 647 25 44 37 46 55 56 60 66 51 91 38 78 Amount (Rs.crore) 3 90,718 1,24,810 1,43,286 12,526 11,096 8,898 8,099 12,518 10,589 11,030 8,918 10,018 18,332 13,165 18,095 Listed only on BSE No. of Issues 4 120 285 597 31 17 35 52 38 23 24 104 56 46 100 71 Amount (Rs.crore) 5 11,711 17,045 49,739 1,634 997 3,019 3,659 3,436 2,161 1,435 6,725 4,531 3,935 12,265 5,941 Listed Both on NSE and BSE No. of Issues 6 44 57 34 2 4 5 2 3 5 3 0 4 2 2 2 Amount (Rs.crore) 7 16,056 31,426 19,610 400 1,586 6,131 1,020 4,600 1,701 1,100 0 1,190 556 520 807 No. of Issues 8 744 1,041 1,278 58 65 77 100 96 84 87 170 111 139 140 151 Total Amount (Rs.crore) 9 1,18,485 1,73,281 2,12,635 14,560 13,679 18,048 12,778 20,555 14,451 13,565 15,644 15,739 22,823 25,950 24,844
74
placements have also remained as one of the preferred modes of raising debt funds. The rise in funds mobilised could also be possibly attributed to issuers preferring the domestic debt markets as a primary source of corporate debt.
II. Wholesale Debt Market

During 2009-10, turnover in the Wholesale Debt Market (WDM) segment increased to Rs.5,63,816 crore from Rs.3,35,950 crore in 2008-09. The net traded value and average daily traded value increased by 67.8 percent and 66.3 percent, respectively during the same period (Table 2.40). Also, the number of trades increased by 49.3 percent to 24,069 in 2009-10 from 16,129 in 2008-09. The
net traded value started increasing towards the start of second quarter and in the third quarter. The highest turnover was recorded in November 2009 (Rs.64,999 crore) followed by September 2009 (Rs.58,674 crore) and January 2010 (Rs.57,036 crore). Number of trades was the highest for July 2009 followed by November 2009. Instrument-wise break up of the securities traded at the WDM segment of NSE indicates the dominance of Government securities though the share of the G-sec in the traded value decreased to 58.2 percent in 2009-10 from 69.8 percent in 2008-09 (Table 2.41). The share of Treasury bills marginally declined from 16.9 percent in 2008-09 to 16.5 Table 2.41: Instrument-wise Share of Securities Traded in the Wholesale Debt Market Segment of NSE
Month/ Year Govt. Treasury PSU / Dated Bills InstitutioSecurities nal Bonds 2 72.67 70.00 68.84 69.74 58.15 55.16 61.56 65.02 65.61 52.54 65.36 54.46 64.70 65.04 55.00 51.90 36.35 3 22.13 23.71 23.40 16.91 16.49 15.27 15.30 17.61 11.37 15.64 13.79 19.79 11.50 16.83 18.42 20.09 25.79 4 2.56 2.01 3.27 8.92 15.40 20.18 15.67 11.85 15.22 19.62 13.39 14.23 12.22 12.13 12.27 18.17 23.00
Table 2.40: Business Growth on the Wholesale Debt Market Segment of NSE
Month/ Year 1 2005-06 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Source: NSE, BSE. No. of Trades 2 61,891 19,575 16,179 16,129 24,069 2,408 2,089 1,948 2,582 1,583 2,301 1,875 2,564 1,735 1,957 1,455 1,572 Net Traded Average Daily Value Traded Value (Rs.crore) (Rs.crore) 3 4,75,523 2,19,106 2,82,317 335,950 563,816 45,653 40,266 44,568 51,222 38,232 58,674 43,731 64,999 37,567 57,036 34,800 47,068 4 1,755 899 1,129 1,419 2,359 2,853 2,013 2,026 2,227 1,912 3,088 2,302 3,250 1,789 2,852 1,832 2,353
(Percent)
Others
1 2005-06 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Source: NSE.
5 2.64 4.28 4.49 4.43 9.96 9.38 7.47 5.52 7.79 12.20 7.45 11.52 11.59 5.99 14.31 9.84 14.86
75
percent in 2009-10. The percentage share of others which include mainly corporate debt securities, increased from 4.4 percent in 200809 to 9.9 percent in 2009-10. The share of PSU/ institutional bonds also rose from 8.9 percent in 2008-09 to 15.4 percent in 2009-10. Trading members dominated the WDM segment with a share of 49.3 percent in total turnover in 2009-10 as compared to 44.7 percent in 2008-09 (Table 2.42). While the share of Indian banks marginally increased to 19.9 percent in 2009-10 from 18.1 percent in 2008-09, that of financial institutions, mutual funds, primary dealers and foreign banks declined over the previous year.
4.
MUTUAL FUNDS
Mutual funds play an important role in mobilising the household savings for deployment in capital markets. The gross mobilisation of resources by all mutual funds during 2009-10 was at Rs.1,00,19,022 crore compared to Rs.54,26,353 crore during the previous year indicating an increase of 84.7 percent over the previous year (Table 2.43). Redemption also rose by 82.2 percent to Rs.99,35,942 crore in 2009-10 from Rs.54,54,650 crore in 2008-09. All mutual funds, put together, recorded a net inflow of Rs.83,080 crore in 2009-10 as compared to an outflow of Rs.28,296 crore in 2008-09. The
Table 2.42: Share of Participants in Turnover of Wholesale Debt Market Segment of NSE
(Percent) Month 1 2005-06 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Source: NSE Trading Members 2 32.01 30.88 38.15 44.65 49.23 51.19 47.44 44.66 42.67 48.24 40.63 54.55 48.59 54.62 55.42 48.52 56.57 Fls/MFs / Corporates 3 3.92 2.69 2.34 3.40 2.63 2.98 3.12 2.96 2.51 2.50 2.79 2.46 2.80 3.58 1.41 2.28 2.37 Primary Dealers 4 21.89 19.82 8.64 6.58 4.63 6.08 4.77 5.30 5.46 4.89 4.20 4.01 5.20 5.34 1.93 3.49 5.21 Indian Banks 5 28.07 26.03 23.78 18.11 19.84 17.05 19.01 18.60 24.86 22.51 27.01 16.01 20.89 22.51 15.66 20.89 12.18 Foreign Banks 6 14.11 20.57 27.09 27.26 23.67 22.70 25.66 28.48 24.50 21.86 25.37 22.97 22.52 13.95 25.58 24.82 23.67
76
Table 2.43: Mobilisation of Resources by Mutual Funds

(Rs.crore) Period Gross mobilisation 2 61,241 92,957 1,64,523 3,14,706 5,90,190 8,39,708 10,98,149 19,38,493 44,64,376 54,26,353 Redemption Net Inflow Assets at the End of Period 5 1,07,946 90,587 1,00,594 1,09,299 1,39,616 1,49,600 2,31,862 3,26,292 5,05,152 4,17,300 6,13,978
1 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
3 42,271 83,829 1,57,348 3,10,510 5,43,381 8,37,508 10,45,370 18,44,508 43,10,575 54,54,650
4 18,970 9,128 7,175 4,196 46,808 2,200 52,779 93,985 1,53,802 -28,296 83,080
against a net outflow of Rs.34,018 crore in 2008-09 (Table 2.44). UTI mutual fund recorded a net inflow of Rs.15,653 crore compared to net outflow of Rs.3,659 crore in 2008-09. Net inflows were recorded by public sector mutual funds in 2009-10 amounting to Rs.12,499 crore compared to Rs.9,380 crore in the previous year. While all the openended and interval schemes of mutual funds recorded positive net inflows, the close-ended schemes witnessed net outflows during the financial year. Gross mobilisation of resources under open-ended schemes during 2009-10 was Rs.99,76,363 crore, of which, about 76.8 percent was raised by the private sector mutual funds followed by public sector funds (14.4 percent) and UTI MF (8.8 percent). Similarly, gross resources mobilised under close-ended schemes stood at Rs.25,551 crore in 2009-10, of which private sector accounted for 88.6 percent followed by public sector funds (5.8 percent) and UTI MF (5.6 percent). Scheme-wise pattern reveals the domination of income/debt oriented schemes in total resource mobilisation during 2009-10 (Table 2.45). During 2009-10, there was net outflow from balanced schemes and Fund
2009-10 1,00,19,022 99,35,942
assets under management by all mutual funds increased by 47.2 percent to Rs.6,13,978 crore at the end of March 2010 from Rs.4,17,300 crore at the end of March 2009. Unlike the previous year, private sector mutual funds dominated resource mobilisation efforts during 2009-10. In fact the net inflow was the highest from private sector mutual funds at Rs.54,928 crore as
Table 2.44: Sector-wise Resource Mobilisation by Mutual Funds during 2009-10

(Rs.crore)
Particulars Openended 1 Mobilisation of Funds 2 Private Sector MFs Closeended 3 Interval 4 Total 5 Openended 6 Public Sector MFs Closeended 7 Interval 8 573 (4,030) 249 (4,037) 324 (-7) Total 9 Openended 10 UTI MF Closeended 11 Interval 12 Total 13 Grand Total 14
76,63,186 22,646 12,651 76,98,483 14,36,638 1,477 (41,62,268) (87,304) (43,178) (42,92,750) (6,88,652) (17,790)
14,38,688 8,76,539 1,428 (7,10,472) (4,10,509) (5,913) 14,26,189 8,62,024 2,898 (7,01,092) (4,09,189) (9,012) 12,499 (9,380)
3,884 8,81,851 1,00,19,023 (6,708) (4,23,131) (54,26,353) 1,276 8,66,198 99,35,942 (8,588) (4,26,790) (54,54,650) 15,653 (-3,659) 83,080 (-28,296)
Repurchases/ 75,85,914 54,643 29,99 76,43,555 14,21,798 4,142 Redemption (41,45,912) (1,17,332) (63,524) (43,26,768) (6,78,200) (18,854) Amount Net Inflow/ Outflow of Funds 77,272 -31,997 9,653 (16,356) (-30,028) (-20,346) 54,928 (-34,018) 14,840 -2,665 (10,451) (-1,064)
14,515 -1,470 2,608 (1,320) (-3,099) (-1,880)
Note: Figures in the parentheses pertain to 2008-09.
77
of Funds investing overseas. Under income/ debt oriented schemes, Gilt funds and Money Market funds recorded net outflows. Even though growth/equity oriented schemes recorded net inflows, it was substantially
less compared to that in the last year. The net amount mobilised by growth/equity oriented schemes was Rs.2,149 crore in 200910 as compared to Rs.4,024 crore mobilised in the previous financial year. Net resources
Table 2.45: Scheme-wise Resource Mobilisation and Assets under Management by Mutual Funds as on March 31, 2010
Number of Gross Funds Repurchase/ Net Inflow/ Cumulative Percentage Schemes Mobilised Redemption Outflow of Assets Under Variation (Rs.crore) (Rs.crore) Funds Management over March (Rs.crore) as on March 31, 2009 31, 2010 (Rs.crore) 2 3 4 5 6 7
Schemes
1 A. Income/ Debt Oriented Schemes i ii iii Liquid/Money Market Gilt Debt (other than assured returns)
56 35 367 458 (599)
70,44,818 3,974 28,95,901 99,44,693 (53,83,367)
70,56,891 7,271 27,99,323 98,63,485 (54,15,528)
-12,074 -3,297 96,578 81,208 (-32,161)
78,094 3,395 3,11,715 3,93,204 (2,94,349)
-13.80 -47.06 57.96 33.58 (-5.96)
Sub total (i+ii+iii) B. Growth/Equity Oriented Schemes i ii ELSS Others
48 307 355 (340) 33 (35) 7 14 21 (17)
3,600 61,114 64,714 (32,805) 4,693 (2,695) 997 2,538 3,535 (5,719)
2,047 60,519 62,566 (28,781) 5,386 (2,634) 194 2,558 2,752 (6718)
1,554 595 2,149 (4,024) -693 (61) 803 -20 783 (-998)
24,066 1,74,055 1,98,121 (1,08,244) 17,246 (10,629) 1,590 957 2,547 (1,396)
93.64 81.66 83.03 (-37.34) 62.25 (-34.72) 116.06 44.94 82.43 (-55.40)
Sub total (i+ii) C. Balanced Schemes i Balanced schemes
D. Exchange Traded Fund i ii Gold ETF Other ETFs
Sub total (i+ii) E. Fund of Funds Investing Overseas i Fund of Funds investing overseas
15 (10) 882 (1,001)
1,387 (1,767) 1,00,19,023 (54,26,353)
1,754 (989) 99,35,943 (54,54,650)
-367 (778) 83,080 (-28,296)
2,862 (2,681) 6,13,979 (4,17,300)
6.74 (-) 47.13 (-17.39)
TOTAL (A+B+C+D+E)
Notes: Figures in parentheses relate to 2008-09. * Net Assets of Rs.1,521.19 crore pertaining to Fund of Funds schemes are not included in the above data.
78
mobilised by exchange traded funds (ETFs) were positive during 2009-10. Moreover, Gold ETFs recorded multifold growth by growing from Rs.84 crore in 2008-09 to Rs.803 crore in 2009-10. Fund of Funds which invest overseas also witnessed a net outflow of Rs.367 crore as compared to a net inflow of Rs.778 crore in 2008-09. There were 882 mutual fund schemes as on March 31, 2010, of which, 458 were income/debt oriented schemes, 355 were growth/equity oriented schemes and 33 were balanced schemes (Table 2.46). In addition,
there were 21 Exchange Traded Funds, of which 7 were Gold ETFs. Also, there were 15 schemes operating as Fund of Funds which also invested in overseas securities. There were 641 open-ended schemes and 202 closeended schemes as on March 31, 2010. The number of open-ended schemes exceeded that of close-ended schemes among all the schemes types. The assets under management (AUM) of all the mutual funds increased to Rs.6,13,979 crore at the end of March 31, 2010 from Rs.4,17,300 crore a year ago. Assets managed
Table 2.46: Number of Schemes by Investment Objectives

Schemes 1 A. Income/Debt Oriented Schemes i ii iii iv Liquid/Money Market Gilt Debt (other than ass.re) Debt (assured return) 56 35 182 0 273 (253) 36 267 303 (279) 29 (30) 7 14 21 (17) 15 (10) 641 (589) 0 0 148 0 148 (280) 12 38 50 (59) 4 (5) 0 0 0 (0) 0 (0) 202 (344) 0 0 37 0 37 (66) 0 2 2 (2) 0 (0) 0 0 0 (0) 0 (0) 39 (68) 56 35 367 0 458 (599) 48 307 355 (340) 33 (35) 7 14 21 (17) 15 (10) 882 (1,001) Open-ended 2 Close-ended 3 Interval 4 Total 5
(i+ii+iii+iv) Sub total B. Growth/Equity Oriented Schemes i ii ELSS Others
(i+ii) Sub total C. Balanced Schemes i Balanced Schemes
D. Exchange Traded Fund i ii Gold ETF Other ETFs
(i+ii) Sub total E. Fund of Funds Investing Overseas i Fund of Funds investing overseas
TOTAL (A+B+C+D+E) Note: Figures in parentheses relate to 2008-09.
79
by most categories of mutual funds increased in 2009-10. The AUM was the highest for income/debt oriented schemes at Rs.3,93,204 crore while the AUM under growth/equity oriented scheme was Rs.1,98,121 crore. In terms of growth in AUM, Gold ETFs (116.1 percent) achieved the highest increase followed by ELSS schemes (93.7 percent) during the year. The mutual funds were one of the major investors in the debt segment of the Indian securities market. During 2009-10, the combined net investments by the mutual
funds in debt and equity was Rs.1,70,076 crore compared to Rs.88,787 crore in 2008-09, registering an increase of 91.5 percent (Table 2.47). Mutual Funds were net sellers in equity segment with Rs.10,512 crore, whereas, their net investments in the debt segment rose by Rs.1,80,588 crore during the same period. The combined net investment was positive for all months in 2009-10 except March 2010. Table 2.48 shows unit holding pattern of all mutual funds as on March 31, 2010. Individual investors accounted for 97.1 percent of the total number of investors
Table 2.47: Trends in Transactions on Stock Exchanges by Mutual Funds

(Rs.crore) Equity Year / Month Gross Purchase 2 45,045 1,00,436 1,35,948 2,17,578 1,44,069 1,95,662 12,138 18,957 22,215 22,560 17,452 15,852 16,252 14,752 14,194 16,562 11,672 13,057 Gross Sales 3 44,597 86,134 1,26,886 2,01,274 1,37,085 2,06,173 12,099 16,666 21,376 20,734 16,881 18,187 21,446 15,447 15,956 17,873 12,369 17,139 Net Purchase/ Sales 4 448 14,302 9,062 16,306 6,984 -10,512 39 2,291 839 1,826 570 -2,335 -5,194 -696 -1,762 -1,311 -697 -4,082 Gross Purchase 5 62,186 1,09,805 1,53,733 2,98,605 3,27,744 6,24,314 45,992 26,941 39,445 55,193 37,958 42,557 75,124 53,145 54,343 76,147 44,868 72,600 Debt Gross Sales 6 45,199 73,004 1,01,190 2,24,816 2,45,942 4,43,728 19,570 16,573 28,706 26,230 28,907 34,100 40,816 37,047 52,122 44,814 32,895 81,949 Net Purchase/ Sales 7 16,987 36,801 52,543 73,790 81,803 1,80,588 26,423 10,368 10,740 28,963 9,052 8,458 34,308 16,099 2,221 31,334 11,974 -9,349 Gross Purchase 8 1,07,232 2,10,241 2,89,681 5,16,183 4,71,815 8,19,976 58,130 45,898 61,660 77,752 55,410 58,409 91,376 67,897 68,538 92,709 56,540 85,657 Total Gross Sales 9 89,796 1,59,137 2,28,075 4,26,090 3,83,026 6,49,901 31,669 33,238 50,082 46,964 45,788 52,286 62,263 52,494 68,078 62,687 45,264 99,089 Net Purchase/ Sales 10 17,435 51,103 61,606 90,095 88,787 1,70,076 26,461 12,659 11,579 30,789 9,622 6,123 29,114 15,403 459 30,022 11,277 -13,432
1 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10
80
accounts and contributed 39.8 percent to total net assets. Corporates and institutions which formed only 0.9 percent of the total number of investors accounts in the mutual fund industry, contributed a sizeable 54.8 percent of the total net assets in the mutual funds industry. NRIs and FIIs constituted a very small percentage of investors accounts (1.9 percent) and contributed 5.5 percent to net assets. Table 2.48: Unit Holding Pattern of All Mutual Funds as on March 31, 2010
Category Percentage to Total Investors Accounts 2 97.07 (96.75) 1.98 (2.04) 0.00 (0.00) 0.95 (1.21) 100.00 Percentage to Total Net Assets 3 39.77 (37.03) 4.45 (5.44) 1.03 (1.19) 54.75 (56.34) 100.00
of the net assets in public sector mutual funds, their share in private sector mutual funds was 39.7 percent as on March 31, 2010. Table 2.49: Unit Holding Pattern of Private and Public Sector Mutual Funds as on March 31, 2010
Category Percentage to Total Investors Accounts 2 Private Sector Mutual Funds Individuals NRIs FIIs Corporates/ Institutions/Others Total 96.24 2.52 0.00 1.24 100.00 Public Sector Mutual Funds (including UTI MF) Individuals NRIs FIIs Corporates/ Institutions/Others Total 98.65 0.95 0.00 0.40 100.00 39.90 2.00 0.10 58.00 100.00 39.74 5.13 1.29 53.84 100.00 Percentage to Total Net Assets 3
1 Individuals NRIs FIIs Corporates/ Institutions/Others Total
Note: Figures in parentheses pertain to 2008-09.
5.
The unit holding pattern of public and private sector mutual funds as on March 31, 2010 shows the dominance of private sector mutual funds in the number of investor accounts as well as share in net assets (Table 2.49). The private sector mutual funds had 65.4 percent of the total investors account compared to 34.6 percent in public sector mutual funds. The private sector mutual funds managed 77.9 percent of the net assets as against 22.1 percent of net assets managed by public sector mutual funds. While individual investors held 39.9 percent 81
FOREIGN INSTITUTIONAL INVESTMENT
Foreign Institutional Investors play an important role in Indian securities markets. Since 1992-93, when FIIs were allowed entry into Indian financial markets, foreign institutional investment has increased over the years except in 1998-99 and 2008-09. In tandem with the boom in stock markets and sound global scenario, investments by FIIs into India were quite high in last few years, particularly since 2003-04. FIIs made a record investment in the Indian equity market in 2009, surpassing the 2007 inflows.
The gross purchases of debt and equity by FIIs increased by 37.7 percent to Rs.8,46,438 crore in 2009-10 from Rs.6,14,579 crore in 2008-09 (Table 2.50). The combined gross sales by FIIs increased by 6.6 percent Rs.7,03,780 crore from Rs.6,60,389 crore during the same period in previous year. The total net inflow of FII was Rs.1,42,658 crore as against an outflow of FII was Rs.45,811 crore in 2008-09. This was the highest net inflow for any financial year so far. Cumulative investment by FIIs at acquisition cost, which was USD 59.1 billion
at the end of March 2009, increased to USD 89.3 billion at the end of March 2010 (Chart 2.11). During 2009-10, there was a net inflow in the equity segment by FIIs amounting to Rs.1,10,220 crore (Table 2.51). The debt segment also witnessed a positive net inflow of Rs.32,438 crore. Thus, FII poured a net Rs.1,42,658 crore in Indian markets. Month-wise, the net FII inflow was the highest in equity segment in May 2009 (Rs.20,017 crore) followed by March 2010 (Rs.19,928 crore) and September 2009
Table 2.50: Investment by Foreign Institutional lnvestors

Year Gross Purchase (Rs.crore) 2 18 5,593 7,631 9,694 15,554 18,695 16,116 56,857 74,051 50,071 47,062 1,44,855 2,16,951 3,46,976 5,20,506 9,48,018 6,14,576 8,46,438 Gross Sales (Rs.crore) Net Investment (Rs.crore) 4 4 467 2,835 2,752 6,980 12,737 17,699 46,735 64,118 41,308 44,372 99,091 1,71,071 3,05,509 4,89,665 8,81,839 6,60,386 7,03,780 13 5,127 4,796 6,942 8,575 5,958 -1,584 10,122 9,933 8,763 2,689 45,764 45,880 41,467 30,841 66,179 -45,811 1,42,658 Net Investment (USD mn.) 5 4 1,634 1,528 2,036 2,432 1,650 -386 2,474 2,160 1,839 566 10,005 10,352 9,363 6,821 16,442 -9,837 30,253 Cumulative Net Investment (USD mn.) 6 4 1,638 3,167 5,202 7,635 9,285 8,899 11,373 13,532 15,372 15,937 25,943 36,294 45,657 52,478 68,919 59,082 89,335
1 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Note: Data for columns 5 and 6 has been revised from 2003-04 onwards.
82
Table 2.51: Investments by Mutual Funds and Foreign Institutional lnvestors

(Rs.crore) Year/Month 1 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Net Investment by Mutual Funds Equity 2 1,308 448 14,303 9,062 16,306 6,984 -10,512 39 2,291 839 1,826 570 -2,335 -5,194 -696 -1,762 -1,311 -697 -4,082 Debt 3 22,701 16,987 36,801 52,543 73,790 81,803 1,80,588 26,423 10,368 10,740 28,963 9,052 8,458 34,308 16,099 2,221 31,334 11,974 -9,349 Total 4 24,009 17,435 51,104 61,607 90,065 88,787 1,70,076 26,461 12,659 11,579 30,789 9,622 6,123 29,114 15,403 459 30,022 11,277 -13,432 Net Investment by Flls Equity 5 39,960 44,123 48,801 25,236 53,404 -47,706 1,10,220 6,508 20,117 3,830 11,066 4,903 18,344 9,077 5,497 10,233 -500 1,217 19,928 Debt 6 5,805 1,759 -7,334 5,605 12,775 1895 32,438 2,490 -2,711 1,068 2,115 -379 2,228 6,896 684 -1,522 8,913 3,146 9,510 Total 7 45,765 45,881 41,467 30,840 66,179 -45,811 1,42,658 8,998 17,406 4,898 13,181 4,524 20,572 15,973 6,181 8,711 8,413 4,363 29,438
83
(Rs.18,344 crore). In the equity segment, FII investment was negative in only one month, i.e., January, 2010. In the debt segment, inflow was the highest in March 2010 (Rs.9,510 crore) followed by January 2010 (Rs.8,913 crore) and October 2009 (Rs.6,896 crore) (Chart 2.12). The FIIs were permitted to trade in the derivatives market in February 2002. The cumulative FIIs Net investment was
Rs.3,88,310 crore as on March 31, 2010 as compared to Rs.2,45,653 crore as on March 31, 2009. Open interest position of FIIs in index options was the highest at Rs.7,03,745 crore by end-March 2010, followed by Stock futures (Rs.5,32,266 crore), Index futures (Rs.2,28,279 crore) and Stock options (Rs.13,323 crore) (Table 2.52).
84
Table 2.52: Notional Value of Open Interest of Foreign Institutional lnvestors in Derivatives during 2009-10
(Rs.crore)
Items 1 Index Futures Index Options Stock Futures Stock Options Total Change in open position Change Apr-09 2 May-09 3 Jun-09 4 Jul-09 5 Aug-09 6 Sep-09 7 Oct-09 8 Nov-09 9 Dec-09 10 Jan-10 11 Feb-10 12 Mar-10 13 2,28,279 7,03,745 5,32,266 13,323
2,09,490 2,57,875 2,83,978 5,55,926 2,31,718 2,87,914 2,44,344 2,82,484 3,07,088 2,63,337 2,87,997 4,89,855 6,17,615 5,33,080 15,80,668 4,62,123 5,73,072 6,45,480 6,70,606 8,18,639 5,72,192 7,00,073 278,471 3,63,040 4,51,010 11,08,580 4,01,505 4,44,969 5,13,028 4,78,800 5,34,202 5,16,824 4,93,515 19,641 17,238 12,347 48,155 17,795 25,226 11,850 18,270 13,012 8,399 14,911
9,97,457 12,55,768 12,80,414 32,93,328 11,13,141 13,31,180 14,14,703 14,50,161 16,72,941 13,60,752 14,96,496 14,77,613 1,25,050 2,58,311 24,646 20,12,915 -21,80,188 2,18,039 83,522 35,458 2,22,780 -3,12,188 1,35,744 -18,884
14.33
25.90
2.00
157.20
-66.20
19.60
6.30
2.50
15.40
-18.70
10.00
-1.30 3,88,310
Cumulative 2,54,651 2,72,057 2,76,955 2,90,137 2,94,660 3,15,233 3,31,205 3,37,386 3,46,097 3,54,510 3,58,873 FII Net Investment Change in FII Investment Change 8,998 17,406 4,898 13,182 4,523 20,573 15,973 6,181 8,711 8,413 4,363
29,438
3.66
6.80
1.80
4.76
1.56
6.98
5.07
1.87
2.58
2.43
1.23
8.20
85
Annual Report 2009-10 PART THREE:
REGULATION OF SECURITIES MARKET
This part of the Report delineates the functions of SEBI as specified in Section 11 of the SEBI Act, 1992.
1. I.
INTERMEDIARIES Streamlining the Registration Process of Intermediaries
II. Registered Intermediaries other than Stock Brokers and Subbrokers

During 2009-10, a mixed trend was observed in the number of intermediaries registered. During the year, the highest increase in absolute terms was observed in case of merchant bankers (27) and depository participants (DPs) of CDSL (27) followed by DPs of NSDL (13). A decline was witnessed in the number of bankers to an issue and underwriters during 2009-10. However, the decline in registered exclusive underwriters was probably due to allowing other registered intermediaries like merchant bankers, stock brokers etc. also to act as underwriter. The details are provided in Table 3.1. Some of the intermediaries applications for registration were in the process, the details of which are provided in Table 3.1a.
The entire procedure of registration and renewal has been streamlined and has been made more transparent during 2009-10. The status report on registration/ renewal of applications of intermediaries is put on SEBI website on a monthly basis giving a clear position whether the application is pending with SEBI or with the intermediary. If it is pending with SEBI, the date of receipt of letter from the intermediary is also mentioned against the status of application, clearly indicating that how long the application is pending with SEBI. If it is pending with intermediary, it is mentioned that information is awaited from the applicant. By and large, replies are being sent to the intermediaries within 30 days. It has also been mentioned on the website that in case their application has remained unattended, the applicant should not hesitate in writing to the concerned Division Chief (DC) or Executive Director(ED). Respective e-mail IDs of concerned DC and ED have also been given. While processing registration/renewal applications where quasi-judicial actions have been initiated by SEBI against the applicant, SEBI has started seeking details of corrective measures taken by the applicant. All the applicants now inform in detail the steps taken by them to prevent such violations in the future. This step taken by SEBI will improve the compliance culture among the intermediaries. 86
III. Registration of Stock Brokers

During 2009-10, 312 new stock brokers were registered with SEBI in cash segment (Table 3.2). There were 160 cases of cancellation/surrender of brokership as compared to 140 in 2008-09. Applications in the process of registration are given in Table 3.2a. The total number of registered stock brokers as on March 31, 2010, increased to 8,804 from 8,652 in 2008-09 (Table 3.3). The number of registered brokers was highest in National Stock Exchange Ltd. (NSE) (1,310) followed by Bombay Stock Exchange Ltd. (BSE) (1,003), Inter-Connected Stock Exchange Ltd. (ISE) (943) and Calcutta Stock Exchange Ltd. (908). The number of
Part Three: Regulation of Securities Market
Table 3.1: Registered Intermediaries other than Stock Brokers and Sub-Brokers
(Number) Type of Intermediary 1 Registrar to an Issue and Share Transfer Agent Bankers to an Issue Debenture Trustee Merchant Banker Portfolio Manager Underwriter DPs NSDL DPs CDSL Credit Rating Agency Number as on March 31 2009 2 71 51 30 137 232 17 256 462 5 2010 3 74 48 30 164 243 4 269 489 5 Absolute Variation 4 3 -3 0 27 11 -13 13 27 0 Percentage Variation 5 4.23 -5.88 0.00 19.71 4.53 -76.47 5.08 5.84 0.00
Table 3.1a: Intermediaries other than Stock Brokers and Sub-Brokers in the Process of Registration
(Number) Type of Intermediary 1 Merchant Banker Bankers to an Issue Depository Participants Registrar to an Issue and Share Transfer Agents Credit Rating Agency Pending as on March 31, 2010 2 11 2 29 1 2
Table 3.2: Registered Stock Brokers

(Number) Details 1 Registered Stock Brokers as on March 31 of the previous year Addition during the Year Reconciliation/Cancellation/Surrender of Memberships Registered Stock Brokers as on March 31 2008-09 2 8,517 275 140 8,652 2009-10 3 8,652 312 160 8,804
Table 3.2a: Stock Broker and Sub-Broker Applications in the Process of Registration as on March 31, 2010
(Number) Category of Application 1 Registration Brokers Cash Segment Registration Brokers Derivatives Segment Registration Brokers Currency Derivatives Segment Sub-broker Number of Applications under Process 2 58 28 113 3,358
87
Table 3.3: Classification of Stock Brokers in Cash Segment on the Basis of Ownership*
Sl. No. 1 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. Stock Exchange 2 Ahmedabad Bangalore BSE Bhubaneswar Calcutta Cochin Coimbatore Delhi Gauhati ISE Jaipur Ludhiana MPSE Madras NSE OTCEI Pune UPSE Vadodara Total Proprietorship 2009 3 143 4 44 5 2010 6 7 21 3 31 0 44 10 0 32 1 29 6 2 1 14 57 19 7 5 3 285 Partnership 2009 8 6.46 1.17 3.15 0.00 4.75 2.30 0.00 8.53 0.97 3.07 1.23 0.66 0.57 7.65 4.59 2.66 3.72 1.42 0.96 3.29 9 19 3 30 0 44 9 0 32 1 29 6 2 1 14 67 18 7 5 3 290 2010 10 5.78 1.15 2.99 0.00 4.85 2.05 0.00 7.03 1.02 3.08 1.24 0.67 0.52 7.25 2.56 3.76 1.47 0.96 11 Corporate ** 2009 12 13 2010 14 Total 2009 2010 Nos. 16 329 261 214 908 438 135 455 98 943 484 300 192 193 704 186 339 312 15 325 257 213 926 435 135 375 103 946 488 301 174 183 713 188 351 312
Nos. Percent Nos. Percent Nos. Percent Nos. Percent Nos. Percent Nos. Percent Nos. 139 42.25 129 49.43 147 14.66 195 91.12 667 73.46 350 79.91 87 64.44 169 37.14 94 95.92 569 60.34 460 95.04 209 69.67 153 79.69 104 53.89 68 5.19 148 21.02 125 67.20 259 76.40 245 78.53 161 49.54 126 49.03 805 81.81 19 8.92 200 21.60 79 18.16 48 35.56 213 56.80 3 18 2.91 3.69 347 36.68 87 28.90 34 19.54 73 39.89 545 76.44 55 29.26 77 21.94 64 20.51 171 51.98 129 49.43 826 82.35 19 8.88 197 21.70 79 18.04 48 35.56 254 55.82 3 18 3.06 3.72 345 36.59 89 29.67 38 19.79 75 38.86 538 76.42 54 29.03 75 22.12 64 20.51
128 49.81 148 15.04 194 91.08 682 73.65 346 79.54 87 64.44 130 34.67 99 96.12 570 60.25 464 95.08 212 70.43 139 79.89 96 52.46 61 4.91 149 20.90 126 67.02 269 76.64 245 78.53
984 1,003
5.11 1,125 90.51 1,175 89.69 1,243 1,310
4,288 49.56 4,317 49.03
3.29 4,079 47.15 4,197 47.67 8,652 8,804
* As on March 31 of the respective year. ** The categories of Financial Institutions and Composite Corporate are clubbed within the category of corporate broker. Note: Percent is to the total number of brokers in the respective exchanges
corporate brokers were also highest in NSE (1,175) followed by BSE (826) and Over The Counter Exchange of India (OTCEI) (538). Corporate brokers constitute 89.7 percent of the total stock brokers at NSE whereas at BSE and OTCEI the corporate brokers constituted 82.4 percent and 76.4 percent, respectively. Number of corporate brokers as a percentage of total brokers was more than 50 percent in five out of 19 recognised exchanges. Highest number of stock brokers in proprietorship category was in Calcutta Stock Exchange Ltd. (667), followed by ISE (569). NSE had the lowest number of brokers in proprietorship category (68) which was 4.9 percent of the total stock brokers registered with NSE. 88
Stock brokers in partnership category were highest in NSE (67), followed by Calcutta Stock Exchange Ltd. (44). Bhubaneswar Stock Exchange Ltd. did not have any brokers in the partnership category. Details regarding classification of brokers in cash segment as proprietary, partnership, corporate, institution, composite corporate on the basis of ownership are provided in Table 3.3, Chart 3.1 and Chart 3.2. In equity derivative segment, 105 trading members (TM), 11 clearing members (CM) and 46 self clearing members (SCM) were given registration at NSE during 2009-10. In case of BSE, the corresponding figures were
89
16, eight and two respectively. Recently, an arrangement between Madras Stock Exchange (MSE) and NSE to share trading platform of NSE has been approved in-principle by SEBI and there were four trading members registered at MSE at the end of March 2010. The details regarding the same are provided in Tables 3.4. In the currency derivatives segment, total number of registered members with NSE, BSE and MCX-SX were 776, 193 and 749 respectively at the end of 2009-10. Details of members in the currency derivative segment are provided in Table 3.5.
Table 3.5: Number of Members Registered in Currency Derivatives Segment during 2009-10
(Number) Type of Member 1 Trading Member Clearing Member Total NSE 2 628 148 776 BSE 3 160 33 193 MCX-SX 4 658 91 749
IV. Registration of Sub-brokers

There was an increase in the number of sub-brokers registered with a net addition of 12,907 sub-brokers in 2009-10, an increase of 20.7 percent. The total number of registered sub-brokers at the recognised stock exchanges at the end of 2009-10, increased to 75,378 against 62,471 in the previous year (Table 3.6). During 2009-10, 16,425 new sub-brokers got registered with SEBI and 3,518 sub-brokers surrendered their certificates. BSE and NSE accounted for 98.6 percent of the total subbrokers in 2009-10 as compared to 98.0 percent a year ago.
The stock exchanges are granted recognition by SEBI under Section 4 of the Securities Contracts (Regulation) Act, 1956. Presently, there are 21 recognised stock exchanges, including United Stock Exchange of India Limited which was granted recognition on March 22, 2010 for a period of one year. Out of which, eight stock exchanges have permanent recognition (Table 3.7). During the year, renewal of recognition was granted to 11 Stock Exchanges (Table 3.8). Renewal has not been granted to Coimbatore Stock Exchange Ltd. (CSX) as it failed to make an application for renewal of recognition which expired on September 17, 2006. The matter is under litigation before the Honble High Court of Judicature at Madras. Pursuant to SEBI circular dated December 29, 2008 on Guidelines for exit option for regional stock exchanges, CSX has expressed its desire to surrender its recognition.
V.
Recognition of Stock Exchanges
Table 3.4: Number of Registered Members in Equity Derivatives Segment during 2009-10
(Number) NSE Type of Member BSE MSE Registration Registration Registration Registration Registration Registration during at the end of during at the end of during at the end of 2009-10 March 2010 2009-10 March 2010 2009-10 March 2010 2 105 11 46 162 3 1,209 249 370 1,828 4 16 8 2 26 5 461 120 20 601 6 4 0 0 4 7 4 0 0 4
1 Trading Member Clearing Member Self Clearing Member Total
90
Table 3.6: Registered Sub-brokers

Sl. No. 1 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. Sub-brokers as on March 31 Stock Exchange Number 2 Ahmedabad Bangalore BSE Bhubaneswar Calcutta Cochin Coimbatore Delhi Gauhati ISE Jaipur Ludhiana MPSE Madras NSE OTCEI Pune UPSE Vadodara Total 3 96 158 30,059 17 84 43 19 261 4 3 33 36 5 110 31,328 19 156 3 37 62,471 2009 Percentage of Total* 4 0.15 0.25 48.12 0.03 0.13 0.07 0.03 0.42 0.01 0.00 0.05 0.06 0.01 0.18 50.15 0.03 0.25 0.00 0.06 100.00 Number 5 95 158 33,710 17 81 41 20 255 4 2 32 36 5 109 40,600 17 156 3 37 75,378 2010 Percentage of Total* 6 0.13 0.21 44.72 0.02 0.11 0.05 0.03 0.34 0.01 0.00 0.04 0.05 0.01 0.14 53.86 0.02 0.21 0.00 0.05 100.00
* Percentage to total sub-brokers in the recognised stock exchanges.
SEBI, vide order dated July 6, 2007, has withdrawn the recognition granted to Saurashtra Kutch Stock Exchange Limited (SKSE). In the matter of withdrawal of recognition of SKSE, Honble Supreme
Court, vide order dated July 10, 2009, has permitted SKSE to withdraw the appeal with the liberty to file an application before the SEBI for renewal of recognition and the same shall be considered and disposed of by SEBI
Table 3.7: Stock Exchanges with Permanent Recognition

Sr. No. 1 1 2 3 4 5 6 7 8 Bangalore Stock Exchange Ltd. Bombay Stock Exchange Ltd. Calcutta Stock Exchange Ltd. Delhi Stock Exchange Ltd. Madhya Pradesh Stock Exchange Ltd. Madras Stock Exchange Ltd. National Stock Exchange of India Ltd. Exchanges 2 Ahmedabad Stock Exchange Ltd. Recognition 3 Permanent Permanent Permanent Permanent Permanent Permanent Permanent Permanent
91
on merits. In this regard, SEBI has made an application before Honble Supreme Court for clarification of the said order dated July 10, 2009. OTCEI was granted time upto October 16, 2009 to comply with the requirements of Securities Contracts (Regulation) (Manner of Increasing and Maintaining Public Shareholding in Stock Exchanges) Regulations, 2006 (MIMPS Regulations). Further, in view of the request of OTCEI, extension has been granted to them to comply with MIMPS Regulation by July 22, 2010. While granting renewal of recognition to MCX-SX, extension of time was granted to them to comply with the requirements of Securities Contracts (Regulation) (Manner of Increasing and Maintaining Public Shareholding in Stock Exchanges) Regulations, 2006 (MIMPS Regulations) up to September 15, 2010. SEBI vide order dated April 9, 2009 directed Madhya Pradesh Stock Exchange
Ltd. (MPSEL) to duly comply with the observations of SEBI and payment of dues to Investor Protection Fund (IPF) and Investor Service Fund (ISF).
VI. Registration of Foreign Institutional Investors and Custodians of Securities

There was an increase in the number of Foreign Institutional Investors (FIIs) registered with SEBI. As on March 31, 2010, there were 1,713 FIIs registered as compared to 1,635 a year ago, showing an increase of 4.8 percent during the year. There were 5,378 sub accounts registered with SEBI as on March 31, 2010 as compared to 5,015 as on March 31, 2009, an increase of 7.2 percent (Table 3.9). The number of custodians registered with SEBI under the SEBI (Custodian of Securities) Regulations, 1996 was 17, as on March 31, 2010, as compared to 16 a year ago. Status of registration of FIIs, sub-accounts and custodians during 2009-10 is provided in Table 3.9 a.
Table 3.8: Renewal of Recognition Granted to Stock Exchanges during 2009-10

Sr. No. 1 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Exchanges 2 Ludhiana Stock Exchange Ltd. Gauhati Stock Exchange Ltd. Uttar Pradesh Stock Exchange Association Ltd. Bhubaneswar Stock Exchange Ltd. OTC Exchange of India MCX Stock Exchange Ltd Pune Stock Exchange Ltd. Cochin Stock Exchange Ltd. Interconnected Stock Exchange of India Ltd. Vadodara Stock Exchange Ltd. Jaipur Stock Exchange Ltd. Date of Notification 3 April 24, 2009 April 24, 2009 May 19, 2009 June 5, 2009 August 20, 2009 August 31, 2009 September 1, 2009 November 6, 2009 November 16, 2009 December 29, 2009 January 10, 2010 Period 4 April 28, 2009 to April 27, 2010 May 1, 2009 to April 30, 2010 June 3, 2009 to June 2, 2010 June 5, 2009 to June 4, 2010 August 23, 2009 to August 22, 2010 September 16, 2009 to September 15, 2010 September 2, 2009 to September 1, 2010 November 8, 2009 to November 7, 2010 November 18, 2009 to November 17, 2010 January 4, 2010 to January 3, 2011 January 9, 2010 to January 8, 2011
92
Table 3.9: Number of Registered FIIs, Subaccounts and Custodians

(Number) Particulars 1 Number of FIIs Number of sub-accounts Number of Custodians March 31, 2009 2 1,635 5,015 16 March 31, 2010 3 1,713 5,378 17
were registered with SEBI, of which 43 were in the private sector and four (including UTI) were in the public sector. During 2009-10, registration was given to Axis Mutual Fund, Peerless Mutual Fund, Motilal Oswal Mutual Fund and IDBI Mutual Fund whereas the Certificate of Registration granted to IL&FS Mutual Fund was cancelled (Table 3.10).
VII. Registration of Collective Investment Schemes

As on March 31, 2010, there were only one collective investment schemes (CIS), viz., M/s. Gift Collective Investment Management Company Ltd. registered with SEBI. M/s. Gift Collective Investment Management Company Ltd. was registered during 2008-09. M/s. MPS Greenery Developers Ltd. was granted provisional registration as Collective Investment Management Company under the SEBI (Collective Investment Schemes) Regulation, 1999 with effect from August 21, 2009.
Table 3.10: Mutual Funds Registered with SEBI

(Number) Sector 1 Public Sector (Including UTI) Private Sector Total 31-Mar-09 2 4 40 44 31-Mar-10 3 4 43 47
IX. Registration of Venture Capital Funds

There were 158 domestic and 143 foreign venture capital funds registered with SEBI as on March 31, 2010 as compared to 131 and 128 funds respectively registered with SEBI
VIII. Registration of Mutual Funds

As on March 31, 2010, 47 mutual funds
Table 3.9 a: Status of Registration of FII, Sub-accounts and Custodians during 2009-10
(Number) FII Particulars Fresh Regi- Renewal stration 2 206 3 342 Total 4 548 Sub Account Fresh Regi- Renewal stration 5 962 6 1,238 Total 7 2,200 Custodian Fresh Regi- Renewal stration 8 3 9 13 Total 10 16
1 I. Application Received for Fresh registration/renewal a. Applications registered/renewed b. Applications Pending c. Application rejected/returned*
173 27 6
272 70 0
445 97 6
872 77 13
1,019 219 0
1,891 296 13
2 1
13 0
15 1
* Some of the applications that were returned due to various reasons may have been resubmitted and would have got subsequently registered or rejected.
93
as on March 31, 2009 (Table 3.11). Table 3.11: Registered Venture Capital Funds
(Number) VCFs 1 VCF FVCI March 31, 2009 2 131 128 March 31, 2010 3 158 143
X.
Fees and Other Charges
Details of the amount of fees and other charges (un-audited) collected by SEBI from different market intermediaries on both recurring and non-recurring basis is provided in Table 3.12. During 2009-10, the total amount of fees and other charges received was Rs.178.3 crore
Table 3.12: Fees and other Charges

(Rs.crore) 2008-09 Particulars 2009-10 Recu- Non-re- Total Recu- Non-re- Total rring curring Fees rring curring Fees fees Received fees fees Received fees # ## (Audited) # ## (Unaudited) 2 0.00 2.25 0.05 2.55 0.12 0.05 0.15 0.00 2.10 34.84 20.38 14.60 0.20 0.07 0.00 9.67 0.04 0.40 4.19 0.00 36.27 0.00 4.17 132.10 3 8.20 1.71 0.11 5.75 0.01 0.20 0.13 11.07 27.90 0.00 0.00 0.00 0.00 1.35 1.72 0.05 0.00 0.03 0.00 3.92 0.00 0.08 0.00 62.23 4 8.20 3.96 0.16 8.30 0.13 0.25 0.28 11.07 30.00 34.84 20.38 14.60 0.20 1.42 1.72 9.72 0.04 0.43 4.19 3.92 36.27 0.08 4.17 194.33 5 0.00 2.85 0.05 1.70 0.44 1.65 0.75 0.00 2.07 35.94 13.44 12.02 0.20 0.16 0.00 8.24 0.04 0.00 4.87 0.00 37.10 0.00 6.17 127.69 6 22.11 2.55 0.01 4.80 0.14 0.61 0.34 8.82 5.62 0.00 0.00 0.00 0.00 1.89 1.88 0.47 0.00 0.01 0.00 1.32 0.00 0.07 0.00 50.64 7 22.11 5.40 0.06 6.50 0.58 2.26 1.09 8.82 7.69 35.94 13.44 12.02 0.20 2.05 1.88 8.71 0.04 0.01 4.87 1.32 37.10 0.07 6.17 178.33
1 Offer Documents and prospectuses filed Merchant Bankers Underwriters Portfolio Managers Registrars to an Issue and Share Transfer Agents Bankers to an Issue Debenture Trustees Takeover fees Mutual Funds Stock Brokers and Sub-Brokers Foreign Institutional Investors Sub Account - Foreign Institutional Investors Depositories Depository Participants Venture Capital Funds Custodian of Securities Approved Intermediaries under Securities Lending Scheme Credit Rating Agencies Listing Fees Contribution from Stock Exchanges Foreign Venture Capital Derivatives Members registration Informal Guidance Scheme Regulatory Fees Total
# Recurring fees: Fees which is received on annual/3-yearly/5-yearly basis (includes Renewal Fee/Service Fee/annual fee/Listing Fees from exchanges/Regulatory Fees from stock exchanges). ## Non-recurring fees: Fees which is received on one time basis. Includes fee for Offer Documents Filed/Registration Fee/ Application Fee/Takeover Fees/Informal Guidance Scheme/FII Registration and FII Sub-accounts Registration.
94
(unaudited) as against Rs.194.3 crore in 200809 (audited). The non recurring fee was 28.4 percent in 2009-10 as compared to 32.0 percent in 2008-09. The largest amount of Rs.37.1 crore which was fully recurring in nature was collected from derivatives members registration, followed by Rs.35.9 crore from registration of stock brokers and sub-brokers which was also recurring in nature.
2. I.
CORPORATE RESTRUCTURING Substantial Acquisition of Shares and Takeovers
Regulation 4 of Takeover Regulations deals with applications for seeking exemption from open offer obligations provided in Chapter III of Takeover Regulations (referred as Takeover Panel Applications). A total of 44 applications for seeking exemption were with SEBI as on March 31, 2010, out of which, in 18 cases exemption from open offer obligations was granted, nine applications were returned/ withdrawn and two applications were rejected. During the financial year 2009-10, a total of 76 offers were launched for fulfilling open offer obligations and in 18 Takeover Panel Applications, SEBI granted exemption from open offer obligations (Table 3.14). Table 3.14: Open Offers and Exemption from Open Offers
(Number) Period 1 2007-08 2008-09 2009-10 Exemptions Open offers from open offers 2 115 113 76 3 6 15 18
As on March 31, 2009, total 14 draft letters of offer were with SEBI, for issue of observations. During the financial year 200910, 87 draft letters of offer were filed with SEBI and observations were issued on 85 draft letters of offer and 16 draft letters of offers were with SEBI for issuance of observations as on March 31, 2010 (Table 3.13). Table 3.13: Status of Draft Letter of Offers for Open Offers filed under Regulation 18(1) of SEBI (SAST) Regulations, 1997 and Takeover Panel Applications during 2009-10
Status 1 Draft letters of offer for open Offers Pending draft letters of offer Cases as on March 31, 2009 Draft letters of offer received during 2009-10 Total Observations issued by SEBI during 2009-10 Draft letters of offer in process as on March 31, 2010 Takeover Panel Applications Applications as on March 31, 2009 Applications received during 2009-10 Total Applications Applications disposed during 2009-10 Applications in process as on March 31, 2010 9 35 44 29 15 Number 2 14 87 101 85 16
II. Buyback
The total of 25 buyback offers were received during 2009-10 indicating a decrease of 45 percent over 46 buyback offers received during 2008-09. Out of the 22 cases filed during the year for buy back through open offer, 13 cases opened and closed, six cases opened but did not close whereas three cases did not open. Further, there were three cases of buyback through tender offer out of which one opened and closed and two did not open (Table 3.15). The total of 14 buyback offers opened and closed during 2009-10 as compared 15 offers during 2008-09. The total buyback offer 95
Table 3.15: Buyback Cases during 2009-10

Buy-back Cases 1 Buy-back through Open Market Cases Received, Opened and Closed Cases Received, Opened but not Closed Cases Received but not Opened Buy-back through Tender Offer Cases Received, Opened and Closed Cases Received but not Opened NA : Not Available No. of Cases 2 13 6 3 1 2 Buy-back Size (Rs.crore) 3 703.13 82.82 140.81 39.90 53.44 Actual Amount utilised for Buy-back of Securities (Rs.crore) 4 243 NA NA 39.90 NA
size during 2009-10 was Rs.1,020 crore as compared to buyback offer size of Rs.5,411.55 crore in 2008-09 reflecting a decrease of 81.2 percent. It is also observed from the buyback offers which are opened and closed during 2009-10 that there was an average utilisation of 38 percent of offer size in terms of amount. During 2009-10, one tender offer was fully subscribed and funds were totally utilised.
improve quality of inspection reports and follow up action. In the year 2009-10, actions were initiated on the basis of inspections carried out during the year as well as in case of inspections done in the earlier years. The findings of the inspections were communicated to the intermediaries and discussed with them wherever necessary, to ascertain their views and action was initiated in accordance with the seriousness of the violation. Further, intermediaries were also specifically advised about the areas where improvement/corrective steps were required. They are now required to report to SEBI about the corrective steps taken by them and also place the same before their board/ partners/proprietor, as the case may be. These steps taken by SEBI will improve the level of compliance among the intermediaries. i. Inspection of Stock Brokers/Subbrokers
3.
SUPERVISION
Effective supervision through on-site and off-site inspections, enquiry against violations of rules and regulations, enforcement and prosecutions are essential features of effective enforcement of regulation. SEBI conducts inspections either directly or through organisations like stock exchanges, depositories etc. Inspections on a periodic basis were conducted to verify the compliance levels of intermediaries. Specific/limited purpose inspections were conducted on the basis of complaints, references, surveillance reports, specific concerns, etc. Stock exchanges and depositories were also directed by SEBI to carry out periodic/specific purpose inspections of their members/participants.
I.
Inspection of Market Intermediaries
During 2009-10, total number of inspections including stock brokers and subbrokers were 36 as compared to 38 during last year. It includes 34 inspections of stock brokers and two inspections of sub-brokers (Table 3.16). In addition, SEBI also directed that the stock exchanges/clearing corporations 96
SEBI has taken a number of steps during the year, to expedite inspection process and
Table 3.16: Inspection of Stock Brokers/Subbrokers

(Numbers) Particulars 1 Inspections Completed Stock Brokers Inspections Completed Sub-brokers Total 2008-09 2 34 4 38 2009-10 3 34 2 36
By and large all the active stock brokers/ clearing members of the three major stock exchanges (NSE, BSE and MCX-SX) have submitted the internal audit report for the half year ended March 31, 2009 and September 30, 2009, to the stock exchanges. The major findings pointed out in the internal audit reports were discussed by SEBI with the stock exchanges. Based on the findings and experience gained, stock exchanges also revised the guidelines for internal audit in consultation with SEBI. Workshops for the training of the auditors were organised by SEBI in coordination with NISM and stock exchanges to improve the quality of internal audit. ii. Inspection of Other Intermediaries
shall inspect all active members in various segments every year. Accordingly, the inspection carried out by the stock exchanges for the year 2009-10 is as under: Table 3.16a: Inspection by Stock Exchanges/ Clearing Corporation
Exchange 1 BSE NSE MCX-SX Inspection Across Market Segments 2 550 1,232 52
During 2009-10, regular inspections were completed for 18 depository participants, nine registrars to an issue and share transfer agents, four debenture trustees and two merchant bankers (Table 3.17). Table 3.17: Inspection of other Market Intermediaries
2008-09 2 5 0 0 0 0 26 * 2 33
Further, SEBI vide circular dated August 22, 2008, advised the stock exchanges to direct their stock brokers/clearing members to carry out complete internal audit on a half yearly basis by independent auditors. The focus of the internal audit is to assess the efficacy of the internal controls and soundness of the risk monitoring system of the trading/clearing member. Internal auditors are required to submit their audit reports to the entity. The entity would place the report before its Board of Directors/Proprietors/Partners and shall forward the same along with para-wise comments to the respective stock exchange within three months of the end of the half year period. 97
(Numbers) 3 9 0 4 2 0 18 0 33
Particulars 1 Registrar to Issue and Share Transfer Agent Bankers to an Issue Debenture Trustee Merchant Banker Underwriter Depository Participant Credit Rating Agency Total * Reclarified and figure revised.
2009-10
II. Inspection of Stock Exchanges

During inspection of stock exchanges, a review of the market operations,
organisational structure and administrative control of the stock exchange is made to ascertain whether:a) I t p r o v i d e s f a i r, e q u i t a b l e a n d transparent and growing market to the investors, Its organisation, system and practices are in accordance with the SC(R)Act, 1956 and the Rules framed there under, It has implemented the directions, guidelines and instructions issued by SEBI/Government of India from time to time, and It has complied with the conditions, if any, imposed on it at the time of renewal/grant of its recognition under Section 4 of the SC(R) Act, 1956.
7) 8) 9)
Jaipur Stock Exchange Limited Gauhati Stock Exchange Limited Madhya Pradesh Stock Exchange Limited
b)
Further, an inspection of Delhi Stock Exchange Limited was conducted with respect to their application for permission for re-commencement of trading operations.
c)
III. Follow-up of Inspection Reports

Pursuant to inspection, the stock exchanges and depositories submitted periodic compliance report to SEBI duly approved by their respective Governing Boards. These compliance reports were analysed and all unimplemented observations were followed up for compliance.
d)
During the year 2009-10, based on the turnover and other issues such as compliance with the inspection observations, listing norms, etc., inspection of equity segment of the following stock exchanges was carried out:1) 2) National Stock Exchange Vadodara Stock Exchange
4. I.
SURVEILLANCE Mechanism of Market Surveillance
In addition, during the financial year 2009-10, while considering the renewal of recognition of stock exchanges, special purpose inspection of the following stock exchanges was undertaken for ascertaining the compliance levels:1) 2) 3) 4) 5) 6) Ludhiana Stock Exchange Limited Bhubaneshwar Stock Exchange Limited OTC Exchange of India Interconnected Stock Exchange of India Limited Cochin Stock Exchange Limited MCX Stock Exchange Limited 98
An effective surveillance mechanism is one of the prime requirements for well functioning securities market. The stock exchanges are the first-level regulators and are charged with the primary responsibility of safe-guarding the integrity of the market and ensuring that the market is performing in accordance with the stipulated norms and practices. The Integrated Surveillance Department of SEBI is in charge of overall market surveillance and scope of its activities includes monitoring market movements and detecting potential breach of Regulations, analysing the trading in securities and initiation of appropriate action wherever warranted. To enhance the efficacy of the surveillance function, SEBI has put in place a comprehensive Integrated Market Surveillance System (IMSS) which generates alerts arising out of unusual market movements. SEBI also
keeps a continuous vigil on the activities of the stock exchanges to promote an effective surveillance mechanism and Integrated Surveillance Department also carries out inspection of surveillance department of major stock exchanges.
ii.
As a surveillance measure, SEBI made an SMS alert mandatory for all depository accounts operated through Power of Attorney (PoA) except in case of accounts held by non-individuals, Nonresidential Indians and foreign nationals. SEBI advised exchanges to issue circulars on facility of BTST (Buy Today Sell Tomorrow) advising members not to encourage investors by issuing advertisements highlighting such facility. In order to protect the interest of investors, exchanges were advised to send letters/emails daily to investors on random basis indicating their stock market transactions. SEBI issued a caution to investors on investment advice offered by websites, advertisements, SMS, emails, astrology etc. and investors were advised to take well informed investment decisions.
II. Surveillance Actions

During the year 2009-10, NSE initiated preliminary examination and investigation in a total 257 cases and BSE initiated examination and investigation in 1,331 cases. Further, as surveillance measure, during the year, NSE shifted 644 scrips to Trade-forTrade segment and BSE shifted 2,198 scrips to Trade-for-Trade segment. NSE imposed a price band (two percent, five percent and 10 percent) in 1,542 instances and BSE in 3,214 instances. Further, NSE and BSE verified 73 and 59 rumors respectively (Table 3.18). Table 3.18: Number of Surveillance Actions during 2009-10
Nature of Action 1 Scrips Shifted to Trade for Trade Segment NSE 2 BSE 3
iii.
iv.
v.
644 2,198 (190) (1,078)
IV. Significant Market Movements during 2009-10

The top market movements in terms of percentage change are given below: i. On May 18, 2009, the Sensex rose by 2110.8 points (from previous days closing of 12173.4) and Nifty rose by 651.5 points (from previous days closing of 3671.7). Sensex and Nifty closed at 14,284.2 (+17.3 percent) and 4323.2 (+17.7 percent) respectively. On May 4, 2009, the Sensex rose by 731.5 points (from previous days closing of 11403.3) and Nifty rose by 180.1 points (from previous days closing of 3474.0). Sensex and Nifty closed at 12134.8 (+6.4 percent) and 3654.0 (+5.2 percent) respectively.
No. of instances in which Price Bands 1,542 3,214 were Imposed (942) (2,047) (2 percent, 5 percent and 10 percent) Preliminary Investigations Taken Up Rumours verification 257 (165) 73 (118) 1,331 (961) 59 (134)
Note: Figures in the parentheses pertain to 2008-09.
III. Surveillance Measures

i. During the year, various surveillance measures were discussed with exchanges and exchanges were advised on issues such as criteria for inclusion/exclusion of scrips in F&O segment, shifting of scrips to Trade to Trade segment. 99
ii.
V.
Integrated Market Surveillance System
During the year, the integrated market surveillance system (IMSS) continued to provide assistance to SEBI in monitoring the market and in discharging its regulatory functions effectively. The system is being used for detecting aberrations, analysing them and identifying the cases for investigation and for taking further action, wherever warranted. The purpose of this exercise is to promote market integrity and to ensure orderly conduct of the market. IMSS is also being used for monitoring the activities of market participants as well as issuing suitable instructions to stock exchanges and market participants. Wherever required, findings enabled by IMSS are shared with stock exchanges for appropriate action ensuring that stock exchanges continue to act as the first level regulator for proactively detecting and examining abnormal trading pattern. To accommodate growing volumes of transactions in the securities market and currency markets, IT infrastructure of IMSS was upgraded during the year in order to enhance capacity and ensure further scaling of operations.
and research functions of SEBI. The proposed system is required to support multidimensional historical data, have the capability for pattern recognition to quickly identify abnormal situations/transactions, and provide an analytic environment that accelerates investigations and research functions. SEBI, therefore, decided to implement a Data Warehousing and Business Intelligence System (DWBIS). The DWBIS system will be having the following components: Data warehousing, data mining and predictive forecasting capabilities, Scenario development, research, and what-if analysis platform and Sophisticated drill down reporting and charting tool.
The system envisages integration of data available from stock exchanges (cash and derivatives segments) and depositories into a single integrated data warehouse. The DWBIS is expected to generate reports that will better serve SEBI to identify, detect and investigate aberrations and market abuses that undermine market integrity. SEBI initiated the process for implementing the proposed DWBIS by appointing a high level technical committee comprising eminent technical experts to study the technical matrix of SEBIs requirements and frame a set of parameters. After following the process of global competitive bidding, the vendor to implement DWBIS system was selected. Phase I of the DWBIS system is scheduled for completion in November 2010.
VI. Data Warehousing and Business Intelligence System

During the last couple of years, the Indian securities market has witnessed a phenomenal growth in terms of size and depth which is reflected in stupendous increase in number of daily transactions. It was felt that the existing Integrated Market Surveillance System which helped in enhancing efficacy of the surveillance functioning needed to be complemented with an additional system that would provide a quantum leap to the investigation 100
VII. Implementation of Wadhwa Committee Report

SEBI had investigated certain irregularities in the transactions in the
shares issued through 21 IPOs (Initial Public Offerings) during the period from 2003 to 2005, before their listing on the stock exchanges. SEBI upon completion of investigations directed certain persons, not to buy, sell or deal in the securities market, including in IPOs, directly or indirectly, till further directions and initiated proceedings against these persons in accordance with SEBI Act and Regulations to disgorge illegal gains and take appropriate action including penalties. Proceedings against such persons are at various stages. A committee was set up by SEBI under the Chairmanship of Justice K.P. Wadhwa, former Judge of the Supreme Court of India (Wadhwa Committee), to advise/recommend the procedure of identification of persons who have been deprived in these 21 IPOs and the manner in which reallocation of shares to such persons should take place. The Wadhwa committee submitted its report giving recommendations on the said issues and also recommended appointment of an administrator for overseeing and managing reallocation work. In pursuance, SEBI appointed Shri Vijay Ranjan, Retd. Chief Commissioner (Income Tax), as the Administrator to undertake the task of disbursement of the recovered amounts to the identified persons. In pursuance of the recommendations of the committee, the disbursement of reallocation amount to identified persons is under progress.
facie trading ahead of orders placed by M/s. Passport India Investment (Mauritius) Limited, a sub-account of M/s. Passport Capital LLC. It was prima facie observed that Mr. Dipak Patel, Portfolio Manager of M/s. Passport India Investment (Mauritius) Limited was passing on trade related information to the client, which appeared to be in violation of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. This activity continued from January 2007 till January 2009. In view of the above, SEBI passed an interim order dated May 28, 2009 with following directions: Mr. Dipak Patel, Portfolio Manager of M/s. Passport India Investment (Mauritius) Ltd. not to buy, sell or deal in any securities, directly or indirectly till further directions in this regard. Mr. Dipak Patel not to be associated with any FII or subaccount or any registered entity of SEBI till further orders. Mr. Kanaiyalal Baldev Patel, Mr. Anandkumar Baldevbhai Patel, M/s. Bhoomi Industries were directed not to buy, sell or deal in any securities, directly or indirectly till further directions in this regard. They were directed to deposit profits amounting to Rs.1,12,68,660 with the National Stock Exchange of India Ltd (NSE) within 15 days from the date of issue of the order. M/s. Passport Capital LLC and its Sub-account M/s. Passport India Investment (Mauritius) Ltd. to conduct an internal enquiry into the above matter and initiate appropriate actions against their employee.
VIII. Enforcement
i) a) Orders Interim Order against Mr. Dipak Patel (Portfolio Manager of M/s. Passport India Investment (Mauritius) Limited) and connected entities SEBI found that a client named Mr. Kanaiyalal Baldevbhai Patel was prima 101
b)
Interim Order in the matter of M/s. GHCL Ltd. A complaint was received by SEBI wherein it was alleged that M/s. GHCL Ltd. were reporting false shareholding details of the promoters in their quarterly filing with the Stock Exchanges. The said filing is required under clause 35 of the Listing Agreement with each NSE and BSE. On examination, SEBI found that M/s. GHCL had filed false shareholding of the promoters repeatedly over the four quarters of 2008, thereby misleading the investors about commitment of the promoters towards the company. In view of the above, SEBI passed an ad-interim order dated April 20, 2009 directing M/s. GHCL Ltd., its promoter entities, Chairman, Managing Director and the Company Secretary of M/s. GHCL Ltd. not to buy, sell or deal in the securities market until further orders. Further, SEBI directed M/s. GHCL Ltd. to reconcile and file the correct shareholding details with the stock exchanges.
(HSM). The information received by SEBI indicated that the said entities had executed synchronised deals in five scrips namely M/s. Cals Refineries Limited (Cals), M/s. Confidence Petroleum India Limited (Confidence), M/s. Bang Overseas Limited (Bang), M/s. Shree Precoated Steels Limited (now known as M/s. Ajmera Realty and Infra India Limited) (SPSL) and M/s. Temptation Foods Limited (TFL). The acts of connected clients were prima facie in violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. SEBI observed that atleast five of the connected clients appear to be related to Mr. Shirish Maniar, who was implicated by CBI along with Mr. Ketan Parekh in the M/s. Madhavpura Mercantile Cooperative Bank case. Mr. Ketan Parekh along with the companies belonging to him is already debarred by SEBI from dealing in securities market. In view of the above, SEBI vide interim order dated June 4, 2009, restrained 26 persons/entities from accessing the securities market and further prohibited them from buying, selling or dealing in securities market, directly or indirectly, till further orders. d) Interim Order in case of M/s. RTS Power Corporation Limited SEBI received complaints from the brokers wherein it was mentioned that the brokers suspected that trading carried out in the scrip of M/s. RTS Power Corporation Limited (RTS) was fraudulent in nature. Upon investigation, 102
c)
Interim Order in case of entities connected to Mr. Ketan Parekh SEBI, in the course of its routine market surveillance, received information regarding the execution of synchronised deals in certain scrips by entities namely, M/s. Maruti Securities Limited (MSL), M/s. Kundan Leasing and Finance Private Limited (KLFPL), M/s. Chandra Financial Services Private Limited (CFSPL), M/s. Jay Investrade Private Limited (JIPL) and M/s. HSM Financial Services Private Limited
SEBI found out that Mr. Konde, Mr. Jadhav, Mr. Waje, Ms. Hetal Patel and Mr. Rajesh Patel prima facie colluded to misuse the stock exchange mechanism to profitably exit from their positions in the scrip RTS on February 11, 2009. They had orchestrated a plan to default in the pay-in obligation of the buy clients who provided an exit to the seller, thereby defrauding the stock brokers. It was observed that buyers and sellers had dealings with common financiers such as M/s. OM Associates and M/s. Bhavani Trading Co, for routing funds between them. It is also pertinent to note that Mr. Konde and Ms. Hetal Patel traded through a different set of stock brokers on February 11, 2009, as against their regular stock brokers and selected well capitalised stock brokers who could absorb the impact of their default. Thus, the conduct of Mr. Konde, Mr. Jadhav, Mr. Waje, Ms. Hetal Patel, Mr. Rajesh Patel and Mr. Chetan Shah was prima facie in violation of Regulation 4(2) (a) and 4(2) (g) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. In view of the above, SEBI passed an interim order dated June 5, 2009 prohibiting Mr. Mukesh G Konde, Mr. Ashok Narayan Waje, Mr. Nitesh Ashok Jadhav, Ms. Hetal Patel, Mr. Rajesh Patel, Mr. Chetan Shah, M/s. Om Associates and M/s. Bhavani Trading Company from accessing the securities market and from buying, selling or dealing in securities market, directly or indirectly, till further orders and directing BSE to withhold the payout of February 11, 2009 of Ms. Hetal Patel and Mr. Chetan Shah in a separate escrow account, till further orders. 103
e)
Interim Order in case of M/s. Alka Securities Ltd. During the course of preliminary examination during the period November 2008 to March 2009, SEBI observed that the promoters of M/s. Alka Securities Ltd. used the off-market route to transfer shares of the company to 42 entities (1st level entities) and these entities have either dealt the said shares in market or transferred to 317 entities (2nd level entities) who in turn had dealt in the said shares at BSE. The trading activity by the promoter/company connected entities prima-facie suggests circular trading activity with an intention of creating the volume so as to give the market a false impression about the liquidity of the scrip. Further, the company, its promoters and directors, prima facie, appeared to have failed to provide mandatory disclosures for change in their shareholdings on various occasions whereas the shareholding disclosures made to BSE were incorrect and apparently false. This activity continued in the period after March 2009. In view of the above, SEBI passed an interim order dated July 28, 2009 with following directions: The promoters of M/s. Alka Securities Limited viz. Ms. Alka M Pandey, Mr. Ravi Pandey, Mr. Mahesh Natvarlal Kothari, Ms. Anjuben Kothari, Mr. Brijesh Kothari, Ms. Dimple Kothari, Mr. Mahendra Pandey and Mayuresh Esatate Agent were restrained from accessing the securities market and further prohibited from buying, selling, dealing in securities in any manner whatsoever, till further orders.
The stock brokers, M/s. Alka Securities Limited and M/s. Mahesh Kothari Shares and Stock Brokers Limited were prohibited from buying, selling or dealing in any securities on their respective proprietary/own account, and also not to take fresh clients with immediate effect till further orders. M/s. Alka Securities Limited not to issue any equity shares or any other instrument convertible into equity shares, in any manner, and not to alter its capital structure in any manner, till further directions in this regard. All the entities involved not to buy, sell or deal in the securities of M/s. Alka Securities Limited in any manner, till further directions in this regard.
Subsequent to hearing granted to the entities in the matter, an order was issued with the following directions: M r. H e m a n t Pa t e l a n d M r. Praveen Mohnot were restrained from buying, selling or dealing in the securities market in any manner whatsoever, or accessing the securities market, directly or indirectly and holding position of Director in the Board of Directors of any listed company for a period of five years. Mr. N. Ravichandran was restrained from buying, selling or dealing in the securities market in any manner whatsoever, or accessing the securities market, directly or indirectly and holding position of Director in the Board of Directors of any listed company for a period of two years. Mrs. Priyanka Singhvi and Mrs. Anita Ravichandran were restrained from buying, selling or dealing in the securities market in any manner whatsoever, or accessing the securities market, directly or indirectly for a period of five years. Further, these entities were ordered to disgorge an amount of Rs.5.5 crore.
f)
Order in the matter of M/s. KLG Capital Services Ltd. Investigation was conducted in the scrip of M/s. KLG Capital Services Ltd, wherein it was observed that Mr. Hemant R. Patel, Mr. Praveen Mohnot and Mr. N. Ravichandran, who are executives of M/s. SKIL Infrastructure Limited (SKIL), and their relatives, namely, Ms. Priyanka Singhvi, daughter of Mr. Praveen Mahnot, and Ms. Anita Ravichandran, wife of Mr. N. Ravichandran, communicated unpublished price sensitive information (UPSI) and/or dealt in the shares of M/s. KLG during February 22-27, 2008 while in possession of UPSI. Therefore, these entities violated various provisions of SEBI Act, 1992 and the SEBI (Prohibition of Insider Trading) Regulations, 1992. 104
g)
Order in the matter of public issue of M/s. Pyramid Saimira Theatre Ltd. An investigation into the allotment of 4,22,200 shares reserved for the employees (employee category) by M/s. Pyramid Saimira Theatre Ltd. (PSTL) in its initial public offer in December 2006 revealed that PSTL allotted 98.5 percent of shares under the employee
category to seven persons who were not its employees. In collusion with PSTL, these seven persons donned the cloak of employee on the eve of the public issue for four to six months, applied for shares in the employee category and received the allotment, sold the shares soon after listing and made an unlawful gain of Rs.2,31,94,612. But for the artifice employed by PSTL and the seven persons, there would have been a shortfall in subscription in the employee category, which would have gone to other categories having over subscription. This artifice employed by PSTL is prohibited under regulation 3(b) and (c) of the PFUTP Regulations. SEBI passed an order dated June 25, 2009, restraining five entities from dealing in securities in any manner whatsoever or accessing the securities market, directly or indirectly, for a period of three years. Further, these entities were ordered to disgorge an amount of Rs.1.2 crore. In this same matter, SEBI passed an order dated November 10, 2009 against PSTL, restraining PSTL from dealing in securities in any manner whatsoever or accessing the securities market, directly or indirectly, for a period of seven years. PSTL has also been directed to include the order in the agenda of their next annual general body meeting. h) Cease and desist order against Dr. Nalamothu Venkata Krishna SEBI had noticed an online offer made by Dr. Nalamothu Venkata Krishna in his blog stockmarketguide.in soliciting unpublished price sensitive insider information like those relating 105 i)
to stake sale, mergers, acquisitions or any significant news or events from the people who have access to insider information and promised to reward the person who parted with such insider information by sharing profits with them. Such a solicitation of insider information was observed to be in violation of SEBI (Prohibition of Insider Trading) Regulations, 1992. SEBI passed a cease and desist order dated November 18, 2009 directing Dr. Krishna to cease and desist from issuing or continuing to issue online offer soliciting unpublished price sensitive information, communicating directly or indirectly any inside information received, trading directly or indirectly on the basis of inside information received and recommending or counseling trading in scrips for which inside information is received. Investors are also cautioned not to avail of the online offers made by Dr. Krishna in this regard, or any similar proposals contained in advertisements, in print or electronic media. Order in the matter of M/s. Kwality Dairy India Limited In view of the increase in the price of the shares of M/s. Kwality Dairy India Limited an examination was carried out by SEBI to look into the dealing of the shares of the company. It was observed that certain entities were carrying out a cycle of off-market transfer and market transaction i.e. purchase through market, which was repeated a number of times among them. Thus, by trading in a circular and synchronised manner these entities had generated fictitious trades and given a false misleading impression of large volumes of trading in the scrip.
In view of the above, SEBI passed an interim order dated December 1, 2009 inter-alia directing entities Mr. Bhupendra Singh Rathore, Ms. Leela Surana R., M/s Mahasagar Securities, and Mr. Rajesh Kumar Vyas not to buy, sell or deal in the securities in any manner till further directions in this regard and the sub-broker M/s. Surana Capital Market not to buy, sell or deal in the securities of M/s. Kwality Dairy India Limited in any manner till further directions in this regard. Further, subbroker was directed not to buy, sell or deal in the securities in its own account in any manner till further directions in this regard. j) Interim Order in case of M/s. S J Corporation Ltd. SEBI carried out examination in the scrip of M/s. S. J. Corporation Ltd (SJCL) for the period March 18, 2008 to October 1, 2009 based on a BSE report. Examination revealed as follows: From January 28, 2009 the price of the scrip started to move up significantly, however, prior to that there were hardly any trades. A few promoter related entities contributed greater than 49 percent to the rise in price and most of the trades were of one share each.
k)
Interim Order in matter of M/s. Bank of Rajasthan Ltd. SEBI received a reference from the Reserve Bank of India (RBI) regarding annual financial inspection of the M/s. Bank of Rajasthan Limited (BoR). SEBI investigation followed the trail of funds provided in the RBI reference and examined the movement of shares, whether on-market or off-market, for all named entities, including those prima facie found to be connected to the M/s. Tayal group or other front entities. During the examination it is prima facie established that the entities had acted in concert with the promoters of BoR with the common objective of substantially acquiring shares/voting rights in BoR indirectly for the promoters for the purposes of camouflaging their acquisition. With a view to protect the interest of investors and securities market from such acts, SEBI passed an interim ex-parte order dated March 8, 2010 restraining 100 entities/persons from accessing the securities market and further prohibiting them from buying, selling or dealing in securities in any manner whatsoever, with immediate effect, till further directions.
In view of the above, SEBI passed an interim order dated February 5, 2010, directing 16 entities including Mr. Savjibhai D. Patel and Ms. Usha S. Patel, the promoters of M/s. S. J. Corporation Ltd., to restrain from buying, selling or dealing in the shares of M/s. S. J. Corporation Ltd., either directly or indirectly, in any manner, till further directions in this regard. 106
l)
Order in matter of M/s. Jaybharat Textiles In the matter of M/s. Jaybharat Textile and Real Estate Ltd (JTREL) and M/s. KSL and Industries Ltd (KSLIL) SEBI had passed an ex-parte interim order dated September 7, 2007 against certain entities who are apparently connected to the promoters of JTREL and KSLIL, directing them not to buy, sell or deal
in shares of JTREL and KSLIL directly or indirectly, in any manner, till further directions in this regard and pending investigations. Further a team of SEBI officials had visited M/s. Mondkar Computers Pvt., the Registrar (RTA) of JTREL and collected information and records on shareholding of the above entities since September 2006. It was noticed from the data that a large block of shares was held mostly in the physical form by 19 entities listed under public shareholding in the category of Individuals holding nominal share capital in excess of Rs. one lakh, constituting 27.8 percent of the share capital of the company. Investigations have revealed that these certain shareholders shown under the public holding category of JTREL were actually linked to the promoters of the company. Considering the combined shareholding of such entities with that of the promoters as publicly declared, it prima facie appears that the promoters, directly or indirectly, control as much as 97 percent of the share capital of the company since September 2006. Therefore, the acts of company and entities under the control of promoters are prima facie in violation of Listing Agreement, Regulation 3 and 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulation 2003 and Regulation 7, 8, 10 and 11 of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 In view of the above, SEBI passed an order dated March 12, 2010 restraining the company, JTREL from accessing the securities market and further prohibiting the company, its promoters and 24 other 107
entities from buying, selling or dealing in shares directly or indirectly in any manner whatsoever, till further orders. ii) Consent orders: Many proceedings are settled through consent orders as per the SEBI circular dated April 20, 2007. Some of the major consent orders passed during the year are: a) M/s. Pyramid Saimira Theatre Ltd. (PSTL) SEBI had conducted investigations into the alleged irregularities in the allotment of employee quota shares in the Initial Public Offer (IPO) of M/s. Pyramid Saimira Theatre Ltd (PSTL) The investigations prima facie revealed that Mr. Sanjay Jhabak and Mr. Dheeraj Jain cornered the employee quota shares of PSTL in collusion with the company and some other persons in the IPO and made an unjust profit of Rs.53,69,028 and Rs.54,75,079 by selling the shares immediately on listing. The above persons preferred consent proceedings and paid Rs.80, 53,542 and Rs.82, 12,619 respectively as consent terms. b) M/s. Nissan Copper Limited SEBI conducted investigation into dealings on the first date of listing of shares of M/s. Nissan Copper Limited (NCL) upon noticing abnormal price rise in the shares of NCL. The investigations prima facie found that the certain entities had allegedly arranged for the subscription in the QIB portion of the IPO of NCL. They had agreed that upon listing of the shares of NCL, these entities would provide an assured exit for the QIB at a predetermined price by
entering into structured transactions. SEBI passed an ad interim ex-parte order dated January 17, 2007, inter alia, directing NSE and BSE to withhold the profits/gains of these entities in a separate escrow account. Some of the entities applied for consent in the above matter. Consent order was passed in respect of the M/s. Parklight Securities Ltd., Mr. Rupesh B Brambhatt, Mrs. Sonal U. Vora, Mrs. Sonali D. Vora, Mr. Uday H. Vora, Mr. Dhiren H. Vora, Mr. Rajesh B. Brambhatt, M/s. Safal Realty Pvt. Ltd., M/s. Parklight Investment Ltd. and M/s. H. Nyalchand Financial Services Ltd for an amount of Rs.17.68 crore. Consent order was also passed in respect of M/s. Forney Funds Advisors Pvt. Ltd. and Mr. R. K. Goyal, director of M/s. Forney Funds Advisors Pvt. Ltd. for an amount of Rs.1.5 crore. c) IPO irregularities: SEBI conducted investigations into the dealings in various IPOs during the period 2003-05 and found that certain entities (key operators) acted in concert with financiers and through medium of thousands of fictitious/benami demat accounts cornered shares meant for retail investors. Thereafter, key operators transferred shares to financiers, on or before the day of listing, who ultimately sold them in the market after listing and made huge ill-gotten gains. Some of the entities applied for consent and consent order was passed in respect of Mr. Gautam N Jhaveri and Mr. Javeri Gautambhai for Rs.2.7 crore, Mr. Manoj Sekseria for Rs.2.2 crore, Mr. Jitendra Lalwani for Rs.9.6 crore, 108
Mr. Sheelu Lalwani for Rs.5.2 crore, Mr. Dharmesh K Katakia for Rs. one crore, Mr. Dharmesh Bhupendra M for Rs.1.1 crore. iii. Prevention of Money Laundering Money Laundering is globally recognised as one of the largest threats posed to the financial system of a country. The fight against terrorist financing is another such emerging threat with grave consequences for both the political and economic standing of a jurisdiction. Rapid developments and greater integration of the financial markets together with improvements in technology and communication channels continue to pose serious challenges to the authorities, and institutions dealing with anti money laundering and combating financing of terrorism (AML and CFT). The Prevention of Money Laundering Act , 2002 (PMLA) and Rules framed there under brought into force with effect from July 01, 2005 has been a significant step towards India joining the global war against money laundering and financing of terrorism. SEBI in the current year continued its focused efforts to bolster the regulatory framework and minimise the risk emanating from money laundering and terrorist financing. In pursuance of these efforts, SEBI issued three circulars containing key obligations required to be fulfilled by securities market intermediaries on areas relating to AML and CFT. In the first circular issued in the month of September 2009, directions were provided to intermediaries that they were permitted to take counter measures against clients from high risk countries or countries that do not or insufficiently apply Financial Action Task Force (FATF) standards. Following this, SEBI
Box 3.1: IPO Irregularities and Reallocation of Disgorged Amount

SEBI had investigated allotments made in Initial Public Offers (IPOs) during the period 2003-05. Investigation revealed that certain entities (key operators) and their financiers had cornered shares reserved for retail applicants in these IPOs by making applications in the retail category through thousands of benami IPO applicants. They also used benami demat accounts opened through various Depository Participants (DPs) to receive shares pursuant to allotment. Subsequent to the receipt of IPO allotment, these benami allottees had transferred shares to their key operators as per understanding between them. These key operators in turn transferred the shares to their financiers who had originally made funds available for executing the game-plan. The financiers in turn sold most of these shares on the first day of listing. The entire operations in these IPOs was planned, financed and executed by these key operators and financiers, with the help of benami applicants and certain DPs. The gains made by these financiers were treated as unlawful gains as their actions were found to be in violations of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003, SEBI (Depositories and Participants) Regulations, 1996 and provisions of SEBI Disclosure and Investor Protection Guidelines, 2000, and their actions had resulted in denying allocation of shares meant for retail applicants to genuine retail applicants who had made only one application each. SEBI had passed two ad interim ex parte order cum show cause notices on January 12, 2006 and April Status of proceedings as on 31st March 2010
Nature of entities No of entities Involved Consent Orders Passed No. Settlement Amount (Rs. Lakh) 2,481 1,030 20 Adjudication Orders Passed No. Penalty Amount (Rs. Lakh) 427 190 0 0 617 11 B Orders Passed No. Disgorgement + Interest Amount (Rs. Lakh) 617 234 0 0 851 38 5,677 Pending 11B Actions and Adjudication Proceedings No. Unfair Gains Amount (Rs. Lakh) 3,939 1,738 0
27, 2006 against 129 entities. SEBI identified 24 key operators and 89 financiers who cornered shares in various IPOs and made unlawful gains of around Rs 89 crore. Appropriate enforcement proceedings were initiated against them. Subsequently post investigation and following due course of law, a total of 104 orders have been passed (including 13 adjudication orders). In respect 38 entities proceedings are pending at various stages. Status of proceedings against entities named in ad interim ex parte order as on 31st March 2010 is appended below in the table. Honble SAT while upholding orders of SEBI simultaneously settled following legal issues in an appeal filed by Himani Patel against SEBIs order(s). Power of Disgorgement: Honble SAT while upholding the SEBI Order of disgorgement held that It is thus clear that a person who has unjustly enriched himself by his unlawful conduct should be required to disgorge the illegal gains made by him. We have already held that the conduct of the appellant in cornering large number of shares in the retail category of Suzlon IPO was fraudulent and that by her wrongful conduct she had unjustly enriched herself to the extent of Rs.33,52,636/-. The whole time member was justified in requiring the appellant to disgorge the aforesaid amount. No fault can thus be found with any part of the order passed by the whole time member. Illegality of Multiple Applications: ..Retail individual investor is defined in the SEBI (Disclosure
Financiers Key Operators Depository Participants Depositories Total
89 24 14 2 129*
49 12 8
7 4 0 2
13 5 2 2 22
27 7 4
69
3,532
13
* This figure does not include Adjudication Orders
109
Box 3.1: IPO Irregularities and Reallocation of Disgorged Amount

and Investor Protection) Guidelines, 2000 to mean an investor who applies or bids for securities of or for a value of not more than Rs. one lakh. A reading of this definition makes it clear that it is inherent that a person who wants to apply as a retail investor must not exceed the limit and if one were to apply in different names, it is obvious that he is trying to manipulate the provisions of the guidelines and corner shares more than what he may otherwise be entitled to.. Authority To Pass Multiple Orders: In disposal of various enforcement actions initiated against the wrong doers in IPO irregularities, SEBI issued orders against a few of them simultaneously imposing monetary penalties on them, directing them to disgorge unlawful gains made by them and debarring them from participating in securities market for appropriate periods of time. In the matter of Himani Patel, Honble SAT upheld these multiple orders/directions passed by SEBI.
(contd.)
III. Basis for re-allocation amongst deprived applicants: The totally unsuccessful applicants shall be reallocated money value as computed above from recovered unjust gains, till they each receive the gains associated with minimum shares allotted to the lowest category in the IPO. The Wadhwa committee had recommended appointment of an administrator for overseeing and managing the reallocation work. In pursuance SEBI appointed an administrator to undertake the task of disbursement of the recovered amounts to the identified persons. In pursuance of the recommendations of the committee 1,357,848 unique investors were identified as unsuccessful applicants in one or more of the 21 IPOs listed out in the Justice Wadhwa Committee report. The disbursement of reallocation amount to all eligible investors numbering approximately 12.75 lakh investors from the amount disgorged in the matter of IPO irregularities commenced on April 12, 2010. Among the deprived investors, there were 83,112 investors who were eligible for reallocation amount of Rs.20/- or less. Keeping in view the administrative costs involved, no disbursement was made to such investors who were eligible for reallocation amount of Rs.20/- or less. About 8.0 lakh investors were eligible for a reallocation amount of more than Rs.20/- but less than Rs.300/- each. SEBI is making reallocation for the full eligible amount to all such investors amounting to a total of Rs.9.0 crore. This covers 59 percent of all the identified investors who are eligible for receiving some reallocation. The remaining 4.8 lakh investors each of who are eligible for a reallocation amount of more than Rs.300/- are being paid in the first instance, a sum of Rs.300/- each amounting to Rs.14.3 crore. The first sets of reallocation cheques were handed over by Shri Pranab Mukherjee, Honble Finance Minister of India at a function held on SEBI Foundation Day at New Delhi in the presence of Shri Salman Khursheed, Minister of State (Independent Charge), Ministry of Corporate Affairs. This is the first step in reallocation process and as further disgorgement amount is realised further reallocation will be made.
Reallocation of Disgorged Amount A Committee was set up by SEBI under the Chairmanship of Justice D. P. Wadhwa, former Judge of the Supreme Court of India (Wadhwa Committee) to advise/recommend the procedure of identification of persons who have been deprived on account of IPO irregularities and the manner in which reallocation of shares to such persons should take place. The Wadhwa committee submitted its report and the report was placed in public domain through SEBI website on December 29, 2009. The Wadhwa committee while concluding that reallocation in terms of shares will not be practical enunciated three principles in its report for identification of deprived persons, amount and the method of reallocation, as under: I. Quantification of the amount of unjust enrichment: The gains associated with the number of shares allotted to applicants who had illegally cornered shares in the IPOs shall be treated as unjust allotments/enrichment. Identification of deprived applicants: The totally unsuccessful applicants shall have a call on the reallocation. These applicants will be considered for the amount which is the difference of closing price of shares on the first day of listing/trading at NSE and the IPO issue price.
II.
110
issued a circular in October 2009 directing all intermediaries to ensure that at the time of account opening and subsequently thereafter, the name of their client is checked against the list put out by the UN Security Council and take action as prescribed. In addition, it also describes the procedure that is to be followed for the freezing of financial assets of a client suspected of financing terrorism. In February 2010, SEBI had issued a master circular consolidating the requirements and obligations pertaining to the area of AML and CFT. The master circular replaced the master circular SEBI had issued in the preceding financial year. In the same manner as the preceding circular, the current master circular contains specific provisions to give effect to the relevant 49 recommendations of the FATF and incorporated the various changes in law reflected through the issuance of other SEBI circulars as well as amendments to the PMLA Act, and Rules thereunder. Thus, the master circular serves as a single reference point, containing legislative and regulatory obligations to be fulfilled by market intermediaries. In addition, SEBI has also appointed a nodal officer under the Unlawful Activities Prevention Act, to act as a facilitator of the Central Government in carrying out the procedure for freezing the financial assets of any client suspected of financing terrorism in the securities market. SEBI has consistently in coordination with the Financial Intelligence Unit-India (FIU-IND) organised and participated in meetings with the stock exchanges, depositories and depository participants, stock brokers and mutual funds, registrars and transfer agents etc wherein further guidance to different intermediaries was 111
provided for enhancing their compliance with the legislative requirements. Officers of SEBI also participated in seminars and workshops organised jointly by stock exchanges (NSE and BSE) and the depositories (NSDL and CDSL) for enhancing the compliance standards by stock brokers and depository participants. Of note, is a workshop conducted jointly by the Australian FIU and FIU-IND that was attended by SEBI and intermediaries of the securities market where efforts were made to identify typologies that would help regulators and intermediaries to better identify and capture situations of money laundering and terrorist financing.
5.
INVESTIGATION
Timely completion of Investigation cases and effective, proportionate and dissuasive action in case of violations of established securities laws is important for protection of investors interest, ensuring fair, transparent and orderly functioning of the market. It is also vital for improving the confidence in the integrity of the securities market. Importance of effective and credible use of investigation has also been underscored by IOSCO in its Principles for the Enforcement of Securities Regulation. Keeping the above objectives and Principles of Securities Regulations in view, SEBI initiates investigation to examine alleged or suspected violations of laws and obligations relating to securities market. The possible violations may include price manipulation, creation of artificial market, insider trading, capital issue related irregularities, takeover related violations, manipulation of financial results, non-compliance of disclosure requirements and any other misconduct in the securities markets.
I.
Process of Investigation
Table 3.19: Investigations by SEBI

(Numbers) Year 1 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 (P) Total P: Provisional * In the SEBI Annual Report 2008-09, number of cases completed was shown as 116(P). This figure included 33 cases where investigation reports were submitted and circulated for discussion but yet to be approved by the competent authority. As per the revised policy, investigation is treated as completed only on formal approval of the same by the competent authority. Since these 33 investigation reports were approved during 200910, the figure for the current year reflects the same. Cases Taken up for Investigation 2 2 3 2 60 122 53 55 56 68 111 125 121 130 159 120 25 76 71 1,359 Cases Completed 3 2 3 2 18 55 46 60 57 46 29 106 152 179 81 102 169 83 * 74 1,264
The steps involved during investigation process include an analysis of market data (order and trade log, transaction statements etc.), static data (KYC documents, bank records, financial results, events around major corporate developments, call detail records etc.) and if required interviewing of entities. The purpose of such investigation is to gather evidence and to identify persons/entities behind irregularities and violations so that appropriate and suitable regulatory action can be taken, wherever required. Outcome of investigation in the form of enforcement action is a clear signal to the market players to comply with the law and expected standards of conduct in the market.
II. Trends in Investigation Cases

Since 1992-93, SEBI has undertaken 1,359 investigation cases. In 1,264 cases investigations have been completed. Apart from enforcement action, an important attendant benefits resulting from such investigations is contribution to the policy changes with a view to further strengthen the regulatory and enforcement environment. During 2009-10, 71 new cases were taken up for investigation and 74 cases were completed (Table 3.19 and Chart 3.3). Recent experience and trends in the type of investigation cases undertaken by SEBI indicate that technology and newer methods are being used by violators of securities laws to conduct their business in the market. In the cases that are referred to Investigation Department, significant increase in the number of cases with alleged front running has been observed over the last two years. 13 cases of front running were referred to Investigation Department in the years 200809 and 2009-10. As front running involves leakage of information from sources such 112
as the institutional client desk or brokers/ traders handling such institutional orders, a proper investigation into these cases should help to put in place or strengthen the existing systems and procedures, so that the possibility of such institutions becoming sources for leakage of trading information is reduced, in the future.
In 2009-10, in a couple of cases of market manipulation, use of a large number of front entities/widely distributed network of persons/entities was found to be perpetrating unfair and fraudulent trade practices in the market. In view of the urgency to protect genuine investors from such manipulations, SEBI invoked powers under the SEBI Act and issued necessary directions to prevent damage to the integrity of the market. These cases also highlight the importance of an effective Customer Due Diligence (CDD) regime, a thorough In-Person verification process and continuous monitoring of transactions by the registered intermediaries. In one case of inter regulatory cooperation, on receipt of information about possible manipulation in the books of accounts of a company, where purchase/sale amounting to hundreds of crore of rupees 113
was linked to bogus entities, SEBI passed ad interim ex-parte order prohibiting the company from raising any further capital in any manner, directly or indirectly, whatsoever till further orders. A formal investigation was also ordered in the matter. i. Nature of Investigation Cases Taken Up
During the year 2009-10, about 62 percent of the cases taken up for investigation pertain to market manipulation and price rigging, as against about 68 percent of such cases in the previous year. Other cases pertain to insider trading, takeover violations, irregularities in capital issues, and other irregularities. Since, several investigation cases involve multiple allegations of violations, strict classification under specific category becomes difficult. Such cases are classified on the basis of main charge/ violations.
ii.
Nature of Investigation Cases Completed
During 2009-10, about 62 percent of the cases completed pertain to market manipulation and price rigging as compared to 75 percent in the previous year. Other cases in which investigation was completed pertain
to capital issue related manipulation, insider trading, takeovers etc. The details of investigation cases taken up and completed are provided in Table 3.20, Chart 3.4 and Chart 3.5.
Table 3.20: Nature of Investigations Taken up and Completed

(Number) Particulars 1 Market Manipulation and Price Rigging Capital Issue related Manipulation Insider Trading Takeovers Miscellaneous* Total Investigations Taken up 2008-09 2 52 2 14 3 5 76 2009-10 3 44 2 10 2 13 71 Investigations Completed 2008-09 4 62 1 12 1 7 83 ** 2009-10 5 46 7 10 5 6 74
* Miscellaneous cases include investigations pertaining to GDR conversions, trading pattern in the market after public issue, illegal carry forwards, non-disclosures under SEBI Regulations, Fit and Proper Regulations, etc. ** In the SEBI Annual Report 2008-09, number of cases completed was shown as 116(P). This figure included 33 cases where investigation reports were submitted and circulated for discussion but yet to be approved by the competent authority. As per the revised policy, investigation is treated as completed only on formal approval of the same by the competent authority. Since these 33 investigation reports were approved during 2009-10, the figure for the current year reflects the same.
114
III. Regulatory Action

After completion of investigation, further penal action is initiated as per the recommendations made in the investigation reports and as approved by the competent authority. Action is decided based on the principles of objectivity, consistency, materiality and quality of evidence available, after thorough analysis and appreciation of facts. The action included issuing warning letters, initiating enquiry proceedings for registered intermediaries, initiating adjudication proceedings for levy of monetary penalties, passing directions under Section 11 of SEBI Act and initiating prosecution and referring matter to other regulatory agencies. As a matter of policy, SEBI has continued to lay greater emphasis on issuance of prohibitive directions under Section 11 of the SEBI Act, 1992. These directions have the strong and salutary effect of deterrence as well as an effective tool to deal with emergent situations requiring a timely and faster response. Thus as against 230 such 115
directions during 2008-09, SEBI issued 691 such directions during 2009-10. A detail break up of all regulatory actions is given in Table 3.21 and Chart 3.6.
Table 3.21: Type of Regulatory Actions Taken

Particulars 1 Suspension Warning issued Prohibitive directions issued under Section 11 of SEBI Act * Deficiency Observations issued/Administrative warning Total Number of Entities 2008-09** 2 46 179 2009-10# 3 48 37
230
691
6 461 ***
156 932 ***
* Against intermediaries and non-intermediaries ** All Regulatory Actions including Investigation cases *** Other than consent orders # Regulatory actions following investigations only
6.
ENFORCEMENT OF REGULATIONS
Effective enforcement in the form of effective follow ups and disciplinary actions makes a regulatory system effective.
I.
Enquiry and Adjudication
During 2009-10, 908 orders were passed/ reports submitted; of which, 119 pertained to enquiries and 799 pertained to adjudications. Hearings were conducted for 955 cases, and 1,017 show-cause notices were issued to different entities (Table 3.22). Table 3.22: Enquiry and Adjudication during 2009-10
Particulars 1 Orders Passed/ Report Submitted Hearing Conducted Show Cause Notices Issued Enquiry 2 119 Adjudication 3 799 955 1,017 Total 4 908
There are five enforcement mechanisms that SEBI uses in case of any violation(s) pertaining to the laws regulating the securities market. Age-wise analysis of enforcement actions details viz. actions u/s 11, 11B and 11D of SEBI Act, Enquiry Proceedings, Adjudication Proceedings, Prosecution Proceedings and Summary Proceedings as on March 31, 2010 are provided in Tables 3.23a to table 3.23e. a. Section 11/11B Proceedings
Under section 11/11B of SEBI Act, 1992, SEBI may issue directions or prohibitive orders such as debarment from accessing the securities market or not to deal in securities. In the year 2009-10, 493 cases under section 11/11B has been disposed by SEBI. In the same financial year, 376 fresh cases under the captioned provisions of law were initiated by SEBI.
116
Table 3.23a: Age-wise Analysis of Enforcement Actions - u/s 11, 11B and 11D of SEBI Act (As on March 31, 2010)
Number of Actions Disposed No. of Aggre- PenActions 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- gate ding Initi96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Dis- Cases ated posal 0 3 85 51 83 461 441 321 713 522 196 402 374 75 376 4,103 6 3 28 299 427 215 192 196 107 189 561 412 13 6 3 15 9 9 12 269 9 10 18 390 34 26 20 45 32 58 1 7 19 49 12 74 30 28 1 30 135 2 21 45 38 1 8 94 39 12 34 1 1 2 2 3 21 197 168 31 67 58 15 2 30 47 105 65 65 75 8 5 0 0 24 52 85 69 119 61 44 30 493 14 4 3 83 51 80 429 440 266 600 437 178 285 194 52 30 3,128 0 2 0 3 32 1 55 113 85 18 117 180 23 346 975
Year
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Total
Table 3.23b: Age-wise Analysis of Enforcement Actions - Enquiry Proceedings (As on March 31, 2010)
Number of Actions Disposed No. of Aggre- PenActions 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- gate ding Initi96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Dis- Cases ated posal 8 20 66 335 69 267 204 371 476 190 80 122 89 20 23 2,340 9 15 103 150 24 87 603 134 127 172 164 216 172 8 1 12 3 7 48 48 7 116 27 5 12 1 6 18 33 35 1 2 154 19 204 83 141 6 49 56 21 2 1 9 16 27 71 3 2 11 27 115 17 1 1 4 60 82 3 9 4 5 6 20 83 57 31 8 3 16 28 70 19 28 11 4 48 30 8 22 8 4 1 125 3 8 20 66 335 67 266 204 351 448 180 67 62 22 4 1 2,101 0 0 0 0 2 1 0 20 28 10 13 60 67 16 22 239
Year
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Total
117
b.
Enquiry Proceedings
SEBI may suspend or cancel the certificate of registration of an intermediary through Enquiry Regulations on the recommendation of the Enquiry Officer/ Designated Authority appointed for that purpose. It may also issue warning to an intermediary if it considers that the violations committed by the intermediary does not warrant suspension or cancellation of registration. In the financial year 2009-10, 125 cases were disposed after the due completion of the enquiry proceedings. 23 fresh cases were initiated during the same period where enquiry proceedings are being followed. c. Adjudication Proceedings
Officer for conducting inquiry and imposing monetary penalties. In the financial year 2009-10, there was a disposal of 764 cases under adjudication proceedings. 644 fresh cases were initiated for adjudication in the same year. e. Prosecution Section 24 of the SEBI Act, 1992 empowers SEBI to launch prosecution against any person for contravention of any provision of the SEBI Act, 1992 or any rules or regulations made thereunder before a court of criminal jurisdiction. In the year 2009-10, 22 prosecution cases filed by SEBI were disposed by courts and 30 fresh cases were initiated. f. Summary Proceedings Chapter VA of the SEBI (Intermediaries) Regulations, 2008 provides the power to
Under Chapter VIA of the SEBI Act, 1992, SEBI may appoint an Adjudicating
Table 3.23c: Age-wise Analysis of Enforcement Actions - Adjudication Proceedings (As on March 31, 2010)
Number of Actions Disposed No. of Aggre- PenActions 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- gate ding Initi96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Dis- Cases ated posal 2 5 16 33 32 77 64 150 577 418 283 578 1,215 546 644 4,640 1 6 9 16 43 29 85 581 242 218 181 473 1 1 3 2 2 7 1 9 4 2 1 1 7 17 16 1 3 1 14 10 2 6 4 11 52 8 8 14 62 344 137 1 1 1 1 7 8 2 2 4 5 2 19 55 126 27 15 66 45 47 34 4 1 2 4 2 5 6 8 8 28 22 82 20 2 3 23 5 6 27 17 66 102 152 70 3 9 21 23 120 373 101 114 764 2 5 16 25 32 73 61 134 561 382 185 338 549 171 114 0 0 0 8 0 4 3 16 16 36 98 240 666 375 530
Year
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Total
2,648 1,992
118
Table 3.23d: Age-wise Analysis of Enforcement Actions - Prosecution Proceedings (As on March 31, 2010)
Number of Actions Disposed No. of Aggre- PenActions 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- gate ding Initi96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Dis- Cases ated posal 9 6 8 11 25 28 95 229 480 86 30 23 40 29 30 1,129 0 0 0 0 1 2 2 2 2 6 6 43 65 19 22 1 1 1 5 1 1 1 1 1 3 4 5 29 1 3 4 17 29 13 2 6 5 6 1 1 5 13 2 1 1 1 1 1 1 1 1 2 2 3 2 2 2 12 34 82 22 6 0 1 0 0 170 7 4 5 9 23 26 83 195 398 64 24 23 39 29 30 959
Year
1995-96 1996-97 1997- 98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Total
conduct summary proceedings in certain specific cases. In the financial year 2009-10, 1913 cases of summary proceedings were disposed of. It may be noted that no summary proceedings were initiated during this period of time.
As regards registrars to an issue and share transfer agents, enquiry proceedings were initiated against one entity and adjudication proceedings were initiated against another. Further, warning/deficiency/ advisory letters were issued to three other entities. In respect of depository participants, adjudication proceedings were initiated against four entities and warning/deficiency/ advisory letters were issued to 10 entities. Warning/deficiency/advisory letter was issued to one credit rating agency and three merchant bankers and adjudication proceedings were initiated against one debenture trustee and one merchant banker each (Table 3.25). 119
II. Market Intermediaries

Enquiry proceedings were initiated against 18 stock brokers in 2009-10 as against 17 stock brokers in the previous year (Table 3.24). Adjudication proceedings were initiated against 130 stock brokers in 2009-10 as against 106 stock brokers in 2008-09. 19 warnings were issued to stock brokers and 98 consent orders were passed.
Table 3.23e: Age-wise Analysis of Enforcement Actions Summary Proceedings under SEBI Act (As on March 31, 2010)
Number of Actions Disposed No. of Aggre- PenActions 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- gate ding Initi96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Dis- Cases ated posal 0 0 0 0 0 0 0 0 2,296 1 1 91 0 2,389 0 0 0 0 0 0 0 0 0 230 79 11 0 230 79 11 0 0 1,820 2,140 1 1 91 0 1 1 91 0 0 0 0 0 0 0 0 0 0 156 0 0 0 0 156
Year
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Total
1,913 2,233
Table 3.24: Enquiry and Adjudication Proceedings Initiated against Stock Brokers/Sub-brokers during 2009-10
(Number) Particulars 1 Enquiry Proceedings initiated Stock Brokers Summary Proceedings Initiated Stock Brokers/Sub- brokers Enquiry Proceedings initiated Sub-brokers Adjudication Proceedings initiated Warning Pursuant to Chairman/ Members Orders Suspensions Cancellation of Registration Censure Consent Orders Deficiency Letter 2008-09 2009-10 2 17 0 3 106 33 28 5 7 208 0 3 18 93 0 130 19 46 2 5 98 1
Table 3.25: E n q u i r y a n d A d j u d i c a t i o n Proceedings Initiated against other Intermediaries during 2009-10

(Number) Intermediaries 1 Registrar and Share Transfer Agent Depository Participant Credit Rating Agencies Merchant Banker Debenture Trustee Adjudi- Encation quiry 2 1 4 0 1 1 3 1 0 0 0 0 Warning/ deficiency/ advice 4 3 10 1 3 0
III. Regulatory Actions against Mutual Funds

i. Warning and Deficiency Letters During 2009-10, 17 warning letters were issued to 15 mutual funds considering the 120
magnitude and seriousness of violations of SEBI regulations/guidelines. Of the total, one warning was issued for violating the advertising code. Eighteen deficiency letters were issued to seventeen mutual funds. Of these, seventeen deficiency letters were issued to seventeen mutual funds based on the inspection report for the period July 01, 2007 to June 30, 2009 to strengthen their systems and improve compliance standards. ii. Payment of Penal Interest SEBI has made it mandatory that mutual funds must pay interest at the rate of 15 percent per annum for delays in the dispatch of repurchase/redemption proceeds to the unit holders. The mutual funds are required to report these cases of delays to SEBI on a bi-monthly basis. During 2009-10, mutual funds paid Rs.8,47,116.7 to 1,722 investors for delay in dispatch as against Rs.22.6 lakh paid to 1,142 investors in 2008-09. SEBI had made it mandatory that, in the event of failure of dispatch of dividend, the AMC(s) shall be liable to pay interest at the rate of 15 percent per annum to the unit holders. The mutual funds are required to report these cases of delays to SEBI on a bimonthly basis. During 2009-10, mutual funds paid Rs.28,703.4 to 84 investors for delay in dispatch. iii. Adjudication Proceedings Two adjudication proceedings were completed during the period. No penalty was imposed in both the cases, however, in one case the AMC had applied for consent and paid Rs.1,25,000 towards the terms of the consent. iv. Show Cause Notices During 2009-10, five show-cause notices were issued to five mutual funds. Of these, 121
four show-cause notices were issued for violation of advertisement code and one for changing the fundamental attributes without following the procedure under SEBI (Mutual Funds) Regulations, 1996. v. SEBI Orders
During the period, four mutual funds were directed by SEBI to abide strictly by the stipulations on advertisements by mutual funds, issued by SEBI, both in letter and spirit.
IV. Regulatory Actions under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
During 2009-10, 20 cases were referred for adjudication under Section 15 of the SEBI Act, 1992 for alleged violation of the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and a sum of Rs.63,80,000 was received as monetary penalty.
V.
Regulatory Actions against FIIs
During 2009-10, one adjudication proceeding was initiated against one Foreign Institutional Investor. Directions were issued under Section 11(1), 11(4) and 11(B) of SEBI Act, 1992 against Barclays Bank PLC and Societe Generale: a. Barclays Bank PLC
Based on the Offshore Derivative Instruments (ODI) Reports submitted during the period January 2006 and January 2008 by Barclays Bank PLC, it was observed that it had issued ODIs to UBS AG, with Reliance Communications Limited (RCom) as the underlying. When SEBI sought further information, Barclays submitted that upon review, the counterparty of the transactions was not UBS AG as earlier reported by it but
was Hythe Securities Limited (Hythe), an entirely new entity which did not form part of any of the submissions previously made by Barclays to SEBI. From the information submitted by Barclays, it was observed that the ODIs which were issued by it to Hythe Securities Limited (originally stated to be issued to UBS AG) were onward issued to another entity Pluri Emerging Companies PCC Cell E Emerging Markets Growth Fund. However, from the ODI monthly reports submitted by Barclays, it was observed that that was no mention of any back to back issuance of the ODI to any other entity. Barclays stated that the error in the reporting had occurred due to manual compilation of the ODI reports in December 2006 and error in data entry level and that after improvements in its systems for ODI reporting in 2008 and 2009, the errors in reporting continued to be carried forward in the new system. Barclays had not only failed to provide true, fair and complete details of the ODI activity undertaken by it but also prima facie violated the provisions of FII Regulations by furnishing false and incorrect information to SEBI. Full and fair disclosure forms the cornerstone of FII regulation by SEBI. As the source of funds available with an FII comes from Offshore, by its very nature SEBI has no direct access to verifying the nature of the funds. In other words, SEBI places almost absolute faith and unqualified reliance on the ability of an FII to carry out the basic regulatory and prudential oversight. SEBI as a regulator requires fair, true and correct information for assessing and monitoring FII activity in the securities market. When a registration is granted to an FII, SEBI presupposes that the FII has the capacity to exercise the necessary oversight and ensure the integrity and accuracy of the data it provides to SEBI under the regulations 122
applicable. Given that Barclays had provided incorrect reporting Barclays has been non compliant with the provisions of the FII regulations Accordingly, SEBI directed vide order dated December 09, 2009 Barclays Bank, Plc under Sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992, not to issue/subscribe or otherwise transact in any fresh/new Offshore Derivative Instrument till such time as Barclays satisfies SEBI that it has put adequate systems, processes and controls in place to ensure true and correct reporting of its ODI transactions to SEBI. Barclays shall furnish a certificate from an auditor of international standing to this end. b. Societe Generale
From the reports submitted by Societe Generale, during the period January 2006 and January 2008, it was observed that Societe Generale had issued certain ODIs/ PNs to Hythe Securities Limited (Hythe), with Reliance Communications Limited as the underlying. While providing details of all the ODIs/PNs entered into with Hythe, Societe Generale acknowledged that there had been errors in its reporting to SEBI of transactions with Hythe. Subsequently, it was also observed that those ODIs/PNs had been onward issued, and that Hythe is not the end beneficiary. Societe Generale failed to adhere to know your client norms as it had little or no relevant knowledge of the ultimate beneficiary of the ODIs issued by it. Societe Generale failed to provide true, fair and complete details of the ODIs/P-Notes activity undertaken by it and also prima facie violated the provisions of FII Regulations by furnishing false and incorrect information to SEBI. Vide an order under section 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992, dated January 16, 2010, SEBI
directed Societe Generale, a registered FII, not to issue, subscribe or otherwise transact in any new ODIs or P-Notes in India till such time it provides a true and correct reporting of its ODI and P-Notes transactions to SEBI Furthermore, given the aforesaid prima facie violations, Societe Generale was also required to show cause as to why appropriate proceedings including cancellation of its certificate of registration as a Foreign Institutional Investor should not be initiated.
their accounts. SEBI had passed an interim order dated February 20, 2009 under Sections 11(1), 11(4) and 11 B of the SEBI Act, 1992 prohibiting M/s. Pinnacle Shares Registry Private Limited from entering into any fresh agreements with client companies in its operations as registrar to an issue and share transfer agent till further orders. Subsequently, SEBI passed an order dated October 14, 2009 under Regulation 28 (2) of the SEBI (Intermediaries) Regulations, 2008 canceling the certificate of Registration granted by SEBI to M/s. Pinnacle Shares Registry Private Limited [PSRPL] as Registrar to an Issue and a Share Transfer Agent, with effect from February 28, 2010. c. SEBI order in the matter of M/s. Sterling Holiday Resorts (India) Limited
VI. Regulatory Actions against Stock Brokers and Sub-brokers

a. Illegal trading outside stock exchanges: Based on a complaint regarding alleged illegal trading being carried out by a sub broker Shri Bhadresh Sanghvi (Trade Name: Arihant Investment), SEBI advised the Exchanges - BSE and NSE, to carry out an inspection. Their inspection revealed that the sub-broker was involved in illegal trading. In order to prevent further harm to the investors and the securities market, SEBI restrained, vide order dated December 21, 2009, the subbroker from buying, selling or dealing in the securities market in any manner whatsoever or accessing the securities market, directly or indirectly, either for himself or for his clients till further instructions. SEBI also ordered inspection of the books and records of the sub-broker. b. SEBI order in the matter of M/s. Pinnacle Share Registry Private Limited
SEBI passed an order dated November 10, 2009 under Section 11 B of the SEBI Act, 1992, read with Section 19 of the Depositories Act, 1996, against M/s. Sterling Holiday Resorts (India) Limited for failing to dematerialise 2,99,800 shares of M/s. Gujarat Industrial Investment Corporation Limited. M/s. Sterling Holiday Resorts (India) Limited was directed to dematerialise the 2,99,800 shares of the company standing in the name of M/s. Gujarat Industrial Investment Corporation Limited, immediately, but not later than fifteen days from the date of receipt of the order.
SEBI had conducted an inspection of the share transfer records of M/s. Parsoli Corporation Ltd and its Registrar and Share Transfer agent viz. M/s. Pinnacle Shares Registry Private Limited based on complaints received from investors on alleged fraudulent transfer and dematerialisation of shares from 123
7. I.
i.
PROSECUTION Trends in Prosecution

Number of Prosecutions Launched
30 prosecution cases launched during 2009-10 as compared to 29 in 2008-09 (Table 3.26). Till 2009-10, region-wise, the highest
number of prosecutions were launched in Head Office/Western Region (595) followed by the Northern Region (345) (Table 3.27). ii. Higher Court Proceedings
iii. Important Court Pronouncements in Prosecution Matters a. SEBI vs. M/s. Endowment Forest (I) Ltd. and others (CC No. 54 of 2009)
During 2009-10, 66 applications/petitions were filed in the Higher Courts viz., Sessions Courts, High Courts and Supreme Court. During the period 26 cases were disposed and a total of 92 cases are pending. Table 3.26: Prosecutions Launched
Year No. of cases in which prosecution has been launched 2 9 6 8 11 25 28 95 229 480 86 30 23 40 29 30 1,129 No. of persons/ entities against whom prosecution has been launched 3 67 46 63 92 154 128 512 864 2406 432 101 152 185 114 109 5,425
SEBI launched prosecution against Endowment Forest (I) Ltd. and its directors alleging violation of Section 12 (1B) of SEBI Act read with Regulations 5(1), 68(1), 73 (1) and 74, of the SEBI (Collective Investment Scheme) Regulation, 1999, for failure of the entity to obtain registration for its various CIS schemes or in the alternative to wind up the schemes and repay an amount of more than Rs.10.7 lakh collected from the investors. The Court of Additional Sessions Judge, Delhi held that that the accused company neither got registered its CIS nor wound up the same nor repaid the money to its investors as per the provisions of CIS Regulations and became punishable u/s 24 of SEBI Act. The Court convicted Mrs. Savita Kansal (accused no. 4) and Mr. Davinder Pal (accused no. 7) for the aforesaid offence and sentenced the accused no. 4 and 7 for rigorous imprisonment for six months and with a fine of Rs.50,000/- each, in default of payment of which the accused shall undergo simple imprisonment for two months each. During the pendency of the trial Mr. Virendra Kumar Kansal (accused no. 2), Mr. J C Kansal (accused no. 3) and Mr. Jagdish Chander (accused no. 6) had expired and Mr. B K Bhat (accused no. 5), Mr. Prabhakar Pillathu (accused no. 8) and Mr. G M Bhat (accused no. 9) were declared proclaimed offenders. b. SEBI vs. M/s. JBR Forestry Ltd. and others (CC No. 1194 of 2003)
1 Up to and including 1995-96 1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Total
Table 3.27: Region-wise Data on Prosecution Cases as on March 31, 2010

Region 1 Head Office/ Western Region Northern Region Southern Region Eastern Region Total Number of Cases 2 595 345 97 92 1,129 Percentage of Total 3 52.70 30.56 8.59 8.15 100.00
SEBI launched prosecution against M/s. JBR Forestry Ltd. and its directors alleging violation of Section 12 (1B) of SEBI Act read with Regulations 5(1), 68(1), 73 (1) and 74, 124
of the SEBI (Collective Investment Scheme) Regulation, 1999, for failure of the entity to obtain registration for its various CIS schemes or in the alternative to wind up the schemes and repay an amount of more than Rs.1.1 lakh collected from the investors. Ms. Renu Sharma (accused No. 2), Mr. Pradeep Kumar (accused No. 3) and Mr. Manoj Kumar (accused No. 4) pleaded guilty before the Court of Additional Sessions Judge, Delhi. After hearing the arguments on sentence the Court sentenced the accused nos. 2, 3 and 4 to a pay fine of Rs.10,000/- each, in default of which the accused were sentenced to simple imprisonment for three month each. The court has also recorded the statement of accused that if any investor approaches SEBI for repayment, the accused are liable to fulfil the assurance given to the investors. The Ms. Ravinder Kaur (accused no.5) was declared as proclaimed offender. c. SEBI vs. M/s. Rimijhim Agro Forest Ltd. and others (CC No. 56 of 2009)
(accused no. 3), Mr. S.S. Thakur (accused no. 5) and Mr. Roop Lal (accused no. 6) with rigorous imprisonment for one year each and also with a fine of Rs.1,00,000 each. In default of payment of fine the accused shall undergo simple imprisonment for six months each. The court has further ordered that out of the amount of fine realised a sum of Rs.20,000 be paid to SEBI after expiry of period of revision/appeal, towards the expenses incurred by it. During the pendency of the trial the Mr. K C Kaundal (accused no. 4) and Mr. H.C. Mahajan (accused no. 7) were declared proclaimed offenders. d. SEBI vs. M/s. Ankur Forest and Project Development India Ltd. and others (CC No. 33 of 2009)
SEBI launched prosecution against M/s. Rimjhim Agro Forest Ltd. and its directors alleging violation of Section 12 (1B) of SEBI Act read with Regulations 5(1), 68(1), 73 (1) and 74, of the SEBI (Collective Investment Scheme) Regulation, 1999, for failure of the entity to obtain registration for its various CIS schemes or in the alternative to wind up the schemes and repay an amount of more than Rs.1.1 lakh collected from the investors. The Court of Additional Sessions Judge held that the accused company neither got registered its CIS nor wound up the same and not even repaid the money to its investors as per the provisions of CIS Regulations and became punishable u/s 24 of SEBI Act. The Court convicted and sentenced the Mr. P.S. Choudhry (accused no. 2), Mr. D.S. Thakur 125
SEBI launched prosecution against M/s. Ankur Forest and Project Development India Ltd. and its directors alleging violation of Section 12 (1B) of SEBI Act read with Regulations 5(1), 68(1), 73 (1) and 74, of the SEBI (Collective Investment Scheme) Regulation, 1999, for failure of the entity to obtain registration for its various CIS schemes or in the alternative to wind up the schemes and repay the money collected from the investors. The Court of Additional Sessions Judge, Delhi held that the accused company neither got registered its CIS nor wound up the same nor repaid the money to its investors as per the provisions of CIS Regulations and became punishable u/s 24 of SEBI Act. The Court convicted Mr. Tasneem Saini (accused no. 2), Mr. Rajbit Singh (accused no. 3), Mr. Jagit Singh (accused no. 4) and Mr. Mohan Lal Saini (accused no. 6) and sentenced them with rigorous imprisonment for one year each and with a fine of Rs.5,00,000. In case of default of payment of fine the accused shall
undergo simple imprisonment for six months. The court has further ordered that out of the amount of fine realised, a sum of Rs.20,000 be paid to SEBI after expiry of period of revision/appeal, towards the expenses incurred by it. Mr. Heman Sharma (accused no. 5) was declared as proclaimed offender. e. SEBI vs. M/s. Startek Plantation and Forest Ltd. and others (CC No. 34 of 2009)
SEBI launched prosecution against M/s. Startek Plantation and Forest Ltd. and its directors alleging violation of Section 12 (1B) of SEBI Act read with Regulations 5(1), 68(1), 73 (1) and 74, of the SEBI (Collective Investment Scheme) Regulation, 1999, for failure of the entity to obtain registration for its various CIS schemes or in the alternative to wind up the schemes and repay the money collected from the investors. The Court of Additional Sessions Judge, Delhi held that the accused company neither got registered its CIS nor wound up the same and not even repaid the money to its investors as per the provisions of CIS Regulations and became punishable u/s 24 of SEBI Act. The Court convicted the Mr. V.K. Sharma (accused no. 2) for the offence and sentenced to undergo rigorous imprisonment for one year and with a fine of Rs.5,00,000/-. In default of payment of fine the accused shall undergo simple imprisonment for six months. The court has further ordered that out of the amount of fine realised a sum of Rs.20,000/be paid to SEBI after expiry of period of revision, appeal, towards the expenses incurred by it. Mr. M.K. Siddiqui (accused no. 3) had expired during pendency of the case. f. Mr. Vishnu Prakash Bajpai Vs SEBI (Crl.M.C.1182/2009) SEBI had launched prosecution against 126
M/s. N.R.Plantations (India) Limited and its directors for an offence u/s 24 (1) of SEBI Act read with the CIS Regulations. Mr. Vishnu Prakash Bajpai was arrayed as an accused in the complaint alleging that he was a person in charge and responsible for the affairs of the company during commission of the offence. The captioned application was filed by Mr. Vishnu Prakash Bajpai in the High Court of Delhi, seeking quashing of the complaint against him stating that he was not a director or a person in charge of the affairs of the company. The petitioner relied on the Memorandum and Articles of Association of the company, Form-32 and the statement in lieu of prospect in support of his contentions. SEBI relied on the letters written by the company showing the petitioner as a director. The Honble High Court has held that the jurisdiction to quash a complaint cannot be exercised when the pleadings in the complaint prima facie reveal commission of an offence and the complaint is not frivolous or fictitious. The Court further held that even if it is proved that the petitioner was not a director of the company, he can still be liable if it is proved that he was in charge of the affairs of the company. The Court has also observed that the violations of CIS Regulations pleaded in the complaint are continuing in nature and the documents relied on by the petitioner does not prove that he was neither a director nor was responsible for the affairs of the company for the entire period during which the offence continued. Accordingly, the petition was dismissed. g. M/s Rhodanthe Agro Limited Vs SEBI Criminal Revision Case 842/2005
SEBI has filed a criminal complaint against M/s. Rhodanthe Agro Limited and others alleging violation of 12(1B) of SEBI Act, 1992 and Regulation 5(1) read with
Regulation 68(1), 68(2) 73 and 74 of the SEBI (Collective Investment Schemes) Regulations, 1999 before the XIII Metropolitan Magistrate, Saidapet, Chennai. The application filed by the accused, seeking discharge on the ground of limitation, was dismissed by the Magistrate, vide order dated March 18, 2005 holding that the amount mobilised from the investors are not yet refunded and the offence is continuing one. The aforesaid order of the Magistrate was challenged in the present Criminal Revision Application before the Honble High Court of Madras. The Honble High Court vide order dated September 18, 2009, dismissed the application, observing, inter alia, that the revision petitioners have to repay the collected amount from the investors, but, still they have not repaid the same, so it is continuing offence. If the obligation continues and it is not discharged, the default constitutes a continuing offence. The court has also held that the non compliance of Regulations 73 and 74 for winding up the company is continuing in nature and as such the offences is also continuing in nature. Further, Section 24 of the SEBI Act is amended with effect from October 29, 2002 and the offence under section 24 became punishable with imprisonment for a term which may extend to ten years or with fine which may extend to twenty five crore rupees or with both. Hence the complaint is not barred by limitation.
Table 3.28: Nature of Prosecutions Launched as on March 31, 2010

Nature of Prosecution Launched 1 Securities and Exchange Board of India Act, 1992 (SEBI Act) SEBI Act & Securities Contracts (Regulation) Act, 1956 (SCRA) SEBI Act, SCRA & Companies Act SEBI Act & Companies Act SEBI Act & Indian Penal Code Companies Act, 1956 Securities Contracts (Regulation) Act, 1956 Depositories Act, 1996 Indian Penal Code Total Number of Cases 2 934 91 1 1 5 70 5 14 8 1,129
III. Disposal of Prosecution Cases

A. 170 cases were decided by the Courts till 2009-10, out of which, 79 cases resulted in convictions and 54 cases were fully compounded (Table 3.29).
Table 3.29: Number of Prosecution Cases decided by the Courts as on March 31, 2010
Type of Decision by the Courts 1 Convictions Compounded (fully)* Abated Dismissed Withdrawn Total CIS 2 72 6 0 11 2 91 NonCIS 3 7 48 4 19 1 79 Total 4 79 54 4 30 3 170 **
II. Nature of Prosecution

Table 3.28 represents the nature of prosecutions launched under various sections of different Acts. Prosecutions are launched by SEBI under the SEBI Act, 1992, Companies Act, 1956, Depositories Act, 1996, SC(R) Act, 1956 and the Indian Penal Code. As on March 31, 2010, 1,129 cases were launched under the SEBI Act, 1992. 127
* In addition, in 13 (4 in CIS & 9 in non-CIS) cases, the offence has been partly compounded i.e. compounded against some of the accused and the cases against others continue. ** In 33 (32 CIS & 1 non-CIS) prosecution cases, all accused were declared as proclaimed offenders.
B.
Disposal of Prosecution Cases in case of Collective Investment Schemes (CIS) Since the start of launch of prosecution against erring CIS entities, criminal prosecution cases have been launched by SEBI against 552 CIS entities. Since then, court judgments have been obtained in a total of 91 CIS entities.
IV. Litigations, Appeals, Consent and Compounding

During 2009-10, 136 cases were filed in different courts and 100 cases were admitted/ allowed/withdrawn, 550 such cases are pending, where SEBI was a party (Table 3.30). During the year, 361 appeals were filed before Securities Appellate Tribunal Table 3.30: Court Cases where SEBI was a Party during 2009-10
Subject Matter Cases Cases Pending Admitted/ Cases as on Allowed/ Filed March 31, With2010 drawn 2 13 2 28 8 2 9 19 17 1 5 6 18 8 136 3 23 33 111 8 20 39 143 30 2 6 56 61 18 550 4 15 5 15 10 1 9 11 16 0 1 0 15 2 100
(SAT), whereas 155 appeals were dismissed (Table 3.31). Against the orders of SAT, 29 appeals were filed by SEBI, whereas 75 appeals were filed against SEBI in the Supreme Court during 2009-10 under section 15Z of the SEBI Act (Table 3.32). Disposals of Appeals by SAT since 1998 are given in Table 3.32a. During 2009-10, 680 consent applications were received and 357 were disposed off, whereas 333 applications were rejected (Table 3.33). Further, during 2009-10, 22 compounding applications were filed, two were fully compounded and two were partly compounded, whereas 12 applications were rejected (Table 3.34). Table 3.31: Appeals before the Securities Appellate Tribunal during 2009-10
(Number) Status of Appeals 1 Appeals Filed Appeals Dismissed Appeals Remanded Appeals Allowed Appeals Modified Appeals Withdrawn Appeals Disposed as Infructuous Appeals Pending Number of Appeals 2 361 155 56 36 33 14 8 80
1 Stock Brokers Registration Fees Cases Collective Investment Schemes Consumer Forum Cases General Services Department Investigations, Enforcement and Surveillance Department Primary Market Department Secondary Market Department Takeovers Depositories and Participants Mutual Funds OIAE Civil/Criminal Courts Policy Total
As on March 31, 2010, SEBI has received 2,092 applications for consent and compounding. Out of this, 904 applications were approved by SEBI settling various kinds of enforcement actions. In addition to these 904 applications, 535 applications were rejected and 218 applications were treated as withdrawn/infructuous. An amount of Rs.1,17,82,56,710 was collected as settlement/legal/administrative/disgorgement charges. Month-wise details of applications received and disposed under the consent and compounding scheme up to March 31, 2010 are provided in Table 3.35. 128
Box 3.2: Consent and Compounding Scheme of SEBI

SEBI settles the pending enforcement actions such as prosecution, adjudication, section 11 B proceedings, etc. through the consent process in accordance with its circular dated April 20, 2007. The process broadly followed is as under: On receipt of an application from the concerned entity for settlement, an internal Committee of Division Chiefs after meeting the applicant examines if the terms offered by it are appropriate for settlement. The Internal Committee (IC) comprise of one Chief General Manager not dealing with any of the Enforcement Actions, one Officer not below the rank of Deputy General Manager each from the concerned Operational Department and from Legal/Enforcement Department. The terms finally offered by the applicant are placed before the High Powered Advisory Committee (HPAC) which is headed by a former Judge of a High Court, an Ex-Chairman of Public Sector Bank and a Chartered Accountant as members, to ascertain if the terms are fair and reasonable. The HPAC, after taking into account facts and circumstances of the case and the factors specified in the Circular, makes its recommendations accepting, declining or suggesting modifications in the terms offered by the applicant. A panel of two Whole Time Members considers the recommendations of the HPAC and takes a decision whether to settle the enforcement action on the said terms or decline the settlement. On compliance of the terms of settlement, as approved by the panel, a consent order is passed by SEBI, if the matter is pending before it. The agreed consent terms are placed before the Securities Appellate Tribunal or Courts, as the case may be, if the matter is pending before them, for appropriate orders. In case of compounding, the approved compounding terms are submitted before the Court for its consideration. Till March 31, 2010, SEBI has approved 904 applications settling various kinds of enforcement actions. These include 68 consent applications where after the consent terms were placed before the Securities Appellate Tribunal and the Supreme Court, consent orders were passed by the Securities Appellate Tribunal and the Supreme Court respectively. The number (904) also includes 63 compounding applications where the compounding orders were passed by the respective criminal courts. SEBI has also rejected 535 applications and declined to pass consent orders for various reasons including the reason that the terms of settlement proposed by the applicants were not found adequate. Apart from an amount of Rs.27,26,18,007 collected towards disgorgement, a sum of Rs.89,15,78,253 was collected towards settlement charges and Rs.1,40,60,450 was collected towards legal and administrative charges. The amount received towards settlement charges is remitted to the Consolidated Fund of India and the amount received towards disgorgement is retained in separate account for distribution to the unsuccessful investors in IPO irregularities as recommended by Justice Wadhwa Committee. Besides the amount, the settlement in 120 cases includes debarment from dealing in securities market/suspension of certificate of registration for different periods.
Table 3.31a: Disposals of Appeals by Securities Appellate Tribunal

(Number) Appeals No. of Appeals Dismissed No. of Appeals Modified No. of Appeals Withdrawn No. of Appeals Allowed Total NA : Not Available. 1998 1 0 0 1 2 1999 2 0 0 2 4 2000 7 1 0 6 14 2001 20 7 3 8 38 2002 15 NA 2 23 40 2003 16 10 1 13 40 2004 29 58 8 19 114 2005 46 101 NA 72 219 2006 139 16 NA 71 226 2007 40 27 NA 32 99 2008 81 1 17 39 138 2009 86 19 19 30 154
129
Table 3.32: Appeals under Section 15Z of the SEBI Act against the Orders of Securities Appellate Tribunal during 2009-10
(Number) Subject Matter 1 Appeals filed by SEBI Appeals filed against SEBI Total Cases Cases Cases disfiled pending missed/ allowed 2 29 75 104 3 81 82 163 4 8 99 107
2.
Liquidity Problem in Income and Money Market Mutual Funds in India during October-November 2008 Analysis of Penetration of Corporate Bonds in India Status of Database for the Capital Market Shareholding Pattern of the Listed Companies Regulatory Impact Analysis of SWDR. Lessons Learnt from the Observed Research on Corporate Governance (CG): A Case Study Financial Literacy: Challenges Ahead
3. 4. 5. 6. 7.
Table 3.33: Consent Applications filed with SEBI during 2009-10

No. of Consent No. of AppApplication lications Received Disposed of 1 680 2 359 Consent Terms (in Rs.) 3 68,56,50,968/-* Number of Applications Rejected 4 333
8.
* Amount received towards disgorgement, settlement and legal expenses.
Further notes were prepared on various contemporary issues like Regulatory impact analysis of Differential Voting Rights, impact of Direct Tax Code (DTC) on securities markets etc. A new initiative of monthly lectures by eminent subject experts in the area of Financial Economics were invited to address SEBI staff. Publication of SEBI Annual Report, SEBI Bulletin and Handbook of Statistics on the Indian Securities Market were carried out. Preparation of regular reviews, policy notes and country profiles etc were also executed during the year. SEBI is conducting an All India Investor Survey and task has been assigned to National Council of Applied Economic Research (NCAER). Further, History of Indian Securities Markets dating back to 18th century is under progress. Periodic reports are also generated by SEBI for internal and external uses including weekly and monthly reports for the Ministry of Finance. In addition it provides and verifies data for various publications viz. Handbook of Statistics on Indian Economy, Economic Survey: Government of India, Economic Survey Government of Maharashtra, by different Government agencies. 130
Table 3.34: Compounding Applications filed by the Accused in Criminal Courts during 2009-10
No. of Compounding Applications filed 22 Compounding Charges Fully Partly received Compo- Compo- by SEBI* unded unded (in Rs.) 2 2 4,91,250/No. of Applications Compounded No. of Applications Rejected 13
* Amount received including disgorgement and legal expense.
8.
RESEARCH ACTIVITIES
SEBI took several research initiatives during 2009-10. These include papers viz. 1. Impact of Grading on Initial Public Offerings
Table 3.35: Receipt and Disposal of applications under Consent and Compounding Process during 2009-10
Month/Year No. of No. of Applications Applications Settled by received passing orders 2 698 692 46 40 64 52 63 55 46 54 75 91 59 57 702 2,092 3 101 440 48 28 39 23 26 40 37 13 33 31 28 17 363 904 * Settlement/ Compounding Charges (Rs.) 4 2,69,07,850 37,29,30,786 18,92,17,052 67,70,302 1,35,14,962 47,51,000 2,28,64,868 1,57,74,062 1,03,50,000 71,75,797 5,87,41,502 14,19,78,871 1,37,20,629 68,80,572 49,17,39,617 89,15,78,253 Legal/Admn. Charges (Rs.) 5 40,00,950 54,90,000 6,45,000 3,90,000 9,65,000 6,55,000 3,30,000 2,00,000 1,17,500 85,000/1,00,000 6,82,000 0 4,00,000 45,69,500 1,40,60,450 Disgorgement (Rs.) 6 0 8,27,84,906 2,27,345 5,26,975 2,36,49,980 0 0 7,45,312 0 18,65,019 14,00,50,375 1,18,21,528 1,09,46,567 0 18,98,33,101 Total Amount (Rs.) 7 3,09,08,800 46,12,05,692 19,00,89,397 76,87,277 3,81,29,942 54,06,000 2,31,94,868 1,67,19,374 1,04,67,500 91,25,816 19,88,91,877 15,44,82,399 2,46,67,196 72,80,572 68,61,42,218
1 2007-08 2008-09 2009-10 Apr - 09 May - 09 Jun - 09 Jul - 09 Aug - 09 Sep - 09 Oct - 09 Nov - 09 Dec - 09 Jan - 10 Feb - 10 Mar - 10 Total 2009-10 Aggregate Total
27,26,18,007 1,17,82,56,710
* In addition, 535 applications were rejected and 218 applications were withdrawn/infructuous.
131
Annual Report PART 2009-10
FOUR: REGULATORY CHANGES

one third of the amount to be distributed pro-rata among the shareholders who have accepted the offer
SEBI has been taking various measures in the interest of investors in securities market and for the development of the securities market. It framed few regulations and amended/modified various regulations during this year. The Central Government also amended the Securities Contracts (Regulation) Rules, 1957 to lay down rules for delisting of Equity Shares. The details of such regulatory developments are as under:
d)
security deposits, if any, held by stock exchanges in respect of public issues and rights issues, in the event of derecognition of such stock exchanges; amounts in the Investor Protection Fund and Investor Services Fund of a stock exchange, in the event of de-recognition of such stock exchange; interest or other income received out of any investments made from the fund; such other amount as SEBI may specify in the interest of investors.
e)
1. I.
i.
REGULATORY DEVELOPMENTS New Regulations

The Securities and Exchange Board of India (Investor Protection and Education Fund) Regulations, 2009 f) g)
SEBI (Investor Protection and Education Fund) Regulations, 2009 were notified on May 19, 2009 to establish a Fund to be called the Investor Protection and Education fund. In terms of the regulation the following amounts may be credited to the fund: a) b) contribution as may be made by SEBI to the fund; grants and donations given to the fund by the Central Government, State Government or any other entity approved by SEBI for this purpose; the entire amount to the merchant banker, in the event of forfeiture for non fulfillment of any of the obligations under the regulations, for distribution in the following manner, after deduction of expenses, if any, of the merchant banker and the registrars to the offer, one third of the amount to the target company; one third of the amount to the Investor Protection and Education Fund established by SEBI; 132
The regulations provide that the fund shall be utilised for the purpose of protection of investors and promotion of investor education and awareness including the following: a) educational activities including seminars, training, research and publications, aimed at investors; awareness programmes including through media - print, electronic, aimed at investors; fu n d in g in ve s t o r e d u c a t i o n a nd awareness activities of investors associations recognised by SEBI; aiding investors associations recognised by SEBI to undertake legal proceedings in the interest of investors in securities that are listed or proposed to be listed; refund of the security deposits which are held by stock exchanges and transferred to the fund consequent to de-recognition of the stock exchange as mentioned in clause (d) of regulation 4, in case the
b)
c)
c)
d)
e)
Part Four: Regulatory Changes
concerned companies apply to SEBI and fulfill the conditions for release of the deposit; f) expenses on travel of members of the committee, who are not officials of SEBI, and special invitees to the meetings of the committee, in connection with the work of the committee; salary, allowances and other expenses of office of ombudsman; and such other purposes as may be specified by SEBI. The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009
Regulations) were notified on August 26, 2009. The regulations have been made primarily by conversion of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 which has been rescinded by the regulations. ICDR Regulations have made certain changes in the erstwhile DIP Guidelines by removing the redundant provisions, modifying certain provisions on account of changes necessitated due to market design and bringing more clarity to the provisions of the rescinded guidelines. Some of the significant changes made through the regulations are: a) Exemption from eligibility norms for making an IPO available to banking companies, corresponding new banks and infrastructure companies has been removed. Issuer not to make public issue or rights issue of specified securities if: the issuer, any of its promoters, promoter group or directors or persons in control of the issuer are debarred from accessing the capital market by SEBI; if any of the promoters, directors or persons in control of the issuer was or also is a promoter, director or person in control of any other company which is debarred from accessing the capital market under any order or directions made by SEBI.
g) h)
ii.
SEBI (Delisting of Equity Shares) Regulations, 2009 were notified on June 10, 2009. These regulations rescinded the SEBI (Delisting of Securities) Guidelines, 2003 which had laid down mechanism for delisting of equity shares of a company. The regulations lays down procedure for voluntary as well as compulsory delisting of equity shares of a company. Further, special provisions have been made in the regulations for delisting of shares of small companies (companies having paid up capital upto one crore rupee, or a company having upto three hundred public shareholders and where the paid up value of shares held by such public is not more than one crore rupees) and delisting by operation of law. The regulations also provide for listing of delisted equity shares. iii. The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR 133
b)
c) d) e)
Offer for sale by listed companies has been provided for. Firm allotment in public issues has been removed. Allotment/refund period in public issues has been fixed as 15 days.
f)
Disclosure of price or price band is not required to be disclosed in the draft prospectus. Transfer of surplus money in Green Shoe Option (GSO) Bank Account to the IPEF. Issue period for all types of issuers has been made 10 days. Pledge of shares by promoters has to be disclosed in the offer document. The balance upfront payment made against the unexercised warrants shall be forfeited.
c)
the securities of the company have remained infrequently traded during the preceding three years; the company or any of its promoters or any of its directors has been convicted for failure to comply with any of the provisions of the Act or the Securities and Exchange Board of India Act, 1992 or the Depositories Act, 1996 (22 of 1996) or rules, regulations, agreements made there under, as the case may be and awarded a penalty of not less than rupees one crore or imprisonment of not less than three years; the addresses of the company or any of its promoter or any of its directors, are not known or false addresses have been furnished or the company has changed its registered office in contravention of the provisions of the Companies Act, 1956 (1 of 1956); or shareholding of the company held by the public has come below the minimum level applicable to the company as per the listing agreement under the Act and the company has failed to raise public holding to the required level within the time specified by the recognised stock exchange.
g) h) i) j)
d)
The ICDR Regulations also amended SEBI (Debenture Trustee) Regulations, 1993, SEBI (Merchant Bankers) Regulations, 1992, SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 to provide for the matters relating to the regulation of the intermediaries governed by these regulations, which were contained in the erstwhile DIP Guidelines.
e)
f)
II. Amendments to Existing Rules/ Regulations

i. Amendment to the Securities Contracts (Regulation) Rules, 1957
The Central Government amended the Securities Contracts (Regulation) Rules, 1957 on June 19, 2009 by inserting a new rule 21 which lays down ground for compulsory delisting and conditions for voluntary delisting. Grounds for compulsory delisting: a) the company has incurred losses during the preceding three consecutive years and it has negative networth; trading in the securities of the company has remained suspended for a period of more than six months; 134
Conditions for voluntary delisting: a) the securities of the company have been listed for a minimum period of three years on the recognised stock exchange; the delisting of such securities has been approved by the two-third of public shareholders; and the company, promoter and/or the director of the company purchase the outstanding securities from those
b)
b)
c)
holders who wish to sell them at a price determined in accordance with regulations made by Securities and Exchange Board of India under the Act. The amended rule provides that in case of compulsory delisting by the stock exchange; company, promoter and director of the company shall provide exit opportunity to the shareholders of the company. Further, a company compulsorily delisted by a stock exchange shall be delisted from all the stock exchanges where it was listed. The amended rule further provides that there is no requirement of providing exit opportunity to the shareholders of the company in case of a voluntary delisting from regional stock exchanges, if the company continues to be listed on BSE or NSE. ii. Amendment to certain Regulations by SEBI (Facilitation of Issuance of Indian Depository Receipts) Regulations, 2009
iii. Amendment to certain Regulations SEBI (Payment of Fees) (Amendment) Regulations, 2009 SEBI (Payment of Fees) (Amendment) Regulations, 2009 were notified on June 29, 2009 to amend the following regulations to revise the fees levied under those regulations: a) b) c) d) e) SEBI (Custodian of Securities) Regulations, 1996 SEBI (Foreign Institutional Investor) Regulations, 1995 SEBI (Foreign Venture Capital Investors) Regulations, 2000 SEBI (Mutual Funds) Regulations, 1996 SEBI (Stock Brokers and Sub-Brokers) Regulations,1992
The revised fee structure has been provided in Table 4.1. iv. Amendment to the SEBI (Intermediaries) Regulations, 2008
In order to facilitate the issuance of Indian Depository Receipts (IDR), SEBI has notified the SEBI (Facilitation of Issuance of Indian Depository Receipts) (Amendment) Regulations, 2009 on June 19, 2009. These regulations have made amendments to the following regulations: a) SEBI (Custodian of Securities) Regulations, 1996, to provide for enabling the Custodian to undertake the activity of domestic depository for IDRs. S E B I ( D e p o s i t o r y Pa r t i c i p a n t s ) Regulations, 1996, to make IDR eligible as security which can be dematerialised. SEBI (Foreign Institutional Investor) Regulations, 1995, to allow FIIs to invest in IDRs also. 135
SEBI (Intermediaries) Regulations, 2008 were amended on July 14, 2009 to provide for completion of summary proceedings initiated under erstwhile SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (since repealed) in accordance with the summary procedure prescribed in the newly inserted Chapter VA of the SEBI (Intermediaries) Regulations, 2008. v. Amendment to the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
b)
c)
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997, were amended on November 6, 2009, to clarify that:a) ADRs/GDRs holders shall have to comply with regulations 10, 11 and 12 as and when such holders become entitled
Table 4.1: Revision of Fees

Sr. No. Intermediary/Market participants 1 1 2 Fees earlier payable 3 Revised fees 4 Rs.10/- per Rs.1 crore of turnover.
Brokers All Sale and purchase transactions Rs.20/- per Rs.1 crore of turnover. in securities other than Debt Securities. All sale and purchase transactions Rs.5/- per Rs.1 crore of turnover. in Debt Securities. Derivative Segment (including Derivatives Currency Segment) Trading Member Mutual Funds Filing Fee for offer document
Rs.2.50/- per Rs.1 crore of turnover.
Rs.20/- per Rs.1 crore of turnover. 0.005 percent of the amount raised in the new fund offer, subject to a minimum of rupees one lakh and a maximum of rupees fifty lakh. US$10,000
Rs.10/- per Rs.1 crore of turnover. 0.002 percent of the amount raised in the new fund offer, subject to a minimum of rupees one lakh and a maximum of rupees fifty lakh. US$5,000
4 5
Foreign Institutional Investors Registration Fee (3 Years) Sub-account of Foreign Institutional Investors Registration Fee (3 Years) Foreign Venture Capital Application Fee Registration Fee (One Time) Custodian of Securities Annual Fee
US$2,000 US$5,000 US$20,000 Rs.10,00,000 or 0.0005 percent of assets under custody of Custodian of Securities whichever is higher.
US$1,000 US$2,500 US$10,000 Rs.10,00,000 or 0.00025 percent of assets under custody of Custodian of Securities whichever is higher.
The change in fee structure would be effective from July 1, 2009.
to exercise voting rights on the shares underlying these ADRs/GDRs, in any manner whatsoever or exchange such ADRs/GDRs into underlying shares carrying voting rights. b) Regulation 14 was amended to provide for timings for public announcement in case of acquisition of shares underlying ADR/GDR or acquisition of voting rights on such shares. Regulation 11(1) was amended to clarify that acquirer can acquire additional five percent shares in any financial year, without making a public announcement, provided that post 136
acquisition shareholding of the acquirer does not exceed 55 percent. d) Second proviso to regulation 11(2), was amended to provide that acquirer can acquire additional five percent shares without making a public announcement under the said proviso, irrespective of acquisition made under regulation 10 or regulation 11(1). Amendment to the SEBI (Mutual Funds) Regulations, 1996 SEBI (Mutual Funds) Regulations, 1996 were amended on April 8, 2009 to:a) make listing of close ended schemes mandatory.
vi. 1.
c)
b)
remove the provision available for repurchase and re-issue of units of close-ended scheme and to provide that the units shall not be repurchased before maturity. provide for listing fees as a permissible expenses as part of the recurring expenses chargeable to scheme. close-ended debt schemes may be allowed to invest in securities of initial or residual maturities not exceeding the maturity of the scheme.
crore rupees. c) For issuers making Fast Track Issue, whose public shareholding is less than 15 percent of its issued equity capital, eligibility regarding the annualised trading turnover of issuers equity shares has been changed and it has to be calculated as at least two percent of the weighted average number of equity shares available as free float during six months immediately preceding the reference date. For issuers making Fast Track Issue, eligibility regarding compliance with equity listing agreement has been changed to provide that if the issuer has not complied with the provision of the equity listing agreement relating to composition of board of directors, for any quarter during the last three years immediately preceding the reference date, but is compliant with such provisions at the time of filing of offer document with the Registrar of Companies or designated stock exchanges and adequate disclosures are made in the offer document about such non-compliances during the three years immediately preceding the reference date, it shall be deemed as compliance with equity listing agreement for this purpose. Issuer has been enabled to offer specified securities at differential price to its employees entitled for reservation who make application for specified securities of value not more than one lakh rupees. Aggregate of reservation for
c)
d)
d)
2.
SEBI (Mutual Funds) Regulations, 1996, were further amended on June 5, 2009 to allow a mutual fund scheme to invest only upto 30 percent of its net assets in money market instruments of an issuer. This limit of 30 percent is not applicable for investments in Government Securities, Treasury Bills and Collateralised Borrowing and Lending Obligations.
vii. Amendment to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 1. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 were amended on December 11, 2009. Some of the important changes made by this amendment are: a) Insurance funds set up and managed by army, navy or air force of the Union of India has been accorded the status of the Qualified Institutional Buyer. Market capitalisation eligibility for making Fast Track Issues has been reduced to five thousand crore rupees from earlier 10 thousand 137 e)
b)
f)
employees shall be made upto five percent of the post issue capital of the issuer in contrast to earlier 10 percent of the issue size. g) Value of allotment to any employee in pursuance of reservation shall not exceed one lakh rupees. The issuer may make reservation for its employees along with rights issue subject to the condition that value of allotment to any employee shall not exceed one lakh rupees. Book-building process has been made available in case of issue of IDRs. 30 percent of the total IDR issued has to be reserved for Retail Individual Investors (RII) and in case of under subscription in RII category, spill over to other categories to the extent of under subscription is also allowed. The financial information in the offer documents shall be certified by only those auditors who have subjected themselves to the peer review process of the Institute of Chartered Accountants of India (ICAI) and hold a valid certificate issued by the Peer Review Board of the ICAI. In c as e wh ere th e fin a n cia l statements of an issuer were audited by an auditor who had not been subjected to peer review process of ICAI, all financial information offer document must be re-audited for one full financial year and the sub-period, by the auditor certifying them.
been enabled to make alternate financial disclosure subject to fulfillment of certain conditions: n) Alternate method of book-building has been introduced in case of further public offers.
h)
2.
i)
j)
SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 were further amended on January 1, 2010 to provide that in all public issues and rights issues, wherever only one payment option is available, the issuer shall provide the facility of ASBA, in accordance with the procedure and eligibility criteria specified by SEBI. Further, ASBA investors have been allowed to revise their bids by this amendment. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 were further amended on January 8, 2010 to bring out certain changes in the alternate method of book-building process. The changes are as follows:a) The issuer may mention the floor price in the red herring prospectus or if the floor price is not mentioned in the red herring prospectus, the issuer shall announce the floor price at least one working day before opening of the bid in all the newspapers in which the pre-issue advertisement was released. Qualified Institutional Buyers may bid at any price above the floor price. Allotment shall be on price priority basis for Qualified Institutional Buyers. Allotment to retail individual
3.
k)
l)
b)
c)
m) An issuer making further public offer through Fast Track Mode has 138
d)
investors, non-institutional investors and employees of the issuer shall be made proportionately. e) R e t a i l i n d i v i d u a l i n ve s t o r s , non-institutional investors and e m p l o ye e s s h a l l b e a l l o t t e d specified securities at the floor price provided that if employees are being allotted securities at a price less than floor price (as allowed by the regulations) then the difference between the floor price and the allotment price shall not exceed 10 percent of the floor price. ix.
his turnover (Rs.2.5 per crore) in case of interest rate derivatives contracts. Amendment to the SEBI (Credit Rating Agencies) Regulations, 1999
SEBI (Credit Rating Agencies) Regulations, 1999 were amended on March 19, 2010 to provide for the following: a) where the credit rating agency proposes to change its status or constitution, it shall obtain prior approval of SEBI for continuing to act as such after the change. the change of status or constitution in relation to a credit rating agency means any change in its status or constitution o f w h a t s o e ve r n a t u r e i n c l u d i n g amalgamation, demerger, consolidation or any other kind of corporate restructuring falling within the scope of section 391 of the Companies Act, 1956, change in its managing director or whole-time director, any change in control over the body corporate. the change in control in relation to a credit rating agency shall means change in control as defined under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 if its shares are listed on any recognised stock exchange; or in any other case, change in the controlling interest.
f)
The issuer may: place a cap either in terms of number of specified securities or percentage of issued capital of the issuer that may be allotted to a single bidder; decide whether a bidder be allowed to revise the bid upwards or downwards in terms of price and/or quantity; decide whether a bidder be allowed single or multiple bids.
b)
c)
viii. Amendment to the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 were amended on November 19, 2009 to provide for following: a) SEBI has been empowered to extend the time for which exemption can be granted to a trading member from the requirement of certification of its approved users and sales personnel from existing one year to one and a half year from August 11, 2008. Every trading member is required to pay fees at the rate of 0.000025 percent of 139
x.
Amendment to the SEBI (Employees Service) Regulations, 2001
b)
SEBI (Employees Service) Regulations, 2001 were amended on January 14, 2010 to provide that the recruitment in SEBI may
be taken by campus selection, as may be determined by the Chairman.
period stipulated by notification dated May 13, 2009 SEBI issued a notification on August 4, 2009 to extend the period (as specified by the notification dated May 13, 2009), for obtaining certification by approved users and sales personnel upto September 30, 2009. iii. Notification under Regulation 3 of the Securities and Exchange Board of India (Certification of Associated Persons in the Securities Markets) Regulations, 2007 - For associated person of a Registrar to an Issue or Share Transfer Agent SEBI issued a notification on September 4, 2009 to specify that an associated person engaged or employed or to be engaged or employed by a registrar to an issue or share transfer agent for performing any of the activities specified in the notification, shall obtain RTA- Corp Certification or SeriesII-B: RTA-MF certification (both specified by NISM) as the case may be, as stated hereinafter: a) where such associated person is engaged or employed by a registrar to an issue or share transfer agent prior to September 4, 2009, he shall obtain Series-II-A: RTACorp Certification or Series-II-B: RTA-MF certification as the case may be within two years from September 4, 2009; where on being employed or engaged by a registrar to an issue or share transfer agent on or after 4th September, 2009 such associated person does not possess Series-II-A: RTA- Corp Certification or Series-II-B: RTA-MF certification as the case may be, he shall obtain the said certification within one year from the date of being so employed or engaged.
III. Other Notifications

i. Notification under Regulation 3 of the Securities and Exchange Board of India (Certification of Associated Persons in the Securities Markets) Regulations, 2007 - For approved users and sales personnel of trading members of the Currency Derivatives Segment
SEBI issued a notification on May 13, 2009 by which SEBI has approved the Series-I: CD (specified by NISM), as the required certification for approved users and sales personnel of trading members of the currency derivatives segment of recognised stock exchanges for the purpose of sub-regulation (2) of regulation 16L of the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations,1992. The notification further required that a trading member of the currency derivatives segment of a recognised stock exchange shall ensure that all its approved users and sales personnel obtain Series-I: CD certification, by August 10, 2009. The notification further provided that from May 13, 2009 onwards a trading member of the currency derivatives segment of a recognised stock exchange shall not engage or employ any approved user or sales personnel who does not have valid Series-I: CD certification. ii. Notification under Regulation 3 of the Securities and Exchange Board of India (Certification of Associated Persons in the Securities Markets) Regulations, 2007 - For extending the 140
b)
c)
Through said notification, SEBI specified following activities for which certification is required: dealing or interacting with the investors or issuers; dealing, collecting or processing applications from the applicants; dealing with matters relating to corporate actions, refunds or redemptions, repurchase of securities; handling redressal of investors grievances; responsible for internal control and risk management; responsible for compliance of securities laws; maintenance of books and records pertaining to the above activities.
ii.
Mr. Yogesh Bhansali -HUF & Others vs. SEBI (Civil Appeal D.NO. 2506/2010, date of order: 11/02/2010)
Pursuant to investigations, SEBI passed an order against the Appellant directing impounding of ill gotten gains of Rs.41.6 lakh with interest and debarment from securities market, for cornering shares meant for Retail Individual Investors quota. Honble SAT vide order dated September 23, 2009 while dismissing the appeals, held that As found in the impugned orders, multiple applications in different combinations were filed by the applicants with a view to hoodwink the issuer company and to escape the weeding out of their applications at the threshold. Honble SAT further held that the conduct of the appellants herein is similar, if not more devious, to the conduct of Ms.Himani Patel in Appeal No.154/2008 and for the reasons stated therein we have no doubt in our mind that their conduct was fraudulent. They have deprived a larger number of genuine retail investors from their dues. Accordingly, Honble SAT held that the appellants are guilty of violating Section 12A of the SEBI Act, 1992 and regulations 3 & 4 of the SEBI(PFUTP) Regulations, 2003. Honble SAT also imposed a cost of Rs.50,000/- on the appellant. The appellants challenged the said order of SAT before Honble Supreme Court and the Honble Supreme Court dismissed the appeals. iii. Mr. Mahesh Ratilal Shah vs. UOI & Ors (Civil Appeal No.1657/2005, date of order: 19/01/2010) Petitioner, claiming to be a sub-broker of BSE stock broker challenged the order of Bombay High Court dismissing the writ 141
2. I.
i.
SIGNIFICANT COURT PRONOUNCEMENTS Supreme Court

M/s. Guru Teak Investment Mysore (Investment) Pvt. Ltd. vs. SEBI (Civil Appeal No. 326/2009, date of order: 21/10/2009)
Appeal was filed against SAT order dated October 21, 2009. The Honble SAT vide said order had upheld the SEBIs order dated February 08, 2006 directing the Petitioner Company to make repayment to the investors and wind up the schemes in accordance with SEBI CIS Regulations, 1999. The company was found to have been running collective investment schemes without obtaining registration from SEBI. The Honble Supreme Court upheld the SAT order and dismissed the writ petition.
petition under Article 226 of the Constitution against the Union of India, SEBI and the BSE, inter-alia, for a direction upon the Union of India and SEBI to withdraw the recognition granted to BSE for alleged non-compliance with the provisions of Sections 7 and 9 of the Securities Contracts (Regulation) Act, 1956. A further direction was also sought for cancellation of SEBI registration of all relevant 90 members of the BSE allegedly for fraudulently inducing investors to trade in forged scrips of M/s. Presto Finance Ltd. and to declare the Rules, Bye-laws and Regulations of the BSE as illegal, void and ultra vires the 1956 Act as also the Constitution of India. Honble Supreme Court dismissed the petition vide judgment dated January 19, 2010. However, the Honble Supreme Court directed BSE to publish in the Gazette all those Bye-laws which were not published earlier. Honble Supreme Court inter alia, held as follows; "Before parting, we would, however, indicate that even if the 1956 Act did not contemplate publication of the pre-recognition Rules and Byelaws, the position is and would continue to be rather ambivalent if the amended Rules and Byelaws were published in the Official Gazette while the main Rules and Bye-laws remain unpublished. It may, therefore, be in the fitness of things to have the said Rules and Bye-laws also published in the Official Gazette and the State Gazette to prevent questions similar to those raised in this Special Leave Petition from being raised in future." iv. SEBI vs. Mr. Ajai Agarwal (Civil Appeal No.1697/2005, date of order: 25/02/2010)
prospectus in the IPO of M/s. Trident Steel Ltd. The order of SEBI was set aside on the ground that provision of Section 11B of the SEBI Act, 1992 cannot be invoked in respect of the alleged misconduct which took place at a point of time when section 11B was not on the statute book. SEBI filed an appeal against the said order before the Honble Supreme Court. Honble Supreme Court vide Order dated February 25, 2010 upheld SEBIs findings against the appellant. It was held that it may be noticed that Section 11B of the Act was invoked even at the show cause notice stage. Therefore, it cannot be said that any provision has been invoked in the midst of any pending proceeding initiated by the Board. The respondent was, thus, put on notice that SEBI is invoking its power under Section 11B which was available to it under the law on the date of issuance of show cause notice. Honble Supreme Court observed that the conduct of the respondent and the prohibition from dealing in securities for a period of five years imposed on the respondent may not be equated to offence and penalty. The order passed by SEBI is restraining the respondent from accessing the securities market and same is totally different from the definition and meaning of offence. The order is not penalty. Hence, the protection available under Article 20(1) of the Constitution is not tenable in the present matter. Honble Supreme Court further held that the SEBI Act (1992) is pre eminently a social welfare legislation seeking to protect the interests of the common men who are small investors. The Honble Supreme Court also held that Provisions of Section 11B being procedural in nature can be applied retrospectively. 142
The Honble SAT had set aside the prohibitions imposed on the respondent by SEBI for alleged mis-statement in the
v.
M/s. Bellary Steels & Alloys Ltd. vs. SEBI (Civil Appeal No. 1848/2009, date of order: 06/04/2009)
M/s. Karnataka State Financial Corporation (KSFC) alleged that a fraud was perpetrated by the appellant and its share transfer agent M/s. Karvy Computershare Pvt. Ltd. in transferring the pledged shares to a third party. SEBI vide order dated March 28, 2008 debarred the appellants for a period of five years, for illegally issuing duplicate share certificates though the original certificates continued to remain with KSFC and thereby violating Regulation 3 (a), (c) and (d) and Regulation 4 (2) (h) of the SEBI (PFUTP) Regulations, 2003. SAT vide order dated November 18, 2008 upheld the findings and order of SEBI. In the Civil Appeal filed by the appellants the Honble Supreme Court refused to interfere in the matter and dismissed the appeal. vi. SEBI vs. M/s. Saikala Associates Ltd. and SEBI vs. M/s. Shilpa Stock Brokers Pvt Ltd & M/s. Mehta Vakil Pvt Ltd (C. A. No. 3696 /05 & C. A. No 4640/2006, date of order: 21/04/2009)
No power is conferred on the Tribunal to travel beyond the areas covered by Section 12 and Rule 3. When something is to be done statutorily in a particular way, it can only be done that way. There is no scope for taking shelter under a discretionary power. vii. Mrs. Varsha Jain Shah vs. SEBI and Mr. Jatin Manubhai Shah vs. SEBI (Civil Appeal No 7840/2009 & Civil Appeal No 7841/2009, date of order: 11/12/2009) M/s. Oasis Media Matrix Ltd, a listed company had been earning marginal profits during the period 2002-2005. The company had reissued forfeited shares. SEBI carried investigations relating to reissue of shares and found that promoters of the company offloaded the reissued shares, which were not listed. It was also found that there was no consideration against the reissued shares. SEBI found the appellants to have violated Regulation 3 (a), to (d) of SEBI (PFUTP) Regulations, 2003 and were restrained from dealing in securities for a period of two years vide order dated February 14, 2008. SEBI order dated February 14, 2008 was challenged before Honble SAT in Appeal No 68/2008. SAT vide order dated August 10, 2009 dismissed the appeal. The appellant being aggrieved of the same filed the captioned appeal and the Honble Supreme Court after hearing the counsel for the parties was pleased to dismiss the same in limine. viii. M/s. Alka Securities Ltd vs. SEBI (Civil Appeal No 58/2010, date of order: 22/01/2010) The appeal was filed against the order dated December 9, 2009 of the Honble SAT in Appeal No 234/2009, which upheld the order dated October 30, 2009 of SEBI, suspending 143
The short but important question that arose for consideration before the Honble Supreme Court in the aforesaid appeals filed by SEBI were as to whether the Honble SAT exercising power under Rules 21 of SAT (Procedure) Rules, 2000 can convert the suspension of certificate of registration imposed by SEBI into monetary penalty. Honble Supreme Court set aside the order of SAT converting suspension of certificate of registration imposed by SEBI to a monetary penalty and agreed with SEBI that SAT has no power to convert the nature of the penalty. Honble Supreme Court, inter alia held :
the certificate of registration of the appellant for two months for violation of Section 12 of SEBI Act, 1992 and various circulars issued by SEBI, by handing over stock broking business to an unregistered sub-broker. Aggrieved by the order of Honble, SAT dated December 09, 2009, the appellant had filed the captioned appeal. The Honble Supreme Court after hearing the counsel for the parties declined to issue notice as there is no ground to interfere with the order and dismissed the appeal accordingly. ix. M/s. Kajol Impex Ltd vs. SEBI (Civil Appeal No 223/2010, date of order: 22/01/2010)
Court which upheld the orders passed by AO & SAT and dismissed the appeal. x. Mr. Shankar Sharma vs. SEBI (Civil Appeal No-37 of 2010, date of order: 01/02/2010)
SEBI investigated dealings in the scrip of M/s. Shree Yaax Pharma & Cosmetics Limited (hereinafter referred to as the company) for the period of June 11, 2004 to August 10, 2004. During the course of investigations, SEBI issued several summons requiring the appellant to furnish the details regarding its dealings in the shares of the company. The appellant failed to comply with the said summons/notices. SEBI initiated adjudication proceedings under the SEBI Act, 1992 and the Adjudicating Officer imposed a penalty of Rs.25 lakh on the appellant for non compliance of summons issued. The appellant filed appeal No 167/2009 before the Honble SAT. The Honble SAT observed that by not furnishing the requisite information and by not appearing before SEBI, the appellant had hampered the investigation process. The Honble Tribunal was pleased to dismiss the appeal vide order dated October 8, 2009. Aggrieved with the said order, the Appellant has filed the captioned appeal before the Honble Supreme 144
The captioned appeal filed against the final order/judgment dated October 28, 2009 passed by Honble SAT in Appeal No 14/2009. The Honble SAT vide its above mentioned order upheld the order dated February 13, 2009 of SEBI whereby the appellant was prohibited from buying, selling or dealing in securities and associating with the securities market in any manner whatsoever for a period of one year for having found guilty of indulging in synchronised trades on a large scale in number of scrips resulting in artificial creations of volumes and price in various scrips and thereby guilty of violating Regulation 4 (b) (c) and (d) SEBI (PFUTP) Regulations 1995. The captioned appeal was listed for admission on February 1, 2010. The Honble Court after hearing the counsel for parties pleased to dismiss the same and declined to interfere with the impugned order.
II. High Courts

i. Ms. Chanchal Jain & Others vs. SEBI & Others (W. P. (C) 10390/2009, date of order: 24/07/2009) before the Honble Delhi High Court
This writ petition was filed challenging the SEBIs circular dated June 30, 2009 whereby SEBI had advised the mutual funds and asset management companies (AMC) not to impose any entry load on investors and the mutual fund distributors were advised to charge the investors directly a separate advisory fee. Circular was challenged on
the grounds inter alia that (i) it was contrary to the SEBI Act, as the SEBI Act, does not include mutual fund distributors under its purview; (ii) it extinguishes the right to trade and/or profession of the small individual distributor and is therefore unconstitutional and bad in law. Honble High Court dismissed the writ petition holding that section 11(1) of the Act is very widely worded, sub-section 2 does not restrict or narrows down the wide scope of sub-section 1. Sub-section 2 is not exhaustive of the power and authority of SEBI. Under sub-section 1, SEBI can regulate payment of commission or state that there shall not be any entry load. SEBI is controlling and regulating new issues by mutual fund managers. While doing so, they are entitled and empowered to issue circulars in respect of entry load in the new mutual fund. The power conferred upon SEBI under section 11(2)(b) relates to both registration as well as the regulation. It is not possible to accept the contention that without registration of distributors, SEBI cannot control or regulate their working. SEBI is an expert body, which is entitled to regulate the market and has now issued circular dated June 30, 2009. In economic matters and matters relating to finance, courts are reluctant to interfere unless clear violation of Article 14 is made out. ii. M/s. MPS Greenery Pvt Ltd vs. SEBI, (WP No. 1971/2001, date of order: 25/06/2009) before the Honble Kolkata High Court
winding up and repayment report with SEBI. The company challenged the said SEBI order. The Honble High Court, while disposing off the matter, gave liberty to the petitioner to file adequate papers, in support of their claim, before the SEBI authorities to show that the interest of investors have been sufficiently protected by them. iii. Indian Bank Mutual Fund vs. SEBI (W.P.(C) No. 7464 of 2009, date of order: 05/05/2009) before the Honble Delhi High Court The captioned writ petition was filed by the Indian Bank Mutual Fund (Petitioner) challenging the order dated November 30, 1999 passed by SEBI and the order dated February 18, 2000 passed by the Central Government upholding SEBIs order. Vide the impugned orders the mutual fund was directed to pay dividend for the financial Year 1996-97 to Asian Institute of Transport Department (AITD) for the units it issued under the Ind-Jyoti Scheme, 1990 (Plan A). The Supreme Court upheld the order of SEBI and the Central Government.
III. Securities Appellate Tribunal

i. M/s. Wealth Sea Properties and Others. vs. SEBI (Appeal no. 98 of 2008, date of order: 13/07/2009)
SEBI vide its order dated September 3, 2002 had directed the M/s. MPS Greenery, which found to have been running collective investment schemes without obtaining registration from SEBI as per SEBI CIS Regulations, to wind up its existing schemes, make repayments to the investors and file 145
Appeal was filed challenging SEBIs letter whereby the request of the acquirer for second re-valuation of the shares of the Target Company was refused. Honble SAT allowed the appeal on the grounds that there were discrepancies in the report of the independent valuer and appointed M/s. Delloitte Touche as independent valuer to assess the values of the shares of the target company on the date of the acquisition.
ii.
M/s. Eight Capital Masters Fund and Others. vs. SEBI (Appeal no. 111 of 2008, date of order: 22/07/2009)
Acquirers were allotted two types of debentures i.e. Compulsorily Convertible Debentures and Optionally Convertible Debentures (OCD) which were to be converted into the equity shares of the target company. Post conversion of OCDs, acquirers were to trigger the Takeover Regulations. They made a public announcement for which they calculated the offer price by taking the date of Board resolution authorising the preferential allotment of OCDs (March 3, 2006) as the reference date in terms of explanation (ii) to regulation 20(11). Vide the observation letter dated August 29, 2008, SEBI advised the acquirers to recalculate the offer price by reckoning the public announcement (PA) date (January 22, 2008) as the reference date. Aggreived with the same, acquirer preferred an appeal before Honble SAT. Honble SAT held that as the Takeover Code triggers only on acquisition of voting rights and not otherwise therefore, preferential allotment as mentioned in Explanation (ii) to regulation 20(11) of the Takeover Regulations means the preferential allotment of shares carrying voting rights. In the present case, meeting of the Board of Directors when the resolution to allot the shares carrying voting rights pursuant to conversion of debenture was held on January 26, 2008. Therefore, it is the date of Board resolution which authorised the preferential allotment to be taken as the reference date. iii. M/s. Hamlet Holding Aps and Others vs. SEBI and Others (Appeal no. 12/2009, date of order: 05/08/2009) The appellant had challenged the SEBIs observation issued on the draft letter of 146
offer for the public offer of M/s. Disa India Limited (Target Company) due to indirect acquisition of 74 percent shares in the Target Company. The appellant had calculated the offer price in terms of regulation 20(12) by taking the date of public announcement for the Target Company. SEBI had advised the merchant banker to calculate the offer price also by taking the date of Stock and Share Purchase Agreement (i.e. March 08, 2008) as the date of PA for the parent company in terms of regulation 20(12) of the Takeover Regulations. Honble SAT held that word public announcement as used in Takeover Regulations has a specific connotation. Regulation 20(12) applies only in case of indirect acquisition made through acquisition of parent company which is Indian listed company. It has no application where the parent company is unlisted Indian company or where it is a foreign company whether listed or unlisted. Since, in the present case parent company was a foreign company, no PA in terms of Regulation 20 (12) of the Takeover Regulations was required to be made. As there was no date for PA for the parent company, the acquirer was right in calculating the offer price by taking the date of PA for the Target Company only. iv. Mr. Deepak Mehra vs. SEBI (Appeal No. 140 of 2009, date of order: 22/08/2009)
In the present appeal, letter dated June 22, 2009 issued by SEBI under the SEBI (Informal Guidance) Scheme, 2003 on the proposed acquisition by M/s. MTN of 35 percent of GDRs and giving the rights to the GDR holders to exercise voting rights in M/s. Bharti Airtel Limited, was challenged. Honble SAT dismissed the appeal holding that a letter issued under the Informal Guidance Scheme is not an order in terms of
section 15T of the SEBI Act,1992 and hence is not appealable before SAT. Honble SAT further held that appeal before SAT under section 15T lies against an order passed by SEBI and not against inaction of SEBI. The remedy for the appellant, if any, in such cases lies elsewhere. v. Mr. M. Z. Khan vs. SEBI (Appeal no. 98 of 2008, date of order: 08/09/2009)
This appeal was filed challenging the inaction of SEBI in not adjudicating on the issue of alleged violation of the regulation 12 of the SEBI (SAST) Regulations, 1997 by the M/s. Burren Energy Limited (acquirer) and M/s. Unocal Bharat Limited (PAC) in acquiring the shares and control in the M/s. Hindustan Oil and Exploration Company (target company). Honble SAT dismissed the appeal inter alia on the following grounds: a) Inaction of SEBI cannot be challenged under section 15T before SAT; b) Principle of constructive res judicata and principle contained in order 2 Rule 2 of the C.P.C.; c) Suppression of material facts by the appellant from Honble Supreme Court while withdrawing the SLP(C) No. 15404 of 2008. Honble SAT also imposed a cost of Rs.50,000/- on the appellant. vi. M/s. Tata Tea Limited vs. SEBI (Appeal no. 136 of 2008, date of order: 15/09/2009)
Takeover Regulations. In terms of Stock Purchase Agreement acquirer was also paying non-compete fees to the promoters which amounted to 6.7 percent of the offer price per share. SEBI advised merchant banker to revise the offer price by including non-compete fees also. In this appeal, acquirer impugned the said advice. Honble SAT allowed the appeal holding that in the present case payment of extra consideration to promoters/sellers was justified as non-compete, because sellers were competent enough to give competition to the acquirers. Honble SAT further held that under regulation 20(8) of the Takeover Regulations, SEBI can look into whether a payment which is being called non-compete is actually a non-compete or not even when it is less than 25 percent of the offer price. vii. Dr. Jayaram Chigurupati vs. SEBI and Mr. Narayanan vs. SEBI (Appeal Ns. 137 & 139 of 2009, date of order: 07/10/2009) This appeal was filed impugning a communication by SEBI whereby SEBI informed the appellant that the price calculated by the acquirers (i.e. M/s. Daiichi) was in accordance with the Takeover Regulations. In this case M/s. Zenotech (Target Company) was acquired by the M/s. Ranbaxy (PAC) and M/s. Zenotech became the subsidiary of M/s. Ranbaxy. Subsequently, M/s. Daiichi (Acquirer) acquired M/s. Ranbaxy (Parent Company) and thereby resulting into indirectly acquiring M/s. Zenotech. Honble SAT allowed the appeal holding that in cases of indirect acquisition, for the purpose of determining acquirer and PAC, in terms of regulation 20(4) (b), the relevant date is the date of public announcement for the target company. Thus it makes no difference that at the time of PA 147
M/s. Tata Tea Limited (acquirer) had acquired 24.2 percent shares of the M/s. Mount Everest Mineral Water Limited (Target Company) by virtue of the two agreements dated June 1, 2007 for which he made the Public Announcement on June 4, 2007 under regulation 10 and 12 of the
for the parent company (M/s. Ranbaxy) by the M/s. Daichi, M/s. Ranbaxy could not be treated as PAC with M/s. Daichi as it was itself a target company. Therefore, acquirer and PAC were required to calculate the offer price for the target company, by taking into consideration the acquisition made by the M/s. Ranbaxy (PAC), in the target company, 26 weeks prior to date of making of PA by the M/s. Daiichi for the parent company (M/s. Ranbaxy). viii. M/s. Subhkam Ventures (I) Pvt. Ltd vs. SEBI (Appeal No. 08/2009, date of order: 15/01/2010) The appeal was filed by M/s. Subhkam Holdings Pvt. Ltd. (the acquirer) challenging the SEBIs observation letter whereby the merchant banker was advised to disclose the regulation 12 of the Takeover Regulations also in the letter of offer as the Share Subscription & Shareholder Agreement (SS&SHA) signed by the acquirers were giving the controlling rights to the acquirer, in the M/s. MSK Projects (India) Ltd (Target Company). In the present case acquirer had made offer under the regulation 10 only. Honble SAT while allowing the appeal held that the word control is a proactive and not a reactive power. Control really means creating or controlling a situation by taking the initiative. Power by which an acquirer can only prevent a company from doing what the latter wants to do is by itself not control since the acquirer is only reacting rather than taking the initiative. In the light of aforesaid observations, after deliberating upon various clauses of the said agreement, Honble SAT held that the protective provisions under SS&SHA were in the nature of standards of good corporate governance and to protect the interests of the acquirer and none of the 148
clauses of the SS&SHA taken individually or collectively demonstrated control in the hands of the acquirer. ix. M/s. S. Kumars Nationwide Ltd. vs. BSE and Others. (Appeal N0. 151 of 2008, date of order: 07/08/2009)
This appeal was filed against refusal of in-principle approval for listing by the BSE of 63,76,195 and 16,66,665 equity shares of M/s. S. Kumars Nationwide Ltd. issued on a preferential basis to its promoters, under the Corporate Debt Restructuring (CDR) scheme approved by a CDR Cell. The in-principle approval was refused for violations of clause 13.4.1, 13.3.1 (f) and 13.3.1 (g) of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 (since repealed). Honble SAT allowed the appeal and exercising the powers of the Board given under clause 17.2A.1 of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 granted exemption to the appellant from the provisions of clause 13.3.1 (f) and (g) of the guidelines and directed BSE to grant in-principle approval as sought by the appellant. x. M/s. PGFL vs. SEBI (Appeal No. 138/2009, date of order : 17/09/2008)
The appellant had challenged SEBIs order dated September 17, 2008 directing the company and their director to not to access the capital market for a period of 10 years for its failure to make repayment to the investors and wind up the schemes in accordance with SEBI CIS Regulations. The Honble SAT observed that the company had not made repayment of the money collected from investors in accordance with the SEBI CIS Regulations and also continued mobilising
funds despite the restraint order passed by SEBI on December 6, 2002. The Honble SAT dismissed the appeal and upheld the SEBIs order. xi. M/s. Dimensional Securities Pvt. Ltd vs. SEBI (Appeal No. 143 of 2009, date of order: 29/06/2009)
part of the total trades so as to artificially increase the price of the scrip. xii. Mr. Dilip S. Pendse vs. SEBI (Appeal No. 80/2009, date of order: 19/11/2009) The appeal was filed against the order dated March 31, 2009 of SEBI restraining the appellant from accessing securities market for a period of five years from the date of the order for alleged insider trading. The Honble SAT vide its order dated November 19, 2009 while allowing the appeal observed that The charge of Insider trading is one of the most serious charges in relation to the securities market and having regard to the gravity of this wrong doing, higher must be the preponderance of probabilities in establishing the same. xiii. Ms. Himani Patel vs. SEBI (Appeal No.154/2008, date of order: 07.09.2009) The appellant preferred an appeal against the order of SEBI dated October 31, 2009, wherein he was directed to disgorge the ill gotten gain of Rs.33.5 lakh together with interest at the rate of 10 percent and prohibited him from dealing in the securities market for a period of three years, for having cornered shares meant for the retail individual investors in the initial public offerings. A penalty of Rs.55 lakh was also imposed by the AO for violation of section 12A of the SEBI Act, 1992, Regulation 3 of the SEBI (FUTP) Regulations, 2003 and the provisions of the SEBI (Disclosure and Investor Protection) Guidelines, 2000. The Honble SAT, while upholding SEBIs power to disgorge the illegal gains, also observed that The conduct of the appellant is not only subverted the allotment process but was also fraudulent in nature the whole time member was justified in requiring the appellant to disgorge the aforesaid amount. 149
The appeal was filed challenging the order dated September 18, 2008 of the Adjudicating Officer of SEBI imposing a penalty of Rs 2,00,000 on the Appellant, a Stock Broker, for violating Regulation 4(1) & 4(2) (a) (b) (e) and (g) of SEBI (PFUTP) Regulations, 2003 and Clauses A(1), (2), (3), (4) and (5) of Code of Conduct specified under Regulation 7 of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 in respect of its dealings in the scrip of M/s. Soft BPO Global Services Limited. The appellant had placed several buy orders on behalf of its clients before the trading session started for the day. The investigation report showed that 2009 of such orders out of 2,122 orders placed were automatically rejected by the exchange mechanism. However, there was a steep increase in the price of the scrip from Rs.15.2 to Rs.230.4 within a period of 34 days. The Adjudicating Officer held that the broker had failed to exercise due care and diligence, thereby violating the Code of Conduct prescribed for stock brokers and abetted its client in manipulating the price of the scrip. The Honble SAT while allowing the appeal held that the rejected orders did not affect the market mechanism and could not contribute to the creation of any volume whatsoever and therefore could not affect the price of the scrip. Also, the trades executed by the broker did not constitute any significant
The Honble SAT dismissed the appeal and imposed costs of Rs.50,000/- on the appellant. xiv. M/s. Triumph International Finance India Limited vs. BSE and Others. (Appeal No. 183 of 2009, date of order: 09/02/2010) The captioned appeal was filed against the order of AO dated June 30, 2009 imposing a monetary penalty of Rs. five lakh on the appellant for not disclosing the acquision of shareholding while acting in concert with other noticees and thereby violating Regulation 7 of the SEBI (SAST) Regulations, 1997 in the scrip of M/s. Adani Exports Limited. The Honble SAT, vide its order dated February 9, 2010 while allowing the appeal observed that close business association between two or more persons is not sine qua non for establishing persons acting in concert. xv. Ms. Bhanuben Jaisukhlal Shah vs. SEBI (Appeal No. 271/2009, date of order: 05/03/2010) The appeal raises an issue of interpretation of Spot Delivery Contract as defined in section 2(i)(b) of the SCR Act, 1956. The appellant contended that it does not mandate the acceptance of money/ consideration between parties, but it only speak about the transfer of securities from one account to another by depositories. The Appellant further contended that section 13 of SCRA would not be applicable as per exception provided in section 18(1) of the SCRA. Hence, the appellant is not liable for violation of Section 13 read with section 2(i) of the SCRA. The Honble SAT while dismissing the appeal held that; The central government by its notification 150
dated November 29, 1957 had made the provisions of Section 13 applicable to the area comprising Greater Bombay with which we are concerned. Going only by provision of section 13 of the Act read with the notification issued by the Central Government, no person could execute the transactions in securities in Greater Bombay otherwise than through member of a recognised stock exchange(s) or through or with such member(s). Section 18(1) of Act, however, carves out an exception. It provides that nothing contained in Section 13 shall apply to spot delivery contracts. A combined reading of Sections 13 and 18(1) would lead us to conclude that as a general Rule, every contract in securities should be executed through members of recognised stock exchange (s) or through or with such member(s) and the only exception thereto is spot delivery contract(s). The Honble SAT further held that; The Parliament then inserted clause (b) in Section 2(i) of the Act. This clause did not bring about any change in the definition of spot delivery contract. Clause (a) of the amended definition remains the same as the definition prior to the amendment. Clause (b) was inserted only to explain what actual delivery would mean in respect of the securities held in dematerialised form. According to Clause (b), when securities are transferred from one beneficial account to another, it would be treated as actual delivery of securities within the meaning of Clause (a). It is, thus clear that Clause (b) is not an independent clause, but only an explanation to the words actual delivery as used in Clause (a). We cannot, therefore accept the argument of the appellant that Clause (b) is an independent clause and that the spot delivery contract is completed with the mere transfer of securities from the
account of one beneficial owner to that of another without reference to the payment of consideration. This could never be. If that were so, the contract itself would become void being without consideration.
i)
Provision to credit the unclaimed amounts lying with CIS, MF, VCF under any scheme (for seven years) to the Consolidated Fund of India. SEBI to impose monetary penalty up to the maximum permissible under the relevant sections in Chapter VIA of the Act and to double the maximum monetary penalty currently prescribed in the Act. (a) To i n t e g r a t e e n q u i r y a n d adjudicating functions with one authority (E&AO).
j)
IV. Proposed Amendments

SEBI has sent certain proposals to Central Government for amendments to Securities Laws. Some of the important amendments proposed to various statutes are as follows: i. a) b) Amendments proposed to SEBI Act To dispense with the requirement of registration of sub-brokers by SEBI. To e m p o w e r S E B I t o m a n d a t e registration of intermediary with a SRO before it is registered by SEBI and to specify classes of intermediaries to be registered with recognised SROs only. To empower SEBI to specify different combinations of intermediation services that an intermediary may be allowed to undertake. To empower SEBI to promote or establish any institutions/trust etc. Specific power for SEBI to direct disgorgement of ill-gotten gains. Disgorged amount to be, credited to IPEF and utilised for compensating the investors. Power to cancel illegally allotted securities. To empower SEBI to file an application for winding up of an intermediary. Power to attach and auction the assets and properties of vanishing companies and/or person behind such companies. 151 l)
k)
(b) Persons aggrieved by the order of E&AO, may file review petition to Board. Explicit provision to provide for settlement of administrative proceedings.
c)
m) To rename the SAT as Financial Services Appellate Tribunal (FSAT) to deal with appeals from the orders issued by SEBI, PFRDA and IRDA. n) o) To empower SEBI to give retrospective effect to any regulation. To oblige SEBI to consult the public before making the regulations and to present the economic implications of the proposed regulations. To provide that, SEBI Act to prevail over other Acts in matters of issue/trading of securities. Amendments proposed to Depositories Act, 1996 To empower SEBI to supersede the governing body and take over the management of a depository. To lay down separate procedure for transferring the amount realised from
d) e)
p)
f) g) h)
ii. a)
b)
unclaimed securities lying in the demat accounts for seven years to the Consolidated Fund of India (CFI). iii. Amendments proposed to SCRA a) b) c) To Define securities in generic terms. To provide for nomination facility in respect of entitlement of all securities. To empower SEBI to grant recognition to clearing corporations in a manner similar to RSE. To provide for priority rights of clearing corporation/clearing house in case of winding up or insolvency of a clearing member. To provide for making listing agreement standard electronic agreement.
f)
To remove the exemptions provided to certain issuers and instruments under section 28(1). To transfer all powers under the SCRA with the Central Government to SEBI. To mandate recognised stock exchanges to transfer clearing and settlement functions to a recognised clearing corporation within three months. To repeal the blanket exemption under section 28 and empower SEBI to relax strict application of any provision of this Act in specific cases. To make provision for recovery of amounts like monetary penalty as arrears of land revenue.
g) h)
i)
d)
j)
e)
152
Part Five: Organisational Matters PART FIVE: ORGANISATIONAL MATTERS
1.
SEBI BOARD
2.
AUDIT COMMITTEE
Shri Prashant Saran was appointed as Whole Time Member of SEBI under clause (d) of sub-section (1) of Section 4 of the SEBI Act, 1992 by Government of India vide notification dated April 28, 2009. Shri Saran assumed charge as Whole Time Member with effect from May 18, 2009. Smt Usha Thorat, Deputy Governor, Reserve Bank of India was nominated as one of the Members on the Board in terms of Government of India notification dated May 12, 2009 in place of Shri V. Leeladhar. Shri R. Bandyopadhyay, Secretary, Ministry of Corporate Affairs was nominated as one of the Members on the Board in terms of Government of India notification dated October 14, 2009 in place of Shri Anurag Goel. During 2009-10 SEBI Board met on 9 occasions (Table 5.1). Table 5.1: Board Meetings during 2009-10
Number of Number of meetings meetings held attended 1 (i) Chairman Shri C. B. Bhave # (ii) Whole Time Member Shri M. S. Sahoo Dr. K. M. Abraham Shri Prashant Saran (iii) Members Shri R. Bandyopadhyay Dr. K. P. Krishnan Dr. G. Mohan Gopal Shri T.V. Mohandas Pai Smt Usha Thorat 4* 9 9 9 8* 1 9 1 8 8 9 9 8* 9 8 8 9 8 2 3
In pursuit of high standards of governance and transparency, the SEBI Board, in its 127th meeting held on September 22, 2009 constituted an Audit Committee to exercise oversight of SEBIs financial reporting process and disclosure of its financial information. The committee comprises of three members nominated by the Board. The tenure of the members of the committee is two years. The committee is presently chaired by Shri T. V. Mohandas Pai (Director, Infosys Technologies Ltd.) and Dr. K. P. Krishnan (Jt. Secretary, Ministry of Finance) and Shri M. S. Sahoo (Whole Time Member, SEBI) are the other two members. The committee met twice on November 26, 2009 and February 2, 2010 during the financial year 2009-10. The committee reviewed and discussed the financial statements of SEBI for the year 2009-10 with the management of SEBI and the internal auditors. Relying on the review and the discussions conducted with the management and the independent auditors, the audit committee believes that SEBIs financial statements are fairly presented in conformity with Generally Accepted Accounting Principles (GAAP) in all material aspects. The committee has also reviewed the internal control systems put in place and expressed its satisfaction with the same.
3.
HUMAN RESOURCES
# As the agenda related to conflict of interest of Shri C.B. Bhave, Chairman, he did not participate in the Board Meeting held on August 26, 2009. * Number of meetings held after assuming the charge. Note: Shri Anurag Goel attended 3 out of 4 meetings held during the year, prior to his demitting the office of the PartTime Member.
Human Resources Development Division continued to play an important role with prime focus on implementation of policies on capacity building, training, promotions, placement and transfers. 153
I.
Staff Strength, Recruitment, and Deputation
b.
BSE Training Programme Around twothree officers were nominated every month for various training programmes conducted by the BSE Training Institute throughout the year.
As on March 31, 2010, SEBI had a total of 607 employees in various grades - 493 officers and 114 secretaries and other staff. During 2009-10, two Executive Directors joined SEBI on contract basis and one officer in the rank of Deputy Legal Adviser joined the services of the Board. One Counselor was appointed for staff consultation. One officer in the rank of Deputy Legal Adviser was absorbed in the services of the Board. Five officers were deputed to Competition Commission of India and one officer was deputed to FATF Cell in Ministry of Finance. SEBI undertook campus recruitment at various management institutes of repute and National Law Schools in an effort to augment its staff strength in various areas. During 2009 -10, 46 officers were recruited, out of which 12 were hired in Legal Stream and rest 34 were hired in General Stream. These officers joined directly as officers in Grade B during 2009-10. c.
Data Warehousing 40 officers were nominated for training on Data Warehousing and Business Intelligence during the year 2009-10.
d.
Cyber Law Training 175 officers attended Training on Cyber Laws and cyber crime investigation.
e.
Induction Training 46 officers recruited from management schools and Law schools in 2009-10 were imparted induction training which included class room training, attachment training with various intermediaries as well as different departments in SEBI.
f.
Other Programmes Officers were also deputed to attend various training programmes on Reservation in Service, IT for Non-IT Professionals, Training for Trainers, etc. with the objective of enhancing specific skills. Training/attachment programs were conducted for senior officers of CBI, Trainee officers of Indian Foreign Service, etc., by SEBI.
II. Training and Development

In order to enhance the knowledge base as well as soft skills including motivation, communication etc., staff members across all grades were deputed to various behavioural and functional training programmes at both domestic and international level. The details are as under: i. a. Domestic Training Behavioural Training Programme for Secretaries Behavioural training programmes were conducted for 26 Secretaries on Personal Effectiveness. 154 ii.
Foreign Training
Around 105 officers were deputed to attend various training programmes and seminars/conferences conducted by regulators and other agencies outside India.
Part Five: Organisational Matters
III. Internship
SEBI, as an integral part of its policy, offered short duration projects/internships to students of reputed management schools and law schools. During 2009-10, 14 students (11 General Stream and three Legal Stream) from premier management schools and law schools were offered short duration projects/ internships on IPO pricing, churning of mutual funds, etc.
V.
Enhancement of Staff Pay, Allowances and Benefits
During the financial year the entitlements under the following schemes have been enhanced: a. b. c. Medical Reimbursement Briefcase Reimbursement Telephone Charges Reimbursement
IV. Promotions
During 2009-10, the following promotions took place covering various grades in SEBI against the existing vacancies: Table 5.2: Promotion of SEBI Officials during 2009-10
From 1 Assistant General Manager Manager/ Legal Officer To 2 Deputy General Manager Assistant General Manager/ Assistant Legal Adviser Secretary/Accounts Assistant Grade B Secretary Grade C No. of persons promoted 3 9 68
During 2009-10, SEBI enhanced the following benefits. i. Health Check-up for employees The facility of annual health checkup for staff members and their spouses was introduced during the year. Under this scheme, the staff members would be reimbursed the expenses on health checkup subject to ceiling limit per person (for self and spouse) once in a financial year. ii. Reimbursement towards Eye Refraction Test The facility of reimbursement of expenses on eye refraction test and/ or spectacles (lens with frame) for staff members and their spouse was introduced during the year. The staff members would be reimbursed the expenses subject to ceiling limit per person (for self and spouse) once in two years.
Secretary Grade A/B Manager Secretary/Accounts Assistant Grade A Secretary Grade B
12 14 2
Further, during the year, six officers in Grade C and two officers in Grade D who had completed seven years of service in their existing grade were granted personal promotion to the next higher grade. Secretarial staff, Accounts Assistants and Library Assistants who had completed 12 years of service in Grade A and 14 years in Grade B were promoted to the next higher grade. 155
VI. Disciplinary Matters

During 2009-10, one staff member was placed under suspension in terms of regulation 74 (1) and 86 (1) (b) of the Securities and Exchange Board of India (Employees Service) Regulations, 2001.
4.
NATIONAL INSTITUTE OF SECURITIES MARKETS (NISM)
NISM undertook a number of activities during 2009-10.
colleges. Based on the experience, a separate programme for college students has been developed. NISM has developed a dedicated website for financial literacy and investor education. It has over 200 pages of content. The content is under review. The website is proposed to be launched soon.
I.
Certification of Associated Persons in the Securities Markets
NISM launched the certificate examination for currency derivatives on May 15, 2009. Certification examinations for (i) Registrar to an Issue and Share Transfer Agents (Corporate) and (ii) Registrar to an Issue and Share Transfer Agents (Mutual Funds) were launched on August 7, 2009. About 14,500 candidates appeared for the examinations during the year and about 7,100 candidates passed. NISM is in the process of developing certification examinations for several other categories of associated persons in the securities markets including examinations for interest rate derivatives and compliance function.
III. Corporate Governance

NISM, along with the Global Corporate Governance Forum and the Confederation of Indian Industries, organised a number of events on corporate governance. Two workshops on Reporting on Corporate Governance in India were held for media persons in New Delhi and Mumbai. A roundtable conference on Corporate Governance in India: A Reality Check was organised in Mumbai on April 16, 2009. Directors Colloquia was held in Mumbai, Kolkata and New Delhi. 61 participants (including eight women participants) representing 47 companies participated in the three colloquia. In addition, one Board Leadership Workshops Toolkit: Training the Trainers programme was offered. 20 participants from 13 organisations participated in this Training of Trainers (ToT).
II. Financial Literacy and Investor Education

NISM offered its financial literacy programme for school children across India. In all 2,795 students underwent the programme in 29 schools in North, South and Eastern regions of India. Of these, 1,405 students from 17 schools have already undertaken the certification examination held at the end of the program. Five Train the Trainer workshops were held for school teachers in various cities. 143 teachers from 58 schools were trained in these teachers training workshops. Workshops on financial education were held for college students in Mumbai and Pune covering 1,081 students from 10 156
IV. Executive Education

NISM conducted the induction programme for 46 officers of SEBI during July 15 to August 14, 2009. A series of programmes were conducted in various cities (Mumbai, New Delhi, Kolkata and Chennai) on Training for Inspection of Brokers. NISM organised the India Securitisation Summit in Mumbai on July 8, 2009. There were over 180 delegates.
A b o u t t we n t y wo r k s h o p s t i t l e d Building an Investment Advisory Business were conducted in a number of cities across India for UTI Mutual Fund. At the request of Securities Board of Nepal, a five day training programme was conducted by NISM during October 26-30, 2009. A three day programme on Investigation of Securities Markets Fraud was conducted for Mumbai Police during September 24-26, 2009 in Mumbai. About 50 police officers attended the programme. A workshop on Direct Tax Code was held by NISM in Mumbai on September 25, 2009. Representatives from the Ministry of Finance, SEBI and a number of participants from the capital markets attended the programme.
2009. The observance of the week commenced with the pledge administered by Chairman to the Executive Directors and Division Chiefs, who in turn, administered the pledge to their staff. The regional managers located at the four regional offices Northern Regional Office, Eastern Regional Office, Southern Regional Office and Western Regional Office administered the pledge to their staff. A banner on Vigilance Awareness Week was prominently displayed outside the office premises at Mumbai and all four regional offices during the above mentioned week.
6.
PROMOTION OF OFFICIAL LANGUAGE
V.
Securities Market Education
During the year, NISM launched a six month part-time course Certificate in Financial Engineering and Risk Management. A workshop titled Essential Econometrics for Research in Finance was conducted during December 26-30, 2009. A workshop on Computational Finance was held during March 24-25, 2010. About 50 participants had attended.
SEBIs endeavor has always been to propagate the use of Hindi in the functioning of SEBI. In this direction, Board took several initiatives such as ensuring availability of various publications of the securities markets to the market participants and access to SEBIs regulations and its policies in Hindi. In the direction of educating the investors and to make them more aware of the securities market so that they can take informed investment decision, SEBI not only conducted various training programmes in Hindi but also made available educating material in Hindi as well as in regional languages. To ensure smooth implementation of Official Language Policy of Government of India to facilitate development of conducive environment for the implementation of Hindi in Board offices, it launched several incentive schemes, conducted various training programmes in Hindi for staff members so that the employees were able to discharge their official functions in Hindi. SEBI also contributed towards the 157
VI. Research Studies

NISM prepared a report Assessment of Long Term Performance of Credit Rating Agencies in India and submitted the same to the Ministry of Finance. A report on Stock Market Health Index was also prepared. NISM prepared a report on Market Stabilisation Fund and submitted to SEBI.
5.
VIGILANCE
Vigilance Awareness Week for the year 2009 was observed during November 3-7,
programmes organised by other institutions in the implementation of Official Language Policy of Government of India. SEBI is determined to make official language a strong medium for educating and protecting the interest of investors and contributing to the development of capital market.
etc) and System/Network Vulnerability/ Penetration Test. Technical Support Services from Oracle India Ltd were availed for further fine tuning/enhancing the performance of Oracle Database, Oracle Collaboration Suite, Oracle ERP (HRMS, Finance), etc.
7.
INFORMATION TECHNOLOGY
8.
INTERNATIONAL CO-OPERATION
The Information Technology Division (ITD) endeavors to implement emerging technologies. The major Information Technology (IT) initiatives during 2009-10 included strengthening/upgrading of existing systems. Paper-less initiatives were further strengthened with the implementation of various application software modules for the internal functioning of the Board. The IT infrastructure has been setup at the newly opened Western Regional Office at Ahmedabad. Leased line connectivity to Head Office, for accessing the centralised database at Mumbai, was also commissioned. The old personal computers at Head Office and Regional Offices were replaced with state of the art computers. The connectivity link between Primary Site, Mumbai and Disaster Recovery site at Chennai has been upgraded to four mbps circuit in order to facilitate database synchronisation. System Audit was conducted by CERTIN empanelled System Auditor. The scope of audit includes application audit on the ERP software/custom applications (like registration, claims, 158
Securities and Exchange Board of India is an active and a leading member of the International Organisation of Securities Commissions (IOSCO) which is an assembly of securities market regulators. Currently, IOSCO has 193 members regulating more than 95 percent of the worlds securities markets. It is the standard setting body for the worlds securities markets and promotes international co-operation for sharing of information and providing mutual assistance. In addition to its association with IOSCO, SEBI actively engaged in co-operation with foreign regulators, self-regulatory organisations, international financial institutions, international standard setting bodies and other international agencies of repute and relevance for development and regulation of securities markets. SEBI also contributed actively to the cause of development of securities markets in other jurisdictions in Asia as well as other regions.
I.
SEBI Association with G20/FSB work and other Multi-lateral Agencies
India is a member of G20. The implementation of G20 decisions and recommendations relating to strengthening regulation and supervision of securities markets, maintaining financial stability and
other financial sector regulatory reforms are being co-ordinated by the Financial Stability Board (FSB). India is also a member of the FSB. Chairman, SEBI attends meetings of the Plenary of FSB. SEBI actively contributed to the work of the FSB towards strengthening financial regulation as per the G20 decisions and recommendations. During the year, the FSB initiated/furthered its work in key areas like thematic peer review of implementation of FSB Principles and Standards of sound compensation practices, measures to address too big to fail problems associated with systemically important financial institutions, monitoring perimeter and consistency of regulation, strengthening Accounting Standards and strengthening adherence to international standards. SEBI made timely and effective contribution by sending inputs as well as participating in the meetings and conference calls organised by the FSB/MoF in this regard. The position of SEBI has been particularly highlighted with regard to implementation of international standards related to cooperation. FSB has stated that there would be no further evaluation of India with regard to co-operation related standards since SEBI is one of early signatories to the IOSCO MMoU, and also the level of implementation of IOSCO Principles relating to co-operation for securities regulation is significantly high in India.
of Indian securities markets, development of regulatory systems for securities markets in India and its involvement with IOSCO. The TC has several Standing Committees (SC) which assist TC in its work. SEBI is a member of SC1 on Disclosure and Accounting, SC2 on Regulation of Secondary Markets, SC3 on Regulation of Market Intermediaries, SC4 on Enforcement and the Exchange of Information and SC5 on Investment Management. SEBI hosted the meeting of the SC5 on Investment Management in November 2009 at Mumbai. ii) Appointment as Asia Pacific Regional Committee (APRC) Chair
At the 34th IOSCO Annual Conference in Tel Aviv, Israel in May 2009, Chairman, SEBI was elected to the IOSCO Asia Pacific Regional Committees Chair. The APRC is one of four regional committees constituted by the IOSCO to focus on regional issues relating to securities regulation. The APRC comprises 25 members representing securities regulators from the Asia-Pacific jurisdictions. SEBI chaired the APRC meeting held at Melbourne in October 2009 which discussed issues like the regulatory and supervisory challenges and issues arising out of the recent global financial crisis, implementation of the IOSCO Standards and Principles, Mutual Recognition/Co-operation, Capacity Building, and other concerns about matters of systemic risk, investor protection etc in the APRC region. SEBI remains an active member of various committees and task forces of IOSCO and is currently a co-chair of the EMC Task Force on Securitisation. The mandate of the Task Force includes working on fact-finding 159
II. Association with IOSCO

i) SEBIs membership of the Technical Committee/Standing Committees
SEBI is a member of the Technical Committee (TC), the main standard setting body of the IOSCO. SEBI acquired this membership on the basis of size of the Indian securities markets, the international nature
with regard to the level of development of markets for securitised products, regulatory issues thereof and recommending guidelines for sound securitisation markets in emerging jurisdictions. iii) SEBIs participation in IOSCO & other international meetings SEBI delegates participated in various IOSCO and other international meetings held during the year such as the 34th Annual Conference of IOSCO, meetings of the Technical Committee (TC), Executive Committee (EC), Emerging Markets Committee (EMC), Asia Pacific Regional Committee (APRC), EMC Advisory Board, CPSS-IOSCO Working Group, Implementation Task Force, Standing Committee 2, Standing Committee 5, Screening Group of the Standing Committee 4 and the Task Force on Supervisory Cooperation. SEBI delegates also attended other international meetings like the Plenary Session at the Aflatoun Mid-Campaign, World Capital Market Symposium, Asian Roundtable on Corporate Governance, Structured Products Asia 2009 and the FSB Plenary Meeting. iv) IOSCO Technical Committee Reports As a Technical Committee (TC) member of the IOSCO, SEBI approved the publication of the TC reports during the year such as Principles for Periodic Disclosure by Listed Entities, Principles on Point of Sale Disclosure, Transparency of Structured Finance Products, Unregulated Financial Markets and Products, Disclosure Principles for Public Offerings and Listings of Asset-Backed Securities etc. The reports are available on IOSCO Website. (http://www.iosco.org/library/index.cfm ?section=pubdocs&criteria=none&year=none) 160
III. MoU Agreements signed during 2009-10

During the year, SEBI signed a bilateral MoU for Mutual Co-operation and Information sharing with the Dubai Financial Services Authority (DFSA). The MoU was signed by Mr. C.B. Bhave, Chairman, SEBI and Mr. Paul Koster, Chairman of DFSA on October 28, 2009 in Mumbai. SEBI also signed a Capital Market Collaborative Agreement with the Securities Commission (SC) of Malaysia. The Agreement was signed by Mr. C. B. Bhave, Chairman, SEBI and Ms. Zarina Anwar, Chairman, Securities Commission, Malaysia in the presence of Honble Prime Minister of India, Dr. Manmohan Singh and Honble Prime Minister of Malaysia, Dato' Sri Mohd Najib bin Tun Haji Abdul Razak on January 20, 2010 in New Delhi. The agreement incorporates measures to facilitate the development of deeper and broader capital markets, greater cross-border activities between the capital markets and to attain closer regulatory cooperation in a mutually beneficial manner.
IV. MMoU and MoU Requests

During the year, SEBI received several requests from the securities regulators overseas seeking SEBIs assistance under the aegis of the Multilateral Memorandum of Understanding (MMoU/MoU). SEBI through its best efforts executed the requests so received, subject to the provisions of the MMoU/MoU. SEBI also made several requests to other securities regulators overseas within the framework of the MMoU/MoU, seeking their assistance in the enforcement actions initiated by SEBI.
V.
Technical Assistance
During the year, SEBI provided technical assistance to the Securities and Exchange Commission (SEC) of Sri Lanka for introducing Exchange Traded Funds in Sri Lanka. The Securities Board of Nepal (SEBON) has requested technical assistance from SEBI to undertake the study on the Nepalese Regulatory Framework. A team of five SEBI officials have been nominated to visit Nepal, for the same.
the Embassy of France, Ms. Idanna Appio, Deputy Head of the Macroeconomics and Mr. Joseph Caron, Canadian High Commissioner to India visited SEBI to discuss various issues. SEBI also welcomed representatives from USA, European Union, South Africa, Hong Kong, UK and Thailand. Meetings with the various delegations enabled sharing of knowledge and exchange of ideas related to the securities market and establishing interregulatory dialogue between the respective authorities.
VI. SEBIs Participation in the International Training Programmes

The International training programs provide a platform for capital market regulators to meet, discuss and share ideas, experiences and expertise on significant capital market regulation and development issues. SEBI nominated its officials at all levels to various training Programs/Conferences/ Seminars held by various international bodies like IOSCO, IMF, OECD, ADB, CFTC, APEC, IFIE, PCAOB, EC and securities market regulators of other jurisdictions.
VIII. Study Visits for Overseas Regulators Organised by SEBI

During the year, SEBI has organised one day/week long study visits to SEBI on Indian securities market for various jurisdictions (Nepal, Tanzania) on their request.
9.
PARLIAMENT QUESTIONS
VII. Visits by Foreign Delegations/ Dignitaries to SEBI

During the year, SEBI had the honour of welcoming a number of dignitaries/ delegations from various developed and developing jurisdictions. The Lord Mayor of the City of London; Mr. Peter Burleigh, Ambassador of the U.S. in India accompanied by Mr. Paul Folmsbee, U.S. Consulate General; Sir Richard (Dickie) Stagg, British High Commissioner; Mr. Charles Bean, Deputy Governor, Bank of England; Mr. Thomas Scholar, Second Permanent Secretary, HM Treasury; Mr. Nicholas Ferrari, Financial Counselor of 161
The Parliament Questions Cell at SEBI functions under the supervision of an Executive Director (Administration) as the nodal and interface point for all Parliament Questions, assurances to Parliament Questions, VIP references and other Parliament related work. SEBI furnished material for reply to 177 Parliament Questions and 47 points/queries raised by Parliamentary Committees, as under: Table 5.3: Parliamentary Queries Received/ Raised
2009-10 2008-09 1 Number of Parliament Questions received Number of points/queries raised by Parliamentary Committees 2 177 47 3 144 81
Table 5.4: Break-up of Parliamentary Queries Received and Replied by SEBI during 2009-10
Parliament Session 1 Monsoon Session (July August 2009) Winter Session (November December 2009) Budget Session Part I (February March 2010) Total No. of Admitted Questions Questions received 2 70 67 40 177 3 51 39 20 110
Selection of Subjects for Examination for 2009-10. The representatives of SEBI appeared before the Parliamentary Standing committee on Finance for a personal hearing on the Securities and Exchange Board of India (Amendment) Bill, 2009 in February 2010. During 2009-10, SEBI received a list of points from the committee on papers tabled in Rajya Sabha. SEBI furnished replies to the questionnaire in a time bound manner. Representatives of SEBI also appeared before the committee for a personal hearing.
During 2009-10, SEBI received a questionnaire from the Standing Committee on Finance - Examination of Demand for Grants (2009-10) of the Ministry of Finance and Ministry of Corporate Affairs. SEBI furnished replies to the same in a time bound manner. Relevant information was forwarded to the Standing Committee on Finance on
10. RIGHT TO INFORMATION ACT

The office of Central Public Information Officer was established in the year 2005 and Appellate Authority was also designated for the purpose of the first appeals. In order to facilitate the operation of the Right to Information Act, 2005, Central Assistant Public Information Officers were designated
Table 5.5: Queries/Points Raised by Various Committees and Replied by SEBI during 2009-10
Sr. No. 1 1. 2. 3. 4. 5. Committee 2 Standing Committee on Finance Selection of subjects for examination during 2009-10 Delayed laying of Annual Reports and Audited Accounts of SEBI on the Table of Rajya Sabha Examination of Demands for Grants (2009-10) of the Ministry of Finance (Department of Economic Affairs, Expenditure and Disinvestment) post oral evidence General list of points on Demands for Grants (2009-10) relating to capital market 1st Report of the Standing committee on Finance on Demands for Grants (2009-10) of the Ministry of Finance (Department of Economic Affairs, Expenditure, Financial Services and Disinvestment) Examination of Demands for Grants (2009-10) of the Ministry of Corporate Affairs Directions of the Parliamentary Standing Committee on Finance. List of points in connection with Examination of Demands for Grants (2010-11) of the Ministry of Corporate Affairs. General List of Points on Demands for Grants (2010-11) of the Ministry of Finance (Department of Economic Affairs, Expenditure and Financial Services) Information requested by Standing Committee on Finance Queries/ points raised 3 1 8 2 12 2 3 2 4 3 10
6. Examination of Demands for Grants (2009-10) of the Ministry of Corporate Affairs 7. 8. 9. 10.
162
in different Regional Offices of the Board i.e., the Northern, Southern, Eastern and Western Regional Offices so that the citizens of the country may have easy access to availability of information. In terms of Section 4 of the Right to Information Act, the Board has provided disclosable information on its web-site at www.sebi.gov.in which inter-alia provides updated information relating to various policies and activities of the regulator. The number of applications received under the Right to Information Act, 2005 increased by 7.7 percent from 846 applications for the year 2008-09 to 911 applications for the year 2009-10 (Table 5.6). The applications received pertained to various aspects of Table 5.6: Status of Application under RTI Act during 2009-10
Particualrs 1 Number of applications received Number of appeals received by the Appellate Authority in SEBI Number of orders passed by the Appellate Authority in SEBI Number appeals rejected/dismissed by the Appellate Authority Number of appeals allowed Number of appeals kept in abeyance CIC Cases Number of appeals received by CIC Number of appeals rejected/ dismissed by CIC Number of appeals remanded back to SEBI Appellate Authority by CIC Number of appeals with directions to furnish part of information passed by CIC Number of appeals kept in abeyance awaiting decision of Court 63 31 6 75 39 16 2008-09 2009-10 2 846 262 242 141 101 3 911 301 327 234 91 4
the functioning of SEBI and queries related to mutual funds, investor grievances, investigation, policies and regulations in force, information with respect to broker related complaints, derivatives etc. The applications were replied to within the stipulated time frame. The first appeals received by the SEBI Appellate Authority increased by 14.9 percent from 262 appeals for the year 2008-09 to 301 for the year 2009-10. During the year 2008-09, 63 second appeals were made before the Central Information Commission at New Delhi which increased to 75 appeals for the year 2009-10. The number of items/issues raised by the applicants in their various applications and information provided is detailed in Table 5.7. Table 5.7: Number of Issues Raised/Replied in RTI Queries
Year 1 Total Number of Applications received Total Number of issues raised in applications Total Number of issues replied Total Number of issues where information sought from other entities/ third parties/others 2009-10 2 911 4487 2745
1742
25
19 1
Regarding the items raised in the applications and the providing of information relating to items raised, Board provided information in 91 percent of the items pertaining to the applications received in the year 2009-10 and only nine percent of the remaining items were placed before the Central Information Commission. Out of this nine percent placed before the Central Information Commission in only two percent of cases certain directions were issued by the Commission to furnish part of information. 163
So in case of 98 percent information provided by SEBI was found to be satisfactory or exempted from being furnished as per the relevant exemption sections. No penalties were imposed by the Central Information Commission on SEBI or any of its employees under the Act. SEBIs endeavor has always been to be transparent in providing information to the citizens on the issues relating to the functions of the Regulatory Authority. By doing so, SEBI has been implementing the Right to Information Act, 2005 in its true letter and spirit. Towards this end, SEBI has initiated several steps in bringing about
greater transparency in dissemination of information by the various intermediaries and details of complaints, status of redressal of complaints, arbitration details/orders etc. are now available on exchange websites. During 2009-10, SEBI took various other initiatives to maintain transparency in its functions including disclosure of most of the information on a regular basis. The implementation of the Right to Information Act, 2005 in SEBI has contributed towards attaining the SEBI's objective of protection and education of the investors of securities market.
164
Chronology of Major Initiatives by SEBI CHRONOLOGY OF MAJOR POLICY INITIATIVES BY SEBI
Date April 20, 2009
Announcements With the opening of a Western Regional Office of SEBI at Ahmedabad, the allocation of regions for processing of draft offer documents for public/rights issues, were modified and SEBI (Disclosure and Investor Protection) Guidelines, 2000, were amended. Accordingly, merchant bankers were advised to file the draft offer documents of size up to Rs.50 crore, of the companies whose registered office falls in Gujarat and Rajasthan, with the regional office of SEBI in Ahmedabad. This was applicable for all draft offer documents for public/rights issues which are filed with SEBI on or after May 1, 2009. In order to enhance disclosures regarding shareholding pattern in a listed company and also to bring more transparency and efficiency in the governance of a listed company, certain clauses in the Equity Listing Agreement were modified i.e. clause 5A and 20A inserted, clause 16, 19 and 35 amended. Continuing with rationalisation of disclosure norms for listing of debt issuances, a simplified Listing Agreement for debt securities, prepared in consultation with the Bombay Stock Exchange Limited (BSE) and the National Stock Exchange of India Limited (NSE), was put in place. It was decided that those portfolio managers, who had not complied with the requirement of sub-regulation (8) of regulation 16 of the SEBI (Portfolio Managers) Regulations, 2008 by the deadline of May 10, 2009, should immediately stop undertaking new clients for portfolio management services till the time they become fully compliant with the said requirements. Such portfolio managers were also instructed to submit a monthly progress report in regard to status of compliance. It was decided that the unutilised investment limits for government debt should also be allocated in similar manner as specified in the SEBI circular IMD/FII & C/37/2009 dated February 6, 2009 providing the modalities for the allocation methodology for the debt investment limits with partial amendment to clause 3 (h) that no single entity shall be allocated more than Rs.1,000 crore of the government debt investment limit. It was clarified that for securities market transactions and off-market/ private transactions involving transfer of shares in physical form of listed companies, it is mandatory for the transferee(s) to furnish copy of PAN card to the Company/RTAs for registration of such transfer of shares. Contd. 165
April 24, 2009
May 11, 2009
May 12, 2009
May 20, 2009
Date June 9, 2009
Announcements It was clarified that mutual funds can invest in Indian Depository Receipts (Indian Depository Receipts) as defined in Companies (Issue of Indian Depository Receipts) Rules, 2004 subject to compliance with SEBI (Mutual Funds) Regulations 1996 and guidelines issued thereunder, specifically investment restrictions as specified in the Seventh Schedule of the Regulations. All registered portfolio managers were instructed to submit a monthly report regarding their portfolio management activity every month as per format provided. In this regard, they were advised that the report should be uploaded on SEBI Portal by the 5th of the following month with data pertaining to Assets under Management (AUM) of the portfolio manager as on the last calendar day of each month shall be indicated in Rupees in crore. With a view to ensure that the value of debt securities reflects the current market scenario in calculation of net asset value, it was decided that discretionary mark up and mark down should be brought to the level as detailed in SEBI Circulars No. MFD/CIR/8/92/2000 dated September 18, 2000 and MFD/CIR No. 14/442/2002 dated February 20, 2002. Accordingly, the discretionary mark up and mark down for rated as well as unrated debt securities was given. It was clarified that in case of the existing mutual fund schemes where the investments in money market instruments of an issuer was not in compliance with the gazette notification No. LAD NRO/ GN/2009-10/07/165404 dated June 5, 2009 pertaining to SEBI (Mutual Funds) (Second Amendment) Regulations, 2009, AMC should ensure compliance within a period of three months from the date of notification. Separate listing requirements for listing of IDRs issued by issuing companies from the countries whose securities market regulators are the signatories to the MMoU of IOSCO were specified which were to be read in conjunction with the Companies (Issue of Indian Depository Receipts) Rules, 2004 and Chapter VIA of the SEBI (Disclosure & Investor Protection) Guidelines, 2000 or any statutory modification or re-enactment thereof. With regard to the Regulation 16(7) of the SEBI (Portfolio Managers) Regulations, 1993, it was clarified that portfolio managers may keep the funds of all clients in a separate bank account maintained by the portfolio manager subject to the certain given conditions. Contd. 166
June 11, 2009
June 12, 2009
June 15, 2009
June 16, 2009
June 23, 2009
Chronology of Major Initiatives by SEBI
Date June 23, 2009
Announcements It was clarified that, issue and listing of non-convertible debt securities, whether issued to the public or privately placed, is to be done in accordance with the provisions of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008. Issue of debt securities that are convertible, either partially or fully or optionally into listed or unlisted equity will be guided by the disclosure norms applicable to equity or other instruments offered on conversion in terms of the SEBI (Disclosure and Investor Protection) Guidelines, 2000. In order to incentivise long term investors it was considered necessary that exit loads/Contingent Deferred Sales Charge (CDSC) which are beyond reasonable levels are credited to the mutual fund scheme immediately. Further, in order to empower the investors in deciding the commission paid to distributors in accordance with the level of service received, to bring more transparency in payment of commissions and to incentivise long term investment, various steps such as abolition of entry load for all mutual fund schemes, suitable disclosures regarding distribution of upfront commission etc. were taken. To bring in parity between domestic Venture Capital Funds and Foreign Venture Capital Investors (FVCIs), it was decided that the applicants desirous of registering with SEBI as FVCIs had to obtain firm commitment from their investors for contribution of an amount of at least USD one million at the time of submission of applications seeking registration as FVCIs before the start of operations. It was clarified that the revised filing fee for mutual fund schemes would be applicable to those scheme(s) whose scheme information document(s) had been filed with SEBI on or after July 1, 2009. SEBI (Disclosure and Investor Protection) Guidelines, 2000 were amended to include compulsory listing of IPO on at least one stock exchange with nationwide trading terminals, changing eligibility period for equity shares to be considered for offer for sale and introducing concept of Anchor Investor in public issues through book building route. Equity Listing Agreement was amended to prohibit listed companies from issuing shares with superior rights as to voting or dividend vis-vis the rights on equity shares that are already listed. Pursuant to the recommendations made by the Secondary Market Advisory Committee of SEBI, no-delivery period for all types of Contd. 167
June 30, 2009
July 3, 2009
July 8, 2009
July 9, 2009
July 21, 2009
Date
Announcements corporate actions in respect of the scrips which are traded in the compulsory dematerialised mode was removed and accordingly, short deliveries, if any, of the shares traded on cum-basis may be directly closed out. In case of such direct close-out, the mark-up price would be as stated in SEBI circular no. SMD/POLICY/Cir-08/2002 dated April 16, 2002.
July 27, 2009
Pursuant to the recommendations made by the Secondary Market Advisory Committee of SEBI, it was decided that in case of a buy transaction in cash market, VaR margins, extreme loss margins and mark to market losses together should not exceed the purchase value of the transaction. Further, in case of a sale transaction in cash market, the existing practice will continue. It was decided that, the mutual funds, while reporting their trades in corporate bonds should also report their inter-scheme transfers on the BSE/NSE/FIMMDA reporting platforms. The mutual funds, or the brokers/intermediaries acting on their behalf should ensure that inter-scheme transfers are indicated separately while reporting the same. The authorised stock exchanges and FIMMDA were instructed to put in place suitable systems to capture the aforesaid inter-scheme transfers. Such trades should be reported distinctly from other OTC trades. Instructions were issued to all registered merchant bankers for due compliance in case of changes in the draft offer documents due to developments before the offer document is filed with Registrar of Companies (RoC) or Designated Stock Exchange (DSE) which may result in major deviations from the draft offer document that was available in public domain. Accordingly, it was decided to classify the changes in offer documents which may call for (i) filing of updated offer document, with the Board along with fees and (ii) filing of updated offer document, with the Board, without fees. Pursuant to amendment of SEBI (Portfolio Managers) Regulations 1993 vide notification dated 11 August, 2008, the Circular No. SEBI/ RPM circular No. 2 (2002-2003) dated January 14, 2003 specifying the additional information required for registration/renewal of registration as Portfolio Managers circular was amended. In order to align the disclosure requirements pertaining to issuance of Indian Depository Receipts (IDRs) with the recent amendments Contd. 168
July 31, 2009
Date
Announcements made to the Companies (Issue of Indian Depository Receipts) Rules, 2004 by the Ministry of Corporate Affairs and to bring in more clarity with respect to the disclosure requirements pertaining to the IDR issuances, Chapter VIA of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 was amended. The amendments in the DIP Guidelines mainly relate to the disclosure of financial information pertaining to the issuing company and the extent of applicability of the DIP Guidelines to IDR issues.
August 5, 2009
It was clarified that for the purpose of payment of commission, both type of applications i.e. whether uploaded by Syndicate Members (NonASBA) or by self-sertified syndicate banks (SCSBs) (ASBA), will be treated on par and the commission will be paid accordingly to Syndicate Members or SCSBs, as the case may be. In terms of SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2008 amended on October 30, 2008, clarifications were issued with respect to the interpretation of the proviso inserted by the aforesaid amendment. In order to have parity among all classes of unit holders, it was decided that no distinction among unit holders should be made based on the amount of subscription while charging exit loads. Mutual funds were directed to ensure compliance with the circular regarding parity among all classes of unit holders on the basis of exit load on or before August 24, 2009. Mutual funds were further instructed to ensure that the principle laid down in the SEBI circular No. SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008 (clause 16 of the standard observations) should be followed and the parity among all classes of unit holders in terms of charging exit load should be made applicable at the portfolio level. In order to simplify the rights issue process as well as to make it more efficient and effective, SEBI (Disclosure and Investor Protection) Guidelines, 2000, were amended to rationalise the rights issue disclosure requirements, making ASBA applicable to all rights issues co-existing with the current procedure and to allow the issuer company to utilise the issue proceeds only after the basis of allotment is finalised. Contd. 169
August 6, 2009
August 7, 2009
August 17, 2009
August 20, 2009
Date August 27, 2009
Announcements All intermediaries of mutual funds were advised to strictly follow the code of conduct for the mutual fund intermediaries as revised by AMFI. Exchange traded 10-Year Notional coupon bearing GoI security futures were introduced as per the details in terms of product design, risk management measures and other related issues. Additional requirements to be fulfilled or the clarifications with regard to existing requirements of Anti Money Laundering (AML) standards/ Combating Financing of Terrorism (CFT) Obligations of Securities Market Intermediaries under Prevention of Money Laundering Act, 2002 and Rules framed there-under were issued. Merchant bankers were advised to refer to the exact provisions of the ICDR regulations for doing due diligence and ensuring compliance with the ICDR regulations and to continue to comply with the following instruction circulars, contents of which do not form part of the ICDR Regulations and shall therefore continue to remain in force. In this context, merchant bankers were also advised to note that any reference to the provisions of the rescinded Guidelines in these circulars should be deemed to be a reference to the corresponding provisions of the ICDR Regulations. Stock exchanges were instructed to disclose the details of complaints lodged by clients/investors against trading members and companies listed in the exchange, in their website. The aforesaid disclosure should also include details pertaining to arbitration and penal action against the trading members. Subsequent to the notification of ICDR Regulations, provisions for considering the applications under sub-rule (7) of rule 19 of the SCRR are dealt under section 11 of the SEBI Act 1992 read with sub-rule (7) of the rule 19 of SCRR. The circular specifies the requirements for considering applications seeking relaxation from strict enforcement of clause (b) to sub-rule (2) of rule 19 thereof under sub-rule (7) of rule 19 of the SCRR in case of i) Application by an unlisted issuer for listing of equity shares pursuant to scheme sanctioned by a High Court; ii) Application by a listed issuer for listing of equity shares with differential rights as to dividend, voting or otherwise; iii) Application by a listed issuer for listing of warrants offered along with Nonconvertible debentures; and iv) Miscellaneous cases. Contd. 170
August 28, 2009
September 1, 2009
September 3, 2009
Date
Announcements Certain provisions in the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 are required to be complied with by an unlisted issuer at the time of making an initial public offer. Since these provisions pertain to matters relating to issue of capital, the same have now been incorporated in the ICDR Regulations and consequently, the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 were amended to remove these provisions as well as the redundant provisions pertaining to application to Central Listing Authority. Provisions of clause 3.5.3 of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 (since rescinded) were incorporated in the equity listing agreement by amending clause 19 of the agreement, as these provisions pertain to compliance of listing conditions by a listed issuer.
September 4, 2009
It was decided that the unutilised investment limits for government debt should be allocated in similar manner as specified in SEBI circular IMD/FII & C/37/2009 dated February 6, 2009 IMD/FII & C/39/2009 dated May 12, 2009. In partial amendment to clause 3 (h) of the aforesaid circular IMD/FII & C/37/2009, it was decided that no single entity should be allocated more than Rs.800 crore of the government debt investment limit. Regarding compliance with regulation 16(8) of SEBI (Portfolio Managers) Regulations, 1993, it was informed that portfolio managers may undertake new clients subject to the certain specified conditions It was clarified that in cases where a special resolution has already been passed under the delisting guidelines prior to commencement of the delisting regulations, the delisting process should be governed by the provisions of the delisting guidelines, provided the said resolution is acted upon within a period of three months from the date of this circular. Otherwise, the company would be required to pass a fresh special resolution in terms of delisting regulations and proceed for delisting in terms of delisting regulations. Mutual funds were advised to have a systems audit conducted by an independent CISA/CISM qualified or equivalent auditor which should be comprehensive, encompassing audit of systems and processes, conducted once in two years. Further, mutual funds were advised to place the Systems Audit Report and compliance status before the Trustees of the mutual fund. The systems audit report/findings Contd. 171
September 10, 2009
September 14, 2009
September 16, 2009
Date
Announcements alongwith trustee comments should be communicated to SEBI. For the financial years April 2008 March 2010, the systems audit should be completed by September 30, 2010.
September 29, 2009
AMCs were instructed to submit a soft copy of Statement of additional information (SAI) within seven days of issuance of this circular and soft copy of Scheme information document (SIDs) alongwith printed/ final copy two working days prior to the launch of the scheme, both in PDF format. Mutual Funds were advised to update the SID and SAI in terms of clause 5 and clause 6 of circular no. SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008, a soft copy of which to be filed with SEBI in PDF format within seven days alongwith a printed copy of the same. AMCs were also advised to upload the soft copy of SID on AMFI website two working days prior to the launch of the scheme. Merchant bankers were advised to file five copies of the draft offer documents or offer documents with a particular office of the Board based on the estimated issue size as indicated below: 1. 2. For issues upto Rs.50 crore Regional offices of SEBI (as per the jurisdiction covered in a particular regional office); For issues more than Rs.50 crore SEBI Head Office, Mumbai.
October 7, 2009
The stock exchanges that have no trading for a period of six months or more were directed to resume trading only after ensuring that adequate and effective trading systems, clearing and settlement systems, monitoring and surveillance mechanisms, risk management systems are in place and have also complied with all other regulatory requirements stipulated by SEBI from time to time. Further, the stock exchanges were directed to resume trading only after obtaining prior approval from SEBI and comply with SEBI circular on annual systems audit within sixty days from the date of commencement of trading. It was noticed that stock exchanges have reduced/waived transaction charges on the trades executed on their trading platform. Stock exchanges, while revising such transaction charges, were advised to ensure certain conditions viz. the stock exchange system is capable of handling additional load, it does not affect the existing risk management system etc. It was decided that, all trades in corporate bonds between specified entities, namely, mutual funds, foreign institutional investors/subaccounts, venture capital funds, foreign venture capital investors, Contd. 172
October 14, 2009
October 16, 2009
Date
Announcements portfolio mangers, and RBI regulated entities as specified by RBI should necessarily be cleared and settled through the National Securities Clearing Corporation Limited (NSCCL) or the Indian Clearing Corporation Limited (ICCL).
October 23, 2009
In consultation with the stock exchanges and other market participants, it was decided to permit the stock exchanges to set their trading hours (in the cash and derivatives segments) subject to the condition that: a. b. The trading hours are between 9 AM and 5 PM, and The exchange has in place risk management system and infrastructure commensurate to the trading hours.
Stock exchanges, depositories and registered intermediaries were directed to ensure expeditious and effective implementation of the procedure laid down in the Unlawful Activities (Prevention) Act (UAPA) order dated August 27, 2009 and various directions were issued to stock exchanges, depositories and all registered intermediaries for the same. November 6, 2009 SEBI registered stock brokers (including trading members) of stock exchanges were allowed to provide access to clients through authorised persons. The framework governing the market access through authorised persons was also given which provides the minimum requirements and the stock exchanges and stock brokers may prescribe additional requirements, as they may deem appropriate, in the interest of investors and market. Units of mutual fund schemes were permitted to be transacted through registered stock brokers of recognised stock exchanges and such stock brokers were eligible to be considered as official points of acceptance. In this regard, all mutual funds/asset management companies (AMCs)/association of mutual funds in India (AMFI) recognised stock exchanges/depositories/registrar to an issue and share transfer agents were issued various directions viz. code of conduct for intermediaries, time stamping, investor grievance mechanism, KYC etc. Based on recommendations of the Secondary Market Advisory Committee, it was decided to allow flexibility to the stock exchanges to set the expiry date/day for equity derivative contracts. While doing so, the stock exchanges were advised to ensure that there is no change in the contract specifications or the risk management framework and the integrity of the market is not affected in any manner. Contd. 173
November 13, 2009
Date November 25, 2009
Announcements Since SEBI (Disclosure and Investor Protection) Guidelines, 2000 have now been rescinded, a new circular was issued giving various formats for letters/reports, terms and conditions for obtaining the No Objection Certificate (NoC) for release of one per cent of the issue amount of the securities offered to the public and/or to the holders of the existing securities of the company to issuer companies. Pursuant to suggestions received from various market participants, the simplified debt listing agreement was amended. Based on the recommendations of the Secondary Market Advisory Committee (SMAC), it was decided to compute the limitation period of six months for reference of a complaint/claim/difference/dispute for arbitration from the end of the quarter during which the disputed transaction(s) were executed. With a view to instill greater transparency and discipline in the dealings between the clients and the stock brokers, it was decided, in consultation with Investor Associations, Secondary Market Advisory Committee of SEBI (SMAC), market participants and major stock exchanges, that the stock brokers will comply with the requirements as given. It was clarified to the depositories and all the stock exchanges that if a copy of the various records/documents is taken by enforcement agencies like CBI, Police, Crime Branch etc. either from physical or electronic record then the respective original is to be maintained till the trial or investigation proceedings have concluded. SEBI reiterated that the requirements as mentioned in the master circular ISD/AML/CIR-1/2008 dated December 19, 2008 issued by SEBI is applicable to the mutual funds/AMCs and hence maintaining all the documentation pertaining to the unitholders/investor is the responsibility of the AMC. The trustees of the mutual funds were advised to take certain specified actions in case of such investor accounts/folios where investor related documents are incomplete/ inadequate/not available. Mutual funds were advised to ensure compliance with the instruction of the investor informing his desire to change his distributor and/or go direct, without compelling that investor to obtain a NoC from the existing distributor. Contd. 174
November 26, 2009 December 2, 2009
December 3, 2009
December 9, 2009
December 11, 2009
Date December 15, 2009
Announcements A list of circulars/guidelines which were revised in consultation with AMFI in line with the requirements of investor protection, market development or effective regulation was issued. It was decided that the unutilised investment limits for government debt will also be allocated in similar manner as specified in the circular providing the modalities for the allocation methodology for the debt investment limits. Allocation of debt limit is done in two ways - Electronic bidding process and First-Come-First-served process. In partial amendment to clause 3 (c) and 3(d) of the aforesaid circular, the minimum amount which can be bid for and the minimum tick size was decided at Rs.50 crore. The bidding process was held on December 17, 2009 on the Bombay Stock Exchange. Further, an investment limit of Rs.350 crore in Government debt was allocated among the FIIs/subaccounts on a first come first served basis in terms of SEBI circular dated January 31, 2008, subject to a ceiling of Rs.50 crore per registered entity.
December 22, 2009
Regarding Exchange Traded Interest Rate Futures, exchanges were allowed to set any period of time during the delivery month as the delivery period for the deliverable grade securities. A detailed circular on Applications Supported by Blocked Amount (ASBA) facility in public and rights issues was issued. In order to enable the industry and other users to have an access to all the applicable circulars at one place, Master Circular for mutual funds was issued. Pursuant to feedback received from market participants and proposals received from NSE and BSE for revision of Securities Lending and Borrowing (SLB) framework , the framework for SLB was modified. It was decided in consultation with the credit rating agencies (CRAs) that the audit envisaged under Regulation 22 of the SEBI (Credit Rating Regulations), 1999 should include an internal audit to be conducted on a half yearly basis by Chartered Accountants, Company Secretaries or Cost and Management Accountants who are in practice and who do not have any conflict of interest with the CRA.
December 30, 2009 January 1, 2010
January 6, 2010
January 7, 2010
Pursuant to suggestions from various market participants received subsequently, Simplified Debt Listing Agreement for Debt Securities was modified. Contd. 175
Date
Announcements Clarifications were issued for the cases of transmission of shares in physical form where it is mandatory to furnish a copy of PAN.
January 8, 2010
In consultation with stock exchanges, the lot size for derivative contracts on individual securities was standardised. Stock exchanges were directed to review the lot size once in every six months based on the average of the closing price of the underlying for last one month and wherever warranted, revise the lot size by giving an advance notice of at least two weeks to the market. Format for the quarterly report on venture capital activity to be submitted by Venture Capital Funds was revised. In consultation with stock exchanges and based on the recommendations of the Secondary Market Advisory Committee of SEBI, the operationalisation of Market Wide Position Limits (MWPL) of the derivative contracts on individual securities traded across stock exchanges was streamlined.
January 11, 2010
January 12, 2010 January 18, 2010
Format for the quarterly report on venture capital activity to be submitted by Foreign Venture Capital Investors was revised. It was clarified that the 'in person' verification done for opening the beneficiary owner's account by a depository participant will hold good for opening trading account by a stock broker and vice-versa, if the stock broker and the depository participant is the same entity or if one of them is the holding or subsidiary company of the other. In order to make statements appearing in Clauses 10, 13 and 14 of Schedule VI of SEBI (Mutual Funds) Regulations, 1996 on Advertisement Code more prominent, it was advised that these clauses should be printed in bold in the advertisements issued by mutual funds.
January 19, 2010
Eligible stock exchanges were permitted to introduce currency futures on Euro-INR, Pound Sterling-INR and Japanese Yen-INR. Based on feedback received from stock exchanges, the calendar spread margin to be applied on the US Dollar-INR contract was modified. It was decided that the provisions of the clause 4 (e) of circular SEBI/ SMD/SE/Cir-24/2003/18/06 dated June 18, 2003 and clause 4 of circular MIRSD/MSS/Cir- 30/13289/03 dated July 9, 2003 will not be applicable to the trading members and clearing members in the equity derivatives and currency derivatives segments, stock brokers in the cash segment Contd. 176
January 21, 2010
Date
Announcements who are covered under Schedule III A [payment of fees by stock brokers] of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 and stock brokers in the cash segment who may migrate to Schedule III A [payment of fees by stock brokers] of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 in future (as and when they migrate).
January 29, 2010
Depositories were directed to disclose the details of complaints lodged by beneficiary owners (BOs)/investors against depository participants (DPs) in their website. The disclosure should also include details pertaining to arbitration and penal action against the DPs in the given formats. With a view to ensure that the value of money market and debt securities in the portfolio of mutual fund schemes reflect the current market scenario, the current provisions regarding valuation of these securities were modified. In order to improve the manner in which the message Mutual Fund investments are subject to market risks, read the offer document carefully before investing is conveyed to the investors, it was decided that with effect from May 1, 2010: i. ii. The standard warning in audio-visual advertisement shall be displayed as Mutual Fund investments are subject to market risks, read all scheme related documents carefully. No addition or deletion of words shall be made in the standard warning.
February 2, 2010
February 4, 2010
It was re-emphasised that both the visual and the voice over of the standard warning will be run for at least five seconds. February 10, 2010 A committee was constituted under the Chairmanship of Dr. Bimal Jalan (Former Governor, Reserve Bank of India) for review of ownership and governance of market infrastructure institutions. A master circular was issued consolidating all the requirements/ instructions issued by SEBI with regard to AML/CFT till January 31 2010 superseding the earlier circulars, dated September 1, 2009, December 19, 2008, March 20, 2006 and January 18, 2006. Stock exchanges were advised to disclose the details of allottees and the corresponding pre and post Qualified Institutional Placements (QIP) issue shareholding in the issuer company on their websites. Contd. 177
February 12, 2010
March 5, 2010
Date March 15, 2010
Announcements The format for the half yearly report on portfolio management activity was revised and all portfolio managers were advised to submit the half yearly report to SEBI in the revised format within 30 days after the end of respective period ended September 30 and March 31 of each year. Mutual Fund Policy Directions It has been decided to extend ASBA facility to the investors subscribing to New Fund Offers (NFOs) of mutual fundschemes. In order to make NFO process efficient, it has been decided to reduce the NFO period to 15 days. However, the NFO period in case of ELSS schemes shall continue to be governed by guidelines issued by Government of India. Non availability of Unit Premium Reserve for dividend distribution It has been decided that henceforth, AMCs shall disclose their general policies and procedures for exercising the voting rights in respect of shares held by them on the website of the respective AMC as well as in the annual report distributed to the unit holders from the financial year 2010-11. It has been decided that henceforth AMCs shall not enter into any revenue sharing arrangement with the underlying funds in any manner and shall not receive any revenue by whatever means/head from the underlying fund. Any commission or brokerage received from the underlying fund shall be credited into concerned schemes account.
March 17, 2010
A master circular on oversight of members (stock brokers/trading members/clearing members of any segment of stock exchanges and clearing corporations) was issued. In consultation with the major stock exchanges, the time line to take necessary steps to implement the circular for 'Dealings between a client and a stock broker (trading members included)' and ensure its full compliance in respect of all clients - existing and new, was extended.
March 31, 2010
Contd. 178

SEBIAnnual Report

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

SEBIAnnual Report

Uploaded by

Copyright:

Available Formats

This Report is in conformity with the format as per the Securities and Exchange Board of India (Annual Report)

Rules, 1994, notified in Official Gazette on April 7, 1994.

MEMBERS OF THE BOARD

MEMBERS OF THE SEBI BOARD

M S SAHOO Whole Time Member

K M ABRAHAM Whole Time Member

PRASHANT SARAN Whole Time Member

G MOHAN GOPAL Director National Judicial Academy Bhopal

T V MOHANDAS PAI Director Infosys Technologies Limited Bangalore

R BANDYOPADHYAY Secretary Ministry of Corporate Affairs Government of India

USHA THORAT Deputy Governor Reserve Bank of India

CHAIRMAN, WHOLE TIME MEMBERS AND EXECUTIVE DIRECTORS

MUTUAL FUNDS .................................................................................................................. FOREIGN INSTITUTIONAL INVESTMENT.................................................................

PROSECUTION ..................................................................................................................... I. Trends in Prosecution .................................................................................................. iii

PARLIAMENTARY QUESTIONS ......................................................................................

95 95 96 97 97 97 99 112 114 115 116 117 117 118

Page No. 7 8 12 18 23 70 71 109 129

This Report can also be accessed on internet http://www.sebi.gov.in

PNs/P-Notes Participatory Notes

Part One: Policies and PART ONE: POLICIES AND PROGRAMMESProgrammes

GENERAL MACRO-ECONOMIC ENVIRONMENT

Annual Report 2009-10

Table 1.1: National Income (at 2004-05 prices)

Part One: Policies and Programmes

Services (5+6+7+8) GDP at Factor Cost Source: Central Statistical Organisation.

Note: Construction as per RBI classification comes under services sector.

Annual Report 2009-10

Table 1.3: Gross Domestic Savings and Investment

-44,064 -2,03,343 1,99,451 -2,21,768 4,21,219 30,735

-45,524 -2,07,315 1,89,751 -2,79,300 4,69,051 58,598

-64,430 -1,92,517 1,88,318 -3,64,407 5,52,725 89,134

-1,32,743 -4,44,244 3,43,307 -2,38,121 5,81,428 19,349

-1.20 -5.49 5.38 -5.98 11.36 0.86

-1.06 -4.84 4.43 -6.52 10.95 1.40

-1.30 -3.89 3.81 -6.36 11.17 1.90

-2.38 -7.97 6.16 -4.27 10.43 0.40

Part One: Policies and Programmes

Annual Report 2009-10

REVIEW OF POLICIES AND PROGRAMMES

Part One: Policies and Programmes

Primary Securities Market

Box 1.1: Salient Features of Pure Auction Method in Public Offerings

Benefits of the method: a. b.

Annual Report 2009-10

Box 1.2: Introduction of Concept of Anchor Investors in Public Offerings

Part One: Policies and Programmes

Annual Report 2009-10

Part One: Policies and Programmes

IFRSs would not be applicable for

Phase I April 1, 2011

Annual Report 2009-10

II. Secondary Securities Market

Box 1.3: Convergence of Indian Accounting Standards with IFRS

Part One: Policies and Programmes

Annual Report 2009-10

Part One: Policies and Programmes

Annual Report 2009-10

Part One: Policies and Programmes

Annual Report 2009-10

Part One: Policies and Programmes

Annual Report 2009-10

Part One: Policies and Programmes