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SEBI

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4/19/12

Companies Act

The issue of capital and matters incidental thereto Capital structure of companies Dividend distribution Inter-corporate investment Matters regarding shareholders meetings and format of annual accounts Procedure for allotment of shares and

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Securities Contracts (Regulation) Act, 1956


Regulate Stock Exchanges Recognise, De-recognise, Stipulate laws and by-laws Prohibition of security transaction outside the exchanges Gave GOI the ultimate say in everything Administered by MoF, Deptt of 4/19/12 Economic Affairs, GOI

Capital Issues (Control) Act, 1947

Repealed and replaced as Capital Issues (Control) Repeal Act, 1992. Regulated the Primary or New Issues Market

To protect the investors Ensure good corporate investment Ensure soundness of capital structure Looking after congestion of Public Issues regulate Foreign Investment as well

To 4/19/12

LPG

LPG made the IFS vulnerable Harshad Mehta Scam Existing frame work

Fragmented Ill-coordinated Inadequate Autonomous, statutory and integrated

Need of Vigilant Regulatory Body

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SEBI

Established on 12th April 1988 Became powerful post 1992 CICA repealed and CIC abolished Under control of MoF HO in Mumbai

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SEBI Constitution

6 Members

Chairman 2 from amongst the officials of Central Gov. Ministries dealing with finance and law 2 professionals having experience and/or knowledge of Securities Market 1 from RBI
Board

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Organisation Structure

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The Primary Market Policy, Intermediaries, Self-Regulatory Organisations, and Investor Grievance and Guidance Deptt

Looks after overall Policy Matters and regulatory issues pertaining to Primary Market like:

Registration Merchant Bankers Portfolio Management Services Investment Advisers Debenture Trustees

Underwriters, 4/19/12

The Issue Management and Intermediaries Department

Examination and Evaluation of prospectus and letter of offers to public and right issues Coordinating with Primary Market policies Registration Regulation and Monitoring of Issuerelated Intermediaries
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Policies and regulatory issues of secondary market and new investment products Registration and monitoring of mebers of stock exchanges Market surveillance Monitoring Price Movements Insider Trading
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The Secondary Market Policy, Operations and Exchange Administration, New Investment Products and Insider Trading Deptt.

The Secondary Market Exchange Administration, Inspection and nonmember Intermediaries Deptt Looks after smaller stock exchanges and Inspection Registration Regulation and monitoring of nonmember intermediaries such as brokers
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Institutional Investment (Mutual Funds and FII), Mergers and Acquisitions, Research and Publications and International Relations and IOSCO Deptt

Policy, registration, regulation and monitoring of FIIs, Domestic Mutual Funds, Mergers and substantial acquisition of shares

IOSCO (International Organisation of Securities and Commissions) membership, international relations, and research, publication and annual report of SEBI
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Legal Department and Investigation Department

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Objectives of SEBI

To protect the interest of the investors in securities To promote the development of securities market To regulate the securities market

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Functions of SEBI

Regulating the business in stock exchange and any other securities market Registering and regulating the workings of intermediaries associated with securities market Registering and regulating the working of collective investment schemes including mutual funds Promoting and regulating self-regulatory organizations

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Functions of SEBI

Promoting investors education and training of intermediaries in securities market Prohibiting insiders trading in securities Regulating substantial acquisition of shares and take-over of companies Calling for information, undertaking inspection, conducting enquiries and audits of the stock exchanges, intermediaries and self-regulatory organizations in the securities market

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SEBI Regulates.

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SEBI & Primary Market


Measures undertaken by SEBI:

Entry norms Promoters contribution Disclosure Book building Allocation of shares Market intermediaries

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Conti..
1. Entry norms
a)

Track record of dividend payment for minimum 3 yrs preceding the issue. Already listed companies - when post-issue net worth becomes more than 5 times the pre-issue net worth For Manufacturing company not having such track record appraise project by a public financial institution or a scheduled commercial bank. For corporate body 5 public shareholders for every Rs.1 lakh of the net capital offer made to the public Banks 2 yrs of profitability for issues above par.

b)

c)

d)

e)

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Conti..
2. Promoters contribution

Should not be less than 20% of the issued capital. Receiving of promoters contribution. Lock in period as per SEBI. Cases of non-under written public issues.

3. Disclosure

draft prospectus Un audited financial results

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Conti..
4. Book building

One of the mode of public issue through prospectus. Role of syndicate members and book runners. Minimum 30 centers. Minimum application of shares Reservation for small investors Allotment of securities

5. Allocation of shares

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Conti..
6. Market intermediaries

Licensing of merchant bankers Licensing of underwriters, registrars, transfer agents, etc., Merchant bankers net worth Rs.5 crores Segregate fund based from fee based activities.

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SEBI & Secondary Market


Reforms in the secondary market:1.

Governing board Infrastructure Settlement & clearing Debt market Price stabilization Delisting Brokers Insider Trading

2.

3.

4.

5.

6.

7.

8.

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Conti..
1. Governing board

Brokers and non-brokers representation made 50:50 60% of brokers in arbitration, disciplinary & default committees For trading members 40% representation

2. Infrastructure

On-line screen based trading terminals

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Conti..
Settlement & clearing

3.

Weekly settlements Auctions for non-delivered shares within 80 days of settlement Advice to set up clearing houses, clearing corporation or settlement guarantee fund Warehousing facilities permitted by SEBI.

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Conti..
Debt market segment

4.

Regulates through SEBI (depository & participants) regulation Act 1996. Listing of debt instruments Invt. Range for FIIs

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Conti..
5.

Price stabilization

Division to monitor the unusual movements in prices. Monitor prices of newly listed scrip from the first day of trading. Circuit breaker system and other monitoring restrictions could be applied Imposing of special margins of 25% on purchase in addition to regular margin. Price filters Price bands

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Conti..
6. Delisting

On voluntary de-listing from regional stock exchanges buy offer to all share holders Promoters to buy or arrange buyers for the securities 3 yrs listing fees from companies and be kept in Escrow A/c with the stock exchange.

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SEBI and the FIIs


Union Govt. allowed

Foreign Institutional Investors (FIIs) Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs) to enter into both Primary & Secondary market in India through the portfolio investment scheme (PIS), under Liberalized policy regime. Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian companies through the stock exchanges in India. Implications:Affects the sensex movements Determines the market indications Guidelines announced in 1992 In 1993, 12 FIIs got registered At the 4/19/12 end of 1996-97, 439 FIIs were registered

The ceiling for overall investment for FIIs:-

24% of the paid up capital of the Indian company 10% for NRIs/PIOs. 20% of the paid up capital in the case of public sector banks, including the State Bank of India.

Modifications in ceilings:-

The ceiling of 24 % for FII investment can be raised up to sectoral cap/statutory ceiling, subject to the approval of the board and the general body of the company passing a special resolution to that effect.
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Monitoring Foreign Investments The Reserve Bank of India

monitors the ceilings on FII/NRI/PIO investments in Indian companies on a daily basis. For effective monitoring of foreign investment ceiling limits, the Reserve Bank has fixed cut-off points that are two percentage points lower than the actual ceilings.

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FIIs breakup in Indian Capital Market

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SEBI guidelines for FIIs:According to the 1995 regulations, FIIs should hold certificate granted by SEBI to trade in Indian stock market.

To grant the certificate the applicant should


1.

Have track record, professional & competence record, financial soundness, general reputation of fairness and integrity. Regulated by an appropriate foreign regulatory authority. Permission under the provisions of FERA Act 1973.(FEMA 2006)

2.

3.

Valid up to 5 yrs.
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Custodians

Is an agency appointment of the custodian Maintenance of accounts Submission of semi-annual reports (SEBI & RBI) Inspection of accounts

SEBI Guidelines:

Foreign brokers can operate only on behalf of registered FIIs.

Execution of orders for sale and purchase of securities are done by a member of an Indian 4/19/12 stock exchange

Preferential allotment -To boost up the


financial Regulation:Under mutual consent of the shareholders As per the ceilings Allotment on the highest price (26 weeks) Permitted up to 15% of the equity within the ceiling Holdings of a single FII increased from 5% to 10% of the equity of a company
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resources

Recent developments in FIIs

Exemption from attaching copy of RBI approval with each market lots. Allowed to invest in unlisted stocks of any company. Allowed to invest up to 100% in debt instruments. Mandatory to settle transactions through dematerialized mode for FIIs having securities more than Rs.10 cr.

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