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THE SECURITIES AND
EXCHANGE BOARD
OF INDIA (SEBI)
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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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05/05/12 SAPM3
Functions of SEBI
Regulating the business in stock exchange and anyother 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-regulatoryorganizations
Prohibiting fraudulent and unfair trade practices in
the securities market
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05/05/12 SAPM4
Functions of SEBI
Promoting investors education and training ofintermediaries 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-regulatoryorganizations in the securities market
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05/05/12 SAPM5
Organization of SEBI
Departments
Primary Mkt. dept.
Issue Mgt. & Intermediaries Dept.
Secondary Mkt. dept.
Institutional Invt.Advisory
Committees
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05/05/12 SAPM6
SEBI Regulates.
SEBI
regulates
Primary
Market
Secondary
Market
Mutual
Funds
Foreign
Institutional
Investment
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05/05/12 SAPM7
SEBI & Primary Market
Measures undertaken by SEBI:-
Entry norms
Promoters contribution
Disclosure
Book building
Allocation of shares
Market intermediaries
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05/05/12 SAPM8
Conti..
1. Entry normsa) Track record of dividend payment for minimum 3 yrs
preceding the issue.
b) Already listed companies - when post-issue networthbecomes more than 5 times the pre-issue networth
c) For Manufacturing company not having such trackrecord appraise project by a public financialinstitution or a scheduled commercial bank.
d) For corporate body 5 public shareholders for everyRs.1 lakh of the net capital offer made to the public
e) Banks 2 yrs of profitability for issues above par.Offer documents to companies.
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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 prospectusUn audited financial results
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05/05/12 SAPM10
Conti..
4.Book buildingSEBI recommends two-tier under writing system
One of the mode of public issue thru prospectus.
Role of syndicate members and book runners.
Minimum 30 centers.
5. Allocation of shares
Minimum application of shares
Reservation for small investorsAllotment of securities
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05/05/12 SAPM11
Conti..
6. Market intermediariesLicensing 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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05/05/12 SAPM12
SEBI & Secondary Market
Reforms in the secondary market:-1. Governing board
2. Infrastructure
3. Settlement & clearing
4. Debt market
5. Price stabilization
6. Delisting
7. Brokers
8. Insider Trading
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05/05/12 SAPM13
Conti..
1. Governing boardBrokers 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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05/05/12 SAPM14
Conti..
3. Settlement & clearing
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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05/05/12 SAPM15
Conti..
4. Debt market segment
Regulates thru SEBI (depository & participants)
regulation Act 1996.
Listing of debt instrumentsInvt. Range for FIIs
Dual rating for above Rs.500 million
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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.
05/05/12 SAPM17
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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 end of 1996-97, 439 FIIs were registered
Can trade in securities of listed companies including OTCEI.
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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.
The ceiling of 10 % for NRIs/PIOs can be raised to 24% subject to the
approval of the general body of the company passing a 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, theReserve 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.
2. Regulated by an appropriate foreign regulatory authority.
3. Permission under the provisions of FERA Act 1973.(FEMA - 2006)
Valid up to 5 yrs.
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05/05/12 SAPM 23
Custodians
Is an agencyappointment 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 doneby a member of an Indian stock exchange
Time stipulation for transaction b/w custodian & member ofISE is 48 hrs.
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05/05/12 SAPM 26
Critical review of SEBI
1. Disclosures
2. Dissemination process
3. Settlement
4. Badla trade
5. Special watch
6. Capital adequacy
7. Single authority8. Stricter registration of brokers