Financial Markets S E B I

S E B ISecurities and Exchange Board of India

Case Study- SEBI-Sahara OFCD case

In 2008 2 companies of Sahara Group had issued OFCD. (Optional Free Convertible Debentures) to collect money from investors.Sahara Housing Investment Corporation

Sahara India Real Estate Corporation.

23 million people, mostly from villages and small towns subscribed to this scheme. They invested 24,000 crores rupees in these OFCDs of SAHARA.

process should be completed within 10 working days, but here you continue collecting money from people for more than two years! Stop collecting the money and refund the cash with 15%intersest.

Highlights of the case

You (SAHARA) have violated rules. If OFCDs are issued then whole

This is not right!

Case Study- SEBI-Sahara OFCD case

Well, if you’re unhappy with my order you can go to the Securities Appellate Tribunal (SAT)

Pleads before SAT.

SEBI is right. You must refund money to those people.

Appeal to Supreme Court.My two of these companies are not listed and hence thisCase is not under the jurisdiction of SEBI.

We are not convinced with your arguments. It seems you have no intention of returning theinvestors’ money. Your

intentions are shady. We order you to refund the money.

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How do you answer?

1. SEBI undertakes --------------- role in the stock Exchange

Try to answer the following questions on the basis of the case study..

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Reset Questions

Supportive role

Incorrect

Administrative roleIncorrect

None of these

Incorrect

Regulatory Role

Correct

2. How you will expand OFCD ?

Optional Convertible Debentures

2. Do you know what is OFCD ?

These debentures can be converted into shares, when debt holder (investor) wishes after expiry of pre-decided date.

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3. Why SEBI has issued refund order to SAHARA? More

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Here SAHARA has violated the rules. If a company is issuing the OFCD its procedures including the cash collection must be completed within 10 working days.

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SEBI has been established for the purpose of controlling and regulating the capital market. Through its regulatory mechanism SEBI protects the interest of the investors from fraud and unfair trade practices.

4. Now can you explain the purpose of establishment of SEBI? More stuff

How do you answer?

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SEBI - History

The Securities and Exchange Board of India was established by the government of India on 12  April 1988 as an interim administrative body to  promote orderly and healthy growth of the securities market and for investor protection.

The capital market had witnessed a tremendous  growth during the 1980·s and the brokers and other intermediaries started doing the malpractices by exploiting the loopholes of the Law.

It was supposed to function under the overall  administrative control of the Ministry of Finance of the government.

Harshad Mehta

Ketan Parekh

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SEBI - History

In 1992 the govt. redefined the role and powers of SEBI through the enactment of Securities and Exchange Board of India Act. This Act gives more power to SEBI to regulate and control all activities of the Stock Exchanges.

• Autonomous Body

• More Powers

• Final Regulatory authority of stock exchanges

New face of SEBI

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Reasons for establishment

SEBI was established as a regulatory authority of the stock exchanges in India to control and prevent the malpractices and unfair trade practices. SEBI protects the investors from malpractices like Price rigging, Insider trading etc.

Price rigging

Making manipulations with the sole object of inflating or depressing the price of securities.

The insiders like directors or promoters of a company are making the inside information for making the personal benefits.

Insider Trading

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Objectives of SEBI

Protects the rights and interests of the investors.

Providing a market for easy and fair finance.

Preventing fraud and trade malpractices.

Regulate and develop code of conduct and fair practices by the intermediaries.

Regulating the stock exchange and ensuring the orderly functioning.

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Functions of SEBI

Protective Functions

Regulatory Functions

Development Functions

Functions of SEBI

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Protective Functions

Undertaking steps for investor protection.

Prohibition of fraudulent and unfair trade practices.

promotion of fair practices and code of conduct in securities market.

Controlling insider trading and imposing penalties for such practices.

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Development Function

Training of intermediaries of the stock market.

Investor education.

Conducting research and publishing useful information to the market participants.

Undertaking measures to develop capital markets by adopting flexible approach.

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Regulatory Functions

Registration of brokers sub brokers and other players in the market.

Conducting inspection, enquiries and audit of stock exchanges and intermediaries.

Registration of collective investment schemes and mutual funds.

Levying of fees and other charges for carrying the Act.

Regulation of takeover bids by the companies.

Regulation of brokers, Merchant banks and other market players.