lecture-04 regulation in stock market

8/7/2019 Lecture-04 Regulation in stock market

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Regulation in stock MarketRegulation in stock Market

Lecture Prepared ByLecture Prepared By

N S BohraN S Bohra

Assistant professorAssistant professor

Faculty of ManagementFaculty of Management

GEUGEU


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Why do we need a regulatory body for InvestorWhy do we need a regulatory body for Investor

protection in India?protection in India?

IndiaIndia isis anan ` informationallyinformationally '' weakweak marketmarket

BoostingBoosting capitalcapital marketmarket demandsdemands restoringrestoring thetheconfidenceconfidence ofof laylay investorsinvestors whowho havehave beenbeen beatenbeaten

downdown byby repeatedrepeated scamsscams

ProgressivelyProgressively softeningsoftening interestinterest ratesrates andand anan underunder

performingperforming economyeconomy havehave erodederoded investmentinvestment

options,options, andand requirerequire enhancedenhanced investinginvesting skillsskills..


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SEBISEBI ROLE AND FUNCTIONSROLE AND FUNCTIONS


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Mission of SEBIMission of SEBI

SecuritiesSecurities && ExchangeExchange BoardBoard ofof IndiaIndia (SEBI)(SEBI) formedformedunderunder thethe SEBISEBI Act,Act, 19921992 withwith thethe primeprime objectiveobjective ofof

ProtectingProtecting thethe interestsinterests ofof investorsinvestors inin securities,securities,

PromotingPromoting thethe developmentdevelopment of,of, andand

Regulating,Regulating, thethe securitiessecurities marketmarket andand forfor mattersmattersconnectedconnected therewiththerewith oror incidentalincidental theretothereto..


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FUNCTIONS OF SEBIFUNCTIONS OF SEBI

SectionSection 1111 ofof thethe SecuritiesSecurities andand ExchangeExchange BoardBoard ofof IndiaIndiaActAct..

RegulationRegulation OfOf BusinessBusiness InIn TheThe StockStock ExchangesExchanges

A)A) reviewreview ofof thethe marketmarket operations,operations, organizationalorganizational structurestructureandand administrativeadministrative controlcontrol ofof thethe exchangeexchange

AllAll stockstock exchangesexchanges areare requiredrequired toto bebe BodyBody CorporatesCorporates

TheThe exchangeexchange providesprovides aa fair,fair, equitableequitable andand growinggrowing

marketmarket toto investorsinvestors..TheThe exchangesexchanges organisation,organisation, systemssystems andand practicespractices areare

inin accordanceaccordance withwith thethe SecuritiesSecurities ContractsContracts(Regulation)(Regulation) ActAct (SC(R)(SC(R) Act),Act), 19561956


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B)B) RegistrationRegistration AndAnd RegulationRegulation OfOf TheThe WorkingWorking OfOfIntermediariesIntermediaries

Portfolio ManagersPortfolio Managers

SubSub-- BrokersBrokersUnderwritersUnderwriters

Stock brokersStock brokersMerchant BankersMerchant Bankers

Secondary MarketSecondary MarketPrimary MarketPrimary Market

regulates the working of the depositories [participants], custodians of

securities, foreign institutional investors, credit rating agencies and such

other intermediaries


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SEBISEBI (Mutual(Mutual Funds)Funds) Regulations,Regulations, 19961996 layslays downdown thethe provisionsprovisions forfor thetheappointmentappointment ofof thethe trusteestrustees andand theirtheir obligationsobligations

EveryEvery newnew schemescheme launchedlaunched byby aa mutualmutual fundfund needsneeds toto bebe filedfiled withwith SEBISEBIandand SEBISEBI reviewsreviews thethe documentdocument inin regardregard toto thethe disclosuresdisclosures containedcontained inin suchsuchdocumentsdocuments..

RegulationsRegulations havehave beenbeen laidlaid downdown regardingregarding listinglisting ofof funds,funds, refundrefundprocedures,procedures, transfertransfer procedures,procedures, disclosures,disclosures, guaranteeingguaranteeing returnsreturns etcetc

SEBISEBI hashas alsoalso laidlaid downdown advertisementadvertisement codecode toto bebe followedfollowed byby aa mutualmutual fundfundinin makingmaking anyany publicitypublicity regardingregarding aa schemescheme andand itsits performanceperformance

SEBISEBI hashas prescribedprescribed normsnorms // restrictionsrestrictions forfor investmentinvestment managementmanagement withwith aaviewview toto minimizeminimize // reducereduce undueundue investmentinvestment risksrisks..

SEBISEBI alsoalso hashas thethe authorityauthority toto initiateinitiate penalpenal actionsactions againstagainst anan erringerring MFMF..

InIn casecase ofof aa changechange inin thethe controllingcontrolling interestinterest ofof anan assetasset managementmanagementcompany,company, investorsinvestors shouldshould bebe givengiven atat leastleast 3030 daysdays timetime toto exerciseexercise theirtheir exitexitoptionoption..


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D)D) PromotingPromoting && RegulatingRegulating SelfSelf RegulatoryRegulatory OrganizationsOrganizations

InIn orderorder forfor thethe SROSRO toto effectivelyeffectively executeexecute itsits responsibilities,responsibilities, itit

wouldwould bebe requiredrequired toto bebe structured,structured, organized,organized, managedmanaged andandcontrolledcontrolled suchsuch thatthat itit retainsretains itsits independence,independence, whilewhile continuingcontinuing toto

performperform aa genuinegenuine marketmarket developmentdevelopment rolerole

E)E) ProhibitingProhibiting FraudulentFraudulent AndAnd UnfairUnfair TradeTrade PracticesPractices InIn TheThe

SecuritiesSecurities MarketMarket

SEBISEBI isis vestedvested withwith powerspowers toto taketake actionaction againstagainst thesethese practicespractices

relatingrelating toto securitiessecurities marketmarket manipulationmanipulation andand misleadingmisleading statementsstatementstoto induceinduce sale/purchasesale/purchase of of securitiessecurities..


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FUNCTIONS OF SEBIFUNCTIONS OF SEBIF] Prohibition OfF] Prohibition OfInsider TradingInsider Trading

StockStockWatchWatch System,System, whichwhich hashas beenbeen putput inin place,place, surveillancesurveillance overover

insiderinsider tradingtrading wouldwould bebe furtherfurther strengthenedstrengthened..

G] Investor Education And The Training Of IntermediariesG] Investor Education And The Training Of Intermediaries SEBISEBI distributeddistributed thethe bookletbooklet titledtitled AA QuickQuick ReferenceReference GuideGuide forfor

InvestorsInvestors toto thethe investorsinvestors

SEBISEBI alsoalso issuedissued aa seriesseries ofof advertisementadvertisement /public/public noticesnotices inin nationalnational asaswellwell asas regionalregional newspapersnewspapers toto educateeducate andand cautioncaution thethe investorsinvestors aboutabout thethe

risksrisks associatedassociated withwith thethe investmentsinvestments inin collectivecollective investmentinvestment schemesschemes

SEBISEBI hashas alsoalso issuedissued messagesmessages inin thethe interestinterest ofof investorsinvestors onon NationalNational

ChannelChannel andand RegionalRegional StationsStations onon DoordarshanDoordarshan..


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FUNCTIONS OF SEBIFUNCTIONS OF SEBIH)H) InspectionInspection AndAnd InquiriesInquiries

I)I) RegulatingRegulating SubstantialSubstantial AcquisitionAcquisition OfOf SharesShares AndAnd TakeTake--oversovers

J)J) PerformingPerforming SuchSuch FunctionsFunctions AndAnd ExercisingExercising SuchSuch PowersPowersUnderUnder TheThe ProvisionsProvisions OfOf TheThe SecuritiesSecurities ContractsContracts(Regulation)(Regulation) Act,Act, 19561956 AsAs MayMay BeBe DelegatedDelegated ToTo ItIt ByBy TheTheCentralCentral GovernmentGovernment;;

K)K) LevyingLevying FeesFees OrOr OtherOther ChargesCharges ForFor CarryingCarrying OutOut TheThePurposesPurposes OfOf ThisThis SectionSection

L)L) ConductingConducting ResearchResearch ForFor TheThe AboveAbove PurposesPurposes


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Vetting Process with SEBIVetting Process with SEBI

Drafting of ProspectusDrafting of Prospectus

Merchant Banker InvolvedMerchant Banker Involved

Suggestion within 21 DaysSuggestion within 21 Days

IssueWithin 180 daysIssueWithin 180 days

Regional office (Up To 20 Cr)Regional office (Up To 20 Cr)

Mumbai office (More Then 20 Cr)Mumbai office (More Then 20 Cr)


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PenaltiesPenalties

ToTo imposeimpose penaltiespenalties ofof upup toto RsRs 2525 crorecrore oror threethree timestimesthethe amountamount involvedinvolved inin thethe violationviolation ofof aa norm,norm,whicheverwhichever isis higherhigher..

InIn thethe casescases ofof somesome offences,offences, includingincluding defaultsdefaults bybybrokers,brokers, aa failurefailure toto furnishfurnish returnsreturns andand informationinformation bybycorporatescorporates andand brokersbrokers andand otherother lapses,lapses, thethe marketmarketregulatorregulator cancan imposeimpose aa higherhigher penaltypenalty ofof RsRs 11 lakhslakhs aadayday oror aa maximummaximum finefine ofof RsRs 11 crore,crore, whicheverwhichever isislowerlower..


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Delisting ProcessDelisting Process

Exit Price (Book Building Process)Exit Price (Book Building Process)

Offer PriceOffer Price

Final PriceFinal Price

Public AnnouncementPublic Announcement


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Public IssuesPublic IssuesAnAn unlistedunlisted companycompany hashas toto satisfysatisfy thethe followingfollowing criteriacriteria toto bebe eligibleeligible totomakemake aa publicpublic issueissue

PrePre--issueissue networthnetworth ofof thethe coco.. shouldshould notnot bebe lessless thanthan RsRs..11 crorecrore ininlastlast 33 outout ofof lastlast 55 yearsyears withwith minimumminimum networthnetworth toto bebe metmet duringduringimmediatelyimmediately precedingpreceding 22 yearsyears

TrackTrack recordrecord ofof distributabledistributable profitsprofits forfor atat leastleast threethree ((33)) outout ofofimmediatelyimmediately precedingpreceding fivefive ((55)) yearsyears

TheThe issueissue sizesize (i(i..ee.. offeroffer throughthrough offeroffer documentdocument ++ firmfirm allotmentallotment ++promoterspromoters contributioncontribution throughthrough thethe offeroffer document)document) shallshall notnotexceedexceed fivefive ((55)) timestimes itsits prepre--issueissue networthnetworth..

InIn casecase anan unlistedunlisted companycompany doesdoes notnot satisfysatisfy anyany ofof thethe aboveabovecriterions,criterions, itit cancan comecome outout withwith aa publicpublic issueissue onlyonly throughthrough thethe BookBook--BuildingBuilding processprocess.. InIn thethe BookBook BuildingBuilding processprocess thethe companycompany hashas totocompulsorilycompulsorily allotallot atat leastleast sixtysixty percentpercent ((6060%%)) ofof thethe issueissue sizesize toto thetheQualifiedQualified InstitutionalInstitutional BuyersBuyers (QIBs),(QIBs), failingfailing whichwhich thethe fullfull

subscriptionsubscription moniesmonies shallshall bebe refundedrefunded..


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Initial Public OfferInitial Public Offer InIn casecase ofof anan InitialInitial PublicPublic OfferOffer (IPO)(IPO) ii..ee.. publicpublic issueissue bybyunlistedunlisted company,company, thethe promoterspromoters havehave toto necessarilynecessarily offeroffer atat

leastleast 2020%% ofof thethe postpost issueissue capitalcapital.. InIn casecase ofof publicpublic issuesissues byby listedlisted companies,companies, thethe promoterspromoters shallshall

participateparticipate eithereither toto thethe extentextent ofof 2020%% ofof thethe proposedproposed issueissue ororensureensure postpost--issueissue shareshare holdingholding toto thethe extentextent ofof 2020%% ofof thethe postpost--issueissue capitalcapital..

InIn casecase ofof anyany issueissue ofof capitalcapital toto thethe publicpublic thethe minimumminimumcontributioncontribution ofof promoterspromoters shallshall bebe lockedlocked inin forfor aa periodperiod ofof 33years,years, bothboth forfor anan IPOIPO andand PublicPublic IssueIssue byby listedlisted companiescompanies..

InIn casecase ofof anan IPO,IPO, ifif thethe promoterspromoters contributioncontribution inin thethe

proposedproposed issueissue exceedsexceeds thethe requiredrequired minimumminimum contribution,contribution,suchsuch excessexcess contributioncontribution shallshall alsoalso bebe lockedlocked inin forfor aa periodperiod ofofoneone yearyear..

InIn casecase ofof aa publicpublic issueissue byby aa listedlisted company,company, participationparticipation bybypromoterspromoters inin thethe proposedproposed publicpublic issueissue inin excessexcess ofof thethe requiredrequired

minimumminimum percentagepercentage shallshall alsoalso bebe lockedlocked--inin forfor aa periodperiod ofof oneoneyearyear asas perper thethe locklock--inin provisionsprovisions asas specifiedspecified inin GuidelinesGuidelines onon


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Initial Public OfferInitial Public Offer paidpaid upup shareshare capitalcapital priorprior toto IPOIPO andand sharesshares issuedissued onon aa firmfirmallotmentallotment basisbasis alongalong withwith issueissue shallshall bebe lockedlocked--inin forfor aa periodperiod ofof

oneone yearyear fromfrom thethe datedate ofof allotmentallotment inin publicpublic issueissue..

InIn casecase ofof overover--subscriptionsubscription inin aa fixedfixed priceprice issueissue thethe allotmentallotment isis

donedone inin marketablemarketable lots,lots, onon aa proportionateproportionate basisbasis

InIn casecase ofof aa bookbook buildingbuilding issue,issue, allotmentallotment toto QualifiedQualifiedInstitutionalInstitutional BuyersBuyers andand NonNon--InstitutionalInstitutional buyersbuyers areare donedone onon aadiscretionarydiscretionary basisbasis.. AllotmentAllotment toto retailretail investorsinvestors isis donedone onon aaproportionateproportionate basisbasis

allall stepssteps forfor completioncompletion ofof thethe necessarynecessary formalitiesformalities forfor listinglistingandand commencementcommencement ofof tradingtrading atat allall stockstock exchangesexchanges wherewhere thethesecuritiessecurities areare toto bebe listedlisted areare takentaken withinwithin 77 workingworking daysdays ofoffinalizationfinalization ofof basisbasis ofof allotmentallotment


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InabilityTo Utilize The Existing PowersInabilityTo Utilize The Existing Powers

EffectivelyEffectively SEBISEBI couldcould initiateinitiate prosecutionprosecution proceedingsproceedings onon insiderinsider tradingtrading onlyonly inin oneone

casecase andand sevenseven casescases onon fraudulentfraudulent andand unfairunfair practicespractices..

OnlyOnly inin sevenseven ofof thethe 181181 cases,cases, SEBISEBI resortedresorted toto cancellationcancellation ofof registrationregistration

duringduring thethe lastlast fourfour yearsyears..

ThoughThough SEBISEBI hashas thethe powerpower toto imposeimpose aa penaltypenalty ofof RsRs 11..5050 lakhslakhs everyevery timetime aa

personperson failsfails toto furnishfurnish thethe requisiterequisite information,information, butbut rarelyrarely hashas thisthis powerpower hashas

beenbeen exercisedexercised byby itit ..

TheThe provisionprovision forfor mandatorymandatory punishmentpunishment ofof imprisonmentimprisonment inin additionaddition toto

awardaward forfor penaltypenalty hashas scarcelyscarcely hashas beenbeen usedused..


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FailuresFailures


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THANK YOU!!!THANK YOU!!!

lecture-04 regulation in stock market

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