role of sebi as a regulatory body

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A Minor Project Report

Submitted in partial fulfillment of the requirements for the award of the

degree of Bachelor of Business Administration (Gen) programme of

Guru Gobind Singh Indraprastha University, Delhi.

Submitted To: Submitted by:

Guide Name Student Name

Roll No.:

Delhi College of Advanced Studies

B-7,Shanker Garden, Vikaspuri

New Delhi110018

Batch (2013-2016)


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DECLARATION

I hereby declare that the minor project report, entitled

, is based on

my original study and has not been submitted earlier for award of any degree or diploma

to any institute or university.

The work of other author(s), wherever used, has been acknowledged at appropriate

place(s).

Place: New Delhi Candidates signature

Date: Name:

Enroll. No.: ..

Countersigned

Name :

Supervisor

Delhi College of Advanced Studies


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ACKNOWLEDGEMENT

An independent project is a contradiction in terms. Every project involves contribution of

many people. This project also bears the imprints of many people and it is a pleasure for

me to acknowledge and thank all of them.

I am deeply indebted to Ms...who acted as a

mentor and guide, providing knowledge and giving me his/her valuable time out of her

busy schedule, at every step throughout the project. It is only because of her this project

came into being.

I also thank Prof. (Dr.) M.S. Chaudhry,Director of Delhi College of Advanced Studies,

for providing an opportunity of doing this project under his leadership.

I also take the opportunity to express my sincere gratitude to each and every person, who

directly or indirectly helped me throughout the project and without anyone of them this

project would not have been possible.

The immense learning from this project would be indelible forever.


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TABLE OF CONTENTS

S.No Topic Page No

1 Declaration 2

2 Acknowledgement 3

3 Chapter-I: Introduction

Introduction to SEBI

Establishment

Objectives of the study

Methodology

5-16

5-9

10-14

15

16

4 Chapter-II: Conceptual Framework

Role of SEBI

Features

Functions

Advantage & Disadvantages

Power of Board

Transfer of securities

Finance, Account & Audit

Penalties & Adjudication

SEBI Law

17-46

17-23

24

25-27

28

29-31

32-33

34-35

36-41

42-46

5 Chapter-III: Summary

Summary of the project

Limitations of the study

Suggestions

Case Study

47-56

47-48

49-51

52-54

55-56

6 Bibliography 57


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Objectives of the Study

To Study the activities of stock exchange.

To study the role of Securities and Exchange Board of India (SEBI) and Stock

Exchange in protecting the interests of investors and redressing their grievances.

To study the criteria for investment decisions.

To analyse the features of SEBI.

To know about the functions of SEBI.

To analyse the SEBI laws.

To study the powers of SEBI.

To analyse the penalties and adjudication of SEBI.


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RESEARCH METHODOLOGY

Primary data

Primary data is information that you collect specifically for the purpose of your research

project. An advantage of primary data is that it is specifically tailored to your research

needs. A disadvantage is that it is expensive to obtain.

Primary data means original data that has been collected specially for the purpose in

mind. It means someone collected the data from the original source first hand. Data

collected this way is called primary data.

Primary data has not been published yet and is more reliable, authentic and objective.

Primary data has not been changed or altered by human beings; therefore its validity is

greater than secondary data.

The people who gather primary data may be an authorized organization, investigator,

enumerator or they may be just someone with a clipboard. These people are acting as a

witness so primary data is only considered as reliable as the people who gathered it.

Secondary Data

Secondary data, is data collected by someone other than the user. Common sources of

secondary data for social science include censuses, organisational records and data

collected through qualitative methodologies or qualitative research. Primary data, by

contrast, are collected by the investigator conducting the research.

Secondary data analysis saves time that would otherwise be spent collecting data and,

particularly in the case ofquantitative data,provides larger and higher-quality databases

that would be unfeasible for any individual researcher to collect on their own. In addition,

analysts of social and economic change consider secondary data essential, since it is

impossible to conduct a new survey that can adequately capture past change and/or

developments.
http://en.wikipedia.org/wiki/Datahttp://en.wikipedia.org/wiki/Datahttp://en.wikipedia.org/wiki/Social_sciencehttp://en.wikipedia.org/wiki/Social_sciencehttp://en.wikipedia.org/wiki/Censushttp://en.wikipedia.org/wiki/Censushttp://en.wikipedia.org/wiki/Qualitative_researchhttp://en.wikipedia.org/wiki/Qualitative_researchhttp://en.wikipedia.org/wiki/Primary_datahttp://en.wikipedia.org/wiki/Primary_datahttp://en.wikipedia.org/wiki/Quantitative_datahttp://en.wikipedia.org/wiki/Quantitative_datahttp://en.wikipedia.org/wiki/Quantitative_datahttp://en.wikipedia.org/wiki/Databasehttp://en.wikipedia.org/wiki/Databasehttp://en.wikipedia.org/wiki/Databasehttp://en.wikipedia.org/wiki/Quantitative_datahttp://en.wikipedia.org/wiki/Primary_datahttp://en.wikipedia.org/wiki/Qualitative_researchhttp://en.wikipedia.org/wiki/Censushttp://en.wikipedia.org/wiki/Social_sciencehttp://en.wikipedia.org/wiki/Data


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Secondary Data has been used in this project.

Secondary data is the data that has been already collected by and readily available from

other sources. When we use Statistical Method with Primary Data from another purpose

for our purpose we refer to it as Secondary Data. It means that one purpose's Primary

Data is another purpose's Secondary Data. So that secondary data is data that is being

reused. Such data are cheaper and more quickly obtainable than the primary data.

These secondary data may be obtained from many sources, including literature, industry

surveys, compilations from computerized databases and information systems, and

computerized or mathematical models of environmental processes.

SOURCES OF SECONDARY DATA

Secondary data is often readily available. After the expense of electronic media and

internet the availability of secondary data has become much easier.

Published Printed Sources

There are varieties of published printed sources. Their credibility depends on many

factors. For example, on the writer, publishing company and time and date when

published. New sources are preferred and old sources should be avoided as new

technology and researches bring new facts into light.

Books

Books are available today on any topic that you want to research. The uses of books start

before even you have selected the topic. After selection of topics books provide insight on

how much work has already been done on the same topic and you can prepare yourliterature review. Books are secondary source but most authentic one in secondary

sources.

Journals/periodicals

Journals and periodicals are becoming more important as far as data collection is

concerned. The reason is that journals provide up-to-date information which at times

books cannot and secondly, journals can give information on the very specific topic on

which you are researching rather talking about more general topics.


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Magazines/Newspapers

Magazines are also effective but not very reliable. Newspaper on the other hand is more

reliable and in some cases the information can only be obtained from newspapers as in

the case of some political studies.

Published Electronic Sources

As internet is becoming more advance, fast and reachable to the masses; it has been seen

that much information that is not available in printed form is available on internet. In the

past the credibility of internet was questionable but today it is not. The reason is that in

the past journals and books were seldom published on internet but today almost

every journal and book is available online. Some are free and for others you have to paythe price.

E-journals: e-journals are more commonly available than printed journals.

Latest journals are difficult to retrieve without subscription but if your university has an

e-library you can view any journal, print it and those that are not available you can make

an order for them.

General Websites;Generally websites do not contain very reliable information so their

content should be checked for the reliability before quoting from them.

Weblogs: Weblogs are also becoming common. They are actually diaries written by

different people. These diaries are as reliable to use as personal written diaries.


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CHAPTER II

Conceptual Framework

Capital Market

Capital markets are financial markets for the buying and selling of long-term debt or

equity-backed securities.These markets channel the wealth of savers to those who can

put it to long-term productive use, such as companies or governments making long-term

investments. Financial regulators, such as the UK's Bank of England (BoE) or theU.S.

Securities and Exchange Commission (SEC), oversee the capital markets in their

jurisdictions to protect investors against fraud, among other duties.

Modern capital markets are almost invariably hosted on computer-based electronic

trading systems; most can be accessed only by entities within the financial sector or the

treasury departments of governments and corporations, but some can be accessed directly

by the public. There are many thousands of such systems, most serving only small parts

of the overall capital markets. Entities hosting the systems include stock exchanges,

investment banks, and government departments. Physically the systems are hosted all

over the world, though they tend to be concentrated infinancial centres like London, New

York, and Hong Kong. Capital markets are defined as markets in which money is

provided for periods longer than a year.

A key division within the capital markets is between theprimary markets andsecondary

markets.In primary markets, new stock or bond issues are sold to investors, often via a

mechanism known asunderwriting.The main entities seeking to raise long-term funds on

the primary capital markets are governments (which may be municipal, local or national)

and business enterprises (companies). Governments tend to issue only bonds, whereas

companies often issue either equity or bonds. The main entities purchasing the bonds or

stock include pension funds, hedge funds, sovereign wealth funds, and less commonly

wealthy individuals and investment banks trading on their own behalf. In the secondary

markets, existing securities are sold and bought among investors or traders, usually on an

exchange,over-the-counter,or elsewhere. The existence of secondary markets increases

the willingness of investors in primary markets, as they know they are likely to be able to

swiftly cash out their investments if the need arises.
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A second important division falls between the stock markets (for equity securities, also

known as shares, where investors acquire ownership of companies) and thebond markets

(where investors become creditors).

Types of Capital Market

Primary Market

Secondary Market

1. Primary market

The primary market is the part of thecapital market that deals with issuing of

newsecurities. Companies, governments or public sector institutions can obtain

funds through the sale of a newstock orbond issues through primary market. This

is typically done through aninvestment bank orfinance syndicate of securities

dealers.

The process of selling new issues to investors is calledunderwriting.In the case of

a newstock issue, this sale is an initial public offering (IPO). Dealers earn a

commission that is built into the price of the security offering, though it can be

found in theprospectus. Primary markets create long term instruments through

which corporate entities borrow from capital market.

The primary market is that part of the capital markets that deals with the issuance of new

securities. Companies, governments or public sector institutions can obtain funding

through the sale of a new stock or bond issue. This is typically done through a syndicate

of securities dealers. The process of selling new issues to investors is called underwriting.

In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a

commission that is built into the price of the security offering, though it can be found in

the prospectus.

Features of primary markets are:

It is related with New Issues:
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The first important feature of the primary market is that it is related with the new issues.

Whenever a company issues new shares or debentures, it is known as Initial Public Offer

(IPO).

It has No Particular Place:

Primary market is not the name of any particular place but the activity of bringing in new

issues is called the primary market.

It has Various Methods of Floating Capital:

Following are the methods of raising capital in the primary market:

(i) Public Issue:

Under this method, the company issues a prospectus and invites the general public to

purchase shares or debentures.

(ii) Offer for Sale:

Under this method, firstly the new securities are offered to an intermediary (generallyfirms of stock brokers) at a fixed price. They further resell the same to the general public.

The advantage of doing this is that the issuing company feels free from the tedious work

of making a public issue.

(iii)Private Placement:

Under this method, the company sells securities to the institutional investors or brokers

instead of selling them to the general public. They, in turn, sell these securities to the

selected clients at a higher price. This method is preferred as it is a cheaper method of

raising funds as compared to a public issue.

(iv)Right Issue:

This method is used by those companies who have already issued their shares. When anexisting company issues new shares, first of all it invites its existing shareholders. This


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issue is called the right issue. In this case, the shareholder has the right either to accept the

offer for himself or assign a part or all of his right in favour of another person.

(v)Electronic Initial Public Issue (e-IPOs):

Under this method, companies issue their securities through the electronic medium (i.e.

internet). The company issuing securities through this medium enters into a contract with

a Stock Exchange.

SEBI registered broker have to be appointed for the objective of accepting applications.

This broker regularly sends information about it to the company.

The company issuing security also appoints a Registrar, who helps in making the issue a

success by establishing contact with the stock exchange. (Whatever method, out of the

above five is adopted, it is the activity of the primary market.)

It Comes before Secondary Market:

The transactions are first made in the primary market. The turn of the secondary market

comes later.

2. Secondary market

Themarket for all investors in asecurity, except for the first ones to whom a

new issue of asecurity is sold. The secondary market consists of allsellers andbuyers,

except for theissuer and the first group of investors who bought the issue. The secondary

market is often lessvolatile than theprimary marketbecause it is easier to determine the

underlyingvalue of a security after it has already begun trading. Nearly alltrading of asecurity occurs on the secondary market.

The secondary market, also known as the aftermarket, is the financial market where

previously issued securities and financial instruments such as stock, bonds, options, and

futures are bought and sold. The term secondary market is also used to refer to the

market for any used goods or assets, or an alternative use for an existing product or asset

where the customer base is the second market (for example, corn has been traditionally

used primarily for food production and feedstock, but a second- or third- market has
http://financial-dictionary.thefreedictionary.com/Markethttp://financial-dictionary.thefreedictionary.com/Securityhttp://financial-dictionary.thefreedictionary.com/Issuehttp://financial-dictionary.thefreedictionary.com/Securityhttp://financial-dictionary.thefreedictionary.com/Sellershttp://financial-dictionary.thefreedictionary.com/Buyershttp://financial-dictionary.thefreedictionary.com/Issuerhttp://financial-dictionary.thefreedictionary.com/Volatilehttp://financial-dictionary.thefreedictionary.com/Primary+Markethttp://financial-dictionary.thefreedictionary.com/Valuehttp://financial-dictionary.thefreedictionary.com/Tradinghttp://financial-dictionary.thefreedictionary.com/Tradinghttp://financial-dictionary.thefreedictionary.com/Valuehttp://financial-dictionary.thefreedictionary.com/Primary+Markethttp://financial-dictionary.thefreedictionary.com/Volatilehttp://financial-dictionary.thefreedictionary.com/Issuerhttp://financial-dictionary.thefreedictionary.com/Buyershttp://financial-dictionary.thefreedictionary.com/Sellershttp://financial-dictionary.thefreedictionary.com/Securityhttp://financial-dictionary.thefreedictionary.com/Issuehttp://financial-dictionary.thefreedictionary.com/Securityhttp://financial-dictionary.thefreedictionary.com/Market


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developed for use in ethanol production). Another commonly referred to usage of

secondary market term is to refer to loans which are sold by a mortgage bank to investors

such as Fannie Mae and Freddie Mac.

With primary issuances of securities or financial instruments, or the primary market,

investors purchase these securities directly from issuers such as corporations issuing

shares in an IPO or private placement, or directly from the federal government in the case

of treasuries. After the initial issuance, investors can purchase from other investors in the

secondary market.

The secondary market for a variety of assets can vary from loans to stocks, from

fragmented to centralized, and from illiquid to very liquid. The major stock exchanges arethe most visible example of liquid secondary marketsin this case, for stocks of publicly

traded companies. Exchanges such as the New York Stock Exchange, Nasdaq and the

American Stock Exchange provide a centralized, liquid secondary market for the

investors who own stocks that trade on those exchanges. Most bonds and structured

products trade over the counter, or by phoning the bond desk of ones broker-dealer.

Loans sometimes trade online using a Loan Exchange.

Features of Secondary Market

It Creates Liquidity:

The most important feature of the secondary market is to create liquidity in securities.

Liquidity means immediate conversion of securities into cash. This job is performed by

the secondary market.

It Comes after Primary Market:

Any new security cannot be sold for the first time in the secondary market. New

securities are first sold in the primary market and thereafter comes the turn of the

secondary market.

It has a Particular Place:


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The secondary market has a particular place which is called Stock Exchange. However, it

must be noted that it is not essential that all the buying and selling of securities will be

done only through stock exchange.

Two individuals can buy or sell them mutually. This will also be called a transaction of

the secondary market. Generally, most of the transactions are made through the medium

of stock exchange.

It Encourages New Investment:

The rates of shares and other securities often fluctuate in the share market. Many new

investors enter this market to exploit this situation. This leads to an increase in investment

in the industrial sector of the country.

Role of SEBI in Capital Market

As per the SEBI act, 1992, the power and functions of the Board encompass the

regulation of Stock Exchanges and other securities markets; registration and regulation of

the working stock brokers, sub-brokers, bankers to an issue (a public offer of capital),

trustees of trust deeds, registrars to an issues, merchant bankers, under writers, portfolio

managers, investment advisors and such other intermediaries who may be associated with

the stock market in any way; registration and regulations of mutual funds; promotion and

regulation of self-regulatory organizations; prohibiting Fraudulent and unfair trade

practices and insider trading in securities markets; regulating substantial acquisition of

shares and takeover of companies; calling for information from, undertaking inspection,

conducting inquiries and audits of stock exchanges, intermediaries and self-regulatory

organizations of the securities market; performing such functions and exercising such

powers as contained in the provisions of the Capital Issues(Control) Act,1947 and the

Securities Contracts (Regulation) Act, 1956, levying various fees and other charges,

conducting necessary research for above purposes and performing such other functions as

may be prescribes from time to time.

Securities & Exchange Board of India (SEBI) formed under the SEBI Act, 1992 with theprime objective of :


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Protecting the interests of investors in securities,

Promoting the development of, and

Regulating, the securities market and for matters connected therewith or incidental

thereto. Focus being the greater investor protection, SEBI has become a vigilant

watchdog.

Role of SEBI in Capital Market

As per the SEBI act, 1992, the power and functions of the Board encompass the

regulation of Stock Exchanges and other securities markets; registration and regulation of

the working stock brokers, sub-brokers, bankers to an issue (a public offer of capital),

trustees of trust deeds, registrars to an issues, merchant bankers, under writers, portfolio

managers, investment advisors and such other intermediaries who may be associated with

the stock market in any way; registration and regulations of mutual funds; promotion and

regulation of self-regulatory organizations; prohibiting Fraudulent and unfair trade

practices and insider trading in securities markets; regulating substantial acquisition of

shares and takeover of companies; calling for information from, undertaking inspection,

conducting inquiries and audits of stock exchanges, intermediaries and self-regulatory

organizations of the securities market; performing such functions and exercising suchpowers as contained in the provisions of the Capital Issues(Control) Act,1947 and the

Securities Contracts (Regulation) Act, 1956, levying various fees and other charges,

conducting necessary research for above purposes and performing such other functions as

may be prescribes from time to time.

Securities & Exchange Board of India (SEBI) formed under the SEBI Act, 1992 with the

prime objective of :

Protecting the interests of investors in securities,

Promoting the development of, and

Regulating, the securities market and for matters connected therewith or incidental

thereto. Focus being the greater investor protection, SEBI has become a vigilant

watchdog.


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Capital Market Instruments

Shares

Shares are a unit of ownership in an organisation or corporation. It is a part of the

companys capital. Those individuals who are getting shares from any company, are

called Shareholders. When a company wants to borrow and increase their capital, they

issue their shares in the stock market (exchange) for their investors.

However, companies also require to refund the amount from their Net Profit. Therefore,

shares play a significant role in the lives of companies and investors / shareholders.

Companies can issue two types of shares, which they offer to investors/shareholders. The

two types of shares are:

(a) Equity shares

(b) Preference shares

Bonds

Bonds are issued by the banks, organisations and financial institutions. They issue bonds

for getting an amount of money from public (as a loan) and commit them a refund with

an actual interest and within a maturity period. They issue their bonds for financing their

capital expenses and their various projects or activities.

This is one of the most frequently used methods for increasing their capital and profits.

When companies offer their bonds to public, they define a specified interest rate and

maturity period in an applicant form.

Bonds have various types( i.e risk free bonds, high interest bonds, etc.) and differentcompanies issued various types of bond to public

Debentures

Debenture is an instrument which is used by the Corporations and Government for getting

a loan from public and it is given under the companys Stamp Act. Corporations and

Government can secure their debenture on company assets which it issues as long term

loans. In Debentures, companies are required to announce a fixed return at the time of

issuing.


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Therefore, holders know that, how much amount they will get in future by issuer.

Debentures have various advantages for holders and issuers. It implies that holders know

that how much amount they will get in future, therefore they do not worry about their

payment and, in general, debentures are freely transferable by their holder to others.

Therefore, holders have a right to transfer their shares to anyone before their redemption.

Fixed Deposit

Fixed Deposit is that kind of bank account, where the amount of deposit is fixed for a

specified period of time. All Commercial banks are given these opportunities to their

customers for opening a fixed account in their bank. In a Fixed account, the amount of

deposit is fixed, which means we cannot withdraw an unlimited amount from thisaccount, therefore it is also called a Fixed Deposit.

If an account holder wants to withdraw a small amount of money from their account, then

he will require closing of the Fixed deposit account. The main purpose of account holders

to open this account, is to earn interest money from their actual money, which is given by

the banks during a specified period of time.

Foreign exchange market (Forex market)

Forex is one of the most biggest investment markets in the world and it is a huge platform

for investors for their investment. There are various forms of currencies included for

trading on international level. The investors invest their money on the value of currencies

fluctuation because of variation in the economic position of countries and entire world

economy.

In the Forex market, we are dealing with different currencies of countries. We are not

dealing with only one currency at one time, we have to deal with a couple of currencies at

one time, for example USD/INR. In the example, the left side currency is called a Base

currency and the right side currency is called a Quote/Counter currency.

A price of one currency expressed in terms of the currency of another country is called as

the exchange rate. For example, the ratio of both currencies is 53.9, which implies that

one unit of US Dollar can buy or equals 53.9 Rupees of India. In that case, the US Dollar

is a base currency and the Indian Rupee is quote currency.


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Gold ETF

Gold ETF is one of the most popular funds as it does not get influenced due to stock

fluctuations or inflation. Gold ETF fund is a fiscal instrument which works as a mutual

fund and whose prices are depending upon the market price of gold. When the market

price of gold increases, gold ETF prices also increase.

The services of Gold ETF fund transfers is available in few stock exchanges, such as

Mumbai, Paris, Zurich and New York. Gold ETF fund provides a variety of advantages to

their holders, such as Low cost, Tax advantage, Gold purity, there is no need to worry

about safety, Issue of selling gold bars and also beneficial in short term investments.

Risk in Capital Market

The capital market risk usually defines the risk involved in the investments. The stark

potential of experiencing losses following a fluctuation in security prices is the reason

behind the capital market risk. The capital market risk cannot be diversified.

The capital market risk can also be referred to as the capital market systematic risk. While

an individual is investing on a security, the risk and return cannot be separated. The risk

is the integrated part of the investment. The higher the potential of return, the higher is

the risk associated with it.

The examination of the involved in the capital market investment is the one of the prime

aspects of investing. It can be easily said that the risk distinguishes an investment from

the savings. The systematic risk is also common to the entire class of liabilities or assets.

Depending on the economic changes the value of investments can fall enormously. There

may be some other financial events also impacting the investment markets. In order to

give a check to the capital market risk, the asset allocation can be fruitful in some cases.

Any investment in stocks or bonds comes with the following types of risks.

Market Risk

Industry Risk

Regulatory Risk


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Business Risk

The market risk defines the overall risk involved in the capital market investments. The

stock market rises and falls depending on a number of issues. The collective view of the

investors to invest in a particular stock or bond plays a significant role in the stock market

rise and fall. Even if the company is going through a bad phase, the stock price may go up

due to a rising stock market. While conversely, the stock price may fall because the

market is not steady even if the investor's company is doing well. Hence, these are the

market risks that the stocks investors generally face.

The industry risk affects all the companies of a certain industry. Hence the stocks within

an industry fall under the industry risk. The regulatory risk may affect the investors if the

investor's company comes under the obligation of government implemented new

regulations and laws. The business risk may affect the investors if the company goes

through some convulsion depending on management, strategies, market share and labor

force.

SEBI

A body set upin response to theprovisionof theSecurityandExchangeBoard of India

Act of 1992 with the aim of protecting the interest of investors, promoting the

development of investments in securities, and controlling the security market. SEBI

became astatutorybody in 2005 uponchangesmade to the original act.

The regulatory body for the investment market in India. The purpose of this board is to

maintain stable and efficient markets by creating and enforcing regulations in the

marketplace.
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ESTABLISHMENT OF THE

SECURITIES AND EXCHANGE BOARD OF INDIA

It was officially established by TheGovernment of Indiain the year 1988 and given

statutory powers in 1992 with SEBI Act 1992 being passed by theIndian Parliament.

SEBI has its Headquarters at the business district ofBandra Kurla ComplexinMumbai,

and has Northern, Eastern, Southern and Western Regional Offices inNew

Delhi,Kolkata,ChennaiandAhmedabadrespectively.

Controller of Capital Issues was the regulatory authority before SEBI came into

existence; it derived authority from the Capital Issues (Control) Act, 1947.

Initially SEBI was a non statutory body without any statutory power. However in the year

of 1995, the SEBI was given additional statutory power by the Government of India

through an amendment tothe Securities and Exchange Board of India Act, 1992.In April,

1988 the SEBI was constituted as the regulator of capital markets in India under a

resolution of the Government of India.

The SEBI is managed by its members, which consists of following: a) The chairman who

is nominated by Union Government of India. b) Two members, i.e. Officers from Union

Finance Ministry. c) One member from The Reserve Bank of India. d) The remaining 5

members are nominated by Union Government of India, out of them at least 3 shall be

whole-time members.

The office of SEBI is situated at SEBI Bhavan, Bandra Kurla Complex, Bandra East,

Mumbai- 400051, with its regional offices at Kolkata, Delhi,Chennai & Ahmadabad. It

has recently opened local offices at Jaipur and Bangalore and is planning to open offices

at Guwahati, Bhubaneshwar, Patna, Kochi and Chandigarh in Financial Year 2013 -

2014.

Establishment and incorporation of Board.

(1) With effect from such date as the Central Government may, by notification, appoint,

there shall be established, for the purposes of this Act, a Board by the name of the

Securities and Exchange Board of India.

(2) The Board shall be a body corporate by the name aforesaid, having perpetualsuccession and a common seal, with power subject to the provisions of this Act, to
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acquire, hold and dispose of property, both movable and immovable, and to contract, and

shall, by the said name, sue or be sued.

(3) The head office of the Board shall be at Bombay.

(4) The Board may establish offices at other places in India.

Management of the Board.

(1) The Board shall consist of the following members, namely:-

(a) a Chairman;

(b) two members from amongst the officials of the 1 [5][Ministry] of the Central

Government dealing with Finance 2[6][and administration of the Companies Act, 1956(1

of 1956)];

(c) one member from amongst the officials of 3[7][the Reserve Bank];

(d) five other members of whom at least three shall be the whole-time members]

to be appointed by the central Government.

(2) The general superintendence, direction and management of the affairs of the Board

shall vest in a Board of members, which may exercise all powers and do all acts and

things which may be exercised or done by the Board.


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(3) Save as otherwise determined by regulations, the Chairman shall also have powers of

general superintendence and direction of the affairs of the Board and may also exercise all

powers and do all acts and things which may be exercised or done by that Board.

(4) The Chairman and members referred to in clauses (a) and (d) of sub-section (1) shall

be appointed by the Central Government and the members referred to in clauses (b) and

(c) of that sub-section shall be nominated by the Central Government and the[Reserve

Bank] respectively.

(5) The Chairman and the other members referred to in clauses (a) and (d) of sub-section

(1) shall be persons of ability, integrity and standing who have shown capacity in dealing

with problems relating to securities market or have special knowledge or experience oflaw, finance, economics, accountancy, administration or in any other discipline which, in

the opinion of the Central Government, shall be useful to the Board.

Term of office and conditions of service of Chairman and members of the Board.

(1) The term of office and other conditions of service of the Chairman and the members

referred to in clause (d) of sub- section (1) of section 4 shall be such as may be

prescribed.

(2) Notwithstanding anything contained in sub-section (1), the Central Government shall

have the right to terminate the services of the Chairman or a member appointed under

clause (d) of sub-section (1) of section 4, at any time before the expiry of the period

prescribed under sub-section (1), by giving him notice of not less than three months in

writing or three months salary and allowances in lieu thereof, and the Chairman or a

member, as the case may be, shall also have the right to relinquish his office, at any time

before the expiry of the period prescribed under sub-section (1), by giving to the Central

Government notice of not less than three months in writing.

Meetings.


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(1) The Board shall meet at such times and places, and shall observe such rules of

procedure in regard to the transaction of business at its meetings (including quorum at

such meetings) as may be provided by regulations.

(2) The Chairman or, if for any reason, he is unable to attend a meeting of the Board, any

other member chosen by the members present from amongst themselves at the meeting

shall preside at the meeting.

(3) All questions which come up before any meeting of the Board shall be decided by a

majority votes of the members present and voting, and, in the event of an equality of

votes, the Chairman, or in his absence, the person presiding, shall have a second or

casting vote.

Officers and employees of the Board.

(1) The Board may appoint such other officers and employees as it considers necessary

for the efficient discharge of its functions under this Act.

(2) The term and other conditions of service of officers and employees of the Board

appointed under sub- section (1) shall be such as may be determined by regulations.


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SEBI has to be responsive to the needs of three groups, which constitute

the market:

the issuers of securities

the investors

the market intermediaries.

1.Issuers:

For issuers it provides a market place in which they can raise finance fairly and

easily.

2. Investors:

For investors it provides protection and supply of accurate and correct

information.

3. Intermediaries:

For intermediaries it provides a competitive professional market. hich, in the

opinion of the Central Government, shall be useful to the Board.

SEBI has three functions rolled into one body quasi-legislative, quasi-judicial and quasi

executive. It drafts regulations in its legislative capacity, it conducts investigation and

enforcement action in its executive function and it passes rulings and orders in its judicial

capacity. Though this makes it very powerful, there is an appeals process to create

accountability. There is a Securities Appellate Tribunal which is a three-member tribunal


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and is presently headed by a former Chief Justice of a High court - Mr. Justice NK Sodhi.

A second appeal lies directly to the Supreme Court. SEBI has enjoyed success as a

regulator by pushing systemic reforms aggressively and successively (e.g. the quick

movement towards making the markets electronic and paperless rolling settlement on T+2

basis). SEBI has been active in setting up the regulations as required under law. SEBI has

also been instrumental in taking quick and effective steps in light of the global meltdown

and the Satyam fiasco. It had increased the extent and quantity of disclosures to be made

by Indian corporate promoters. More recently, in light of the global meltdown, it

liberalized the takeover code to facilitate investments by removing regulatory strictures.

In one such move, SEBI has increased the application limit for retail investors to Rs 2

lakh, from Rs 1 lakh at present.

Capital market requires many intermediaries who are responsible to transfer funds from

those who save to those who require these funds for investments. The efficiency of the

markets is dependent on the specialization attained by these intermediaries. Some of them

are as follows:

1. Stock Exchanges.

2. Banks.

3. Investment Trusts and Companies.

4. Specialized Financial Institutions or Development Banks.

5. Mutual Funds.

6. Non-Banking Financial Institutions.

7. International Financial Investors and Institutions


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Features of SEBI

Regulating the business in stock exchange and any other securities markets.

It safeguards the interest of the investors and provides policy and norms and also

develops of feeling of trust that their money not get lost.

Registering and regulating the working of collective investment schemes,

including mutual funds.

It also monitors and surveillance the amount of investment in a firm and keep the

record of all the investors and where the money invested .

Prohibiting fraudulent and unfair trade practices relating to securities

markets.

Many times it has been observed that money is invested spuriously from an

unidentified source it is the judicial power of SEBI to take stringent action against

fraudulent.

Promoting investor's education and training of intermediaries of securities

markets.

As per the SEBI direction an investing firm provide all the adequate and

comprehensive information about the plan of the company.

Judicial powers such as mortgaging and seize\ing of assets in order to recover

invested money

Prohibiting insider trading in securities, with the imposition of monetary penalties,

on erring market intermediaries. Regulating substantial acquisition of shares and

takeover of companies.

Regular monitoring and auditing of a firm

Calling for information from carrying out inspection, conducting inquiries and

audits of the stock exchanges, intermediaries and self regulatory organizations inthe securities market.


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Functions of SEBI:

The SEBI performs functions to meet its objectives. To meet three objectives SEBI has

three important functions. These are:

i. Protective functions

ii. Developmental functions

iii. Regulatory functions.

1. Protective Functions:

These functions are performed by SEBI to protect the interest of investor and provide

safety of investment.

As protective functions SEBI performs following functions:

(i) It Checks Price Rigging:


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Price rigging refers to manipulating the prices of securities with the main objective of

inflating or depressing the market price of securities. SEBI prohibits such practice

because this can defraud and cheat the investors.

(ii) It Prohibits Insider trading:

Insider is any person connected with the company such as directors, promoters etc. These

insiders have sensitive information which affects the prices of the securities. This

information is not available to people at large but the insiders get this privileged

information by working inside the company and if they use this information to make

profit, then it is known as insider trading, e.g., the directors of a company may know that

company will issue Bonus shares to its shareholders at the end of year and they purchaseshares from market to make profit with bonus issue. This is known as insider trading.

SEBI keeps a strict check when insiders are buying securities of the company and takes

strict action on insider trading.

(iii) SEBI prohibits fraudulent and Unfair Trade Practices:

SEBI does not allow the companies to make misleading statements which are likely to

induce the sale or purchase of securities by any other person.

(iv) SEBI undertakes steps to educate investors so that they are able to evaluate the

securities of various companies and select the most profitable securities.

(v) SEBI promotes fair practices and code of conduct in security market by taking

following steps:

(a) SEBI has issued guidelines to protect the interest of debenture-holders whereincompanies cannot change terms in midterm.

(b) SEBI is empowered to investigate cases of insider trading and has provisions for stiff

fine and imprisonment.

(c) SEBI has stopped the practice of making preferential allotment of shares unrelated to

market prices.

2. Developmental Functions:


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These functions are performed by the SEBI to promote and develop activities in stock

exchange and increase the business in stock exchange. Under developmental categories

following functions are performed by SEBI:

(i) SEBI promotes training of intermediaries of the securities market.

(ii) SEBI tries to promote activities of stock exchange by adopting flexible and adoptable

approach in following way:

(a) SEBI has permitted internet trading through registered stock brokers.

(b) SEBI has made underwriting optional to reduce the cost of issue.

(c) Even initial public offer of primary market is permitted through stock exchange.

3. Regulatory Functions:

These functions are performed by SEBI to regulate the business in stock exchange. To

regulate the activities of stock exchange following functions are performed:(i) SEBI has f

ramed rules and regulations and a code of conduct to regulate the intermediaries such as

merchant bankers, brokers, underwriters, etc.

(ii) These intermediaries have been brought under the regulatory purview and private

placement has been made more restrictive.

(iii) SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer

agents, trustees, merchant bankers and all those who are associated with stock exchange

in any manner.

(v) SEBI regulates takeover of the companies.

(vi) SEBI conducts inquiries and audit of stock exchanges.


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ADVANTAGES OF SEBI

It promotes healthy and orderly growth of securities and protect investors.

It helps in maintaining steady flow of saving in capital market.

It helps in regulating security market and ensures fair practices by issuers to help

them raise recourses at optimum cost.

SEBI operated to develop capital market .

LIMITATION OF SEBI

No dent of price manipulation

Poor rate of conviction and very few cases of exemplary penal action .

No due process for changing regulation.


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Transfer of assets, liabilities, etc., of existing Securities and Exchange

Board to the Board.

(1) On and from the date of establishment of the Board,-

(a) any reference to the existing Securities and Exchange Board in any law other than

this Act or in any contract or other instrument shall be deemed as a reference to the

Board;

(b) all properties and assets, movable and immovable, of, or belonging to, the existing

Securities and Exchange Board, shall vest in the Board;

(c) all rights and liabilities of the existing Securities and Exchange Board shall be

transferred to, and be the rights and liabilities of, the Board;

(d) without prejudice to the provisions of clause (c), all debts, obligations and liabilities

incurred, all contracts entered into and all matters and things engaged to be done by,

with or for the existing Securities and Exchange Board immediately before that date, for

or in connection with the purpose of the said existing Board shall be deemed to have

been incurred, entered into or engaged to be done by, with for, the Board;

(e) all sums of money due to the existing Securities and Exchange Board immediately

before that date shall be deemed to be due to the Board;

(f) all suits and other legal proceedings instituted or which could have been instituted by

or against the existing Securities and Exchange Board immediately before that date may

be continued or may be instituted by or against the Board; and

(g) every employee holding any office under the existing Securities and Exchange

Board immediately before that date shall hold his office in the Board by the same tenure

and upon the same terms and conditions of service as respects remuneration, leave,


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provident fund, retirement and other terminal benefits as he would have held such office

if the Board had not been established and shall continue to do as so an employee of the

Board or until the expiry of the period of six months from that date if such employee

opts not to be the employee of the Board within such period.

(2) Notwithstanding anything contained in the Industrial Disputes Act, 1947(14

of 1947), or in any other law for the time being in force, absorption of any employee by

the Board in its regular service under this section shall not entitle such employee to any

compensation under that Act or other law and no such claim shall be entertained by any

court, tribunal or other authority.


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Finance, Accounts and Audit

Grants by the Central Government.

The Central Government may, after due appropriation made by Parliament by law in this

behalf, make to the Board grants of such sums of money as that Government may think fit

for being utilised for the purposes of this Act.

Fund.

(1) There shall be constituted a Fund to be called the Securities and Exchange Board of

India general fund and there shall be credited thereto-

(a) all grants, fees and charges received by the Board under this Act;

(b) all sums received by the Board from such other sources as may be decided

upon by the Central Government.

(2) The Fund shall be applied for meeting -

(a) the salaries, allowances and other remuneration of members, officers and other

employees of the Board;

(b) the expenses of the Board in the discharge of its functions under section 11;

(c) the expenses on objects and for purposes authorised by this Act.

Accounts and Audit.


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(1) The Board shall maintain proper accounts and other relevant records and prepare

an annual statement of accounts in such form as may be prescribed by the Central

Government in consultation with the Comptroller and Auditor- General of India.

(2) The accounts of the Board shall be audited by the Comptroller and Auditor-

General of India at such intervals as may be specified by him and any expenditure

incurred in connection with such audit shall be payable by the Board to the Comptroller

and Auditor-General of India.

(3) The Comptroller and Auditor-General of India and any other person appointed

by him in connection with the audit of the accounts of the Board shall have the same

rights and privileges and authority in connection with such audit as the Comptroller andAuditor-General generally has in connection with the audit of the Government accounts

and, in particular, shall have the right to demand the production of books, accounts,

connected vouchers and other documents and papers and to inspect any of the offices of

the Board.

(4) The accounts of the Board as certified by the Comptroller and Auditor-General

of India or any other person appointed by him in this behalf together with the audit report

thereon shall be forwarded annually to the Central Government and that Government

shall cause the same to be laid before each House of Parliament.


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Powers of the Board

(1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the

interests of investors in securities and to promote the development of, and to regulate the

securities market, by such measures as it thinks fit.

(2) Without prejudice to the generality of the foregoing provisions, the measures referred

to there in may provide for -

(a) regulating the business in stock exchanges and any other securities markets;

(b) registering and regulating the working of stock brokers, sub-brokers,share transfer

agents, bankers to an issue, trustees of trust deeds, registrars to anissue, merchant

bankers, underwriters, portfolio managers, investment advisersand such other

intermediaries who may be associated with securities markets inany manner;

(c) registering and regulating the working of 15[venture capital funds andcollective

investment schemes],including mutual funds;

(d) promoting and regulating self-regulatory organisations;

(e) prohibiting fraudulent and unfair trade practices relating to securities markets;

(f) Promoting investors' education and training of intermediaries of securities markets;

(g) Prohibiting insider trading in securities;

(h) Regulating substantial acquisition of shares and take-over of companies;


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(i) calling for information from, undertaking inspection, conducting inquiries and audits

of the stock exchanges, mutual funds, other persons associated with the securities market]

intermediaries and self- regulatory organizations in the securities market;

calling for information and record from any bank or any other authority or board or

corporation established or constituted by or under any Central, State or Provincial Act in

respect of any transaction in securities which is under investigation or inquiry by the

Board;

(j) performing such functions and exercising such powers under the provisions of the

Securities Contracts (Regulation) Act, 1956(42 of 1956), as may be delegated to it by the

Central Government;

(k) levying fees or other charges for carrying out the purposes of this section;

(l) conducting research for the above purposes; calling from or furnishing to any such

agencies, as may be specified by the Board, such information as may be considered

necessary by it for the efficient discharge of its functions;]

(m) performing such other functions as may be prescribed.

Without prejudice to the provisions contained in sub-section (2), the Board may take

measures to undertake inspection of any book, or register, or other document or record of

any listed public company or a public company (not being intermediaries referred to in

section 12) which intends to get its securities listed on any recognised stock exchange

where the Board has reasonable grounds to believe that such company has been indulging

in insider trading or fraudulent and unfair trade practices relating to securities market.

Not with standing anything contained in any other law for the time being in force while

exercising the powers under the Board shall have the same powers as are vested in a civil

court under the Code of Civil Procedure, 1908 (5 of 1908),while trying a suit, in respect

of the following matters, namely :

(i) the discovery and production of books of account and other documents, at such place

and such time as may be specified by the Board;


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(ii) summoning and enforcing the attendance of persons and examining them on oath;

(iii) inspection of any books, registers and other documents of any person referred to in

section 12, at any place;]

(iv) inspection of any book, or register, or other document or record of the company

referred to in sub-section (2A);

(v) issuing commissions for the examination of witnesses or documents.

For the discharge of its functions efficiently, SEBI has been invested with the necessary

powers which are:

1. To approve bylaws of stock exchanges.

2. To require the stock exchange to amend their bylaws.

3. Inspect the books of accounts and call for periodical returns from recognised stock

exchanges.

4. Inspect the books of accounts of a financial intermediary.

5. Compel certain companies to list their shares in one or more stock exchanges.

6.

Levy fees and other charges on the intermediaries for performing its functions.

7. Grant licence to any person for the purpose of dealing in certain areas.

8. Delegate powers exercisable by it.

9. Prosecute and judge directly the violation of certain provisions of the companies

Act.


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SEBI Laws

Improved corporate governance is the key objective of the regulatory framework in the

securities market. Accordingly,Securities and Exchange Board of India (SEBI)has made

several efforts with a view to evaluate the adequacy of existing corporate governance

practices in the country and further improve these practices. It is implementing and

maintaining the standards of corporate governance through the use of its legal and

regulatory framework, namely:-

1.Securities Contracts (Regulation) Act, 1956

This Act was enacted to prevent undesirable transactions and to check speculation in the

securities by regulating the business of dealing therein. Any stock exchange, which is

desirous of being recognised, may make an application in the prescribed manner to the

Central Government. Every application shall contain such particulars as may be prescribed,

and shall be accompanied by a copy of the bye-laws of the stock exchange for the

regulation and control of contracts as well as a copy of the rules relating in general to the

constitution of the stock exchange, and in particular to:-

(i)

the governing body of such stock exchange, its constitution and powers of

management and the manner in which its business is to be transacted;

(ii) the powers and duties of the office bearers of the stock exchange;

(iii) the admission into the stock exchange of various classes of members, the

qualifications for membership, and the exclusion, suspension, expulsion and re-

admission of members there from or there into;

(iv) The procedure for the registration of partnerships as members of the stock

exchange, in cases where the rules provide for such membership; and thenomination and appointment of authorised representatives and clerks.

Every recognised stock exchange shall furnish the Central Government with a copy of the

annual report, and such annual report shall contain such particulars as may be prescribed. It

may make rules or amend any rules made by it to provide for all or any of the following

matters, namely:-

(i)

the restriction of voting rights to members only in respect of any matter placed
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before the stock exchange at any meeting;

(ii) the regulation of voting rights in respect of any matter placed before the stock

exchange at any meeting so that each member may be entitled to have one vote

only, irrespective of his share of the paid-up equity capital of the stock exchange;

(iii) the restriction on the right of a member to appoint another person as his proxy to

attend and vote at a meeting of the stock exchange; etc.

If, in the opinion of the Central Government, an emergency has arisen and for the purpose

of meeting the emergency, the Central Government considers it expedient so to do, it may,

by notification in the Official Gazette, for reasons to be set out therein, direct a recognised

stock exchange to suspend such of its business for such period not exceeding seven days

and subject to such conditions as may be specified in the notification, and, if, in the opinion

of the Central Government, the interest of the trade or the public interest requires that the

period should be extended, it may, by like notification extend the said period from time to

time.

Securities Contracts (Regulation) Amendment Act, 2007 has been enacted in order to

further amend the Securities Contracts (Regulation) Act, 1956, with a view to include

securitisation instruments under the definition of 'securities' and provide for disclosure

based regulation for issue of the securitised instruments and the procedure thereof. This has

been done keeping in view that there is considerable potential in the securities market for

the certificates or instruments under securitisation transactions. Further, replication of the

securities markets framework for these instruments would facilitate trading on stock

exchanges and, in turn, help development of the market in terms of depth and liquidity.

2.Securities and Exchange Board of India Act, 1992

This Act was enacted to protect the interests of investors in securities and to promote the

development of, and to regulate, the securities market and for matters connected therewith

or incidental thereto. For this purpose, the SEBI (the Board), by regulation, specify:-

(i) the matters relating to issue of capital, transfer of securities and other matters incidental

thereto; and (b) the manner in which such matters shall be disclosed by the companies.

No stock-broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed,
http://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=199215http://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=199215http://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=199215http://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=199215


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No depository shall act as a depository unless it obtains a certificate of commencement of

business from the Board (the SEBI). The Board shall grant a certificate only if it is satisfied

that the depository has adequate systems and safeguards to prevent manipulation of records

and transactions. However, a certificate shall not be refused unless the depository

concerned has been given a reasonable opportunity of being heard.

A depository shall enter into an agreement with one or more participants as its agent, in

such form as may be specified by the bye-laws. Any person, through a participant, may

enter into an agreement, in such form as may be specified by the bye-laws, with any

depository for availing its services. Any such person shall surrender the certificate of

security, for which he seeks to avail the services of a depository, to the issuer in such

manner as may be specified by the regulations. The issuer, on receipt of certificate of

security, shall cancel the certificate of security and substitute in its records the name of the

depository as a registered owner in respect of that security and inform the depository

accordingly. A depository shall, on receipt of information, enter the name of the person

referred in its records, as the beneficial owner.

On receipt of intimation from a participant, every depository shall register the transfer of

security in the name of the transferee. If a beneficial owner or a transferee of any security

seeks to have custody of such security, the depository shall inform the issuer accordingly.

Every person subscribing to securities offered by an issuer shall have the option either to

receive the security certificates or hold securities with a depository. Where a person opts to

hold a security with a depository, the issuer shall intimate such depository the details of

allotment of the security, and on receipt of such information the depository shall enter in its

records the name of the allottee as the beneficial owner of that security.

A depository shall be deemed to be the registered owner for the purposes of effecting

transfer of ownership of security on behalf of a beneficial owner. However, it shall not

have any voting rights or any other rights in respect of securities held by it. The beneficial

owner shall be entitled to all the rights and benefits and be subjected to all the liabilities in

respect of his securities held by a depository.

The Board, on being satisfied that it is necessary in the public interest or in the interest of


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investors so to do, may, by order in writing,:-

(i) call upon any issuer, depository, participant or beneficial owner to furnish in

writing such information relating to the securities held in a depository as it may

require; or

(ii) authorise any person to make an enquiry or inspection in relation to the affairs of

the issuer, beneficial owner, depository or participant, who shall submit a report of

such enquiry or inspection to it within such period as may be specified in the order.


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continues or one crore rupees, whichever is less.

D.Penalty for certain defaults in case of mutual funds.-

If any person, who is -

(a) required under this Act or any rules or regulations made thereunder to obtain a

certificate of registration from the Board for sponsoring or carrying on any collective

investment scheme, including mutual funds, sponsors or carries on any collective

investment scheme, including mutual funds, without obtaining such certificate of

registration, he shall be liable to 4[41][a penalty of one lakh rupees for each day during

which he sponsors or carries on any such collective investment scheme including mutual

funds, or one crore rupees, whichever is less.

(b) registered with the Board as a collective investment scheme, including mutual funds,

for sponsoring or carrying on any investment scheme, fails to comply with the terms and

conditions of certificate of registration, he shall be liable to 5[42][a penalty of one lakh

rupees for each day during which such failure continues or one crore rupees, whichever is

less.

(c) registered with the Board as a collective investment scheme, including mutual funds,

fails to make an application for listing of its schemes as provided for in the regulations

governing such listing, he shall be liable to 6[43][a penalty of one lakh rupees for each day

during which such failure continues or one crore rupees , whichever is less.

(d) registered as a collective investment scheme including mutual funds fails to despatch

unit certificates of any scheme in the manner provided in the regulation governing such


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despatch, he shall be liable to 7[44][a penalty of one lakh rupees for each day during which

such failure continues or one crore rupees, whichever is less.

(e) registered as a collective investment scheme, including mutual funds, fails to refund the

application monies paid by the investors within the period specified in the regulations, he

shall be liable to pay 8[45][a penalty of one lakh rupees for each day during which such

failure continues or one crore rupees, whichever is less.

(f) registered as a collective investment scheme, including mutual funds, fails to invest

money collected by such collective investment schemes in the manner or within the period

specified in the regulations, he shall be liable to 9[46][a penalty of one lakh rupees for each

day during which such failure continues or one crore rupees, whichever is less.

E. Penalty for failure to observe rules and regulations by an asset management

company.-

Where any asset management company of a mutual fund registered under this Act, fails to

comply with any of the regulations providing for restrictions on the activities of the asset

management companies, such asset management company shall be liable to a penalty of

one lakh rupees for each day during which such failure continues or one crore rupees,

whichever is less.

F. Penalty for failure in case of stock brokers.-

If any person, who is registered as a stock broker under this Act, -

(a) fails to issue contract notes in the form and in the manner specified by the stock


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exchange of which such broker is a member, he shall be liable to a penalty not exceeding

five times the amount for which the contract note was required to be issued by that broker;

(b) fails to deliver any security or fails to make payment of the amount due to the investor

in the manner within the period specified in the regulations, he shall be liable to 10[48][a

penalty of one lakh rupees for each day during which such failure continues or one crore

rupees, whichever is less.]

(c) charges an amount of brokerage which is in excess of the brokerage specified in the

regulations, he shall be liable to 11[49][a penalty of one lakh rupees] or five times the

amount of brokerage charged in excess of the specified brokerage, whichever is higher.

G.Penalty for insider trading.-

If any insider who,-

(i) either on his own behalf or on behalf of any other person, deals in securities of a body

corporate listed on any stock exchange on the basis of any unpublished price sensitive

information; or

(ii) communicates any unpublished price- sensitive information to any person, with or

without his request for such information except as required in the ordinary course of

business or under any law; or

(iii) counsels, or procures for any other person to deal in any securities of any body

corporate on the basis of unpublished price-sensitive information,

shall be liable to a penalty 12[50][of twenty-five crore rupees or three times the amount of

profits made out of insider trading, whichever is higher.


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H.Penalty for non-disclosure of acquisition of shares and take-overs.-

If any person, who is required under this Act or any rules or regulations made thereunder,

fails to,-

(i) disclose the aggregate of his shareholding in the body corporate before he acquires any

shares of that body corporate; or

(ii) make a public announcement to acquire shares at a minimum price;

(iii) make a public offer by sending letter of offer to the shareholders of the concerned

company; or

(iv) make payment of consederation to the shareholders who sold their shares pursuant to

letter of offer.

he shall be liable to a penalty twenty-five crore rupees or three times the amount of profits

made out of such failure, whichever is higher.

H(A).Penalty for fraudulent and unfair trade practices.-

If any person indulges in fraudulent and unfair trade practices relating to securities, he shall

be liable to a penalty of twenty-five crore rupees or three times the amount of profits made

out of such practices, whichever is higher.

H(B).Penalty for contravention where no separate penalty has been provided.-

Whoever fails to comply with any provision of this Act, the rules or the regulations madeor directions issued by the Board there under for which no separate penalty has been

provided, shall be liable to a penalty which may extend to one crore rupees.

I.Power to adjudicate.-

(1) For the purpose of adjudging under sections A, B, C, D, E, F, G, H, H(A) and H(B),the


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Board shall appoint any of its officers not below the rank of a Division Chief to be an

adjudicating officer for holding an inquiry in the prescribed manner after giving any person

concerned a reasonable opportunity of being heard for the purpose of imposing any

penalty.

(2) While holding an inquiry, the adjudicating officer shall have power to summon and

enforce the attendance of any person acquainted with the facts and circumstances of the

case to give evidence or to produce any document which in the opinion of the adjudicating

officer, may be useful for or relevant to the subject matter of the inquiry and if, on such

inquiry, he is satisfied that the person has failed to comply with the provisions of any of the

sections specified in sub-section (1), he may impose such penalty as he thinks fit in

accordance with the provisions of any of those sections.

J.Factors to be taken into account by the adjudicating officer.-

While adjudging quantum of penalty under section 15, the adjudicating officer shall have

due regard to the following factors, namely:

(a) The amount of disproportionate gain or unfair advantage, wherever quantifiable, made

as a result of the default;

(b) The amount of loss caused to an investor or group of investors as a result of the default;

(c) The repetitive nature of the default.

.Crediting sums realized by way of penalties to Consolidated Fund of India.-

All sums realised by way of penalties under this Act shall be credited to the Consolidated

Fund of India.


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CHAPTER III

SUMMARY

SUMMARY OF THE TOPIC

An investor while operating in corporate securities has to facevarious types of risks

associated with those transactions. He has to identify and manage these risks properly to

maximise his returns. A clear perception of risk is necessary to have a control over them.

Risk is the potential loss a portfolio is likely to suffer. As most losses proceed from

ignorance, they could be avoided by understanding them properly. Risk management aims

at identifying and understanding the various risks an investor has to face. Future return is

an expected return and may or may not be actually realised. Risk management measures

the various probabilities that may arise in a particular investment. It can show the strengths

and weaknesses of an investment. The emphasis on risk management is increasing with

globalisation and the economic liberalisation process altering the way risks are perceived.

The competitive market scenario and the progressive opening up of the economy leading to

global linkages point to multiplicity of risks and risk management processes. The spread of

the equity cult and the dawning of the information age have also contributed to the


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increasing dimensions of risk management. The investors now have to explicitly identify

and deal with all the risk components, as investors have to be accountable to themselves in

terms of the risk-return implications of their behaviour. At present the future outcomes of a

business environment are unpredictable and risk has become an integral part of it. Risk can

be defined as the volatility of expected future outcomes. The greater the volatility of

expected returns, the greater is the risk. The essence of risk management is to reduce the

volatility of future outcomes. Returns depend on the ability of the investor to bear risk. The

value maximisation involves both returns and risks and a balance between the two.

Prudence lies in the reduction of the area of uncertainty within which an investor is

operating. Because of the growing complexity in stock market operations, investors would

have to rapidly equip themselves with a variety of information, intensive skills and

appropriate techniques of risk management. To strengthen the risk bearing capacity of an

ordinary investor, the present problems of the investors should be identified and analysed.

This study covers the problems of the investors as well as their needs, aspirations, attitudes

and expectations related to investment in corporate securities. The methods adopted by

them to reduce the risk in the capital market are also critically analysed in this study.


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LIMITATIONS

1. SEBI keeps doling out regularly information about investors complaints. When it

is good to bring investors grievance to public notice, one would like to know what

kind of breakthrough SEBI has achieved in the redressed of these grievances. Since

an overwhelmingly large percentage of the complaints related to non receipt of

refunds allotment letters, dividends on share and interest on debenture these have

very little to do with the performance and the function of the stock exchanges. The

introduced of stockinvest should go a long way in mitigating the evil of non -

receipt of refunds.

2. It is a fact that stock exchange in India suffer from many organization, procedural

and deficiencies. Reformer are necessary to ensure efficient

role of sebi as a regulatory body

Documents