39089101-SEBI-role n function

8/8/2019 39089101-SEBI-role n function

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SECURITIES EXCHANGE

BOARD OF INDIA

A PROJECT REPORT


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Why do we need a regulatory body for Why do we need a regulatory body for Investor protection in India?Investor protection in India?

India is an ` information ally ' weak marketIndia is an ` information ally ' weak market

Boosting capital market demands restoring theBoosting capital market demands restoring theconfidence of lay investors who have been beatenconfidence of lay investors who have been beatendown by repeated scamsdown by repeated scams

Progressively softening interest rates and an under Progressively softening interest rates and an under performing economy have eroded investment options, performing economy have eroded investment options,and require enhanced investing skills.and require enhanced investing skills.


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FUNCT IONS OF SEB IFUNCT IONS OF SEB I Section 11 of the Securities and Exchange Board of IndiaSection 11 of the Securities and Exchange Board of India

Act.Act.

R egulation Of Business In The Stock ExchangesR egulation Of Business In The Stock Exchanges

A review of the market operations, organizational structureA review of the market operations, organizational structureand administrative control of the exchangeand administrative control of the exchange

All stock e xchanges are required to beAll stock e xchanges are required to be Body CorporatesBody Corporates The e xchange provides a fair, equitable and growingThe e xchange provides a fair, equitable and growing

market to investors.market to investors. The e xchanges organisation, systems and practices are inThe e xchanges organisation, systems and practices are in

accordance with the Securities Contracts (Regulation)accordance with the Securities Contracts (Regulation)Act (SC(R) Act), 1956Act (SC(R) Act), 1956


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FUNCT IONS OF SEB IFUNCT IONS OF SEB I

B) R egistration And R egulation Of The Working Of B) R egistration And R egulation Of The Working Of IntermediariesIntermediaries

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 suchother intermediaries


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FUNCT IONS OF SEB IFUNCT IONS OF SEB IC) R egistration And R egulation Of Mutual Funds, VentureC) R egistration And R egulation Of Mutual Funds, Venture

Capital Funds & Collective Investment SchemesCapital Funds & Collective Investment Schemes

AMFIAMFI--Self Regulatory OrganizationSelf Regulatory Organization- -'promoting and protecting the'promoting and protecting theinterest of mutual funds and their unitinterest of mutual funds and their unit- -holders, increasing publicholders, increasing publicawareness of mutual funds, and serving the investors' interest byawareness of mutual funds, and serving the investors' interest bydefining and maintaining high ethical and professional standards indefining and maintaining high ethical and professional standards inthe mutual funds industry'.the mutual funds industry'.Every mutual fund must be registered with SEBI and registration isEvery mutual fund must be registered with SEBI and registration isgranted only where SEBI is satisfied with the background of thegranted only where SEBI is satisfied with the background of thefund.fund.SEBI has the authority to inspect the books of accounts, records andSEBI has the authority to inspect the books of accounts, records anddocuments of a mutual fund, its trustees, AMC and custodian wheredocuments of a mutual fund, its trustees, AMC and custodian whereit deems itit deems it necessarynecessary


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SEBI (Mutual Funds) Regulations, 1996 lays down the provisions for SEBI (Mutual Funds) Regulations, 1996 lays down the provisions for the the appointment of the trustees and their obligationsappointment of the trustees and their obligations

Every new scheme launched by a mutual fund needs to be filed with SEBIEvery new scheme launched by a mutual fund needs to be filed with SEBIand SEBI reviews the document in regard to the disclosures contained inand SEBI reviews the document in regard to the disclosures contained insuch documents.such documents.

Regulations have been laid down regarding listing of funds, refundRegulations have been laid down regarding listing of funds, refund procedures, transfer procedures, disclosures, guaranteeing returns etc procedures, transfer procedures, disclosures, guaranteeing returns etc

SEBI has also laid down advertisement code to be followed by a mutualSEBI has also laid down advertisement code to be followed by a mutualfund in making any publicity regarding a scheme and its performancefund in making any publicity regarding a scheme and its performance

SEBI has prescribed norms / restrictions for investment management with aSEBI has prescribed norms / restrictions for investment management with aview to minimize / reduce undue investment risks.view to minimize / reduce undue investment risks.

SEBI also has the authority to initiate penal actions against an erring MF.SEBI also has the authority to initiate penal actions against an erring MF.

In case of a change in the controlling interest of an asset managementIn case of a change in the controlling interest of an asset managementcompany, investors should be given at least 30 days time to e xercise their company, investors should be given at least 30 days time to e xercise their exit option.exit option.


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FUNCT IONS OF SEB IFUNCT IONS OF SEB ID ) Promoting & R egulating Self R egulatory OrganizationsD ) Promoting & R egulating Self R egulatory Organizations

In order for the SRO to effectively e xecute itsIn order for the SRO to effectively e xecute itsresponsibilities, it would be required to be structured,responsibilities, it would be required to be structured,organized, managed and controlled such that it retains itsorganized, managed and controlled such that it retains itsindependence, while continuing to perform a genuineindependence, while continuing to perform a genuinemarket development rolemarket development role

E) Prohibiting Fraudulent And Unfair Trade Practices InE) Prohibiting Fraudulent And Unfair Trade Practices InThe Securities MarketThe Securities Market

SEBI is vested with powers to take action against theseSEBI is vested with powers to take action against these practices relating to securities market manipulation and practices relating to securities market manipulation andmisleading statements to induce sale/purchase of securities.misleading statements to induce sale/purchase of securities.


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FUNCT IONS OF SEB IFUNCT IONS OF SEB IF] Prohibition Of Insider TradingF] Prohibition Of Insider Trading

Stock Watch System, which has been put in place, surveillanceStock Watch System, which has been put in place, surveillanceover insider trading would be further strengthenedover insider trading would be further strengthened ..

G] Investor Education And The Training Of IntermediariesG] Investor Education And The Training Of Intermediaries SEBI distributed the booklet titled A Quick Reference Guide for SEBI distributed the booklet titled A Quick Reference Guide for

Investors to the investorsInvestors to the investors SEBI also issued a series of advertisement /public notices in nationalSEBI also issued a series of advertisement /public notices in national

as well as regional newspapers to educate and caution the investorsas well as regional newspapers to educate and caution the investors

about the risks associated with the investments in collective investmentabout the risks associated with the investments in collective investmentschemesschemes

SEBI has also issued messages in the interest of investors on NationalSEBI has also issued messages in the interest of investors on NationalChannel and Regional Stations on DoordarshanChannel and Regional Stations on Doordarshan ..


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FUNCT IONS OF SEB IFUNCT IONS OF SEB IH )H ) Inspection And InquiriesInspection And Inquiries

I)I) R egulating Substantial Acquisition Of Shares And TakeR egulating Substantial Acquisition Of Shares And Take- -oversovers

J)J) Performing Such Functions And Exercising Such PowersPerforming Such Functions And Exercising Such PowersUnder The Provisions Of Under The Provisions Of The Securities ContractsThe Securities Contracts(R egulation) Act, 1956 As May Be D elegated To It By The(R egulation) Act, 1956 As May Be D elegated To It By TheCentral Government;Central Government;

K)K) Levying Fees Or Other Charges For Carrying Out TheLevying Fees Or Other Charges For Carrying Out ThePurposes Of This SectionPurposes Of This Section

L)L) Conducting R esearch For The Above PurposesConducting R esearch For The Above Purposes


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Search And SeizureSearch And Seizure

To impose penalties of up to Rs 25 crore or three times theTo impose penalties of up to Rs 25 crore or three times theamount involved in the violation of a norm, whichever isamount involved in the violation of a norm, whichever ishigher.higher.

In the cases of some offences, including defaults by brokers, aIn the cases of some offences, including defaults by brokers, afailure to furnish returns and information by corporates andfailure to furnish returns and information by corporates and

brokers and other lapses, the market regulator can impose a brokers and other lapses, the market regulator can impose ahigher penalty of Rs 1 lakhs a day or a ma ximum fine of Rs 1higher penalty of Rs 1 lakhs a day or a ma ximum fine of Rs 1crore, whichever is lower.crore, whichever is lower.

At present, the offences carry penalties ranging between RsAt present, the offences carry penalties ranging between Rs5,000 and Rs 5 lakhs.5,000 and Rs 5 lakhs.


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Corporate GovernanceCorporate Governance

The listing requirements, are ensured in two ways.The listing requirements, are ensured in two ways.

Corporates are e x pected to submit complianceCorporates are e x pected to submit compliancereports as per clause 49 of the listing agreementreports as per clause 49 of the listing agreement

They are also required to provide details of theThey are also required to provide details of thesame in their annual reportssame in their annual reports . .


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D elistingD elistingThe e xit price to be determined in accordance with the book building processThe e xit price to be determined in accordance with the book building process(known as reverse book building) through an electronically(known as reverse book building) through an electronically- -linked transparentlinked transparent

facility.facility.

The offer price shall have a floor price, which will be the average of 26 weeksThe offer price shall have a floor price, which will be the average of 26 weekstraded price preceding the date of the public announcement. The final offer pricetraded price preceding the date of the public announcement. The final offer priceshall be determined as the price at which ma ximum number of shares has beenshall be determined as the price at which ma ximum number of shares has beenoffered.offered.

After the final price is determined based on the book After the final price is determined based on the book- -building process, the promoter building process, the promoter or the acquirer will have to make a public announcement of the final price andor the acquirer will have to make a public announcement of the final price andcommunicate to the e xchanges from which the delisting is sought to be made withincommunicate to the e xchanges from which the delisting is sought to be made withintwo working days.two working days.

Further, the number of bidding centres shall not be less than 30, including all theFurther, the number of bidding centres shall not be less than 30, including all thestock e xchange centres, which should have at least one electronicallystock e xchange centres, which should have at least one electronically- -linkedlinked

computer terminal each.computer terminal each.

In case the promoter does not accept the above price, he should not make anIn case the promoter does not accept the above price, he should not make anapplication to the e xchange for delisting of the securities, as per the guidelines.application to the e xchange for delisting of the securities, as per the guidelines.Instead, he shall ensure that the public shareholding is brought up to the minimumInstead, he shall ensure that the public shareholding is brought up to the minimumlimits specified under the listing conditions within si x months.limits specified under the listing conditions within si x months.

Strict norms for compulsory delisting by stock e xchangesStrict norms for compulsory delisting by stock e xchanges


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P ublic IssuesP ublic IssuesAn unlisted company has to satisfy the following criteria to be eligible to makeAn unlisted company has to satisfy the following criteria to be eligible to makea public issuea public issue

PrePre--issue networth of the co. should not be less than Rs.1 crore in last 3issue networth of the co. should not be less than Rs.1 crore in last 3out of last 5 years with minimum networth to be met duringout of last 5 years with minimum networth to be met duringimmediately preceding 2 yearsimmediately preceding 2 years

Track record of distributable profits for at least three (3) out of Track record of distributable profits for at least three (3) out of immediately preceding five (5) yearsimmediately preceding five (5) years

The issue size (i.e. offer through offer document + firm allotment +The issue size (i.e. offer through offer document + firm allotment + promoters contribution through the offer document) shall not e xceed promoters contribution through the offer document) shall not e xceed

five (5) times its prefive (5) times its pre- -issue networth.issue networth.

In case an unlisted company does not satisfy any of the above criterions,In case an unlisted company does not satisfy any of the above criterions,it can come out with a public issue only through the Book it can come out with a public issue only through the Book- -BuildingBuilding

process. In the Book Building process the company has to compulsorily process. In the Book Building process the company has to compulsorilyallot at least si xty percent (50%) of the issue size to the Qualifiedallot at least si xty percent (50%) of the issue size to the QualifiedInstitutional Buyers (QIBs), failing which the full subscription moniesInstitutional Buyers (QIBs), failing which the full subscription moniesshall be refundedshall be refunded ..


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Initial Public OfferInitial Public OfferIn case of an Initial Public Offer (IPO) i.e. public issue by unlistedIn case of an Initial Public Offer (IPO) i.e. public issue by unlistedcompany, the promoters have to necessarily offer at least 20% of the postcompany, the promoters have to necessarily offer at least 20% of the postissue capital.issue capital.

In case of public issues by listed companies, the promoters shall participateIn case of public issues by listed companies, the promoters shall participateeither to the e xtent of 20% of the proposed issue or ensure posteither to the e xtent of 20% of the proposed issue or ensure post- -issue shareissue shareholding to the e xtent of 20% of the postholding to the e xtent of 20% of the post- -issue capital.issue capital.

In case of any issue of capital to the public the minimum contribution of In case of any issue of capital to the public the minimum contribution of promoters shall be locked in for a period of 3 years, both for an IPO and promoters shall be locked in for a period of 3 years, both for an IPO andPublic Issue by listed companies.Public Issue by listed companies.

In case of an IPO, if the promoters contribution in the proposed issueIn case of an IPO, if the promoters contribution in the proposed issueexceeds the required minimum contribution, such e xcess contribution shallexceeds the required minimum contribution, such e xcess contribution shallalso be locked in for a period of one year.also be locked in for a period of one year.

In case of a public issue by a listed company, participation by promoters inIn case of a public issue by a listed company, participation by promoters inthe proposed public issue in e xcess of the required minimum percentagethe proposed public issue in e xcess of the required minimum percentage

shall also be lockedshall also be locked- -in for a period of one year as per the lock in for a period of one year as per the lock- -in provisionsin provisionsas specified in Guidelines on Preferential issue.as specified in Guidelines on Preferential issue.


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Initial Public OfferInitial Public Offer paid up share capital prior to IPO and shares issued on a firm allotment paid up share capital prior to IPO and shares issued on a firm allotment basis along with issue shall be locked basis along with issue shall be locked- -in for a period of one year from thein for a period of one year from thedate of allotment in public issue.date of allotment in public issue.

In case of over In case of over- -subscription in a fi xed price issue the allotment is done insubscription in a fi xed price issue the allotment is done in

marketable lots, on a proportionate basismarketable lots, on a proportionate basis

In case of a book building issue, allotment to Qualified Institutional BuyersIn case of a book building issue, allotment to Qualified Institutional Buyersand Nonand Non--Institutional buyers are done on a discretionary basis. AllotmentInstitutional buyers are done on a discretionary basis. Allotmentto retail investors is done on a proportionate basisto retail investors is done on a proportionate basis

all steps for completion of the necessary formalities for listing andall steps for completion of the necessary formalities for listing andcommencement of trading at all stock e xchanges where the securities are tocommencement of trading at all stock e xchanges where the securities are to

be listed are taken within 7 working days of finalization of basis of be listed are taken within 7 working days of finalization of basis of allotment.allotment.


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R ECOMMEN D ATIONS ONR ECOMMEN D ATIONS ONCO R PO R ATE GOVE R NANCECO R PO R ATE GOVE R NANCE

If an institution wishes to appoint a director on the board of a company, itIf an institution wishes to appoint a director on the board of a company, itshould be approved by the shareholders of the company. Such a person isshould be approved by the shareholders of the company. Such a person isnot to be considered an independent director.not to be considered an independent director.

An institutional director, so appointed, shall have the same responsibilitiesAn institutional director, so appointed, shall have the same responsibilitiesand shall be subject to the same liabilities as any other director.and shall be subject to the same liabilities as any other director.

companies should lay down a code of conduct for all the board memberscompanies should lay down a code of conduct for all the board membersand the senior management of company.and the senior management of company.

Mandatory review by audit committees of listed companiesMandatory review by audit committees of listed companies

Companies raising money through a public issue should disclose to theCompanies raising money through a public issue should disclose to theaudit committee, the uses and applications of funds by major category on aaudit committee, the uses and applications of funds by major category on aquarterly basis.quarterly basis.

Documents

39089101-SEBI-role n function