SEBI -Objectives & functions

1. SEBI
SECURITIES EXCHANGE BOARD OF INDIA
Head quartered in popular business district of
Bandra-Kurla complex in Mumbai

2.  Statutory body
 Twin objectives: investor protection &
market development
 Formulate rules and regulations to
foster development

3. OBJECTIVES OF SEBI
 SEBI ordinance in parliament – gave
status to SEBI in 1992
 As per preamble of SEBI 3 main obj:
 To protect the interests of investors in
securities
 To promote the development of
securities market
 To regulate the securities market

4. FUNCTIONS OF SEBI
 Regulate SE / any securities market
business
 Registering & regulating the working
of brokers, sub-brokers, share transfer
agents, portfolio managers,
investment advisers & other
intermediaries
 Registering and regulating working of
collective investment schemes

5.  Promote & regulate self-regulatory
orgn
 Prohibit fraudulent & unfair trade
practices in the securities market
 Promote investors education &
training intermediaries
 Prohibit insiders trading
 Regulate substantial acquisition &
take-overs
 Call for info, undertake inspection,
conduct enquiries & audits of SE,
intermediaries & self-regulatory orgns

6. ORGANISATION OF SEBI
DEPARTMENT RESPONSIBILITY
PRIMARY DEPT POLICY MATTERS, REDRESSAL
OF INVESTORS’ GRIEVANCES &
GUIDANCE
ISSUE MANAGEMENT &
INTERMEDIARIES DEPT
REGISTRATION, REGULATION &
MONITORING OF
INTERMEDIARIES & SCRUTINY
OF OFFER DOCUMENT
SECONDARY MARKET DEPT POLICY MATTERS, PRICE
MONITORING, MARKET
SURVEILLANCE, PREVENTION
OF INSIDER TRADING &
BROKER’S REGISTRATION
INSTITUTIONAL INVESTMENT MFs, FIIs, MERGERS,
ACQUISITIONS

7.  Apart from above depts – legal &
investigation depts, separate advisory
committees for primary & secondary
market

8. SEBI’S ROLE IN THE PRIMARY
MARKET
 To protect interests of the investors &
bring back small investors to market –
several measures
 Entry & disclosure norms tightened
 Allocation & promoter’s contribution
regulated

9. 1. ENTRY NORMS
 Co – with track record of min 3 yrs of dividend
payment before issue
 If listed co – its post-issue networth should
become 5 times of its pre-issue networth
 If mfg co – no track record – enter if its project is
appraised by a public fi or scheduled commercial
bank
 Issuing co shud have atleast 5 public shareholders
for every rs.1 lakh of the net capital offer made
 SEBI wont vet offer docu of co with track rec of 3
yrs consistent dividend pymt
 Offer docu seeking listing in OTCEI wont be vetted

10. 2. PROMOTER’S
CONTRIBUTION
 Contribution by those described in the
prospectus as promoters, directors,
friends, relatives & associates
 Shudn’t be less than 20% of issued
cptl
 To be received before public issue; if
issue size > rs.100 cr – prom contbn
to be brought in atleast 50% before
opening issue & balance after calls
made

11.  Not more than 20% of contribn in
public / preferential issue would be
locked in for 5 years
 If non-underwritten public issue –
promo to bring in own money or
subscription within 60 days from issue
closure

12. 3. DISCLOSURE
 Draft prospectus filed with SEBI –
made as public docu for transparency
 Draft prospectus to provide all info to
investors regd:
◦ Present co position
◦ Future prospect & risk factors associated
with co investment
 As per C.B.Bhave committee – SEBI
advised all listed co to publish
unaudited financial results on a
quarterly basis

13. 4. BOOK BUILDING
 Mode of public issue
 Guidelines w.r.to 100% book-building in
an issue of security to public thru
prospectus
 Two-tier underwriting system
 Syndicate members responsible for
primary underwriting & book runners
liable for default
 Atleast 30% book building centres with
syndicate members being present at
each centre

14. 5. ALLOCATION OF SHARES
 To bring back small investors (who
applied for 1000 or fewer shares) –
minimum subscription reduced from 500
to 200
 Proportionate allotment
 Atleast 50% reservation for small
investors
 Allotment within 30 days from closure
 15% p.a interest to be paid if application
money not refunded within specified
period (if not allotted)

15. 6. MARKET
INTERMEDIARIES Licensing of merchant bankers based on capital
adequacy or track record in capital market activities
 Other finl intermediaries (underwriters, registrars &
transfer agents) to be licensed
 Right to inspect records of intermediaries
 MB categories ii, iii & iv abolished
 Merchant banker is one who handles public issue
& manages them
 With a networth of rs.5 crores during renewal
 From dec 7, 1997 MB advised to segregate fund
based & fee based activities to prevent
mismanagement of investors funds

16. GUIDELINES FOR
SECONDARY MARKET
 Impt areas are:
 Governing board
 Infrastructure
 Settlement & clearing
 Debt market
 Price stabilisation
 Delisting
 Brokers
 Insider trading

17. 1. GOVERNING BOARD OF
SE
 Reconstituted by SEBI
 Broker & non-broker rep made as 50:50
 60% of non-broker rep made in
arbitration, disciplinary & default
committees
 Regulations w.r.to public reps & govt
nominees in the governing board issued;
as non-participants they should ensure
impartial & fair governance
 Only 40% rep of trading members in the
governing council of derivatives

18. 2. INFRASTRUCTURE
 To sophisticate trading SEBI
established NSE with online screen
based trading terminals
 Allowed se to expand its terminals
outside jurisdiction
 Recognition to new SE allowed
subject to the conditions of on line
screen based trading

19. 3. SETTLEMENT &
CLEARING
 Carry forward transactions withdrawn
& weekly settlements introduced
 All SE to setup clearing houses,
clearing corporation or settlement
guarantee fund to expedite
dematerialisation
 Warehousing facility permitted;
facilitates large orders to be executed
in parts with a single contract note in
the end of trading cycle

20. 4. DEBT MARKET
 Wholesale debt market segment in
NSE enables traders to trade in debt
instruments
 Allowed dematerialisation of govt
securities
 Allowed listing of debt instruments
even if co’s equity was not listed
earlier
 Mandatory credit rating of debt
instruments

21.  Dual rating for issue size above
Rs.500 mn – to avoid credit rating
shopping
 Cr rating shopping – not disclosing
adverse rating but seek a favourable
rating from other agency
 Not allowed to get rating from an
agency which is its associated firm

22. 5. PRICE STABILISATION
 SEBI set up a division in to monitor
unusual price movements (in
coordination with SE)
 Monitor new scrips from 1st day
 For new scrips – if abnormal price
variation – special margin of 25% or
more on purchases
 Intraday margin, gross / net exposure
margin, market to market margin,
concentration margin & special
markgings – imposed on traders to
reduce price volatility

23. 6. DELISTING
 Tightened delisting norms like:
 On voluntary delisting from regional
SE – co shud make buy offer to all
Sh.Hold in that region
 Promoters shud buy / arrange buyers
for security
 Listing fee of 3 years shud be taken
from co on delisting & kept in escrow
account with SE

24. 7. BROKERS AND SEBI
 Registration based on eligibility, infra
facility, past experience & capital
adequacy
 Regn fee to be paid
 Code of conduct – laid down for
brokers
 Code ensure not to indulge in
malpractice and manipulation

25.  Code deals with brokers’ duty:
◦ Execution of orders
◦ Issue of contract note
◦ Breach of trust
◦ Fairness to clients
◦ Investment advice
 Contract not shud show transparency
in dealings regarding price, brokerage,
service tax etc
 Contract note & bills to be passed on
time – if not penalties

26.  To furnish SEBI audited B/S & P&L a/c
within 6 months of each accounting
period
 Broker – preserve accounts & records
for atleast 5 years
 SEBI – inspect records – appoints
qualified auditors for that
 Regional offices set up by SEBI to
attend complaints against brokers &
SE (in New Delhi, Chennai, Calcutta &
Mumbai)

27.  Disciplinary actions against erring
brokers
 Penalty of suspension of registration if
stock brokers:
◦ Violates provisions of act
◦ Not follows code of conduct
◦ Fails to furnish info to board
◦ Furnishes false / wrong info
◦ Not submits periodical returns
◦ Not cooperates any enquiry
◦ Fails to resolve investor complaints

28. ◦ Indulges in manipulating price
◦ Guilty of misconduct
◦ Deteriorates his financial position
◦ Fails to pay fees
◦ Violates conditions of registration
◦ His membership suspended by SEBI
 Cancellation of registration if violates
insider trading regulations, guilty of fraud
/ criminal offence
 Sub-brokers – registration with SEBI
mandatory;
 Agreement b/w broker & sub-broker
 Security deposit with stock broker

29. 8. INSIDER TRADING
 Using one’s access to unpublished
price sensitive info ahead of others
 Eg: hll – merger with broke bond
Lipton India in 1996 – prior to
announcement both scrips – hectic
trading; after announcement – prices
declined
 To prevent – “SEBI insider trading
regulation 1992”
 SEBI prohibits an insider from
dealings