INTRODUCTION
In 1988 the securities and Exchange Board of India (SEBI) was
established by the government of India through an executive resolution
,and was subsequently upgraded as a fully autonomous body in the year
1992 with the passing of the securities Exchange Board of India Act
(SEBI Act )on 30th January 1992 .
In place of government control ,a statutory and autonomous regulatory
board with defined responsibilities ,to cover both development &
regulation of the market ,and independent powers has been set up
Paradoxically this is a positive outcome of the Securities scam of 199091.
The basic objective of the board was identified as:
 To protect the interest of the investors in securities.
 To promote the development of securities market;
 To regulate the securities and ;
 For matters connected there with or incidental there to.
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Since its inception SEBI has been working targeting the securities and is
attending to the fulfilment of its objectives with commendable zeal and
dexterity. The improvements in the securities markets like capitalization
requirements, margining, establishment of clearing corporations etc.
reduced the risk of credit and also reduced the market.
SEBI has introduced the comprehensive regulatory measures, prescribed
registration norms, the eligibility criteria, the code of obligations and the
code of conduct for different intermediaries like, bankers to issue,
merchant bankers, brokers and sub-brokers, registrars, portfolio
managers, credit rating agencies, underwriters and others. It has framed
by-laws, risk identification and risk management systems for Clearing
houses of stock exchanges, surveillance system etc. which has made
dealing in securities both safe and transparent to the end investor.
Another significant event is the approval of trading in stock indices (like
S&P CNX Nifty & Sensex) in 2000. A market Index is a convenient and
effective product because of the following reasons:
 It acts as a barometer for market behaviour;
 It is used to benchmark portfolio performance;
 It is used in derivative instruments like index futures and
index options;
 It can be used for passive fund management as in case of
Index Funds.
Two broad approaches of SEBI is to integrate the securities market at the
national level, and also to diversify the trading products, so that there is
2
an increase in number of traders including banks, financial institutions,
insurance companies, mutual funds, primary dealers etc. to transact
through the Exchanges. In this context the introduction of derivatives
trading through Indian Stock Exchanges permitted by SEBI in 2000 AD
is a real landmark.
SEBI appointed the L.C Gupta Committee
in 1998 to recommend the
regulatory framework for derivatives trading and suggest bye-laws for
Regulation and Control of Trading and Settlement of Derivatives
Contracts. The Board of SEBI in its meeting held on May 11, 1998
accepted the recommendations of the committee and approved the phased
introduction of derivatives trading in India beginning with Stock Index
Futures.The Board also approved the "Suggestive Bye-laws" as
recommended by the Dr LC Gupta Committee for Regulation and Control
of Trading and Settlement of Derivative Contracts. SEBI then appointed
the J.R.Verma committee to recommend Risk Containment Measures
(RCM) in the Indian stock Index Futures Market .The report was
submitted in November 1998.
However the Securities Contracts (Regulation) Act, 1956 (SCRA)
required amendment to include "derivatives" in the definition of
securities to enable SEBI to introduce trading in derivatives. The
necessary amendment was then carried out by the Government in 1999.
The Securities Laws (Amendment)
Bill, 1999 was introduced. In December 1999 the new framework was
approved.
3
HISTORY
It was formed officially by government of India in 1992 with SEBI act
1992 being passed by the Indian Parliament .SEBI is headquartered in the
business district of Bandra –Kurla complex in Mumbai, and has northern,
eastern, southern and western regional offices in New Delhi, Kolkata,
Chennai and Ahmedabad.
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 power .However in 1995, the SEBI
was given additional statutory power by the government of India through
an amendment to the securities and Exchange Board of India Act 1992.
In April,1988 the SEBI was constituted as the regulator of capital market
in India under a resolution of the government of India.
4
ORGANIZATION STRUCTURE
Upendra Kumar Sinha was appointed chairman on 18 February 2011
replacing C.B Bhave .
Chairman – Mr. Upendra Kumar Sinha.
The Board comprises :Name
Designation
Upendra Kumar Sinha
Chairman
M.S.Sahoo
Whole time member
Dr. K.M.Abraham
Whole time member
Prashant Saran
Whole time member
CA.T.V .Mohandas Pai
Director ,Infosys
Dr.Thomas Mathe
Joint Secretary ,Ministry of Finance
V.K.Jairath
Member Appointed
Anand Sinha
Deputy Governor ,Reserve Bank of
India
5
List of former chairmen
Name
From
C.B.Bhave
18 February 2008
M.Damodaran
G.N.Bajpai
To
18 February 2005
20 February 2002
18 February 2011
18 February 2008
18 February 2005
D.R.Mehta
21 February 1995
S.S.Nadkarni
17 January 1994
G.V.Ramakrishna
24 August 1990
17January 1994
12 April 1988
23 August 1990
Dr.S.A.Dave
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20 February 2002
31 January 1995
SEBI - SEBI OFFICES
The following offices of SEBI may be contacted with regard to investor
grievances regarding CIS and for any other information connected there
to:
Address of SEBI Offices
Jurisdiction for the companies
having their registered offices in
Head Office:
Mittal court 'A' Wing, Ground floor
Gujarat, Maharashtra, Madhya
224, Nariman Point,
Pradesh, Goa, Dadra & Nagar
Mumbai – 400 021
Haveli and Daman Diu
PH: 2850451, 52, 53, 54, 55
FAX:204 5633
Northern Regional Office:
Block No.1, Rajendra Bhawan
Haryana, Himachal Pradesh,
Rajendra Place, District Centre
Jammu & Kashmir, Punjab,
New Delhi - 110 008
Rajasthan, Uttar Pradesh, Delhi
PH: 573 2313, 9784
and Chandigarh
FAX: 5768992
Eastern Regional Office:
FMC Fortuna, 5th Floor, 234/3A
Assam, Bihar, Manipur,
AJC Bose Road, Calcutta - 700 020
Meghalaya, Nagaland, Orissa,
PH:240 2435, 4307, 6105
West Bengal, Arunachal Pradesh,
FAX: 240 4307
Mizoram, Tripura, Sikkim and
Andaman & Nicobar Islands
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Southern Regional Office:
Andhra Pradesh, Karnataka,
3rd Floor, D'Monte Building,
Kerala, Tamilnadu, Pondicherry
32 D'Monte Colony,
and Lakshadweep & Minicoy.
TTK Road, Alwarpet
Chennai - 600 018.
PH: 499 5676, 5525, 7385, 7480
FAX: 499 8083
Investors may however note that as a regulatory body SEBI cannot
guarantee or undertake the repayment of money to the investors. It is
SEBI's endeavour to educate the investors of the general risk perception
of such schemes.
Investors can also approach District Consumer redressed forums in case
entities fail to honour their commitments or for any deficiency in service.
8
SEBI ADMINISTRATION
The Securities and Exchange Board of India Act, 1992 is having
retrospective effect and is deemed to have come into force on January 30,
1992. Relatively a brief act containing 35 sections, the SEBI Act governs
all the Stock Exchanges and the Securities Transactions in India.
A Board by the name of the Securities and Exchange Board of India
(SEBI) were constituted under the SEBI Act to administer its provisions.
It consists of one Chairman and five members.
One each from the department of Finance and Law of the Central
Government, one from the Reserve Bank of India and two other persons
and having its head office in Bombay and regional offices in Delhi,
Calcutta and Madras.
The Central Government reserves the right to terminate the services of
the Chairman or any member of the Board. The Board decides questions
in the meeting by majority vote with the Chairman having a second or
casting vote.
Section 11 of the SEBI Act provides that to protect the interest of
investors in securities and to promote the development of and to regulate
the securities market by such measures, it is the duty of the Board. It has
given power to the Board to regulate the business in Stock Exchanges,
register and regulate the working of stock brokers, sub-brokers, share
transfer agents, bankers to an issue, trustees of trust deeds, registrars to an
issue, merchant bankers, underwriters, portfolio managers, investment
advisers, etc., also to register and regulate the working of collective
9
investment schemes including mutual funds, to prohibit fraudulent and
unfair trade practices and insider trading, to regulate take-overs, to
conduct enquiries and audits of the stock exchanges, etc.
All the stock brokers, sub-brokers, share transfer agents, bankers to an
issue, trustees of trust deed, registrars to an issue, merchant bankers,
underwriters, portfolio managers, investment advisers and such other
intermediary who may be associated with the Securities Markets are to
register with the Board under the provisions of the Act, under Section 12
of the SEBI Act. The Board has the power to suspend or cancel such
registration. The Board is bound by the directions vested by the Central
Government from time to time on questions of policy and the Central
Government reserves the right to supersede the Board.
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INVESTORS KNOWHOW
Any company or a listed company making a public issue or a rights issue
of value of more than Rs. 50 lakhs is required to file a draft offer
document with SEBI for its observations. The company can proceed
further only after getting observations from SEBI. The company has to
open its issue within three months from the date of SEBI's observation
letter.
Through public issues, SEBI has laid down eligibility norms for entities
accessing the primary market. The entry norms are only for companies
making a public issue (IPO or FPO) and not for listed company making
a rights issue.
The entry Norms are as follows:
Entry Norm I (EN I):
The company shall meet the following requirements.

Net Tangible Assets of at least Rs. 3 crores for 3 full years.

Distributable profits in atleast three years.

Net worth of at least Rs. 1 crore in three years.

If change in name, atleast 50% revenue for preceding 1 year should
be from the new activity.

The issue size does not exceed 5 times the pre- issue net worth.
SEBI has provided two other alternative routes to company not satisfying
any of the above conditions to provide sufficient flexibility and also to
ensure that genuine companies do not suffer on account of rigidity of the
parameters, for accessing the primary Market. They are as under:
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Entry Norm II (EN II)

Issue shall be through book building route, with at least 50% to be
mandatory allotted to the Qualified Institutional Buyers (QIBs).

The minimum post-issue face value capital shall be Rs. 10 crore or
there shall be a compulsory market-making for at least 2 years.
OR
Entry Norm III (EN III)

The "project" is appraised and participated to the extent of 15% by
FIs/Scheduled Commercial Banks of which at least 10% comes
from the appraiser(s).

The minimum post-issue face value capital shall be Rs. 10 corer or
there shall be a compulsory market-making for at least 2 years.
Note: - The company should also satisfy the criteria of having at
least 1000 prospective allotters.
The following are exempted from the ENs
 Private Sector Banks.
 Public sector banks.
 An infrastructure company whose project has been appraised by a
PFI or IDFC or IL&FS or a bank which was earlier a PFI and not
less than 5% of the project cost is financed by any of these
institutions.
 Rights issue by a listed company.
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FAQs on Public Issue
 Does SEBI approve the contents of the issue?
It is to be distinctly understood that submission of offer document to
SEBI should not in any way be deemed or construed that the same has
been cleared or approved by SEBI. The Lead manager certifies that the
disclosures made in the offer document are generally adequate and are in
conformity with SEBI guidelines for disclosures and investor protection
in force for the time being. This requirement is to facilitate investors to
take an informed decision for making investment in the proposed issue.
 Does SEBI tag make my money safe?
The investors should make an informed decision purely by themselves
based on the contents disclosed in the offer documents. SEBI does not
associate itself with any issue/issuer and should in no way be construed as
a guarantee for the funds that the investor proposes to invest through the
issue. However, the investors are generally advised to study all the
material facts pertaining to the issue including the risk factors before
considering any investment. They are strongly warned against any 'tips' or
news through unofficial means.
 How does SEBI ensure compliance with DIP?
The Merchant Banker are the specialized intermediaries who are required
to do due diligence and ensure that all the requirements of DIP are
complied with while submitting the draft offer document to SEBI. Any
noncompliance on their part, attract penal action from SEBI, in terms of
SEBI (Merchant Bankers) Regulations. The draft offer document filed by
Merchant Banker is also placed on the website for public comments.
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Officials of SEBI at various levels examine the compliance with DIP
guidelines and ensure that all necessary material information is disclosed
in the draft offer documents.
 With the presence of the Central Listing Authority (CLA),
what would be the role of SEBI in the processing of Offer
document for an issue?
The Central Listing Authority's (CLA) functions have been detailed under
Regulation 8 of SEBI (Central Listing Authority) Regulations, 2003
(CLA Regulations) issued on August 21, 2003 and amended up to
October 14, 2003.
In brief, it covers processing applications for letter precedent to listing
from applicants; to make recommendations to the Board on issues
pertaining to the protection of the interest of the investors in securities
and development and regulation of the securities market, including the
listing agreements, listing conditions and disclosures to be made in offer
documents; and; to undertake any other functions as may be delegated to
it by the Board from time to time.
SEBI as the regulator of the securities market examines all the policy
matters pertaining to issues and will continue to do so even during the
existence of the CLA.
Since the CLA is not yet operational, the reply to this question would be
updated thereafter.
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PRIMARY 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 bonds 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. Primary
markets create long term instruments through which corporate entities
borrow from capital market.
Features of primary markets are:
 This is the market for new long term equity capital. The primary
market is the market where the securities are sold for the first time.
Therefore it is also called the new issue market (NIM).
 In a primary issue, the securities are issued by the company
directly to investors.
 The company receives the money and issues new security
certificates to the investors.
 Primary issues are used by companies for the purpose of setting up
new business or for expanding or modernizing the existing
business.
 The new issue market does not include certain other sources of new
long term external finance, such as loans from financial
institutions. Borrowers in the new issue market may be raising
capital for converting private capital into public capital; this is
known as "going public."
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SECONDARY MARKET
Section 3 of SEBI Act protects the interests of the investors in securities
and also promotes the development of, and regulates, the securities
market and related matters.
The following are the financial products/instruments which the secondary
market deals with

Equity Shares

Rights Issue/ Rights Shares

Bonus Shares

Preferred Stock/ Preference shares

Cumulative Preference Shares

Cumulative Convertible Preference Shares

Participating Preference Share

Bond

Zero Coupon Bond

Convertible Bond

Debentures

Commercial Paper

Coupons

Treasury Bills
FAQs on Secondary Market:
 What is EDIFAR?
In July 2002 SEBI launched Electronic Data Information Filing
and Retrieval System (EDIFAR) in association with National Informatics
Center (NIC) to facilitate filing of certain material information/
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documents/statements by the listed companies on line in the EDIFAR
web site - www.sebiedifar.nic.in
 What is a Central Listing Authority?
The Central Listing Authority (CLA) is set up to address the issue of
multiple listing of the same security and to bring about uniformity in the
due diligence exercise in scrutinizing all listing applications on any stock
exchanges. The functions of CLA as enumerated in SEBI (Central Listing
Authority) Regulations, 2003 include:

processing the application made by anybody corporate, mutual
fund or collective investment scheme for the letter of
recommendation to get listed at the stock exchange,

making recommendations as to listing conditions, and

any other functions that may be specified by the SEBI Board from
time to time.
 What is the exit opportunity available for investors in case a
company gets delisted?
SEBI (Delisting of Securities) Guidelines, 2003 provide an exit
mechanism, whereby the exit price for voluntary delisting of securities is
determined by the promoter of the concerned company which desires to
get delisted, in accordance to book building process. The offer price has a
floor price, which is average of 26 weeks average of traded price quoted
on the stock exchange where the shares of the company are most
frequently traded preceding 26 weeks from the date public announcement
is made. There is no ceiling on the maximum price.
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For infrequently traded securities, the offer price is as per Regulation20
(5) of SEBI (Substantial Acquisition and Takeover) Regulations.
Regarding this, an infrequently traded security is determined in the
manner as provided in Regulation 20 (5) of SEBI (Substantial Acquisition
and Takeover) Regulations.

What is demutualisation of stock exchanges?
Demutualisation refers to the transition process of an exchange from a
"mutually-owned" association to a company "owned by shareholders". In
other words, transforming the legal structure of an exchange from a
mutual form to a business corporation form is referred to as
demutualisation. The above, in effect means that after demutualisation,
the ownership, the management and the trading rights at the exchange are
segregated from one another.
How is a demutualised exchange different from a mutual exchange?
The three functions of ownership, management and trading are intervened
into a single Group in a mutual exchange. The brokers members of the
exchange over here are both the owners and the traders on the exchange
and they further manage the exchange as well. A demutualised exchange
has all these three functions clearly segregated.
Currently are there any demutualised stock exchanges in India?
Yes currently there are two stock exchanges in India

The National Stock Exchange (NSE)

Over the Counter Exchange of India (OTCEI)
These are not only corporatized but also demutualised with segregation of
ownership and trading rights of members.
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What steps have been taken by SEBI to give a head start to the process of
demutualisation in India?
SEBI had formed a Group on Corporatisation and Demutualisation of
Stock Exchanges under the Chairmanship of Justice M H Kania, former
Chief Justice of India, for advising SEBI on corporatisation and
demutualisation of exchanges and to recommend the steps that need to be
taken to implement the same. The Group submitted its Report to SEBI on
August 28, 2002. SEBI has taken up with Central Government to amend
the SC( R) A to effect Corporatisation and Demutualization .
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MUTUAL FUNDS
To protect the interest of the investors, SEBI formulates policies and
regulates the mutual funds. It notified regulations in 1993 (fully revised in
1996) and issues guidelines from time to time. MF either promoted by
public or by private sector entities including one promoted by foreign
entities are governed by these Regulations.
SEBI approved Asset Management Company (AMC) manages the funds
by making investments in various types of securities. Custodian,
registered with SEBI, holds the securities of various schemes of the fund
in its custody. The general power of superintendence and direction over
AMC is vested with the trustees.
According to SEBI Regulations, two thirds of the directors of Trustee
Company or board of trustees must be independent. They should not be
associated with the sponsors. 50% of the directors of AMC must be
independent. All mutual funds are required to be registered with SEBI
before they launch any scheme.
Increase of load more than the level mentioned in the offer document is
applicable only to prospective investments by the MFs. For original
investments, the offer document has to be amended to make investors
aware of loads at the time of investments.
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FAQs Mutual Funds
 Can a mutual fund change the asset allocation while
deploying funds of investors?
Considering the market trends, any prudent fund managers can change
the asset allocation i.e. he can invest higher or lower percentage of the
fund in equity or debt instruments compared to what is disclosed in
the offer document. It can be done on a short term basis on defensive
considerations i.e. to protect the NAV. Hence the fund managers are
allowed certain flexibility in altering the asset allocation considering
the interest of the investors. In case the mutual fund wants to change
the asset allocation on a permanent basis, they are required to inform
the unit holders and giving them option to exit the scheme at
prevailing NAV without any load.
How long will it take for transfer of units after purchase from stock
markets in case of close-ended schemes?
According to SEBI Regulations, transfer of units is required to be
done within thirty days from the date of lodgment of certificates with
the mutual fund.
 Can a mutual fund change the nature of the scheme from
the one specified in the offer document?
Yes. However, no change in the nature or terms of the scheme, known
as fundamental attributes of the scheme e.g. structure, investment
pattern, etc. can be carried out unless a written communication is sent
to each unit holder and an advertisement is given in one English daily
21
having nationwide circulation and in a newspaper published in the
language of the region where the head office of the mutual fund is
situated. The unit holders have the right to exit the scheme at the
prevailing NAV without any exit load if they do not want to continue
with the scheme. The mutual funds are also required to follow similar
procedure while converting the scheme form close-ended to openended
scheme
and
in
case
of
change
in
sponsor.
If mutual fund scheme is wound up, what happens to money invested?
In case of winding up of a scheme, the mutual funds pay a sum based
on prevailing NAV after adjustment of expenses. Unit holders are
entitled to receive a report on winding up from the mutual funds
which gives all necessary details.
 How can the investors redress their complaints?
Investors would find the name of contact person in the offer document of
the mutual fund scheme that they may approach in case of any query,
complaints or grievances. Trustees of a mutual fund monitor the activities
of the mutual fund. The names of the directors of asset Management
Company and trustees are also given in the offer documents.
Investors can also approach SEBI for redressal of their complaints. On
receipt of complaints, SEBI takes up the matter with the concerned
mutual fund and follows up with them till the matter is resolved.
 What is the procedure for registering a mutual fund with
SEBI?
An applicant proposing to sponsor a mutual fund in India must apply in
Form A with a fee of Rs.25,000. The application is examined and once
22
the sponsor satisfies certain conditions such as being in the financial
services business and possessing positive net worth for the last five years,
having net profit in three out of the last five years and possessing the
general reputation of fairness and integrity in all business transactions, it
is required to complete the remaining formalities for setting up a mutual
fund.
These include inter alia, executing the trust deed and investment
management agreement, setting up a trustee company/board of trustees
comprising two- thirds independent trustees, incorporating the asset
management company (AMC), contributing to at least 40% of the net
worth of the AMC and appointing a custodian. Upon satisfying these
conditions, the registration certificate is issued subject to the payment of
registration fees of Rs.25.00 lacs for details; see the SEBI (Mutual Funds)
Regulations, 1996.
 What is the procedure for redressal of investor grievances?
When investors send complaints to SEBI, SEBI takes up the matter with
the concerned mutual funds and follows up with them till they are
resolved.
SEBI approved Asset Management Company (AMC) manages the funds
by making investments in various types of securities. Custodian,
registered with SEBI, holds the securities of various schemes of the fund
in its custody. The general power of superintendence and direction over
AMC is vested with the trustees.
According to SEBI Regulations, two thirds of the directors of trustee
company or board of trustees must be independent. They should not be
associated with the sponsors. 50% of the directors of AMC must be
23
independent. All mutual funds are required to be registered with SEBI
before they launch any scheme.
Increase of load more than the level mentioned in the offer document is
applicable only to prospective investments by the MFs. For original
investments, the offer document has to be amended to make investors
aware of loads at the time of investments.
In case of complaints, investors may write to:
Securites and Exchange Board of India,
Mutual Fund Dept.,
Mittal Court 'B' Wing, Nariman Point,
Mumbai 400 021
24
FUNCTIONS AND RESPONSIBILITIES
SEBI has to be responsive to the needs of three groups ,which constitute
the market
 The issuers of securities
 The investors
 The market intermediaries
SEBI has three functions rolled into one body: quasi legislative, quasijudicial 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 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 systematic reforms
aggressively and successively .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
structures. In one such move, SEBI has increased the application limit for
retail investors to Rs 2 lakhs, from Rs 1 lakh at present.
25
ROLE OF SEBI IN INDIAN CAPITAL MARKET
SEBI is regulator to control Indian capital market. Since its establishment
in 1992, it is doing hard work for protecting the interests of Indian
investors. SEBI gets education from past cheating with naive investors of
India. Now, SEBI is stricter with those who commit frauds in capital
market.
The role of security exchange board of India (SEBI) in regulating Indian
capital market is very important because government of India can only
open or take decision to open new stock exchange in India after getting
advice from SEBI.
If SEBI thinks that it will be against its rules and regulations, SEBI can
ban on any stock exchange to trade in shares and stocks.
1. Power to make rules for controlling stock exchange:
SEBI has power to make new rules for controlling stock exchange in
India. For example, SEBI fixed the time of trading 9 AM and 5 PM in
stock market.
2. To provide license to dealers and brokers:
SEBI has power to provide license to dealers and brokers of capital
market. If SEBI sees that any financial product is of capital nature, then
SEBI can also control to that product and its dealers. One of main
example is ULIPs case. SEBI said, " It is just like mutual funds and all
banks and financial and insurance companies who want to issue it, must
take permission from SEBI."
26
3. To Stop fraud in Capital Market:
SEBI has many powers for stopping fraud in capital market. It can ban on
the trading of those brokers who are involved in fraudulent and unfair
trade practices relating to stock market. It can impose the penalties on
capital market intermediaries if they involve in insider trading.
4. To Control the Merge, Acquisition and Takeover the companies:
Many big companies in India want to create monopoly in capital market.
So, these companies buy all other companies or deal of merging. SEBI
sees whether this merge or acquisition is for development of business or
to harm capital market.
5. To audit the performance of stock market:
SEBI uses his powers to audit the performance of different Indian stock
exchange for bringing transparency in the working of stock exchanges.
27
POWERS
For the discharge of its function efficiently, SEBI has been invested with
the necessary powers which are:
 To approve by-laws of stock exchanges.
 To require the stock exchange to amend their by-laws.
 Inspect the books of accounts and call for periodical returns from
recognised stock exchanges.
 Inspect the books of accounts of financial intermediaries.
 Compel certain companies to list their shares in one or more stock
exchanges.
 Levy fees and other charges on the intermediaries for performing
its functions.
 Grant license to any person for the purpose of dealing in certain
areas.
 Delegate powers exercisable by it.
 Prosecute and judge directly the violation of certain provisions of
the companies Act.
28
SEBI COMMITTEES
 Technical Advisory Committee.
 Committee for review of structure of market infrastructure
institutions.
 Members of the Advisory Committee for the SEBI investor
protection and education fund.
 Takeover Regulations Advisory Committee.
 Primary Market Advisory Committee (PMAC).
 Secondary Market Advisory Committee(SMAC)
 Mutual Fund Advisory Committee.
 Corporate Bonds & Securitization Advisory Committee
 Takeover panel.
 SEBI committee on Disclosures and Accounting Standards
(SCODA).
29
TAKEOVER
 Imposing of curbs on off-market deals.
i.
Upto a threshold level of 5 per cent, off-market deals to be
allowed.
ii.
Between 5 per cent and 15 per cent, all deals to be made
only through the stock market. Otherwise, open offer will be
attracted.
iii.
Exception: the "preferential allotment" route with approval
from shareholders.

Reducing the time limit for completion of the open offer from 4
months at present to 3 months.

Putting restrictions on the sale of shares by the acquirer during the
open offer period.

Independent comment to be given by the board of directors to the
shareholders of a target company regarding its future plans.

Merchant banker to stop dealing in the shares of the target
company, following his appointment as manager to the offer. Also
to disclose its shareholding in the offer document.
FAQs on Takeover :
 What is meant by Takeovers & Substantial acquisition of
shares?
When "acquirer" takes the control of the "target company", it is
termed as Takeover. When it acquires "substantial quantity of shares
or voting rights" of the Target Company, it results into substantial
acquisition of shares.
30
 What is a Target company?
A Target company is a listed company whose shares are listed on any
stock exchange and whose shares or voting rights are acquired/ being
acquired or whose control is taken over/being taken over by an acquirer.
 Who is an Acquirer?
An Acquirer includes persons acting in concert (PAC) with him i.e. any
individual/company/any other legal entity which intends to acquire or
acquires substantial quantity of shares or voting rights of Target
Company or acquires or agrees to acquire control over the target
company.
 How is "control" defined?
Control is the right to appoint either directly or indirectly or by virtue of
agreements or in any other manner majority of directors on the Board of
the target company or to control management or policy decisions
affecting the target company. However, in case there are two or more
persons in control over the target company the cesser of any one of such
persons from such control shall not be deemed to be a change in control
of management nor shall any change in the nature and quantum of control
amongst them constitute change in control of management provided this
transfer is done in terms of Reg. 3(1)(e). Also if consequent upon change
in control of the target company in accordance with regulation 3, the
control acquired is equal to or less than the control exercised by person
(s) prior to such acquisition of control, such control shall not be deemed
to be a change in control.
31
 Can Acquirer make an offer for less than 20% of shares?
No.
 Who is required to make a Public Announcement and when
is the Public Announcement required to be made?
The Acquirer appoints a Merchant Banker (MB) who has been registered
with SEBI before making a PA . PA is required to be made through the
said MB. The acquirer is required to make the P.A within 4 working days
of the entering into an agreement to acquire shares or deciding to acquire
shares/ voting rights of target company or after any such change or
changes as would result in change in control over the target company.
In case of indirect acquisition or change in control, the PA is made by the
acquirer within 3 months of consummation of such acquisition or change
in control or restructuring of the parent or the company holding shares of
or control over the target company. The offer price in these cases is
determined with reference to the date of the public announcement for the
parent company and the date of the public announcement for acquisition
of shares of the target company, whichever is higher, in accordance with
the parameters mentioned in the Takeover Regulations.
 What documents are to be filed with SEBI after making a
P.A. and when are these documents to be filed?
A copy (hard and soft) of the PA is required to be submitted to SEBI
simultaneously with the publication of the same in the newspapers. A
draft letter of offer is required to be filed with SEBI within 14 days from
the date of Public Announcement along with a filing fee of Rs.50,000/32
per letter of offer (payable by Banker's Cheque / Demand Draft) A due
diligence certificate as well as registration details as per SEBI circular no.
RMB (G-1) series dated June 26, 1997 are also required to be filed along
with the draft letter of offer.
33
FOREIGN INSTITUTIONAL INVESTOR
One who propose to invest their proprietary funds or on behalf of "broad
based" funds or of foreign corporates and individuals and belong to any
of the under given categories can be registered for FII.

Pension Funds

Mutual Funds

Investment Trust

Insurance or reinsurance companies

Endowment Funds

University Funds

Foundations or Charitable Trusts or Charitable Societies who
propose to invest on their own behalf, and

Asset Management Companies

Nominee Companies

Institutional Portfolio Managers

Trustees

Power of Attorney Holders

Bank
An application for registration has to be made in Form A, the format of
which is provided in the SEBI(FII) Regulations, 1995 and submitted with
under mentioned documents in duplicate addressed to SEBI as well as to
Reserve Bank of India (RBI) and sent to the following address within 10
to 12 days of receipt of application.
34
Address for application:
The Division Chief
FII Division
Securities and Exchange Board of India,
224, Mittal Court, 'B' Wing, 1st Floor,
Nariman Point, Mumbai - 400 021.
INDIA.
FAQs on Foreign Institutional Investor:
 What is the procedure for registration of sub-account?
Annexure B of the Regulations duly filled and signed by the FII and SubAccount has to be submitted by FII on behalf of the proposed subaccount. With if DD of US$ 1000 favouring "Securities and Exchange
Board of India” as fees is to be submitted payable at New York.
 Is it that all sub-accounts need to be broad-based?
No. Proprietary, Foreign corporates and foreign individuals need not be
broad-based.
 What is the duration required to register sub-accounts?
For registered Foreign Institutional Investor, it takes 3 working days from
the date of receipt of complete application and fees.
 In which name should the securities be registered?
The Foreign Institutional Investor has the choice to register the securities
in the following names:
35

In the name of the Foreign Institutional Investor if the FII is
investing on its own behalf.

In the name of the sub-account if the FII is investing on behalf of
the sub-account

In the name of the Foreign Institutional Investor a/c sub-account if
the FII is investing on behalf of the sub-account
 What is the procedure if the Foreign Institutional Investor/
sub account changes its name?
For registered Foreign Institutional Investor, it has to inform SEBI
promptly with the relevant documents supporting the name change. The
relevant documents are:

Request for change in name by the Foreign Institutional Investor
mentioning reasons for name change of the FII and/or sub account.

Certificate from the Registrar of Companies, and/or approval from
home regulator.

Original Registration Certificate issued by SEBI to the Foreign
Institutional Investor.
SEBI will issue a no-objection letter in this regard after recording the
request of name change. The information regarding name change should
be submitted immediately after the change has taken place in the home
country and the requisite approval from the home regulator (if needed)
has to been taken.
36
 What is the procedure for transferring a sub-account from
one registered Foreign Institutional Investor to another?
If a registered sub-account wishes to transfer from one registered Foreign
Institutional Investor to another, then the FII to whom it is proposed to be
transferred has to request SEBI with the following documentation.

A declaration that it is authorised to invest on behalf of the subaccount.

A no-objection letter for the transfer of the sub-account from the
transferor FII.
 What is the procedure for change of local custodian?
In case of change of the local custodian of the FII / sub-account, the
change should be intimated to SEBI by the FII. On receipt of no objection
from the existing custodian and acceptance from the proposed custodian,
the change of custodian would be approved - by SEBI.
 What is the procedure for registration as FII/sub account
fewer than 100% debt route?
The procedure for registration of FII/sub account under 100% debt route
is similar to that of normal funds besides a clear statement by the
applicant that it wishes to be registered as FII/sub account under 100%
debt route. However, Government of India allocates the overall
investment limit for 100% debt funds annually. The grant of investment
limit for individual 100% debt funds is within this overall limit. The
funds have to seek further investment limit in case the limit allotted to
them is exhausted and they wish to invest further.
37
 Can a Foreign Institutional Investor having an existing
account with one custodian open an account with other
custodian for its sub- accounts?
Yes. A Foreign Institutional Investor having an account with one
custodian can open accounts with different custodians for its different
sub-accounts. However, one sub-account cannot be custodied with more
than one custodian.
 What is the procedure if an existing sub-account wants to
get registered as a Foreign Institutional Investor?
In case if a registered sub-account wishes to get itself registered as a
Foreign Institutional Investor, then it will have to apply in Form A to
SEBI for the same and has to satisfy all the eligibility criteria norms
mentioned in SEBI (Foreign Institutional Investor) Regulations, 1995. It
should also submit a letter from the old FII indicating its 'No-objection' to
such registration.
 In case of merger or takeover, in case if the registered
Foreign Institutional Investor loses its existence, then can
the SEBI FII registration be transferred to the surviving
entity?
No. SEBI FII Registration is not transferable. The surviving entity has to
obtain fresh registration as an FII from SEBI.
38
DEPOSITORIES AND CUSTODIANS
There
are
two Depositories and
approximately
390 Depository
Participants (DP) are registered with SEBI at present.
The two Depositories are:

National Securities Depository Limited

Central Depository Services (I) Limited
The benefits of availing Depository Services are as follows:

A safe, convenient way to hold securities;

Instant transfer of securities;

Stamp duty is not required on transfer of securities;

Elimination of risks associated with physical certificates such as
bad delivery , fake securities, Delays, thefts etc.;

Reduction in paperwork involved in transfer of securities;

Reduction in the cost of transaction,

No odd lot problem, even one share can be sold;

Facility of nomination;

Change in address recorded with DP gets registered with all
companies in which investor holds securities electronically
eliminating the need to correspond with each of them separately;

Transmission
of
securities
is
done
by
DP
eliminating
correspondence with companies;

Credited automatically into demat account of shares, arising out-of
bonus or split or consolidation or merger etc.
Opening of an account with any of the depository Participant of any
depository is required to avail the services
39
OPENING OF AN ACCOUNT.
The investor has to approach a Depository Participant and fill up an
account opening form with the support proof of identity and address.
PROOF OF IDENTITY: Photograph and Signature of investor must be
authenticated by investor's bank or by an existing demat account holder.
Alternatively, one can submit a copy of a valid Passport, Voters Id Card,
Driving License or PAN card with photograph.
PROOF OF ADDRESS: A copy of ration card or passport or voter ID or
PAN card or driving license or bank passbook as proof of address.
The investor has to sign an agreement with DP in a depository prescribed
standard format, which holds a detail of investor's and DPs rights and
duties. DP provides investor with a copy of the agreement and schedule
of charges for future reference. The DP opens the account for the investor
in the system and give an account number, which is also called BO ID
(Beneficiary owner Identification number).
Kindly note that there is no balance of securities required in the account
and more than one account in the same name can be opened either with
the same DP or with other irrespective of the brokers account.
FAQs on Depositories And Custodians:

What is to be done if the investors address changes?
If the Investors address changes it should be immediately informed to
his/her DP, who in turn updates the records.
40

Can an investor open a single account for securities owned in
different ownership patterns?
No. The demat account must be opened in the same ownership pattern in
which the securities are held in the physical form. e. g. if one share
certificate is in your individual name and another certificate is jointly
with some other, two different accounts would have to be opened.
41
DERIVATIVES
Derivatives trading take place under the Securities and Exchange Board
of India Act, 1992 and the framework including suggestive bye-law and
its Clearing Corporation/House has been laid down by Dr. L.C. Gupta
Committee, constituted by SEBI.
Some of the eligibility conditions
laid down by SEBI for
Derivative Exchange/Segment and its Clearing Corporation/House are as
follows:

The Derivatives Exchange/Segment shall have on-line surveillance
capability to monitor positions, prices, and volumes on a real time
basis so as to deter market manipulation.

The Derivatives Exchange/ Segment should have arrangements for
dissemination of information about trades, quantities and quotes on
a real time basis through at least two information vending
networks, which are easily accessible to investors across the
country.

The Clearing Corporation/House shall have the capacity to monitor
the overall position of Members across both derivatives market and
the underlying securities market for those Members who are
participating in both.

The level of initial margin on Index Futures Contracts shall be
related to the risk of loss on the position. The concept of value-atrisk shall be used in calculating required level of initial margins.
The initial margins should be large enough to cover the one-day
loss that can be encountered on the position on 99% of the days.
42

The Clearing Corporation/House shall establish facilities for
electronic funds transfer (EFT) for swift movement of margin
payments.

In the event of a Member defaulting in meeting its liabilities, the
Clearing Corporation/House shall transfer client positions and
assets to another solvent Member or close-out all open positions.

The Clearing Corporation/House should have capabilities to
segregate initial margins deposited by Clearing Members for trades
on their own account and on account of his client. The Clearing
Corporation/House shall hold the clients' margin money in trust for
the client purposes only and should not allow its diversion for any
other purpose.

The Clearing Corporation/House shall have a separate Trade
Guarantee Fund for the trades executed on Derivative Exchange /
Segment.
Presently, SEBI has permitted Derivative Trading on the Derivative
Segment
of
BSE
and
the
F&O
Segment
of
FAQs on Derivatives:
 What derivative contracts are permitted by SEBI?

Index Futures Contractors, introduced in June 2000.

Index Options, introduced in June 2001.

Stock Options, introduced in July 2001.
43
NSE.
 What is minimum contract size?
Not below Rs. 2 Lakhs according to the Standing Committee on Finance,
a Parliamentary Committee, at the time of recommending amendment to
Securities Contract (Regulation) Act, 1956.
 What is the lot size of a contract?
Lot size refers to number of underlying securities in one contract.
Addition to it, for stock specific derivative contracts SEBI has specified
that the lot size of the underlying individual security should be in
multiples of 100 and fractions, if any, should be rounded of to the next
higher multiple of 100. This requirement of SEBI along with the
requirement of minimum contract size makes the basis of arriving at the
lot size of a contract.
10% of the number of shares held by non-promoters i.e. 10% of the free
float, in terms of number of shares of a company.
It is also specified that when the total open interest in a contract reaches
80% of the market wide limit in that contract, the exchanges would make
the price scan range and volatility scan range (specified) double. The
exchanges has to continuously review the impact of measures and take
further proactive risk containment measures as may be appropriate,
including, further increases in the scan ranges and levying additional
margins.
44
COLLECTIVE INVESTMENT SCHEMES
At the time of commencement of CIS Regulations i.e. (October 15,
1999), entities operating a collective investment scheme are deemed to be
an existing collective investment scheme.
SEBI does not ensure the refund of money invested in defaulting entities
registered before October 15, 1999.
By any means the under mentioned do not constitute a CIS where any
scheme or arrangement
 Made or offered by a co-operative society or a society being a
society registered or deemed to be registered under any law
relating to co-operative societies for the time being in force in
any State
 BeinUnder which deposits are accepted by non-banking
financial companies’ a contract of insurance to which the
Insurance Act, applies.
 Providing for any Scheme, Pension Scheme or the Insurance
Scheme framed under the Employees Provident Fund and
Miscellaneous Provisions Act, 1952.
 Under which deposits are accepted under section 58A of the
Companies Act, 1956 (1 of 1956).
 Under which deposits are accepted by a company declared as a
Nidhi or a mutual benefit society under section 620A of the
Companies Act, 1956 (1 of 1956).
 Falling within the meaning of Chit business as defined in clause
(d) of section 2of the Chit Fund Act, 1982 (40 of 1982).
45

Under which contributions made are in the nature of subscription
to a mutual fund.
Registered with SEBI under the SEBI (Collective Investment Schemes)
Regulations, 1999 and incorporated under the provisions of the
Companies Act, 1956 whose object is to organise, operate and manage a
Collective
Investment
Scheme
forms
a
Collective
Investment
Management Company.
These companies can raise funds from the public by launching schemes
which has to be credit rated and appraised by appraising agencies. It also
has to be approved by the Trustee and contain disclosures according to
the Regulations to enable investors to make informed decision. The offer
document to the public is issued after 21 days of filing document to SEBI
and in return no modifications are suggested by SEBI. The CIS cannot do
such.
SEBI is not responsible either for the financial soundness of any scheme
for which the offer document has been filed or for the correctness of the
statements made or opinions expressed in the offer document. CIMC has
to ensure the disclosures.
FAQs on Collective Investment Schemes:
 What is the procedure for winding up of an existing Collective
Investment Scheme?
Existing CIS has to send an information memorandum to the investors
who have subscribed to the schemes, detailing the state of affairs of the
scheme, the amount repayable to each investor and the manner in which
such amount is determined.
46
This information memorandum has to be signed with date by all the
Directors of the scheme. The information memorandum has to state that
investors desirous of continuing with the scheme will have to give a
positive consent, within 30 days from the date of the information
memorandum, to continue with the scheme.
If positive consent is not received from more than 25% of total existing
investors, the scheme will wound up and payment made within three
months to investors from the date of the information memorandum.
 Is there some institution, which guarantees repayment of
money now?
No. SEBI do not guarantee or undertake repayment to the investors.
 Whom to approach for Grievance Redressed?
To CIS. If not satisfied then they may write to SEBI. Investors can also
approach district consumer redressal forums in case entities fail to honour
their commitments or for any deficiency in service. If the cheques are
bounced, investors can move the courts under section 138 of the
Negotiable Instruments Act as the right to file criminal complaint
exclusively vests with the beneficiary of the cheque.
Investors should further note that wherever they do not have a right to the
land or to the produce arising out of the land such investment may be a
deposit and where a company fails to repay the deposits, it attracts the
provisions of section 58A of the Indian Companies Act, 1956. SEBI has
no jurisdiction over such deposits.
47
 What are the mechanisms available to an investor to know
about the registration status of various entities either
existing or new?
On grant of registration as a collective investment management company,
SEBI shall issue a Press Release giving the name and address of the
entities which have been granted registration. Further, the same shall be
posted on the SEBI website: www.sebi.gov.in
What are the penal provisions if a registered collective investment
management company violates certain provisions of the Regulations?
Action in terms of suspension/ cancellation of certificate may be initiated
against the entity.
Moreover, SEBI may, in the interests of the securities market and the
investors, initiate criminal prosecution under Section 24 of the SEBI Act,
apart from passing of directions such as

Requiring the person concerned not to collect any money from
investor or to launch any scheme;

Prohibiting the person concerned from disposing of any of the
properties of the scheme acquired in violation of the Regulations;

Requiring the person concerned to dispose off the assets of the
scheme in a manner as may be specified in the directions;

Requiring the person concerned to refund any money or the assets
to the concerned investors along with the requisite interest or
otherwise, collected under the scheme;

Prohibiting the person concerned from operating in the capital
market or from accessing the capital market for a specified period.
48
BUY BACK OF SHARES
A company buy back its shares in any one of the under mentioned
manners even without shareholders' resolution to the extent of 10% of
paid up equity capital and reserves. For 25% buy back, it has to get
approved by Shareholders Resolution as specified in Section 77 A of
Companies Act, 1956.

From the existing shareholders on a proportionate basis through the
tender offer;

From open market through:
o
Book building process
o
Stock exchange,
 From odd lot holders.
The listed companies requires intimation to the stock exchange of general
meetings and resolutions passed thereof. The informations can be
obtained from the stock exchanges.
SEBI issues a press release and the offer document is put on the SEBI
website when buyback offer document or public announcement is filed.
49
FAQs on Buy Back of Securities:
 How does one tender ones Shares for buyback, in the tender
offer method?
The company will send a tender/offer form to the shareholders. He/She
will have to fill up the form as per the instructions of the company and
enclose the documents asked for.
 How does one participate in the buyback in case one does
not receive the tender/offer form?
If one has not received the tender/offer form can make an application on
plain paper stating folio number, name, address, number of shares held,
share certificate number, distinctive numbers, number of shares tendered,
together with the original share certificate and tender it at the collection
centres/registrars.
 Can you tender your shares for buyback if you are not a
registered shareholder?
Yes, but you have to submit the duly executed transfer deed for transfer
of shares in your name, along with the offer form and other relevant
documents. It should also be sent to the registrar to the buyback offer.
 What is the manner in which the company decides the
acceptances from each shareholders?
If the shares are tradable compulsorily in demat segment, the acceptances
from any investor shall be on a proportionate basis irrespective of the
number of shares tendered in the buyback, and irrespective of whether
shares are in physical or demat form.
If it is not then, the entire shares tendered being less than the minimum
market lot shall be accepted in full. Next, the acceptances will be on
50
proportionate basis in a manner to ensure that the acceptances are in
market lot. In this case, a draw of lots shall be done, as in public issues.
 When will the shareholder receive intimation about
acceptance of his shares?
Within 15 days from the closure of the offer.
 When will the shareholder receive the consideration/the
share certificate?
Within 21 days from the closure of the buyback offer.
51
REPORTS & DOCUMENTS
SEBI appointed L.C.Gupta Committee on 18th November 1996 to
develop appropriate regulatory framework for the derivatives trading and
to recommend suggestive bye-laws for Regulation and Control of Trading
and Settlement of Derivatives Contracts. The Committee was also to
focus on the financial derivatives and equity derivatives. The Committee
submitted its report in March 1998.
The Board of SEBI in its meeting held on May 11, 1998 accepted the
recommendations and approved the introduction of derivatives trading in
India beginning with Stock Index Futures. The Board also approved the
"Suggestive Bye-laws" recommended by the LC Gupta Committee for
Regulation and Control of Trading and Settlement of Derivatives
Contracts. SEBI circulated the contents of the Report in June 98.
The LC Gupta Committee had conducted a wide market survey with
contact of several entities relevant to derivatives trading like brokers,
mutual funds, banks/FIs, FIIs and merchant banks.
The Committee observation was that there is a widespread recognition of
the need for derivatives products including Equity, Interest Rate and
Currency derivatives products. However Stock Index Futures is the most
preferred product followed by stock index options. An option on
individual stocks is the third in the order of preference. The participants
took interviews, mostly stated that their objective in derivative trading
would be hedging. But there were also a few interested in derivatives
dealing for speculation or dealing.
52
GOALS OF REGULATIONS:
Regulatory Objectives LCGC believes that regulation should be designed
to achieve specific and well-defined goals. It is inclined towards positive
regulation designed to encourage healthy activity and behaviour.
The
important
recommendations
of
L.C.Gupta
Committee
are
reproduced here under.
Need for coordinated development to quote from the report of the
Committee -"The Committee's main concern is with equity based
derivatives but it has tried to examine the need for financial derivatives in
a broader perspective. Financial transactions and asset-liability positions
are exposed to three broad types of price risks, viz:

"Equities "market risk", also called "systematic risk" (which cannot
be diversified away because the stock market as a whole may go up
or down from time to time).

"Interest rate risk (as in the case of fixed-income securities, like
treasury bond holdings, whose market price could fall heavily if
interest rates shot up), and

"Exchange rate risk (where the position involves a foreign
currency, as in the case of imports, exports, foreign loans or
investments).
"The above classification of price risks explains the emergence of (a)
equity futures, (b) interest rate futures and (c) currency futures,
respectively. Equity futures have been the last to emerge.
53
REGULATORY ROLE OF SEBI:
SEBI will approve rules, bye-laws and regulations. New derivative
contracts to be approved by SEBI. Derivative exchanges to provide full
details of proposed contract, like - economic purposes of the
contract;likely contribution to the market's development; safeguards
incorporated for investor protection and fair trading.
Specifications Regarding Trading Stock Exchanges to stipulate in
advance trading days and hours. Each contract to have pre-determined
expiration date and time. Contract expiration period may not exceed 12
months. The last trading day of the trading cycle to be stipulated in
advance.
Sales Practices:

Risk disclosure document with each client mandatory

Sales personnel to pass certification exam

Specific authorisation from client’s board of directors/trustees
Trading Parameters:

Each order - buy/sell and open/close

Unique order identification number

Regular market lot size, tick size

Gross exposure limits to be specified

Price bands for each derivative contract

Maximum permissible open position

Off line order entry permitted
54
Brokerage:

Prices on the system shall be exclusive of brokerage

Maximum brokerage rates shall be prescribed by the exchange

Brokerage to be separately indicated in the contract note
Margins From Clients:

Margins to be collected from all clients/trading members

Daily margins to be further collected

Right of clearing member to close out positions of clients/TMs not
paying daily margins

Losses if any to be charged to clients/TMs and adjusted against
margins
Other Recommendations:

Removal of the regulatory prohibition on the use of derivatives by
mutual funds while making the trustees responsible to restrict the
use of derivatives by mutual funds only to hedging and portfolio
balancing and not for speculation.

Creation of derivatives Cell, a derivatives Advisory Committee,
and Economic Research Wing by SEBI.

Declaration of derivatives as securities under section 2(h)(iia) of
the SCRA and suitable amendment in the notification issued by the
Central Government in June 1969 under section 16 of the SCRA

Consequent to the committee's recommendations the following
legal amendments were carried out:
55
Legal Amendments:

Securities Contract Regulation Act

Derivatives contract declared as a 'security' in Dec 1999

Notification in June 1969 under section 16 of SCRA banning
forward trading revoked in March 2000.
In order to recommend a guideline for effective implementation of the
recommendations of LC Gupta Committee Report, SEBI entrusted the
task to another Committee, i.e. JR Verma Committee appointed by it.
56
COMPLAINT FORMS
From Shares to Debentures, from Mutual Funds to Custodians, from
Brokers to Merchant Bankers from Securities Exchanges to Depositories,
anything of everything if you have complaint, please click to the
following selective table and leave your grievances here.
Type-I
Refund Order/ Allotment Advise
Type-II
Non-receipt of dividend
Type-III
Non-receipt of share certificates after transfer
Type-IV
Debentures
Type-V
Non-receipt of letter of offer for rights issue
Type-VI
Collective Investment Schemes
Type-VII
Mutual Funds/ Venture Capital Funds/ Foreign
Venture
Capital
Investors/
Foreign
Institutional
Investors/ Portfolio Managers, Custodians
Type-VIII
Brokers/ Securities Lending Intermediaries/ Merchant
Bankers/ Registrars and Transfer Agents/ Debenture
Trustees/ Bankers to Issue/ Underwriters/ Credit
Rating Agencies/ Depository Participants
Type-X
Securities
Exchanges/
Clearing
and
Settlement
Organizations/ Depositories
Type-IX
Derivative Trading
Type-XI
Corporate
Governance/
Corporate
Restructuring/
Substantial Acquisition and Takeovers/ Buyback /
Delisting / Compliance With Listing Conditions
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PENALTIES AND ADJUDICATION
1) Penalty for failure to furnish information, return, etc.
If any person, who is required under this Act or any rules or regulations
made thereunder,
To furnish any document, return or report to the Board, fails to
furnish the same, he shall be liable toa penalty of one lakh
rupees for each day during which such failure continues or one
crore rupees, whichever is less];

To file any return or furnish any information, books or other
documents within the time specified therefor in the regulations,
fails to file return or furnish the same within the time specified
therefor in the regulations, he 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];

To maintain books of accounts or records, fails to maintain the
same, he shall be liable to penalty of one lakh rupees for each
day during which such failure continues or one crore rupees,
whichever is less.
2) Penalty for failure by any person to enter into an agreement
with clients.
If any person, who is registered as an intermediary and is required under
this Act or any rules or regulations made thereunder to enter into an
agreement with his client, fails to enter into such agreement, he shall be
liable to penalty of one lakh rupees for each day during which such
failure continues or one crore rupees, whichever is less.
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3) Penalty for failure to redress investors' grievances.
If any listed company or any person who is registered as an intermediary,
after having been called upon by the Board in writing, to redress the
grievances of investors, fails to redress such grievances within the time
specified by the Board, such company or intermediary 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.
4) 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.
5) Penalty for insider trading.
If any insider who 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
 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
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 Counsels, or procures for any other person to deal in any
securities of anybody corporate on the basis of unpublished
price-sensitive information. Shall be liable to a penalty of
twenty-five crore rupees or three times the amount of profits
made out of insider trading, whichever is higher.
6) 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.
7) 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 made or directions issued by the Board thereunder for which
no separate penalty has been provided, shall be liable to a penalty which
may extend to one crore rupees.
8) 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:

the amount of disproportionate gain or unfair advantage,
wherever quantifiable, made as a result of the default;

the amount of loss caused to an investor or group of investors
as a result of the default;

The repetitive nature of the default.
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SEBIS TIME LINE BENCHMARK
The timelines benchmarks mentioned below is the 'working days' except
as otherwise stated. The counting starts from the next day.
Departments
Activities
Depositories And Custodians Division
Fresh registration of
30 days -
depository/depository
participants/custodians.
Renewal of registration/
30 days -
cancellation surrenders of
depository/depository
participants/custodians.
Activities
Foreign Institutional Investors
Division
Fresh registration
FIIs - 13 days. Sub-account - 3 days.
Renewal of registration
FIIs - 5 days. Sub-account - 3 days.
Activities
Collective Investment Schemes
Division
Fresh registration
21 Days.
Renewal of registration/
21 Days.
cancellation.
Observations on the offer
21 days
documents.
Activities
Secondary Market Department
Fresh registration - Credit
21 days
Rating Agency
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Fresh registration - Approved
21 days
intermediary under Stock
Lending Scheme
Fresh registration – Brokers
30 days
Fresh registration - Sub-
30 days
Brokers
Rule 4 ( c ) approvals for
30 days
brokers
Cancellation/surrender of
30 days
broker /sub brokers
Activities
Investor Grievances And Guidance
Division
Fresh registration
Investors associations - 21 days
Renewal of registration/
Investors associations - 21 days
cancellation.
Processing of applications for
15 days
release of 1% deposit from
stock exchanges
Processing of payments to
21 days
investor associations
Activities
Mutual Funds And Venture Capital
Dept.
Approval for Trustees of
7 days
Mutual Funds
Applications for foreign
7 days
securities / ADRs/GD Rs
Fresh registration
21 days
Change in controlling interest /
21 days
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conversion from close ended to
open ended schemes
Observations on the offer
21 days
documents.
Activities
Primary Market Department
Fresh registration of
21 days
intermediaries
Renewal of registration/
21 days
cancellation.
Observations on the offer
21 days from the date of filing with
documents.
SEBI.
Listing related issues (
21 days
Preferential offers, exemption
from Rule 19(2)(b) etc)
Activities
Takeovers Division
Observations on the offer
21 days from the date of filing with
documents.
SEBI
Disposal of an application
60 days
made u/r 4 (2)
Examination of Complaints on
20 days
alleged violations
Disposal of a report submitted
20 days
u/r 3(4)
Activities
All Divisions
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GENERAL INFORMATION – GLOSSARY
The Capital Market is probably the most relevant market category to the
individual investor. Every moment, a miniscule change here has great
effects on the net worth of every investor. Find out in this section, what
the terms all mean.
 Alert:
Some actions of the dealers need control approval. These actions come to
control workstation as Alerts. The possible alerts that require control
approvals are trade modification, trade cancellation, negotiated trade
entry, auction initiation and auction order cancellation.
 All or None (AON) :
This is one of the Special Terms conditions. An order with this condition
should be matched either with the entire order quantity or none at all.
 At The Opening (ATO) Order:
Market order entered during the Pre-Open period. These orders are priced
according to The Capital Market is probably the most relevant market
category to the individual investor. Every moment, a miniscule change
here has great effects on the net worth of every investor. Find out in this
section, what the terms all mean. the calculation of the opening price
during the Pre-Open period.
 Auction Market:
The buy/sell auction for a Capital Market security is managed through the
auction market. As opposed to the Normal market where trade matching
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is an on-going process, the trade matching process for auction starts after
the auction.
 Base Price:
The price of a security at the beginning of the trading day which is used
to determine the Day Minimum/Maximum and the Operational ranges for
that day.
 Batch:
A period in the trading day for the different markets. Order entry,
matching, inquiries and other functions at the workstation are not allowed
during this period. The system maintains files and trading parameters and
downloads the reports of the trading members during this period and
makes the system available for next day.
 Branch Order Value Limit:
A limit placed on the daily aggregate value of orders entered by dealers
or the Branch Manager. Orders entered by dealers or the Branch Manager
with value exceeding the Order Value Limit for the branch are not
allowed by the system.
 Broadcast Circuit:
This is a virtual circuit through which the system can send messages to all
workstations. In this mode, the system does not await the response from
the workstations.
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 Buyer:
The trading member who has placed the order for the purchase of the
securities.
 Closing Price:
The trade price of a security at the end of a trading day. Based on the
closing price of the security, the base price at the beginning of the next
trading day is calculated.
 Competitor:
The auction participant on the same side of the Initiator's order. If the
Initiator is a buyer then the competitor enters buy orders for the same
security.
 Control User:
An employee of the exchange who is a user of the Capital Market system
having special control privileges. The control user can alter the master
files, trading parameters and also perform market monitoring and control
operations.
 Counterparty:
When a trading member enters an order, any other trading member with
an order on the opposite side is referred to as the counterparty.
 Day Minimum/Maximum Range:
The minimum/maximum price range for a security on a trading day. Buy
orders outside the Maximum of the range and sell orders outside the
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Minimum of the range are not allowed to be entered into the system. It is
calculated as a percentage of the Base price.
 Day Orders:
If any quantity of a Day order is left untraded, the order is not cancelled
by the system until the end of the trading day.
 Dealer:
A user belonging to a Trading Member. Dealers can participate in the
market on behalf of the Trading Member.
 Derivatives:
Derivatives, such as options or futures, are financial contracts which
derive their value off their "underlying" asset. For examples, wheat
farmers may wish to contract to sell their harvest at a future date to
eliminate the risk of a change in prices by that date. Such a transaction
would take place through a forward or futures market.
This market is the "derivative market", and the prices on this market
would be driven by the spot market price of wheat which is the
"underlying". The terms "contracts" or "products" are often applied to
denote the traded instrument.
 Forward contract:
In a forward contract, two parties agree to do a trade at a future date, at a
stated price and quantity. No money changes hands at the time the deal is
signed.
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 Freeze:
Orders entered into the system with price outside the Operational range
and orders with quantity greater than the Order Quantity Freeze
percentage is sent to the Exchange for approval.
 Good Till Cancelled (GTC) orders:
If any quantity of a GTC order is left untraded, the order is not cancelled
by the system until it is cancelled by the dealer or after a parameterized
number of days.
 Good Till Date (GTD) orders:
If any quantity of a GTD order is left untraded, the order is not cancelled
by the system until the Good Till Date mentioned in the order.
 Immediate or Cancel (IOC):
When a IOC order is entered, the system will immediately try to match
this order as much as possible and cancel the remaining quantity, if any at
all. In this attempt, the order might find a partial match.
 Initiator:
The trading member who starts the auction. The Initiator can be a buyer
or a seller.
 Interactive Circuit:
This is a virtual circuit through which the system can send messages to a
specific workstation and vice - versa.
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 Limit order:
Is an order for which the price (limit price) has been specified at the time
of making the order entry.
 Market order:
Is an order for which no price has been specified at order entry.
 Matching:
When a buy and a sell order satisfy the price - time priority, they can
result in a trade. This process is called as matching. The match can be full
or partial depending on the order conditions.
 Minimum Fill (MF):
This is one of the special conditions where a minimum quantity is
specified for an order. The quantity of the trade involving an order with a
MF attribute should at least be this minimum quantity specified.
 Negotiated Trade:
Two Trading members can negotiate a trade outside the system. However
this trade is accepted by the system only if Control approves. Both the
parties enter each side of their trade in the system specifying each other’
identity.
 Participant:
An entity responsible for the settlement of a trade is deemed to be a
participant. Every order in the trading system has a participant associated
with it.
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 Pre-Open:
A time period in the trading day for the Normal market. Trading members
are allowed to enter orders during this period. These orders in the system
take part in the algorithm for the calculation of the opening price during
this period.
 Print/Report Circuit:
This is a virtual circuit through which the system can download report
data to all workstations. In this mode, the system does not await the
response from the workstations.
 Regular Lot:
The minimum quantity of an order entered into the Normal, Spot and
Auction markets. The order that does not carry any special conditions
(Minimum Fill, All or None) is treated as a regular lot order.
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