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SECURITIES AND EXCHANGE BOARD OF INDIA

1. INTRODUCTION
The SEBI, that is, the Securities and the Exchange Board of India, is the national
regulatory body for the securities market, set up under the securities and Exchange Board of
India act, 1992, to protect the interest of investors in securities and to promote the development
of, and to regulate the securities market and for matters connected therewith and incidental too.
SEBI has its head office in Mumbai and it has now set up regional offices in the
metropolitan cities of Kolkata, Delhi, and Chennai. The Board of SEBI comprises a Chairman,
two members from the central government representing the ministries of finance and law, one
member from the Reserve Bank of India and two other members appointed by the central
government.
As per the SEBI act, 1992, the power and functions of the Board encompass the
regulation of Stock Exchanges and other securities markets; registration and regulation of the
working stock brokers, sub-brokers, bankers to an issue (a public offer of capital), trustees of
trust deeds, registrars to an issues, merchant bankers, under writers, portfolio managers,
investment advisors and such other intermediaries who may be associated with the stock market
in any way; registration and regulations of mutual funds; promotion and regulation of selfregulatory organizations; prohibiting Fraudulent and unfair trade practices and insider trading in
securities markets; conducting necessary research for above purposes and performing such other
functions as may be prescribes from time to time.
SEBI as the watchdog of the industry has an important and crucial role in the market in
ensuring that the market participants perform their duties in accordance with the regulatory
norms. The Stock Exchange as a responsible Self Regulatory Organization (SRO) functions to
regulate the market and its prices as per the prevalent regulations. SEBI and the Exchange play
complimentary roles to enhance the investor protection and the overall quality of the market.

SECURITIES AND EXCHANGE BOARD OF INDIA

2. THE PURPOSE AND OBJECTIVE OF SEBI

Purpose and Role of SEBI:


SEBI was set up with the main purpose of keeping a check on malpractices and protect the
interest of investors. It was set up to meet the needs of three groups.
1. Issuers:
For issuers it provides a market place in which they can raise finance fairly and easily.
2. Investors:
For investors it provides protection and supply of accurate and correct information.
3. Intermediaries:
For intermediaries it provides a competitive professional market.

Objectives of SEBI:
The overall objectives of SEBI are to protect the interest of investors and to promote the
development of stock exchange and to regulate the activities of stock market. The objectives of
SEBI are:
1. To regulate the activities of stock exchange.
2. To protect the rights of investors and ensuring safety to their investment.
3. To prevent fraudulent and malpractices by having balance between self regulation of business
and its statutory regulations.
4. To regulate and develop a code of conduct for intermediaries such as brokers, underwriters,
etc.
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3. FUNCTIONS OF SEBI
The SEBI performs functions to meet its objectives. To meet three objectives SEBI has three
important functions. These are:
i. Protective functions
ii. Developmental functions
iii. Regulatory functions.
1. PROTECTIVE FUNCTIONS:
These functions are performed by SEBI to protect the interest of investor and provide safety of
investment.
As protective functions SEBI performs following functions:
(i) It Checks Price Rigging:
Price rigging refers to manipulating the prices of securities with the main objective of inflating or
depressing the market price of securities. SEBI prohibits such practice because this can defraud
and cheat the investors.
(ii) It Prohibits Insider trading:
Insider is any person connected with the company such as directors, promoters etc. These
insiders have sensitive information which affects the prices of the securities. This information is
not available to people at large but the insiders get this privileged information by working inside
the company and if they use this information to make profit, then it is known as insider trading,
e.g., the directors of a company may know that company will issue Bonus shares to its
shareholders at the end of year and they purchase shares from market to make profit with bonus
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issue. This is known as insider trading. SEBI keeps a strict check when insiders are buying
securities of the company and takes strict action on insider trading.
(iii) SEBI prohibits fraudulent and Unfair Trade Practices:
SEBI does not allow the companies to make misleading statements which are likely to induce the
sale or purchase of securities by any other person.
(iv) SEBI undertakes steps to educate investors so that they are able to evaluate the securities of
various companies and select the most profitable securities.
(v) SEBI promotes fair practices and code of conduct in security market by taking following
steps:
(a) SEBI has issued guidelines to protect the interest of debenture-holders wherein companies
cannot change terms in midterm.
(b) SEBI is empowered to investigate cases of insider trading and has provisions for stiff fine and
imprisonment.
(c) SEBI has stopped the practice of making preferential allotment of shares unrelated to market
prices.
2. DEVELOPMENTAL FUNCTIONS:
These functions are performed by the SEBI to promote and develop activities in stock exchange
and increase the business in stock exchange. Under developmental categories following
functions are performed by SEBI:
(i) SEBI promotes training of intermediaries of the securities market.
(ii) SEBI tries to promote activities of stock exchange by adopting flexible and adoptable
approach in following way:
(a) SEBI has permitted internet trading through registered stock brokers.
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(b) SEBI has made underwriting optional to reduce the cost of issue.
(c) Even initial public offer of primary market is permitted through stock exchange.
3. REGULATORY FUNCTIONS:
These functions are performed by SEBI to regulate the business in stock exchange. To regulate
the activities of stock exchange following functions are performed:
(i) SEBI has framed rules and regulations and a code of conduct to regulate the intermediaries
such as merchant bankers, brokers, underwriters, etc.
(ii) These intermediaries have been brought under the regulatory purview and private placement
has been made more restrictive.
(iii) SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer
agents, trustees, merchant bankers and all those who are associated with stock exchange in any
manner.
(iv) SEBI registers and regulates the working of mutual funds etc.
(v) SEBI regulates takeover of the companies.
(vi) SEBI conducts inquiries and audit of stock exchanges.
REGULATORY FUNCTIONS
R e g u l a t i o n o f s t o c k e x c h a n g e , s e l f r e g u l a t o r y organizations and any other
securities market.
Registration and regulation of stock brokers, sub-brokers, Registrars to all issues,
merchant bankers, underwriters, portfolio managers etc.
Registration and regulation of the working of collective investment schemes including
mutual funds.
P r o h i b i t i o n o f f r a u d u l e n t a n d u n f a i r t r a d e practices relating to securities
market.
Prohibition of insider trading.
Regulating substantial acquisition of shares and takeover of companies.
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4. DUTIES AND POWERS OF SEBI


DUTIES OF SEBI:
Regulation of Stock Exchanges and other securities markets;
Registration and regulation of the working stock brokers, sub-brokers, bankers to an
issue (a public offer of capital), trustees of trust deeds, registrars to an issues,
merchant bankers, under writers, portfolio managers, investment advisors and such

other intermediaries who may be associated with the stock market in any way;
Registration and regulations of mutual funds;
Promotion and regulation of self- regulatory organizations;
Prohibiting Fraudulent and unfair trade practices and insider trading in securities

markets;
Regulating substantial acquisition of shares and takeover of companies; calling for
information from, undertaking inspection, conducting inquiries and audits of stock

exchanges, intermediaries and self- regulatory organizations of the securities market;


Performing such functions and exercising such powers as contained in the provisions
of the Capital Issues (Control) Act,1947 and the Securities Contracts (Regulation)
Act, 1956, levying various fees and other charges, conducting necessary research for
above purposes and performing such other functions as may be prescribes from time
to time.

POWERS OF SEBI

For the discharge of its functions efficiently, SEBI has been invested with the necessary powers
which are:
1. To approve bylaws of stock exchanges.
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2. To require the stock exchange to amend their bylaws.


3. Inspect the books of accounts and call for periodical returns from recognized stock
exchanges.
4. Inspect the books of accounts of financial intermediaries.
5. Compel certain companies to list their shares in one or more stock exchanges.
6. Levy fees and other charges on the intermediaries for performing its functions.
7. Grant license to any person for the purpose of dealing in certain areas.
8. Delegate powers exercisable by it.
9. Prosecute and judge directly the violation of certain provisions of the companies Act.
10.Power to impose monetary penalties.

REASONS FOR ESTABLISHMENT OF SEBI:


With the growth in the dealings of stock markets, lot of malpractices also started in stock markets
such as price rigging, unofficial premium on new issue, and delay in delivery of shares,
violation of rules and regulations of stock exchange and listing requirements. Due to these
malpractices the customers started losing confidence and faith in the stock exchange. So
government of India decided to set up an agency or regulatory body known as Securities
Exchange Board of India (SEBI).

The Organizational Structure of SEBI:


1. SEBI is working as a corporate sector.
2. Its activities are divided into five departments. Each department is headed by an executive
director.
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3. The head office of SEBI is in Mumbai and it has branch office in Kolkata, Chennai and Delhi.
4. SEBI has formed two advisory committees to deal with primary and secondary markets.
5. These committees consist of market players, investors associations and eminent persons.

Management of SEBI:
As

noted

above,

SEBI

is

statutory

Board

i.e.

Board

formed

under Statue. The Board shall be headed by a chairman. In addition, there will be eight
members:
(a) Two members from amongst the officials of the Ministries of the Central
Government dealing with Finance and Law;
(b) One member from amongst the officials of the Reserve bank of India;
(c) Five other members of who at least three shall be the whole time members. Thus, there are
nine members including chairman. Accordingly to section 4(2) of the Act, this Board exercise
general superintendence, direction and management of the affairs of the SEBI. The Chairman of
the Board can exercise all powers of the Board, except those specified in the regulations framed
under SEBI Act. The Chairman and the members are appointed by the Central Government
except that member from Reserve Bank of India is appointed by the RBI. The Chairman and
other members shall be persons of ability, integrity and standing who have shown capacity in
dealing with problems relating to securities market and have special knowledge or experience of
law, finance, economics, accountancy, administration etc.

SECURITIES AND EXCHANGE BOARD OF INDIA

Objectives of the two Committees are:


1. To advise SEBI to regulate intermediaries.
2. To advise SEBI on issue of securities in primary market.
3. To advise SEBI on disclosure requirements of companies.
4. To advise for changes in legal framework and to make stock exchange more transparent.
5. To advise on matters related to regulation and development of secondary stock exchange.
These committees can only advise SEBI but they cannot force SEBI to take action on their
advice.
SEBI COMMITTEES
1. Technical Advisory Committee
2. Committee for review of structure of market infrastructure institutions
3. Members of the Advisory Committee for the SEBI Investor Protection and Education
Fund
4. Takeover Regulations Advisory Committee
5. Primary Market Advisory Committee (PMAC)
6. Secondary Market Advisory Committee (SMAC)
7. Mutual Fund Advisory Committee
8. Corporate Bonds & Securitization Advisory Committee
9. Takeover Panel

SECURITIES AND EXCHANGE BOARD OF INDIA

10.SEBI Committee on Disclosures and Accounting Standards (SCODA)


11.High Powered Advisory Committee on consent orders and compounding of offences
12.Derivatives Market Review Committee
13.Committee on Infrastructure Funds
14.Regulation over Financial Terms of Various Authorities.

5. ACHIEVEMENTS OF SEBI
Guidelines to Issuing Companies:
The SEBI had issued detailed guidelines for all companies old as well as new for
disclosure of information and protection of the interests of investors. The guidelines relate to first
issue of new companies, first issue by existing companies, issue of convertible debentures, etc.
The guidelines are in addition to other legal provisions in existence.
The purpose is to reduce the cost of issue. The purpose behind issuing these guidelines is to give
protection to small investors and avoid their exploitation due to misleading information.
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The SEBI can take action against companies if these guidelines are not followed in the right
spirit. The SEBI may issue fresh guidelines from time-to-time. This suggests that SEBI has now
effective control on the new issue market. This is one achievement of SEBI.
Regulation of Portfolio Management Services:
The highly infringed portfolio management services (PMS) were placed under the regulation of
SEBI since January 11, 1993. The violations of the PMS scheme and similar schemes offered by
various banks and merchant banking subsidiaries had come to light during the securities scam.
It is noticed that the role of RBI as supervisory head had been highly inefficient in regard to
PMS. The same is the case with the Finance Ministry. SEBI has now been entrusted with the job
of policing the portfolio managers and provide adequate protection to the investors. This is a
good beginning on the part of SEBI and can be treated as one achievement of SEBI.
Regulation of Mutual Funds:
The Mutual Funds were placed under SEBI control on January 20, 1993. Next to portfolio
management services, it is the fifth financial activity to be brought under SEBIs regulatory
framework. Mutual funds have been barred from indulging in option trading, short selling or
carrying forward transactions in securities. Permission has been granted to invest only in
transferable securities in the money/capital market.
Action for Delays in Transfers and Refunds:
SEBI has prosecuted many companies for delaying share transfers and for delay in refund of
public issue money. This step gives protection to investors and avoids their exploitation through
delayed payments.
Issue of guidelines to intermediaries:
In 1991, the Narasimham Committee made certain recommendations relating to capital market. It
suggested that SEBI should formulate a new set of guidelines to protect investors. By issuing
different types of guidelines, the SERI has executed this recommendation of the Committee and
have issued guidelines to intermediaries. This is an example of positive role of SEBI
Guidelines on Takeovers and Mergers:
SEBI has issued guidelines as regards takeovers and mergers. The purpose is to ensure
transparency in acquisition of shares, fair and truthful disclosure through public announcement
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and avoidance of unfair practices in takeovers and mergers. The guidelines issued by SEBI are
for the protection of the interest of small investors.
Education and Guidance of Investors:
SEBI has brought out number of
publications for the education and guidance of investors and other intermediaries. The
publications include Investors Grievances Rights and Remedies, Merchant Bankers Rules
and Regulations, SEBI Act 1992, SEBI Market Review and SEBI News letter.
Regulation of Foreign Institutional Investors:
SEBI has started the registration of foreign institutional investors. This is in pursuance of the
government guidelines for investments by foreign institutional investors issued in September,
1992. This is a step in the right direction for effective control on such investors who are likely to
invest on a massive scale in the near future.
Control on Merchant Banking:
Merchant banking has been statutorily brought under the regulatory framework of SEBI.
Merchant bankers are now to be authorized SEBI. They have to adopt the stipulated capital
adequacy norms, abide by the code of conduct which specifies a high degree of responsibility
towards investors in respect of pricing and premium fixation of issues and disclosures in the
prospectus.

6. REGULATORY FRAMEWORK OF SECURITIES AND


EXCHANGE BOARD OF INDIA (SEBI)
SEBI acts as a developer and regulator of the capital market in India. SEBI has delegated powers
to two exchanges (Bombay Stock Exchange, National Stock Exchange) to ensure that their
members adhere to the SEBI regulations and instructions.
The total market capitalization as on March 31, 2011 of listed companies in India at Bombay
Stock Exchange is RS.68, 39,084 crores as per SEBIs annual report for the year ending March
31, 2011.
Some of the roles that the SEBI performs as a market regulator are:
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To regulate the market by creating rules for functioning of various products.


To approve/amend the laws of stock exchanges.
To inspect the books of accounts and call for periodical returns from recognized stock

exchanges.
To inspect the books of accounts of financial intermediaries and levy fees/charges on

them.
To prohibit and prevent insider trading.
To regulate the issues of capital and debt in primary and secondary market.
To prevent unfair trade practices and market manipulation.

7. SEBI AND CORPORATE GOVERNANCE


SEBI has set out corporate governance provisions that are intended to drive in a minimum
standard of corporate governance among listed companies in India. This is issued as a part of the
listing agreement that each listed company signs with the stock exchange under the title clause
49.clause 49 remains the most significant corporate governance reform and established a new
corporate governance regime.
Like Corporate Governance standards in the United States and United Kingdom, Indias
corporate governance reforms followed fiduciary and agency cost model of corporate
governance. These norms lay criterions for:

Appointment of independence directors in boards.


Appointment, compositions and power of audit committee.
Compensation that can be paid to non executive directors.
Functioning of remuneration committee, investors grievances redressal

committee.
Certification by CEO/CFO on adequacy of internal control system, correctness of

the reported financials.


Whistle blower policy
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Study on state of corporate governance in India.


Eventually, compliance of corporate governance must be carried out by:

Issuer companies
Stock exchanges
Central securities depositors
Stock brokers
Mutual funds
Foreign institutional funds
Investment banks
Depository participants
Credit rating agencies
Venture funds
Registrars and underwriters

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8. DIFFERENT DEPARTMENTS OF SEBI


1. Market Intermediaries Regulation and Supervision Department:
The Market Intermediaries Regulation and Supervision Department is responsible for the
registration, supervision, compliance monitoring and inspections of all market intermediaries in
respect of all segments of the markets viz. equity, equity derivatives, debt and debt related
derivatives.
2. Market Regulation Department:
Responsible for supervising the functioning and operations (except relating to derivatives) of
securities exchanges, their subsidiaries, and market institutions such as Clearing and settlement
organizations and Depositories.
3. Derivatives and New Products Departments:
This department is responsible for supervising the functioning and operations of derivatives
exchanges, and addresses investor complaints.
4. Corporation Finance Department:
The Corporation Finance Department deals with matters relating to (i) Issuance and listing of
securities, including initial and continuous listing requirements (ii) corporate governance and
accounting/auditing standards (iii) corporate restructuring through Takeovers / buy backs (iv)
Delisting etc.
5. Investment Management Department:

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The Investment Management department is responsible for registering and regulating mutual
funds, venture capital funds, foreign venture capital investors, collective investment schemes,
including plantation schemes, Foreign Institutional Investors, Portfolio Managers and
Custodians.
6. Integrated Surveillance Department:
The integrated Surveillance department is responsible for monitoring market activity through
market systems, data from other departments and analytical software.

7. Investigations Department:
The Investigations department is responsible for:
Conducting investigations on potentially illegal market activities. Providing referrals to the
enforcement department. Assisting the enforcement department in enforcing SEBI action against
violators.
8. Enforcement Department:
Enforcement Department is responsible for proceedings related to regulatory action and
obtaining redress for violations of securities laws and regulations against all market participants,
issuers and individuals and other entities that breach securities laws and regulations.
9. Legal Affairs Department:
It is responsible to provide legal counsel to the Board and to its other departments, and to handle
non-enforcement litigation.
10. Enquiries and Adjudication Department:
Handles quasi-judicial matters and provide timely hearings and initiate adjudication brought by
the other Departments against alleged violators who are within SEBIs disciplinary jurisdiction.
11. Office Of Investor Assistance and Education:
The office will support SEBIs operations by handling investor complaints centrally and be the
focal point of SEBIs investor education effort.

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12. General Services Department:


This department supports all of the internal operations of SEBI.
13. Treasury and Accounts Division:
The Division will handle work related to:
Development of SEBIs internal budget and accounting systems Presentation of reports and
budgets to the SEBI Board Maintaining internal accounting records, developing internal control
systems for collections and disbursements and other financial controls Managing SEBIs
investments
14. Facilities Management Division:
The division will be responsible for the establishment and maintenance of the physical facility
housing the regulator and related needs.
15. Department of Economic and Policy Analysis:
The Department will handle its functions through the following Divisions:
Division of Policy Analysis (DPA)
Division of Economic Analysis (DEA)
16. Office of the Chairman:
This has imprtant sub divisions such as Office of International Affairs, Communications
Division, Human Resources Division and Office of the Executive Assistant to the Chairman.
17. Information Technology Department:
This department would perform its role as the technical support group for SEBI.

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9. DETAILS OF SEBI GUIDELINES - FOR CAPITAL MARKET


1. SEBI guidelines were issued after the repeal of the CIC Act whereby the CCI guidelines
became out of date. New guidelines by SEBI were issued starting from the month of
June, 1992. Some CCI guidelines were still retained, as in the case of those for premium
fixation.
2. Guidelines for new issues made by new Companies : They have to be issued at par. Free
pricing is permitted only if the new company is promoted by the existing company with
not less than 50% of equity.
3. New issues made by Private Limited Companies and Closely held companies can be
made by free pricing, for listing purposes if such companies have had three years of track
record of consistent profitability out of last 5 years. Not less than 20% of equity is to be
offered to the public, in such cases. 4. Public issues by existing listed companies can be
made through free pricing, if they are further issues and if they are disclosed in the
prospectus. The NAV and the market price have to be considered for the last 3 years. The
companies with foreign holding wishing to enhance the limit upto 51% will have to get

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the prices approved in the general body meeting by a special resolution under Sec. 81 (A)
of the Companies Act, and subject to RBI approval.
4. Composite Issues : Issues to the public by existing company can be priced differently as
compared to the rights issued to shareholders.
5. Reservation in issues : The unreserved portion offered to public should not be less than the
minimum required for listing purposes. Preferential allotment can be mde to promoters,
Companies, shareholders of those companies. NRIs, Employees and Associate Compaies of the
same group. The allotment shall be subject to a lock in period of three years, if it is made on firm
basis, outside public issue.
6. Deployment of Issue Proceeds : Where the total proceeds exceed Rs. 250 cores, the company
will voluntarily disclose the arrangements made to utilise proceeds. When the total issue proceeds
exceed Rs. 500 crores, there is need for making compulsory disclosure and for the financial
institutions to monitor the deployment of funds, to the stock exchanges.

7. Minimum interval between two issues : 12 months should elapse between the public or rights
issue and Bonus issue. The promoters should bring in their share of the capital befor ethe public
issue.

10. GUIDELINES TO INVESTORS


1. Deal with a registered member of the stock exchange. If you are dealing with a subbroker, make sure that all bills and contracts are made in the name of a registered broker.
2. Insist that all your deals are done in the trading ring, or electronically recorded.
3. Give specific orders to buy or sell within the fixed price limits and/or time periods within
which orders have to be executed.
4. Insist on contract notes to be passed on to you on the dates, when the orders are executed.
5. Make sure that your deal is registered with the stock exchange in a soda Block Book or
recorded electronically. In the case of a dispute, this will help trace the details of the deal
easily.
6. Collect a settlement table from the stock exchange mentioning the pay-in and pay-out
days. Each stock exchange has its own trading periods which are called settlements. All
transactions done within this period are settled at the end of it. All payments for shares
bought and there deliveries take place on the pay-in day. An awareness of pay-in and payout days is useful when a broker tries to make excuses. 7. Keep separate records of
dealings in specified shares (Group A) and non- specified shares (Group B1, and B2).
The settlement for each is on different days.
7. Execute periodic settlements of dues and delivery of shares to avoid accumulation of
transactions.
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8. Insist on delivery. If the company returns your papers and shares with objections, contact
your broker immediately.
9. Ensure that shares bought are transferred in your name before the companys book
closure date. This is necessary to make sure that you receive benefits like divident,
interest and bonus shares. All companies have to book closure date on which the list of
shareholders in the company is finalised.
10. Complain if the broker does not deliver the shares bought in your name. Proceed to
contact another broker with the bill/contract given to you by the earlier broker, and the
earlier broker, and the Exchange authorities and the latter will purchase the shares on
your behalf. In such an event, the first broker will have to pay the shareson your behalf.
In such an event, the first broker will have to pay the difference in price.Do not sell
shares that are not transferred in your name after the book closure as these are not valid in
the market.
11. 13. Do not sell/deal in shares where any one of the holders has passed away. In cases
where the holder has died, a succession certificate is necessary. In cases where one of the
joint shareholders passes away, te surviving holder should send the shares along with the
death certificate to the company. Only after thename of the deceased has been deleted
from the shares, can they be transferred.
12. Do not expect the money for shares to come immediately. It will take at least a fortnight
at present from the date of transaction.
13. Unless you have a special arrangement with the broker, do not expect the adjustment of
purchases and sales against one another. One pays first and receives later.
14. Do not take delays or harassment lying down. You have to complain to the Grievance
Cell of the stock exchange or the Securities and Exchange Board of India (SEBI) in case
of delay or harassment.

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11.

PROTECTION OF THE INVESTORS BY SEBI

Some important lines that are offered by the dedicated to the cause of investors protection:
Eligibility Norms For Companies Issuing Securities:Provisions regarding this are enshrined in Chapter-II of the said guidelines. No company shall
make any issue of a public issue of securities, unless a draft prospectus has been filed with the
Board, through an eligible Merchant Banker, at least 21 days prior to the filing of Prospectus
with the Registrar of Companies (ROCs). Provided that if, within 21 days from the date of
submission of draft Prospectus, the Board specifies changes, if any, in the draft Prospectus
(without being under any obligation to do so), the issuer or the Lead Merchant banker shall carry
out such changes in the draft prospectus before filing the prospectus with ROCs.
No listed company shall make any issue of security through a rights issue where the aggregate
value of securities, including premium, if any, exceeds Rs.50 lacs, unless the letter of offer is
filed with the Board, through an eligible Merchant Banker, at least 21 days prior to the filing of
the Letter of Offer with RSE. Provided that if, within 21 days from the date of filing of draft
letter of offer, the Board specifies changes, if any, in the draft letter of offer, (without being under
any obligation to do so), the issuer or the Lead Merchant banker shall carry out such changes
before filing the draft letter of offer. No company shall make an issue of securities if the
company has been prohibited from accessing the capital market under any order or direction
passed by the Board.
Pricing By Companies Issuing Securities:These provisions are being dealt in the Chapter-III of the guidelines. A listed company whose
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equity shares are listed on a stock exchange, may freely price its equity shares and any security
convertible into equity at a later date, offered through a public or rights issue. An unlisted
company eligible to make a public issue and desirous of getting its securities listed on a
recognized stock exchange pursuant to a public issue, may freely price its equity shares or any
securities convertible at a later date into equity shares. An eligible company shall be free to make
public or rights issue of equity shares in any denomination determined by it in accordance with
Sub-section (4) of Section 13 of the Companies Act, 1956 and in compliance with the following
and other norms as may be specified by SEBI from time to time:
In case of initial public offer by an unlisted company, if the issue price is Rs. 500/- or more, the
issuer company shall have a discretion to fix the face value below Rs. 10/- per share subject to
the condition that the face value shall in no case be less than Rs. 1 per share; and, if issue price is
less than Rs. 500 per share, the face value shall be Rs. 10/- per share; The disclosure about the
face value of shares (including the statement about the issue price being X times of the face
value) shall be made in the advertisement, offer documents and in application forms in identical
font size as that of issue price or price band.)
Pre- Issue Obligations:The pre issue obligations are provided in Chapter-V, they are as follows: The lead merchant banker shall exercise due diligence.
The standard of due diligence shall be such that the merchant banker shall satisfy himself about
all the aspects of offering, veracity and adequacy of disclosure in the offer documents.
The liability of the merchant banker shall continue even after the completion of issue process.
No company shall make an issue of security through a public or rights issue unless a
Memorandum of Understanding has been entered into between a lead merchant banker and the
issuer company specifying their mutual rights, liabilities and obligations relating to the issue.
Contents Of Offer Document:In addition to the disclosures specified in Schedule II of the Companies Act, 1956, the prospectus
shall also contain all material information which shall be true and adequate so as to enable the
investors to make informed decision on the investments in the issue. The prospectus shall also
contain the information and statements specified in this chapter and shall as far as possible
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follow the order in which the requirements are listed in this chapter and summarised in Schedule
VIIA.
Consequence Of Non-Observance Of The Guidelines
SEBI in case of non-observance of these guidelines (Section 11B) as it seems to be a bar from
doing such things which may prejudice the interest of the investors the board can give the
following directions:Direct the persons concerned to refund any money collected under an issue to the investors with
or without requisite interest, as the case may be, direct the persons concerned not to access the
capital market for a particular period, direct the stock exchange concerned not to list or permit
trading in the securities, direct the stock exchange concerned to forfeit the security deposit
deposited by the issuer company, any other direction which the Board may deem fit and proper
in the circumstances of the case.
Provided that before issuing any directions the Board may give a reasonable opportunity to the
person concerned. Provided further that if any interim direction is sought to be passed, the Board
may give post decisional hearing to such person.
Future Overcast Of The Investors
SEBI being a premiere institution for dealing with the problems relating to securities has
advanced a long way towards protecting the investors from the hazards of the predators existing
in the market. As already stated before it has compiled a great bunch of guidelines dedicated to
this cause. But the real scenario which came as a consequence was that only the big fishes could
escape the net and the small ones were still striving to uphold their existence. In this matter,
according to a daily newspaper it has become clear that SEBI had already received suggestion
and advice regarding the need for a separate enactment concerning the small investors. As far as
it is concerned, the Government has thought of introducing an independent legislation on
investor protection to safeguard the interests of small investors. A separate legislation had also
been recommended in the report prepared by Mr. Mitra, who was commissioned by the Finance
Ministry to draw up the terms of reference for a new Bill. A debate has been on over the need for
a separate legislation for protecting the interests of small investors, considering that there are
multiple agencies involved in policing companies that raise funds from the public be it public
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listed companies, or NBFCs (Non Banking Financial Companies). These include the capital
markets regulator, SEBI, the banking regulator, RBI, and the Department of Company Affairs
(DCA) which is responsible for regulating unlisted companies. SEBI has been in favour of a
separate regulatory agency for the protection of small investors. The regulator had earlier
submitted a proposal to the Finance Ministry, outlining the need for a new Act.

12. ELIGIBILITY NORMS FOR COMPANIES ISSUING SECURITIES


CONDITIONS FOR ISSUE OF SECURITIES
(The companies issuing securities offered through an offer document shall satisfy the following
at the time of filing the draft offer document withSEBI30 and also at the time of filing the final
offer document with the Registrar of Companies/ Designated Stock Exchange.
Filing of offer document
No issuer company shall make any public issue of securities, unless draft Prospectus has been
filed with the Board through a Merchant Banker, at least 30 days prior to the filing of the
Prospectus with the Registrar of Companies (ROC):
Provided that
if the Board specifies changes or issues observations on the draft Prospectus (without being
under any obligation to do so), the issuer company or the Lead Manager to the Issue shall carry
out such changes in the draft Prospectus or comply with the observations issued by the Board
before filing the Prospectus with ROC.
Provided further that
the period within which the Board may specify changes or issue observations, if any, on the draft
Prospectus shall be30 days from the date of receipt of the draft Prospectus by the Board.
Provided further that
where the Board has sought any clarification or additional information from the Lead Manager/s
to the Issue, the period within which the Board may specify changes or issue observations, if any,

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on the draft Prospectus shall be 15 days from the date of receipt of satisfactory reply from the
Lead Manager/s to the Issue.
Provided further that
where the Board has made any reference to or sought any clarification or additional information
from any regulator or such other agencies, the Board may specify changes or issue observations,
if any, on the draft Prospectus after receipt of comments or reply from such regulator or other
agencies.
Provided further that
the Board may specify changes or issue observations, if any, on the draft Prospectus only after
receipt of copy of in-principle approval from all the stock exchanges on which the issuer
company intends to list the securities proposed to be offered through the Prospectus.)
(No listed issuer company shall make any rights issue of securities,
(where the aggregate value of such securities, including premium, if any, exceeds Rs. 50 lacs,)
unless a draft letter of offer has been filed with the Board, through a Merchant Banker, at least 30
days prior to the filing of the letter of offer with the Designated Stock Exchange (DSE).
Provided that
if the Board specifies changes or issues observation son the draft Letter of Offer (without being
under any obligation to do so), the issuer company or the Lead Manager to the Issue shall
carry out such changes in the draft Letter of Offer or comply with the observations issued by the
Board before filing the Letter of Offer with DSE.
Provided further that
the period within which the Board may specify changes or issue observations, if any, on the draft
Letter of Offer shall be 30 days from the date of receipt of the draft Letter of Offer by the Board.
Provided further that
where the Board has sought any clarification or additional information from the Lead Manager/s
to the Issue, the period within which the Board may specify changes or issue observations, if
any, on the draft Letter of Offer shall be 15 days from the date of receipt of satisfactory reply
from the Lead Manager/s to the Issue.
Provided further that
where the Board has made any reference to or sought any clarification or additional information
from any regulator or such other agencies, the Board may specify changes or issue observations,
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SECURITIES AND EXCHANGE BOARD OF INDIA

if any, on the draft Letter of Offer after receipt of comments or reply from such regulator or other
agencies .
Provided further that
the Board may specify changes or issue observations, if any, on the draft Letter of Offer only
after receipt of copy of in-principle approval from all the stock exchanges on which the issuer
company intends to list the securities proposed to be offered through the Letter of Offer.

13. SEBI OPERATIONS

Capital Market

Primary Market

Secondary
Market

INTRODUCTION:-

The capital market is a place where the suppliers and users of capital meet to share one anothers
views, and where a balance is sought to be achieved among diverse market participants. The
securities decouple individual acts of saving and investment over time, space and entities and
thus allow savings to occur without concomitant investment. Moreover, yield- bearing securities
makes present consumption more expensive relative to future consumption, inducing people to
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save. The composition of savings changes with less of it being held in the form of idle money or
unproductive assets, primarily because more divisible and liquid assets are available.
The capital market acts as a brake on channeling savings to low- yielding enterprises and impels
enterprises to focus on performance.
Thus, the capital market converts a given stock of investible resources into a larger flow of goods
and services and augments economic growth. In fact, the literature is full of theoretical and
empirical studies that have established causal robust (statistically significant) two-way relation
between the developments in the securities market and economic growth.
The Indian capital markets dates back to the 18th century when the securities of the East India
Company were traded in Mumbai and Kolkata. However, the orderly growth of the capital
market began with the setting up of The Stock Exchange, Bombay in July 1875 and Ahmedabad
Stock Exchange in 1894. Eventually, 22 other Exchanges in various cities sprang up. Given the
significance of capital market and the need for the economy to grow at the projected over 8 per
cent per annum, the managers of the Indian economy have been assiduously promoting the
capital market as an engine of growth to provide an alternative yet efficient means of resource
mobilization and allocation.
Further, the global financial environment is undergoing unremitting transformation.
Geographical boundaries have disappeared. The days of insulated and isolated financial markets
are history. The success of any capital market largely depends on its ability to align itself with the
global order.
IMPORTANCE OF CAPITAL MARKET:The capital market serves a very useful purpose by pooling the capital resources of the country
and making them available to the enterprising investors well-developed capital markets augment
resources by attracting and lending funds on the global scale.
A developed capital market can solve this problem of paucity of funds. For an organized capital
market can mobilize and pool together even the small and scattered savings and augment the
availability of investible funds. While the rapid growth of capital markets, the growth of joint
stock business has in its turn encouraged the development of capital markets.
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A developed capital market provides a number of profitable investment opportunities for small
savers.

PRIMARY MARKET
INTRODUCTION:Primary market provides opportunity to issuers of securities, Government as well as corporate, to
raise resources to meet their requirements of investment and/or discharge some obligation. The
issuers create and issue fresh securities in exchange of funds through public issues and/or as
private placement. They may issue the securities at face value, or at a discount/premium and
these securities may take a variety of forms such as equity, debt or some hybrid instrument. They
may issue the securities in domestic market and/or international market through ADR/GDR/ECB
route.
Measures undertaken by SEBI
1. Entry norms: a) Track record of dividend payment for minimum 3 yrs preceding the issue.
b) Already listed companies - when post-issue net worth becomes more than 5 times the
pre-issue net worth.
c) For Manufacturing company not having such track record appraise project by a
public financial institution or a scheduled commercial bank.
d) For corporate body 5 public shareholders for every Rs.1 lakh of the net capital offer
made to the public
e) Banks 2 yrs of profitability for issues above par. Offer documents to companies.
2. Promoters contribution: a)
b)
c)
d)

Should not be less than 20% of the issued capital.


Receiving of promoters contribution.
Lock in period as per SEBI.
Cases of non-under written public issues.

3. Disclosure: a) Draft prospectus


b) Un audited financial results
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SECURITIES AND EXCHANGE BOARD OF INDIA

4. Book building: a)
b)
c)
d)

SEBI recommends two-tier under writing system.


One of the modes of public issue thru prospectus.
Role of syndicate members and book runners.
Minimum 30 centers.

5. Allocation of shares:a) Minimum application of shares.


b) Reservation for small investors.
c) Allotment of securities.
6. Market intermediaries:a) Licensing of merchant bankers
b) Licensing of underwriters, registrars, transfer agents, etc.,
c) Merchant bankers net worth Rs.5 crores
d) Segregate fund based from fee based activities.
SECONDARY MARKET
INTRODUCTION
Secondary market is the place for sale and purchase of existing securities. It enables an investor
to adjust his holdings of securities in response to changes in his assessment about risk and return.
It also enables him to sell securities for cash to meet his liquidity needs. It essentially comprises
of the stock exchanges, which provide platform for trading of securities and a host of
intermediaries who assist in trading of securities and clearing and settlement of trades. The
securities retarded, cleared and settled as per prescribed regulatory framework under the
supervision of the Exchanges and oversight of SEBI.
Listing of securities:
Listing means admission of securities of an issuer to trading privileges on a stock exchange
through a formal agreement. The prime objective of admission to dealings on the Exchange is to
provide liquidity and marketability to securities, as also to provide a mechanism for effective
management of trading.
Reforms in the secondary market:
1. Governing board
a) Brokers and non-brokers representation made 50:50
b) 60% of brokers in arbitration, disciplinary & default committees
c) For trading members 40% representation

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2. Infrastructure
a) On-line screen based trading terminals
3. Settlement & clearing
a) Weekly settlements
b) Auctions for non-delivered shares within 80 days of settlement
c) Advice to set up clearing houses, clearing corporation or settlement guarantee fund.
d) Warehousing facilities permitted by SEBI.
4. Debt market segment
a)
b)
c)
d)

Regulates thru SEBI (depository & participants) regulation Act 1996.


Listing of debt instruments
Investment. Range for FIIs
Dual rating for above Rs.500 million

5. Price stabilization
a)
b)
c)
d)
e)
f)

Division to monitor the unusual movements in prices.


Monitor prices of newly listed scrip from the first day of trading.
Circuit breaker system and other monitoring restrictions could be applied
Imposing of special margins of 25% on purchase in addition to regular margin.
Price filters
Price bands

6. Delisting
a) On voluntary de-listing from regional stock exchanges buy offer to all share holders
b) Promoters to buy or arrange buyers for the securities
c) 3 yrs listing fees from companies and be kept in Escrow A/c with the stock exchange.

14. CLEARING AND SETTLEMENT


INTRODUCTION:The stock exchanges in India were following a system of account period settlement for
cash market transactions, except for transactions in a few active securities, which were settled
under T+3 rolling settlement. The stock exchanges were also offering deferral products to
provide leverage to members to postpone their settlement obligations. The transactions are not
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SECURITIES AND EXCHANGE BOARD OF INDIA

settled immediately but after 2 days after the trade day. The members receive the funds/securities
in accordance with the pay-in/pay-out schedules notified by the respective exchanges. Given the
growing volume of trades and market volatility, the time gap between trading and settlement
gives rise to settlement risk. In recognition of this, the exchanges and their clearing corporations
employ risk management practices to ensure timely settlement of trades. The regulators have also
prescribed elaborate margining and capital adequacy standards to secure market integrity and
protect the interests of investors. The exchanges not providing counter-party guarantee have been
advised by SEBI to set up trade guarantee funds, which would honor pay-in liabilities in the
event of default by a member.
Movement of securities has become almost instantaneous in the dematerialised
environment. Two depositories viz., National Securities Depositories Ltd. (NSDL) and Central
Depositories Services Ltd. (CDSL) provide electronic transfer of securities and more than 99%
of turnover is settled in dematerialised form. All actively traded scrips are held, traded and
settled in demat form. The obligations of members are downloaded to members/custodians by
the clearing agency.
Select banks have been empanelled by clearing agency for electronic transfer of funds.
The members are required to maintain accounts with any of these banks. The members are
informed electronically of their pay-in obligations of funds. The members make available
required funds in their accounts with clearing banks by the prescribed pay-in day.
The clearing agency forwards funds obligations file to clearing banks which, in turn,
debit the accounts of members and credit the account of the clearing agency. In some cases, the
clearing agency runs an electronic file to debit members' accounts with clearing banks and credit
its own account. As per the schedule of allocation of funds determined by the clearing agency,
the funds are transferred on the pay-out day by the clearing banks from the account of the
clearing agency to the accounts of members. In some cases, the clearing agency directly credits
the members' accounts with clearing banks and debits its own account. The pay-in and pay-out of
funds as well as securities take place 2 working days after the trade date.
SETTLEMENT PROCESS:-

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SECURITIES AND EXCHANGE BOARD OF INDIA

The National Securities Clearing Corporation Ltd. (NSCCL) determines the


funds/securities obligations of the trading members and ensures that trading members meet their
obligations. The clearing banks and depositories provide the necessary interface between the
custodians/clearing members (who clear for the trading members or their own transactions) for
settlement of funds/securities obligations of trading members.
The core functions involved in the process are:
a)Trade Recording: The key details about the trades are recorded to provide basis for
settlement. These details are automatically recorded in the electronic trading system of
the exchanges.
b) Trade Confirmation: The counterparties to trade agree upon the terms of trade like
security, quantity, price, and settlement date, but not the counterparty which is the
NSCCL. The electronic system automatically
participants.

generates

confirmation

by

direct

The ultimate buyers/sellers of securities also affirm the terms, as the

funds/securities would flow from them, although the direct participants are responsible
for settlement of trade.
c) Determination of Obligation: The next step is determination of what counter-parties
owe, and what counter-parties are due to receive on the settlement date. The NSCCL
interposes itself as a central counterparty between the counterparties to trades and nets
the positions so that a member has security wise net obligation to receive or deliver a
security and has to either pay or receive funds.
d) Pay-in of Funds and Securities: The members bring in their funds/securities to the
NSCCL. They make available required securities in designated accounts with the
depositories by the prescribed pay-in time. The depositories move the securities available
in the accounts of members to the account of the NSCCL. Likewise members with funds
obligations make available required funds in the designated accounts with clearing banks
by the prescribed pay-in time. The CC sends electronic instructions to the clearing banks
to debit member's accounts to the extent of payment obligations. The banks process these
instructions, debit accounts of members and credit accounts of the NSCCL.
e) Pay-out of Funds and Securities: After processing for shortages of funds/securities and
arranging for movement of funds from surplus banks to deficit banks through RBI
clearing, the NSCCL sends electronic instructions to the depositories/clearing banks to
release pay-out of securities/funds. The depositories and clearing banks debit accounts of
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SECURITIES AND EXCHANGE BOARD OF INDIA

the NSCCL and credit accounts of members. Settlement is complete upon release of payout of funds and securities to custodians/members.
f) Risk Management: A sound risk management system is integral to an efficient
settlement system. The NSCCL ensures that trading members' obligations are
commensurate with their net worth. It has put in place a comprehensive risk management
system, which is constantly monitored and upgraded to pre-empt market failures.

15. SEBI IN THE NEW MILLENNIUM


By beginning of the new millennium in 2000 SEBI has strengthened and established itself as an
all powerful regulatory body for the capital market, all intermediaries in it, SROs, stock
Exchanges, listed companies, Venture Funds Mutual Funds including M.M.F.s, etc. Already it
has been regulating the FFIs and FIIs and other foreign bodies in respect of their operations in
the capital market A code of conduct has been laid down for each of the category of players in
the capital market.

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SECURITIES AND EXCHANGE BOARD OF INDIA

Early in January 2000, the SEBI has come out with a series of measures to enhance transparency
and deepen the capital market. These measures include permission for e-broking, share trading
via net with orders to be routed through the websites of brokers, acceptance of Kumar mangalan
Birla Report on.
Corporate Governance and of K.B. Chandrasekhar Panel Report on Venture Funds. The SEBI
has given directives to the listed companies and to the top 150 companies in particular to observe
the code of corporate governance by March end 2001. The SEBI has relaxed the entry norms for
IPOs of Venture Funds, I.T. Companies and knowledge based companies for listing purposes and
entry and exit norms were relaxed for high net worth foreign individuals and companies to
operate in the capital market as in the case of FIIS and FFIs.
It is understood that, SEBI has set a creditable record of regulation for growht of capital market
on healthy lines during the quinquennium of 1995-2000. In the coming years the tasks set for
itself are the following in particular.

16. CONCLUSION
Security Exchange Board of India SEBI has been playing an important role in regulating
the business in stock exchanges and any other securities markets and to protect the interests of
investors. The SEBI is a regulatory body which is eighteen years old and the capital market
system is more than 100 years old. This matured capital market system requires monitoring
rather than over-regulation. The SEBI should supervise this capital market system in such a
manner that all sub-systems become self-regulatory organizations (sros) gradually.

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SECURITIES AND EXCHANGE BOARD OF INDIA

Hence, the SEBI should stop being pre-occupied with day-to-day regulations and become
more of a visionary. The SEBI can ensure a free and fair market and take India into league of
major global capital markets in the next round of reforms. To enable this, it has to thoroughly
review its structure and functioning. The SEBI has to balance between the costs of regulation and
market development. There should be cross-border cooperation between various regulators and
between regulators and industry.
The emergence of the securities market resulted as a major source of finance for trade and
industry across India. A growing number of companies are accessing the securities market rather
than depending on loans from FIs/banks. Moreover the Indian securities market is contributing to
Indian GDP growth immensely. The capital mobilisation in both primary market and secondary
market has been witnessing phenomenal growth over the years.
Indian securities market is getting increasingly integrated with the rest of the world. Indian
companies have been permitted to raise resources from abroad through issue of ADRs, GDRs,
FCCBs and ECBs. ADRs/GDRs have two-way fungibility. Indian companies are permitted to list
their securities on foreign stock exchanges by sponsoring ADR/GDR issues against block
shareholding.

17. WEBLIOGRAPHY
WEBSITES:www.sebi.gov.in
www.nseindia.com
www.nsdl.co.in
www.wikipedia.com
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SECURITIES AND EXCHANGE BOARD OF INDIA

www.google.co.in

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