Role Of “SEBI”

Submitted To:-
Pro.Sai Ram

Submitted By:-
Patel Mitul
 About SEBI….
 Malpractices on the part of the companies, brokers, merchant
bankers and various other agencies.

 Realizing this, SEBI was constituted by the government in

April 1988, and given legal status in 1992.

 Main Objective is: To protect the interests of the

investors and to promote the healthy development of the
capital markets and also ensure it’s regulation
 Function of SEBI
 Fair Dealings

 A Degree of protection

 Regulate and Develop a Code of Conduct and Fair Practices.

 Powers of SEBI

 Periodical returns from Stock Exchange.

 Call upon the Stock Exchange.

 Appoint any person for affairs related to Stock Exchange.

 Amend bye-laws of Stock Exchange.

 To Compel a public company to list its shares in any

exchange.
 Guidelines as per SEBI

 No prior approval of SEBI is required by the companies for

raising capital.

 Companies are allowed to issue capital provided the issues are

in conformity.
What is SEBI's Role in an Issue?
Any company making a public issue or a listed company making a
rights issue of value of more than Rs 50 lakh is required to file a draft
offer document with SEBI for its observations. The company can
proceed further on the issue only after getting observations from
SEBI. The validity period of SEBI's observation letter is three months
only i.e. the company has to open its issue within three months
period.

Does it mean that SEBI recommends an issue?

SEBI does not recommend any issue nor does take any responsibility
either for the financial soundness of any scheme or the project for
which the issue is proposed to be made or for the correctness of the
statements made or opinions expressed in the offer document.
 Brief Explanation of Capital
Markets
It provides the institutional mechanism for
meeting the requirement of funds for
PSU’s and the Private Sector.
It enables raising of capital through
equities, debts and various other types of
financial instruments.
They can be further segmented into
Primary markets, Secondary Markets,
Debt Markets and the Derivative Markets.
 Role In Primary Markets.
It is mandatory for the company to file an
offer document with Sebi, through an
eligible merchant banker, at least 21
days prior to it’s filing with the registrar of
companies.
It is mandatory for the issuer to enter into
an agreement with the depository for
issuance of securities in dematerialized
form.
Role In Primary Markets (Contd)
QIB Category: SEBI introduced a specific
allocation of 5 per cent within the QIB
category with effect from September 19,
2005. The mutual funds are also eligible
for allotment from the balance available for
the QIB category and allotment is done on
a proportional basis.
Role In Primary Markets (Contd)

ECS Facility For Refunds: In order to

ensure faster and hassle-free refunds, it
was decided to extend the facility of
electronic transfer of funds to public issue
refunds, initially at 15 centers where
clearing houses are managed by RBI.
Role In Primary Markets (Contd)

Optional grading of IPO’s: With a view to

assisting the investors, particularly the
retail investors, SEBI has given in-principle
approval for grading of IPO’s by the rating
agencies at the option of the issuers.
Role In Primary Markets (Contd)
In case of a fixed price issue, a company
is required to disclose the issue price or
the price band in the offer document filed
with SEBI.
In case of public issue through fixed price
route, the company at any time of prior to
filing of prospectus with the Registrar of
Companies can disclose the issue price.
 Role In Secondary Markets

Block Deals: In order to facilitate execution

of large trades without impacting the
market, the stock exchanges were allowed
to provide a separate trading window for
block deals. BSE and NSE activated this
window with effect from November 14,
2005.
Role In Secondary Markets (Contd)
Dematerialization Charges: In order to
enable transfer of beneficiary account,
SEBI has advised that no charges be
levied when transfer of securities takes
place, provided that the account holders
are the same.
Role In Secondary Markets (Contd)

In order to prevent the misuse of time gap

between allotment of securities and
commencement of trading, SEBI advised
depositories that, in case of IPO’s, the
ISINs of securities should be activated
only on the date of commencement of
trading on the stock exchanges.
Role In Secondary Markets (Contd)

Rationalization Of Disclosure
requirements: SEBI has decided to do
away with the repetitive disclosures in
case of rights issues and public issues by
the listed companies which have a
satisfactory track record of filing periodic
returns with the stock exchanges.
Role In Secondary Markets (Contd)

Further Issue of Shares: SEBI has

permitted companies to issue further
shares, provided full disclosures as
regards the total capital to be raised from
such further issues are made in the draft
offer document.
Role In Secondary Markets (Contd)

Corporate Governance Of Listed

Companies: SEBI has advised listed
companies to comply with the revised
guidelines on corporate governance,
including appointment of the independent
directors, maximum gap between two
Board meetings, sitting fees of the non-
executive directors and certification on
internal control system by the CEO/CFO.
 Role In Debt Markets.

It is mandatory for the issuer of the debt

instrument to obtain a rating from a credit
agency and disclose it in the offer
document, ratings obtained in the last
three years also need to be disclosed.
FCD’s with conversion period over 3
years are allowed provided the
conversion is optional with “call” & “put”
option.
 Role In Debt Markets (Contd)

In case of NCD/PCD, the premium to be

paid, redemption amount, period of
maturity shall be indicated in the
prospectus.
The issuer can choose to roll over the
debentures with or without change in
interest rate. In such cases exit option is
mandatory for existing debenture holders.
Role In Debt Markets (Contd)
It is mandatory for the issuer to obtain a
fresh credit rating from an agency within
six months prior to date of redemption.
This rating has to be communicated to the
holders.
It is mandatory that the above
communication be vetted by SEBI with
respect to the credit rating.
Role In Debt Markets (Contd)
The disclosures contain the long term
equity to debt ratio, servicing behaviour
with respect to the existing holders.
It is also mandatory to obtain a certificate
from a financial institution about their no
objection to a pari passu charge being
created in favour of the trustee to
proposed debenture issue.
 Role In Derivatives Markets

SEBI has mandated the following

conditions for a stock to be included in
derivatives:
Stock shall be amongst the top 500 in
terms of average daily market
capitalisation.
The market wide position limit in the stock
shall not be less than Rs.50 crores.
 Role In Derivatives Market
Trading has to take place through a
screen trading system.
Derivatives Exchange/Segment should
capability to monitor positions, prices, and
volumes on a real time basis so as to
deter market manipulation.
It should have arbitration and investor
grievances redressal mechanism.
Role In Derivatives Market (Contd)

It is mandatory for the clearing house to

provide guarantee for settlement of trades.
Clearing Corporation will monitor the
overall position of Members across both
derivatives market and the underlying
securities market for those Members who
are participating in both.
Establishment of electronic funds transfer
is mandatory.
Role In Derivatives Markets (Contd)

SEBI has made the following rules for

protection of investors:
Trading Member is required to provide
every investor with a risk disclosure
document so that investors can take a
conscious decision to trade in derivatives.
Investor can demand the trade
confirmation slip with his ID in support of
the contract note.
Role in Derivatives Markets (Contd)

Money paid by the Investor towards margins on

all open positions is kept in trust with the
Clearing House/Clearing corporation.
In the event of default of the Trading/Clearing
Member the amounts paid by the client towards
margins are not utilised towards the default of
the member.
Losses suffered by the Investor, if any, on
settled / closed out position are compensated
from the Investor Protection Fund, as per the
rules, bye-laws and regulations of the derivative
segment of the exchanges.  
 Effects Of Measures Taken.
The above measures have resulted in some
discipline in the workings of the markets and
provision of protection of safeguards to
investors.
This has resulted in control of malpractices in
the capital market operations such as rigging of
prices, delays in finalizing allotments,
manipulation of prices before listing, diversion of
funds, delays in delivery of shares, have started
to yield some dividends.
 Conclusion.
SEBI has taken steps to bring about
overall improvement in the functioning of
the capital markets, some require
attention-
SEBI’s inability to notify regulations
without government approval and
prosecute without government sanction.
Thank you