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Accounting and Finance for Managers


17.0 Aims and Objectives 17.1 Introduction 17.2 Objectives of the SEBI 17.3 Entity of SEBI 17.4 Organisational Grid of the SEBI 17.5 Powers and Functions of SEBI 17.6 Role of SEBI 17.6.1 Promoter’s Contribution 17.6.2 Disclosures 17.6.3 Book Building 17.6.4 Allocation of Shares 17.6.5 Market Intermediaries 17.6.6 Debt Market Segment 17.6.7 Brokers 17.6.8 Suspension of a Broker 17.6.9 Recent Developments 17.7 Critical Review of SEBI 17.8 Let us Sum up 17.9 Lesson-end Activity 17.10 Keywords 17.11 Questions for Discussion 17.12 Suggested Readings

This lesson is intended to discuss the role of SEBI in regulating the Indian capital market. After studying this lesson you will be able to: (i) describe objectives behind instituting SEBI (ii) know the organisational structure of SEBI (iii) understand powers and functions of SEBI (iv) examine the role of SEBI in Indian financial market

During the late 80, the GOI decided to replace the Controller of Capital Issues Act, by way of inducting the Securities Exchange Board of India, in order to introduce the regulatory environment in the Indian capital market, to pave way for the promotion of congenial and conducive climatic condition for the investing public. Hence the Government


to control over the stock exchanges l In May. hold and dispose any property Power to sue or to be sued in its own name The Head office is situated in Mumbai. Secondary department and Institutional Investment department 17.of India has instituted the supreme authority SEBI to monitor and control the proceedings of the capital market in the country.3 ENTITY OF SEBI l l l It was registered with the common seal and with the power to acquire. fixing premia and rates of debentures were ceased in operation. allotment of the securities and disclosures Securities contract regulation Act (1956) . pricing of the issues.issue. 1992 . Issue management and intermediaries department. provided the SEBI was promulgated. v v v Protecting the interest of the investors Promoting the development of the securities market Regulating the securities market 17. l credit rating agencies Regulating of mutual funds and venture capital funds l Prohibiting the unfair trade practices l Prohibiting of insider trade activities l Regulating substantial takeovers and acquisitions l l l Frequent conduct of research activities To conduct any enquiry which warrants the situation to safeguard the interest of the investors 241 . in addition the regional offices were established in the following metropolitan cities viz Kolkata.5 POWERS AND FUNCTIONS OF SEBI Section 11 of the Act Chapter IV highlights the Powers and Functions of SEBI Regulating the business of the stock exchanges l Regulating the role of the intermediaries l Registering and regulating of depositories.2 OBJECTIVES OF THE SEBI l To replace the office of the following major acts of implementation and to attain the following objectives: v v v Control of Capital Issues Act (1947) The Companies Act (1956) . participants and custodian of securities.4 ORGANISATIONAL GRID OF THE SEBI l l l l l l Six members in the committee Headed by the chairman One member each from the ministries of Law and Finance One member from the officials of Reserve Bank of India Two nominees from the central government It contains 4 different departments viz Primary department. SEBI in Capital Market Issues 17. Chennai and Delhi.the controller of issue of capital. to monitor and control the capital market operations across the country 17.

3 Book Building l l l 75% route was specified at the early moment in the process of book building. The company during the process requires 30 centers atleast for book building process to raise the share capital from the market. If the size of the issues is Rs. 17. 17. l 17.6. 100 cr -50% of the contribution should be made before the opening of issue and the remaining should be paid before the calls are made to the investors.. If it is a manufacturing company without any track record. . Summoning and enforcing the attendance of the persons to stand before for the l examination of oath. wants to raise any v capital from the market. which did not pave the small investors to within the available surplus.2 Disclosures l l Acc. important point to be ensured is v that Post issue of networth should be 5 times greater than the Pre issue networth.4 Allocation of Shares l 242 The Minimum application was -100 Nos for subscribing the issue of share capital. Then the book building process was opened to 100% route to the public. Then SEBI has felt that the Minimum application was too high.6.Financial results i. then the minimum application brought down to 200 Nos. unaudited and audited financial results should be published.1 Promoter's Contribution l l Promoter's contribution should not be less than 20% and should be made before the issue. Acc to Sec 12 SEBI is empowered to conduct Inspection of books. immediately after listing. Risk factors and positions of the company should be highlighted in detail in the prospectus . Having three years track record.6.Accounting and Finance for Managers Civil Court Procedure 1908: The SEBI has been given additional powers and functionswith reference to Civil Court Procedure 1908 to regulate the capital market in addition to the above enlisted powers and functions Discovery and production of books of account of the errant during the inspection l and enquiry. the SEBI never vets offer document of the v issue of capital. 17. Sufficient opportunities are to be furnished to the investors to represent through the terminal to take part in the process of Book building. 17.Bhave committee.6.e. the appraisal has to be done through development banks or commercial banks. At the entry level.6 ROLE OF SEBI l Entry norms for the companies at the moment of raising the capital from the market: The companies are expected to produce 3 years dividend track record of v preceding the issue. Then the Minimum application was hiked to 500 Nos.

6.6. l 17.due to the problem caused Violation of rules and regulations Fails to submit the true and fair information according to the norms of disclosures Untoward conduct with the investor Guilt of misconduct Poor financial status of the brokers-deterioration Stock exchange fees . 500 cr. the company should refund the amount of the application money. Chennai and Delhi SEBI's final controlling measure is suspension and cancellation of the registration subject to certain conditions 17. man space.dismissal is leading to cancellation of registration . Rating agency should not be associated with the firm of issuing company 17. SEBI in Capital Market Issues 17.Establishment only with reference to attend the complaints of the small investors at speedy rate . selling or buying in securities Code of conduct-execution of orders.l l Small investors are who hold 1000 shares or few securities Allotment should be done within 30 days from the date of closure of the issue.Kolkata.A minimum of 5 years to be preserved Regional offices .should be submitted within 6 months of the accounting period Book of accounts . Each category of issue intermediary is required to undergo for specific registration process.key factors of registration .Member of any stock exchange . During the non allotment of the shares. previous experience.permanent .5 cr.6 Debt Market Segment l l l l l l l Depository system for the debt securities were introduced Demat facility was specifically introduced for the government securities Listing of debt securities need not rely upon the equity listing in the respective stock exchange FIIs were permitted to invest 100% in the debt instruments of the Indian companies For the issuance of debt instruments the rating has been mandatory Minimum two ratings should be obtained for the issue of debt instrument more than Rs. fairness of deals with the investors. issue of contract note Financial statements .5 Market Intermediaries l The various merchant bank categories were abolished. Lead managers who manage the issue of capital should have a networth of Rs.7 Brokers l l l l l l Registration is given .8 Suspension of a Broker l Suspension to pay on time to the requirement Suspension of the membership 243 l l l l l l l .

the web sites were suggested for facilitating the investors. and in the case of BSEMonday-Friday Leads to more arbitrage transactions which lead to greater fluctuations in the opening and closing prices of the securities Badla trade has been banned due to detrimental to the investors Special watch system has to be introduced to the international standards Capital adequacy: The capital required to be maintained is less than for intermediaries but at the same time the capital adequacy should be to the trading volume of them only in order to avoid the default risk of the investors. Recent Developments RBI approval copy is exempted.6.Accounting and Finance for Managers l l l l l l l Indulges in any act of insider trading of securities Convicted of a any criminal offence Sub-Broker Sub. l l l l l 17. The SEBI has been given additional powers and functions with reference to civil court procedure 1908 to regulate the capital market.9 Recent Developments l l l l l RBI approval copy is exempted FIIs are permitted to invest upto 100% in debt market funds FIIs which have securities worth of Rs 100 cr or more than mandatory requirement is to settle the transaction only through demat mode FIIs/NRIs/OCB -30% of the equity of the company in accordance with the union budget .Wednesday .Broker Transfer of securities .without registration of bearing stamps . The Settlement for NSE are . FIIs permitted to invest upto 100% in debt market funds.Tuesday. obtain the registration Agreement in between broker & sub-broker Deposit should be made with .8 LET US SUM UP The Govt of India has instituted the supreme authority SEBI to monitor and control the proceedings of the capital market in the country.1997-98 It was hiked by the Union Finance Minister during the budget 2000 Check Your Progress What steps have been taken by SEBI regarding allocation of shares? 17. The route of dissemination of the information should be through SEBI to public and by considering the time wastage.considered as bad deliveries in the angle of stock exchanges -July 1.7 CRITICAL REVIEW OF SEBI l l Disclosures. FIIs which have securities worth of Rs 100 cr or more 244 .To present information only for the interest of investors Dissemination process .to disclose the information required which leads to undue delay.

4. When SEBI was established ? For what ? Briefly highlight the objectives of the SEBI. “Management Accounting”. Explain the role of SEBI in administering the primary market. facilitates the client to buy and sell on behalf in the stock market Sub-broker: who assists the broker and does the buying and selling transactions for the client through the broker in the stock exchange Arbitrage: Buying the security at lesser price at one stock exchange and disposing them off at higher price at another stock exchange during the same moment Lead manager: Who takes active role in the process of issue management. 2. New Delhi. What are the steps taken by SEBI to suspend the registration of a broker? Why the companies are expected to highlight about the prospects and risk factors of the issue with relevance to the project? 17. 245 . “Financial Management”. Nitin Balwani. 3. Khan and Jain. “Accounting & Finance for Managers”. S. 7.K. “Financial Accounting”. Prasanna Chandra. “Accounting & Finance for Managers”. “Management Accounting”. Vikas Publishing. Explain the important enactments on the market intermediaries of the stock market. SEBI in Capital Market Issues 17. V.9 LESSON-END ACTIVITY Discuss critically the power and functions of SEBI. Excel Books.than mandatory requirement is to settle the transaction only through demat mode. New Delhi. 5. New Delhi. Pandikumar. Elucidate the recent developments with the help of SEBI mandate. Pandey.10 KEYWORDS Broker: member of the stock exchange. “Advanced Accountancy”.L. I. S. New Delhi (1994).11 QUESTIONS FOR DISCUSSION 1. New Delhi. FIIs/ NRIs/OCB -30% of the equity of the company in accordance with the union budget 1997-98. 6. New Delhi. Excel Books. Excel Books.N. Tata McGraw Hill. Excel Books. Gupta and Radhaswamy. It was hiked by the union finance minister during the budget 2000.M. 17. “Financial Management – Theory and Practice”.12 SUGGESTED READINGS M. R.P. Maheswari. 17. Bhat. Goyal. “Financial Management”.