Additional Topics

Contracts in notified areas illegal in certain circumstances (Section 13)

It provides that if the Central Government is satisfied, having regard to the nature or the volume of
transactions in securities in any State or area, that it is necessary so to do, it may, by notification
in the Official Gazette,declare that section 13 to apply to such State or States or area, and there
upon every contract in such State or States or area which is entered into after date of the notifica-
tion shall be illegal.
However, any contract entered into between members of two or more recognised stock exchanges
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in such State or States or area, shall be allowed subject to such terms and conditions as may be stipu-
lated by the respective stock exchanges with prior approval of the SEBI;

Additional trading floor (Section 13A)

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It stipulates that a stock exchange may establish additional trading floor with the prior approval of
the SEBI in accordance with the terms and conditions stipulated by the SEBI.
Explanation : For the purposes of this section, “additional trading floor” means a trading ring or
trading facility offered by a recognised stock exchange outside its area of operation to enable the
investors to buy and sell securities through such trading floor under the regulatory framework of that

Members may not act as principals in certain circumstances (Section 15)

It provides that no member of a recognised stock exchange shall in respect of any securities enter
into any contract as a principal, unless he has secured the consent or authority of such person and
discloses in the note, memorandum or agreement of sale or purchase that he is acting as a princi-

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pal.
However where the member has secured the consent or authority of such person otherwise than
in writing he shall secure written confirmation by such person or such consent or authority within
three days from the date of the contract.
However no such written consent or authority of such person shall be necessary for closing out any
outstanding contract entered into by such person in accordance with the byelaws, if the member
discloses in the note, memorandum or agreement of sale or purchase in respect of such closing out
that he is acting as a principal.

RECOVERY OF AMOUNTS BY ADJUDICATING OFFICER

Explanation – For the purposes of recovery, the person’s movable or immovable property or monies
held in bank accounts shall include any property or monies held in bank accounts which has been
transferred, directly or indirectly on or after the date when the amount specified in certificate had

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become due, by the person to his spouse or minor child or son’s wife or son’s minor child, other-
wise than for adequate consideration, and which is held by, or stands in the name of, any of the
persons aforesaid; and so far as the movable or immovable property or monies held in bank ac-
counts so transferred to his minor child or his son’s minor child is concerned, it shall, even after
the date of attainment of majority by such minor child or son’s minor child, as the case may be,
continue to be included in the person’s movable or immovable property or monies held in bank ac-
counts for recovering any amount due from the person under this Act.
Further the Recovery Officer shall be empowered to seek the assistance of the local district admin-
istration while exercising his powers.
 Additional Topics (Chapter 2)
Filling up of vacancies in SAT (Section 15P)
If for any reason other than temporary absence, any vacancy occurs in the office of the Presiding

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Officer or any other Member of a Securities Appellate Tribunal, then the Central Government shall
appoint another person in accordance with the provisions of this Act to fill the vacancy and the
proceedings may be continued before the Securities Appellate Tribunal from the stage at which
the vacancy is filled.
In the event of occurrence of any vacancy in the office of the Presiding Officer of the Securities Ap-
pellate Tribunal by reason of his death, resignation or otherwise, the senior-most Judicial Member of
the Securities Appellate Tribunal shall act as the Presiding Officer until the date on which a new Pre-
siding Officer is appointed in accordance with the provisions of this Act.

Resignation and Removal (Section 15Q)

It lays down that the Presiding Officer or any other Member of a Securities Appellate Tribunal may,
by notice in writing to the Central Government, resign his office.

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However the Presiding Officer or any other Member shall, unless he is permitted by the Central
Government to relinquish his office sooner, continue to hold office, until the expiry of three
months from the date of receipt of such notice or until a person duly appointed as his successor
enters upon his office or until the expiry of his term of office, whichever is the earliest.
The Central Government may, after an inquiry made by the Judge of the Supreme Court, remove the
Presiding Officer or Judicial Member or Technical Member of the Securities Appellate Tribunal after
giving a reasonable opportunity of being heard in the matter.

Cease and Desist order

It is denoting a legally enforceable order from a court or government agency directing someone to

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stop engaging in a particular activity.
If SEBI finds, after causing an inquiry, that any person has violated, or is likely to violate any provi-
sions of this Act, or any rules or regulations made there under, it may pass an order requiring such
person to cease and desist from committing or causing such violation.
SEBI shall not pass such order in respect of any listed public company or a public company which
intends to get its securities listed on any recognized stock exchange unless SEBI has reasonable
grounds to believe that such company has indulged in insider trading or market manipulation.

What if a defaulter under securities law dies, will the legal representative be liable?
SEBI Act lays down that where a person dies, his legal representative shall be liable to pay any sum which the
deceased would have been liable to pay, if he had not died. However, in case of any penalty payable under this
Act, a legal representative shall be liable only in case the penalty has been imposed before the death of the
deceased person.

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Any proceeding for disgorgement, refund or an action for recovery before the Recovery Officer under this
Act, initiated against the deceased before his death, shall be deemed to have been initiated against the legal
representative.
Any proceeding for disgorgement, refund or an action for recovery before the Recovery Officer under this
Act, which could have been initiated against the deceased, may be initiated against the legal representative.
The liability of a legal representative under this section shall be limited to the extent to which the estate of
the deceased is capable of meeting the liability.

Does the civil court has any jurisdiction to entertain a suit under SEBI, Act 1992?
Section 15 of the SEBI Act provides that no civil court shall have jurisdiction to entertain a suit or
proceeding in respect of any matter in which an adjudicating officer (`AO’) is appointed under the
Act or SAT is empowered by or under the Act to determine and no injunction shall be granted by
any court or other authority in respect of any action taken or to be taken in pursuance of any pow-
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er conferred by or under the SEBI Act, 1992.
 Additional Topics (Chapter 3)
Can securities held in depository mode be pledged or hypothecated?
A beneficial owner may with the previous approval of the depository create a pledge or hypotheca-

1
tion or any other encumbrance in respect of a security owned by him through a depository. Every
beneficial owner should give intimation of such pledge or hypothecation to the depository partici-
pant and such depository is required to make entries in its records accordingly. Any entry in the
records of a depository should be evidence of a pledge or hypothecation.

MANNER OF CREATION OF PLEDGE OR HYPOTHECATION

If a beneficial owner intends to create a pledge on a security owned by him he shall make an appli-

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cation to the depository through the participant who has his account in respect of such securities.
The participant after satisfaction that the securities are available for pledge shall make a note in
its records of the notice of pledge and forward the application to the depository.
Within fifteen days of receipt of the application, the depository shall after concurrence of the
pledgee through its participant, create and record the pledge and send an intimation of the same to
the participants of the pledger and the pledgee.
On receipt of the intimation, the participants of both the pledger and the pledgee shall inform the
pledger and the pledgee respectively of the entry of creation of the pledge.
If the depository does not create the pledge, it shall send along with the reasons and intimation to
the participants of the pledger and the pledgee.
The entry of pledge made may be cancelled by the depository if pledger or the pledgee makes
an application to the depository through its participant.
The depository on the cancellation of the entry of pledge shall inform the participant of the pledger.
Subject to the provisions of the pledge document, the pledgee may invoke the pledge and on such
invocation, the depository shall register the pledgee as beneficial owner of such securities and
amend its records accordingly.
After amending its records, the depository shall immediately inform the participants of the pledger
and pledgee of the change who in turn shall make the necessary changes in their records and inform
the pledger and pledgee respectively.

ISIN

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International Securities Identification Number (ISIN) is a code that uniquely identifies a specific
security, which is allocated at the time of admitting the same in the depository system.
 Additional Topics (Chapter 4)
Reservation on Competitive Basis
Reservation on competitive basis means reservation wherein specified securities are allotted in por-

1
tion of the number of specified securities applied for in respect of a particular reserved category to
the number of specified securities reserved for that category.
According to the SEBI (ICDR) Regulations, 2018, there are certain persons eligible for reservation
on competitive basis.
(1) The issuer may make reservation on a competitive basis out of the issue size excluding promot-
ers’ contribution in favour of the following categories of persons:
 Employees;
 shareholders (other than promoters and promoter group ) of listed subsidiaries or listed pro-
moter companies.
However, the issuer shall not make any reservation for the lead manager(s), registrar, syndicate
member(s), their promoters, directors and employees and for the group or associate companies (as
defined under the Companies Act, 2013) of the lead manager(s), registrar and syndicate member(s)
and their promoters, directors and employees.
(2) In case of an FPO, other than in a composite issue, the issuer may make a reservation on a com-
petitive basis out of the issue size excluding promoters’ contribution to the existing retail indi-
vidual shareholders of the issuer.
(3) The reservation on competitive basis shall be subject to following conditions:
 the aggregate of reservations for employees shall not exceed five per cent of the post issue capi-
tal of the issuer and the value of allotment to any employee shall not exceed two lakhs rupees;
However, in the event of under-subscription in the employee reservation portion, the unsub-
scribed portion may be alloted on a proportionate basis, for a value in excess of two lakh rupees,
subject to the total allotment to an employee not exceeding five lakh rupees.
 reservation for shareholders shall not exceed ten per cent of the issue size;
 no further application for subscription in the net offer can be made by persons (except an em-
ployee and retail individual shareholder of the listed issuer and retail individual shareholders of
listed subsidiaries of listed promoter companies) in favour of whom reservation on a competi-
tive basis is made;
 any unsubscribed portion in any reserved category may be added to any other reserved catego-
ry and the unsubscribed portion, if any, after such inter-se adjustments among the reserved
categories shall be added to the net offer category;
 in case of under-subscription in the net offer category, spill-over to the extent of under-
subscription shall be permitted from the reserved category to the net public offer category;
What is SR Equity shares? 2
“SR equity shares” means the equity shares of an issuer having superior voting rights compared to all other equity shares issued
by that issuer.

Provision for SR Equity Shares:

 The issuer shall be intensive in the use of technology, information technology, intellectual property, data analytics, bio-
technology or nano-technology to provide products, services or business platforms with substantial value addition.

 the SR shareholder shall not be part of the promoter group whose collective net worth is more than rupees 500 crores:
(Explanation: While determining the collective net worth, the investment of SR shareholder in the shares of the issuer com-
pany shall not be considered.)

 The SR shares were issued only to the promoters/ founders who hold an executive position in the issuer company;
The issue of SR equity shares had been authorized by a special resolution passed at a general meeting of the shareholders of
the issuer, where the notice calling for such general meeting specifically provided for
a. the size of issue of SR equity shares,
b. ratio of voting rights of SR equity shares vis-à-vis the ordinary shares,
c. rights as to differential dividends, if any
d. sunset provisions, which provide for a time frame for the validity of such SR equity shares,
e. matters in respect of which the SR equity shares would have the same voting right as that of the ordinary shares,

 The SR equity shares shall have voting rights in the ratio of a minimum of 2:1 up to a maximum of 10:1 compared to ordinary
shares and such ratio shall be in whole numbers only;
 The SR equity shares shall have the same face value as the ordinary shares;
 The issuer shall only have one class of SR equity shares;
 The SR equity shares shall be equivalent to ordinary equity shares in all respects, except for having superior voting rights.
 The total voting rights of SR shareholders (including ordinary shares) in the issuer upon listing, pursuant to an initial public
offer, shall not at any point of time exceed seventy four per cent.
 The SR equity shares shall be converted into equity shares having voting rights same as that of ordinary shares on the fifth
anniversary of listing of ordinary shares of the listed entity: Provided that the SR equity shares may be valid for upto an
additional five years, after a resolution to that effect has been passed, where the SR shareholders have not been permitted
to vote: Provided further that the SR shareholders may convert their SR equity shares into ordinary equity shares at any time
prior to the period as specified in this sub-regulation.

 The SR equity shares shall be treated as ordinary equity shares in terms of voting rights (i.e. one SR share shall only have one
vote) in the following circumstances
 appointment or removal of independent directors and/or auditor;
 where a promoter is willingly transferring control to another entity;
 related party transactions in terms of these regulations involving an SR shareholder;
 voluntary winding up of the listed entity;
 changes to the Articles of Association or Memorandum of Association of the listed entity, except any change affecting
the SR equity share;
 initiation of a voluntary resolution process under the Insolvency Code;
 utilization of funds for purposes other than business;
 substantial value transaction based on materiality threshold as specified under these regulations;
 passing of special resolution in respect of delisting or buy-back of shares; and
 other circumstances or subject matter as may be specified by the Board, from time to time.
 The SR equity shares shall be compulsorily converted into equity shares having voting rights same as that of ordinary shares
on the occurrence of any of the following events
 demise of the promoter(s) or founder holding such shares;
 an SR shareholder resigns from the executive position in the listed entity;
 merger or acquisition of the listed entity having SR shareholder/s, where the control would no longer remain with the
SR shareholder/s;
 the SR equity shares are sold by an SR shareholder who continues to hold such shares after the lock-in period but prior
to the lapse of validity of such SR equity shares.

Points to Know:
SR Equity shares shall be considered for promoters’ contribution.
The SR equity shares shall be under lock in until conversion into equity shares having voting rights same as
that of ordinary shares.
Where the issuer has issued SR equity shares to its promoters or founders, then such a SR shareholder shall
not renounce their rights and the SR shares received in a rights issue shall remain under lock-in until
conversion into equity shares having voting rights same as that of ordinary equity shares along with
existing SR equity shares.
If an issuer has issued SR equity shares to its promoters or founders, any bonus issue on the SR equity
shares shall carry the same ratio of voting rights compared to ordinary shares and the SR equity shares
issued in a bonus issue shall also be converted to equity shares having voting rights same as that of
ordinary equity shares along with existing SR equity shares.
Where the listed company has outstanding SR equity shares, at least half of the board of directors shall
comprise of independent directors.
Two-thirds of the members of audit committee shall be independent directors and in case of a listed entity
having outstanding SR equity shares, the audit committee shall only comprise of independent direc-
tors.
at least fifty percent of the directors shall be independent directors and in case of a listed entity having out-
standing SR equity shares, two thirds of the nomination and remuneration committee shall comprise of
independent directors
At least three directors, with at least one being an independent director, shall be members of the
Committee and in case of a listed entity having outstanding SR equity shares, at least two thirds of the
Stakeholders Relationship Committee shall comprise of independent directors.
The majority of members of Risk Management Committee shall consist of members of the board of direc-
tors and in case of a listed entity having outstanding SR equity shares, at least two thirds of the Risk
Management Committee shall comprise of independent directors.

Who is not eligible to do it?
Right issue by # if the issuer, any of its promoters, promoter group or directors of the issuer
a listed issuer are debarred from accessing the capital market by the SEBI;
# if any of the promoters or directors of the issuer is a promoter or director of
any other company which is debarred from accessing the capital market by the
SEBI.
# if any of its promoters or directors is a fugitive economic offender.
Bonus issue
by a listed
issuer
Preferential # shall not be made to any person who has sold or transferred any equity shares
issue by a of the issuer during last six months.
listed issuer # Where any person belonging to promoter(s) or the promoter group has previ-
ously subscribed to warrants of an issuer but has failed to exercise the war-
rants, the promoter(s) and promoter group shall be ineligible for issue of speci-
fied securities of such issuer on preferential basis for a period of one year.
# any of its promoters or directors is a fugitive economic offender.
Qualified In- An issuer shall be eligible to make a qualified institutions placement if any of
stitutional its promoters or directors is not a fugitive economic offender.
Placement by
a listed issuer
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What are the conditions to do it?
# application to SE to seek in-principle approval for listing.
# all its existing shares have been fully paid-up or have been forfeited;
# it has made firm arrangements of finance through verifiable means towards
seventy five per cent. of the stated means of finance for the specific project
proposed, excluding the amount to be raised through the proposed issue or
through existing identifiable internal accruals.
# The amount for general corporate purposes, shall not exceed twenty-five
percent of the amount raised by the issuer.
# authorized by AOA.
# not defaulted in payment of interest or principal;
# not defaulted in respect of the payment of statutory dues of the employees.
# any outstanding partly paid shares on the date of the allotment of the bonus
shares, are made fully paid-up;
# any of its promoters or directors is not a fugitive economic offender.
# all equity shares allotted shall be fully paid up at the time of the allotment;
a special resolution has been passed.
# all equity shares held by the proposed allottees in the issuer are in demateri-
alised form;
# the issuer is in compliance with the conditions for continuous listing.
# the issuer has obtained the Permanent Account Numbers of the proposed
allottees, except those exempted.
# a special resolution has been passed.
# The allotment pursuant to the special resolution shall be completed within a
period of 365 days from the date of passing of the resolution.
# the equity shares of the same class, which are proposed to be allotted through
qualified institutions placement have been listed for a period of at least one
year.
# All eligible securities issued through a qualified institutions placement shall
be listed on the recognised stock exchange where the equity shares of the issu-
er are listed.
# The issuer shall not make any subsequent qualified institutions placement
until the expiry of two weeks from the date of the prior qualified institutions
placement made.
IPO of Indian An issuer shall be eligible to make an issue of IDRs only if:
Depository # the issuing company is listed in its home country for at least three PY.
Receipts # the issuer is not prohibited to issue securities by any regulatory body;
# the issuer has a track record of compliance with the securities market regula-
tions in its home country;
# any of its promoters or directors is not a fugitive economic offender.

The issue shall be subject to the following conditions:

# issue size shall not be less than fifty crore rupees;
# issuer shall ensure that the underlying shares of IDRs shall rank pari passu
with the existing shares of the same class.

The issuer shall ensure that

# it has made an application to SE for in-principle approval for listing of the
IDRs.
# it has entered into an agreement with a depository for dematerialisation of the
IDRs proposed to be issued;
# it has made firm arrangements of finance through verifiable means towards
seventy five per cent. of the stated means of finance for the project proposed to
be funded from issue proceeds, excluding the amount to be raised through the
proposed issue of IDRs or through existing identifiable internal accruals.
# The amount for general corporate purposes, as mentioned shall not exceed
twenty five per cent. of the amount being raised by the issuer.
IPO by SME if the issuer, any of its promoters, promoter group or directors are debarred # it has made an application to SE for listing on such SME exchange.
from accessing the capital market by the SEBI; # it has entered into an agreement with a depository for dematerialisation of its
# if any of the promoters or directors of the issuer is a promoter or director of specified securities already issued and proposed to be issued;
any other company which is debarred from accessing the capital market by the # all its existing partly paid-up equity shares have either been fully paid-up or
SEBI; forfeited;
# if the issuer or any of its promoters or directors is a wilful defaulter. # all specified securities held by the promoters are in the dematerialised form;
# if any of its promoters or directors is a fugitive economic offender. # it has made firm arrangements of finance through verifiable means towards
seventy five per cent. of the stated means of finance for the project proposed to
Eligibility requirements be funded from the issue proceeds, excluding the amount to be raised through
# An issuer shall be eligible to make an initial public offer only if its post-issue the proposed public offer or through existing identifiable internal accruals.
paid-up capital is less than or equal to ten crore rupees.
# An issuer, whose post issue face value capital is more than ten crore rupees
and upto twenty five crore rupees, may also issue specified securities in ac-
cordance with provisions of this Chapter.
# An issuer may make an initial public offer, if it satisfies track record and/or
other eligibility conditions of the SME Exchange(s) on which the specified
securities are proposed to be listed.
INNOVATORS GROWTH PLATFORM
Who can get their securities listed on IGP?

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An issuer which is intensive in the use of technology, information technology, intellectual property,
data analytics, bio-technology or nano-technology to provide products services or business
platforms with substantial value addition shall be eligible for listing on the innovators growth
platform,
provided that as on the date of filing of draft information document or draft offer document with the
SEBI, as the case may be, twenty five per cent of the pre-issue capital of the Issuer Company for at
least a period of two years, should have been held by:
 Qualified Institutional Buyers;
 Family trust with net-worth of more than five hundred crore rupees,
 Accredited Investors for the purpose of Innovators Growth Platform;
 The following regulated entities:
 Foreign Portfolio Investor
 An entity meeting all the following criteria:
 It is a pooled investment fund with minimum assets under management of one hundred
and fifty million USD;
 It is registered with a financial sector regulator of its jurisdiction;
 It is resident of a country whose securities market regulator is a signatory to the Interna-
tional Organization of Securities Commission’s Multilateral Memorandum of Understanding
(Appendix A Signatories) or a signatory to Bilateral Memorandum of Understanding with
the Board;
 It is not resident in a country identified in the public statement of Financial Action Task
Force as:
a) a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of
Terrorism deficiencies to which counter measures apply; or
b) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has
not committed to an action plan developed with the Financial Action Task Force to ad-
dress the deficiencies.

Listing without a public issue

 An issuer seeking listing without making a public offer, shall file a draft information document,
other necessary documents and the fee with the SEBI.
 The regulations relating to the following on Main Board shall not be applicable: # allotment;
#issue opening or closing; # advertisements; # underwriting; # pricing; # dispatch of issue mate-
rial; and # other such provisions related to offer of specified securities to the public.
 The issuer shall obtain an in-principle approval from the stock exchanges on which it proposes
to get its specified securities listed.
 The draft and final information document shall be approved by the board of directors of the
issuer and shall be signed by all directors, the Chief Executive Officer, i.e., the Managing Director
or Manager within the meaning of the Companies Act, 2013 and the Chief Financial Officer, i.e.,
the Whole-time Finance Director or any other person heading the finance function and discharg-
ing that function.
 The signatories shall also certify that all disclosures made in the information document are true
and correct.
 In case of mis-statement in the information document or any omission therein, any person who
has authorized the issue of information document shall be liable in accordance with the provi-
sions of the Act and regulations made thereunder.
 The issuer shall list its specified securities on the recognised stock exchange(s within thirty days:
o from the date of issuance of observations by the SEBI; or o from the expiry of the period stipu-
lated in sub-regulation (4) of regulation 25, if the SEBI has not issued any such observations.
 Provisions relating to minimum public shareholding shall not be applicable.
 Additional Topics (Chapter 5)

Additional Compliances
1
Quarterly compliance
The listed entity shall submit to the stock exchange a Quarterly Basis to the stock exchange till such time the issue proceeds
statement of deviation or variation (for public issue, have been fully utilized or the purpose for which these proceeds were
rights issue, preferential issue etc.) raised has been achieved.
Half yearly compliance
The listed entity shall submit to the stock exchange, within thirty days from the date of publication of its standalone and
disclosures of related party on consolidated basis. consolidated financial results for the half year.
The listed entity shall also submit as part of its Once in six month.
standalone or consolidated financial results for the
half year a statement of assets and liabilities and a
statement of cash flows by way of a note.
Yearly compliances
In case any changes to the annual report, the revised within 48 hours after the annual general meeting
copy along with the details of and explanation for the
changes shall be sent
The listed entity shall send annual report to the hold- The listed entity shall send annual report to the holders of securities
ers of securities
Event based compliances
The listed entity shall disclose to the stock exchange within 24 hours from the occurance of the event
the deemed material events i.e., receipt of request for
re-classification by the listed entity from the promoter
(s) seeking re-classification; Minutes of the board
meeting considering such request which would in-
clude the views of the board on the request; etc.
The listed entity shall issue certificates or receipts or within thirty days from the date of such lodgement
advices, as applicable, of subdivision, split, consolida-
tion, renewal, exchanges, endorsements, issuance of
duplicates thereof or issuance of new certificates or
receipts or advices, as applicable, in cases of loss or
old decrepit or worn out certificates or receipts or
advices, as applicable
Transfer or transmission or transposition of securities Requests for effecting transfer of securities shall not be processed un-
less the securities are held in the dematerialized form with a depositor
The listed entity shall register transfers of its securities within fifteen days from the date of such receipt of request for transfer.
in the name of the transferee(s) and issue certificates
or receipts or advices, as applicable, of transfers; or
issue any valid objection or intimation to the transfer-
ee or transferor, as the case may be,
The listed entity shall proceed the transmission re- a) In case securities held in Dematerialisated Mode - within seven days
quest for securities held in dematerialization mode after receipt of the documents
and physical mode b) In case of Physical Mode – within 21 days after receipt of the docu-
ments
The listed entity shall intimate the record date or date In case of Right Issue : At least three working days in advance.
of closure of transfer books to all the stock exchange Other than Right Issue: At least 7 clear working days in advance

Dividend Distribution Policy by the top five hundred To formulate a dividend distribution policy which shall be disclosed in
listed entities based on market capitalization their annual reports and on their websites
(calculated as on March 31 of every financial year)
Corporate Governance norms under LODR
COMPOSITION OF BOARD OF DIRECTORS
2
Board of Directors shall have optimum combination of executive and non-executive directors with at least one-woman director.
The Composition of board of directors of the listed entity shall be as follows:
• In case chairperson is executive director not less than fifty percent of the board of directors
shall comprise of non executive directors

• In case chairperson is a non-executive director at least one-third of the board of directors shall com-
prise of independent directors

• In case listed entity does not have a regular non- executive chair- at least half of the board of directors shall comprise
person of independent directors

In case- at least half of the board of directors shall be inde-

pendent directors
 non-executive chairperson is a promoter of the listed entity or

 is related to any promoter or person occupying management

positions at the level of board of director or at one level below
the board of directors

Appointment of Woman Director

The Board of directors of the top 500 listed entities shall have at least one independent woman director by April 1, 2019 and the
Board of directors of the top 1000 listed entities shall have at least one independent woman director by April 1, 2020.
Size of the Board
The board of directors of the top 1000 listed entities (with effect from April 1, 2019) and the top 2000 listed entities (with effect
from April 1, 2020) shall comprise of not less than six directors.
Where the listed company has outstanding SR equity shares, atleast half of the board of directors shall comprise of independent
directors.
With effect from April 1, 2022, the top 500 listed entities shall ensure that the Chairperson of the board of such listed entity shall
(a) be a non-executive director;
(b) not be related to the Managing Director or the Chief Executive Officer as per the definition of the term “relative” defined un-
der the Companies Act, 2013.
The quorum for every meeting of the board of directors of the top 1000 listed entities with effect from April 1, 2019 and of the
top 2000 listed entities with effect from April 1, 2020 shall be one-third of its total strength or three directors, whichever is high-
er, including at least one independent director.

3 4
Various Policies to be maintained by Listed Compa-
nies
LIABILITY OF A LISTED ENTITY FOR
 Preservation of documents Policy CONTRAVENTION
 Policy on determining "material subsidiary" The listed entity or any other person thereof
 Risk Management Policy who contravenes any of the provisions of these
SEBI (LODR) regulations, shall, in addition to
 Code of Conduct liability for action in terms of the securities
laws, may be liable for the following actions by
 Vigil Mechanism the respective stock exchange:
 Materiality of related party transactions and on dealing (a) imposition of fines;
with related party transactions
(b) suspension of trading;
 Criteria for granting omnibus approval for Related Party
Transactions (c) freezing of promoter/promoter group
holding of securities
 Policy on determination of materiality
(d) any other action as may be specified by the
 Dividend Distribution Policy SEBI from time to time
 Board Diversity Policy
 Criteria for evaluation of performance of independent
directors and the board of directors.
 Additional Topics
Indirect Acquisition of Shares or control
The concept of Indirect acquisition of shares has been recognized under Regulation 5 of the SEBI
Takeover Regulations, 2011.
It explains indirect acquisition as the acquisition of shares, voting rights or control over any other
company which would enable the acquirer of shares, voting rights or control to exercise such per-
centage of voting rights, which would otherwise have triggered an open offer process over which
would enable the acquirer to exercise control over a company.
1
RESTRICTION ON ACQUISITION

2
If the acquirer (or PAC) acquires shares of the target company during the period of 26 weeks after
the tendering period at a price higher than the offer price, then the acquirer and PAC shall pay the
difference between the highest acquisition price and the offer price, to all the shareholders whose
shares were accepted in the open offer, within 60 days from the date of such acquisition.
Provided further that in case of a delisting offer made, the acquirer shall complete the acquisition of
shares required under Securities and Exchange Board of India (Delisting of Equity Shares) Regulations,
2009.

WITHDRAWAL OF OPEN OFFER

1. An open offer for acquiring shares once made shall not be withdrawn except under any of the
following circumstances, –
(a) statutory approvals required for the open offer has been refused.
(b) the acquirer, being a natural person, has died; 3
(c) any condition stipulated in the agreement for acquisition attracting the obligation to make the
open offer is not met for reasons outside the reasonable control of the acquirer.
(d) such circumstances as in the opinion of the SEBI, requires withdrawal.

2. SEBI shall pass a reasoned order permitting withdrawal and such order shall be listed by SEBI on its
official website.

3. In the event of withdrawal of the open offer, the acquirer shall, within two working days, –
(a) make an announcement in the same newspapers in which the public announcement of the open
offer was published, providing the grounds and reasons for withdrawal of the open offer; and
(b) simultaneously with the announcement, inform in writing to,– (i) SEBI; (ii) stock exchanges and
(iii) the target company.

MODE OF PAYMENT

4
The offer price may be paid, –
(a) in cash;
(b) by issue, exchange or transfer of listed shares in the equity share capital of the acquirer;
(c) by issue, exchange or transfer of listed secured debt instruments issued by the acquirer (with a
rating not inferior to investment grade as rated by a credit rating agency registered with the
SEBI);
(d) by issue, exchange or transfer of convertible debt securities or
(e) a combination of the mode of payment of consideration stated in clause (a), clause (b), clause (c)
and clause (d).
EXEMPTIONS
Automatic Exemptions
No open offer has to be given, If the mandatory open offer is triggered by:


the conversion of equity shares with superior voting rights into ordinary equity shares.
preferential issue in compliance of the Securities and Exchange Board of India (Issue of Capi-
5
tal and Disclosure Requirements) Regulations, 2018.
 buy-back of shares by the target company, if such shareholder reduces his shareholding such that
his voting rights fall to below the threshold, within ninety days from the date of the closure of the said
buy back offer.
 buy-back of shares by the target company, if
 in the case of a shareholder resolution, voting is by way of postal ballot and such sharehold er has
not voted in favour of the resolution authorising the buy-back.
 where a resolution of shareholders is not required for the buy-back, such shareholder, in his capacity
as a director, or any other interested director has not voted in favour of the resolu tion of the board
of directors of the target company authorising the buy-back.

 acquisition of shares by any shareholder of a target company, upto his entitlement, pursuant to a
rights issue.
 acquisition of shares by any shareholder of a target company, beyond his entitlement, pursuant to a
rights issue, subject to fulfilment of the following conditions:
 the acquirer has not renounced any of his entitlements in such rights issue.
 the price at which the rights issue is made is not higher than the ex-rights price of the shares of the
target company.
 acquisition of shares in a target company by any person in exchange for shares of another target com-
pany tendered pursuant to an open offer for acquiring shares under these regulations.
 acquisition of shares in a target company from state-level financial institutions or their subsidiaries.
 acquisition of shares in a target company from a venture capital fund or Category I Alternative Invest-
ment Fund or a foreign venture capital investor registered with the SEBI.

 acquisition pursuant to inter se transfer of shares between:

 immediate relatives;
 persons named as promoters in the shareholding pattern filed by the target company (for last 3 years)
 a company, its subsidiaries, its holding company, subsidiaries of such holding company;
 persons acting in concert (for last 3 years)
(However, for purposes of availing of the exemption under this clause,
If the shares of the target company are frequently traded, the acquisition price per share shall not be high-
er by more than twenty-five per cent of the volume-weighted average market price for a period of sixty
trading days.
and if the shares of the target company are infrequently traded, the acquisition price shall not be higher by
more than twenty-five percent of the price determined)

 acquisition in the ordinary course of business by,

 an underwriter
 a stock broker registered with SEBI on behalf of his client
 a merchant banker registered with SEBI or a nominated investor in the process of market making or
subscription to the unsubscribed portion of issue in terms of the SEBI (ICDR) Regulations, 2018;
 any person acquiring shares pursuant to a scheme of safety net in terms of the then existing SEBI
(ICDR) Regulations, 2009;
 a merchant banker registered with SEBI acting as a stabilising agent;
 a Scheduled Commercial Bank, acting as an escrow agent; and
 invocation of pledge by Scheduled Commercial Banks or Public Financial Institutions as a pledgee.
  acquisition pursuant to a scheme, made under section 18 of the Sick Industrial Companies Act, 1985.
 acquisition pursuant to a scheme of arrangement, involving the target company as a transferor com-
pany or as a transferee company pursuant to an order of tribunal.
 arrangement not directly involving the target company as a transferor company or as a transferee
company, subject to, –
A. the component of cash and cash equivalents in the consideration paid being less than twenty-five per
cent of the consideration paid under the scheme; and
B. where after implementation of the scheme of arrangement, persons directly or indirectly holding at
least thirty-three per cent of the voting rights in the combined entity are the same as the persons who
held the entire voting rights before the implementation of the scheme.
 acquisition pursuant to a resolution plan approved under section 31 of the Insolvency and Bankruptcy
Code, 2016.
 acquisition pursuant to the provisions of the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002;
 acquisition pursuant to the provisions of SEBI (Delisting of Equity Shares) Regulations, 2009;
 acquisition by way of transmission, succession or inheritance;
 acquisition of shares by the lenders pursuant to conversion of their debt as part of a debt restructur-
ing implemented in accordance with the guidelines specified by RBI;
 increase in voting rights pursuant to a forfeiture of shares by the target company, undertaken in
compliance with the provisions of the Companies Act, 2013 and its articles of association.

Exemption by SEBI
Regulation 11 provides that on an application being made by the acquirer in writing giving the details of
the proposed acquisition and grounds on which the exemption is sought along with duly sworn affidavit,
SEBI may grant exemption to the acquirer from the Open Offer obligations subject to the compliance with
such conditions as it deems fits.

Question: Mr. X is Promoter of ABC (India) Limited (Target Company).
Mr. X is presently holding 53,073 shares constituting 0.52% of the paid
up equity capital of the Target Company. Further, Mr. X has been al-
lotted 75,000 convertible warrants, convertible in to equity. After con-
version of warrant in to equity the shareholding of Mr. X will increase
from 0.52% to 1.26% of the paid up equity capital. Further, Ms. Z who is
Mr. X's elder sister's daughter and holding 7,80,000 equity shares con-
stituting 7.76% of the paid up equity share capital of the Company. Ms.
Z is a foreign shareholder and she wanted to gift (Off Market Transac-
tion) her entire shareholding to her mother Mrs. Y and in turn Mrs. Y
wanted to gift the entire shareholding to Mr. X. If the entire transaction
as contemplated, if concluded, then the shareholding of Mr. X will in-
crease from 0.52% to 9.02% and the shareholding of the promoter
group will increase from 34.28% to 43.30%. You have been engaged as
Practising Company Secretary by Mr. X to advise on the following:
a) Is this increase in the promoter group shareholding would trigger
open offer requirements in terms of Regulation 3(2) of the SEBI
(SAST) Regulation, 2011.
b) Further, Whether such transaction would be exempted under Reg-
ulation 10 of the SEBI (SAST) Regulations, 2011.
Answer: The set of facts as disclosed in the question contains three
transactions. First, conversion of convertible warrants in to equity. Sec-
ondly, transfer of shares through off market transaction from Ms. Z to
Mrs. Y and thirdly, transfer of shares through off market transaction
from Mrs. Y to Mr. X.
Regarding the first transaction, the trigger and open offer require-
ments, if any has to be considered at the time of conversion of war-
rants in to equity as the same would depends on the shareholding
pattern of the promoter and promoter’s group prevailing at the time of
conversion of warrants in to equity shares.
Regarding the second and third transaction, considering that Ms. Z,
Mrs. Y and Mr. X are immediate relative thus they would be considered
as PAC in terms of Regulation 2(1)(q) of the SEBI (SAST) Regulations,
2011. Therefore, the shareholding of the promoters along with PACs
would increase more than 5% limit and would trigger open offer re-
quirements under Regulation 3(2) of the SEBI (SAST), 2011. However,
the transaction is between immediate relatives, the transaction would
be exempt from the obligation to make an open offer as per Regulation
10(1)(a)(i) of the SEBI (SAST), Regulations, 2011.
Question: Nova Industries Ltd. (‘Nova’) is an Indian company
engaged in the business of manufacturing of Automotive Equip-
ments. The equity shares of the ‘Nova’ are listed on NSE. Star
Investment Ventures Ltd. (‘Star’) owns 16% stake in the Nova.
Moon Investment Company Pvt. Ltd. (‘Moon’) owns 14% stake in
the Nova. Star and Moon have also been classified as promoters
of the Nova in its shareholding pattern for over 5 years. As decid-
ed by the management of Star and Moon, it is proposed that
Moon will be absorbed by Star through a scheme of arrange-
ment, pursuant to which Star’s shareholding in the Nova will in-
crease from 16% to 30% as the shares held by Moon will be
transferred to Star and vested in Star and their shareholders will
become shareholders of Star. The entire consideration for the
amalgamation would be discharged by Star by the issue of its
shares. The scheme is likely to be completed and approved by the
National Company Law Tribunal sometime during the financial
year 2019-2020.
Would the transfer and vesting of shares of the Nova in Star, be
exempt from open offer obligations ?
Answer: SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011, the acquisition of shares of the Target compa-
ny pursuant to a scheme of arrangement sanctioned by the Na-
tional Company Law Tribunal provides an exemption to an acquir-
er from making an open offer subject to the following conditions:
a. The consideration paid in terms of cash and cash equivalents
is less than 25% of the consideration paid under the scheme;
and
b. Post implementation of the scheme, the persons holding at
least 33% of voting rights in the combined entity are the
same as the persons who held the entire voting rights before
the implementation of the scheme.
Star is eligible to avail this exemption since: (i) The acquisition of
shares of the Target Company is being made pursuant to a
scheme of arrangement sanctioned by the NCLT. (ii) The entire
consideration is being discharged by Star by issue of its shares,
there is no portion of the consideration being paid in terms of
cash and cash equivalents. (iii) Post-merger, since Star will issue
its shares to the shareholders of Moon, such shareholders will
hold more than 33% stake in Star.
 Additional Topics ( Chapter 8)
Compulsory Delisting : Time-line

1
CONSTITUTION OF PANEL -

PUBLIC NOTICE BEFORE MAKING THE DELISTING ORDER X

REPRESENTATIONS X + 15 days

(Any person aggrieved by such public notice may give representation

within maximum 15 working days from the date of the public notice. )
DELISTING ORDER X + 30 days
PUBLIC NOTICE AFTER DELISTING ORDER X + 31 days
INTIMATION TO OTHER EXCHANGE X + 31 days
APPOINTMENT OF INDEPENDENT VALUER X + 30 days
DETERMINATION OF FAIR VALUE X + 30 days
ACQUISITION OF SHARES -

CONSEQUENCES OF COMPULSARY DELISTING

2
Where a company has been compulsorily delisted the company, its whole time directors, its pro-
moters and the companies which are promoted by any of them shall not directly or indirectly ac-
cess the securities market or seek listing for any equity shares for a period of ten years from the
date of such delisting.

Special Powers to the recognized stock Exchanges

1. The recognised stock exchange can file prosecutions under relevant provisions of the Securities

3
Contracts (Regulation) Act, 1956 or any other law for the time being in force against identifia-
ble promoters and directors of the company for the alleged non-compliances.
2. The recognised stock exchange can also file a petition for winding up the company under sec-
tion 271 of the Companies Act, 2013 or make a request to the Registrar of Companies to strike
off the name of the company from the register under section 248 of the said Act.
 Additional Topics ( Chapter 9)
Procedure for issuing ESOP by a Listed Company
 An advance notice of the Board Meeting at least two working days before to the stock ex-

1
change.
 Compensation committee shall plan draft the scheme of ESOP;
 Hold Board meeting to adopt the final scheme, appoint the Merchant banker and approve the
notice of the General meeting for shareholders approval by passing special resolution;
 Outcome of the Board Meeting is also to be notified within 30 minutes of the conclusion of the
Board meeting to the SE.
 An advance notice of the General meeting at least two working days before to the SE.
 Hold General Meeting for approval of shareholders;
 Outcome of the General Meeting is also to be notified within 30 minutes of the conclusion of
the meeting to the SE.
 File e-form MGT-14 within 30 days of passing the special resolution with ROC.
 For listing of shares issued pursuant to ESOS, the company shall obtain the in-principle approval
of the stock exchanges.
 Issue of letter of grant of option to the eligible employees along with the letter of acceptance of
option;
 On receipt of letter of acceptance of option along with upfront payment (if any), from the em-
ployee issue the option certificates;
 After expiry of vesting period (not less than one year), the options shall vest in the employee. At
that time, the Company shall issue a letter of vesting along with the letter of exercise of options;
 Receipt to letter of exercise from the employee;
 Hold a Board Meeting at the suitable Interval during the exercise period for allotment of shares
on options exercised;
 Dispatch of letter of allotment along with the share certificates or credit the shares so allotted
with the Depositories;

Disclosure by a listed company to Stock Exchange

2
Details which a listed entity need to disclose as per materiality
a) brief details of options granted;
b) whether the scheme is in terms of SEBI (SBEB) Regulations, 2014 (if applicable);
c) total number of shares covered by these options;
d) pricing formula;
e) options vested;
f) time within which option may be exercised;
g) options exercised;
h) money realized by exercise of options;
i) the total number of shares arising as a result of exercise of option;
j) options lapsed;
k) variation of terms of options;
l) brief details of significant terms;
m) subsequent changes or cancellation or exercise of such options;
n) diluted earnings per share pursuant to issue of equity shares on exercise of options.
 Additional Topics ( Chapter 10)
Whether Issue of sweat equity shares can be in the form of preferential Issue?
Issue of Sweat Equity Shares is not a ‘preferential issue’ as per regulation 2(1)(nn) of SEBI (ICDR)
Regulations, 2018 which gives the meaning of a preferential issue excludes an issue of sweat equity
shares there from, which means issue of sweat equity shares is not a preferential issue within the
meaning of preferential issue.
1

POWER TO RELAX STRICT ENFORCEMENT OF THE REGULATIONS

2
Exemption from enforcement of the regulations in special cases.
SEBI may, exempt any person or class of persons from the operation of all or any of the provisions
of these regulations for a period as may be specified but not exceeding twelve months, for further-
ing innovation in technological aspects relating to testing new products, processes, services, busi-
ness models, etc. in live environment of regulatory sandbox in the securities markets.
Any exemption granted by the SEBI as above shall be subject to the applicant satisfying such condi-
tions as may be specified by the SEBI including conditions to be complied with on a continuous basis.
Explanation. — For the purposes of these regulations, “regulatory sandbox” means a live testing en-
vironment where new products, processes, services, business models, etc. may be deployed on a
limited set of eligible customers for a specified period of time, for furthering innovation in the securi-
ties market, subject to such conditions as may be specified by the Board.
 Additional Topics (Chapter 11)
Question: What information should a listed Company maintain in its structured digital database
under Regulation 3(5), in case the designated person is a fiduciary or intermediary?
Answer: The listed company should maintain the names of the fiduciary or intermediary with
whom they have shared information along with the Permanent Account Number PAN) or other
unique identifier authorized by law, in case PAN is not available. The fiduciary / intermediary, shall
at their end, be required to maintain details as required under the Schedule C in respect of persons
having access to UPSI.
1
For example: If the listed company has appointed a law firm or Merchant Banker in respect of fund
raising activity, it should obtain the name of the entity, so appointed, along with the PAN or other
identifier, in case PAN is not available. The law firm or the Merchant Banker would in turn maintain
its list of persons along with PAN or other unique identifier (in case PAN is not available), in accord-
ance with Regulation 9A(2)(d) and as required under Schedule C, with whom they have shared the
unpublished price sensitive information.

Whether Chief Investor Relations Officer (CIRO) will also be responsible along with Compliance
Officer for not disseminating information or non-disclosure of UPSI?

2 Regulation 2(c) clearly provides the functions and responsibilities of the compliance officer. Specific
responsibilities to deal with dissemination of information and disclosure of UPSI are given to CIRO
under clause 30 of Schedule A. It is company’s discretion to designate two separate persons as CIRO
and compliance officer, respectively for fulfilling specified responsibilities in cases where CIRO and
compliance officer have been designated for overlapping functions, they shall be jointly and severally
responsible.

Whether contra trade is allowed within the duration of the trading plan?
Any trading plan opted by a person under trading plan can be done only to the extent and in the
manner disclosed in the plan, save and except for pledging of securities. 3
Whether creation of a pledge or invocation of pledge is allowed when trading window is closed?

4 Yes, however, the pledgor or pledgee may demonstrate that the creation of the pledge or invocation
of pledge was bona fide and prove this innocence.

Institutional Mechanism for Prevention of Insider trading

 The internal controls shall include the following:
(a) all employees who have access to unpublished price sensitive information are identified;
(b) all the unpublished price sensitive information shall be identified and its confidentiality shall be maintained as
per the requirements of these regulations;
(c) adequate restrictions shall be placed on communication or procurement of unpublished price sensitive infor-
mation as required by these regulations;
(d) lists of all employees and other persons with whom unpublished price sensitive information is shared shall be
5
maintained and confidentiality agreements shall be signed or notice shall be served to all such employees and
persons;
(e) all other relevant requirements specified under these regulations shall be complied with;
(f) periodic process review to evaluate effectiveness of such internal controls.
 The Audit Committee shall review compliance with the provisions of these regulations at least once in a financial
year and shall verify that the systems for internal control are adequate and are operating effectively.
 Every listed company shall formulate written policies and procedures for inquiry in case of leak of unpublished
price sensitive information or suspected leak of unpublished price sensitive information, which shall be approved
by board of directors.
 The listed company shall have a whistle-blower policy.
 If an inquiry has been initiated by a listed company in case of leak of unpublished price sensitive information or
suspected leak of unpublished price sensitive information, the relevant intermediaries and fiduciaries shall co-
operate with the listed company in connection with such inquiry conducted by listed company.
 INFORMANT INCENTIVES AND REWARDS

6
 Informant shall submit original information in Voluntary Disclosure form to office of informant protection.
 Unless otherwise required by the SEBI, maintain confidentiality of the identity and existence of the Inform-
ant, including the original Voluntary Information Disclosure Form.
 On receipt of the Voluntary Information Disclosure Form, the Office of Informant Protection shall communi-
cate the substance of the information along with the evidence submitted by the informant to the relevant
department or division of the SEBI for examination and initiation of necessary action, if any. (The SEBI shall
not be required to send any intimation or acknowledgement to the Informant or any other person, of the ex-
amination or action initiated by the SEBI, if any, pursuant to receipt of the Voluntary Information Disclosure
Form or information under these regulations, including rejection thereof. )
 The maximum amount of Reward shall be ten percent of the monetary sanctions collected or recovered and
shall not exceed Rupees One crore or such higher amount as the SEBI may specify from time to time.
 The amount of the Reward, if payable, shall be determined by the SEBI.
 Upon collection or substantial recovery of the monetary sanctions amounting to at least twice the Reward,
the SEBI may at its sole discretion, declare an Informant eligible for Reward.
 The SEBI may if deemed fit, out of the total Reward payable, grant an interim reward not exceeding Rupees
Ten lacs or such higher amount as the SEBI may specify.
 In case of more than one Informant jointly providing the Original Information, the Reward, shall be divided
equally amongst the total number of Informants. The Reward under these regulations shall be paid from the
Investor Protection and Education Fund.
 An Informant may be eligible for a Reward whether or not he reported the matter to his organization as per
its internal legal and compliance procedures and irrespective of such organization’s compliance officer subse-
quently providing the same Information to the Board.
 Every person required to have a Code of Conduct under these regulations shall ensure that such a Code of
Conduct provides for suitable protection against any discharge, termination, demotion, suspension, threats,
harassment, directly or indirectly or discrimination against any employee who files a Voluntary Information
Disclosure Form, irrespective of whether the information is considered or rejected by the SEBI or he or she is
eligible for a Reward under these regulations.
 Any Informant who believes that he or she has been subject to retaliation or victimization by his or her em-
ployer, can approach the competent court or tribunal for appropriate relief.

What are the functions of the Office of Informant Protection ?

The Office of Informant Protection shall perform the following functions as may be specified by the SEBI, including:
 Receiving and registering the Voluntary Information Disclosure Form;
 Making all necessary communications with the Informant;
7
 Maintaining a hotline for the benefit of potential Informant;
 Maintaining confidentiality of the legal representative of the Informant and act as an interface between the
Informant and the officers of the SEBI;
 Interacting with the Informant Incentive Committee;
 Issuing press releases and rewards relating to Informant; and

8
 Submitting an annual report to the SEBI relating to the functioning of the Office of Informant Protection.

Rejection of claim for Reward

No Reward shall be made to an Informant:
 who does not submit original information;
 who has acquired the Original Information, through or as a member, officer, or an employee of:- (i) any regulatory agency
constituted by or under any law in India or outside India, including the SEBI; (ii) any self-regulatory organization; (iii) the sur-
veillance or investigation wings of any recognised stock exchange or clearing corporation; or (iv) any law enforcement organi-
zation including the police or any central or state revenue authorities.
 against whom the SEBI may initiate or has initiated criminal proceedings under securities laws;
 who wilfully refused to cooperate with the SEBI during its course of investigation, inquiry, audit, examination or other pro-
ceedings under securities laws;
 who: (i) knowingly makes any false, fictitious, or fraudulent statement or representation; (ii) uses any false writing or docu-
ment knowing that the writing or document contains any false, fictitious, or fraudulent statement or entry; (iii) fails to furnish
the complete information available with him or accessible by him in relation to the alleged violation.
 who is obligated, under any law or otherwise, to report such Original Information to the SEBI, including a compliance officer
under securities laws.
(Provided that the SEBI may if deemed fit, at its sole discretion, exempt a person from any of these disqualifications.)
 Additional Topics (Chapter 12)
Regulator and Industry Body (Just for knowledge)
Regulator: Securities and Exchange Board of India (SEBI)

1
 Regulates mutual funds, custodians and registrars & transfer agents
 The applicable guidelines for mutual funds are set out in SEBI (Mutual Funds) Regulations,
1996;
Industry Body: Association of Mutual Funds in India (AMFI)
 All 44 AMCs are members of AMFI (Source : www.amfiindia.com)
 Recommends and promotes best business practices and code of conduct
 Disseminates information and carries out studies/research on mutual fund industry

Types of Risks:

2 Volatility risk Typically, equity-based funds invest in the shares of companies that are listed on stock exchanges. The
value of such funds is based on companies’ performance, which often gets affected due to the prevalent
microeconomic factors.
Credit risk Credit risk in mutual fund investment often results from a situation, wherein, the issuer of the scheme
fails to pay the promised interest. In case of debt funds, typically, fund managers include investment-
grade securities with high credit ratings.
Liquidity risk Mutual funds with a long-term and rigid lock-in period like ELSS often come with liquidity risk. Such a
risk signifies that investors often find it challenging to redeem their investments without incurring a loss.
Concentrated This mutual fund risk is also prevalent among investors. It can be described as the situation when inves-
risk tors tend to put all their money into a single investment scheme or in one sector. For instance, investing
entirely in just one company’s stocks often bears a substantial risk of losing capital if caught amidst bad
market situations.
Inflation risk It can be best described as the risk of losing one’s purchasing power, mainly due to the rising inflation
rate. Typically, investors are exposed to the impact of this risk when the rate of returns earned on in-
vestments fails to keep up with the increasing inflationary rate.

ELIGIBILITY CRITERIA FOR REGISTRATION OF MUTUAL FUNDS

 the sponsor should have a sound track record and general reputation of fairness and integrity in

3
all his business transactions.
(Explanation: For the purposes of this clause “sound track record” shall mean the sponsor should –
(i) be carrying on business in financial services for a period of not less than five years; and (ii) the
networth is positive in all the immediately preceding five years; and (iii) the networth in the immedi-
ately preceding year is more than the capital contribution of the sponsor in the asset management
company; and (iv) the sponsor has profits after providing for depreciation, interest and tax in three
out of the immediately preceding five years, including the fifth year;)
 the sponsor is a fit and proper person.
 the sponsor has contributed or contributes at least 40% to the net worth of the asset manage-
ment company.
 appointment of trustees (to act as trustees for the mutual fund)
 appointment of asset management company (to manage the mutual fund and operate the
scheme)
 appointment of custodian (to keep custody of the securities or other assets of the MF)

KEY PLAYERS OF MF

4 

5 Principal Constituents (Sponsor, AMC, Trustee, Unit Holders, Mutual fund )
3 Market Intermediaries (Custodian, Transfer Agents, Depository )
DISQUALIFICATION FROM BEING APPOINTED AS TRUSTEES
 A person shall not be eligible to be appointed as a trustee unless—

5
(a) he is a person of ability, integrity and standing; and
(b) has not been found guilty of moral turpitude; and
(c) has not been convicted of any economic offence or violation of any securities laws;
 No AMC and no director, officer or employee of an AMC shall be eligible to be appointed as a
trustee.
 No person who is appointed as a trustee of a mutual fund shall be eligible to be appointed as a
trustee of any other mutual fund.
 Two-thirds of the trustees shall be independent persons and shall not be associated with the
sponsors.
 In case a company is appointed as a trustee then its directors can act as trustees of any other
trust provided that the object of the trust is not in conflict with the object of the mutual fund.

ELIGIBILITY CRITERIA FOR APPOINTMENT OF ASSET MANAGEMENT COMPANY

 the asset management company is a fit and proper person;

6  the directors of the AMC are persons having adequate professional experience in finance and
financial services related field and not found guilty of moral turpitude or convicted of any eco-
nomic offence or violation of any securities laws;
 the key personnel of the AMC have not been found guilty of moral turpitude or convicted of eco-
nomic offence or violation of securities laws;
 the board of directors of such asset management company has at least fifty per cent directors,
who are not associated in any manner with, the sponsor or the trustees;
 the Chairman of the asset management company is not a trustee of any mutual fund;
 the asset management company has a net worth of not less than rupees fifty crore;

ADVERTISEMENT OF CONDUCT OF MUTUAL FUNDS

(i) Advertisement shall be accurate, true, fair, clear, complete, unambiguous and concise.

7
(ii) Advertisement shall not contain statement which are false, misleading, biased or deceptive.
(iii) No celebrities shall form part of advertisement.
(iv) No advertisement shall directly or indirectly discredit other advertisements or make unfair com-
parisons.
(v) Advertisements shall be accompanied by a standard warning in legible fonts which states “Mutual
fund investments are subject to market risks, read all schemes related document carefully.” (No addi-
tion or deletion of words shall be made to the standard warning)

MUTUAL FUNDS ARE PERMITTED TO MAKE INVESTMENT IN:

(i) ADRs and GDRs; (ii) Equity of overseas company; (iii) Initial or follow on public investments;

8 (iv) Foreign debt securities; (v) Money market instruments; (vi) Repos in the form of investment;
(vii) Government securities; (viii) Derivative; (ix) Short - term deposits;
(x) Units issued by overseas mutual funds.

PRICING OF UNITS OF MUTUAL FUND

While determining the prices of the units, the mutual fund shall ensure that the repurchase price is not
lower than 93 per cent of the Net Asset Value and the sale price is not higher than 107 per cent of the
Net Asset Value.
MUTUAL FUND COST
The mutual funds costs are of two types:-
9
Opening Expenses: It includes advisory fees, custodial fees, audit fees, Transfer agent fees, Trustees
fees, Agent commission.
Sales Charges: It includes commissions to the agents and expenses for distribution and marketing.
 10
Cut off timeline for NAT

While purchasing Before 3 PM NAV of same day

After 3 PM NAV of next day

While redemption Before 3 PM NAV of same day

After 3 PM NAV of next day

NOTE: (If the value of transaction exceeds 2,00,000, then NAV of the busi-
ness day on which funds are available for utilization will be taken.)
 Additional Topics ( Chapter 13)
OBLIGATIONS OF COLLECTIVE INVESTMENT MANAGEMENT COMPANY
Every Collective Investment Management Company should:

1
(i) be responsible for managing the funds or properties of the CIS on behalf of the unit holders.
(ii) exercise due diligence and care in managing assets and funds of the CIS and also responsible
for the acts of commissions and omissions by its employees.
(iii) remain liable to the unit holders for its acts of commission or omissions.
(v) appoint registrar and share transfer agents and should also abide by their respective Code of Con-
ducts.
(vi) give receipts for all monies received and report of the receipts and payments to SEBI, on monthly
basis;
(vii) hold a meeting of Board of Directors to consider the affairs of CIS, at least twice in every three
months.
(viii) obtain adequate insurance against the properties of the CIS and comply with such guidelines,
directives, circulars and instructions as may be issued by SEBI from time to time on the subject of
Collective Investment Scheme.

TERMINATION OF THE AGREEMENT WITH THE COLLECTIVE INVESTMENT MANAGEMENT COMPANY

The agreement entered into by the trustee with the Collective Investment Management Company

2
may be terminated –
(a) if the CIMC is in the course of being wound up as per the provisions of the Companies Act,
2013 or;
(b) if unit holders holding at least three-fourth of the nominal value of the unit capital of the collec-
tive investment scheme pass a resolution for terminating the agreement with the CIMC and the
prior approval of SEBI has been obtained, or
(c) if in the interest of the unit holders, SEBI or the trustee after obtaining prior approval of SEBI,
and after giving an opportunity of being heard to the Collective Investment Management Com-
pany, decide to terminate the agreement with the CIMC.

Procedure for launching of collective investment schemes

 No collective investment scheme shall be launched by the Collective Investment Management

3
Company unless
 such collective investment scheme is approved by the Trustee
 without obtaining rating from a credit rating agency.
 without getting the collective investment scheme appraised by an appraising agency
 Collective Investment Management Company shall:— (a) launch only close ended collective in-
vestment schemes; (b) the duration of the collective investment schemes shall not be of less
than three calendar years.
 Collective Investment Management Company shall obtain adequate insurance policy for protec-
tion of the collective investment scheme property.
 No collective investment scheme shall provide guaranteed or assured returns. However indica-
tive return may be indicated in the offer document only, if the same is assessed by the apprais-
ing agency and expressed in monetary terms.
 OFFER DOCUMENT
 The CIMC shall before launching any collective investment scheme file a copy of the offer docu-

4
ment of the collective investment scheme with the SEBI and pay filing fees as specified.
 SEBI may in the interest of investors require the CIMC to carryout such modifications in the
offer document as it deems fit, In case no modifications are suggested by SEBI in the offer docu-
ment within 21 days from the date of filing, the Collective Investment Management Company
may issue the offer document to the public.
 The offer document should also contain true and fair view of the collective investment scheme
and adequate disclosures to enable the investors to make informed decision.
 The offer document and advertisement materials shall not be misleading or contain any state-
ment or opinion which are incorrect or false. Where an offer document or advertisement in-
cludes any statement or opinions which are incorrect or false or misleading, every person— (i)
who is a director of the Collective Investment Management Company at the time of the issue of
the offer document; (ii) who has issued the offer document and shall be punishable under the
Act unless he proves either that the statement or opinion was immaterial or that he had reason-
able ground to believe at the time of the issue of the offer document or advertisement that the
statement was true.

ALLOTMENT OF UNITS AND REFUNDS OF MONEY

The Collective Investment Management Company should specify in the offer document –
a) the minimum and the maximum subscription amount it seeks to raise under the collective
investment scheme; and
b) in case of oversubscription, the process of allotment of the amount oversubscribed.
5
A collective investment scheme shall not be open for more than 90 days.
A collective investment scheme shall not be open for more than 90 days.
The CIMC should refund the application money to the applicants, if the collective investment scheme
fails to receive the minimum subscription amount.
Any amount refundable should be refunded within a period of six weeks from the date of closure of
subscription list, by Registered A.D. and by cheque or demand draft.
In the event of failure to refund the amounts within the period specified, the CIMC has to pay inter-
est to the applicants at a rate of fifteen percent per annum on the expiry of six weeks from the date
of closure of the subscription list.
The Collective Investment Management Company should issue to the applicant whose application
has been accepted, unit certificates as soon as possible but not later than six weeks from the date of
closure of the subscription list.

GENERAL OBLIGATIONS OF COLLECTIVE INVESTMENT MANAGEMENT COMPANY

 To maintain proper books of account and records, etc. for a period of five years after the close

6 of each collective investment scheme.

 The Collective Investment Management Company shall,
a) Dispatch to the unit holders the warrants within 42 days of the declaration of the interim returns.
b) Dispatch the redemption proceeds within 30 days of the closure or the winding up of the collec-
tive investment scheme.
 Every Collective Investment Management Company shall within two months from the date of
closure of each financial year forward to the SEBI a copy of the Annual Report.
 Every collective investment scheme shall have the annual statement of accounts audited by an
auditor who is empanelled with the SEBI.
 DISCLOSURES

7
Periodic and continual disclosures
The Collective Investment Management Company and the trustee, shall make such disclosures or sub-
mit such documents as they may be called upon by the SEBI to make or submit.
The Collective Investment Management Company on behalf of the collective investment scheme shall
furnish the following periodic reports to the SEBI, namely:
(a) copies of the duly audited annual statements of account including the balance sheet and the profit
and loss account in respect of each collective investment scheme, once a year;
(b) a copy of quarterly unaudited accounts;
(c) a quarterly statement of changes in net assets for each of the collective investment schemes.
(CIMC shall before the expiry of one month from the close of each quarter that is 31st March, 30th June,
30th September and 31st December publish its unaudited financial results in one daily newspaper having
nationwide circulation and in a newspaper published in the language of the region)
The trustee shall ensure that the Collective Investment Management Company shall make such disclo-
sures to the unit holders as are essential in order to keep them informed about any matter which may
have an adverse bearing on their investments.

WINDING UP OF COLLECTIVE INVESTMENT SCHEME

A scheme should be wound up on the expiry of duration specified in the collective investment

8
scheme or on the accomplishment of the objective of the collective investment scheme as speci-
fied in the offer document.
A collective investment scheme may be wound up :
(a) on the happening of any event which, in the opinion of the trustee, requires the collective in-
vestment scheme to be wound up and the prior approval of the SEBI is obtained; or
(b) if unit holders of a collective investment scheme holding at least three-fourth of the nominal
value of the unit capital of the collective investment scheme, pass a resolution that the scheme
be wound up and the approval of SEBI is obtained thereto; or
(c) if in the opinion of SEBI, the continuance of the collective investment scheme is prejudicial to
the interests of the unit-holders; or
(d) if in the opinion of the CIMC, the purpose of the collective investment scheme cannot be accom-
plished and it obtains the approval of the trustees and that of the unit holders of the collective
investment scheme holding at least three-fourth of the nominal value of the unit capital of the
collective investment scheme with a resolution that the collective investment scheme be wound
up and the approval of SEBI is obtained thereto.

After the completion of the winding up, the trustee should forward to SEBI and the unit holders –
a) a report on the steps taken for realisation of assets of the collective investment scheme, expens-
es for winding up and net assets available for distribution to the unit holders, and
b) a certificate from the auditors of the collective investment scheme to the effect that all the as-
sets of the collective investment scheme are realised and the details of the distribution of the
proceeds.
 Additional Topics ( Chapter 14)
What are the limitations in dealing with complaints in SCORES?
Sometimes a complaint is successfully resolved and the entity is advised to send reply to complaint.
Buy in certain cases, the entity or company denies wrongdoing, and it remains unclear as who is
wrong or whether any wrongdoing occurred at all.
If this happens, SEBI cannot act as a judge or an arbitrator and force the entity or company to resolve
1
the complaint.

2 COMPLAINTS AGAINST WHICH TYPE OF COMPANIES CANNOT BE DEALT ON SCORES

Complaints against the following companies cannot be dealt through SCORES even though the com-
plaint may be against a listed entity/ SEBI registered intermediary:-
a) Complaints against the companies which are unlisted/delisted, placed on the Dissemination
Board of Stock Exchange.
b) Complaints against a sick company or a company where a moratorium order is passed in wind-
ing up / insolvency proceedings.
c) Complaints against the companies where the name of company is struck off from Registrar of
Companies (RoC) or a Vanishing Company as per list published by Ministry of Corporate Affairs
(MCA).
d) Suspended companies, companies under liquidation, BIFR etc.
e) Complaints that are sub-judice i.e. relating to cases which are under consideration by court of
law, quasi-judicial proceedings etc. Complaints against companies, falling under the purview of
other regulatory bodies viz. The Reserve Bank of India (RBI), The Insurance Regulatory and De-
velopment Authority of India (IRDAI), the Pension Funds Regulatory and Development Authority
(PFRDA), Competition Commission of India (CCI), etc., or under the purview of other ministries
viz., MCA, etc.

Time line for lodging complaint on SCORES

From 1st August 2018, an investor may lodge a complaint on SCORES within three years from the
date of cause of complaint.
Example: If the date of declaration of dividend by a company is 01.01.2015, as per the Companies
Act, 2013 the Company has to pay the dividend within 30 days from the declaration of the dividend
3
date to all its registered shareholder. If the Company fails to pay the declared dividend within 30
days i.e. 31.01.2015 as the dividend was declared on 01.01.2015, the date of cause of complaint
would be 31.01.2015 and a complaint can be lodged on SCORES within 3 years from 31.01.2015 i.e.
on or before 30.01.2018.

When can SEBI take action for non-resolution of investor complaints?

4
For listed companies: SEBI has empowered stock exchanges to levy fine for non-redressal of investor
complaints in terms of the relevant provisions of SEBI (Listing and Disclosure Requirements) Regula-
tions, 2015 to be read with SEBI circular SEBI/HO/CFD/CMD/CIR/P/2018/77 dated 03 May, 2018. If
the complaint is not redressed/ fine is not paid, the stock exchanges can direct the depositories to
freeze the entire shareholding of the promoter and promoter group in such entity as well as all other
securities held in the demat account of the promoter and promoter group.
If non-compliance continues, the stock exchanges may refer such cases to SEBI for enforcement ac-
tions, if any.
Redressal of Complaints against Stock Brokers and Depository Participants through Scores
With a view to make the complaint redressal mechanism through SCORES more efficient, SEBI vide
its circular no. SEBI/HO/MIRSD/MIRSD6/CIR/P/2017/20 dated March 10, 2017 had directed all stock
brokers and depository participants to address/redress the complaint within a period of 15 days
from the receipt of the complaint.
In case additional information is required from the complainant, the same shall be sought within 7
5
days from the receipt of the complaint.
In such cases, the period of 15 days shall run from the receipt of additional information.
Stock Exchange and Depositories were advised to develop a system for execution of the abovemen-
tioned provisions.

Handling of the Complaints by Listed Entities and Sebi Registered Intermidiaries

6 It was seen that investors frequently lodged complaint on SCORES without actually taking the
matter up with the concerned company/ intermediary.
In view of the same, from August 01, 2018, complaints will be handled as follows:-
A. At the time of lodging of complaint, the investor is asked “Have you lodged a complaint with the
concerned intermediary / listed company for redressal of your complaint?”
B. If the investor selects the option “No”:
 The complaint will be routed directly to the concerned entity. Since this is the first time the issue
will be raised with the concerned entity, such “Direct complaints” will be addressed by the con-
cerned entity and the response will come to the investor without any interference of SEBI offi-
cials.
 The concerned entity is required to send a response to the investor directly within 30 days.
 If the concerned entity fails to send a response within 30 days to the investor, then the com-
plaint will be routed to SEBI automatically. Thereafter, the complaint will have a new SCORES
registration number.
 In case the investor is dissatisfied with the redressal of the complaint, the investor has to indi-
cate the same against the complaint and then the complaint will come to SEBI. If the investor
does not indicate the same within 15 days of receipt of reply from the company, it will be as-
sumed that the investor is satisfied with the redressal and the complaint will be closed.

C. If the investor selects the option “Yes”

 The complainant has to provide the date of taking up the complaint and also the address where
the communication was last made.
 The complaint will be routed to SEBI. When the complaint comes to SEBI, the complaint is exam-
ined and its decided whether the subject matter falls under the purview of SEBI and whether it
needs to be referred to concerned entity. After examination, SEBI forwards the complaint to the
concerned entity with an advice to send a written reply to the investor and file an action taken.
 Lesson 15: CapitaL Market institutions
Additional Points to Remember

1. REAL ESTATE INVESTMENT TRUST (‘REIT’)

Meaning
A real estate investment trust (“REIT”) is a company that owns, operates or finances income-
producing real estate. REITs provide all investors the chance to own valuable real estate,
present the opportunity to access dividend-based income and total returns, and help
communities grow, thrive, and revitalize.
Benefits of REIT
1. Less Capital 2. Suitable for small 3. Transparency 4. Assured Dividends
Intensive Investors
5. Tax Free 6. Fast Capital 7. Easy to buy
Appreciation

2. INFRASTRUCTURE INVESTMENT TRUSTS (‘InvITs’)

Meaning
Considering the importance of infrastructure sector with an aim to provide a suitable platform
for financing / refinancing infrastructure projects and allow the investors to participate in the
growth story of infrastructure, the Government introduced a new investment vehicle named
Infrastructure Investment Trusts (‘InvITs’) in 2014.
An InvIT is established as a trust and is registered with the SEBI. Typically, infrastructure
investment trust SEBI comprises 4 elements, namely –
Trustee : They are required to be registered with SEBI as debenture trustees. Also,
they are required to invest at least 80% into infra assets that generate
steady revenue.
Sponsor : Typically, a body corporate, LLP, promoter or a company with a net worth
of at least Rs. 100 crore classifies as a sponsor.
Further, they must hold at least 15% of the total InvITs with a minimum
lock-in period of 3 years or as notified by any regulatory requirement.
When it comes to a public-private partnership or PPP projects, sponsors
serve as a Special Purpose Vehicle (SPV).
Investment As a body corporate of LLP, an investment manager supervises all the
manager : operational activities surrounding InvITs.
Project manager : The authority is mostly responsible for executing projects. However, in the
case of PPP projects, it serves as an entity that also supervises ancillary
responsibilities.

Page 1 of 1
 Lesson 16: CapitaL Market instruMents
Additional Points to remember

1. CATEGORIES OF DEBENTURES

Based on convertibility, debentures can be classified under three categories:

Fully Convertible Non Convertible Partly Convertible

Debentures (FCDs): Debentures (NCDs): Debentures (PCDs):

2. OPTIONALLY FULLY CONVERTIBLE DEBENTURE (OFCD )

The Optionally Fully Convertible Debenture is a kind of debenture which can be converted into
shares at the expiry of a certain period at a predetermined price, if the debt holder (investor)
wishes to do so. An OFCD being a hybrid security falls under the definition of “securities” as it
inherits the characteristics of debentures initially and also that of the shares at a later stage if
the option to convert the securities into shares being exercised by the security holder.

3. CURRENCY DERIVATIVES :

Currency derivatives are financial contracts between the buyer and seller involving the
exchange of two currencies at a future date, and at a stipulated rate. Currency Options and
Currency Futures trading is done in the Foreign Exchange markets. Forex rates are the value of
a foreign currency relative to domestic currency. The major participants of Currency Trading in
India are banks, corporations, exporters and importers.

Benefits of currency derivatives include:

 Offers diversification to investments

 Hedging opportunities to importers & exporters, for their future payables and
receivables.
 Gives trading opportunities because of volatility in currency
 Provides transparent rates to traders as it is exchange-traded

Page 1 of 3
4. COMMODITY DERIVATIVES:

Commodity derivatives are financial instruments whose value is based on underlying

commodities, such as oil, gas, metals, agricultural products and minerals. Other assets such as
emissions trading credits, freight rates and even the weather can also underlie commodity
derivatives. Volatility in raw material costs affects businesses and can be significant given that
commodity prices are driven by supply and demand from domestics as well as global markets.

5. CURRENCY FUTURES:

A currency future, also known as FX future, is a futures contract to exchange one currency for
another at a specified date in the future at a price (exchange rate) that is fixed on the purchase
date. Currency future contracts allow investors to hedge against foreign exchange risk.

RBI, announced its decision to allow Rupee derivatives (with settlement in foreign currency) to
be traded in IFSC Currency futures and options contracts involving Indian Rupee (with
settlement in foreign currency), the position limits for eligible market participants, per currency
pair per stock exchange, shall be as follows:

a) Trading Members (positions on proprietary basis as well as clients’ position) – Gross

open position across all contracts not to exceed 15% of the total open interest or USD 1
billion equivalent, whichever is higher
b) Institutional Investors – Gross open position across all contracts not to exceed 15% of
the total open interest or USD 1 billion equivalent, whichever is higher
c) Eligible Foreign Investors – Gross open position across all contracts not to exceed 15%
of the total open interest or USD 1 billion equivalent, whichever is higher
d) Other Clients – Gross open position across all contracts not to exceed 6% of the total
open interest or USD 100 million equivalent, whichever is higher.

6. SECURITIZED DEBT INSTRUMENTS

Securitization is a financial process that involves issuing securities that are backed by assets,
most commonly debt. The assets are transformed into securities, and the process is called
securitization. The owner of the securities receives an income from the underlying assets;
hence, the term asset-backed securities. SEBI had laid down the framework for public offer and
listing of securitized debt instruments vide SEBI (Public Offer and Listing of Securitized Debt
Instruments) Regulations, 2008 and had specified listing agreement for Securitized Debt
Instruments.

Page 2 of 3
7. MUNICIPAL BONDS

Municipal bonds are also referred to as ‘muni bonds’. Municipal bonds are issued when a
government body wants to raise funds for projects such as infrarelated, roads, airports, railway
stations, schools, and so on. To revive the municipal bonds, SEBI came up with guidelines for
the issue of municipal bonds in 2015. Municipality should meet the following eligibility criteria
to issue municipal bonds in India:

 The municipality must not have a negative net worth in each of the three previous
years.
 The municipality must have no default in the repayment of debt securities and loans
availed from the banks or non-banking financial companies in the last year.
 The municipality, promoter and directors must not be enlisted in the willful defaulters
published by the Reserve Bank of India (RBI). The municipality should have no record of
default in the payment of interest and repayment of principal with respect to debt
instruments.

8. EXCHANGE TRADED FUNDS (ETF)

An Exchange traded fund (ETF) is a security that tracks an index, commodity, bonds, or a
basket of assets like an index fund and is traded in the securities market. In simple
words, ETFs are funds that track indexes such as Sensex, Nifty, etc.

When you buy shares/ units of an ETF, you actually buy shares/ units of a portfolio that
tracks the performance of the index.

Unlike regular mutual funds, ETFs trade like a common stock on the stock exchange and
the price of an ETF changes as per the trading in the market takes place.

The trading value of an ETF depends on the net asset value of the underlying stock that it
represents. ETFs, generally, have higher daily liquidity and lower fees than mutual fund
schemes.

Page 3 of 3
 Lesson 17: IMP. AsPeCTs oF PRIMARY MARKeT
Additional Points to Remember

1. Use of Unified Payments Interface (UPI) with ASBA in public issue process:

Unified Payments Interface (UPI) is an instant payment system developed by the National
Payments Corporation of India (NPCI), an RBI regulated entity. UPI is built over the IMPS
(Immediate Payment Service) infrastructure and allows you to instantly transfer money
between any two parties’ bank accounts. UPI as a payment mechanism is available for all public
issues for which Red Herring Prospectus is filed after January 01, 2019.

How is public Public issue application using UPI is a step towards digitizing the offline
issue application processes involved in the application process by moving the same online.
using UPI This requires you to have to create a UPI ID and PIN using any of the UPI
different from enabled mobile application. The UPI ID can be used for blocking of funds
public issue and making payment in the public issue process. One can accept the
application using request to block the funds for the amount they have bid by entering their
ASBA submitted UPI PIN in the mobile application.
with
The money shall be blocked and shall be automatically remitted to the
intermediaries?
Escrow Bank, in case of allotment. UPI in public issue process shall
essentially bring in comfort, ease of use and reduce the listing time for
public issues.

“UPI as a 1. UPI as part of bidding :

payment option”
Investor will fill in the bid details in the application form as per the existing
can be used in
process along with his UPI ID.
the public issue
process”? The stock exchange will electronically share the bid details, along with
investors UPI id, with the Escrow/ Sponsor Bank appointed by the issuer
company.

2. UPI as part of blocking:

The Escrow / Sponsor Bank will initiate a mandate request on the investor
i.e. request the investor to authorize blocking of funds equivalent to
applicant amount and subsequent debit of funds in case of allotment.

• The request raised by the Escrow/Sponsor Bank, would be electronically

Page 1 of 3
 received by the investor as SMS/intimation on his / her bank provided
mobile no. linked to UPI ID.

• Upon validation of block request by the investor, the said information

would be electronically received by the investors’ bank, where the funds,
equivalent to application amount, would get blocked in investors account.
Intimation regarding confirmation of such block of funds in investors
account would also be received by the investor.

3. UPI as part of payment for shares post allocation process:

• The registrar to the issue, based on information of bidding and blocking

received from stock exchange, would undertake reconciliation and prepare
the basis of allotment.

• Upon approval of such basis the instructions would be sent to sponsor

bank to initiate process for credit of funds in the public issue escrow
account and unblocking excess money.

• Based on authorization given by investor using UPI PIN at the time of

blocking, the funds, equivalent to the allotment, would be debited from
investors account and remaining funds, if any, would be unblocked.

Whether use of The applicability of UPI as a payment mechanism has been prescribed in a
UPI, as a Phased manner as under:
payment
• Phase I: From January 01, 2019, the UPI mechanism for retail individual
mechanism in
investors through intermediaries will be made effective along with the
public issues, is
existing process and existing timeline of T+6 days. The same will continue,
mandatory?
for a period of 3 months or floating of 5 main board public issues,
whichever is later.

• Phase II: Thereafter, for applications by retail individual investors through

intermediaries, the existing process of physical movement of forms from
intermediaries to Self-Certified Syndicate Banks (SCSBs) for blocking of
funds will be discontinued and only the UPI mechanism with existing
timeline of T+6 days will continue, for a period of 3 months or floating of 5
main board public issues, whichever is later.

• Phase III: Subsequently, final reduced timeline will be made effective

using the UPI mechanism.

Page 2 of 3
Up to what limit The limit for IPO application is 2 Lakhs per transaction on UPI.
one can apply for
a public issue in
UPI?

Are all category No. Only retail individual investors are allowed to use UPI for payment in
of investors public issues. Qualified Institutional Buyers and High Net-worth Individuals
eligible to apply shall continue to apply as per the existing process.
in public issues
using UPI for
payment?

Page 3 of 3
 Lesson 18: STOCK EXCHANGE MECHANISM
Additional Points to Remember

1. ROLE OF STOCK EXCHANGES

1. Acts as a 2. Responsible for 3. Mobilizes savings 4. Enables healthy
continuous Securities speculation
market for Evaluation
securities
5. Protect investors 6. Ensures Liquidity 7. Acts as an 8. Exercise vigilance
economic /Control on
barometer companies

9. Attracts foreign 10. Stock exchanges 11. Regulate company

capital ensure Safety of management
Capital and Fair
Dealing

2. INDIAN STOCK EXCHANGES

Trading in the Indian stock market majorly takes place in the below two stock exchanges -

• BSE - Bombay stock exchange

• NSE - National Stock exchange of India

3. MARKET INTERMEDIARIES

SR INTERMEDIARY PARTICULARS
NO.

1. Stock Exchanges Stock Exchanges offer a trading platform for buyers and sellers to
carry out transaction in issued securities.

2. Depositories Depositories are institutions that hold securities (like shares,

debentures, bonds, government securities, mutual fund units) of
investors in electronic form.
There are two depositories in India that are registered with SEBI at
present:

Page 1 of 6
 o Central Depository Services Limited (CDSL), and
o National Securities Depository Limited (NSDL)
3. Depository A Depository Participant (DP) is an agent of the depository through
Participant which it interfaces with the investors and provides depository
services. With the approval of SEBI Depository Participants are
appointed by the depository.

4. Trading Trading members or Stock Brokers a reregistered members of a Stock

Members/Stock Exchange who assist the investors in buying/selling of securities. All
Brokers & Sub- secondary market transactions on stock are conducted through
Brokers registered brokers of the stock exchange.

A sub-broker is an entity who is not a member of Stock Exchange but

who acts on behalf of a trading member or Stock Broker as an agent
for assisting the investors in buying, selling or dealing in securities all
the way through such trading member or Stock Broker with whom he
is connected.

5. Custodians A Custodian is a body that is charged with the accountability of

holding funds and securities of its large clients, characteristically
institutions such as banks, insurance companies, and foreign portfolio
investors.

A custodian also settles transactions in these securities and keeps

record of corporate actions on behalf of its clients and aids in:

• Maintaining a client’s securities and funds account

• Collecting the benefits or rights accruing to the client in respect of

securities held

• Keeping the client informed of the actions taken or to be taken on

their portfolios.

6. Clearing Clearing agencies ensure that members on the Stock Exchange meet
Corporation their obligations to deliver funds or securities.

7. Merchant Merchant bankers are bodies registered with SEBI and act as issue
Bankers managers, investment bankers or lead managers.

Page 2 of 6
4. STOCK MARKET INDEX

A stock market index is created by selecting a group of stocks that are representative of the
whole market or a specified sector or segment of the market. An Index is calculated with
reference to a base period and a base index value. Stock market indexes are meant to capture
the overall behavior of equity markets.

Stock market indexes are useful for a variety of reasons. Some of them are :

a) They provide a historical comparison of returns on money invested in the stock market
against other forms of investments such as gold or debt.
b) They can be used as a standard against which to compare the performance of an equity
fund.
c) In It is a lead indicator of the performance of the overall economy or a sector of the
economy
d) Stock indexes reflect highly up to date information
e) Modern financial applications such as Index Funds, Index Futures, Index Options play an
important role in financial investments and risk management

5. BASICS OF INVESTING
a) Before starting investing in securities market, Investor needs to understand and identify
their investment goals, objectives and risk appetite (the extent up to which they are willing
to take risk).
b) Once investor decides goals and identifies risk appetite, they need to decide the amount
they want to invest and the time period over which they want to invest.
c) The investors should also be well informed about their rights, responsibilities, Investors
should make informed decision before investing in the shares of a company.
d) They should carefully read all the information related to the company such as disclosures
related to the company, its promoters, the project details, financial details, etc.

Key risks in investing in securities market:

Market risk or Systematic Risk: It means that an investor may experience losses due to factors
affecting the overall performance of financial markets and general economy of the country

Unsystematic Risk: Unsystematic risk can be described as the uncertainty attached with a
particular company or industry.

• Inflation risk: Inflation risk is also called as purchasing power risk. It is defined as the chance
that the cash flows from an investment would lose their value in future because of a decline in
its purchasing power due to inflation.

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• Liquidity risk: Liquidity risk arises when an investment can’t be bought or sold quickly enough.

• Business Risk: It refers to the risk that a business of a company might be affected or may stop
its operations due to any unfavorable operational, market or financial situation.

• Volatility Risk: Volatility risk arises as the Companies’ stock prices may fluctuate over time.

• Currency Risk: It refers to the potential risk of loss from fluctuating foreign exchange rates
that an investor may face when he has invested in foreign currency or made foreign currency-
traded investments

6. PRE-REQUISITES FOR INVESTING IN SECURITIES MARKET:

Bank account Trading Demat

account account

7. KNOW YOUR CLIENT (KYC) PROCESS FOR OPENING AN ACCOUNT:

 KYC is mandatory under the Prevention of Money Laundering Act, 2002 and Rules framed
thereunder.
 While opening of Demat / Trading/ Bank account, client have to submit officially valid
documents (OVDs) as proof of identity and proof of address and these documents form a
part of the KYC requirements.
 An investor can establish his identity and address through relevant supporting prescribed
documents such as PAN card / Unique Identification (UID) (Aadhaar)/ Passport/ Voter ID
card/ Driving license, etc.
 Once the KYC form is submitted, a unique KYC Identification Number (KIN) is generated and
communicated to the client by SMS/ Email.
 KYC is a one-time process and is valid across all the intermediaries.

8. GRIEVANCE REDRESSAL IN SECURITIES MARKET

SEBI launched a centralized web based complaints redress system SEBI Complaints Redress
System ‘SCORES’ in June 2011. The purpose of SCORES is to provide a platform for aggrieved

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investors, whose grievances, pertaining to securities market, remain unresolved by the
concerned listed company or registered intermediary after a direct approach.

The salient features of SCORES are:

1. Centralized database of investor complaints

2. Online movement of complaints to the concerned listed company or SEBI registered
intermediary
3. Online upload of Action Taken Reports (ATRs) by the concerned listed company or SEBI
registered intermediary
4. Online viewing by investors of actions taken on the complaint and its current status
5. SCORES is web enabled and provides online access 24 x7;
6. Complaints and reminders there on can be lodged online at the above website at anytime
from anywhere;
7. An email is generated instantaneously acknowledging the receipt of complaint and allotting
a unique complaint registration number to the complainant for future reference and
tracking;
8. The complaint forwarded online to the entity concerned for its redressal;

9. RISK MANAGEMENT IN SECONDARY MARKET

The key risk management measures initiated by SEBI include:-

 Categorization of securities into groups 1, 2 and 3 for imposition of margins based on

their liquidity and volatility.
 VaR (value at risk) based margining system.
 Specification of mark to Market margins.
 Specification of Intra-day trading limits and Gross Exposure Limits.
 Real time monitoring of the Intra-day trading limits and Gross Exposure Limits by the
Stock Exchanges.
 Specification of time limits of payment of margins.
 Collection of margins on upfront basis.
 Index based market wide circuit breakers.
 Automatic de-activation of trading terminals in case of breach of exposure limits.
 VaR based margining system has been put in place based on the categorization of stocks
based on the liquidity of stocks depending on its impact cost and volatility. It addresses
99% of the risks in the market.
 Additional margins have also been specified to address the balance 1% cases.
 Collection of margins from institutional clients on T+1 basis.

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10. KEY DIFFERENCES BETWEEN WPI & CPI

SR Basis for Wholesale Price Index (WPI) Consumer Price Index (CPI)
No Comparison
1 Use Primary use of WPI is to have CPI is used for adjusting income
inflationary trend in the economy as and expenditure streams for
a whole. changes in the cost of living.

2 Prices WPI is based on wholesale prices for CPI is based on retail prices, which
primary articles, administered prices include all distribution costs and
for fuel items and ex-factory prices taxes.
for manufactured products.

3 Basis for Prices for WPI are collected on price data for CPI are collected by
collection of voluntary basis investigators by visiting markets.
prices

4 Goods and WPI covers all goods including CPI covers only consumer goods
Services intermediate goods transacted in and consumer services
the economy.

5 Basis of WPI weights primarily based on CPI weights are derived from
Weights national accounts and enterprise consumer expenditure survey
survey data data.

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CHAPTER 19
SECURITIES MARKET INTERMMEDIARIES

Additional Notes

Introduction

The capital market intermediaries are vital link between investor, issuer and regulator. The objective
of these intermediaries is to smoothen the process of investment and to establish a link between the
investors and the users of funds.

Corporations and Governments do not market their securities directly to the investors. Instead, they
hire the services of the market intermediaries to represent them to the investors. Investors,
particularly small investors, find it difficult to make direct investment.

A small investor desiring to invest may be able to diversify across issuers to reduce risk. He may not
be equipped to assess and monitor the credit risk of issuers.

SECURITIES AND EXCHANGE BOARD OF INDIA (INTERMEDIARIES) REGULATIONS, 2008

The SEBI introduced the SEBI Intermediaries Regulations in order to regulate the activities of
intermediaries in the financial markets such as registrars to an issue, participants, asset management
companies, clearing member of a clearing corporation or clearing house, foreign portfolio investors
and trading members of a derivative segment or currency derivatives segment of a stock exchange.

In order to act as an intermediary, a person is required to apply to the SEBI for the grant of a
certificate to act as an intermediary, as per the SEBI Intermediaries Regulations.

The SEBI grants a certificate in the form specified in the relevant regulations on satisfaction of the
eligibility of the applicant.

A person may carry on the activities of one or more intermediaries only if it obtains a separate
certificate to carry on each such activity.

 Intermediaries are required to provide the SEBI with a certificate on April 1 of each year
certifying, inter alia, compliance with obligations, responsibilities and fulfilment of eligibility
criteria on a continuous basis.
 Further, they are required to redress investor grievances within 45 days of receipt thereof or
within the time specified by the SEBI, when called upon by the SEBI.
 An intermediary and its directors, officers, employees and key management personnel are
required to abide by the code of conduct specified in the SEBI Intermediaries Regulations,
under which they are required to, inter alia, ensure investor protection, promptly disburse
dividends on behalf their clients, avoid conflict of interest and ensure that good corporate
policies and corporate governance policies are in place.

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  SEBI may appoint inspecting authorities to undertake inspection of the books of accounts,
records and documents of an intermediary for any purpose.
 In case of default, the SEBI may take actions including but not limited to, suspension of
certificate of registration for a specified period, cancellation of registration, warning the
intermediary, prohibit taking up any new assignment or contract or launch a new scheme for
a specified period, and debarring a branch or an office from carrying out activities for a
specified period.

REGISTRATION OF INTERMEDIARIES

Application for Registration: On and from the commencement of these regulations, an

application, for grant of a certificate to act as an intermediary, has to be made to the Board in
Form A of Schedule I with such additional information as required to be provided under the
relevant regulations, and the application fee, as specified in the relevant regulations.

Process of Application: The stock exchange, the clearing corporation, the depository or the
specified self regulatory organization, as the case may be, has to examine the eligibility of the
applicant in terms of these regulations, relevant regulations and the rules, regulations or bye-
laws of the concerned stock exchange, clearing corporation, depository or the self regulatory
organization and forward the application with the application fees to the Board along with its
recommendation as early as possible but not later than 30 days of receipt of the complete
application with the specified application fees.

Additional Information: The Board may require the applicant to furnish further information or
clarifications, regarding matters relevant to the activity of such an intermediary, to consider
and dispose of the application.

Furnishing of additional information: The applicant has to furnish such information and
clarification to the satisfaction of the Board, within the time specified in this regard by the
Board.

Verification / Inspection: While considering the application, the information furnished by the
applicant and its eligibility, the Board may, if it so desires, verify the information by physical
verification of documents, office space, and inspect the availability of office space,
infrastructure, and technological support which the applicant is required to have

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 Rejection of Application: Any application for grant of certificate which is not complete in all
respects and does not conform to the requirements in Form A and the requirements specified
in the relevant regulation, which does not contain such additional information as required by
the Board, which is incorrect, false or misleading in nature.

where the applicant is not a fit and proper person as and where the principal officer does not
have the requisite qualification or experience as required under the relevant regulations can be
rejected by the Board for reasons to be recorded by the Board in writing.

However, the applicant has to be given an opportunity in writing to make good the deficiencies
within the time specified by the Board, for the purpose.

Further, where an application is rejected for the reason that it contains false or misleading
information, no such opportunity may be given and the applicant cannot make any application
for grant of certificate under these regulations or any other regulations for a period of 1 year
from the date of such rejection.

Granting of Certificate: The Board on being satisfied that the applicant is eligible, has to grant a
certificate in the form specified in the relevant regulations and send an intimation to the
applicant in this regard.

Conditional Registration: Where a pending proceeding before the Board or any court or
tribunal may result in the suspension or cancellation of the certificate, the Board may give a
conditional registration.

Separate Certificate for other activity: When an intermediary, who has been granted a
certificate and who has filed Form A under these regulations, wishes to commence a new
activity which requires a separate certificate under the relevant regulations, it has to, while
seeking such certificate, not be required to file Form A, and has to furnish to the Board only
such additional information as is required under the relevant regulations.

Validity in case of change in status or constitution: Any certificate granted by the Board to an
intermediary has to be subject to the conditions that where the intermediary proposes to
change its status or constitution, it has to obtain prior approval of the Board for continuing to
act as an intermediary after such change in status or constitution, it has to pay the applicable
fees in accordance with the relevant regulations, it has to abide by the provisions of the
securities laws and the directions, and it has to meet the eligibility criteria.

The Board may impose other conditions as it may deem fit in the interest of investors or
orderly development of the securities market or for regulation of the working of the
intermediary and the intermediary has to comply with such conditions.

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 Deemed Approval: A request for prior approval which is complete in all respects has to be
disposed off by the Board within a period of 60 days from the date of receipt of such request
and where the decision of the Board has not been communicated to the intermediary within
the said period of 60 days, the prior approval has to be deemed to have been granted

Transfer of activities to another intermediary: Where an intermediary has failed to make an

application or where an existing intermediary has been refused grant of certificate under these
regulations, transfer its activities to another intermediary which has been granted a certificate
for carrying on such activity and allow its clients or investors to withdraw or transfer their
securities or funds held in its custody without any additional cost to such client or investor,
make provisions as regards liability incurred or assumed by the intermediary and take such
other action, within the time period and in the manner, as may be required under the relevant
regulations or as may be directed by the Board

Timelines for Registration (In Summary)

Activities Timelines
Fresh Registration of intermediaries 30 days
Cancellation/ Surrender of registration 30 days
Prior Approval for change in control of 30 days
intermediary

GENERAL OBLIGATIONS OF INTERMEDIARIES

An intermediary shall provide the SEBI with a certificate of its compliance officer on the 1st April of
each year certifying:

(a) the compliance by the intermediary with all the obligations, responsibilities and the fulfillment of
the eligibility criteria on a continuous basis under these regulations and the relevant regulations;

(b) that all disclosures made in Form A and under the relevant regulations are true and complete.

Each intermediary shall prominently display a photocopy of the certificate at all its offices including
branch offices.

The intermediary shall also prominently display the name and contact details of the compliance
officer to whom complaint may be made in the event of any investor grievance.

The intermediary shall maintain such books, accounts and records as specified in the relevant
regulations.

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Redressal of investor grievances

 The intermediary shall make endeavours to redress investor grievances promptly but not
later than forty-five days of receipt thereof and when called upon by the Board to do so it
shall redress the grievances of investors within the time specified by the Board.
 The intermediary shall maintain records regarding investor grievances received by it and
redressal of such grievances.
 The intermediary shall at the end of each quarter of a Financial Year ending on 31st March
upload information about the number of investor grievances received,
 redressed and those remaining unresolved beyond three months of the receipt thereof by
the intermediary on the website specified by the Board.

Appointment of compliance officer

 An intermediary shall appoint a compliance officer for monitoring the compliance by it of

the requirements of the Act, rules, regulations, notifications, guidelines, circulars and orders
made or issued by the SEBI or the Central Government, or the rules, regulations and
byelaws of the concerned stock exchanges, or the self regulatory organization, where
applicable.
 However the intermediary may not appoint compliance officer if it is not carrying on the
activity of the intermediary.
 The compliance officer shall report to the intermediary or its board of directors, in writing,
of any material non compliance by the intermediary.

Foreign Portfolio Investor

“Foreign Portfolio Investor” means a person who has been registered under Chapter II of Securities
and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 and shall be deemed to
be an intermediary in terms of the provisions of the SEBI Act, 1992.

 The foreign portfolio investor shall –

 comply with the provisions of these regulations, as far as they may apply, circulars issued
thereunder and any other terms and conditions specified by the SEBI from time to time;
 inform the Board and designated depository participant in writing, if any information or
particulars previously submitted to the SEBI or designated depository participant are found
to be false or misleading, in any material respect;
 forthwith inform the SEBI and designated depository participant in writing, if there is any
material change in the information including any direct or indirect change in its structure or
ownership or control, previously furnished by him to the SEBI or designated depository
participant;
 as and when required by the SEBI or any other Government agency in India, submit any
information, record or documents in relation to its activities as a foreign portfolio investor;
 inform the SEBI and the designated depository participant, in case of any penalty, pending
litigation or proceedings, findings of inspections or investigations for which action may have
been taken or is in the process of being taken by an overseas regulator against it;
 obtain a Permanent Account Number from the Income Tax Department;

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  in relation to its activities as foreign portfolio investor, at all times, subject itself to the
extant Indian laws, rules, regulations, guidelines and circulars issued from time to time;
 be a fit and proper person based on the criteria specified in Schedule II of the Securities and
Exchange Board of India (Intermediaries) Regulations, 2008;
 undertake necessary KYC on its shareholders/ investors in accordance with the rules
applicable to it in the jurisdiction where it is organised;
 provide any additional information or documents including beneficiary ownership details of
their clients as may be required by the designated depository participant or the SEBI or any
other enforcement agency to ensure compliance with the Prevention of Money Laundering
Act, 2002 and the rules and regulations specified thereunder, the Financial Action Task Force
standards and circulars issued from time to time by the Board; and
 ensure that securities held by foreign portfolio investors are free from all encumbrances.

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 Financial Market
Additional Points to Remember

1. Functions of Financial Market

• It facilitates mobilisation and channelization of savings into the most productive uses.
• It helps in determining the price of the securities, on the basis of their demand and
supply in the market.
• It provides liquidity to tradable assets, by facilitating the exchange, as the investors can
readily sell their
 securities and convert assets into cash.
• It reduces cost by providing valuable information, regarding the securities traded in the
financial market.
• It facilitates exchange of assets without physical delivery.

2.

Financial Market

Securities Market
Money Market
Capital Market Securities Market is a place
Money Market is a Capital market concerned where companies can raise
segment of the financial
with the industrial security funds by issuing securities
market where borrowing
market, government such as equity shares, debt
and lending of short-term
securities markets, and long- securities, derivatives,
funds take place. The
term loan market. It supplies mutual funds, etc. to the
maturity of money market
long-term and medium-term investors (public) and also is
instruments is from one
funds. It deals with shares, a place where investors can
day to one year. In India,
stocks debentures and buy or sell various securities
this market is regulated bonds. (shares, bonds, etc.).
by both RBI (the Reserve
Securities Market is a part of
bank of India) and SEBI
the Capital Market.
(the Security and Exchange
Board of India).

Primary Market
Secondary Market
Page 1 of 3
3. DIFFERENCE BETWEEN PRIMARY AND SECONDARY MARKET

SR Basis for Primary Market Secondary Market

No. comparison
1 Meaning The market place for issuing The market place for trading
fresh issued
Securities Securities
2 Objectives To raise funds Capital Appreciation
3 Scope Includes issuance of new Includes the further trading of
securities securities already offered to the
through Initial Public Offer (IPO) public
4 Another name New issue market After issue market
5 Purchasing of Investors can purchase Purchase and sale of securities
securities securities is done by the investors among
directly from the Company themselves
6 Financing Primary market provides funds It does not provide funding to
to new and old companies for Companies
their expansion and
diversification
7 Parties to Company and Investors Investors among themselves
transactions
8 Intermediaries Underwriters Brokers
9 Price Price is fixed Price fluctuates i.e. depends on
demand and supply forces
10 Utilisation of Fund gained from primary Fund received from secondary
fund market becomes the capital of market becomes income of
the company investors

4. SEBI – THE CAPITAL MARKETS REGULATOR

Through SEBI, the regulation model which is sought to be put in place in India is one in which
every aspect of securities market regulation is entrusted to a single highly visible and
independent organization, which is backed by a statute, and which is accountable to the
Parliament and in which investors can have trust.

A. OBJECTIVE OF SEBI  Protection to the investors

 Prevention of malpractices
 Fair and proper functioning

B. FUNCTIONS OF
SEBI
1 Protective As the name suggests, these functions are performed by SEBI to
Functions: protect the interest of investors and other financial participants,

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2 Regulatory
Functions
3 Development
Functions
C. POWERS OF SEBI
1 Quasi-Judicial
(enforcement) :
2 Quasi-Legislative :
3 Quasi-Executive :
4 Power to issue
informal guidance:
Page 3 of 3
including:
 Checking price rigging
 Prevent insider trading
 Promote fair practices
 Create awareness among investors
 Prohibit fraudulent and unfair trade practices
These functions are basically performed to keep a check on the
functioning of the business in the financial markets, including:
 Designing guidelines and code of conduct for the proper
functioning of financial intermediaries and corporate.
 Regulation of takeover of companies
 Conducting inquiries and audit of exchanges
 Registration of brokers, sub-brokers, merchant bankers
etc.
 Levying of fees
 Performing and exercising powers
 – Register and regulate credit rating agency
SEBI performs certain development functions also that include
but they are not limited to –
 Imparting training to intermediaries
 Promotion of fair trading and reduction of malpractices
 Carry out research work
 Encouraging self-regulating organizations
 Buy-sell mutual funds directly from AMC through a broker
With this authority, SEBI can conduct hearings and pass Orders in
cases of unethical and fraudulent trade practices.
Powers under this segment allow SEBI to draft rules and
regulations for the protection of the interests of the investor.
SEBI is authorised to file a case against anyone who violates its
rules and regulation. It is empowered to inspect account books
and other documents if it finds traces of any suspicious activity.
SEBI introduced the SEBI (Informal Guidance) Scheme, 2003,
which enables any intermediary registered with SEBI to make a
request for informal guidance.
 Securities LawS and
Capital MarketS
Live for Today! Hope for Tomorrow!
 SECURITIES MARKET INTERMEDIARIES
SCRA
 Right to Legal Representation. SEBI
 Right to Legal Representation  SEBI has authorised Practising Company
The appellant may either appear in person
Any person aggrieved (the appellant) Secretaries to undertake internal audit of
or authorise one or more chartered
may either appear in person or various capital market intermediaries and
accountants or company secretaries or
authorise one or more CA or company issue quarterly certificate with respect to
cost accountants or legal practitioners or
secretaries (PCS) or CMA or legal reconciliation of share capital audit.
any of its officers to present his or its case
practitioners or any of its officers to  Every market intermediaries shall appoint a
before the SAT
present his or its case before the SAT. CS as a compliance officer who shall be
responsible for monitoring the compliance
of the Act, rules and regulations,
notifications, guidelines, instructions etc.
SHARE BASED EMPLOYEE BENEFITS issued by SEBI or the Central Government
 For listing of equity shares issued pursuant and for redressal of investors’ grievances.
to exercise of options granted under
ESPS/ESOS/SARS/GE BS/RBS basis- Post
ROLE OF  The compliance officer shall immediately
and independently report to SEBI for any
issue
1. A Certificate from Company Secretary for
COMPANY non-compliance observed by him.
receipt of money
2. A quarterly certificate from the PCS
SECRETAR
specifically certifying that the company
has received the application/allotment
Y ICDR
 Certification by PCS in case of
monies from the applicants of these
offer/allotment of securities to more
shares.
than 49 and up to 200 investors.
To issue a certificate regarding
issuance of securities to more than 49
DEPOSITORIES and up to 200 investors that the refund
 Right to Legal Representation procedure as prescribed by the SEBI
has been duly complied with.
 Internal Audit of Depository Participants: NSDL and CDSL have allowed Company Secretaries in
Whole-time Practice to undertake internal audit of the operations of Depository Participants (DPs).
 Reconciliation of Share Capital Audit: CS is authorised to issue quarterly certificate with regard to
reconciliation of the total issued capital, listed capital and capital held by depositories in
dematerialized form, details of changes in share capital during the quarter, and in principle approval CIS
obtained by the issuer from all the stock exchanges where it is listed in respect of such further The Company Secretary shall ensure
issued capital under SEBI (Depositories and Participants) Regulations, 2018. that the money mobilization carried
 Concurrent Audit of Depository Participants: Practising Company Secretary is authorized to out by the company will not trigger
carry out concurrent audit of Depository Participants which covers audit of the process of demit the parameters of CIS Regulations
account opening, control and verification of Delivery Instruction Slips (DIS).
 INSIDER TRADING
1. Ensure compliance with SEBI (Prohibition of insider Trading) Regulations, 2015
2. Ensure that no trading shall between 20th day prior to closure of financial period and 2nd trading day after disclosure
of financial results
3. Receive initial disclosure from every Promoter, KMP and director or every person on appointment as KMP or director or
becoming a Promoter shall disclose its shareholding in the prescribed form within :
 30 days from these regulations taking effect, or
 7 days of such appointment or becoming a promoter
4. Receive from every Promoter, designated persons and director, continual disclosures of the number of securities
acquired or disposed of and changes therein, even if the value of the securities traded, exceeds Rs. 10 lakh with single or
series of transaction in any calendar quarter in prescribed form within two trading days of :
 receipt of the disclosure, or
 from becoming aware of such information
5. Ensure that proper internal control system is in place and continuously monitor and review of its functioning
6. Assist in addressing any clarifications regarding the SEBI (Prohibition of Insider Trading) Regulations
7. Maintain a list of all information termed as ‘price sensitive information’
8. Keep records of periods specified as ‘Close period’ and the ’Trading window’.
ROLE OF
COMPANY LODR
For Company Secretary in Employment
SECRETARY 1.
2.
Ensure conformity with the regulatory provisions applicable to the listed entity in letter and spirit.
Co-ordinate with and report to SEBI, RSE(s) and depositories with respect to compliance with rules,
regulations and other directives of these authorities in manner as specified from time to time.
3. Ensure that the correct procedures have been followed that would result in the correctness, of the
information, statements and reports filed by the listed entity
4. Monitor email address of grievance redressal division for the purpose of registering complaints by
DELISTING
investors.
 Act as compliance officer under the SEBI 5. The listed entity shall submit a compliance certificate to the exchange, duly signed by both the
(LODR) Regulations. compliance officer of the listed entity and the authorised representative of the share transfer agent,
 Ensure timely compliances of various within one month of end of each half of the financial year, certifying that all
SEBI regulations. 6. activities in relation to both physical and electronic share transfer facility are maintained either in
 In case of non-compliance with the listing house or by Registrar to an issue and share transfer agent registered with SEBI
regulation a stock exchange may delist For Company Secretary in Practice
the securities of a company. 1. Certificate regarding Transfer of Securities
 Apart from this, a Company Secretary has 2. Certificate Regarding Compliance of Conditions of Corporate Governance under SEBI Listing
Regulations
to appoint and co-ordinate with various
3. Certificate Regarding Maintenance of 100% Asset Cover
intermediaries, regulators, etc. and advise • To issue half yearly certificate regarding maintenance of 100% security cover in respect of listed
the Board of Directors, the various nonconvertible debt securities. [Regulation 56(1)] (d)]
requirements of Delisting. 4. Secretarial Audit Report
5. Certification regarding Director’s Disqualification