SUBJECT – SECURITY MARKET OPERATION

Submitted to,

OMENDRA AWASTHI SIR

Submitted by – Group 10

Gyanendra Sharma

Anupama Singh

Himanshu Pandey

Harikant Yadav

Abhay Diwedi

Securities Market in India – An Overview

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 The developments in the securities market provide the necessary impetus for
growth and development, and thereby strengthen the emerging market economy in India.

Products and Participants

Mobilization of savings from surplus savers to deficit savers is most efficiently carried
out by the securities market through a range of complex products called “securities”. The
definition of securities as per the Securities Contract Regulation Act, (SCRA) 1956 includes
shares, bonds, scripts stocks or other marketable securities of like mature in or of any
incorporate company or body corporate, government securities, derivatives of securities,
units of collective investment scheme, interest and rights in securities, security receipt or
any other instruments so declared by the central government.

The securities market has essentially three categories of participants viz., the issuer of
securities, investors in securities and the intermediaries. The issuers are the borrowers or
deficit savers, who issue securities to raise funds. The investors, who are surplus savers,
deploy their savings by subscribing to these securities. The intermediaries are the agents
who match the needs of users and suppliers of funds for a commission. These
intermediaries pack and unpack securities to help both the issuers and investors to achieve
their respective goals. There are a large variety and number of intermediaries providing
various services in the Indian securities market. This process of mobilization of resources is
carried out under the supervision and overview of the regulators. The regulators develop
fair market practices and regulate the conduct of issuers of securities and the
intermediaries. They are also in charge of protecting the interests of the investors. The
regulator ensures a high service standard from the intermediaries and supply of quality
securities and non-manipulates demand for them in the market.

Market Segments
The securities market has two interdependent segments: the primary and the
secondary market. The primary market is the channel for creation of new securities. These
securities are issued by public limited companies or by government agencies. In the primary
market the resources are mobilized either through the public issue or through private
placement route. It is a public issue if anybody and everybody can subscribe for it, whereas

if issue is made available to a selected group of persons it is termed as private placement.

There are two major types of issuers of securities, the corporate entities who issue mainly

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debt and equity instruments and the government (central as well as state) who issue debt
securities.

These new securities issued in the primary market are traded in the secondary
market. The secondary market enables participants who hold securities to adjust their
holdings in response to changes in their assessment of risks and returns. The secondary
market operates through two mediums, namely, the over-the-counter (OTC) market and the
exchange-traded market. OTC markets are informal market where trades are negotiated.
Most of the trades in the government securities are in the OTC market. All the spot trades
where securities are traded for immediate delivery and payment take place in the OTC
market. The other option is to trade using the infrastructure provided by the stock
exchanges. There are 23 exchanges in India and all of them follow a systematic settlement
period. All the trades taking place over a trading cycle (day=T) are settled together after a
certain time (T+2 day).

The trades executed on the National Stock Exchange (NSE) are cleared and settled by a
clearing corporation. The clearing corporation acts as a counterparty and guarantees
settlement. Nearly 100% of the trades in capital market segment are settled through de-mat
delivery.NSE also provides a formal trading platform for trading of a wide range of debt
securities, including government securities. A variant of the secondary market is the forward
market, where securities are traded for future delivery and payment. A variant of the
forward market is Futures and Options market. Presently only two exchanges viz., NSE and
Stock Exchange, Mumbai (BSE) provides trading in the derivatives of securities.

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 SECURITIES EXCHANGE BOARD OF INDIA (SEBI):
Securities Exchange Board of India (SEBI) was set up in 1988 to regulate the
functions of securities market. SEBI promotes orderly and healthy development in the stock
market but initially SEBI was not able to exercise complete control over the stock market
transactions.

It was left as a watch dog to observe the activities but was found ineffective in
regulating and controlling them. As a result in May 1992, SEBI was granted legal status. SEBI
is a body corporate having a separate legal existence and perpetual succession.

Reasons for Establishment of SEBI:

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

Purpose and Role of SEBI:

SEBI was set up with the main purpose of keeping a check on malpractices and protect
the interest of investors. It was set up to meet the needs of three groups.

1. Issuers -
For issuers it provides a market place in which they can raise finance fairly and
easily.
2. Investors -
For investors it provides protection and supply of accurate and correct
information.
3. Intermidiaries –
For intermediaries it provides a competitive professional market.

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Objectives of SEBI:
The overall objectives of SEBI are to protect the interest of investors and to promote
the development of stock exchange and to regulate the activities of stock market. The
objectives of SEBI are :

1. To regulate the activities of stock exchange.

2. To protect the rights of investors and ensuring safety to their investment.
3. To prevent fraudulent and malpractices by having balance between self
regulation of business and its statutory regulations.
4. To regulate and develop a code of conduct for intermediaries such as brokers,
underwriters, etc.

Functions of SEBI:
The SEBI performs functions to meet its objectives. To meet three objectives SEBI has
three important functions. These are:

i. Protective functions

ii. Developmental functions

iii. Regulatory functions.

__________________----------------------------------------------_______________________

Protective functions:

These functions are performed by SEBI to protect the interest of investor and
provide safety of investment.

As protective functions SEBI performs following functions:

(i) It Checks Price Rigging:
Price rigging refers to manipulating the prices of securities with the main objective
of inflating or depressing the market price of securities. SEBI prohibits such practice
because this can defraud and cheat the investors.

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(ii) It Prohibits Insider trading:
Insider is any person connected with the company such as directors, promoters
etc. These insiders have sensitive information which affects the prices of the securities.
This information is not available to people at large but the insiders get this privileged
information by working inside the company and if they use this information to make
profit, then it is known as insider trading, e.g., the directors of a company may know
that company will issue Bonus shares to its shareholders at the end of year and they
purchase shares from market to make profit with bonus issue. This is known as insider
trading. SEBI keeps a strict check when insiders are buying securities of the company
and takes strict action on insider trading.

(iii) SEBI prohibits fraudulent and Unfair Trade Practices:

SEBI does not allow the companies to make misleading statements which are
likely to induce the sale or purchase of securities by any other person.

(iv) SEBI undertakes steps to educate investors so that they are able to evaluate the
securities of various companies and select the most profitable securities.

(v) SEBI promotes fair practices and code of conduct in security market by taking
following steps:
(a) SEBI has issued guidelines to protect the interest of debenture-holders wherein
companies cannot change terms in midterm.

(b) SEBI is empowered to investigate cases of insider trading and has provisions for
stiff fine and imprisonment.

(c) SEBI has stopped the practice of making preferential allotment of shares
unrelated to market prices.

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 Developmental Functions:

These functions are performed by the SEBI to promote and develop activities in stock
exchange and increase the business in stock exchange. Under developmental
categories following functions are performed by SEBI:

(i) SEBI promotes training of intermediaries of the securities market.

(ii) SEBI tries to promote activities of stock exchange by adopting flexible and
adoptable approach in following way:

(a) SEBI has permitted internet trading through registered stock brokers.

(b) SEBI has made underwriting optional to reduce the cost of issue.

(c) Even initial public offer of primary market is permitted through stock exchange.

Regulatory Functions:

These functions are performed by SEBI to regulate the business in stock exchange. To
regulate the activities of stock exchange following functions are performed:

(i) SEBI has framed rules and regulations and a code of conduct to regulate the
intermediaries such as merchant bankers, brokers, underwriters, etc.

(ii) These intermediaries have been brought under the regulatory purview and private
placement has been made more restrictive.

(iii) SEBI registers and regulates the working of stock brokers, sub-brokers, share
transfer agents, trustees, merchant bankers and all those who are associated with
stock exchange in any manner.

(iv) SEBI registers and regulates the working of mutual funds etc.

(v) SEBI regulates takeover of the companies.

(vi) SEBI conducts inquiries and audit of stock exchanges.

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The Organisational Structure of SEBI:
1. SEBI is working as a corporate sector.

2. Its activities are divided into five departments. Each department is headed by an
executive director.

3. The head office of SEBI is in Mumbai and it has branch office in Kolkata, Chennai and
Delhi.

4. SEBI has formed two advisory committees to deal with primary and secondary
markets.

5. These committees consist of market players, investors associations and eminent

persons.

Objectives of the two Committees are:

1. To advise SEBI to regulate intermediaries.

2. To advise SEBI on issue of securities in primary market.

3. To advise SEBI on disclosure requirements of companies.

4. To advise for changes in legal framework and to make stock exchange more
transparent.

5. To advise on matters related to regulation and development of secondary stock

exchange.

These committees can only advise SEBI but they cannot force SEBI to take action on
their advice.

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Securities and Exchange Board of India Act, 1992
An Act to provide for the establishment of a Board to protect the interests of
investors in securities and to promote the development of, and to regulate, the
securities market and for matters connected therewith or incidental thereto.

BE it enacted by Parliament in the Forty-third Year of the Republic of India as follows:-

Preliminary :-
Short title, extent and commencement
1. (1) This Act may be called the Securities and Exchange Board of India Act, 1992.
(2) It extends to the whole of India.
(3) It shall be deemed to have come into force on the 30th day of January, 1992.

Definitions :-
2. (1) In this Act, unless the context otherwise requires-
(a) “Board” means the Securities and Exchange Board of India established
under section 3.
(b) “Chairman” means the Chairman of the Board.
(c) “existing Securities and Exchange Board” means the Securities and Exchange
Board of India constituted under the Resolution of the Government of
India in the Department of Economic Affairs No. 1(44)SE/86, dated the
12th day of April, 1988;
(d) “Fund” means the Fund constituted under section 14.
(e) “member” means a member of the Board and includes the Chairman;
(f) “notification” means a notification published in the Official Gazette;
(g) “prescribed” means prescribed by rules made under this Act;
(h) “regulations” means the regulations made by the Board under this Act;
(i) “securities” has the meaning assigned to it in section 2 of the Securities
Contracts (Regulation) Act, 1956 (42 of 1956).

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 SEBI Act ,1992:

SALIENT FEATURES OF SEBI Act, 1992

 An Act to provide for the establishment of a board to protect the interests of investors
in securities and to promote the development of, and to regulate, the securities
market and for matters connected therewith or incidental thereto.
 Shall be a body corporate with perpetual succession an common seal with power to
acquire hold and dispose of property.
HQ will be in Mumbai and may establish offices at other places in India.
Chairman and members of board will be appointed by the central government.
Government can prescribe terms of offices and other conditions of service of the board
and chairman.
Primary duties of the board is to protect the interest of the investors.
The general superintendence, director and management of affairs of the board shall
vest in board of members.

Companies Act 1956

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 The Companies Act which regulates the activities of the companies from birth to
death has provided for the sources of finance for companies and the methods of
marketing the public issues which are marketable. These are in the form of ownership
category, namely, Equities and Preference shares and Debt capital in the form of
convertible and non-convertible debentures, fixed deposits etc. Under the Companies
Act, Sections 55 to 68 provided for issue of prospectus, its contents, Registration of
Prospectus, civil and criminal liabilities of the Directors for any mis-statements in
prospectus etc.

The Act has laid down the methods of raising new issues, namely, through
prospectus, letter of offer or statement in lieu of prospectus, Rights and Bonus.
Section 58 A and B deal 41 with the conditions for acceptance of deposits,
repayments of deposits, etc. while companies (acceptance of deposits) Rules of 1975
laid down the period of maturity, interest rates and other conditions. As company
deposits are an avenue of investment, the details regarding them are dealt with
briefly later.
Sections 69 to 73 deal with the allotment of new issues of applicants, delivery of
certificates and their listing on Stock Exchanges. The allotment is also governed by the
guidelines given by the Stock Exchanges as per the listing agreement in the case of
listed companies.

The basic framework for trading is provided by the Companies Act in the form of
(1) Marketing the shares as movable property under Section 82.
(2) Ensuring transferability of shares in respect of public limited companies under
sections 108-112.
(3) The transfer deed through which share certificates are to be transferred is
provided for under Section 108 which was amended to legalise the demat form of
transfer since 1999.
(4) The validity of the transfer deed under Section 111 is 12 months in the case of
listed companies and 24 months in the case of non-listed companies.
(5) Section 114 provides for issue of share warrants.

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 So far as investors are concerned, it is desirable that they know the main provisions
of the Companies Act, because the issue of prospectus, the contents of it, allotment of
new issues, dispatch of certificates, transferability etc., are all laid down in it. The rights
of shareholders and debenture holders, and different categories of creditors and
debtors of companies are set out. The book closure for accounts, presentation of
Balance Sheet and Income-Expenditure accounts, payments of dividends etc., are all
provided for in this Act. In Particular, Section 82 provides for transferability of shares
and Section 73 lays down the conditions for listing of Public Limited Companies. While
these sections ensure the marketability of shares of listed public limited companies,
trading in them is made possible by the Securities Contracts Regulation Act and the
Rules made there under.
In view of the fact at purchase and sale of shares through recognized Stock
Exchanges and through licensed Stock Brokers are only legal, and those are governed
by the SC (R) Act, the investors have to be familiar with this Act and the Rules made
there under. The relation between the Brokers and Investors and in particular, the
disputes if any, between them are governed by the Rules and Bye-laws of the Stock
Exchanges which are formulated under this Act.

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Companies Act 2013
A comparison with the Companies Act, 1956 .

Background of New Act :

 The companies Bill, 2011 introduced in Lok Sabha on 14th December, 2011, was
referred to the Standing Committee on 5th January, 2012. The Standing
Committee submitted its report on 26th june ,2012 Incorporating
recommendations of the Standing Committee, the Companies bill, 2012 was
introduced and passed in Lok Sabha on 18th December, 2012 And passed by Rajya
Sabha on 8th August, 2013.
 The Companies bill, 2013, on receiving the assent of Honorable President of India
on August 29, 1013, was notified in the Gazzette of India on August 30, 2013 as
the Companies Act, 2013.

Approval by Lok sabha given on 18th december

2012

Approval by Rajya sabha given on 8th August

2013

Assent of Honorable President of india on

August 29, 2013

Noticed in the Gazette of India on August 30,

2013 as the Companies Act, 2013 (18 of 2013)

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Structure of the Acts:

Companies Act 1956 Companies Act

1956

13 parts 29 Chapters
658 Sections 470 clauses
15 schedules 7 schedules

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 Definations
New definitions are introduced in the Companies Act, 2013, some of which are accounting
standards, auditing standards, associate company, CEO, CFO, control deposit, employee
stock option, financial statement, global depository receipt, Indian depository receipt,
independent director, interested director, key managerial personnel, promoter, one
person company, small company, turnover, vting right etc..

 Private Company : The limit on maximum number of members increased from 50

to 200, Private company which is a subsidiary of a public company shall be deemed
to be a public company.
 Listed Company : a company which has any of its securities listed on any
recognized stock exchange.
 Associate Company : A company is considered to be an associate company of the
other, if the other company has significant influence over such company (not being
a subsidiary) or is a joint venture company. Significant influence means control of
at least 20 percent of total share capital of a company or of business decisions
under an agreement.
 Dormant Company : Where a company is formed and registered under this act for
a future project or to hold an asset or intellectual property and has no significant
accounting transaction, such a company or an inactive company may make an
application to the Registrar for obtaining the status of a domant company.
 “Foreign company” means any company or body corporate incorporated outside
India which :-
 Has a place of businesss in india whether by itself or though an agent,
physically or through electronic mode; and
 Conducts any business activity in India in any other manner.
 “key Managerial Personnel (KMP)”, In relation to a company , means –
 the chief Executive officer or the Managing Director or the Manager,
 the Company Secretary;
 the whole-time director,
 the Chief Financial Officer ; and
 such other officer as may be prescribed.

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 RING OUT THE OLD
 Certificate of incorporation is the conclusive evidence [Section 35]
 Private company to become public company in certain cases [Section 43A]
 Filing of prospectus or statement in lieu of prospectus by private company on
ceasing to be private company [Section 44]
 The provisions of section 58AA relating to acceptance of deposits from small
shareholders and intimation of default in repayment of deposits thereof has
been dropped. Similarly section 58AAA making any offence connected with or
arising out of acceptance u/s 58A or 58AA as cognizable has been done away
with [Section 58AA]
 Statement in lieu of prospectus [Section 70]
 Share Warrants [Section 114]
 Provision relating to certificate of commencement of business [Section 149]
 Appointment of public trustee [Section 153A]
 Statutory meeting and statutory report of company [Section 165]
 Payment of interest out of capital [Section 208]
 Requirement of getting approval from Central Government in case of related
party transactions exceeding the limits has been dispensed with [Section 188]
 Auditor not to be appointed except with the approval of the company by special
resolution in certain cases [Section 224A]
 Power of Central Government to direct special audit in certain cases [Section
233A]
 Right of company to increase or reduce the number of directors [Section 258]
 Time within which share qualification is to be obtained and maximum amount
thereof [Section 270]

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 Appointment of sole selling agents ot require approval of company in general
meeting [Section 294]
 Prohibition of payment of compensation to sole selling agents for loss of office
n certain cases [Section 294A]
 Power of Central Government to prohibit the appointment of sole selling
agents in certain cases [Section 294AA]
 Employees securities to be deposited in post office savings bank or Scheduled
Bank [Section 417].

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 NEW CHAPTERS INCLUDED IN COMPANIES ACT 2013 :

Chapter Description Chapter Number

Registered Valuers Chapter 17

Government Companies Chapter 23

Companies to Furnish Chapter 25

Information or Statistics

Nidhis Chapter 26

National company Law Chapter 27

Tribunal & Appellate
Tribunal

Special Courts Chapter 28

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CHANGES REGARDING INCORPORATION RELATING
MATTERS :

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Corporate Social Responsibility (CSR) :
Corporate social responsibility, often abbreviated "CSR," is
a corporation's  initiatives to assess and take responsibility for the company's effects
on environmental and social wellbeing. The term generally applies to efforts that go
beyond what may be required by regulators or environmental protection groups .

CSR may also be referred to as "corporate citizenship" and can involve incurring short-
term costs that do not provide an immediate financial benefit to the company, but instead
promote positive social and environmental change.

Corporate social responsibility is a concept whereby companies decide voluntarily to

contribute to a better society and a cleaner environment. Corporate social
responsibility is represented by the contributions undertaken by companies to society
through its business activities and its social investment.

Some changes are in companies Act 2013 are as

under follows :
Every company having ,

 Net worth of Rupees 500 Crore or more, or

 Turnover of Rupees 1,000 Cr or more, or
 Net profits of Rupees 5 Cr or more during any FY
 Shall constitute CSR Committee.
 Committee to consist of at least three directors out of which at least one should
be independent director.
 CSR Committee shall formulate and recommend policy to Board, which shall
indicate activities to be undertaken by the company.
 Board to ensure that at least 2% of the average net profits of last 3 years is
spent by the company on CSR activities (Specified in schedule VII) every
financial year.
 If company fails to spend such amount, reasons for not spending to be specified
in the Board's report signed by a director and the company secretary, or where
there is no company secretary, by a company secretary in practice.

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 Bibliography :
 http://www.investopedia.com/terms/c/corp-social-responsibility.asp
 http://www.sebi.gov.in/acts/act15ac.pdf
 http://www.businessmanagementideas.com/stock-exchange/securities-and-
exchange-board-of-india-sebi-purpose-objectives-and-functions/2259
 http://www.yourarticlelibrary.com/education/sebi-the-purpose-objective-and-
functions-of-sebi/8762/

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