Book Building

Book building is the process by which an underwriter attempts to determine the price at which an
initial public offering (IPO) will be offered. An underwriter, normally an investment bank, builds a
book by inviting institutional investors (such as fund managers and others) to submit bids for the
number of shares and the price(s) they would be willing to pay for them.

Book building has surpassed the 'fixed pricing' method, where the price is set prior to investor
participation, to become the de facto mechanism by which companies price their IPOs. The process
of price discovery involves generating and recording investor demand for shares before arriving at
an issue price that will satisfy both the company offering the IPO and the market. It is highly
recommended by all the major stock exchanges as the most efficient way to price securities.

The book building process comprises these steps:

• The issuing company hires an investment bank to act as an underwriter who is tasked with
determining the price range the security can be sold for and drafting a prospectus to send
out to the institutional investing community.
• The investment bank invites investors, normally large scale buyers and fund managers, to
submit bids on the number of shares that they are interested in buying and the prices that
they would be willing to pay.
• The book is 'built' by listing and evaluating the aggregated demand for the issue from the
submitted bids. The underwriter analyzes the information and uses a weighted average to
arrive at the final price for the security, which is termed the cutoff price.
• The underwriter has to, for the sake of transparency, publicize the details of all the bids
that were submitted.
• Shares are allocated to the accepted bidders.

GreenShoe Option

A greenshoe option is an over-allotment option. In the context of an initial public offering (IPO), it is
a provision in an underwriting agreement that grants the underwriter the right to sell investors more
shares than initially planned by the issuer if the demand for a security issue proves higher than
expected.

ADR and GDR

ADR - The term American depositary receipt (ADR) refers to a negotiable certificate issued by a U.S.
depositary bank representing a specified number of shares—usually one share—of a foreign
company's stock. The ADR trades on U.S. stock markets as any domestic shares would. ADRs offer
U.S. investors a way to purchase stock in overseas companies that would not otherwise be available.
Foreign firms also benefit, as ADRs enable them to attract American investors and capital without
the hassle and expense of listing on U.S. stock exchanges. An American depositary receipt is a
certificate issued by a U.S. bank that represents shares in foreign stock.

• These certificates trade on American stock exchanges.

• ADRs and their dividends are priced in U.S. dollars.
• ADRs represent an easy, liquid way for U.S. investors to own foreign stocks.
• These investments may open investors up to double taxation and there are a limited number
of options available.
ADR Fees - Investing in an ADR may incur additional fees that are not charged for domestic stocks.
The depositary bank that holds the underlying stock may charge a fee, known as a custody fee, to
cover the cost of creating and issuing an ADR. This fee will be outlined in the ADR prospectus, and
typically ranges from one to three cents per share. The fee will be either deducted from dividends,
or passed on to the investor's brokerage firm.

Pros

• Easy to track and trade

• Available through U.S. brokers
• Denominated in dollars
• Offer portfolio diversification

Cons

• Could face double taxation

• Limited selection of companies
• Unsponsored ADRs may not be SEC-compliant
• Investor's may incur currency conversion fees

GDR - A global depositary receipt (GDR) is a negotiable financial instrument issued by a depositary
bank. It represents shares in a foreign company and trades on the local stock exchanges in investors'
countries. GDRs make it possible for a company (the issuer) to access investors in capital markets
beyond the borders of its own country. GDRs are commonly used by issuers to raise capital from
international investors through private placement or public stock offerings.

• A global depositary receipt is a tradable financial security.

• It is a certificate that represents shares in a foreign company and trades on two or more
global stock exchanges.
• GDRs typically trade on American stock exchanges as well as Eurozone or Asian exchanges.
• GDRs and their dividends are priced in the local currency of the exchanges where the GDRs
are traded.
• GDRs represent an easy way for U.S. and international investors to own foreign stocks.

Pros

• Easy to track and trade

• Denominated in local currency
• Regulated by local exchanges
• Offers international portfolio diversification

Cons

• More complex taxation

• Limited selection of companies offering GDRs
• Investors exposed indirectly to currency and geopolitical risk
• Potential lack of liquidity
Insider Trading

Insider trading is defined as using unpublished price sensitive information to deal in securities of a
company for one’s own benefit.

Who is Insider?

As per Regulation 2(1)(g) of the SEBI (Prohibition of Insider Trading) Regulations, 2015– Insider is a
Person who is “Connected” with the company, who could have the Unpublished Price Sensitive
information (UPSI) or receive the information from somebody in the company.

• A Connected Person; or
• In possession of or having access to UPSI

The term connected person is defined in regulation 2(1)(d) of the SEBI (Prohibition of Insider
Trading) Regulations, 2015, which includes the following person:

• Any person associated with the company during the six months prior to the concerned act
• An immediate relative
• Holding/associate/subsidiary company
• An official of stock exchange or clearing corporation
• A Banker of the company
• A concern, firm, trust, HUF, company or AOP wherein above person having interest or
holding more that 10%
• Legal consultant and auditors and other person having direct or indirect interest with the
company

As per Regulation 2(1) (n) of the SEBI (Prohibition of Insider Trading) Regulations, 2015-
“unpublished price sensitive information” means any information, relating to a company or its
securities, directly or indirectly, that is not generally available which upon becoming generally
available, is likely to materially affect the price of the securities and shall, ordinarily including but not
restricted to, information relating to the following: –

• financial results
• dividends
• change in capital structure
• Capital Restructuring
• changes in key managerial personnel

No insider shall communicate, provide, or allow access to any unpublished price sensitive
information, relating to a company or securities listed or proposed to be listed, to any person
including other insiders except where such communication is in furtherance of legitimate purposes,
performance of duties or discharge of legal obligations. The Term “legitimate purpose” shall include
sharing of unpublished price sensitive information in the ordinary course of business by an insider
with partners, collaborators, lenders, customers, suppliers, merchant bankers, legal advisors,
auditors, insolvency professionals or other advisors or consultants, provided that such sharing has
not been carried out to evade or circumvent the prohibitions of these regulations.

Section 15G. Penalty for insider trading. -- If any insider who, shall be liable to a penalty 2[which shall
not be less than ten lakh rupees but which may extend to twenty-five crore rupees or three times
the amount of profits made out of insider trading, whichever is higher.
Markets regulator Sebi on Monday dismissed insider trading charges against 11 entities who
allegedly circulated unpublished price-sensitive information about the financial results of Axis Bank
NSE -0.69 % through WhatsApp messages.

Last year, Sebi had disposed of the adjudication proceedings against two individuals in the case
pertaining to alleged circulation of unpublished price-sensitive information (UPSI) about the financial
results of half a dozen companies, including TCS NSE -1.01 % and UltraTech Cement.

Competition Commission of India (CCI)

Competition Commission of India (CCI) is a statutory body of the Government of India aims to
establish a robust competitive environment.

• Through proactive engagement with all stakeholders, including consumers, industry,

government and international jurisdictions.
• By being a knowledge intensive organization with high competence level.
• Through professionalism, transparency, resolve and wisdom in enforcement.

What is Future Retail?

One of the most prominent players in the Indian retail market, Future Retail Limited (FRL) is a
retailing company selling a range of household and consumer products through departmental store
facilities under various formats.

But since February 2020, the company's business operation started facing problems, and the Future
Retail share price fell from Rs 377.10 on February 13, 2020, to Rs 77.60 (on February 3, 2021).

The company was unable to pay off its debt, and ultimately Kishore Biyani (the founder and CEO of
the future group) had to sell the company to Reliance Retail. However, even this deal with Reliance
is now facing problems from Amazon.

Amazon made an investment in Future Coupons wherein Amazon bought a 49 per cent stake in
2019. This stake in Future Coupons translated into a 3.5 per cent stake in Future Retail. Amazon in its
objection claimed that the deal came with a clause that prevented Future Group from selling off its
listed entities without Amazon's consent with a list of investors, which mentioned Mukesh Ambani's
name.

Anti-competitive agreements

An agreement includes any arrangement, understanding or concerted action entered into between
parties. It may or may not be in writing. Anti-competitive agreements under competition law are
broadly classified into two categories, the Anti-competitive Horizontal Agreement and Anti-
competitive Vertical/Agreement.

Horizontal Agreements are those agreements where enterprises engaged in identical or similar trade
of goods or services. When enterprises collude amongst each other to distort competition in the
markets, such agreement is presumed to have an appreciable adverse effect on competition and
thus, shall be void. The following four categories of such agreements amongst competitors are
presumed to have AAEC-

• agreement to fix price;

• agreement to limit production and/or supply;
• agreement to allocate markets;
 • bid rigging or collusive bidding.

Vertical Agreements are those agreements which are entered into by enterprises at different stages
or levels of production, distribution, supply, storage etc. Such vertical restrains include:

• tie-in arrangement;
• exclusive supply/distribution arrangement;
• refusal to deal; and
• resale price maintenance.

Abuse of dominant position

Dominance refers to a position of strength which enables an enterprise to operate independently of

competitive force in the market or to affect its competitors or consumers in its favor. Dominant
position of an enterprise itself is not prohibited; however, if the enterprise by virtue of having
dominant position in the relevant market abuses its dominance then the same stands prohibited.
Abuse of dominant position impedes fair competition between firm’s exploits consumers and makes
it difficult for the other players in the market to compete with the dominant undertaking. Abuse of
dominant position covers:

• imposing unfair condition or price, including predatory pricing;

• limiting production/market or technical or scientific development
• denying market access, and
• making conclusion of contracts subject to conditions, having no nexus with such contracts;
and
• using dominant position in one relevant market to gain advantages in another relevant
market.

Money Laundering

Criminals profit immensely from illegal activities such as human trafficking, sales of arms and
prohibited drugs, extortion, corruption and theft. They, somehow, need to conceal the criminal
nature of the money they have in order to use them as they wish. Money laundering is the process
of disguising the dirty money’s illegal origin to use it for legitimate purposes. It is important for
financial institutions to understand each of these money laundering stages to develop effective anti-
money laundering (AML) strategies.

Placement - It’s the first stage, where the illicit proceeds are introduced into the legal financial
system. There are various techniques of placement – be it smurfing, electronic transfers, bulk
movement, asset conversion, etc.

Layering - This is the second stage where the origins of the funds are concealed by moving them
around in a series of complex bank transfers or financial transactions. Out of the various techniques
of layering, the most common is to make electronic transfers between different jurisdictions and
through offshore accounts.

Integration - The third and final stage is integration where the proceeds can no longer be detected
by the officials and are infused back into the economy. The different methods of integration include
the sale and purchase of real estate properties, expensive gifts, loans, false import/export invoices,
which in turn helps to hide the source of the illegal income and reintroduces the funds into the
financial system, for the use of criminals.
Quid pro quo is a Latin term for "something for something" In business and legal contexts, quid pro
quo conveys that a good or service has been exchanged for something of equal value. It has been
used in politics to describe an unethical practice of "I'll do something for you, if you do something for
me," but are allowable if bribery or malfeasance does not occur through it.

The scheduled offences are covered and specified under the schedule of the PMLA. The provisions of
the PMLA can’t be invoked unless a scheduled offence under PMLA has been committed. The
scheduled offences are set out as the offences committed against the state.

• Offences under Indian Penal Code (IPC), 1860;

• Narcotic Drugs and Psychotropic Substances Act, 1985;
• Explosives Substances Act, 1908;
• Unlawful Activities (Prevention) Act (UAPA), 1967;
• Arms Act, 1959;
• Wildlife Protection Act, 1972;
• Immoral Traffic (Prevention) Act, 1956;
• Prevention of Corruption Act, 1988;
• The Explosives Act, 1884;
• The Antiquates and Arts Treasures Act, 1972;
• Securities and Exchange Board of India, 1992;
• Customs Act, 1962;
• The Bonded labour System (Abolition) Act, 1976;
• Child Labour (Prohibition and Regulation) Act, 1986;
• Transplantation of Human Organ Act, 1994;
• Juvenile Justice (Care and Protection of Children) Act, 2000;
• Emigration Act, 1983;
• The Passport Act, 1967;
• The Foreigners Act, 1946;
• The Copyright Act, 1957;
• The Trade Marks Act, 1999;
• Information Technology Act (IT Act), 2000;
• The Biological Diversity Act, 2002;
• Protection of Plants Varieties and Farmers Rights Act, 2001;
• The Environment Protection Act, 1986;
• Water (Prevention and Control of Pollution) Act, 1974;
• Air (Prevention and Control of Pollution) Act, 1981;
• The Suppression of Unlawful Acts against Safety of Maritime Navigation and Fixed Platforms
of Continental Shelf Act, 2002;
• The Companies Act, 2013.

Corporate Restructuring

Leveraged buyout - A leveraged buyout (LBO) is the acquisition of another company using a
significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. The assets
of the company being acquired are often used as collateral for the loans, along with the assets of the
acquiring company.

Split-off - In a split-off, the parent company offers shareholders the option to keep their current
shares or exchange them for shares of the divesting company. Shares outstanding are not
proportioned on a pro rata basis like in other divestitures. In some split-offs, the parent company
may choose to offer a premium for the exchange of shares to promote interest in shares of the new
company.

Spilt-Up - In Spilt-Up a single company splits into two or more independent, separately-run
companies. Upon the completion of such events, shares of the original company may be exchanged
for shares in one of the new entities at the discretion of shareholders.

Horizontal merger - A horizontal merger is a merger or business consolidation that occurs between
firms that operate in the same industry. Competition tends to be higher among companies operating
in the same space, meaning synergies and potential gains in market share are much greater for
merging firms. This type of merger occurs frequently because of larger companies attempting to
create more efficient economies of scale.

Vertical merger - A vertical merger is the merger of two or more companies that provide different
supply chain functions for a common good or service. Most often, the merger is effected to increase
synergies, gain more control of the supply chain process, and ramp up business. A vertical merger
often results in reduced costs and increased productivity and efficiency.

FEMA

The Foreign Exchange Management Act (FEMA) was introduced by the Government of India in 1999.
It replaced the previous Foreign Exchange Regulation Act (FERA) of 1973.

In essence, FEMA act was a modernization of the Indian economy and created to liberalize and
privatize the markets in India. In this article, we’ll take an overview of FEMA act, covering the basics
that you need to be aware of.

The main aim of introducing the Foreign Exchange Management Act was to liberalize the Indian
economy by encouraging external trade and payments. It helped to regulate the Indian forex
market.

FEMA applies to the whole of India. It also applies to the agencies and offices located outside India
that are managed or owned by an Indian citizen. The headquarters is situated in New Delhi and is
known as the Enforcement Directorate.

Prohibition Under FEMA

• Sending money which is the result of winning the lottery.

• Sending money which is the result of winning horse racing, cricket games, etc.
• Sending money to buy a lottery ticket, football betting, sweepstakes, banned publications,
etc.
• The payment of commission on exports towards equity investment of Indian companies in
joint ventures or wholly-owned subsidiaries abroad.
• The sending of a dividend by any company. This is only applicable if dividend balancing is
applicable.
• The payment of commission on exports under Rupees State Credit Routes (except
commission up to 10 percent of the invoice value of export of tea and tobacco).
• Any payment regarding “Call-back Services” of telephones.
• Any travel to Bhutan and/or Nepal.
• Sending interest income on funds held in Non-resident Special Rupees (NRSR) scheme
account.
 • A transaction of any kind with a resident of Bhutan or Nepal.

Liberalized Remittance Scheme (LRS) limit of USD 2,50,000/- per year.

"capital account transaction" means a transaction which alters the assets or liabilities, including
contingent liabilities, outside India of person’s resident in India or assets or liabilities in India of
person’s resident outside India, and includes transactions referred to in sub-section (3) of Section 6;

"current account transaction" means a transaction other than a capital account transaction and
without prejudice to the generality of the foregoing such transaction includes, —

• payments due in connection with foreign trade, other current business, services, and short-
term banking and credit facilities in the ordinary course of business,
• payments due as interest on loans and as net income from investments,
• remittances for living expenses of parents, spouse and children residing abroad, and
• expenses in connection with foreign travel, education and medical care of parents, spouse
and children;