A PROJECT REPORT ON SEBI AS A REGULATOR OF DEFAULTING BROKERS

A PROJECT REPORT SUBMMITED TO THE UNIVERCITY OF MUMBAI IN PARTIAL FULLFILLMENT FOR THE AWARD OF DEGREE OF BACHELOR OF COMMERCE FINANCIAL MARKETS

SUBMITTED BY IYER UTHRA SUNDARAKRISHNAN

B.COM (FINANCIAL MARKETS) V SEMESTER MODEL COLLEGE DOMBIVLI-EAST

UNIVERSITY OF MUMBAI
OCTOBER-2011

SERIAL NO

DESCRIPTION

PAGE NO

CERTIFICATES

DECLARATION

II

ACKNOWLEDGEMENT CHAPTER- 1

III

INTRODUCTION CHAPTER- 2

1 TO 5

SEBI- AN INTRODUCTION CHAPTER- 3

6 TO 11

STOCK BROKER-AN INTRODUCTION

12 TO 18

CHAPTER- 4 7 SEBI- REGULATOR OF STOCK BROKERS 19 TO 32

CHAPTER -5 8 CONCLUSION 33 TO 34

BIBLIOGRAPHY

35

CHAPTER I

CHAPTER1 INTRODUCTION

There are 22 stock exchanges in India, the first being the Bombay Stock Exchange (BSE), which began formal trading in 1875, making it one of the oldest in Asia. Over the last few years, there has been a rapid change in the Indian securities market, especially in the secondary market. Advanced technology and online-based transactions have modernized the stock exchanges. In terms of the number of companies listed and total market capitalization, the Indian equity market is considered large relative to the countrys stage of economic development. The number of listed companies increased from 5,968 in March 1990 to about 10,000 by May 1998 and market capitalization has grown almost 11 times during the same period. The debt market, however, is almost nonexistent in India even though there has been a large volume of Government bonds traded. Banks and financial institutions have been holding a substantial part of these bonds as statutory liquidity requirement. The portfolio restrictions on financial institutions statutory liquidity requirement are still in place. A primary auction market for Government securities has been created and a primary dealer system was introduced in 1995. There are six authorized primary dealers. Currently, there are 31 mutual funds, out of which 21 are in the private sector. Mutual funds were opened to the private sector in 1992. Earlier, in 1987, banks were allowed to enter this business, breaking the monopoly of the Unit Trust of India (UTI), which maintains a dominant position. Before 1992, many factors obstructed the expansion of equity trading. Fresh capital issues were controlled through the Capital Issues Control Act. Trading practices were not transparent, and there was a large amount of insider trading. Recognizing the importance of increasing investor protection, several measures were enacted to improve the fairness

of the capital market. The Securities and Exchange Board of India (SEBI) was established in 1988. Despite the rules it set, problems continued to exist, including those relating to disclosure criteria, lack of broker capital adequacy, and poor regulation of merchant bankers and underwriters. There have been significant reforms in the regulation of the securities market since 1992 in conjunction with overall economic and financial reforms. In 1992, the SEBI Act was enacted giving SEBI statutory status as an apex regulatory body. And a series of reforms was introduced to improve investor protection, automation of stock trading, integration of national markets, and efficiency of market operations. India has seen a tremendous change in the secondary market for equity. Its equity market will most likely be comparable with the worlds most advanced secondary markets within a year or two. The key ingredients that underlie market quality in Indias equity market are: Exchanges based on open electronic limit order book; Nationwide integrated market with a large number of informed traders and fluency of short or long positions; and No counterparty risk. Among the processes that have already started and are soon to be fully implemented are electronic settlement trade and exchange-traded derivatives. Before 1995, markets in India used open outcry, a trading process in which traders shouted and hand signaled from within a pit. One major policy initiated by SEBI from 1993 involved the shift of all exchanges to screen-based trading, motivated primarily by the need for greater transparency. The first exchange to be based on an open electronic limit order book was the National Stock Exchange (NSE), which started trading debt instruments in June 1994 and equity in November 1994. In March 1995, BSE shifted from open outcry to a limit order book market. Currently, 17 of Indias stock exchanges have adopted open electronic limit order.

CAPITAL MARKETS REFORMS AND DEVELOPMENT Over the last few years, SEBI has announced several far-reaching reforms to promote the capital market and protect investor interests. Reforms in the secondary market have focused on three main areas: structure and functioning of stock exchanges, automation of trading and post trade systems, and the introduction of surveillance and monitoring systems. Computerized online trading of securities, and setting up of clearing houses or settlement guarantee fundswere made compulsory for stock exchanges. Stock exchanges were permitted to expand their trading to locations outside their jurisdiction through computer terminals. Thus, major stock exchanges in India have started locating computer terminals in far-flung areas, while smaller regional exchanges are planning to consolidate by using centralized trading under a federated structure. Online trading systems have been introduced in almost all stock exchanges. Trading is much more transparent and quicker than in the past. Until the early 1990s, the trading and settlement infrastructure of the Indian capital market was poor. Trading on all stock exchanges was through open outcry, settlement systems were paper-based, and market intermediaries were largely unregulated. The regulatory structure was fragmented and there was neither comprehensive registration nor an apex body of regulation of the securities market. Stock exchanges were run as brokers clubs as their management was largely composed of brokers. There was no prohibition on insider trading, or fraudulent and unfair trade practices. Since 1992, there has been intensified market reform, resulting in a big improvement in securities trading, especially in the secondary market for equity. Most stock exchanges have introduced online trading and set up clearing houses/corporations. A depository has become operational for scrip less trading and the regulatory structure has been overhauled with most of the powers for regulating the capital market vested with SEBI. The Indian capital market has experienced a process of structural transformation with operations conducted to standards equivalent

to those in the developed markets. It was opened up for investment by foreign institutional investors (FIIs) in 1992 and Indian companies were allowed to raise resources abroad through Global Depository Receipts (GDRs) and Foreign Currency Convertible Bonds (FCCBs). The primary and secondary segments of the capital market expanded rapidly, with greater institutionalization and wider participation of individual investors accompanying this growth. However, many problems, including lack of confidence in stock investments, institutional overlaps, and other governance issues, remain as obstacles to the improvement of Indian capital market efficiency.

ABOUT THE PROJECT

TITLE OF THE PROJECT : The present study is titled as A PROJECT REPORT ON SEBI

AS A

REGULATOR OF DEFAULTING BROKERS

OBJECTIVES OF THE STUDY : To study about the functioning of the SEBI as regulator of stock brokers To study about the recent performance and development of stock broking in India DATA AND METHODOLOGY : For the purpose of the present study secondary data were used. The data collected from books, journals, newspapers and internet. LIMITATIONS OF THE STUDY : The present study has got all the limitations of secondary data. As in reference are based on secondary data.

 CHAPTER LAYOUT : Chapter 1 capital market before SEBI Chapter 2 SEBI- an introduction Chapter 3 Stock brokers-an introduction Chapter 4 SEBI-regulator of stock brokers Chapter 5 Conclusion.

CHAPTER II

CHAPTER 2 SEBI- AN INTRODUCTION Late comers have the advantage that they can adopt best practices, but this is easiest done when a new institution is created, since changing old well established institutions is difficult. The Capital Issues (Control) Act 1947, administered by the Controller of Capital Issues (CCI), governed capital issues in India. As part of liberalizing reforms CCI was, and Sebi set up in1988, was made a statutory body in 1992. Its objectives are to protect the interests of investors, ensure the fairness, integrity and transparency of the securities market, and reach best international regulatory practices. But flexibility was required to respond to market arbitrage, and to emerging requirements in the Indian context. There has been a constant attempt to improve regulatory practices and contribute to the ongoing capital market reforms. Once the policy decision had been taken to open out and reach and exceed international standards and practices, the direction of change was clear and Sebi contributed to progress along it in a major way. Sebis tasks and powers, expanded over time, were to regulate stock and other securities markets, register and regulate all intermediaries associated with securities markets. Under the Sebi (Amendment) Bill 2002 its powers were expanded to cover all transactions associated with the securities market. In 2003 it was empowered to impose enhanced monetary penalties. But the regulatory and market microstructure reforms were unable to revive the stock markets over this extended period. Among the reasons were the periodic financial scams that deepened the lack of confidence in the effectiveness of the regulators monitoring, surveillance and implementation of the new world class rules, the industrial slowdown that persisted over 1997-2000, and shallow markets with a relative neglect of the retail investor. In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution,

and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. In place of Government Control, A statutory and autonomous regulatory board with defined responsibilities, to cover both development & regulation of the market, and independent powers has been set up. Paradoxically this is a positive outcome of the Securities Scam of 1990-91. The basic objectives of the Board were identified as:

to protect the interests of investors in securities; to promote the development of Securities Market; to regulate the securities market and For matters connected therewith or incidental thereto.

Since its inception SEBI has been working targeting the securities and is attending to the fulfillment of its objectives with commendable zeal and dexterity. The improvements in the securities markets like capitalization requirements, margining, establishment of clearing corporations etc. reduced the risk of credit and also reduced the market. SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility criteria, the code of obligations and the code of conduct for different intermediaries like, bankers to issue, merchant bankers, brokers and sub-brokers, registrars, portfolio managers, credit rating agencies, underwriters and others. It has framed bye-laws, risk identification and risk management systems for Clearing houses of stock exchanges, surveillance system etc. which has made dealing in securities both safe and transparent to the end investor. Another significant event is the approval of trading in stock indices (like S&P CNX Nifty & Sensex) in 2000. A market Index is a convenient and effective product because of the following reasons:

It acts as a barometer for market behavior; It is used to benchmark portfolio performance; It is used in derivative instruments like index futures and index options; It can be used for passive fund management as in case of Index Funds.

Two broad approaches of SEBI is to integrate the securities market at the national level, and also to diversify the trading products, so that there is an increase in number of traders including banks, financial institutions, insurance companies, mutual funds, primary dealers etc. to transact through the Exchanges. In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark. SEBI appointed the L. C. Gupta Committee in 1998 to recommend the regulatory framework for derivatives trading and suggest bye-laws for Regulation and Control of Trading and Settlement of Derivatives Contracts. The Board of SEBI in its meeting held on May 11, 1998 accepted the recommendations of the committee and approved the phased introduction of derivatives trading in India beginning with Stock Index Futures. The Board also approved the "Suggestive Bye-laws" as recommended by the Dr LC Gupta Committee for Regulation and Control of Trading and Settlement of Derivatives Contracts. SEBI then appointed the J. R. Verma Committee to recommend Risk Containment Measures (RCM) in the Indian Stock Index Futures Market. The report was submitted in November 1998. However the Securities Contracts (Regulation) Act, 1956 (SCRA) required amendment to include "derivatives" in the definition of securities to enable SEBI to introduce trading in derivatives. The necessary amendment was then carried out by the Government in 1999. The Securities Laws

(Amendment) Bill, 1999 was introduced. In December 1999 the new framework was approved. Derivatives have been accorded the status of `Securities'. The ban imposed on trading in derivatives in 1969 under a notification issued by the Central Government was revoked. Thereafter SEBI formulated the necessary regulations/bye-laws and intimated the Stock Exchanges in the year 2000. The derivative trading started in India at NSE in 2000 and BSE started trading in the year 2001. Surveillance technology and regulatory standards are at international levels, but implementation is perceived to be imperfect. Primary responsibility for this lies with the exchanges, with oversight by SEBI. Retail investors are still concerned about management frauds and lack of transparency, price manipulation and volatility (NSE, 2003), although Sebis reforms in 2001 have improved matters. Insider dominance and market manipulation becomes less feasible as the number of constituents and their geographical dispersion increases, and structural improvements can reduce the power of remaining groups.

CHAPTER III

CHAPTER3 STOCK BROKERS- AN INTRODUCTION

A transaction on the stock exchange must be made between two members of the exchange. An ordinary person may not walk into any stock exchange, and ask to trade stock such an exchange should be done by a broker. A stock broker is an agent who charges fee or commission for executing buy and sell orders submitted by investor. It may be a firm that acts as an agent for a customer, charging the customer for its services. Traditionally only the wealthy could afford a broker and access the stock market. The internet triggered an explosion of discount brokers, which allow investors to trade at lower cost, but they dont provide personalized advice. Because of the discount brokers, almost anybody can afford to invest in the market. Stock Broker means a stock-broker who has either made an application for registration or is registered as a stockbroker in accordance with the rules and regulations made under the Securities and Exchange Board of Indian Act, 1992 (15 of 1992). (Section 65(69) of Finance Act, 1994 as amended) The service provided by the stock broker becomes liable to pay Service Tax subject to the conditions that the (a) Stock Broker should be registered as per SEBI Act, 1972. (b) Stock should be listed in the Stock Exchange. (b)The Stock Exchange must be recognized Stock Exchange as per Securities Contract (Regulation) Act, 1956. (c) The Sale/Purchase should be on behalf of an investor.

Taxable event and scope of service: Taxable service means any service provided to an investor by a stockbroker in connection with sale or purchase of securities listed on a recognized Stock Exchange. (Section 65(72)(a) of Finance Act, 1994 as amended) Securities has the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956). (Section 65 (61) of Finance Act, 1994 as amended) Section 2 (h) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) reads as follows: Securities includes (i) Shares, scripts, stocks, bonds, debentures, debenture stock, or other marketable securities of a like nature in or of any incorporated company or body corporate; derivative; units or any other instrument issued by any collective investment scheme to the investors in such schemes; (ii) Government securities; such other instruments as may be declared by the Central Government to be securities; and

(iii) rights or interests in securities. Recognized stock exchange has the meaning assigned to it in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956). (Section 65 (58) of Finance Act, 1994 as amended) Section 2

(f) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) reads as follows: Recognized stock exchange means a stock exchange which is for the time being recognized by the Central Government under section 4. The Central Government has recognized the following 22 Stock Exchanges: (1) Bombay Stock Exchange (2) Delhi Stock Exchange Association Ltd. (3) Madhya Pradesh Stock Exchange (Indore) (4) Ahmadabad Stock Exchange (5) Madras Stock Exchange (6) Calcutta Stock Exchange (7) Uttar Pradesh Stock Exchange Association Ltd. (8) Pune Stock Exchange Ltd. (9) Bangalore Stock Exchange Ltd. (10) Ludhiana Stock Exchange Association Ltd. (11) Hyderabad Stock Exchange Ltd. (12) Gauhati Stock Exchange Ltd. (13) Cochin Stock Exchange Ltd. (14) Mangalore Stock Exchange Ltd. (15) Magadh Stock Exchange Association (16) Bhubaneshwar Stock Exchange (17) Saurashtra Kutch Stock Exchange (18) Jaipur Stock Exchange (19) Vadodara Stock Exchange (20) Coimbatore Stock Exchange (21) Over The Counter Exchange of India (22) National Stock Exchange. Own trading: In case, a broker enters into a transaction on his own account, with an investor who is a nonmember on the stock exchange, the service provided will be taxable service, and subject to Service Tax.

Arbitrage: In the case of arbitrage transaction i.e. the transaction between two brokers of different stock exchanges, the service is provided by a broker i.e. the member of a stock exchange even though the investor may be a member of another stock exchange, there being an investor involved in the transaction, the service so provided to the investor will be a taxable service and subject to Service Tax. (Ministrys F.No.148/1/94 CX-4 (Pt. I) dt. 31.12.1996) National Stock Exchange using Very Small Aperture Terminals (VSAT) installed at trading members office whereas the members of local stock exchange is required to carry on business compulsory within the jurisdiction of the said Stock Exchange where he is registered. Board is of the view that Trading members/Stockbrokers of National Stock Exchange will have to register their premises with the Central Excise Commissione rate having the jurisdiction over the place where trading membership is granted and infrastructural facilities are provided for installing the Very Small Aperture Terminals and operating the business. (Ministrys F.No.148/5/96-CX.4 dt.16.09.1996) A Broker who is registered with Kanpur Stock Exchange has to apply for registration with Commission rate of Central Excise, Kanpur. All the officers of this broker irrespective of location will be registered with Commission rate of Central Excise, Kanpur. (Ministrys F.No.148/1/94-CX.4 dt.06.09.1994) For the issue raised as to whether service tax can be collected for a transaction in Sikkim Stock Exchange, which has not yet been recognized, it is clarified that service tax is required to be collected from Stockbrokers. Stockbroker has been defined in the Act itself, i.e., a stockbroker who has either made an application for registration or is registered as a stockbroker in accordance with the rules and regulations made under the Securities and Exchange Board of Indian Act, 1992 (15 of 1992). Hence, all stockbrokers are covered by service tax scheme. (Ministrys F.No.148/1/94-CX.4 dt.06.09.1994)

For the reasons of transparency that service tax charged/collected is shown separately in the Contract Note/Bills. (Ministrys F.No.148/1/94-CX.4 dt.06.09.1994) Charging of service tax from an investor who is provided with taxable service by two brokers of different stock exchanges does not amount to double taxation. Value of Taxable Service: Value of the taxable service provided by Stockbroker, is the aggregate of the commission or brokerage charged by the stockbroker on the sale or purchase of securities from the investors and includes the commission or brokerage paid by the broker to any sub-brokers. (Section 67 of Finance Act, 1994 as amended) Sub-broker means a sub-broker who has either made an application for registration or is registered as a sub broker in accordance with the rules and regulations made under the Securities and Exchange Board of India Act, 1992. (Section 65 (70) of Finance Act, 1994 as amended) Exemption and Exclusion: 1. Jobbing -The transaction on principal to principal basis between brokers, no investor is involved and as such no taxable service is provided and therefore, no Service Tax is chargeable. (Ministrys F.No.148/1/94 CX-4 (Pt.I) dt.31.12.1996) 2. Taxable service means any service provided to an investor, by a stockbroker in connection with the sale or purchase of securities listed on a recognized stock exchange. The commission charged by stockbroker as underwriters is for floating securities. Hence, it is not covered. (Ministrys F.No.148/1/94 CX-4 dt.06.09.1994)

3. Sub-brokers are not covered by service tax. (Ministrys F.No.148/1/94CX.4 dt.06.09.1994) 4. The following transaction undertaken by the Stockbrokers do not attract the levy of Service Tax. a. Private placement charges b. Public issue consultancy fee c. Brokerage or primary market operations

CHAPTER IV

CHAPTER4 SEBI AS THE REGULATOR OF STOCK BROKERS

In India, stock exchanges were almost self regulatory till 1988, supervised by Ministry of Finance under the Securities Contracts Regulation Act (SCRA). However, the stock exchanges were not discharging their self-regulatory role as well as a result of which malpractices crept into trading, adversely affecting investors interests. SEBI has been setup to ensure that the stock exchanges discharge their self-regulatory role properly. Ever since SEBI began to monitor brokers, stock broking is emerging as a professional advisory service, in tune with the requirements of a mature, sophisticated, screen based, ring-less, automated stock exchanges in the country in sharp contrast to traditional, closed character as inherited family business. So we will discuss, the Indian Stock Broking system here. The stock broking activity consists of various intermediaries. Let us discuss them one by one.

Stock Brokers Stockbroker is a member of a recognized stock exchange who buys, sells or deals in securities. To work as a stockbroker registration with SEBI is mandatory. SEBI is empowered to impose conditions while granting the certificate of registration.

Registration: A broker seeking registration with SEBI, has to apply through the stock exchange of which he is member. For registering SEBI checks - eligibility of the applicant to become the member of stock exchange, has the necessary infrastructure to effectively discharge his duties, past experience etc. Every registered stockbroker is required to pay annual fee @ Rs. 5,000 for turnover

up to Rs. 1 crore and 0.01% of turnover exceeding Rs. 1 crore. For calculating turnover underwriting and collection of deposits are not taken into account for the purpose of calculating the turnover. The authenticity of the annual turnover is to be certified by the stock exchange concerned.

Capital adequacy norms for brokers : An absolute minimum of Rs. 5 lakh as a deposit with the exchange is to be maintained by the members of the BSE & CSE and Rs. 3.5 lakh for DSE and ASE irrespective of volume of business. In case of other SE the minimum requirement is Rs. 2 lakhs. The security deposit kept by the members in the SE forms part of the base minimum capital; 25% of the base minimum capital is to be maintained in case with the exchange. Another 25% remains in the form of a long term fixed deposit with a bank on which the SE is given free lien. The remaining requirement is being maintained in the form of securities with a 30% margin. The securities should be in the name of the member and are pledged in favor of SE. Additional capital related to Volume of

Business: The additional or optional capital required from a member should, at any point of time, be such that together with the base minimum capital it is not less than 8% of the gross outstanding business in the exchange defined as the aggregate of up-to-date sales and purchases by a member broker in all the securities put together.

Duty to the Investor: The duties of a broker to the investor are He should be faithful to the clients in his dealings with them and execute orders as per the instructions.

 He should issue to his clients a contract note without any delay for all transactions in the form specified by the SE. To avoid breach of trust, he should not disclose or discus with any other person details of investment and transaction of clients. He should not mislead clients merely to generate business. He should avoid dealing with a client who is a defaulter in his dealings with other brokers. When dealing with a client, he is required to disclose whether he is acting as a principal or as an agent. He should not give investment advice to any client unless sought by him. Stockbroker should have adequately trained staff and arrangements to render fair, prompt and competent services to his clients. He should extend full cooperation to other brokers in protecting the interest of his clients regarding their rights to dividends, bonus shares, rights issues and any other rights related to such securities.

Sub Brokers A sub-broker acts on behalf of a stockbroker as an agent or otherwise for assisting investors in buying, selling or dealing in securities through such brokers but he is not a member of a stock exchange. To act as a sub-broker, registration with SEBI is required. It grants a certificate of registration to a sub-broker subject to the conditions that (a) he has to pay the prescribed fee, (b) he takes adequate steps for redressal of investor grievances within one month of the receipt of the complaint and keeps SEBI informed about the number, nature and other particulars of the complaints (c) he is authorized in writing by a broker for affiliation in buying, selling or dealing in securities.

Registration of Sub-brokers:

According to SEBI regulations currently in force, a sub-broker is required to submit along with the application (a) Recommendation from a stockbroker with whom he will be affiliated and (b) two references, including one from his banker.

The individual applicant should not be less than 21 years of age, has not been convicted in any offence involving fraud or dishonesty and has passed the equivalent of at least 12th standard from a recognized institution. The annual fee payable by a sub-broker is Rs. 1000 for an initial period of five years. After the expiry of five years, an annual fee of Rs. 500 is payable as long as the certificate remains in force.

Duty to the investors: A sub-broker, in his dealings with the clients and the general investing public, should faithfully execute the orders for buying and selling of securities at the best available market price and promptly inform his clients about the execution of an order and make payment in respect of securities sold and arrange for prompt delivery of securities purchased. He should issue promptly to his clients (a) purchase or sale notes for all the transactions entered into by him with his clients, or through the principal broker (b) scrip-wise details. He should not furnish misleading information to his clients to generate business. He should not recommend his clients any scrip / security unless the client has asked for the advice.

Foreign Brokers Foreign institutional investors (FIIs) now play a significant role in the stock markets. With a view to helping the FIIs to follow the procedures and encourage them to invest in India, SEBI has issued a different set of guidelines:

Registration with SEBI: It is mandatory for a foreign brokerto get registered with SEBI in order to do business in India. While applying for registration, a foreign broker has to disclose to SEBI name(s) and registration number(s) of the stock exchanges where he is registered in the capacity of a broker dealer together with an undertaking that he would operate and assist only on behalf of the registered FIIs and would not deal in securities on his own account as principal in India. On advice from SEBI, the RBI would accord approval to him to open a foreign currency denominated bank account and a rupee account with a designated bank branch and multiple custodian accounts with the approved custodian of all registered FIIs whom he may be assisting or on whose behalf he would be placing orders with a member of Indian stock exchanges. Transaction in Accounts: The foreign currency denominated accounts of registered foreign brokers would be credited with inward remittance brought in by him and inward remittance to make initial payment against the purchase contracts on behalf of registered FIIs. The rupee account will be credited with the commissions / brokerages earned by him in India. Initial payment on account of purchase contract on behalf of registered FIIs would be made through Rupee account. Reimbursement of this initial payment would be made by the designated bank/custodian of the registered FII. The brokers are allowed to freely repatriate commission/ brokerage earned in India after transferring them to the foreign currency denominated account subject to payment of taxes on the basis of conversion of rupees to foreign currency at the prevailing market rates.

SEBI GUIDELINE TO STOCK BROKERS S.O No.1447 (E). In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following Regulations to further amend the Securities and Exchange Board of India (Stock Brokers and Subbrokers) Regulations, 1992, namely : These Regulations may be called the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) (Second

Amendment) Regulations, 2006. They shall come into force on the date of their publication in the Official Gazette. In the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992 in regulation 2

Clauses (a) and (aa) shall respectively be renumbered as clauses (ad) and (ae) and before the clauses so renumbered, the following clauses shall be inserted, namely:-

(a) Act means the Securities and Exchange Board of India Act, 1992 (15 of 1992); (aa) Certificate means a certificate of registration issued by the Board; (ab) Change of status or constitution in relation to a stock broker or a sub-broker means any change in its status or constitution of whatsoever nature and includes in case of a body corporate

amalgamation, demerger, consolidation or any other kind of corporate restructuring falling within the scope of section 391 of the Companies Act, 1956 (1 of 1956) or the corresponding provision of any other law for the time being in force; change in its managing director, whole-time director or director appointed in compliance with clause (v) of sub-rule (4A) of rule 8 of the Securities Contracts (Regulation) Rules, 1957; and any change in control over the body corporate;

(ii)

any change between the following legal forms individual,

partnership firm, Hindu undivided family, private company, public company, unlimited company or statutory corporation and other similar changes;

(iii)

in case of a partnership firm any change in partners not

amounting to dissolution of the firm;

(ac) change in control, in relation to a stock broker or a sub-broker being a body corporate, means:-

if its shares are listed on any recognised stock exchange, change in control within the meaning of regulation 12 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997;

in any other case, change in the controlling interest in the body corporate Explanation: For the purpose of sub-clause (ii), the expression controlling interest means an interest, whether direct or indirect, to the extent of at least fifty one percent. of voting rights in the body corporate; Clause (e) shall be omitted; Clause (ga) shall be renumbered as clause (gd) and before the clause so renumbered, the following clauses shall be inserted, namely:(ga) stock exchange means a stock exchange which is for the time being recognised by the Central Government or by the Board under

section 4 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (gb) Stock broker means a member of a stock exchange; (gc) sub-broker means any person not being a member of stock exchange who acts on behalf of a stock broker as an agent or otherwise for assisting the investors in buying, selling or dealing in securities thorough such stock brokers; in clause (h), the words and the rules occurring in the end shall be omitted; after regulation 6, the following regulation shall be inserted, namely:

Conditions of registration 6A. (1) Any registration granted by the Board under regulation 6 shall be subject to the following conditions, namely the stock broker holds the membership of any stock exchange; he shall abide by the rules, regulations and bye-laws of the stock exchange which are applicable to him; where the stock broker proposes to change his status or constitution, he shall obtain prior approval of the Board for continuing to act as such after the change; he shall pay fees charged by the Board in the manner provided in these regulations; and he shall take adequate steps for redressal of grievances of the investors within one month of the date of receipt of the complaint and

keep the Board informed about the number, nature and other particulars of the complaints received from such investors. (2) nothing contained in clause (c) of sub-regulation (1) shall affect the obligation to obtain a fresh registration under section 12 of the Act in a case where it is applicable.

(iii)

regulation 11 shall be renumbered as regulation 11A and before

the regulation so renumbered, the following regulation shall be inserted, namely:-

Registration as sub-broker 11. o No sub-broker shall act as such unless he holds a certificate granted by the Board under these regulations. o No fresh certificate needs to be obtained under subregulation (1) where a sub-broker merely changes his affiliation from one stock broker to another stock broker, being a member of the same stock exchange. (iv) in regulation 12, in sub-regulation (2), for the words and figure as stated in rule 5 occurring at the end, the words, brackets and figures laid down in sub-regulation (1) of regulation 12A shall be substituted; (v) after regulation 12, the following regulation shall be inserted, namely:

Conditions of registration 12A. (1) Any registration granted by the Board under regulation 12 shall be subject to the following conditions, namely he shall abide by the rules, regulations and bye-laws of the stock exchange which are applicable to him; where the sub-broker proposes to change his status or constitution, he shall obtain prior approval of the Board for continuing to act as such after the change; he shall pay fees charged by the Board in the manner provided in these regulations; he shall take adequate steps for redressal of grievances of the investors within one month of the date of receipt of the complaint and keep the Board informed about the number, nature and other particulars of the complaints received from such investors; and he is authorized in writing by a stock-broker being a member of a stock exchange for affiliating himself in buying, selling or dealing in securities. (2) Nothing contained in clause (b) of sub-regulation (1) shall affect the obligation to obtain a fresh registration under section 12 of the Act in cases where it is applicable.

 (vi) in regulation 13, for the words and figures regulation 11 wherever they occur, the words and figures regulation 11A shall be substituted. Securities and Exchange Board of India (Stock Brokers And Sub-Brokers) Regulations, 1992, the Principal Regulations, was published in the Gazette of India on October 23, 1992 vide GSR No. 780 (E).

The Principal Regulations subsequently amended on : November 28, 1995 by the SEBI (Payment of Fees) (Amendment) Regulations, 1995 vide S.O. No. 939 (E). January 5, 1998 by SEBI (Stock Brokers and Sub-Brokers) (Amendment) Regulations, 1998 vide S.O. No. 13 (E). January 21, 1998 by SEBI (Stock Brokers and Sub-Brokers) (Second Amendment) Regulations, 1998 vide S.O. No. 75 (E). December 16, 1998 by SEBI (Stock Brokers and Sub-Brokers) (Third Amendment) Regulations, 1998 vide S.O. No. 1078 (E). July 6, 1999 by SEBI (Stock Brokers and Sub-Brokers) (Amendment) Regulations, 1999 vide S.O. No. 541 (E). March 14, 2000 by SEBI (Stock Brokers and Sub-Brokers) (Amendment) Regulations, 2000 vide S.O. No. 234 (E). March 28, 2000 by SEBI (Appeal to Securities Appellate Tribunal) (Amendment) Regulations, 2000 vide S.O. No. 278 (E). August 30, 2000 by SEBI (Stock Brokers and Sub-Brokers) (Second Amendment) Regulations, 2000 vide S.O. No. 787 (E).

 May 29, 2001 by SEBI (Investment Advice by Intermediaries) (Amendment) Regulations, 2001 vide S.O. No. 476(E). November 15, 2001 by SEBI (Stock Brokers and Sub-Brokers) (Amendment) Regulations, 2001 vide S.O. No. 1128 (E). February 20, 2002 by SEBI (Stock Brokers and Sub-Brokers) (Amendment) Regulations, 2002 vide S.O. No. 220 (E). September 27, 2002 by SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 vide S.O. No. 1045 (E). September 23, 2003 by the SEBI (Stock Brokers and SubBrokers) (Amendment) Regulations, 2003 vide S.O. 1095 (E). November 20, 2003 by the SEBI (Stock Brokers and SubBrokers) (Second Amendment) Regulations, 2003 vide F. No. SEBI /LAD /20795 /2003. on March 10, 2004 by the Securities and Exchange Board of India (Criteria for Fit and Proper Person) Regulations, 2004 vide S.O. No. 398(E). on August 1, 2006 by the SEBI (Stock Brokers and Sub-Brokers) (Amendment) Regulations, 2006 vide S.O. 1235 (E).

CONCLUSION

CONCLUSION As growth revives and markets become more active, the tight norms Sebi has established and the deep steady capital market reforms to which it has contributed will pay off. The paper has enumerated the pluses and minuses of regulation in the context of capital market development in India; the many achievements and further potential improvements. Following general principles allowed Sebi the flexibility to adjust as required. With respect to technology, automation, disclosure, risk containment and reduction in transaction costs Indian bourses have outperformed those in developed countries. More participation and depth of instruments is required. This will happen with a revival of growth and greater confidence in the improved monitoring systems. There are gaps between perception and reality. Because of a history of speculation in thin markets, there is a misperception that insider dominance is a feature of Indian capital markets. But it turns out to be a feature of open outcry and geographically concentrated capital markets. Technology and the geographical dispersion it brings about decreases their power. The latter has happened in India while it is still resisted in the US. Once the government decided to back new technology these forces tipped trade in favor of modern systems. Imperfections in monitoring and surveillance were also due not so much to insider collusion as to imperfections in the structure of incentives and penalties. A lacuna important in the Indian context was the neglect of the small investor, the small firm and start-ups. The small investor, who tends to buy and hold, lends stability to the market. Capital market regulation has shown flexibility in India, helped markets to evolve and evolved with them. If transparent, principle based yet flexible regulation encourages innovation and learning it can effectively continue the process.

BIBLIOGRAPHY

MAGAZINE DALAL STREET

NEWSPAPERS ECONOMIC TIMES HINTUSTAN TIMES

WEBSITES www.google.com www.sebi.gov.in BOOKS SEBI