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Regulations of Primary Market

1. Entry Norms 2. Promoters Contribution 3. Disclosure 4. Book Building 5. Allocation of Share 6. Market Intermediaries

1. Entry Norms
Dividend Payments for a minimum period of 3 years preceding the issue. A company whose shares are already listed would fulfill the entry level requirements only if the post issue networth becomes more than five times the pre issue networth. For a corporate body making a public issue to have atleast five public shareholders for every one lac of the net capital offer made to the public.

2. Promotors contribution
PC - > 20% of the issued capital Issue Size exceeds 100 C, the Pro. not less than 50% of their contribution before opening of the issue and bring in the balance before the calls are made on the shareholders.

2. Promoters' contribution
Locking Period not more than 20% of the entire contribution Locked in for 5 yrs. Not underwritten public issue within 60 days of the closure of the issue.

3. Disclosure
Prospectus: A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details about an investment offering for sale to the public. A prospectus should contain the facts that an investor needs to make an informed investment decision. To enhance transparency. Details: present position of the company, the future prospect and the risk factors

4. Book Building
Book Building is essentially a process used by companies raising capital through Public Offeringsboth Initial Public Offers (IPOs) or Follow-on Public Offers ( FPOs) to aid price and demand discovery. It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the price band specified by the issuer. The process is directed towards both the institutional as well as the retail investors. The issue price is determined after the bid closure based on the demand generated in the process.

75 percent Book Building Process: 100 percent Book Building Process:

100% Book Building Process

Step: 1 Nominate Book runner Lead manager (BRLM) Step: 2 Form Syndicate of Brokers, Arrangers, Underwriters, Financial Institutions, etc. Step: 3 Submit Draft Offer Document to SEBI without mentioning Coupon Rate or Price Notes: within 21 days

Step: 4 Circulate offer Document among the Syndicate Members Step: 5 Ask for Bids on Price and Quality of Securities Step: 6 Aggregate and forward all offers to Book Runner Step: 7 Run the Book to maintain a record of Subscribers and their Orders

Step: 8 Consult with Issuer and Determine the issue Price as Weighted Average of the Offers Received Step: 9 Firm up Underwriting Commitments Step: 10 Allot Securities Among Syndicate Members Step: 11 Securities Issued and Listed Step: 12 Trading Commences on Exchanges

5. Allocation of Shares
A reservation of minimum 50% of net offers to the small investors is being made.

6. Intermediaries
Licensing of merchant bankers or authorization by SEBI

Stock Exchange
Anybody or individuals whether incorporated or not, constituted for the process of Assisting, Regulating or Controlling the business of buying, selling in securities

Market for securities Deals in second hand securities Regulates trade in securities Allows dealings only in listed securities Transactions effected only through members Association of persons - REGISTERED Recognition from Central Government Working as per rules Specific location : Stock exchange is a particular market place where authorised brokers come together daily (i.e. on working days) on the floor of market called trading circles and conduct trading activities. Financial Barometers

Providing Liquidity and Marketability to Existing Securities Pricing of Securities Safety of Transaction Contributes to Economic Growth

Facilitates evaluation of securities Encourages capital formation Provides safety and security in dealings Regulates company management Facilitates public borrowing Provides clearing house facility Facilitates healthy speculation Serves as Economic Barometer

Rampant Speculation Insider Trading Oligopolistic Limited Forward Trading: Hand Delivery Settlement Under this method, the delivery of securities and payment are affected within the time stipulated in the agreement or within 14 days from the date of contract whichever is earlier. Most of the transactions are conducted on the basis of hand delivery settlements.

Spot trading Trading by delivery of shares and payment for the same on the date of purchase or on the next day. Limited Forward Trading: Carry Forward or 'Badla' refers to the trading in which the settlement of a transaction is postponed to the next settlement period on payment of some charges by way of interest known as Badla Charges.

Outdated Share Trading System Lack of a Single market

Basis of Difference
Issues Location Transfer of Securities Nature

Primary market
Market for new securities. No fixed geographical location

Secondary market
Market for existing securities. Located at a fixed place

Results in raising fresh Facilitates transfer resources for the corporate of securities from one sector corporate investor to another All companies participate into primary market Securities of only listed companies can be traded at Stock exchanges Tangible form and administrative set up Sub to control both from within and outside


Administration Regulation

No tangible form Controlled by SEBI, Stock exchanges, Companies Act

Basis of Difference Aim Price movement

Primary market Long term instrument SPM in SM influences Pricing of NI

Secondary market Liquidity and marketability Macro and micro factors

Art of good investment

Number and vol. of issue

Art comes to gallery directly from the artists

Activities of the primary market

Art put up for sale

Regulation of Secondary market

SE - 1956 Board of Governors Now, Indian SE Three Tier Regulation First Level Authority Central Govt. Second Level Authority SCRA and SEBI Third Level Authority Self Regulation governing board

Regulatory Structure
1. Stock Exchange Division: HQ Delhi Branch Office - Mumbai and Kolkata Functions: Providing linkage b/w govt. and SE Monitor Issuing licenses to brokers and dealers in Securities

2. SCRA 1952 - draft bill on stock exchange regulation and A D Gorwala 1954 Securities Contracts (Regulation) Bill - Securities Contracts (Regulation) Act passed SCRA + SCRR of 1957 and 1996

3. SEBI Apex body Dr. S. A. Dave Guidelines:

4. Departments of Stock Exchange Listing Dept Operational Dept Computer and EDP dept Inspection and Audit dept Monitoring Dept Investor Service Dept

It was formed officially by the Government of India in 1992 with SEBI Act 1992 being passed by the Indian Parliament.

Initially SEBI was a non statutory body without any statutory power. In 1995, the SEBI was given additional statutory power by the Government of India through an amendment to the Securities and Exchange Board of India Act 1992. In April, 1998 the SEBI was constituted as the regulator of capital markets in India under a resolution of the Government of India.

To protect the interest of investors in securities To promote the development of the securities market To regulate securities market and for matters connected therewith or incidental thereto

Registering and monitoring of Intermediaries like Brokers who may participate in the securities market Regulating the working of bankers to an issue Controlling and regulating the Securities Market Exercising the powers under SCRA Registering and monitoring the work of depository participants, custodians of securities, FII's etc Prohibiting unfair trade practices and fraudulent practices in the markets Promoting Investor education Training of Intermediaries Prohibiting Insider trading Regulating substantial acquisitions and take overs of companies.

The SEBI is managed by six members, i.e. by the chairman who is nominated by central government & two members, i.e. officers of central ministry, one member from the RBI & the remaining two are nominated by the central government.

HQ and Regional Offices

The office of SEBI is situated at Mumbai with its regional offices at Kolkata, Delhi & Chennai.

SEBI has to be responsive to the needs of three groups, which constitute the market: the issuers of securities the investors the market intermediaries.

Power to conduct research and other functions Power to call for periodical returns from recognized stock exchanges Power to levy fees Power to call for any information or explanation from recognized stock exchanges of its members

Power to regulate substantial acquisition of shares and take over of companies Power to promote investors education and trading of intermediaries in capital market Power to prohibit insider trading Power to make laws of recognized exchanges Power to compel listing of securities by public companies

Power to grant registration to market intermediaries Power to control and regulate stock exchanges

Departments of SEBI
MARKET INTERMEDIARIES REGULATION AND SUPERVISION DEPARTMENT (MIRSD) Registration, supervision, compliance monitoring and inspections of all market intermediaries in respect of all segments of the markets .

MARKET REGULATION DEPARTMENT (MRD) Supervising the functioning and operations (except relating to derivatives) of securities exchanges, their subsidiaries, and market institutions

DERIVATIVES AND NEW PRODUCTS DEPARTMENT (DNPD) For supervising the functioning and operations of derivatives exchanges and related market organizations.

CORPORATION FINANCE DEPARTMENT (CFD) (i) Issuance and listing of securities, including initial and continuous listing requirements (ii) corporate governance and accounting/auditing standards (iii) corporate restructuring through Takeovers / buy backs (iv) Delisting etc.


Stock Exchanges in India

Two most important exchange houses of the Indian Stock market. MJ Pherwani Committee three tier stock market system ATFs

Bombay Stock Exchange