THE SECURITIES AND
OF INDIA (SEBI)
Objectives of SEBI
• To protect the interest of the investors in securities
• To promote the development of securities market
• To regulate the securities market
Functions of SEBI
Regulating the business in stock exchange and any
other securities market
Registering and regulating the workings of
intermediaries associated with securities market
Registering and regulating the working of
collective investment schemes including mutual
Promoting and regulating self-regulatory
Prohibiting fraudulent and unfair trade practices in
the securities market
Functions of SEBI
Promoting investors education and training of
intermediaries in securities market
Prohibiting insiders trading in securities
Regulating substantial acquisition of shares and
take-over of companies
Calling for information, undertaking inspection,
conducting enquiries and audits of the stock
exchanges, intermediaries and self-regulatory
organizations in the securities market
SEBI & Primary Market
Measures undertaken by SEBI:-
• Entry norms
• Promoters’ contribution
• Book building
• Allocation of shares
• Market intermediaries
1. Entry norms
a) Track record of dividend payment for minimum 3 yrs
preceding the issue.
b) Already listed companies - when post-issue networth
becomes more than 5 times the pre-issue networth
c) For Manufacturing company not having such track
record – appraise project by a public financial
institution or a scheduled commercial bank.
d) For corporate body – 5 public shareholders for every
Rs.1 lakh of the net capital offer made to the public
e) Banks – 2 yrs of profitability for issues above par.
Offer documents to companies.
2. Promoters’ contribution
Should not be less than 20% of the issued capital.
Receiving of promoters’ contribution.
Lock in period as per SEBI.
Cases of non-under written public issues.
Un audited financial results
4. Book building
SEBI recommends two-tier under writing system
One of the mode of public issue thru prospectus.
Role of syndicate members and book runners.
Minimum 30 centers.
5. Allocation of shares
Minimum application of shares
Reservation for small investors
Allotment of securities
6. Market intermediaries
Licensing of merchant bankers
Licensing of underwriters, registrars, transfer agents,
Merchant bankers net worth – Rs.5 crores
Segregate fund based from fee based activities.
1. Governing board
Brokers and non-brokers representation made 50:50
60% of brokers in arbitration, disciplinary & default
For trading members 40% representation
On-line screen based trading terminals
3. Settlement & clearing
Auctions for non-delivered shares within 80 days of
Advice to set up clearing houses, clearing corporation
or settlement guarantee fund
Warehousing facilities permitted by SEBI.
4. Debt market segment
Regulates thru SEBI (depository & participants)
regulation Act 1996.
Listing of debt instruments
Invt. Range for FIIs
Dual rating for above Rs.500 million
5. Price stabilization
Division to monitor the unusual movements in prices.
Monitor prices of newly listed scrip from the first day
Circuit breaker system and other monitoring
restrictions could be applied
Imposing of special margins of 25% on purchase in
addition to regular margin.
On voluntary de-listing from regional stock exchanges
– buy offer to all share holders
Promoters to buy or arrange buyers for the securities
3 yrs listing fees from companies and be kept in Escrow
A/c with the stock exchange.
SEBI and the FIIs
Union Govt. allowed-
Foreign Institutional Investors (FIIs)
Non-Resident Indians (NRIs), and
Persons of Indian Origin (PIOs)
to enter into both Primary & Secondary market in India through the portfolio
investment scheme (PIS), under Liberalized policy regime. Under this scheme,
FIIs/NRIs can acquire shares/debentures of Indian companies through the stock
exchanges in India.
Affects the sensex movements
Determines the market indications
Guidelines announced in 1992
In 1993, 12 FIIs got registered
At the end of 1996-97, 439 FIIs were registered
Can trade in securities of listed companies including OTCEI.
The ceiling for overall investment for FIIs:-
24% of the paid up capital of the Indian company
10% for NRIs/PIOs.
20% of the paid up capital in the case of public sector banks, including the
State Bank of India.
Modifications in ceilings:-
The ceiling of 24 % for FII investment can be raised up to sectoral
cap/statutory ceiling, subject to the approval of the board and the general
body of the company passing a special resolution to that effect.
The ceiling of 10 % for NRIs/PIOs can be raised to 24% subject to the
approval of the general body of the company passing a resolution to that
Monitoring Foreign Investments
The Reserve Bank of India
monitors the ceilings on FII/NRI/PIO investments in Indian companies
on a daily basis.
For effective monitoring of foreign investment ceiling limits, the
Reserve Bank has fixed cut-off points that are two percentage points
lower than the actual ceilings.
SEBI guidelines for FIIs:-
According to the 1995 regulations, FIIs should hold certificate granted
by SEBI to trade in Indian stock market.
To grant the certificate the applicant should –
1. Have track record, professional & competence record, financial
soundness, general reputation of fairness and integrity.
2. Regulated by an appropriate foreign regulatory authority.
3. Permission under the provisions of FERA Act 1973.(FEMA - 2006)
Valid up to 5 yrs.
07/23/13 SAPM 23
Is an agency
appointment of the custodian
Maintenance of accounts
Submission of semi-annual reports (SEBI & RBI)
Inspection of accounts
Foreign brokers can operate only on behalf of registered FIIs.
Execution of orders for sale and purchase of securities are
done by a member of an Indian stock exchange
Time stipulation for transaction b/w custodian & member of
ISE is 48 hrs.
07/23/13 SAPM 24
Preferential allotment -To boost up the financial
Under mutual consent of the shareholders
As per the ceilings
Allotment on the highest price (26 weeks)
Permitted up to 15% of the equity within the ceiling
Holdings of a single FII – increased from 5% to 10% of
the equity of a company
07/23/13 SAPM 25
Recent developments in FIIs
Exemption from attaching copy of RBI approval with each
Allowed to invest in unlisted stocks of any company.
Allowed to invest up to 100% in debt instruments.
Mandatory to settle transactions thru dematerialized mode
for FIIs having securities more than Rs.10 cr.
07/23/13 SAPM 26
Critical review of SEBI
2. Dissemination process
4. Badla trade
5. Special watch
6. Capital adequacy
7. Single authority
8. Stricter registration of brokers