NISM Update Feb-Apr 2013


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NISM Update Feb-Apr 2013

  1. 1. Volume 4 / Issue 22February-April 20132nd Annual Convocation
  2. 2. The 2nd Annual Convocation was held on April 29, 2013, to felicitate the successfulstudents of the School for Securities Education, NISM. These candidates were from theBatch of 2011-12 of two programmes: the One-Year Full-time Post Graduate Programmein Securities Markets (PGPSM) and the One-Year Part-time Certificate in FinancialEngineering&RiskManagement(CFERM).Abriefofthisisgiveninside.School for Regulatory Studies & Supervision of NISM conducted two programmes -“Securities Market Regulations - Anti Money Laundering Perspective” and “FinancialMarket Regulations” during Feb-Mar 2013. Forty two officers from SEBI andEnforcement Directorate and 115 officers from Indian Revenue Service attended theprogrammes,respectively.Abriefofthisisgiveninside.After successful launch of the NISM-Series-V-B: Mutual Fund Foundation CertificationExamination and NISM-Series-III-A: Securities Intermediaries Compliance (Non-Fund)Certification Examination during January, 2013, NISM has launched four newcertification examinations during the period Feb-Apr, 2013. Details of these are giveninside.NISM has carried out a study on Trends in the Performance of the Corporate Sector. Abriefofthisstudyisgiveninthisissue.Asalways,suggestionsforimprovementsofthepublicationarewelcome.WithbestwishesShriSandipGhoseDirector,NISMForeword01
  3. 3. The 2nd Annual Convocation to felicitate the successful students of the School for Securities Education (SSE) was heldon April 29, 2013. These candidates were from the Batch of 2011-12 of two programmes: One-Year Full-time PostGraduate Programme in Securities Markets (PGPSM) and the One-Year Part-time Certificate in Financial Engineering &Risk Management (CFERM). The event saw 180 attendees including students, their family, alumni, officers from keyinstitutions,corporates,facultyandstaffofNISM.ItwascoveredbyBloomberg.Shri Uday Kotak, Executive Vice Chairman and Managing Director-Kotak Mahindra Bank Ltd. was the Chief Guest. In hisconvocation address, he stressed on the dangers of over-leverage, the need for simplicity as opposed to over-engineering, humility and following ones dharma. He also appreciated NISMs passion for education in the field ofsecuritiesmarkets.Shri P K Nagpal, Executive Director-SEBI and immediate-past Director of NISM, was the Presiding Officer on theoccasion. Both Shri Kotak as well as Shri Nagpal are also Members of the Board of Governors of NISM. Accompanyingthemonthedais,ontheoccasion,wereShriSandipGhose,Director-NISMandShriGPGarg,Registrar-NISM.Shri Ghose provided an activity report of NISM during the year gone by. He also made a mention about the strength ofSSE in terms of faculty capabilities in curriculum and research. Shri Nagpal, advised the budding professionals to enjoytheirworkinordertobringintherequiredpassion. Whileemphasizingtheimportanceofregulationinfinancialmarkets,he praised NISMs unique educational process and encouraged inculcation of managerial skills among students. HedistributedthecertificatestothesuccessfulstudentsofPGPSMandCFERM.ShriGargproposedthevoteofthanksandtheceremonyconcludedwiththesingingoftheNationalAnthem2ndAnnualConvocation02
  4. 4. Redress of investor grievances through SEBI Compliances Redress System (SCORES)CorporateBondsandGovernmentSecuritiesascollateralProductLabelinginMutualFunds▪▪▪▪(CIR/OIAE/1/2013 dated 17-04-2013)Pursuant to the provisions of Section 15C SEBI Act, 1992, all listed companies are hereby called upon to redress thegrievances of investors and inform them within 30 days of the complaints. The details of investor grievancesrelating to the respective companies can be accessed through the respective SCORES user ID and password ofeach company.Failure by companies to file Action Taken Reports under SCORES within 30days of date of receipt of the grievance mayalsoattracttheprovisionsofSection15A(a)oftheSEBIAct,1992.TheHonbleFinanceMinister,inhisannouncementintheUnionBudgetfortheyear2013-14,hasproposed,inter-alia,topermit FIIs to use their investment in corporate bonds and Government securities as collateral to meet their marginrequirementstowardstheirtransactionsontherecognizedStockExchangesinIndia.ReserveBankofIndiavideRBI/2012-13/439A.P.(DIRSeries)CircularNo.90datedMarch14,2013haspermittedFIIstouse, in addition to already permitted collaterals, their investments in corporate bonds as collateral in the cash segmentandgovernmentsecuritiesandcorporatebondsascollateralsintheF&Osegment.In light of the above, henceforth FIIs are permitted to offer the following collaterals - government securities, corporatebonds,cashandforeignsovereignsecuritieswithAAAratings,fortheirtransactionsinbothcashandF&Osegments.(CIR/IMD/DF/5/2013dated18-03-2013)In order to address the issue of mis-selling, and to provide investors an easy understanding of the kind of product/scheme they are investing in and its suitability to them, SEBI has decided that all the mutual funds shall Label theirschemesontheparametersasmentionedunder:Nature of scheme such as to create wealth or provide regular income in an indicative time horizon (short/ medium/longterm).A brief about the investment objective (in a single line sentence) followed by kind of product in which investor isinvesting(Equity/Debt).Levelofrisk,depictedbycolourcodeboxesasunder:• Blue-principalatlowrisk.•Yellow-principalatmediumrisk.•Brown-principalathighrisk.Thecolourcodesshallalsobedescribedintextbesidethecolourcodebox.A disclaimer that investors should consult their financial advisers if they are not clear about the suitability of theproduct.(CIR/MRD/DRMNP/9/2013dated20-03-2013)INITIATED BY SEBIRegulatory Changes03
  5. 5. InconsultationwithStockExchangesandtheassociationsofstockbrokers,SEBIhasdecided:The Stock Exchange or the Clearing Corporation, as the case may be, shall, in consultation with SEBI, formulate apolicy for annual inspection of their members in various segments and follow up action thereon. The policy shall alsocover various kinds of risks posed to the investors and market at large on account of the activities/business conduct oftheirmembers.The Stock Exchange or the Clearing Corporation, as the case may be, shall conduct inspection of their members invarious segments in terms of the above policy and in case of members who hold multiple memberships of theexchanges, the Stock Exchanges shall establish an information sharing mechanism with one another on the importantoutcomeofinspectioninordertoimprovetheeffectivenessofsupervision.(CIR/IMD/DF/04/2013dated15-02-2013)SEBI has decided to designate GDS of Banks as gold related instrument. Investment in GDS of Banks by Gold ETFs ofmutualfundsissubjecttofollowingconditions:ThetotalinvestmentinGDSwillnotexceed20%oftotalassetundermanagementofsuchschemes.Before investing in GDS of banks, mutual funds shall put in place a written policy with regard to investment in GDS withdue approval from the Board of the Asset Management Company and the Trustees. The policy should have provision tomake it necessary for the mutual funds to obtain prior approval of their trustees for each investment proposal in GDS ofanyBank.Thepolicyshallbereviewedbymutualfunds,atleastonceayear.Gold certificates issued by Banks in respect of investments made by Gold ETFs in GDS shall be held by the mutualfundsonlyindematerializedform.(CIR/MRD/DP/05/2013 dated 08-02-2013)SEBI has decided to permit stock exchanges to introduce Liquidity Enhancement Schemes (LES) to enhance liquidity ofilliquidsecuritiesintheirEquityCashMarket.LESmaybeintroducedinanyofthefollowingsecurities:• Securitieshavingameanimpactcostgreaterthanorequalto2%foranordersizeof`1lakh,wheremeanimpactcostofthesecurityonthestockexchangeiscalculatedoverthepast60tradingdays.• Securitiesintroducedfortradinginthe“permittedtotrade”category.LES may be continued till such time as the security achieves mean impact cost of less than 2% for an order size of ` 1lakhonthestockexchangeduringthelast60tradingdays.DiscontinuationofLESshallbedoneafteradvancenoticeof15days.(CIR/IMD/FIIC/3/2013dated08-02-2013)The Reserve Bank of India vide circular RBI/2012-13/391, dated January 24, 2013, had enhanced the limit forinvestment by FIIs in the Government Debt Long Term category by US$ 5 billion to US$ 15 billion and the Corporate non-infrastructuredebtcategorybyUS$5billion.▪▪Gold Exchange Traded Fund Scheme (Gold ETFs) investment in Gold Deposit Scheme(GDS)inBanks▪▪▪Liquidity Enhancement Schemes for Illiquid Securities in Equity Cash MarketIncreaseinFIIdebtlimitforGovernmentandCorporateDebtcategory04
  6. 6. Core Investment Companies (CICs) - Guidelines on Investment in InsuranceForeign investment in India by SEBI registered FIIs in Government Securities andCorporateStandardization and Enhancement of Security Features in Cheque Forms/Migrating toCTS2010standards▪▪(RBI/2012-2013/466 dated 01-04-2013)RBI has decided to permit CICs to set up a joint venture company for undertaking insurance business with riskparticipation, subject to safeguards. In view of the unique business model of CICs, RBI has issued a separate set ofguidelinesfortheirentryintoinsurancebusiness.While the eligibility criteria, in general, are similar to that for other NBFCs, no ceiling is being stipulated for CICs in theirinvestmentinaninsurancejointventure.FurtheritisclarifiedthatCICscannotundertakeinsuranceagencybusiness.CICs exempted from registration with RBI do not require prior approval provided they fulfill all the necessary conditionsof exemption as provided under/ in CC No.206 dated January 05, 2011. Their investment in insurance joint venturewouldbeguidedbyIRDAnorms.(RBI/2012-2013/465dated01-04-2013)RBI has decided to merge the existing debt limits for investments by FIIs and long term investors in Governmentsecurities and non-convertible debentures (NCDs) / bonds issued by an Indian company, into two broad categories asunder:▪ Government Debt limit: Government securities of USD 25 billion by merging the existing sub-limits under Governmentsecurities [(a)USD 10 billion for investment by FIIs in Government securities including Treasury Bills and (b) USD 15billionforinvestmentInGovernmentdatedsecuritiesbyFIIsandlongterminvestors];and▪ Corporate Debt Limit: Corporate debt of USD 51 billion by merging the existing sub-limits of corporate debt [(a) USD 1billion for Qualified Foreign Investors (QFIs), (b) USD 25 billon for investment by FIIs and long term investors in non-infrastructuresectorand(c)USD25billionforinvestmentbyFIIs/QFIs/longterminvestorsininfrastructuresector].(RBI/2012-2013/44dated18-03-2013)On a review of the progress made by banks so far in migration to CTS-2010 standard cheques and inconsultation with a few banks and Indian Banks Association, RBI has decided to put in place the followingarrangements for clearing of residual non-CTS-2010 standard cheques beyond the cutoff date of March 31,2013.All cheques issued by banks (including DDs / POs issued by banks) with effect from the date of this circularshallnecessarilyconformtoCTS-2010standard.Banks shall not charge their savings bank account customers for issuance of CTS-2010 standard chequeswhentheyareissuedforthefirsttime.However,banksmaycontinuetofollowtheirexistingpolicyregardingcheque book issuance for additional issuance of cheques, in adherence to their accepted Fair PracticesCode.INITIATED BY RBI05
  7. 7. PermissionofInsurerstoinvestinCategoryIAlternativeInvestment▪▪▪▪▪(IRDA/F&I/INV/CIR/054/03/2013dated18-03-2013In light of SEBI Alternative Investment Fund Regulations, 2012, IRDA permits Insurers to invest in AlternativeInvestmentFundssubjecttothefollowing:The investments in Category I Alternative Investment Funds are permitted under the Head “Other Investments”.Further, such Investments should be restricted to Infrastructure Funds and SME Funds as defined in the AlternativeFundRegulations.Insurers should ensure that such Category I Funds should not invest in securities of companies incorporated outsideIndiaasInsurersareprohibitedforinvestmentoffundsoutsideIndiavidesec.27CoftheInsuranceAct,1938.ThesponsorofsuchAlternativeInvestmentFundshouldnotbeinthepromotergroupoftheInsurer.The Fund shall not be managed by an Investment Manager who is either directly or indirectly controlled or managed bytheInsureroritspromoters.The Investments in Alternative Investment Funds should be clubbed with the investments in Venture Funds andreportedtotheAuthorityinthequarterlyInvestmentreturnsunderthecategorycodeOVNF.INITIATED BY IRDA▪▪All residual non-CTS-2010 cheques with customers will continue to be valid and accepted in all clearinghouses[includingtheChequeTruncationSystem(CTS)centers]foranotherfourmonthsuptoJuly31,2013,subjecttoareviewinJune2013.Cheque issuing banks shall make all efforts to withdraw the non-CTS-2010 Standard cheques in circulationbefore the extended timeline of July 31, 2013 by creating awareness among customers through SMS alerts,letters, display boards in branches/ATMs, log-on message in internet banking, notification on the web-siteetc.Circular on replacing the existing facility of Phased Withdrawal with DeferredWithdrawal’(PFRDAI2013/6/PDEX/5dated11-03-2013)PFRDA has decided to replace the “Phased Withdrawal” option currently available with a “Deferred withdrawal” optionwhereby the subscriber can time the lump sum withdrawal allowed under NPS at the time of exit, with immediateeffect.Under the Deferred withdrawal facility, the subscribers at the time of exit from National Pension System (NPS) canexercise an option to defer the withdrawal of eligible lump sum withdrawal and stay invested in the NPS. However, itmay be noted that no fresh contributions are accepted and also no partial withdrawals are allowed during such a periodof deferment. The subscriber can withdraw the deferred lump sum amount at any time before attaining the age of 70years by giving a withdrawal application or notice. If no such notice is given, the accumulated pension wealth would beautomaticallymonetizedandcreditedtohisbankaccountuponattainingtheageof70years.INITIATED BY PFRDA06
  8. 8. Activities at NismSEBI Financial Education Resource Persons ProgrammeSCHOOL FOR INVESTOR EDUCATION AND FINANCIAL LITERACY (SIEFL)No. of Resource Personsempanelled and trainedDatesVenuePatnaAhmedabadLucknowBhubaneshwarChandigarhGuwahati426851534846Dec 26-30, 2012Jan 13-16, 2013Jan 28-31, 2013Feb 9-13, 2013Feb 23-27, 2013March 17-20, 2013Ahmedabad 13-16th Jan 2013NISM organised new empanelment of SEBI Financial Education Resource Persons at Patna, Ahmedabad, Lucknow,Bhubaneshwar,Chandigarh and Guwahati from December 2012 to March 2013. A total of 308 new Resource Personswereempanelledandtrainedatthesecentresasdetailedbelow.ShriGyanBhushan,ChiefGenManager,SEBIdistributingcertificates to one of the newly empanelled ResourcePersons.FinancialLiteracyProgramsinSchoolsFrom December 2012 to March 2013, Teachers’ Training Programs were conducted in 18 locations covering 893teachers of schools in Kerala, Karnataka, Tamilnadu, Andhra Pradesh, Mumbai, and Navi Mumbai. They were trained inbasic financial literacy concepts viz. financial planning, banking, stock market, insurance and so on. This in turn wouldbepassedontothestudentsintheirrespectiveschools.07
  9. 9. SCHOOL FOR REGULATORY STUDIES & SUPERVISIONSecuritiesMarketRegulations-AntiMoneyLaunderingPerspectiveThe School for Regulatory Studies & Supervision organised a program on “Securities Market Regulations – Anti MoneyLaundering Perspective” in February, 2013 that was attended by 42 officers from SEBI and Enforcement Directorate. Itwas inaugurated by Shri Sunil Sawhney, Special Director, Enforcement Directoratein a function attended by Shri P KNagpal, then Director, NISM, Shri Samir Bajaj, Joint Director, Enforcement Directorate and Shri K Sukumaran, Dean,SIEFL & SRSS, NISM. Some of the important topics covered in the program were, Regulatory Environment in SecuritiesMarket, Regulations under FEMA as relevant to securities market, Foreign Investments by FIIs/QFIs, AML and KYCIssues,etc.TheprogrammecametoanendwithvaledictorysessionattendedbyShriGPGarg,Registrar,NISM.Participants of the programme SECURITIES MARKET REGULATIONS - ANTI MONEY LAUNDERING PERSPECTIVEFinancialMarketRegulationsThe program on “Financial Market Regulations” was organised by NISM for the Indian Revenue Service (IRS) Officers onthe request from National Academy of Direct Taxes (NADT), Nagpur. The program, a workshop cum exposure visit, wasattended by 115 officers from IRS between March 18-22, 2013 at Navi Mumbai. The program started with a session onSecurities Markets followed by sessions on Regulatory Environment in Securities Market, Role of Intermediaries inSecurities Markets, Regulatory Environment in Banking Market, Risk Management in Securities Market, BankingOperations – An Overview, and many more. The participants visited SEBI, RBI, BSE, NSE and NSDL wherein they got anexposuretothefunctioningofeachorganisation.08
  10. 10. SCHOOL FOR CERTIFICATION OF INTERMEDIARIES (SCI)Examination UpdateNISM Certification Examinations are available through all NISM, NSE, MCX-SX and BSE Test Centers. For furtherdetails please visit Launch of NISM-Series-XI: Equity Sales Certification ExaminationNISM has launched the NISM-Series-XI: Equity Sales Certification Examination on March 7, 2013. Thisexamination seeks to create a common minimum knowledge benchmark for all persons involved in equity salesin order to enable a better understanding of equity markets, better quality investor service, operational processefficiency and risk controls.2.LaunchofNISM-Series-XII:SecuritiesMarketsFoundationCertificationExaminationNISM has launched the NISM-Series-XII: Securities Markets Foundation Certification Examination on March 21,2013. This examination aims to impart basic knowledge about the Indian Securities Markets and different rules andregulations governing the securities markets. This examination is a voluntary examination for entry levelprofessionals,whowishtomakeacareerinthesecuritiesmarkets.3.LaunchofNISM-Series-IX:MerchantBankingCertificationExaminationNISM has launched the NISM-Series-IX: Merchant Banking Certification Examination on March 21, 2013. Theexamination seeks to create a common minimum knowledge benchmark for employees working with SEBIregistered Merchant Bankers and performing various SEBI regulated functions such as those relating to IPO, FPO,OpenOffer,Buy-Back,Delistingetc.4.LaunchofNISM-Series-V-C:MutualFundDistributors(Level2)CertificationExaminationNISM has launched the NISM-Series-V-C: Mutual Fund Distributors (Level 2) Certification Examination on April 16,2013. This is a voluntary higher level examination, for those candidates who wish to assess themselves againsthigherstandardsofoverallexpertiserelatedtomutualfundssales,distributionandadvisoryfunctions.5.SEBIsNotificationforNISMCertificationExaminationsSEBI has notified the following certification examinations of NISM under regulation 3 of SEBI (CAPSM) Regulations,2007:(a) NISM-Series-VIII: Equity Derivatives Certification Examination [vide notification LAD-NRO/GN/2012-13/30/5474datedJanuary11,2013](b) NISM-Series-III-A: Securities Intermediaries Compliance (Non-Fund) Certification Examination [vide notificationLAD-NRO/GN/202-13/33/1103datedMarch11,2013]09
  11. 11. Consolidated Status Report ( Period: As on April 28, 2013)NISM Certification ExaminationSrNo.NISM EXAMINATIONTotal CandidatesEnrolledTotal CandidatesAppearedMutual Fund Distributors(Launched on 01/06/2010)RTA - Mutual Fund(Launched on 03/08/2009)Currency Derivatives(Launched on 15/05/2009)Currency Derivatives - Gujarati(Launched on 01/11/2012)Securities Intermediaries Compliance(Non-Fund)(Launched on 28/01/2013)Interest Rate Derivatives(Launched on 17/05/2010)Mutual Fund Distributors - Gujarati(Launched on 01/06/2010)Mutual Fund Distributors - Hindi(Launched on 01/06/2010)Currency Derivatives - Hindi(Launched on 01/11/2012)RTA - Corporate(Launched on 03/08/2009)Mutual Fund Foundation(Launched on 14/01/2013)Depositories Operations(Launched on 21/02/2011)Securities Operations and Risk Management(Launched on 22/11/2010)Equity Derivatives(Launched on 08/10/2012)Merchant Banking(Launched on 21/03/2013)Equity Sales Certification Examination(Launched on 07/03/2013)Securities Markets Foundation(Launched on 21/03/2013)0102030405060708091011131415161718PassPercentagePassPercentageMutual Fund Distributors (Level 2)(Launched on 16/04/2013)1242%25%8%71%60%85%18%42%17%16%91%53%77%56%100%88%100%0%Total120112581954104827221853657654961942788614904725881111224478712011654134985882620193447154979466254331401567753840225592502823261221442298491127601345210768382737420762010420310
  12. 12. SCHOOL FOR SECURITIES EDUCATION (SSE)Segments of the financial sector such as banking & insurance are training intensive. In the capital markets, however,there is no single mode of training or education. Professionals in the securities markets come from diverse backgroundslikelaw,charteredaccountancy,MBA(Finance)&soon.The Indian investor has witnessed a wide range of investment avenues ranging from bank deposits, post office savings,gold, real estate and provident funds. The trust towards equity investment came from the equity dilution bymultinational companies in India under FERA (1973). The mutual fund route gained momentum in the 1990s, and theDepositoriesAct,1996pavedthewayforfurtherinvestmentinequity.NISM Continuing Professional EducationSrNo. NISM Continuing Professional Education010203040506070809Total Candidates Appearedthrough NISM & CPE ProvidersNISM Mutual Fund Distributors CPE (1 Day Programme)(Launched on 01/06/2010 and upto 31/05/2012)NISM Mutual Fund Distributors CPE (Day 1)(Launched on 01/06/2012)NISM Mutual Fund Distributors CPE (Day 2)(Launched on 01/06/2012)NISM RTA Corporate CPE (Day 1)(Launched on 02/05/2012)NISM RTA Corporate CPE (Day 2)(Launched on 02/05/2012)NISM Currency Derivatives CPE (Day 1)(Launched on 05/05/2012)NISM Currency Derivatives CPE (Day 2)(Launched on 05/05/2012)NISM RTA Mutual Fund CPE (Day 1)(Launched on 02/05/2012)NISM RTA Mutual Fund CPE (Day 2)(Launched on 02/05/2012)101112NISM Depository Operations Certification Examination CPE (Day 1)(Launched on 13/07/2012)NISM Depository Operations Certification Examination CPE (Day 2)(Launched on 13/07/2012)NISM Mutual Fund Foundation CPE (Day 1)(Launched on 14/01/2013)16039125031249613713726232617212123023096411
  13. 13. TrendsinthePerformanceoftheCorporateSectorQuarterly Corporate Results are one of the indicators of economic activity in the country. A study on QuarterlyEarnings of 100 companies (Nifty 50 companies and Nifty Junior 50 companies) is carried out with a view to obtainbroad trends in the performance of companies and various sectors for Quarter October-December 2012 ascompared to October-December 2011. As on February 15, 2013, all the 99 companies reported earnings exceptMphasisLimited,whichfollowsadifferentyear/quarterending.Across All 99 companies, PAT (Profit after Tax) has grown 24% over the corresponding Quarter in the previous year.This is achieved with the help of 10% growth in Sales, 9% growth in Operating Profit and 14% growth in OtherIncome. These 99 companies are classified into 13 sectors. Out of 13 sectors, 9 sectors have reported an increasein PAT, significant observations are Pharma (257%), Engery (45%) and FMCG (20%). Out of 13 sectors, 4 sectorshavereportedadeclineinPAT,i.e.Realty(-92%),PSE(-18%),Auto(-13%)andMetal(-8%).Nifty P/E ratio increased to 18.68 from 16.85 a year back, in-spite of increase in PAT by 24%. This could imply thatNifty companies attracted more investments on a perception of improved earnings prospects. As against the NiftyP/Eof18.68,theP/EofPharmawasthehighest(44.74)andtheP/EofPSUBankswasthelowest(8.07).Research at NISMOver the last three decades, the securities markets have been institutionalized through several structures. The Schoolfor Securities Education has a team of dedicated academicians that impart knowledge based on in-depth research andconstant interaction with industry and policy-makers at the highest level. This experience is interwoven with skills andexperiential learning. The curriculum is carefully designed and delivered by academicians, policy-makers andpractitionersbasedonglobalbenchmarks.ThefollowingarethethreeprogrammesconductedbySSE:For full details, please visit Graduate Programme inSecurities Markets (PGPSM)One-year full time programme or fresh graduates or experienced graduates.Certificate in FinancialEngineering and RiskManagement (CFERM)One-year part time programme for working executives. Format A is held onSaturday evenings and Sundays. Format B is held in 10-day modulesfourtimesinayear.Certificate in SecuritiesLaw (CSL)A six-month programme for working executives across 26 Saturdays12
  14. 14. TaxationandSecuritiesMarketsProf.SunderRamKorivi,Dean-SSEandSSIR,NISMThe Tobin Tax (a type of tax proposed by Nobel Laureate James Tobin) has increasingly become a tool being applied bypolicy-makers. It is based on the principle of polluter pays. Those who contribute to pollution (volatility, in this case)ought to pay for it. In the financial markets, speculators and traders have a higher churn rate than, say, a life-insurancecompany, pension fund or a Warren Buffet-like investor. Hence, a transaction tax would hurt speculators and tradersmore. Furthermore, since retail investors generally do not trade in derivatives, a transaction tax on derivatives falls oninstitutional and rich investors. For this reason, a transaction tax is also termed as a Robin Hood tax - taxing the rich tofinance the poor. In recent times, Brazil, an export-oriented economy, introduced an anti-volatility transaction taxaimedtokeepFIIflowsatbayandpreventanunduestrengtheningofitscurrency.In the 1980s and thereafter, countries made serious attempts to enhance trade relations. There are over 2000 DoubleTax Avoidance Treaties (DTAT) of a bilateral nature (India has entered into 85 treaties). There are agreements betweencountries such as Developed-Developed, Developed-Developing and Developing-Developing. Tax arbitrage becomesrich with opportunity where the tax differences are the highest. This raises the popularity to tax havens, where therates of taxation are zero to low. Following the rise of terrorism and its financing in the 2000s, the Financial Action TaskForce (FATF) was initiated. FATF was mandated to eradicate the scourge of terror financing and brought several taxhavens to question. Government action has now shifted to the unfair use of tax havens for purely economic offences.TheseveralbilateralTaxInformationExchangeAgreements(TIEA)thatprevailaretobeviewedinsuchlight.Gita Gopinath of Harvard has been advising the French government on fiscal measures to improve their finances.BeingamemberoftheEuro-zone,France(likeothermembersoftheEuro-zone)suffersfromcurrencyandinterest-raterigidities. The only way to gain financial strength is to raise new taxes. This provides the backdrop against whichFranceandtenothercountriesintheEuro-zonehaveraisedaFinancialTransactionTax.Tax havens are likely to come under increasing focus, especially owing to the moderation in the effective tax ratesfrom 32% to 24% over the past decade in non tax haven countries. Under such a situation, tax havens play spoil-sportto the tax-mobilization efforts of other nations. Thus, Robin Hood-style taxes seek to mobilize funds from the haves forthebenefitofthehave-nots.The low tolerance to tax havens views them in fresh light: the doctrine of tax minimization questions the doctrine oftax avoidance on ethical-technical grounds. Investments are international, but taxes are domestic, leaving loopholesin the hands of clever lawyers from British Virgin Islands to Samoa. This view has increasingly dominated OECDthinking, G20 thinking, and the thinking among tax authorities in India. It is now contextually clearer as to why theTransaction Taxes, a super-rich tax (albeit as a surcharge), GAAR and the aggressive posturing of the Indian taxauthorities.According to William Poole of Cato Institute, tax-deductibility of interest has led to the leverage boom and the bust ofthe financial system. It is time for tax authorities to have a close re-look at the deductibility of not only interest, but alsoother items such as royalty and fees for technical services, especially those routed through tax havens. As AndrewSheng(formerlyoftheHongKongMonetaryAuthority)mentions,financeisagoodservantbutabadmaster.Cyprusisanexampleofanoutsizedfinancialsector,inrelationtoitsrealsector.Articles13
  15. 15. On the whole, the world seems to have come around to the principle (known as the Ramsay Principle) that a devicewhose sole intention is to avoid tax, without commercial substance, is questionable, and must be pursued to bear itsfair share to the exchequer. History tells us that players in the financial sector may lie low until public outrage subsidesandmakefreshattemptsforaretentionofthestatusquo.Mr.NareshShabbani,Manager,F&A,NISMKautilyas Arthashastra, an ancient and revered Indian literature on statesmanship, detailed the four duties of the kingtowards his subjects viz Raksha (Protection), Vriddhi (Enhancement), Palana (Maintenance) and Yogakshema(Safeguard). In the context of corporates where the Board of Directors dons the role of king and the shareholders formthesubjects,thedutiesarebeingreorientedtorepresenttheobjectivesofcorporategovernance:1.Protectionofshareholderswealthfromdevaluation2.Enhancementoftheshareholderswealthbyprudentinvestments3.Maintenanceoftheshareholderswealthbyoptimumutilisationofresources4.SafeguardoftheinterestsoftheshareholdersbyactingasatrusteeCcorporate governance also deals with rights of minority shareholders vis-à-vis majority shareholders as well asduties towards other stakeholders such as customers, employees, environment, regulators, creditors, suppliers andthesocietyatlarge.There is an ever growing realization among policy-makers in India about the importance of corporate governance inimproving the investment climate and also in promoting development of vibrant and transparent capital markets.Scams and other frauds have adversely affected the confidence of common investors in a country where less than 3%ofthepopulationinvesttheirsavingsintostockmarkets.It has also dawned upon the corporate sector that sincere efforts have to be made to address concerns of allstakeholders in order to achieve sustainable development in a country where growing disparity between the havesand the have-nots threaten to disrupt the very ecosystem in which they operate. Additionally, there is increasingresearch pointing to a direct relation between the levels of corporate governance in a company to its stockperformance.Indiancorporatesectorpresentsasalientcharacteristicthatmaycallforauniquecorporategovernancecodeintermsof dealing with the high concentration of ownership by family-owned groups or the government. However, the basicprinciples that any governance code addresses remains separation of governance from management, fairness,transparency,accountability,riskmanagement,probityandsustainablegrowthoverlong-term.The main regulators of corporate governance in India are the Ministry of Corporate Affairs (MCA) and the SEBI.Although the Companies Act, 1956 provided a basic framework for regulation of all companies, the MCA videCompanies Bill, 2012 has inserted detailed provisions to strengthen corporate governance in India. Additionally, theministry has issued Corporate Governance Voluntary Guidelines, 2009 to encourage highest standards of corporategovernancethroughvoluntaryadoption.On the other hand, SEBI addresses corporate governance in all listed companies through clause 49 of the listingagreement that contains 1) mandatory provisions - those standards which are absolutely essential and do not requirelegislative amendments and 2) non mandatory provisions – those standards which are desirable but require changesinlaw.However, implementation of rules and regulations in letter and in spirit is the need of the hour for India to shine as anepitomeofcorporategovernancehaven.CorporateGovernanceinIndia:Around-up14
  16. 16. CertificateinSecuritiesLaw(CSL):Top-notchfacultycomprisingofpractitioners,regulators, academiciansInnovativeteachingmethodsincludingcases,fieldvisits,exposuretopolicy-makersGoodinfrastructureandspecializedlibraryHigh-qualityclassmixConvenientformat:26Saturdays(10:00amto5:00pm),deliveredatNarimanPoint,Mumbai▪▪▪▪▪▪Contemporarycurriculum,fromthefusionbetweenLawandEconomicsEligibility:Graduation.BackgroundinLaworFinancewillbepreferable.SelectionProcess: InterviewandEssayBecome a specialist in securities market laws and make career in compliance, reporting, investment banking, securitiesmarketoperations,consulting,legalprocessanalytics,etc.Six-month part-time programme for working executivesNISM Bhavan, Plot No. 82, Sector 17, Vashi, Navi Mumbai - 400 703Phone: 022 66735100-05 | Fax: 022 Institute of Securities Markets(An Educational Initiative by SEBI)Last date for application: June 26, 2013