In order to prevent undesirable transactions in
securities and to regulate the working of stock
changes in the country, the central government
enacted the Securities Contracts (Regulation)
Act in 1956.
It came into force on February 20, 1957.The
Act applies to the whole India
Grant of recognition of stock exchange
Withdrawal of recognition
Government control over trading methods
Power of recognized stock exchange to make rules
restricting voting rights
Power of central government to direct rules to be made
or to make rules.
Power of recognized stock exchanges to make bye-
Power of Securities and Exchange Board of India to
make or amend bye-laws of recognized stock
Nominees of SEBI on governing body
SEBI (Securities Exchange Board of India) was
constituted on April 12, 1988 as a non-statutory
It is an apex body to develop and regulate the
stock market in India.
SEBI is the regulator for the securities market
in India , original set up by the govt. of India in
1988, it acquired statutory form in 1992 with
SEBI Act,1992 being passed by the Indian
Shall be a body corporate with perpetual
succession an common seal with power to acquire
hold and dispose of property.
HQ will be in Mumbai and may establish offices at
other places in India.
Chairman and members of board will be
appointed by the central government.
Government can prescribe terms of offices and
other conditions of service of the board and
Primary duties of the board is to protect the
interest of the investors.
The SEBI act 1992 has entrusted with two
functions they are
Regulation of stock exchanges and self regulatory
Registration and regulation of stock brokers , sub-
brokers , registrars of all issues, merchant bankers,
underwriters, portfolio managers..etc
Registration and regulation of the working of
collective investment schemes including mutual
Prohibition of fraudulent and unfair trade practices
relating to securities market.
Prohibiting of insider trading.
Regulating substantial acquisition of shares and
takeovers of the company.
Promoting investors education.
Training of intermediaries.
Conducting research and publishing
information useful to all market participants.
Promoting of fair practices.
Promotion of self regulatory organizations
The general superintendence, direction and
management of the SEBI shall vest in the
Board of members. Those members exercise
all powers and do all acts and things which
may be exercised by the Board (SEBI)
Central government has power to issue
direction to the board on the policy matters and
shall supersede the board in the event of
default by the Board
The board shall consists of following
Two members, one from amongst the officials of the
central government dealing with finance and another
from the administration of companies act of 1956.
One members from amongst the officials of the
reserve bank of India.
Five other members of whom at least three shall be
the whole-time members to be appointed by the
1.Primary Market Department: It deals with all
policy matters and regulatory issues relating to
2.Issue Management and Intermediaries
Departments: This department is concerned with
inspection of offer documents and other things like
registration, regulation and monitoring of issue
related to intermediaries.
3.Secondary Market Department: It looks after all
the policy and regulatory issues for the secondary
market; administration of the major stock
exchanges and other matters related to it.
4.Institutional Investment Department: It
concerned with framing policy for foreign
Board of Directors of stock exchange have to be
reconstituted so as to include non-members ,public
represtatives , government representatives to the
extent of 50% of total number of members
Working hours for all stock exchanges have been
fixed to be from 12.00noon to 3.00 pm.
All the recognized stock exchanges will have to
inform about the transaction within 24 hrs.
Guidelines have been issued for introducing the
system of market making in less liquid scrip's in a
phased manner in all stock exchanges
Registration of Broker & Sub-broker is
Broker should be professionally qualified and
Compulsory audit of broker’s book and filing of
audit report with SEBI have been made
No broker is allowed to underwrite more than
5%of public issue.
To bring about greater transparency and
accountability in broker - client relationship.
1. Minimum offering of 25% of post issue capital to the
public. This requirement was relaxed to 10% first for IT
sector, later it was relaxed to all the sectors.
2. IPO of issue size up to 5 times of pre-issue , shall be
allowed only to those companies having consistent
track record of making profit at least for 5 years.
3. For issue above Rs. 100 corers book building route
has been made compulsory for comp. making IPO.
4. Time for finalizing the allotment of shares and refund
has been reduced from 30 to 15 days.
5. Issue shall open within 12 months from the date of
issue of observation letter by SEBI.
6. Should disclose price band at least 2 working days
before opening of bid by announcement in all
newspapers in which pre-issue advt. was released.
All foreign institutional investors including pension
funds, mutual funds, asset management companies
and portfolio managers were permitted to invest in
Indian capital market fulfilling the following conditions:-
The FIIs are required to obtain certificate of registration
from the SEBI. For grant of certificate SEBI checks the
applicants track record, professional competence,
financial soundness, experience, general reputation of
fairness and integrity.
They have to obtain approval from RBI under Foreign
Exchange Regulation Act (FERA), 1973.
Certificate of registration is granted for period of 3
years and after it can be renewed.
FIIs are permitted to invest in securities in the primary
and secondary markets including shares, debentures
SEBI has announced the following guidelines for
the issue of bonus shares
The article of association of the company should
contain provisions for the issue of shares.
Bonus issue is capitalisation of profit, Bonus
shares should be issued from free reserves
created out of genuine profits or share premiums
Any reserve created through revaluations of fixed
assets cannot be capitalised
Bonus shares cannot be issued in lieu of dividend
At the time of issuing, bonus shares, there should
not be partly paid up shares
There should not be any default on the part of the
company in payment of statutory dues to employees
such as provident fund, gratuity, bonus etc. similarly,
there should not be default in payment of interest on
fixed deposits or interest or principal amount thereof
There should be a gap of at least 12 months between
the public or right issue and bonus issue
The proposal of bonus issue must be implemented
within six months from the date of such approval by the
Board of Directors
If the issue of bonus shares results in excess of
subscribed and issued capital over the authorised
capital resolution will be passed at the general body
meeting for increasing the authorised capital
No bonus issues will be made if it dilutes the rights of
debenture holders whose debentures are convertible
fully or partly.
The debt equity ration should not exceed 2:1, which means
the amount of debentures can be two times the equity
The rate of interest payable on debentures can be decided
by the company
Debentures should be redeemed on the expiry of seven
years from the date of allotment. Debentures above seven
years cannot normally be issued. Non convertible
debentures may be redeemed at 5% premium
Debentures issued to public should be secured and
A debenture redemption fund should be created for non
SEBI insists on prior licensing of debenture trustees. Trust
deed should be ready within 6 months from the date of
Only those holding certificate of registration, issued by SEBI
can act as underwriters
The certificate of registration is valid for three years from the
date of issue
The underwriting obligation accepted by the underwriter
should not exceed 20 times of his net worth
In the event of inadequate subscription from the public, the
company shall inform the underwriter about his liability
towards subscription, within 30 days of receipt of such
intimation, the underwriter should subscribe to such
The underwriter should, within six months from the end of
financial year, submit the document as required by SEBI
The underwriter should preserve his books of accounts and
records for a minimum period of five years.
Companies Act allows the promoters of the
companies to buy back the company’s own
shares and other securities to the extent of
25% of the paid up capital and free reserves.
Buyback is financed out of company’s free
reserves, securities premium account
Buyback has the effect of cancellation of share
capital of the company already issued
Ex: reduction in equity base, repayment of
surplus cash to shareholders, increase in share
Investor protection is a wide term which stands for various
measures introduced to protect the investors from
malpractices of companies, brokers, merchant bankers,
issue managers, registrars, of new issues etc.
As all investments have some inherent risks, an investor
should be cautious while investing his money in securities.
apart from this personal risk, investors have to be
safeguarded against the malpractices of companies, brokers
Complaints against members of stock exchanges and
Complaints against companies listed for trading on the stock
As per rules, stock exchanges cannot certain the complaints
against sub-brokers, agents, merchant bankers issue