2. INTRODUCTION
A good capital market is essential pre requisite for
industrial and commercial development of a country.
credit is required and supplied on both short term
and long term basis.
The money market caters to the short term needs
only.
The long term needs are met by the capital market.
3. MEANING
The term, refers to the institutional arrangements for
facilitating the borrowing and lending of long term
funds..
It may be defined as an organised mechanism for
effective and efficient transfer of money capital or
financial resources from the investing parties to the
entrepreneurs engaged in industry or commerce.
4. OBJECTIVES AND IMPORTANCE
Capital market,
Ensures best possible coordination and balance
between the flow of savings on the one hand and the
flow of investment leading to capital formation on
the other.
Directs the flow of savings into most profitable
channels and thereby ensures optimum utilisation of
financial resources.
5. In a gist, Capital market strives for,
the mobilisation or concentration of national
saving for economic development.
the mobilisation and import of foreign capital and
investment to supplement the deficit in the
required financial resources so as to maintain the
expected rate of economic growth.
6. FUNCTIONS
Mobilisation of financial resources on a nation
wide scale.
Import of foreign capital to supplement the deficit
in the required financial resources for economic
growth.
Effective allocation of mobilised financial
resources.
7. STRUCTURE OF CAPITAL MARKET
Capital market in India may be classified into two
parts:
Organised and,
Unorganised.
8. ORGANISED MARKET
Demand comes from: Corporate enterprises, PSU,
government and semi- government institutions.
Supply of funds is from: Individual investors,
corporate and institutional investors, investment
intermediaries, financial institutions commercial
banks and government.
9. UNORGANISED SECTOR
It consists of indigenous bankers and private money-
lenders.
Demand comes from—agriculturalists, private
individuals for consumption.
Supply comes from– own resources of money
lenders.
10. COMPONENTS OF CAPITAL MARKET
New issue or primary
market.
Secondary market
Financial institutions
12. NEW ISSUE MARKET OR PRIMARY MARKET
New securities, i.e., shares or bonds that have never
been issued previously, are offered.
Both new and existing companies can raise capital
on the new issue market.
The main function is to facilitate the transfer of
funds from the willing investors to the
entrepreneurs.
14. OWNERSHIP SECURITIES
Every company, except company limited by
guarantee, has a statutory right to issue shares.
The capital of a company is divided into number of
equal parts known as shares.
kinds of Ownership securities:
(i) Equity Shares
(ii) Preference Shares
15. EQUITY SHARES
It represents the owners capital in a company
The holders of these shares are the real owners of the
company.
They have a control over the working of the
company.
They are paid dividend after paying it to the
preference shareholders.
Rate of dividend depends upon the profits of the
company.
Equity capital is paid after meeting all the
claims(including prf.shareholders)
16. CHARACTERISTICS
Maturity – Cannot be redeemed during lifetime
Right to income—Residual claim
Claim on assets — Residual claim
Voting rights – Yes
Pre-emptive rights – Rights shares
Limited liability – upto face value.
17. ADVANTAGES
No obligation of fixed dividend
No charge over the assets of company
Permanent source of capital
Shareholders carry voting rights
DISADVANTAGES
• Danger of overcapitalisation
• Obstacles in mgt.by equity shareholders
• Higher dividends have to be paid during high profits
18. PREFERENCE SHARES
Certain preferences as compared to other type of
shares.
Preference over the payment of dividend.
Preference in the repayment of capital during
liquidation.
Fixed rate of dividend is paid.
Do not have voting rights except if their own rights
are affected.
21. ADVANTAGES
No legal obligation to pay fixed dividend
Provide long term capital
Do not carry voting rights so no dilution of control
Superior security over equity shares
DISADVANTAGES:
Expensive source of finance
Dividend is not tax deductible
Market price of shares keep fluctuating
Rate of dividend is generally low
22. CREDITORSHIP SECURITIES
Also known as debt capital represents debentures
and bonds.
Significance place in the financial plan of the
company.
It is a certificate issued by company acknowledging
debt.
It reduces the capital of capital.
23. DEBENTURES OR BONDS
A debenture is an acknowledgement of debt.
A debenture holder is creditor of company
A fixed rate of interest is paid on debentures.
Floating charge over the assets of company.
Secured debenturescare given priority over all other
creditors.
27. ADVANTAGES
Provides long term funds to company
Rate of interest is generally lower
Interest is tax deductible
No dilution of control
provide flexibility in capital structure.
DISADVANTAGES:
Fixed interest charges.
Charge on the assets of the company.
Cost of raising finance is high.
No voting rights.
28. METHODS OF MARKETING SECURITIES
Public issue by prospectus,which includes
(i) Direct selling
(ii) Sale through investment intermediaries
(iii) Underwritten placement
Offer for sale
Placement method
Tender method
Over the counter placement
Right issue
Bonus issue
30. Firm or person (such as a broker or consultant)
who acts as a mediator on a link between parties to
a business deal, investment decision, negotiation, etc.
Intermediaries usually specialize in specific areas, and
serve as a conduit for market and
other types of information.
MEANING OF INTERMEDIARIES
31. Intermediaries are service providers in
the market, including stock brokers, sub-
brokers, financiers, merchant bankers,
underwriters, depository participants,
registrar and transfer agents, FIIs/ sub
accounts, mutual Funds, venture capital
funds, portfolio managers, custodians, etc
INTRMEDIARIES
33. Is a person OR a business entity who makes their money
from investments, typically involving large sums of money
and usually involving private equity and venture capital,
corporate finance, investment banking and/or large-
scale asset management.
A financier makes money through this process when his or
her investment is paid back with interest, from part of the
company's equity, or a financier can generate income through
commission, performance, and management fees
FINANCIERS
34. A merchant bank is a financial
institution that provides capital to
companies in the form
of share ownership instead
of loans. A merchant bank also
provides advisory on corporate
matters to the firms they lend to.
Both commercial banks and
investment banks may engage in
merchant banking activities.
MERCHANT BANKERS
35. Depository system introduced in India in the year
1996.
In India, a Depository Participant (DP) is
described as an agent of the depository. They are
the intermediaries between the depository and the
investors.
Service provided- Dematerialization,
Rematerialization, Transfers of securities,
settlement of trades.
In India- NSDL & CDSL are the two entity.
DEPOSITORY PARTICIPTANT
36. A stockbroker is a regulated professional
individual, usually associated with a brokerage
form firm or broker-dealer, who buys and
sells stocks and other securities for both retail and
institutional clients, through a stock
exchange or over the counter, in return for
a fee or commission.
Stockbrokers are known by numerous professional
designations, depending on the license they hold,
the type of securities they sell, or the services they
provide.
STOCK BROKER
37.
38.
39.
40.
41.
42. •An intermediary broker, from whom
another broker acquires the reinsurance that needs to be
placed.
•Person who is not a Trading Member of a Stock
Exchange but who acts on behalf of a Trading Member as
an agent or otherwise for assisting investors in dealing in
securities through such Trading Members.
•All Sub-Brokers are required to obtain a Certificate of
Registration from SEBI without which they are not
permitted to deal in securities. a Sub-Broker unless they are
registered with SEBI can wok as a Sub-Broker.
43.
44.
45. A company or other entity that administers the
public issuance and distribution of securities from
a corporation or other issuing body.
They have taken on the risk of distributing the
securities.
Underwriters make their income from the price
difference (the "underwriting spread") between the
price they pay the issuer and what they collect
from investors or from broker-dealers who buy
portions of the offering.
UNDERWRITERS
46. Advantages of Underwriting
1. The company is sure of getting the value of shares issued
2. It enhances goodwill of the company
3. It facilitates wide distribution of securities
4. The company gets expert advice from underwriters in the
matter of marketing securities
5. It fulfills requirement of minimum subscription
47. Provisions regarding Underwriting
1. A company cannot pay any commission on the issue of
shares unless permitted by its Articles.
2. Commission cannot be paid to any person for shares
or debentures which are not offered to the public for
subscription.
3. The commission is limited to 5% of issue price in case
of shares and 2 ½ % in case of debentures. However, in
practice, SEBI has allowed underwriting commission only
at the rate of 2.5% of issue price of equity shares.
4. The amount or rate of commission should be disclosed
in the prospectus.
5. The directors must state in the prospectus that the
underwriters are capable of meeting their obligations
under the underwriting contract
48. Venture capital (VC) is financial capital provided to
early-stage, high-potential, high risk, growth start-up
companies.
The venture capital fund makes money by
owning equity in the companies it invests in. The typical
venture capital investment occurs after the seed
funding round as the first round of institutional capital to
fund growth.
Venture capital is a subset of private equity. Therefore,
all venture capital is private equity, but not all private
equity is venture capital.
VENTURE CAPITALS
49. OTC Exchange Of India (OTCEI)
•is the first exchange for small
companies. It is the first screen based
nationwide stock exchange in India.
•It was set up to access high-technology
enterprising promoters in raising finance
for new product development in a cost
effective manner.
Location Mumbai, India
Founde
d
1990
Owner OTC Exchange of
India
Key
people
Mr. Praveen
Mohnot, MD
50. •OTCEI is promoted by
1. the Unit Trust of India,
2. the Industrial Credit and Investment
Corporation of India,
3. the Industrial Development Bank of
India, the Industrial Finance Corporation
of India and
4. others and is a recognized stock exchange
under the SCR Act.
52. • the secondary market
where existing securities
(shares and debentures)
are traded.
STOCK
MARKET
• Stock Exchanges are
organised and regulated
markets for various securities
issued by corporate sector and
other institutions.
• 24 approved stock exchanges
in our country
STOCK
EXCHANGE
53. DEFINITIONS OF STOCK EXCHANGE
“ Security exchanges are market places where
securities that have been listed thereon may be
bought and sold for either investment or
speculation”
Pyle
Stock Exchange means any body of individuals
whether incorporated or not, constituted for the
purpose of assisting, regulating or controlling the
business of buying, selling in securities”
Securities Contract (Regulation) Act, 1956
54. CHARACTERISTICS OF STOCK
EXCHANGE
Place where securities are purchased and sold.
Association of persons whether incorporated or not.
Trading in a stock exchange is strictly regulated and
rules are prescribed for various transactions
Both genuine investors and speculators buy or sell
shares
Securities of corporations, trust, governments,
municipal corporations etc. are allowed to be dealt at
stock exchange.
55. FUNCTIONS OF STOCK EXCHANGE
• Provide ready market where buyers and
sellers are always available
• Provide hard cash after selling their
holdings
1. Ensure
liquidity of
capital
• Securities once listed continue to be traded
at the exchange irrespective of the fact that
owners go on changing
2. Continuous
market of
securities
• Investors can evaluate the worth of their
holdings from the prices quoted at different
exchanges for these securities.
3. Evaluation
of Securities
56. • Investors do not have any difficulty in
investing their savings by purchasing
shares, bonds etc. from the exchanges
4.Mobilising
surplus
savings
• Shares of new concerns are registered at
stock exchanges
• Existing companies also sell their shares
through brokers etc. at exchanges.
5. Helping in
Raising new
capital
• Dealings at stock exchanges are governed
by well defined rules and regulations of
Securities Contract (Regulation) Act,1956.
• No scope of manipulating transactions.
6. Safety in
dealings.
57. • Only Listed securities can be purchased
• Every company desirous of listing its securities
will apply to the exchange authorities
7.Listing of
securities
• Increasing government’s role in economic
development has necessitated the raising of
huge amounts for this purpose
• It provides platform for raising loans
8. Platform for
public dept
• Companies listed securities with exchanges
have to provide financial statements, annual
reports and other reports to ensure maximum
publicity of company operations and working
9. Clearing
house of
business
information
58. LISTING OF SECURITIES
Listing of securities means permission to quote
shares and debentures officially on the trading floor
of the stock exchange
Every security listed by companies cannot be traded
at a stock exchange. The stock exchange fix certain
standards which the company must fulfill before
getting the securities listed.
59. REQUIREMENTS FOR LISTING
Memorandum and Articles of Association
Copies of all prospectus or statements in lieu of
prospectus
Copies of Balance sheet, audited accounts,
agreements with promoter, underwriters, brokers
Letter of consent from Controller of capital issues,
now replaced with SEBI
Details of shares and debentures issued and shares
forfeited
60. Details of issue of bonuses and dividends declared
History of the company in brief.
Agreement with managing directors.
An undertaking regarding compliance with the
provision of the Companies Act, 1956 and
Securities Contracts (Regulation) Act, 1956 as well
as rules made therein
A list of the highest ten holders of each class and
kind of securities of the company.
The Stock exchange are empowered to withdraw or
suspend the admission granted for trading
following any breach of condition.
61. OBJECTIVE OF LISTING OF SECURITIES
Proper
supervision and
control of dealing
in securities
Protect the
interest of
shareholders and
the investors
Avoid
concentration of
economic power
Ensure liquidity
of securities
Regulate dealings
in securities
Requiring
promoters to have
reasonable stake
in the company
62. ADVANTAGES OF LISTING
Publicity of Securities
The name of companies are mentioned along with the
rates and the investors become familiar with securities
Protection of investors interest
Disclosure of full information by the companies
Ensure liquidity
Listed securities have a ready market at stock exchange.
Better Goodwill
Listed Securities are rated high in the market and bank
accept such securities as collateral securities
63. LISTING PROCEDURE AT NSE
Initial Discussions
Authorised persons of the concerned company hold
discussion with the NSE officials regarding
requirements to be filled, qualification of the issuer
for listing.
Approval of Memorandum and Articles of
Association Rule 19(2) (a) of the Securities
(Regulation) Rules, 1957 require that the Articles of
Association of the issuer wanting to list its securities
must contain the necessary provision.
64. Approval of Draft Prospectus
While drafting the prospectus, the issuer must
keep in mind the following:
the provision of the Companies Act
The provisions of the Securities Contract
(Regulation) Act
The SEBI Act and subordinate legislations thereto
Various notifications, circulars, guidelines etc,
governing preparation and issue of prospectus
prevailing at the relevant time.
The issuer files the draft prospectus along with the
SEBI acknowledgement card or letter indicating
observations on draft prospectus or letter of offer
by SEBI.
65. Submission of Application
All issuers whose securities are going to be listed for
the first time and those who wanting to list further
issues have to submit application to the NSE along
with the requisite fees.
Listing Fees: The listing fees depends on the paid up
share capital of the company:
PARTICULAR AMOUNT( Rs)
Initial Listing Fees 7500
Annual Listing Fees for Companies With Paid up share
and/ or debentures capital of Rs. 1 crore
4200
Between 1crore- 5 crore 8400
5 crore – 10 crore 14000
10 crore – 20 crore 28000
20 crore – 50 crore 42000
Above 50 crore 70000 + 1400 for
every increase of
66. Listing Conditions and Requirements
The issuers has to fulfill the listing conditions and
requirements contained in the listing agreement
form.
After that following information for further
processing to manager of listing department of
NSE.
A brief note on the promoters and management
Company profile
Copies of the Annual Report for last 3 years
Copies of the Draft offer document
Memorandum and Articles of Association
67. PROCEDURE FOR DEALING AT STOCK
EXCHANGES
Select broker through whom the purchase
or sale is to be made
Investor or seller may approach his bank
Banks have appointed their own broker
at exchanges
On recommendation from bank client’s
account is opened by the broker
1. Selection of a Broker
68. 2. Placing an order
After selecting the broker the investor specifies the
type and number of securities the wants to buy or
sell.
3. Making the Contract
The trading floor of the stock exchange is divided
into different parts known as trading posts.
Different posts deals in different types of securities.
The authorised clerk of the broker goes to the
concerned post and expresses his intention to buy
and sell the securities. A deal is struck when the
other party agrees.
69. 4. Contract Note
The buying and selling brokers prepare note after
their mutual consent next day. The seller is sent a
selling note and the buying is sent a buying note.
The details of securities traded are given
mentioning their number, price, etc.
5. Settlement
The spot dealings are settled there in full. The
selling broker hand over the transfer form and
share certificates to the buying broker after
receiving the price. The settlement for ready
delivery and forward contracts is done with a
different procedure.
70. Between 3 to
7 days of the
transaction
Settlement
of Ready
Delivery
Contracts
Speculative
purposes
Settlement
of Forward
Delivery
Contracts
Carry over to the next
settlement
Liquidation by payment of
differences
Liquidation in full
71. DEPOSITORY SYSTEM
One of the biggest problem faced by Indian capital
market has been the manual and paper based
settlement system.
It poses many problems like -- delay in settlements,
high level of failed trade, high cost of transactions,
bad deliveries etc.
Thus, old system of transfer was replaced with the
new and modern system of depositories.
GOI enacted the DEPOSITORY ACT 1996 for orderly
growth and development.
72. Transfer of securities take place through book entry
on the ledger or the depository without the physical
movement of securities.
It eliminates paper work.
Facilitates automatic and transparent trading in
securities.
There are essentially 4 players in the depository
system:
(i) The Depository.
(ii) The Participant.
(iii) The Beneficial owner.
(iv) The Issuer.
73. The Depository—
A depository is a provider(firm) for holding and
transacting securities in electronic form(by means of
book entry).
A depository functions are somewhat similar to a
commercial bank.
At present there are two depositories in India.
(I) National securities depositories system(NSDL).
(II) central depositories servives limited (CDSL).
74. The Participant –
A Depository Participant (DP) is an agent of the
depository and provides depository services to
investors.
To avail the services of the depository, the investors
has to open an account with a DP.
Both the depository and participant has to be
registered with SEBI.
75. The Beneficial Owner—
Beneficial Owner is a person in whose name a demat
account is opened with CDSL for the purpose of
holding securities in the electronic form and
whose name is recorded with CDSL.
He is the real owner of the securities.
He has all the rights and liabilities associated with
the securities.
76. The Issuer:
The Issuer is the company which issues the security.
It maintains a register for recording the names of the
registered owners of securities.
The issuer sends a list of shareholders who opt for
the depository system to the depositories.
77. FACILITIES OFFERED BY DEPOSITORY
SYSTEM
Dematerialisation.
Rematerialisation.
To maintain record of holdings in the electronic
form.
Settlement of trades by delivering / receiving
underlying securities from / in BO accounts.
78. Pledging of dematerialised securities & facilitating
loans against shares.
Nomination facility: (i) Only individual can be
appointed as nominee. (ii) Minor can also be
appointed as nominee (iii) It can be changed as and
when required.
Freezing of the demat account: No transaction will
be executed from the account.
79. ADVANTAGES OF DEPOSITORY SYSTEM
Reduction in paper work
Elimination of risk.
Elimination of bad delivers.
Increased liquidity of securities.
Low transaction cost.
No stamp duty on transfer.
Emergence of healthy and efficient capital market.
80. DEMATERIALISATION OF SHARES
Securities held in physical form are converted into
electronic form and credited to demat account.
It offers a number of benefits to the investor.
It is a safe and convenient way to hold securities
compared to holding securities in physical form.
No stamp duty is levied on transfer of securities held
in demat form.
Instantaneous transfer of securities enhances
liquidity.
81. Any number of securities can be transferred/
delivered with one delivery order.
SEBI has made it compulsory for trades in all listed
securities to be settled in demat mode.
W.e.f. 2nd January 2002.
The procedure of opening a demat account with DP
is similar to opening an account with a bank.
82. STEPS INVOLVED IN DEMATERIALISATION
Investor has to first choose a DP based on his
convenience and the DP’s charges.
Investor has to be submit Demat Request Form(DRF)and
share certificate to DP who in turn will check whether
securities are available for demat.
The investor should defaces the certificate by stamping
‘Surrendered for Dematerialisation”. DP punches
two holes on the name of the company and draws two
parallel lines across the face of the certificate. This
ensures that your shares are not lost in transit or misused
till credit is received by you in your demat account. The
DP upon receipt of the shares and the DRF, will issue the
client an acknowledgement and will send an electronic
request to the Company.
83. DP enters the demat request in his system.
DP dispatches the physical certificates along with the
DRF to the R&T Agent or the issuer company.
R&T Agent, on receiving the physical documents and
the electronic request, verify and check them. Once
the R&T Agent is satisfied, dematerialization of the
concerned securities is electronically confirmed to
the depository.
Depository credits the dematerialised securities to
the beneficiary account of the investor and intimates
the DP electronically.
The DP issues a statement of transaction to the
client.
84. ELECTRONIC SETTLEMENT OF TRADE
PROCEDURE FOR SELLING DEMATERIALISED
SECURITIES:
Investor sells securities in any of the stock exchanges
linked to depository through a broker.
Investor instructs his DP to debit his demat account with
the number of securities sold and credit the brokers
clearing account.
Before the pay in day, broker of the investor transfers the
securities to clearing corporation.
The broker receive payment from the stock exchange.
The investor receives payment from the broker for the
sale of securities.
85. PROCEDURE FOR BUYING DEMATERIALISED
SECURITIES:
Investor instructs DP to receive credits into his
account in the prescribed form.
Broker receive payment from investor and arranges
payment to clearing corporation.
Broker receive credit of securities in clearing account
on the pay out day.
Broker gives instructions to DP to debit clearing
account and credit client’s account.
Investor receive shares into his account by way of
book entry.
86. REMATERIALISATION OF SHARES
Securities can be changed from demat form to
physical form.
For this one has to submit a Rematerialisation
Request Form (RRF) through the concerned DP
in the same manner as Dematerialisation.
The Depository Participant will forward the request
to the Depository after verifying that the client has
the necessary securities in balance.
87. The Depository in turn will intimate the Registrar
and Transfer Agents of the Company who will print
and dispatch the share certificates for the number of
shares so rematerialised and the beneficiary account
will be debited by the Depository and credited with
the Company.
It is not necessary that one gets the shares of the
same folio number. The Registrars and Transfer
Agents will print new certificates with a new range of
certificate numbers. The investor will be allotted a
new folio number;
88. CONCLUSION
There are two depositories in India, namely, NSDL
and CDSL.
For smooth functioning of the depository system,
depository participants act as intermediary between
the clients and the depository. They help in transfer
of securities in a smooth manner. They also help in
performing the task of changing physical securities
into demat form and vice-versa.
ISIN(International Securities Identification
Number) is a unique identification number assigned
to all the securities as per ISO (International
Standards Organisation).
89. Dematerialisation is a process by which the physical
share certificates of an investor are taken back by the
Company and an equivalent number of securities are
credited in electronic form at the request of the
investor.
Rematerialisation is a process by which dematted
securities are changed into physical form on the
request of the client.
91. SECURITIES AND EXCHANGE
BOARD OF INDIA (1992)
THE GOVERNMENT ISSUE AND ORDINANCE ON JANUARY 30,1992
FOR GIVING STATUTORY POWER TO SEBI. THIS ACT WAS PASSED BY
THE PARLIAMENT AS ACT NO. 15 OF 1992 WHICH RECEIVED ASSENT
OF THE PARLIAMENT ON 4TH APRIL 1992. FURTHER, ON MAY 29, 1992
THE GOVERNMENT ISSUED AN ORDINANCE ABOLISHING THE
CAPITAL CONTROL ACT, 1947. THE ORDINANCE ALSO SUPERSEDES
THE VARIOUS GUIDELINES ISSUED BY THE CCI FROM TIME TO TIME .
ACCORDINGLY, SEBI WAS SET UP UNDER THE SEBI ACT, 1992.
92. THE OVERALL OBJECTIVE OF SEBI ARE TO PROTECT THE
INTEREST OF INVESTORS AND PROMOTE THE
DEVELOPMENT OF STOCK EXCHANGE AND TO REGULATE
THE ACTIVITIES OF STOCK MARKET. THE OBJECTIVE OF
SEBI ARE :-
1 ) TO REGULATE THE ACTIVITIES OF THE STOCK
EXCHANGE.
2 ) TO PROTECT THE RIGHTS OF INVESTORS AND
ENSURING SAFETY TO THEIR INVESTMENT.
3 ) TO PR EVENT FRAUDULENT AND MALPRACTICES BY
HAVING BALANCE BETWEEN SELF REGULATION OF
BUSINESS AND ITS STATUTORY REGULATION.
4 ) TO REGULATE AND DEVELOP A CODE OF CONDUCT
FOR INTERMEDIARIES SUCH AS BROKERS,
UNDERWRITERS ETC.
OBJECTIVE OF SEBI ACT 1992
93. THE SEBI IS BODY OF SIX MEMBERS COMPRISING THE CHAIRMAN,
TWO MEMBER FROM AMONGST THE OFFICIALS OF THE MINISTRIES
OF THE CENTRAL GOVERNMENT DEALING WITH FINANCE AND LAW ,
TWO MEMBER FROM THE RBI. ALL MEMBERS EXCEPT THE RBI
MEMBER, ARE APPOINTED BY THE GOVERNMENT , WHO ALSO LAYS
DOWN THEIR TERMS OF OFFICE, TENURE, AND CONDITIONS OF
SERVICE, AND WHO CAN ALSO REMOVE ANY MEMBER FROM OFFICE
UNDER CERTAIN CIRCUMSTANCES. THE DEPARTMENT HAS BEEN
DIVIDED INTO DIVISIONS. THE VARIOUS DEPARTMENTS AND THE
SCOPE OF THEIR ACTIVITIES ARE AS FOLLOWS: -
CONSTITUTION AND ORGANISATION
94. (1)The Primary Market policy, Intermediaries, Self-Regulatory
Organization(SRO), and Investor Grievance and Guidance
Department:- It looks after all policy matter and regulatory
issues in respect of primary market, registration, merchant
bankers, portfolio management services, investment
advisor, underwriters, guidance ,education, and association
(2)The Issue Management and Intermediaries
Department:- It is for vetting of all prospectuses and
letters of offer for public and right issues, for
coordinating with the primary market policy, for
registration, regulation and monitoring of issue-
related intermediaries.
95. (3) The Secondary Market Policy, Operations and Exchange Administration, New Investment
department product and Insider Trading Department:-
It is responsible for all policy and regulation issue for secondary market and new investment
product, registration and monitoring of members of the stock exchange.
(4) The Secondary Market Exchange Administration, Inspection and Non-member Intermediaries
Department:- It looks after the smaller stock exchanges of Guwahati, Indoor, Mangalore,
Hyderabad, Kanpur, Ludhiana and Cochin. It also responsible for inspection of all stock
exchange, and registration, regulation and monitoring of non- member intermediaries such as
sub-brokers.
(5) Institutional investment (Mutual Funds and Foreign Institutional Investment), Mergers and
acquisition Research and Publication and IOSCO Department:- It looks after all policy,
registration, regulation and monitoring of Foreign Institutional Investors, domestic mutual funds,
merger and substantial acquisitions of shares and IOSCO(International Organization of securities
Commission) membership, publication and Annual Report of SEBI.
(6) Legal Department :- It looks after all legal matters under the supervision of General Counsel.
(7) Investigation department carries out inspection and investigation under the supervision of the
Chief of Investigation.
96. 1 FUNCTION OF SEBI
a) Regulating the business in stock exchange and any other securities.
b) Registering and regulating the working of stock broker, sub-broker ,
share transfer agents, bankers to issue, merchant bankers,
underwriters, portfolio manager, investment advisor and such other
intermediaries who may be associated with securities markets in any
manner.
c) Registering and regulating the working of the working of venture
capital funds and collective investment schemes, including mutual
funds.
d) Promoting and regulating self – regulatory organization.
e) Prohibiting fraudulent and unfair trade practices relating to securities
markets.
f) Promoting investor ’s education and training of intermediaries of
securities markets
POWER AND FUNCTION OF SEBI
97. g) Prohibiting insider trading in securities.
h)Regulating substantial acquisition of shares and take-over of
companies.
i)Calling for information from, undertaking inspection ,
conducting inquiries and audits of the stock exchanges,
mutual funds, other persons associated with the securities
market, intermediaries and self regulatory organizations in the
securities market.
98. j) Performing such functions and exercising such powers under the provisions of the securities Contract
(Regulation) Act, 1956, as may be delegated to it by the Central Government .
(2) Power for inspection :- the board may take measures to undertake inspection of any books, or
register ,or other document or record of any listed public company or a public company which intends
to get its securities listed on any recognized stock exchange.
(3) Power of Court :- The board shall have the same powers as are vested in a civil court under the
Code of Civil Procedure 1908 while trying a suit in respects of the following matters
(a) the discovery and production of books of account and other documents at such place and such
time as may be specified by the Board.
(b) inspection of any books, registers and other documents of any person referred to in section 12, at
any place.
(c) issuing commissions for the examination of witnesses or documents.
(4)Power in the Interests of Securities Markets :- The Board may by an order for reasons to be
recorded in writing in the interests of investors or securities market, take any of the following
measures
(a) suspend the trading of any securities in a recognized stock exchange
(b) restrain persons from accessing the securities market and prohibit any person associated with
securities market to buy sell or deal in securities
(c) suspend any officer – bearer of any stock exchange or regulatory organization from holding such
position
(d) retain the proceeds or securities in respect of any transaction which is under investigation
99. (5) Power to issue directions (section 11B) :-
(a) In the interest of investors ,or orderly development of securities market.
(b) to prevent the affairs of any intermediary or other persons referred to in section 12 being
conducted in a manner detrimental to the interest of investors or securities market.
(6) Power Regarding Protection of Investor :-
Without prejudice to the provision of the Companies Act,1956, SEBI Board may for the
protection of investors specify by regulations.
(a) the matters relating to issue of capital , transfer of securities and other matters incidental
thereto
(b) prohibit any company from issuing of prospectus any offer document or advertisement
soliciting money from the public for the issue of securities
100. S I N C E T H E E N A C T M E N T O F T H E S E B I A C T I N 1 9 9 2 , F I N A N C I A L
I N S T I T U T I O N , A G E N C I E S , A N D M A R K E T I N T E R M E D I A R I E S M E N T I O N E D
A B O V E A R E N O W B E I N G G O V E R N E D B Y T H E G U I D E L I N E S , R U L E S , A N D
R E G U L AT I O N S N O T I F I E D B Y T H E S E B I F R O M T I M E TO T I M E . T H E M A J O R
P O L I C Y M E A S U R E S A N D R E F O R M S I N T R O D U C E D B Y T H E S E B I D U R I N G
1 9 9 2 TO 1 9 9 6 .
( 1 ) P R I M A RY S E C U R I T I E S M A R K E T: -
T H E I S S U E O F C A P I TA L B Y C O M PA N I E S N O L O N G E R R E Q U I R E A N Y
C O N S E N T F R O M A N Y A U T H O R I T Y E I T H E R F O R M A K I N G T H E I S S U E O R
F O R P R I C I N G I T.
T H E O F F E R D O C U M E N T I S N O W M A D E P U B L I C E V E N AT T H E D R A F T
S TA G E .
F O R I S S U E S A B O V E R S 1 0 0 C R O R E , B O O K B U I L D I N G R E Q U I R E M E N T
H A S B E E N I N T R O D U C E D
T H E P R I C I N G O F P R E F E R E N T I A L A L L O T M E N T H A S TO B E AT M A R K E T
R E L AT E D L E V E L S A N D T H E R E I S A F I V E - Y E A R L O C K I N P E R I O D F O R
S U C H A L L O T M E N T S
B A N K E R S TO A N I S S U E A N D P O R T F O L I O M A N A G E R S H AV E TO B E
R E G I S T E R E D W I T H S E B I . T H E R E W E R E 7 7 B A K E R S TO I S S U E W H O
W E R E T H U S R E G I S T E R E D A S O F 3 1 M A R C H 1 9 9 6 . S I M I L A R LY T H E R E
W E R E 1 3 R E G I S T E R E D A N D 1 0 0 P E R M I T T E D P O R T F O L I O M A N A G E R S AT
T H E E N D O F M A R C H 1 9 9 6 .
HIGHLIGHTS OF SEBI’S PERFORMANCE
101. (2)Secondary Market and Intermediaries:-
The governing boards and various committees of stock exchanges(SE) have been recognized,
restructured and broad-based.
Inspection of all 22 SEs has been carried out to determine the extent of compliance with
directives of the SEBI.
Computerized or screen based trading has been achieved on almost all exchanges except some
of the smaller ones.
Corporate membership of SEs is now allowed the Articles of Association of SEs have been
amended so as to increase their membership.
All the SEs have been directed to establish either a clearing house or a clearing corporation.
The Bombay Stock Exchange (BSE) has been asked to reduce trading period or settlement cycle
from 14 to 7 days for B group shares.
All recommendation of the Dave Committee for improving the working of the OTCEI have been
accepted.
The brokers are required to ensure segregation of client account and own account.
It has been made mandatory for the stock brokers to disclose the transaction price and
brokerage separately in the contract notes issued by them to their clients.
The trading hours in almost all the SEs have now been increased from 2 and half hours to 3
hours per day.
Compulsory audit of the brokers books and filing of the audit report with SEBI has now been
made mandatory.
102. (3) Mutual Funds :-
As on 31 March 1996, 26 mutual funds (MFs) excluding the UTI were registered with SEBI.
MFs are required to have a board of trustees or trustee company separate from the asset
management company, and securities belonging to the various schemes are required to be
kept with an independent custodian. The SEBI (Mutual Funds ) Regulations, 1993 were
revised to provide for portfolio disclosure,standardisation of accounting policies.
( 4 ) I N V E S T O R P R O T E C T I O N M E A S U R E S
THE SEBI HAS INTRODUCED AN AUTOMATED COMPLAINTS
HANDLING SYSTEM TO DEAL WITH INVESTOR COMPLAINTS. TO
CREATE AN AWARENESS AMONG THE ISSUERS AND INTERMEDIARIES
OF THE NEED TO REDRESS INVESTOR GRIEVANCES QUICKLY,
TO HELP THE INVESTORS IN RESPECTS OF DELAY IN RECEIVING
REFUND ORDERS IN CASE OF OVERSUBSCRIBED ISSUES, A FACILITY
IN FORM OF STOCKINVEST HAS BEEN INTRODUCED.
TO ENSURE THAT MALPRACTICE TAKES PLACE IN THE ALLOTMENT
OF SHARES, A REPREHENSIVE OF SEBI SUPERVISES THE ALLOTMENT
PROCESS.
IT ISSUES ADVISEMENTS FROM TIME TO TIME TO GUIDE INVESTORS
ON VARIOUS ISSUES RELATED TO THE SECURITIES MARKET AND OF
THEIR RIGHTS AND REMEDIES.
103. (4) Miscellaneous:-
FIIs are also require to be registered with the SEBI . The total number of them so registered were
367 as 31 March 1996.
It us required that the capital of companies to be registered as depositories must be Rs 100
crore. Similarly custodians are required to have net worth of Rs 50 crore, and they are to get
their systems and procedure evaluated externally.
Venture capital funds allowed to invest in unlisted companies to finance turnaround companies,
and to provide loans.
