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Role of SEBI in Monitoring Capital Market


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Role of SEBI in Monitoring Capital Market

  1. 1. Role of SEBI in monitoring Indian Capital Market  01/25/13 1
  2. 2.  ICDR Regulations Merchant  Brokers and  Registrar   SEBI Takeover Regulations Bankers Sub-Brokers  Insider Trading Regulations Registrar   Buy Back Regulations Brokers and  Merchant  and Share  Sub-  Delisting Regulations Bankers Transfer  Brokers Regulations  Agent   FUTP Regulations Regulations Regulations 01/25/13 2
  3. 3. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 ICDR Regulations01/25/13 3
  4. 4. AN OVERVIEW SEBI (ICDR) Regulations deals with Issue of Specified Securities by a new   Issuer or a Listed Issuer. Specified Securities : 01/25/13 4
  5. 5. STRUCTURE OF ICDR REGULATIONS SEBI (ICDR) Regulations, 2009 Preferential Public Issues Bonus Issue IDR Issues Issue Issues by Right Issues QIP SMEs General Obligations of Issuer and Merchant Banker in Public Issue / Right Issue Schedules 01/25/13 5
  6. 6. WHAT ICDR DOES NOT REGULATE• Public Issue of Debt Securities (Regulated by SEBI (Issue and Listing of Debt Securities) Regulations, 2008)• Issue of ADRs / GDRs   (Regulated by RBI FCCBs and Ordinary Shares [Through Depository Receipt Mechanism] Scheme, 1993 )• Issue of FCCBs (Regulated by RBI FCCBs and Ordinary Shares [Through Depository Receipt Mechanism] Scheme, 1993 )• Issue of shares pursuant to ESOPs (Regulated by SEBI (Employee Stock Option Plan and Employee Stock Purchase Scheme) Guidelines, 1999) 01/25/13 6
  7. 7. 01/25/13 7
  8. 8. WHAT IS INITIAL PUBLIC OFFER? “Initial Public Offer” means an  offer of specified securities by an  unlisted issuer to the public  for subscription and  includes an offer for sale  of specified securities to the public by any existing holders  of such securities in an unlisted issuer; 01/25/13 8
  9. 9. KEY TERMS OF ISSUE 01/25/13 9
  10. 10. IMPORTANT DEFINITIONS“Anchor Investor" - A QIB who makes an application for a value of 10 crore rupees or more in a IPO made through the book building processApplication Supported by Blocked Amount (ASBA)” -  An application for subscribing to a public  issue  or  rights issue,  along  with an  authorisation  to  Self  Certified  Syndicate  Bank  to block the application money in a bank account.“Book Building” - A process undertaken to elicit demand and to determine at what price to offer an IPO based on demand from institutional investors.“Green Shoe Option” - An option of allotting equity shares in excess of the equity shares offered in the public issue as a post-listing price stabilizing mechanism"Red Herring Prospectus"  -  A  prospectus  which  does  not  have  details  of  either  price  or number  of  shares  being  offered  or  the  amount  of  issue.“Retail Individual Investor” - Investor  who  applies  or  bids  for  specified  securities  for  a value of maximum One Lakh Rupees. 01/25/13 10
  11. 11. PUBLIC ISSUES FRAMEWORK Public Issue Framework under SEBI (ICDR) Regulations Eligibility Type & Promoters’ Allocation Pricing Requirements Procedure Contribution of Issue & Lock-in Book Build Fixed Issue Issue Period Issue 01/25/13 11
  12. 12. ELIGIBILITY REQUIREMENTS Primary Eligibility Requirements 01/25/13 12
  13. 13. ALTERNATE ELIGIBILITY REQUIREMENTS Alternate Eligibility Requirements: ‘Project’ has 15% participation from   public financial institutions/scheduled  Issue through Book-Building Process  commercial banks of which 10%  with minimum 50% net offer to QIBs OR comes from appraisers and min. 10%  net offer to QIBs AND 10 Crores minimum post issue face  2 years of compulsory market making  value capital OR post issue 01/25/13 13
  14. 14. OTHER PRE-REQUISITES • Prospective allottees to be not less than 1000. • Compulsory  IPO Grading by  credit  rating  agency  registered  with  SEBI  before  filling  RHP with ROC • No outstanding convertible securities or other right which would entitle the existing  promoters or shareholders any option to receive equity shares after public offer. • Firm arrangements of finance,  through  verifiable  means,  for 75% of the stated means of finance excluding  the  amount  to  be  raised  through  the  public  issue  to  be  made. • Partly paid up shares to be made fully paid or forfeited in  the  manner  specified,  before the public offering. 01/25/13 14
  16. 16. MINIMUM LISTING REQUIREMENT -BSE New Companies (IPO) Direct Listing Small Cap Companies Large Cap Companies Minimum  issue  size  of  Rs.  3  Minimum  issue  size  of  Rs.  10  No  minimum  issue  size  crore  crore  requirement Market capitalization of not less  Market capitalization of not less  Minimum  Market  Capitalization  than Rs. 5 crore than Rs. 25 crore of  the  listed  capital  shall  be  at  least  two  times  of  the  Paid  Up  Capital. Minimum  post-issue  paid-up  Minimum  post-issue  paid-up  A  minimum  issued  and  paid  up  capital of Rs. 3 crore capital  of Rs. 3 Crores equity capital of Rs. 3 crore . Minimum  income/turnover  of  Minimum  Net  Worth  shall  be  Rs.  3  crore    in  preceding  3  Rs. 20 crore. Years Profit  Making  Track  Record  for  last 3 years 01/25/13 16
  17. 17. MINIMUM LISTING REQUIREMENT -BSE New Companies (IPO) Direct ListingSmall Cap Companies Large Cap CompaniesCompulsory  due  diligence  by  CA  or  A  dividend  paying  track Merchant  Banker.  No  Requirement  of  record    of  atleast  10%  for  at Due    Diligence  if  FIs  or  SCB  has  least  the  last  3  consecutive appraised the project in 12 months years Minimum  No.  of  Public  Shareholders Minimum  25%  public after the Issue shall be 1000. shareholding  with  not  more  than  0.5%  shareholding  with  any single shareholding. At  least  two  years  listing  record with  any  of  the  Regional Stock Exchanges. Demat trading with CDSL and  NSDL.  01/25/13 17
  18. 18. MINIMUM LISTING REQUIREMENT -NSE New Companies (IPO) Direct ListingMinimum paid-up capital of Rs. 10 crore Minimum paid-up capital of Rs. 10 crore and  Minimum Market capitalization of Rs. 25 However, if Market Capitalization > Rs. 100 croreCrore, then Minimum Post-issue paid-up ORcapital is Rs. 5 Crore. Minimum paid-up capital of Rs. 25 crore  OR Minimum Market capitalization of Rs. 50 Minimum Market capitalization of Rs. 25  crorecrore OR Minimum Net worth of Rs. 50 Crores in  preceding 3 years.Minimum 3 years of track record of Issuer  Minimum 3 years of track record of Issuer Company or its promoter company. Company or its promoter company. 01/25/13 18
  19. 19. MINIMUM LISTING REQUIREMENT -NSE New Companies (IPO) Direct ListingOther criteria Dividend payment record in atleast 2 out of the  last 3 FY  OR Distributable profits  in atleast 2 out of the last 3  FY  OR Minimum Net worth of Rs. 50 Crores  Other Criteria 01/25/13 19
  20. 20. TYPE & PROCEDURE 01/25/13 20
  21. 21. A COMPARATIVE ANALYSIS Fixed Price Issue Book-Building Issue Pre-determination  of  price  /  price  band,  Determination of price on the basis of bids  which is made known to the investors received  from  the  investors.  Investors  are  made known only an indicative floor price /  price range. Demand  for  the  securities  offered  is  Demand  for  the  securities  offered  can  be  known only after the closure of the issue. known everyday as the book is built. Underwriting  is  not  compulsory  in  case  of  Underwriting  is  compulsory  in  case  of  Fixed Price Issue Book-Built Issue 01/25/13 21
  22. 22. PROCEDURE 01/25/13 22
  23. 23. PRICING• Free Pricing – Price to be determined by Issuer in consultation with Lead Merchant  Banker• Differential Pricing – Retail Individual Investor my be offered shares at less price than that of other  categories – Anchor investors can not be offered shares at less price than any that of other  categories – In case of Composite issue, the price of public issue and right issue can be  different. – In case of alternate method of book building, shares may be issued to employees  at lower price. (the differential pricing shall not be more than 10% of the floor price) 01/25/13 23
  24. 24. PRICING 01/25/13 24
  25. 25. PRICING 01/25/13 25
  26. 26. PROMOTERS’ CONTRIBUTION Certain specified securities are ineligible for minimum promoters’ contribution 01/25/13 26
  27. 27. SECURITIES INELIGIBLE FOR MINIMUM PROMOTERS’CONTRIBUTION • Securities acquired during the preceding 3 years for consideration other than cash. • Specified securities acquired during the preceding 1 year at a price below Issue price, However, if promoters pay the difference, or acquired pursuant to merger etc., then such securities are eligible. • Securities allotted to promoters acquired during the preceding 1 year at a price below  Issue price against funds brought in by them in case of conversion of partnership firm  into company. • Securities pledged with any creditor. 01/25/13 27
  29. 29. ALLOCATION OF ISSUE – BOOK BUILDING ROUTE Issue Size Promoters’ Offer through offer Contribution document Min. 20% of Net offer to Issue Size Reservation public Min. 25% of Issue Size Non-institutional Retail individual QIB investor investor Max. 50% of NOP Min. 15% of NOP Min. 35% of NOP Anchor Mutual Funds Investor Min. 5% of NOP Max. 30% of QIB 01/25/13 29
  30. 30. ALLOCATION OF ISSUE – FIXED PRICE ISSUE Issue Size Promoters’ Offer through offer document Contribution Min. 20% of Net offer to Issue Size Reservation public Min. 25% of Issue Size Retail Individual Other investors Investors Min. 50% of NOP Max. 50% of NOP 01/25/13 30
  31. 31. ISSUE PERIOD Activity Fixed Price  Book-build  Issue Issue Minimum day  3 3 Maximum days 10 7 Maximum number of days issue to be kept  N.A. 10 open in case of revision in price band 01/25/13 31
  32. 32. 01/25/13 32
  33. 33. RIGHT ISSUE Right Issue (Where the aggregate value of securities offered is 50 lacs or more) • Meaning – Issue of shares by a company to its existing shareholders • Free Pricing • Issue of Letter of Offer • Open for subscription for a minimum 15 days and for maximum 30 days Key Considerations • Rights Issue vs. Further Public offering • Extent of Capital Expansion and its impact on EPS • Increase in Promoters’ shareholding and applicability of SEBI Takeover Code. • Reservation of rights for convertible instruments. 01/25/13 33
  34. 34. ELIGIBILITY CRITERIA FOR RIGHTS ISSUE• No Outstanding convertible instrument• Appointment of Merchant Banker• Clearance of Letter of Offer from Stock Exchange• Appointment of Registrar to the Issue• Agreement with Depository• No Partly Paid up shares• Application to Recognized Stock Exchange• Appointment of Designated Stock Exchange 01/25/13 34
  35. 35. ELIGIBILITY CRITERIA FOR RIGHTS ISSUE• Restrictions: – The following persons are not debarred from accessing the capital market by SEBI • Issuer Company • Promoters • Promoter Group • Directors • Persons in control of the Issuer • Companies in which the above persons are promoter/director – Issuer company has not defaulted in repayment of convertible debt instruments and is  not in the list of willful defaulters published by RBI.• Firm  arrangements  of  finance  through  verifiable  means  towards  stated  75%  of  the  stated  means of finance, excluding the amount to be raised through Right Issue. 35 01/25/13
  36. 36. PRICING OF RIGHTS ISSUE• Pricing of Rights issue is not regulated by SEBI (ICDR) Regulations.• Generally, price for Rights issue shall be lower than the Market Price, however the gap  between the Market Price and Issue Price is determined on the basis of certain criteria.• Key Criteria: – Price  Trend  of  the  issuer’s  shares  during  the  past  1  year  and  affect  of  corporate  announcements on price to remove impact of extra-ordinary price movement. – Price Maintainable in the long-run – State of Capital Market – Stable, Volatile, Bullish, Bearish. – P/E Ratio – Feasibility of Proposed Plans – Dividend Policy – Resource Position of the Company 01/25/13 36
  37. 37. 01/25/13 37
  38. 38. WHAT IS PREFERENTIAL ISSUE Preferential issue  means  issuance of equity shares to the  promoters, promoter group or  selected group of persons or  any investor(s) on private  placement basis. Does not include an offer of specified securities made through a public issue, rights issue, bonus  issue, ESOS, ESPS or QIP or an issue of sweat equity shares or depository receipts issued in a  country outside India or foreign securities. 01/25/13 38
  39. 39. APPLICABILITY The provisions shall not apply where the preferential issue of equity shares is made: a)pursuant  to  conversion  of  loan  or  option  attached  to  convertible  debt  instruments in terms of sections 81 (3)(4) of the Companies Act, 1956; b)pursuant to a scheme approved by a High Court c)in terms of the rehabilitation scheme approved by the BIFR under SICA 01/25/13 39
  40. 40. RELEVANT DATE01/25/13 40
  42. 42. PRICING OF THE ISSUEIf shares are listed for a period of 6 months or more as on Relevant Date:•Average of weekly high / low closing prices of shares quoted in SE during 6months preceding the relevant date OR•Average of weekly high / low closing prices of shares quoted in SE during 2weeks preceding the relevant dateWhich ever is higher 01/25/13 42
  43. 43. PRICING OF THE ISSUE If shares are listed for a period of less than 6 months as on Relevant Date: •Price at which shares are issued in IPO or value per share arrived in scheme of arrangement, if any OR •Average of weekly high / low closing prices of shares quoted in SE during the period share have been listed preceding the relevant date OR •Average of weekly high / low closing prices of shares quoted in SE during 2 weeks preceding the relevant date Which ever is higher 01/25/13 43
  44. 44. LOCK-IN OF SPECIFIED SECURITIES Specified securities Time period of Lock InSecurities allotted to promoter group and the equity shares Three yearsallotted pursuant to exercise of options attached to warrantsissued on preferential basis to promoter or promoter groupEquity shares allotted in excess of the 20% of paid up capital One yearSecurities allotted to persons other than promoter group and the One yearequity shares allotted pursuant to exercise of options attached towarrants issued on preferential basis to such personsShares allotted pursuant to CDR scheme One year01/25/13 44
  45. 45. 01/25/13 45
  46. 46. QUALIFIED INSTITUTIONAL PLACEMENT (QIP) QIP means allotment of eligible securities by a listed issuer to Qualified Institutional Buyers on private placement basis in terms of these regulations. 01/25/13 46
  47. 47. QUALIFIED INSTITUTIONAL BUYERSi. a mutual fund, venture capital fund and foreign venture capital investorii. a foreign institutional investor and sub-accountiii. a public financial institutioniv. a scheduled commercial bank;v. a multilateral and bilateral development financial institution;vi. a state industrial development corporation;vii. an insurance company registered with the IRDAviii.a provident fund with minimum corpus of Rs. 25 crore;ix. a pension fund with minimum corpus of Rs. 25 crore;x. National Investment Fund set up by resolution no. F. No. 2/3/2005-DDII dated November 23, 2005 of the Government of India published in the Gazette of India;xi. insurance funds set up and managed by army, navy or air force of the Union of India. 01/25/13 47
  48. 48. RELEVANT DATE 01/25/13 48
  49. 49. ELIGIBILITY CONDITIONS• Eligible Securities: “Eligible Securities” include equity shares, non-convertible debt instruments along with warrants and convertible securities other than warrants.• Eligibility Criteria’s: • Special Resolution • Appointment of Merchant Banker • Minimum Public Shareholding to be maintained • The equity shares of the same class have been listed on a recognized stock exchange having nation wide trading terminal for a period of at least one year before QIP. 01/25/13 49
  50. 50. OTHER KEY CONDITIONS • Restriction on Allotment: Issue Size Mutual Fund Other QIBs Max 50% to single Min. 10% QIB If not Subscribed QIB belonging to the same group or who are under same control shall be deemed to be a single allottee. 01/25/13 50
  51. 51. OTHER KEY CONDITIONS • Minimum Number of Allottees: Issue Size Number of Allottees Less than INR 250 Crores 2 More than INR 250 Crores 5 • Tenure of convertible instruments issued through QIP is 60 Months. • Aggregate of proposed QIP and all previous QIP in one FY shall not exceed 5 times of Networth of the Issuer of the previous financial year • Eligible securities issued through QIP shall not be transferrable for one year except on a recognized Stock Exchange. 01/25/13 51
  52. 52. 01/25/13 52
  53. 53. BONUS ISSUEEligibility Criteria’s•Authorisation in AOA.•Not default in the payment of interest or principal in respect of fixed deposits or debt Securities.•Not defaulted in respect of the payment of statutory dues of the employees such as contribution toprovident fund, gratuity and bonus.•Partly paid shares, if any, are made fully paid up.•Reservation of bonus shares in favour of the holders of outstanding convertible debt instruments inproportion to the convertible part thereof.Source of Bonus Issue•Bonus issue shall be made out of free reserves built out of the genuine profits or securities premiumcollected in cash only.•Bonus Issue shall not be made out of reserves created by revaluation of fixed assets.•Bonus Share shall not be issued in lieu of dividend. 01/25/13 53
  54. 54. 01/25/13 54
  55. 55. IMPORTANT DEFINITIONS “Main Board” means a recognized stock exchange having nationwide trading terminals, other than SME exchange; “Nominated Investor” means a QIB or PE Fund who enters into an agreement with the merchant banker to subscribe to the issue in case of under-subscription or to receive or deliver the specified securities in the market-making process; “SME exchange” means a trading platform of a recognised stock exchange having nationwide trading terminals permitted by the Board to list the specified securities issued and includes a stock exchange granted recognition for this purpose but does not include the Main Board; 01/25/13 55
  56. 56. ISSUE AND LISTING OF SHARES BY SMEs 01/25/13 56
  57. 57. ISSUE AND LISTING OF SHARES BY SMES• No need to filing DRHP with SEBI before filing it with ROC or DSE• SEBI will not give observations on offer document• 100% underwriting of issue is mandatory.• Minimum 15% underwriting obligation of Merchant Banker• Nominated Investors can also underwrite the issue• Minimum Application Value = Rs. 1 Lac• Minimum Number of Allottee = 50• Compulsory Market Making for minimum 3 years• Promoters’ holding is not eligible for being offered to market maker 01/25/13 57
  58. 58. 01/25/13 58
  59. 59. POWERS OF THE BOARD01/25/13 59
  60. 60. 01/25/13 60
  61. 61. AMENDMENTS IN ICDR01/25/13 61
  62. 62. AMENDMENTS IN ICDR01/25/13 62
  63. 63. AMENDMENTS IN ICDR01/25/13 63
  64. 64. New SEBI Takeover Regulations (Yet to be notified)01/25/13 64
  66. 66. SALIENT FEATURES AND Impact01/25/13 66
  67. 67. KEY DEFINITIONS01/25/13 67
  68. 68. ACQUIRER Who Directly Or Indirectly Acquires Or Agrees to Acquire Shares Or Voting Rights Or Control In Target Company Either Himself Or Through PACs Or With PACs01/25/13 As Per TRAC Report 68
  69. 69. CONTROL Control Includes Right to Appoint majority of Control the Control of Policy directors management decision Exercisable Individually Or with PAC Directly Or Indirectly By virtue of Management Shareholders Voting Shareholding Rights Agreement Agreement 01/25/13 69 As per SEBI Press Release dated July 28, 2011
  70. 70. CHANGE IN CONTROL 01/25/13 70 As Per TRAC Report
  71. 71. FREQUENTLY TRADED SHARES 01/25/13 As Per TRAC Report 71
  72. 72. IDENTIFIED DATE Specified Date Identified Date A date not later than the A date falling on the 30th day from the date of 10th business day prior the PA to tendering period As Per TRAC Report 01/25/13 72
  73. 73. SHARES• The scope of definition has been Broadened;• Inclusion of Depository Receipts within the ambit of term shares.• Holder of the depository receipts is treated at par with the one who acquired the Equity Shares carrying voting rights. As Per TRAC Report 01/25/13 73
  75. 75. INCREASE IN THRESHOLD INITIAL THRESHOLD Malaysia Hong Kong Australia U.K. 33% 30% 20% 30% 01/25/13 As per SEBI Press Release dated July 28, 2011 75
  76. 76. IMPACT •A welcome step and aligns more closely with global practices in other countries; •Beneficial for the Private Equity Players and Investors; •No Transitional Provision for the promoters holding less than 25%; •Hostile takeover threat to the listed companies with lower promoter shareholding.; •Negative Control - Any large investor can acquire some shares from the market to keep his holding upto 25% which is sufficient to block any Special Resolution and keep a check on the management; 01/25/13 76
  77. 77. CREEPING ACQUISITION 01/25/13 As Per TRAC Report 77
  78. 78. IMPACT • It will help the promoters in the consolidation of holdings; • Flexibility to acquire 10% shares or voting rights within 2 days without triggering the Open Offer requirement. 01/25/13 78
  79. 79. PROMOTER HOLDING IN LISTED COMPANIES Total Promoter Companies With Promoter Holding Holding (%) Between Market Cap No. of Mean Median 0-15% 15-20% 20-25% 25-30% Range (Rs. Compani Mn) es 0-500 2,477 45.50% 46.40% 274 87 97 138 (61.1%) (11.1%) (3.5%) (3.9%) (5.6%) 500-2,000 649 52.60% 54.90% 34 19 12 19 (16.0%) (5.2%) (2.90%) (1.8%) (2.9%) 2,000-5,000 312 54.30% 55.00% 10 8 1 10 (7.7%) (3.2%) (2.6%) (0.3%) (3.2%) 5,000-10,000 157 52.20% 54.50% 5 1 3 8 (3.9%) (3.2%) (0.6%) (1.9%) (5.1%) 10,000 and 459 55.20% 54.30% 15 5 11 16 above (11.3%) (3.3%) (1.1%) (2.4%) (3.5%) Overall 4,054 48.90% 50.50% 340 120 124 191 (100%) (8.4%) (3.0%) (3.1%) (4.7%) 01/25/13 Source: TRAC Report 79
  81. 81. INCREASE IN OFFER SIZE As per SEBI Press Release dated July 28, 2011 81 01/25/13
  82. 82. OFFER SIZE ANALYSIS Offer size (% of total equity capital of Target Company) FY Total <=20% >20% 2006-07 89 77 12 2007-08 118 100 18 2008-09 113 95 18 2009-10 75 65 10 Total 395 337 58 % of Cases 100% 85.32% 14.68% Source: TRAC Report 82 01/25/13
  83. 83. FREEDOM TO COMPLETE ACQUISITION UNDER SPA Existing Regulations Proposed Regulations Not allowed Allowed Until the completion of offer •After a period of 21 days from the date formalities. of PA and •Subject to acquirer depositing 100% consideration payable under the Open Offer in Escrow Account. This provision will allow the acquire to have the representation in the Target Company even before the completion of open offer and to exercise the control over it. As Per TRAC Report 83 01/25/13
  84. 84. ACQUISITION FROM OTHER COMPETING ACQUIRER Simplified Rules-An ease for Competitive Bidder for control change Keeping in view the increasing trend of competitive biddings in India this may be taken as an imperative step as compelling two warring groups to continue in a company may not be in the interest of the company and smooth passage to one of the competitive bidders is desirable. As per SEBI Press Release dated July 28, 2011 84 01/25/13
  85. 85. NON COMPETE FEES More beneficial for the shareholders as they will be entitled to get the same price as have been received by the promoters/sellers from the acquirer. As per SEBI Press Release dated July 28, 2011 8501/25/13
  86. 86. IMPACT Shareholder Promoter Investor Investor + Management+ Control Thus, Payment of Non compete fees or control premium should be allowed. 86 01/25/13
  87. 87. REDUCTION IN TIME LINE The timeline for completion of the open offer has been reduced from 95 calendar days To 57 Business Days As Per TRAC Report 87 01/25/13
  88. 88. EXEMPTIONS 8801/25/13
  89. 89. NEW EXEMPTIONS INTRODUCED Increase in shareholding pursuant to Buy Back 89 01/25/13 As Per TRAC Report
  90. 90. NEW EXEMPTIONS INTRODUCED Increase in shareholding pursuant to CDR Scheme • Approval of the scheme by shareholders by way of Special Resolution passed by Postal Ballot; and • No Change in control. As Per TRAC Report 90 01/25/13
  91. 91. NEW TAKEOVER REGULATIONS-A WIN WIN SITUTAION • Beneficial for Private Equity Players and Investors. • More protection for the small shareholders. • Simplification in the provisions. • More transparency and removal of ambiguity. • At par with Global Practices prevalent for M&As. 91 01/25/13
  92. 92. COMPARISON OF NEW AND OLD TAKEOVERREGULATIONS Criteria Old Regulations New Regulations Press Release dated July 28, 2011 Initial Threshold 15% 25% Offer Size 20% 26% Non-Compete Fees Upto 25% of the Offer Price Not allowed Acquisition from the other No provision Available without attracting competing acquirer Open Offer obligations Recommendation on offer by Optional Mandatory Board of Target Company Voluntary Offers No specific conditions Introduced subject to certain conditions. 01/25/13 92
  93. 93. SEBI (Prohibition of Insider Trading) Regulations, 1992 Insider Trading Regulations 9301/25/13
  94. 94. WHAT IS INSIDER TRADING? It is dealing in the securities by a Insider, who has the knowledge of material “inside” information which is not known to the general public 9401/25/13
  95. 95. HOW BAD IT IS ??? Used to make profit at the expense of other Investors; Leads to loss of confidence of investor in stock market; The process corrupts the ‘Level Playing Field’;It is easier to identify the beneficiaries of insider dealing. But theextent of losses occurred is impossible to calculate. 95 01/25/13
  97. 97. Whether the Auditor and Chartered Accountant (CA) also come within the ambit of term “Insider”? Yes 9701/25/13
  99. 99. DEEMED PRICE SENSITIVE INFORMATION  Periodical Financial Results of the company;  Intended declaration of dividends;  Issue of securities or buy-back of securities;  Expansion Plans / New projects;  Amalgamation, mergers or takeovers;  Disposal of undertaking;  Changes in policies of the company. 99 01/25/13
  100. 100. DISCLOSURE REQUIREMENT1. On the acquisition of >5% shares and Whenever there is a change of 2% in shareholding after the acquisition of 5%.2. On becoming the director or officer and whenever there is a change in holding in excess of Rs.5 Lakh in value or 25,000 shares or 1% of total shareholding or voting rights.Recent Development On becoming the promoter or part of promoter group and whenever there is a change in holding in excess of Rs.5 Lakh in value or 25,000 shares or 1% of total shareholding or voting rights. 100 01/25/13
  102. 102. IMPORTANT TERMS  Trading Window Company shall specify a trading period, to be called "Trading Window", for trading in the company’s securities. The trading window shall be closed during the time the Price Sensitive information is un- published and shall opened after 24 hours the PSI is made public.  Restricted/Grey List To restrict trading in certain securities and designate such list as restricted / grey list. Any security which is purchased or sold by the organisation/firm on behalf of its clients / schemes of mutual funds, etc. shall be put on the restricted / grey list.  Chinese Wall Chinese Wall policy demarcates “inside areas” from "public areas". The employees in the inside area shall not communicate any PSI to anyone in public area. 102 01/25/13
  103. 103. NEED TO KNOW  PSI should be disclosed only to those within the company who need the information to discharge their duty.  Limited access to confidential information  Files containing confidential information shall be kept secure.  Computer files must have adequate security of login and pass word etc.  All D/O/E of the Co and their dependants as defined by the company who intend to deal in the securities beyond a limit should pre-clear the transactions. 103 01/25/13
  105. 105. SEBI (Buy Back of Securities) Regulations, 1998 Buy Back of Securities 10501/25/13
  106. 106. BUY BACK.. The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. 106 01/25/13
  107. 107. REASON FOR BUY BACK 107 01/25/13
  108. 108. IMPORTANT DEFINITIONS“Associate” includes a person, -i. who directly or indirectly by himself or in combination with relatives, exercisescontrol over the company or,ii.whose employee , officer or director is also a director, officer or employee ofanother company;“Tender Offer” means an offer by a company to buy back its shares or otherspecified securities through a letter of offer from the holders of the shares or otherspecified securities of the company. 10801/25/13
  109. 109. GOVERNING PROVISIONS • Section 77A, 77AA, 77B of Companies Act, 1956; • SEBI (Buy Back of Securities) Regulations, 1998 (For Listed Companies) • Private Limited Company and Unlisted Public Limited Company (Buy-Back of Securities) Rules, 1999 109 01/25/13
  110. 110. BUY BACK AT A GLANCE • Authorization in AOA; • Board Resolution - In case the fund utilization in buy back is ≤10%total paid up equity capital and free reserves; • Special Resolution - In case the fund utilization in buy back is >10% and ≤25% of the paid up capital (equity plus preference shares) and free reserves; • Debt equity ratio should not be more than the 2:1 after such buy-back; 110 01/25/13
  111. 111. BUY BACK AT A GLANCE • Filing of Declaration of Solvency with the Registrar and SEBI. • All the shares or other specified securities for buy-back are fully paid-up; • Buy-back shall be completed within twelve months from the date of passing the SR or BR. • Minimum time of 365 days between two Buy Back offers • Extinguish and physically destroy the securities bought-back within 7 days of the last date of completion of buy-back. 111 01/25/13
  112. 112. SOURCES OF FUNDS Section 77A (1) of Companies Act, 1956 states that: A company may purchase its own shares or other specified securities out of— OR OR Provided that no buy-back of any kind of shares or other specified securities shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities. 112 01/25/13
  113. 113. RESTRICTIONS IN BUY-BACK • Buy-back of shares shall not be done for delisting of securities from the stock exchange. • Buy-back shall not be done from any person through • Negotiated Deals • Spot Transactions • Private Arrangements • No insider trading in securities on the basis of unpublished information relating to buy- back of securities. • No further issue of same kind of shares or other specified securities within a period of 6 moths except by way of bonus issue or in the discharge of subsisting obligations 113 01/25/13
  114. 114. METHODS OF BUY-BACK 114 01/25/13
  115. 115. PROCESS OF BUY-BACK – TENDER OFFER/ODD -LOT Verification and Decision for Buy- Payment to Extinguishment Acceptance / Opening of back Securities of Certificates Rejection of Special Account holders securities Board Resolution and Public Notice, if Closure of offer for applicable Buy-back Special Resolution, COMPANY Opening of offer for if applicable Buy-back Appointment of Opening of Escrow Merchant Banker Account SEBI Clearance Filing of Draft & Filing of Final Letter of Offer Dispatch of LOO Public LOO with SEBI Specified Date and Declaration and Advt. in Announcement & STX and In- of Solvency with Newspaper principal SEBI and STX Approval 115 01/25/13
  116. 116. PROCESS OF BUY-BACK – OPEN MARKETPURCHASE THROUGH STOCK EXCHANGE METHOD Decision for Buy- Extinguishment of Payment of back Certificates Consideration Board Resolution Verification and and Public Notice, if Acceptance / applicable Rejection of securities Special Resolution, COMPANY if applicable Fortnightly public notice of shares bought-back or on Appointment of 5% buy-back Merchant Banker Filing of copy of Buy Back to be BB only through Daily disclosure Public made only on order matching Public to STX about Announcement SE having mechanism Announcement shares bought with SEBI and nationwide except “all or back STX terminal none” 116 01/25/13
  117. 117. PROCESS OF BUY-BACK – OPEN MARKETPURCHASE THROUGH BOOK-BUILDING METHOD Decision for Buy- Extinguishment Payment to back of Certificates Securities holders Board Resolution Verification and and Public Notice, if Acceptance / applicable Rejection of securities Special Resolution, COMPANY Opening of Special if applicable Account Appointment of Determination of Merchant Banker Price Filing of copy of Public Public Opening of Escrow Opening of offer Closure of offer for Announcement Announcement Account with SEBI and for Buy-back Buy-back STX 117 01/25/13
  118. 118. AMENDMENTS IN BUY BACK 11801/25/13
  119. 119. SEBI (Delisting of Equity Shares) Regulations, 2009 Delisting of Securities 11901/25/13
  120. 120. WHAT IS DELISTING 120 01/25/13
  121. 121. DELISTING “Delisting” is totally the reverse of listing. To delist means permanent removal of securities of a listed company from a stock exchange. As a consequence of delisting, the securities of that company would no longer be tradeable at that stock exchange. 121 01/25/13
  122. 122. SALIENT FEATURES  Public shareholders have been defined as the holders of equity shares other than the a) Promoters and b) holders of depository receipts issued overseas against underlying shares.  Not be applicable to sick companies 122 01/25/13
  123. 123. SALIENT FEATURES • The companies cannot delist their securities from the Exchanges pursuant to buyback and preferential allotment. • No shareholders approval, in case the company continues to remain listed at any of the exchanges having Nationwide trading terminal i.e. BSE and/ or NSE or any other Exchange specified in this behalf. 123 01/25/13
  124. 124. SALIENT FEATURES • The concept of Specified Date has been introduced, which shall not be later than 30 working days from the date of the Public Announcement. • The Special Resolution passed for the delisting giving exit option to the shareholders will be valid for a period of 1 year within which the final application will be required to be made to the exchange for delisting. • Special Resolution by way of Postal Ballot 124 01/25/13
  125. 125. SALIENT FEATURES• Successful Exit Offer : Under the Regulations, to get delisted, post offer, the Promoter holding should reach the higher of the following: – 90% of total issued shares of that class; or – (pre offer promoter holding +50% of the Offer Size), otherwise the offer shall be deemed to have failed. Promoters’ option of not accepting the Offer Price Promoters/ PAC not allowed to participation in bidding: 125 01/25/13
  126. 126. TYPES OF DELISTING 126 01/25/13
  127. 127. HOW TO DELIST 127 01/25/13
  128. 128. SEBI (Stock Brokers/Sub Brokers) Regulation,1992 Stock Brokers/Sub Brokers Regulation 12801/25/13
  129. 129. INTENT The Stock brokers plays an eminent role in the development of a capital market of any country and likewise stringent and effective regulation of these market intermediaries becomes essential. The so called Capital Market Regulator and watchdog SEBI plays an effective role in regulating these Market Intermediaries and ensuring the development of a healthy market. 12901/25/13
  130. 130. COVERAGE – SEBI Regulations Through Stock Exchanges 130 01/25/13
  131. 131. REGISTRATION The Registration of Stock Brokers involve two way process: Registration with Stock Exchanges Registration with SEBI 13101/25/13
  132. 132. ELIGIBILITY 13201/25/13
  133. 133. Other Requirements At the time of registration, Brokers are required to identify : 13301/25/13
  134. 134. VALIDITY OF REGISTRATION Registration of Stock Brokers is on Permanent Basis until Surrendered or Suspended for regulatory actions 134 01/25/13
  135. 135. COMPLIANCES Brokers are required to comply the rules and regulations of the following: • Stock Exchanges • SEBI The compliances of both the authorities can be broadly divided into two parts: 135 01/25/13
  136. 136. REGULAR COMPLIANCESSEBI through Stock Exchanges regulates the activities of StockBrokers to ensure Capital Market integrity and protection of the interest of the Investors SEBI GOVERNS:  Day to trading related compliances  Dealing with clients like KYC, Contract Notes, proper authorisation, disclosures, maintenance of funds & securities.  Compliance with respect to terminals and employee’s on the terminals.  Maintenance of books & accounts and documents 13601/25/13
  137. 137. REGULAR COMPLIANCES  Maintenance of margin requirements  Ensuring proper trading (Prevention of fraudulent and unfair transactions)  No dealings with unregistered entities  To comply with the advertisement guidelines  Adherence to Prevention of Money Laundering GuidelinesRECENT Step of SEBI towards Investor Protection and transparency in Capital Markets :SEBI vide circular dated 2nd August 2011 has directed that the details of the transactions done oneach trading day shall be sent by the Stock Exchanges to the investors, by the end of each tradingday, through SMS and E-mail alerts 137 01/25/13
  138. 138. EVENT BASED COMPLIANCESEvent based compliances are as follows: Change in status and constitution Change in DirectorsRECENT CIRCULAR ISSUED BY SEBI:SEBI vide circular dated 03.06.2011 has relaxed the procedural statutory requirements andsimplified the restructuring of stock brokers as under:•The requirement of prior approval of SEBI in case of change in status and constitution has beendone away with.•Now the stock brokers would only be required to obtain prior approval of Stock Exchanges andSEBI prior approval will only be required in case of Change in Control. 13801/25/13
  139. 139. INSPECTIONS AND AUDITS • To ensure the proper working by Stock Brokers SEBI as well as Stock Exchanges from time to time conducts Inspections and Audits of dealing of stock brokers. • Also to ensure self governance, SEBI has mandated for all stock brokers, an half yearly voluntary audits of their business vide circular dated 22nd August, 2008 by independent CA’s, CS’s & ICWA’s. 139 01/25/13
  140. 140. LIABILITIES 14001/25/13
  141. 141. SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating To Securities Market) Regulations, 2003 FUTP Regulations 14101/25/13
  142. 142. INTENT Stock Exchanges provides trading platform to a enormous number of buyers and sellers who come to trade their shares at a fair price and volume discovery, based on the market forces of demand and supply. However, there can be situations where a mechanism can be designed to manipulate the stock market transactions in order to obtain gains through fraudulent and manipulative manner. Thus, stringent and effective regulations becomes necessary to be formed by the Capital Market Regulator to protect the interest of the investors. 14201/25/13
  143. 143. MANNER OF DEALING 14301/25/13
  144. 144. ROLE OF SEBIIn case of any violation in the provisions of the regulations, StockExchanges intimate the same to SEBI and the capital marketregulator thereof conducts investigation to protect the interest ofinvestors and securities market. 14401/25/13
  145. 145. LIABILITIES The board may impose the following penalties in case of any violations: acquired in violation of the regulations 145 01/25/13
  146. 146. SEBI (Merchant Bankers) Regulations, 1992 Merchant Bankers Regulations 14601/25/13
  147. 147. WHO IS A MERCHANT BANKER Who is Who is Engaged in OR Acting as Manager, consultant Manager, consultant Issue Management Issue Management and advisor and advisor Either by making Either by making Or rendering arrangement for arrangement for Corporate advisory Corporate advisory Selling, Buying or Selling, Buying or service in relation to such service in relation to such Subscribing to Securities Subscribing to Securities issue management issue management 147 01/25/13
  148. 148. ELIGIBILITY CRITERIA’S • A body corporate other than a NBFC • Adequate Infrastructure • Should have minimum two experienced employees • Conform to the Capital Adequacy Requirement • His partner, director or principal officer should not be involved in any litigation connected with the Securities Market. • Should be a fit and proper person 148 01/25/13
  149. 149. CAPITAL ADEQUACY REQUIREMENT 149 01/25/13
  150. 150. CATEGORIES OF MERCHANT BANKER Earlier NowCategory 1 – To carry on the business of Issue Category 1 – To carry on the business of IssueManagement, to act as advisor, consultant, Management, to act as advisor, consultant,manager, underwriter, portfolio manager. manager, underwriter, portfolio manager.Category 2 – To act as adviser, consultant, co-manager, underwriter,portfolio managerCategory 3 – To act as underwriter, adviser,consultant to an issue.Category 4 – To act as consultant or advisors toan issue. 150 01/25/13
  151. 151. FEES FOR REGISTRATION 151 01/25/13
  152. 152. AMENDMENTS Date Amendments 7 Sept 2006 • Inserted definitions • Change in Capital Adequacy requirements. Earlier requirements were given for different categories • Added conditions for registration as Merchant Banker • Period of validity of certificate for 3 years 28 May 2007 Revised fees for filing draft offer document 31 March 2008 Revised fees for filing draft offer document 13 April 2010 • Merchant Banker may ensure market making in accordance with Chapter XA of SEBI (ICDR) Regulations • Merchant Banker shall underwrite 15% of issue size • To submit complete particulars of acquisition made in pursuance of underwriting or market making to the Board on quarterly basis 16 August 2011 Due diligence records to be maintained by merchant bankers in issue management, takeover, buyback and delisting 15201/25/13
  153. 153. SEBI (Registrars To An Issue And Share Transfer Agents) Regulations, 1993 Registrar and Transfer Agent 15301/25/13
  154. 154. REGISTRAR TO AN ISSUE REGISTRAR TO AN ISSUE Appointed To carry on following activities: a. Basis of allotment of securities Collecting Keeping proper b. Finalising persons entitled applications from record of applications to allotment; investors in respect and monies received c. Processing or paid allotment letters, of an issue and other documents 154 01/25/13
  155. 155. SHARE TRANSFER AGENT SHARE TRANSFER AGENT Person Division of body On behalf of body corporate corporate Maintains Performing similar activities records of holders of if securities and deals with Holders of its transfer and redemption of securities ≥ 1 Lakh its securities; 15501/25/13
  156. 156. CATEGORIES 15601/25/13
  157. 157. CAPITAL ADEQUACY REQUIREMENT Capital Adequacy requirement ≥ Net worth NET WORTH The Registrar to an Issue or a Share Transfer Agent, who was granted a Registration certificate, prior to the commencement of the second amendment in 2011, shall raise its networth to the said minimum within a period of three years 157 01/25/13
  158. 158. VALIDITY OF CERTIFICATE Certificate of initial Registration granted SHALL BE VALID FOR 5 YEARS from the date of its issue 158 01/25/13
  159. 159. FEES Particulars Category I Category II Application of registration Rs. 10,000 Rs. 10,000 At the time of grant of certificate of initial Rs. 4,00,000 Rs. 1,33,300 registration. OR OR A registrar to an issue and share transfer Rs. 1,50,000 Rs. 50,000 agent who has been granted a certificate of permanent registration, to keep its registration in force. 15901/25/13
  160. 160. AMENDMENTS Date Amendments 17 Sept 1997 Registrar to an Issue not to act as such for an associate 5 Jan 1998 Criteria of fit and proper person 7 Sept 2006 • Inserted new definitions • Added conditions for registration as Registrar and STA 5 July 2011 Initial registration shall be valid for 5 years Grant of certificate of permanent registration Revision of fees 16 August 2011 Networth requirement for Category I and Category II increased to Rs. 50,00,000 and Rs. 25,00,000 respectively. Registrar and STA shall raise its networth within 3 years from such commencement 16001/25/13
  161. 161. THANK YOU Pavan Kumar Vijay Managing Director Corporate Professionals Capital Private Limited SEBI Registered Merchant Banker Regn. No.: INM000011435 D-28, South Extension -I, New Delhi-110 049 Ph: +91.11.40622200; FAX: +91.11.40622201 16101/25/13