Capital market reforms


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capital market reforms
presented by v.shyamala

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Capital market reforms

  1. 1. Capital market reforms
  2. 2. Need for reforms Unhealthy practices High cost of new issues Exchanges dominated by elected member brokers Excessive speculative activity Default by stock brokers Frequent payment crisis Disruption of market activity Inefficient and outdated trading system Inefficient risk management system Margins were not enforced strictly Post trade settlement had serious drawbacks Lack of investor protection guidelines
  3. 3. Policy developments in primary market1. Issue of IDRs Issuer must be listed in home country Must not have barred by any regulatory authority Should have a good track record of compliance of security market regulation SEBI stipulated the issue size Disclosures have to be made in the prospectus regarding: general information disclaimer clause offering details risk factors Financial informarion
  4. 4. 2. Continuous listing regulations Listed companies have to maintain a minimum level of public shareholdings at 25% of total shares issued (or) Companies can maintain more than 10% or less than 25% if it has 2cr or more of listed shares and 1000cr or more of market capitalization3. The shareholding pattern should be indicated under 3 categories Shares held by promoter and promoter group Shares held by public Shares held by custodians and against which depository receipts have been issued
  5. 5. 4. Issuers have to be compulsorily graded by credit rating agencies.5. Raising funds through QIPs6.’no Lock in’ on pre issue of shares available to VCFs and FVCI shall be limited toa) Shares held by them registered with SEBI for a period of 1yrb) Shares issued to SEBI registered VCFs/FVCI upon conversion of convertible instruments during a period of 1yr
  6. 6. 7. SEBI amended the disclosure and investor protector guidelines and introduced “restrictions on pre issue publicity”
  7. 7. Measures undertaken in secondary market1. VaR margin to be updated 5 times a day2. PAN has been made mandatory with effect from Jan strengthen KYC norm3. Creation of unified platform for trading of corporate bonds SEBI stipulated that BSE would set up a unified trading platform Reporting shall be made for all trades in listed debt securities issueed by all institutions SEBI and RBI have set up an internal working group for creating a single unified exchange-traded market
  8. 8. 4. Policies on foreign investmentFI in infrastructural companies in stock exchanges, depositories and clearing corporation have been specified as followsa) FI upto 49% will be allowed in these companies with a separate FDI cap of 26% and cap of 23% on FIIb) FDI will be allowed with specific approval from FIPBc) FII will be allowed only through purchases in the secondary marketd) FII shall not seek and get representation on the BODe) No foreign investors shall hold hold more than 5% equity in the companies
  9. 9. 5. The application process for FIIs was simplified and new categories of investment (insurance and reinsurance companies, foreign central banks, investment managers, international organizations) were included in FIIs6. GOI raised cumulative debt instruments limits RBI in its mid-term monetary review policy enhanced the limit of FII on central and state govt. securities7. The aggregate ceiling for the mutual fund industry to invest in ADRs/GDRs was raised8. In govt. securities market RBI stopped to participate in the primary issues of central govt. securities9. Change in the ownership structure of BSE10. FII have been allowed to invest in security receipts
  10. 10. IPO Norms1. SEBI (disclosure and investor protection) guidelines require a minimum offering of 25% of post issue capital to public later it was minimised to 10%.2. SEBI tightened the entry norms for IPO to enhance the quality issues in primary market3. Issue size upto 5 times the net-worth of pre-issue shall be allowed only if the company has a track record of profitability as specified in the guidelines4. The book-building process is made compulsory for the companies who do not have such track record.5. In case of book-building process issue has to consist of 60% of QIPs.
  11. 11. 6. Lock in provisions have been rationalized for minimum promoters contribution of 20% shall continue to be 3yrs The remaining balance will be for 1yr7. Shares issued on preferential basis by a listed company have to be in lock in for 1yr8. The procedure for allotment of shares and refunds were streamlined. (the time for finalizing the allotment has been reduced from 30 to 15 days in book built issues)
  12. 12. Primary dealer systemThey are the wholesalers of govt. securities. can be referred to as merchant bankers to govt. of India.In 1996 RBI framed guidelines for a enlistment and operations of primary dealers
  13. 13. Objectives of the PD system To strengthen the infrastructure in the govt.securities market To ensure development of underwriting and market making capabilities for govt. To improve the secondary market trading system To contribute to the price discovery mechanism To make Pds an effective mode for conducting open market operations
  14. 14. Who can be the primary dealers Subsidiary of scheduled commercial banks/all India financial institutions Company incorporated under companies act 1956 Subsidiaries or joint ventures set up by entities incorporated abroad under the approval of foreign investment promotion board