The document provides an introductory lesson on financial services in the Indian context. It discusses the opportunities in the sector and examples of successful entrepreneurs. It then covers various topics related to financial markets including components of the capital and money markets, differences between FI, FII, FDI, collective investment schemes, powers of SEBI, penalties for non-compliance, and more. Key terms are defined and questions are answered on regulations and guidelines related to the financial services sector in India.

1. FINANCIAL SERVICES – SYSTEMS, PRACTICES & OPPORTUNITIES by : DR. T.K. JAIN AFTERSCHO ☺ OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india FOR – CSE & PGPSE STUDENTS (CSE & PGPSE are free online programmes open for all, free for all) mobile : 91+9414430763

2. My word..... My purpose here is to give an introductory lesson on financial services in Indian context. Some of you can become entrepreneurs in this sector. There are tremendous opportunities in this sector. N. Raju, PGPSE from the first batch has become a successful entrepreneur in this sector. Mahavir and Arihant (PGPSE from 2 nd batch) have also taken up this sector. I therefore believe that you can also start with this sector - if you like it. Later, you may start your true non-profit ventures also. Please pass this presentation to all those who might need it. Let us spread knowledge as widely as possible. I welcome your suggestions. I also request you to help me in spreading social entrepreneurship across the globe – for which I need support of you people – not of any VIP. With your help, I can spread the ideas – for which we stand....

3. WHAT ARE THE TWO MAIN COMPONENTS OF FINANCIAL MARKET? 1. CAPITAL MARKET 2. MONEY MARKET

4. WHAT ARE THE TWO COMPONENETS OF CAPITAL MARKET ? 1. SECURITIES MARKET 2. OTHER INSTRUMENTS

5. WHAT ARE THE COMPONENTS OF SECURITIES MARKET? 1. new issue market / primary market 2. secondary market

6. WHAT IS DIFFERENCE BETWEEN FI,FII,FDI? FI = financial institution (we also use the DFI = Domestic Financial Institution for this) FII = foreign institutional investor – they invest through stock market FDI =foreign direct invesment – direct investment in companies

7. What is the term of judges of SAT ? SAT = scurities appellate tribunal as per Sec15N of SEBI act, the Presiding Officer and every other member of Securities Appellate Tribunal shall hold office for a term of five years (or upto age 68 for presiding officer and 62 for other members) from the date he enters upon his office and is eligible for reappointment.

8. What is insider trading ? Insider = a person who is in a company trading = price rigging / taking advantage of share price It is to take benefit in stock market from price sensitive information related to a company IT IS ILLEGAL

9. What is the penalty on insider trading? Section 15G of SEBI act gives meaning of insider trading : if any insider 1. either on his own behalf or on behalf of any other person, deals in securities of a company on any stock exchange on the basis of any unpublished price sensitive information; or 2. communicates any unpublished price sensitive information to any person, 3. counsels to deal in any securities of any body corporate on the basis of unpublished price sensitive information then : penalty =twenty five crore rupees or three times the amount of profits made out of insider trading, whichever is higher.

10. What is the penalty if any asset management company of a mutual fund registered under SEBI Act fails to comply the regulations of SEBI? As per sec. 15E : penalty of one lakh rupees for each day during which such failure continues or one crore rupees

11. What is a collective investment scheme? sub-clause (2) of Section 11AA of SEBI act : 1 investments are pooled and utilized as per a scheme 2. Investors contribute to this scheme to receive profits, or income or produce or property 3. the investments is managed under the scheme on behalf of the investors & the latter do not have day to day control over the management and operation of the scheme or arrangement.

12. What is not a collective investment scheme ? 1. contribution to mutual fund 2. insurance 3.chit fund 4. company's deposits under sec. 58A 5. schemes of cooperative societies 6. other schemes, which come under some other law

13. What are the powers of SEBI? It is having powers equal to Civil Court under the Code of Civil Procedure, 1908 it can : 1. INSPECT / SEIZE DOCUMENTS 2. TAKE EVIDENCE 3. SUMMON & ENFORCE ATTENDANCE 4. ISSUE COMMISSION

14. What is clause 41 of listing agreement ? It specifies that the company must submit the number of investor complaints received, disposed of, unresolved alongwith their quarterly results to the stock exchange (where it is listed).

15. What is the maximum cap on invstment by a single investor in a mutual fund scheme ? no single investor can hold more than 25 per cent of the corpus of any scheme/plan.

16. How much can mutual funds invest in foriegn securities ? up to 10 per cent of their net assets as on January 31 of each year subjects to limits of minimum US $ 5 million and maximum of US $ 50 million.

17. Can FII participate in divestment by the Government in listed companies. Yes

18. Should FII report the issue of their off shore derivative instruments to SEBI? Yes, FIIs, have to report issuance/ renewal/cancellation/redemption of off-shore derivatives instruments against underlying Indian securities

19. What is the difference between primary and secondary market ? The primary market provides the channel for sale of new securities, while the secondary market deals in securities previously issued

20. What is the difference between capital market and money market ? Capital market is for long term funds (more than 1 year) as the name denotes – this market has focus on the capital - the claims are to the capital of the company – example : equity market money market is for short term funds (less than 1 year) – here money is borrowed for short term

21. What is the share of Indian equity market in the world ? 1% of total world turnover The market capitalization of all listed companies taken together on all markets is 1.5% of the world (about US$ 100 trillion)

22. What is market capitalisation? The total market value of all the shares listed on stock exchanges is called total market capitalisation similarly for a company, the market price of all its shares is its market capitalisation example : XYZ has issued 1000 shares. Market price of 1 share is 200, so its market capitalisation is 200*1000 = 200,000

23. What is the overall holdings of shares in India ? The promotors hold about 50% non-promoters hold about 50%, (which includes : the public has 16.% and the institutional holdings by (FIIs, MFs, FIs) have 24% & FIIs have about 9%. others 1%)

24. What is the contribution of household sector in Indian economy? Savings : It has given 83% of gross domestic savings. Their investments are as under : they have invested 38% of financial savings in deposits, 25% in insurance/provident funds, 12% on small savings, and 9% in securities (out of which the investment in Gilts has been 24%), including government securities and units of mutual funds. The fixed income bearing instruments are still the most preferred investment option.

25. How much money has Indian companies raised from ADR / GDR issues ? Since they were permitted access in 1992, Indian companies have raised about Rs. 2 lakh million through American Depository Receipts (ADRs)/Global Depository Receipts (GDRs).

26. What is the investment by FIIs in India? They have invested about US $ 200 bn. In India. About 1000 FIIs are registered with SEBI

27. What is GETF? GETF = gold exchange traded fund from January 12, 2006 mutual funds are permitted to issue GETFs in India subject to certain investment restrictions

28. What do you understand from C & D of stock exchanges ? Corporatisation (c) and Demutualisation (d) corporatisation = to convert into company demutualisation = to spread out ownership only NSE & OTCEI are C & D.

29. Should a share broker send both ECN & physical contract note to the client ? No, Only one of them is required. If ECNs (electronic contract note) have not been delivered or have been rejected by the e-mail ID of the client, the broker is obligated to send the physical contract note(s) within the stipulated time under the extant SEBI guidelines.

30. Is it necessary that clients should have UIN? On the basis of Jagdish Capoor Committee & under MAPIN regulations, Unique Identification Number (UIN) with biometric impression is nessary for a trade order value of Rs. 5 lakh and above.For lower value, a person can submit eiher PAN or UIN.

31. Is it necessary to disclose issue price to SEBI? a company is required to disclose the issue price or the price band in the offer document filed with SEBI. In order to provide flexibility. A company should fix and disclose the issue price in case of a rights issue also. But all these are there in fixed price issues. Now most companies go for bidding and not for fixed price issues – so these regulations are not applicable.

32. Is letter of offer necessary in the case of rights issue also ? Yes, the company can send either letter of offer or abridged letter of offer. An abridged letter of offer contains disclosures as required to be given in the case of an abridged prospectus.

33. What is the minimum public shareholding requirement as per SEBI (DIP) Guidelines, 2000 25%

34. What is clause 49 of listing agreement ? It contains details provisions relating to : independent directors, responsibilities of audit committees, improving quality of financial disclosures, related party transactions proceeds from public/rights/preferential issues, formal code of conduct CEO/CFO certification of financial statements disclosures to shareholders whistle blower policy

35. What is shelf prospectus ? From 2004-5, the facility of shelf prospectus was introduced for public sector banks, scheduled banks and public financial institutions. They can file a draft shelf prospectus in the first instance disclosing the aggregate amount they intend to raise through various tranches. Any amount of over-subscription can be retained by the issuer in each tranche subject to the overall limit set for the year.

36. What is the the market capitalisation & market turnover in Indian stock markets in comparison to national income ? Market capitalization as percent for GDP in India is 65% (in developed countries, it is more than 100% ) The turnover ratio, which is a measure of liquidity, however is approximately 108% it is 115% for developed countries.

37. What is money market ? It is the market for short term funds. It is a wholesale debt market for low-risk, highly liquid, short term instruments. Funds are available in this market for periods ranging from a single day upto a year. Mostly government, banks and financial institutions dominate this market. It is a formal financial market that deals with short-term fund management.

38. What is the nature of money market – wholesale – or retail ? The money market is a wholesale market. The volumes are very large and generally transactions are settled on a daily basis. Trading in the money market is conducted over the telephone, followed by written confirmation from both the borrowers and lenders.

39. Who are the main players in money market ? Government ( T bill ) banks financial institutions corporations

40. What is T bill ? Treasury bill It is issued for 3 months / 6 months it is issued at discount price in comparison to its face value the discount rate is based on bidding process generally banks / FI buy T bills – as these instruments are very safe and fullfill SLR requirements also

41. What is zero coupon bond ? Zero Coupon bonds are bonds issued at discount to face value and redeemed at par. These were issued first on January 19, 1994 and were followed by two subsequent issues in 1994-95 and 1995-96 respectively. Example : face value of bond is 100, it doesnot carry any interest – it is issued at Rs. 90. At the time of maturity, the investor would get 100 (so his return is 10 on 90)

42. What is Dated Security ? These are govt of India (GOT) Securities issued with fixed interest rate. They have fixed maturity and fixed coupon securities usually carrying semi-annual coupon. These are called dated securities because these are identified by their date of maturity and the coupon, e.g., 11.03% GOI 2018 is a Central Government security maturing in 2018

43. What are FRB (Floating rate bond)? loating Rate Bonds are bonds with variable interest rate with a fixed percentage over a benchmark rate (base rate – for example LIBOR) . There may be a cap and a floor rate attached Floating rate bonds of four year maturity were first issued on September 29, 1995, followed by another issue on December 5, 1995. The coupon is reset every six months.

44. WHAT IS CAP & FLOOR ? Maximum interest rate possible is here CAP minimum rate of interest possible is FLOOR

45. What is benchmark rate ? These are international rates which are used as base rate for example : LIBOR , MIBOR LIBOR = london inter bank offered rate this rate changes every day – as it is based on market forces and keeps fluctuating. If you fix rate as : LIBOR + 50 BASIS POINTS then your rate will be the prevailing LIBOR rate + 50 basis points if LIBOR is 3, the rate will be 3.5

46. What are bonds with call / put option? RBI issued a bond with call and put option in 2002 This bond is due for redemption in 2012 and carries a coupon (interest rate) of 6.72%. This bond has call and put option after five years i.e. in year 2007. In other words it means that holder of bond can sell back (put option) bond to Government in 2007 or Government can buy back (call option) bond from holder in 2007. (option = it is at the choice of the investor – if he wants – he can exercise the option – otherwise not. )

47. What is capital indexed bond ? These are bonds where interest rate is a fixed percentage over the wholesale price index. These provide investors with an effective hedge against inflation example : if capital indexed bond is to be paid interest at 2% above WPI. Suppose after 1 year WPI is 105 in relation to issue date (taking issue WPI as 100) – the interest rate should be 5+2 = 7% answer

48. What is the day count for one year ? For government dated securities and state government securities the day count is taken as 360 days for a year and 30 days for every completed month. However for Treasury bills it is 365 days for a year.

49. What is Dutch Auction? It is also called uniform price auction. Here bids are accepted at the same prices as decided in the cut off. Example : cut off price is 100, so bids are accepted at 100

50. What is french auction? It is used for Government dated securities and treasury bills. Bids are accepted at different prices/yields quoted in the individual bids.

51. What is cut off price ? It is the minimum price accepted for the security

52. What is cut off yield ? Yield rate = rate of return. A yield rate of 10 means the bond will give 10% return. Bids at yields higher than the cut-off yield is rejected and those lower than the cut-off are accepted. The cut-off yield is set as the coupon rate for the security. Bidders who have bid at lower than the cut-off yield pay a premium on the security example : a bond carrying Rs. 100 interest p.a. Is issued on cut off yield basis. Cut off yield is 10%. That means the bidder will pay 1000. If a bidder bids for 5% then he will have to pay 2000 (here 1000 is premium paid by him).

53. What is on tap issue ? This is a reissue of existing Government securities having pre-determined yields/ prices by Reserve Bank of India. After the initial primary auction of a security, the issue remains open to further subscription by the investors as and when considered appropriate by RBI. The coupon rate, the interest dates and the date of maturity remain the same as determined in the initial primary auction. Reserve Bank of India may sell government securities through on tap issue at lower or higher prices than the prevailing market prices.

54. EXAMPLE OF ON TAP ISSUE A security was issued by Government of India at 100 carrying coupon rate of 10%. 400 out of 1000 were taken away by investors thorugh bidding. Since RBI participated in the auction as non-bidder, the left out portion (600) devolved on RBI. So RBI again went for on TAP issue of these securities.

55. What is open market operation? OMO=Government securities that are privately placed with the RBI are sold in the market. The yield at which these securities are sold may differ from the yield at which they were privately placed with RBI. Open market operations are used by the RBI to infuse or suck liquidity from the system. Whenever the RBI wishes to infuse the liquidity in the system, it purchases government securities from the market, and whenever it wishes to suck out the liquidity from the system, it sells government securities in the market.

56. WHAT IS CALL MONEY MARKET ? Money at short notice is for a maturity of or up to 14 days banks participate in call money market to meet their very short term liquidity needs at the time of Lehman Brothers crisis, ICICI extensively borrowed from Call money market and the rates in this markets zoomed to very high levels.

57. What is bill rediscounting ? Bill-financing = seller drawing a bill of exchange and the buyer accepting it, thereafter the seller discounting it with, say, a bank, later the bank gets it further rediscouted from other banks / RBI

58. What is MMMF? = Money Market Mutual Funds a mutual fund that invests in money market first introduced in 1971 by Bruce Bent and Henry Brown of the Wall street. RBI appointed a task force on MMMFs was set up under the chairmanship of D Basu in September, 1991 and itnroduced MMMF in 1992 and SEBI issued guidelines on these in 1994 .

59. Formation of which institution enhanced call money market and stabilised it? The formation and operations of Discount and Finance House of India (DFHI) led to enhanced activities in this market segment.

60. What are the reasons for fluctuations in call money market ? periodical large borrowings to meet CRR requirements of banks. certain banks operate excessive credit beyond their permissible limits so they need money from call moneymarket call rates increase steeply when institutional lenders and corporates withdraw huge amounts for tax payments etc.

61. What types of IBP are possible? IBP = inter bank participation THEY ARE OF 2 TYPES : 1. on risk sharing basis 2. without risk sharing these have been revived as per the suggestions of Vaghul committeee

62. My bank wants to buy 91 Days Treasury Bill Maturing on Dec. 26, 2009. The rate quoted by seller is Rs. 99.5 per Rs. 100 face values. Today is 5/12/9, What YTM? YTM = yield to maturity formula = ((100 – price paid) * 365*100)/(price paid * days to maturity) = ((100-99.5)*365*100) / (99.5*21) YTM =8.73%

63. How do my bank bid to buy T bill in primary market ? Primary market = RBI (for govt. Bonds & T bill) 2. We have to submit Bid on NDS by 2:30 PM on Wednesday. If Wednesday happens to be a holiday on Tuesday. 3. We have to submit Bid in terms of price per Rs 100. For example, a bid for 91-day Treasury bill auction could be for Rs 98. 4. Auction committee of Reserve Bank of India decides the cut-off price and results are announced on the same day. 5. Bids above the cut-off price receive full allotment; bids at cut-off price may receive full or partial allotment and bids below the cut-off price are rejected

64. What is CD ? CD = certificate of deposit It is a negotiable money market instrument and issued in dematerialised form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period.

65. What is minimum amount of CD ? Rs.1 lakh

66. What should be the maturity period of CDs issued by banks ? not less than 15 days and not more than one year

67. Can payment of CD be obtained before maturity date ? Yes, by sale. Physical CDs are freely transferable by endorsement and delivery. Demat CDs can be transferred as per the procedure applicable to other demat securities. There is no lock-in period for the CDs. Banks/FIs cannot grant loans against CDs. They cannot buy-back their own CDs before maturity.

68. What is ICD ? It is an unsecured loan extended by one corporate to another.

69. What is CP ? CP = commercial paper It is an unsecured money market instrument issued in the form of a promissory note. It is a privately placed instrument. It was introduced in India in 1990 with a view to enabling highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors

70. What is the maturity period of CP ? minimum of 7 days and a maximum up to one year

71. What are the different types of T bills? 14 day 182 day 91 day 364 day RBI issues these at a prefixed day and a fixed amount.(they are issued in multiple of 100 crore rupees)

73. What is private placement of govt. security ? The Central Government may privately place government securities with Reserve Bank of India. This is usually done when the Ways and Means Advance (WMA)

74. What is WMA? As per the latest law, the government has to give justification for any money that it wants to raise from RBI. This justification based borrowing is called WMA WMA = WAYS AND MEANS ADVANCES

75. What is demutualisation ? Convert stock exchange to FOR PROFIT organisation The board should consist of 75% public interest/ shareholder directors and 25% broker directors, 51% shareholding of the stock exchange should be divested to public& 49% with the trading member brokers.

76. Can you hold more than 1% shares of a recognised stock exchange ? Yes, provided you have the following: financial integrity; good reputation and character; and honesty. (and of course a track record of no crime, no bankruptcy, no scam etc.)

77. What is venture capital ? Venture capital is the capital that is invested in equity or debt securities (with equity conversion terms) of young unseasoned companies promoted by technocrats (like you) who attempt to break new path. It has more risk, more uncertainity, also more returns. Persons like you need it badly.

78. What was the first VCF in India ? Technology Development Fund (TDF) in the year 1987-88 (promoted by Govt. Of India)

79. Who is incubator? hardcore technocrat who works with an entrepreneur to develop a business idea, and prepares a Company for subsequent rounds of growth & funding

80. Who is angel investor ? The venture capitalist, who invests in his chosen field of technology, take active participationin in day-to-day running of the Company, does not insist on detailed business plans He also help in “second round” of funding. Angel investor invests in small or mid sized organisations.

81. Who are private equity players? They invest into proven/ established businesses

82. How to start a venture capital fund (VCF)? Take up a pool of financers, Prepare a company. Along with a copy of memorandum of association, make an application to SEBI for grant of a certificate in the prescribed form accompanied by a non-refundable application fee

83. Can Venture capital fund raise money from any investor ? Yes, provided, such investment from any investor is more than five lakh rupees.

84. Can VCF invest money arbitrarily ? No, VCF has to disclose the investment strategy at the time of application for registration and should not invest more than 25% corpus of the fund in one venture capital undertaking.

85. Can the units of VCF be listed? Yes, after the expiry of three years from the date of the issuance of units by the venture capital fund.

86. Can VCF Invest in another VCF or shares of a financial services company ? No

87. Can VCF invest in sick company ? Yes, in fact 80 percent of funds raised by a venture capital fund should be invested in: 1. sick company OR 2. shares of an unlisted company 3. invested in companie which are investing in sick company / un listed company

88. What is a placement memorandum? It should give details of the terms subject to which monies are proposed to be raised from investors. VCF has to prepare it before raising money from the market

89. Can collective investment scheme be launched any time? No, only after the scheme is approved by the Trustee and it has obtain rating from a credit rating agency and has been appraised by an appraising agency.

90. When was buy back allowed? It was allowed by The Companies (Amendment) Ordinance, 1998

91. Is it necessary to have an escrow account before a company buys back its shares? Yes, an escrow account is an account opened by a company with a scheduled commercial bank by way of a security for discharging its obligation and shall consist either of cash or bank guarantee in favour of a merchant banker or deposit of acceptable securities

92. What is depository ? It is an organisation, where securities of a shareholder are held in the electronic form example : NSDL,CDSL

93. WHAT IS THE DIFFERENCE BETWEEN CUSTODIAN AND DEPOSITORY ? Depository can legally transfer beneficial ownership, but a custodian cannot, otherwise they are very similar

94. Are market makers necessary? Yes, for all the companies which have total face value of less than Rs. 10 crores, the role of market makers is that they — they undertake to offer buy and sell quotes for a minimum 300 shares; — they have to ensure that the bid-ask spread (difference between quotations for sale and purchase) for their quotes must not exceed 10%; — Their inventory must be at least 5% of the proposed issue of the company.

95. Which company can go for fast track issue? Large companies with following requirements : 1. “average market capitalisation of public shareholding” of the company at least Rs. 10,000 crores 2. 95% investor grievances solved 3. 2% of turnover on stock exchange

96. What are the rights of trustees of collective investment schemes? The trustee have a right to obtain from the Collective Investment Management Company such information as is considered necessary by the trustee and to inspect the books of accounts and other records relating to the scheme.

97. Can the collective investment scheme be closed before the due date ? In some cases yes, the law says that the scheme should be wound up on the expiry of duration specified in the scheme or on the accomplishment of the purpose of the scheme.

98. Is collective investment management company required to register under SEBI? YES, under : SEBI (Collective Investment Scheme) Regulations 1999 Collective Investment Management Company is a company incorporated under the Companies Act, 1956 and registered with SEBI in order to organise, operate and manage a collective investment scheme.

99. How can collective investment scheme be launched ? A scheme should be constituted in the form of a trust and the instrument of trust should be in the form of a deed duly registered under the provisions of the Indian Registration Act, 1908 executed by the Collective Investment Management Company in favour of the trustees named in such an instrument.

100. What is a domestic custodian bank ? It is a banking company which acts as a custodian for the ordinary shares or FCCB (foreign currency convertible bonds) of an Indian Company which are issued by it against global Depository receipts or certificates

101. WHAT ARE FCCBs? foreign currency convertible bonds –bonds issued in accordance with this scheme and subscribed by a non-resident in foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole, or in part, on the basis of any equity related warrants attached to debt instruments. they are unsecured, carry a fixed rate of interest and an option for conversion into a fixed number of equity shares of the issuer company.

102. What are ECBs? External Commercial Borrowings (ECB) include commercial bank loans, buyers’ credit, suppliers credit, securitised instruments such as floating rate notes and fixed rate bonds.

103. If you want to go for GDR / FCCB issue, whose permission should you get ? 1. Approval of a Board of Directors, 2. shareholders, 3. ”In principle and Final” approval of Ministry of Finance, 4. Approval of Reserve Bank of India, 5. In-principle consent of Stock Exchange for listing of underlying shares 6. In-principle consent of Financial institutions.

104. What are the routes of External Commercial Borrowings (ECB)? It can be accessed under two routes, (i) Automatic Route (ii) Approval Route.

105. Can you use ECB money for real estate transactions ? No ECB proceeds cant be used for on-lending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate, real estate, working capital, general corporate purpose and repayment of existing Rupee loans. Where can we use ECB? See next slide...

106. Where can we use ECB? For import of capital goods , new projects, modernization/expansion of existing small and medium enterprises (SME) and infrastructure sector in India. for overseas direct investment in Joint Ventures (JV)/Wholly Owned Subsidiaries . In the I / II stage of acquisition of shares in the disinvestment process to NGOs for lending to self-help groups or for micro-credit or for micro finance activity including capacity building.

107. What is infrastructure sector ? power, telecommunication, railways, road including bridges, sea port and airport, industrial parks and urban infrastructure including water supply, sanitation and sewage projects

108. What is the upper cap on ECB? USD 500 million or equivalent during a financial year.

109. HOW MUCH ECB CAN BE RAISED BY NGOs? NGOs engaged in micro finance activities can raise ECB up to USD 5 million during a financial year.

110. WHO GIVES CERTIFICATE OF DUE DILIGENCE AT THE TIME OF ECB? The lender

111. What are the contents of this certificate? that the lender maintains an account with the bank for at least a period of two years, that the lending entity is organised as per the local law and held in good esteem by the business/local community and that there is no criminal action pending against it.

112. What are recognised sources for ECB? international banks, international capital markets, multilateral financial institutions (such as IFC, ADB, CDC etc.,), export credit agencies, suppliers of equipment, foreign collaborators and foreign equity holders (other than erstwhile OCBs).

113. Which sectors are in automatic route for ECB? ECB for investment in real sector, industrial sector, especially infrastructure sector, are under Automatic Route, i.e. it does not require RBI/ Government approval.

114. Which units can access ECB in automatic route? 1. companies 2. NGOs 3. units in Special Economic Zones

115. What is book building ? During road shows of public issues, the investors give indication of their willingness to buy a particular quantity at particular terms. Their willingness is booked as orders by the marketing force of lead manager and co-lead manger. This process is known as book building.

116. What are road shows? Roadshows represent meetings of issuers, analysts and potential investors. Details about the company are presented in the roadshows and such details including history, culture, milestones etc.

117. What is pre-marketing of issue ? It is done before issue of equity. In this phase, the research analysts along with the sales force of the syndicate members meet the prospective investors during pre marketing roadshows. This enables the syndicate members to understand the market and the probable response from the prospective investors. The pre-marketing exercise helps in assessing the depth of investors’ interest in the proposed issue, their view about the valuation of the share

118. What is offering circular? It gives true and complete information regarding the financial strength of the company, its past performance, past and envisaged research and business promotion activities, track record of promoters and the company. It is prepared at the time of issue of shares in Euro capital market.

119. What is the role of listing agent? listing agent in getting its Euro-issue instruments listed on the Overseas Stock Exchanges.

120. What are the steps in euro issue ? (i) Constitution of a Board Sub-Committee; (ii) Selection of Syndicate Members; (iii) Constitution of a task force for due diligence; (iv) Listing; (v) Offering Circular; (vi) Research papers; (vii) Pre-marketing; (viii) Timing, pricing and size of the issue; (ix) Roadshows; (x) Book building and pricing of the issue; (xi) Closing of the issue; (xii) Allotment; (xiii) Investor Relation Programme; and (xiv) Quarterly Statement submission.

121. What is agency agreement ? At the time of euro essue, a company has to enter into an agency agreement with certain persons known as conversion agents.They have to make the principal and interest payments to the holders of FCCBs from the funds provided by the company.

122. What is the role of lead manager? to structure the issue and arrange for the marketing.

123. What is OVERSEAS DEPOSITORY BANK ? It is authorised by the issuing company to issue Depository Receipts against issue of ordinary shares or Foreign Currency Convertible Bonds of issuing company.

124. Can ADR/GDR be issued without prior permission ? Yes The government guidelines on ADR/GDR dt. 19-1-2000 brought ADR/GDR under the automatic route, thus there is no need of obtaining approval of Ministry of Finance, Department of Economic Affairs private placement of ADR/GDR will also not require prior approval provided the issue is lead managed by investment banker.

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