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Sebi, regulation, developmental role and beyond


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This material is for PGPSE / CSE students of AFTERSCHOOOL. PGPSE / CSE are free online programme - open for all - free for all - to promote entrepreneurship and social entrepreneurship

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Sebi, regulation, developmental role and beyond

  1. 1. SEBI, REGULATION, DEVELOPMENTAL ROLE AND BEYOND by : DR. T.K. JAIN AFTERSCHO ☺ OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india FOR – PGPSE / CSE PARTICIPANTS mobile : 91+9414430763
  2. 2. My words.... Here I present a few basic questions on sebi, regulation, developmental role and beyond I wish that more and more people should become entrepreneurs. An ordinary Indian entrepreneur wishes to remain an honest entrepreneur and contribute to the development of nation but we have to strengthen those institutions which truly promote entrepreneurship, not just degree granting institutions. Let us work together to promote knowledge, wisdom, social development and education. We believe in free education for all, free support for all, entrepreneurship opportunities and training for all. Let us work together for these goals. ... I alone cant do much, I need support of perosns like you .......... ...
  3. 3. What is the role of share transfer agent ? maintain the records of holders of securities issued by company and deal with all matters connected with the transfer and redemption of its securities. To look after pre-issue and post issue work like preparing list of alottees, making payments regarding refunds, making payments of commission to brokers, maintaining record of stock invests,
  4. 4. What are the code of conduct of Registrar and Share Transfer agent (RTA)? Chapter III consisting of Regulations 13 to 15 lays down the general obligations and responsibilities of RTAs. They have to cooperate with SEBI and follow the instructions of SEBI. They must act as per guidlines of SEBI.
  5. 5. How should clearing member get registered? an application for grant of certificate of registration by a clearing member or self clearing member of the clearing corporation or clearing house of a derivatives exchange or derivatives segment of a stock exchange in Form-AA of Schedule-I, through the concerned clearing corporation or clearing house of which is he a member. However, a trading member who also seeks to act as a clearing member or self clearing member must make separate applications for each activity.
  6. 6. What will happen if a company doesnt receive minimum subscription of 90% of the net offer to public including devolvement of Underwriters within 60 days from the date of closure of the issue the company will have to refund the entire subscription amount received. If there is a delay beyond 8 days after the company becomes liable to pay the amount, the company is required to pay interest prescribed under Section 73 of the Companies Act 1956.
  7. 7. Can a company, whose FCD are due for conversion issue bonus / rights issue ? no A company, pending conversion of fully convertible debentures or partly convertible debentures can make issue of any shares by way of bonus or rights unless similar benefit is extended to the holders of such FCDs or PCDs, through reservation of shares in proportion to such convertible part of FCDs/PCDs
  8. 8. Can a company whose application moneys have yet to be be refunded on account of non-listing raise additional capital ? No issue of capital by way of bonus shares, preferential allotment, rights issue or public issue or otherwise is not allowed.
  9. 9. Can a company whose listing is due, raise additional capital ? No No additional issue of capital by way of bonus shares, preferential allotment, rights issue or public issue or otherwise is permitted during the period commencing from submission of offer document to SEBI on behalf of the company for public or rights issue till the securities referred to in the said offer document have been listed
  10. 10. A minimum 50% of the net offer of securities to the public must be issued to retail individual investors, who are the retail investors? Who is holding shares which, on the basis of the closing price of the shares as on the previous day, are worth up to Rs. 1,00,000/- / applies or bids for securities of or for a value of not more than Rs. 1,00,000/-.
  11. 11. Who will decide the basis of allotment in case of over-subscription? Executive Director/Managing Director of the Designated Stock Exchange along with the post issue Lead Merchant Banker and the Registrars to the Issue will decide it on the basis of Chapter XI of SEBI Guidelines
  12. 12. Who will manage the issue? A merchant banker holding a valid certificate of registration is required to be appointed to manage the issue. A Memorandum of Understanding (MOU) is required to be entered into between lead merchant bankers and the issuer company specifying their mutual rights, liabilities and obligations relating to the issue.
  13. 13. What certificates are required to be furnished by lead manager? due diligence certificate alongwith the draft prospectus He has to Certify that all the amendments suggested/observations made by SEBI have been implemented in the prospectus, Furnish a fresh due diligence certificate at the time of filing the prospectus with the Registrar of Companies, Furnish a fresh certificate immediately before the opening of the issue that no corrective action is needed, and Furnish a fresh and final compliance certificate before the issue is closed for subscription.
  14. 14. What is the time within which monitoring report must be submitted by lead merchant banker post isssue ? The post-issue Lead Merchant Banker must submit the post-issue monitoring reports as per formats specified, Irrespective of the level of subscription within 3 working days from the due dates.
  15. 15. What is the time limit for submission of Final post issue monitoring report for all issues? The due date for this report is the 3rd day from the date of listing or 78 days from the date of closure of the subscription of the issue, whichever is earlier
  16. 16. What are the due datesfor submitting post issue monitoring report in case of Rights issues. 3rd day from the date of closure of subscription of the issue. 50th day from the date of closure of subscription of the issue. due diligence certificate has to be submitted along with final post issue monitoring report.
  17. 17. What details must a company submit in offer documents about arrangements for redressal of investor grievances. the time normally taken by it for disposal of various types of investor grievances. Details of the listed companies under the same management within the meaning of Section 370(1B) of the Companies Act for the period of 3 years prior to the date of filing of the offer documents with ROC/Stock Exchange.
  18. 18. What is book building ? Book Building means a process undertaken by which a demand for the securities proposed to be issued by a body corporate is build up and a ‘Fair Price’ and ‘Quantum’ of securities to be issued is finally determined. In the Book Building process, the Book Runner Lead Manager (BRLM) maintains a ‘Book’ wherein the bids placed by individual and institutional investors through the syndicate members, (generally merchant bankers) are recorded
  19. 19. What are the schemes of book building ? two schemes-75% Book Building Process and 100% book Building Process. An issuer company proposing to issue capital through book building is required to comply with the following requirements:
  20. 20. In case of 75% book building, what is the minimum public issue ? minimum 25% of the securities
  21. 21. In case of 75% book building, what is the underwriting requirement? underwriting is mandatory to the extent of the net offer to the public.
  22. 22. Is it necessary to differentiate public issue from book building issue? Yes The issue of securities through book-building process should be separately identified/indicated as 'placement portion category', in the prospectus and the securities available to the public are to be identified as 'net offer to the public'.
  23. 23. Is it necessary to differentiate public issue in bank accounts also ? The issuer company is required to open two different accounts for collection of application moneys, one for the private placement portion and the other for the public subscription.
  24. 24. Reservation or firm allotment can be made for what type of investors? For permanent employees of the issuer company ‘ shareholders of the promoting companies in the case of a new company and shareholders of group companies in the case of an existing company’ those having business association, as depositors, bondholders and subscribers to services, with the issuer making an initial public offering, provided that allotment to such persons shall not exceed 5% of the issue size.
  25. 25. Should the red herring prospectus disclose the exact price ? No The red herring prospectus shall disclose, either the floor price of the securities offered through it or a price band along with the range within which the price can move, if any.
  26. 26. What can be the maximum cap (maximum price) ? The cap of the price band should not be more than 20% of the floor of the band
  27. 27. Can floor prices be revised during bidding ? Yes The price band can be revised during the bidding period in which case the maximum revision on either side must not exceed 20%
  28. 28. Is it necessary to display the price quotes during bidding process ? Yes The online, real time graphical display of demand and bid prices at the bidding terminals, must be made. The book running lead manager must ensure the availability of adequate infrastructure for data entry of the bids on a real time basis
  29. 29. What is the time limit for which bidding may remain open ? Bid shall be open for atleast three days and not more than seven working days, which may be extended to a maximum of ten working days in case the price band is revised in accordance with the guidelines
  30. 30. What should advertisement disclose regarding bidding ? The advertisement must contain : the date of opening and closing of the bidding(not less than 5 days). the names and addresses of the syndicate members as well as the bidding terminals for accepting the bids. the method and process of bidding.
  31. 31. What should be the number of bidding centres Not less than the number of mandatory collection centres
  32. 32. What information is required to be disclosed every day during bidding ? At the end of each day of the bidding period the demand shall be shown graphically on the terminals for information of the syndicate members as well as the investors. The identities of the Qualified Institutional Buyers making the bidding, would however not be made public
  33. 33. What are the guidelines regarding GSO? An issuer company making a public offer of equity shares can avail of the Green Shoe Option (GSO) for stabilizing the post listing price of its shares as per Chapter VIII-A of SEBI (DIP) Guidelines, 2000 guidelines.
  34. 34. What details are to be submitted about stabilising agent in draft prospectus ? Name of the SA. The maximum number of shares (as also the percentage vis-a-vis the proposed issue size) proposed to be over-allotted by the company. The period, for which the company proposes to avail of the stabilisation mechanism. The maximum increase in the capital of the company and the shareholding pattern post issue, in case the company is required to allot further shares to the extent of over-allotment in the issue. The maximum amount of funds to be received by the company in case of further allotment Details of the agreement/arrangement entered into by SA
  35. 35. Is a separate account required for SA? The SA should open a special account with a bank to be called the “Special Account for GSO proceeds of……… company” and a special account for securities with a depository participant to be called the “Special Account of GSO shares of……….. company”
  36. 36. What details should SA keep in a register for this purpose ? — in respect of each transaction effected in the course of the stabilising action, the price, date and time. — the details of the promoters from whom the shares are borrowed and the number of shares borrowed from each; and — details of allotments made. (for 3 years)
  37. 38. What are the eligibility norms for fast track issues ? Shares listed for at least three years The “average market capitalisation of public shareholding” of the company is at least Rs. 10,000 crores for a period of one year trading turnover of the shares of the company during six calendar months immediately preceding the month has been at least two per cent redressed at least 95% of the total shareholder/investor grievances complied with the listing agreement for a period of at least three years auditor's qualifications does not exceed 5% of the net profit
  38. 39. What is eligibility norm for IPO ? The company must have net tangible assets of atleast Rs. 3 crore in each of the preceeding 3 full years (of 12 months each), of which not more than 50% is held in monetary assets distributable profit in atleast three out of immediately preceeding five years a net worth of atleast Rs. 1 crore in each of the preceding 3years and if the company has changed its name within the last one year, atleast 50% of the revenue for the preceding 1 full year is earned by the company from the activity suggested by the new name total equity after IPO should not exceed five times its pre-issue net worth
  39. 40. What to do if eligibility norms for IPO are not fulfilled ? Go for public issue through book building process. The company must allot 50% of the issue size to the Qualified Institutional Buyers (QIBs) or the project should have atleast 15% participation by Financial Institutions/Scheduled Commercial Banks, of which atleast 10% comes from the appraiser(s), atleast 10% of the issue size shall be allotted to QIBs
  40. 41. If your networth is Rs. 10 crore, how much IPO can you go for ? = 50 – 10 = 40 you can go for maximum 40 crore IPO so that your post issue networth becomes 50 crores (five times its pre-issue net worth )
  41. 42. Vivek Borar Transports Ltd. Converted its name to VB Logistics Ltd. In 2009-10. Its networth is Rs. 30 Crore. It earned profit of Rs. 8 crore with earlier name and Rs. 2 crore with new name in 2009-10. can it go for IPO in 2010-11 No at least 5 Crore must be with new name ( 50% of the revenue for the preceding 1 full year must be earned by the company from the activity suggested by the new name)
  42. 43. What should be the minimum capital after public issue ? minimum post-issue face value capital of the company should be Rs. 10 crore OR there should be a compulsory market-making for at least 2 years from the date of listing of the shares
  43. 44. What are norms regarding market making ? — Market makers undertake to offer buy and sell quotes for a minimum depth of 300 shares; — Market makers undertake to ensure that the bid-ask spread (difference between quotations for sale and purchase) for their quotes shall not at any time exceed 10%; — The inventory of the market makers on each of such stock exchanges, as on the date of allotment of securities, shall be at least 5% of the proposed issue of the company.
  44. 45. What should be minimum number of shareholders ? one thousand (1000)
  45. 46. What are norms regarding credit rating ? Eligibility norms require credit rating from a credit rating agency registered with Board and its disclosure in the offer document. Where credit ratings are obtained from more than one credit rating agencies, all the credit rating/s, including the unaccepted credit ratings, should be disclosed. all the credit ratings obtained during three years preceding the public or rights issue or issue of debt instrument should be disclosed in the offer document. It is also required that the company should not in the list of wilful defaulters of RBI and the company should not be in default of payment of interest or repayment of principal in respect of debentures issued to the public, if any, for a period of more than 6 months.
  46. 47. When should draft prospectus be filed ? A company to file a draft prospectus through eligible Merchant Banker with SEBI at least 30 days prior to the filing of prospectus with the Registrar of Companies as prescribed
  47. 49. What are functions of SEBI? Section 11 in Chapter IV of the SEBI Act lists out the functions of the SEBI. There are 15 functions provided for SEBI in this section. The important functions are to supervise stock exchanges and to prevent frauds.
  48. 50. What is the penalty if a company doesnt follow orders of SEBI? Section 24 provides for punishment with imprisonment upto 10 years or with fine which may extend to Rs. 25 crores or with both. If any person contravenes the provision of SEBI Act or any rules or regulation.
  49. 51. contd.... Under Section 23, 23M of SCRA 1956, there is a provision for for penalty for imprisonment for a term which may extend to 10 years or with fine which may extend to Rs. 25 crore or both for contravention or attempts to contravene or abates the contravention of the provisions of the Act or any rules or regulations or bylaws.
  50. 52. What powers are given to depositors? Section 45 QA of the Reserve Bank of India Act 1938 gives a depositor similar rights as are provided under Companies Act to approach CLB for payment of matured deposits in the case of NBFCs
  51. 53. How are companies regulated from committing frauds? 5. Economic Offence Wings of the Police Departments have powers under IPC to take up the cases of cheating, forgery and misappropriation etc. relating to investments. Stock exchanges can also take up the issues pertaining to securities in terms of the conditions of listing agreement, rules and regulations
  52. 54. How are unfair practices regulated by SEBI? SECURITIES AND EXCHANGE BOARD OF INDIA (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO SECURITIES MARKET) REGULATIONS, 2003 : Chapter I preliminary matters, Chapter II provides for prohibition of fraudulent and unfair trade practices Chapter III prescribes the powers and procedure for investigating
  53. 55. Give examples of unfair practices ? 1. false information 2 the suggestion as to a fact which is not true 3. an active concealment of a fact 4. a promise made without any intention of performing it; 5. a representation made in a reckless and careless manner 6. any such act declares to be fraudulent; 7. deceptive behaviour by a person depriving another of informed consent 8. a false statement made without reasonable ground for believing to be true
  54. 56. What does SEBI supervise ? ICAI supervises CA, BCI supervises advocates, Press council of India supervises newspapers, AMFI supervises Mutual fund and its brokers, RBI supervises banks and financial institutions, SEBI supervises stock exchanges, cutodial services, debenture trustees, investor associations, foreign debt funds, FIIs, share brokers etc.
  55. 57. What are the main types of debentures ? — Non Convertible Debentures (NCDs) — Partly Convertible Debentures (PCDs) — Fully convertible Debentures (FCDs) — Optionally Convertible Debentures (OCDs) — Secured Debentures — Unsecured Debentures
  56. 58. What are fixed deposits ? Fixed Deposits are sums accepted by most of the NBFCs and banks. The amount of deposits that may be raised by NBFCs is linked to its net worth and rating. However, the interest rate that may be offered by a NBFC is regulated. The deposits offered by NBFCs are not insured whereas the deposits accepted by most banks are insured upto a maximum of Rs.1,00,000.
  57. 59. What are Coupon Bonds? Coupon Bonds typically pay interest periodically at the prespecified rate of interest. The annual rate at which the interest is paid is known as the coupon rate or simply the coupon. Interest is usually paid half-yearly though in some cases it may be monthly, quarterly, annually or at some other periodicity. The dates on which the interest payments are made are known as the coupon due dates.
  58. 60. What are Zero Coupon Bonds ? A plain bond is offered at its face value, earns a stream of interest till redemption and is redeemed with or without a premium at maturity. A zero coupon bond is issued at a discount to its face value, fetches no periodic interest and is redeemed at the face value at maturity. Example : a Zero coupon bond of face value 100 may be issued at 40 for 20 years.
  59. 61. What is the difference between mortgage and pledge ? The Security in Mortgage is an immovable property while in a pledge it is a movable property
  60. 62. What is the difference between charge and mortgage? Mortgage is a conveyance of property, subject to a right of redemption whereas a charge only gives a right to payment out of a particular immovable property without transfering it
  61. 63. What is difference between lien and pledge ? Lien (or equitable lien) refers to a very specific type of security interest, being a passive right to retain (but not sell) property until the debt or other obligation is discharged. Here the lienor gives property to other person and the other person gets the right to retain the property. Both Lien and Pleadge are about movable property.
  62. 64. What are the difference between mortgage and lease? In lease a property is given for some years (use and return back). Lease can be a type sale also where the buyer takes financial lease and pays the price of the goods. Lease is generally for machines, equipments, vehicles, building etc. In mortgage, an immovable property is given as a security.
  63. 65. What is the difference between mortgage and collateral ? Typically a mortgage is a loan secured by real property (land etc. ) and collateral is personal property (jewels, bonds, valuables, etc.) used to secure a loan.
  64. 66. What is the difference between charge and mortgage? Mortgage is a conveyanceof property, subject to a right of redemption whereas a charge only gives a right to payment out of a particular immovable property without transfering it
  65. 67. What are Derived Instruments? These instruments are not direct debt instruments. Instead they derive value from various debt instruments. Mortgage bonds, Pass Through Certificates, Securitised Debt Instruments etc. fall under this category.
  66. 68. What are Mortgage Bonds ? Mortgage backed bonds is a collateralized term-debt offering. Every issue of such bonds is backed by a pledged collateral. Property that can be pledged as security for mortgage bonds is called eligible collateral. The terms of these bonds are like the bonds floated in the capital market, semi-annual or quarterly payments of interest and final bullet payment of principal.
  67. 69. What are Pass Through Certificates ? When mortgages are pooled together and undivided interest in the pool are sold, pass-through securities are created. The pass-through securities promise that the cash flow from the underlying mortgages would be passed through to the holders of the securities in the form of monthly payments of interest and principal.
  68. 70. What are rights of investors ? To get the best price deals to pay appropriate brokerage to get proper information to get grievances resolved earliest to get periodical statement of accounts from brokers / sub brokers to get shares through auction, if they are not delivered to investor to get contract note about all the transactions to get money on time
  69. 71. What are the obligations of investors ? They should sign a proper Member- Constituent Agreement Possess a valid contract or purchase/sale note Deliver securities with valid documents and proper signatures to make payment on time to make delivery on time
  70. 72. What are the rights of shareholders? To participate and vote in general meetings either personally or through proxy. To receive dividends in due time once approved in general meetings. To receive corporate benefits like rights, bonus, etc. once approved. To inspect the minute books of the general meetings and to receive copies thereof. To proceed against the company by way of civil or criminal proceedings. To apply for the winding up of the company. (as per rules) To receive the residual proceeds.
  71. 73. Rights of group of investors To requisition an Extra-ordinary General meeting. To demand a poll on any resolution. To apply to CLB to investigate into the affairs of the company. To apply to CLB for relief in cases of oppression and/or mismanagement.
  72. 74. What are rights of debenture holders ? To receive interest on redemption of debentures in due time. To receive a copy of the trust deed on request. To apply for winding up of the company if the company fails to pay its debt. To approach the Debenture Trustee with your grievance.
  73. 75. What are the responsibilities of an investor? To be specific To remain informed To be vigilant To participate and vote in general meetings To exercise rights
  74. 76. What are common grievances of investors ? Delay/non-receipt of refund orders, non- receipt of dividend / interest non receipt of information delay in share transfer / share conversion (from physical share to demat ) Delay/non-receipt of letter of offer of rights issue. Delay/non-receipt of bonus shares/right shares. Delay/non-receipt of notices for meetings/annual reports.
  75. 77. Whom should investor approach in case of bad delivery ? Stock exchange
  76. 78. Whom should investor approach in case of delay in interest ? MCA
  77. 79. Whom should investor approach in case of delay in Redemption of debenture ? Debenture trustee
  78. 80. Whom should investor approach in case of delay in allotment advice ? Stock exchange
  79. 81. Whom should investor approach in case of delay in Share certificate ? Registrar to issue
  80. 82. Whom should investor approach in case of grievance relating to fixed deposits etc ? RBI
  81. 83. Whom should investor approach in case of grievance relating to Fixed Deposits in manufacturing companies? MCA
  82. 84. Whom should investor approach in case of grievance relating to Deposits in collective investment schemes like plantations, etc.? SEBI
  83. 85. Whom should investor approach in case of grievance relating to Regarding shares or debentures in unlisted companies? MCA
  84. 86. Whom should investor approach in case of delay in refund order ? SEBI
  85. 87. Who is a small investor ? Section 58AA: a depositor who has deposited in a financial year a sum not exceeding Rs. 20,000/- in a company and includes its successors, nominees and legal representatives.
  86. 88. What are the provisions to protect small investors? Sec. 58AA: in case of any default made by a company in the re-payment of deposits from small investors, the company has to give an intimation within 60 days about such default to the Company Law Board (CLB).It is also provided that upon default in re-payment to small depositors, no company shall accept any further deposits from small depositors until the matured deposits and interest accrued thereon have been paid fully
  87. 89. What is penalty for misstatement in prospectus ? Section 63: there is criminal liability for misstatement in prospectus issued by a company. penalty= imprisonment upto 2 years which and fine which may extend to Rs. 50,000/- or with both and the offence is compoundable.
  88. 90. What is time limit for payment of dividend ? Section 205: a company who has declared a dividend for any financial year to deposit the amount of such dividend (including interim dividend, if any) in separate bank account w ithin 5 days from the date of declaration of such dividend.
  89. 91. What is penalty for delay in dividend payment? Section 205A: if dividend is not paid within 30 days from the date of such declaration, the company shall within 7 days of expiry of the said period of 30 days transfer the total amount of dividend which remains unpaid or unclaimed to a special account to be opened by a company in this behalf. Interest @12 must also be charged on that amount
  90. 92. Where will unpaid dividends go finally? Section 205C: Investors’ Education and Protection Fund by the Central Government. Various types of unpaid/unclaimed amounts of application money/matured deposits/matured debenture etc. are to be credited to this fund.
  91. 93. Which provisions force company to undertake prompt transfers of shares ? Section 111, 111A and 113 of the Companies Act.& also the clauses in the listing agreement contain provisions for prompt issue of certificates after transfer
  92. 94. What is the Failure to Send Financial Statements? Section 219:there is a right of a member for copies of Balance-sheet and auditors Report. Sub-section 3 makes the default in complying with this requirement punishable with fine which may extend to Rs. 5,000/-.
  93. 95. What can shareholder do in case of problems? Section 621 of the Companies Act, 1956 permits the shareholder to proceed against the company and its officers in a court of lawfor offences by company regarding prospectus etc.
  94. 96. Which sections in companies act are for Protection to Debentureholders? Section 117A to 117C: protect the debenture holders
  95. 99. What is FCCB? Foreign Currency Convertible Bonds means 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.
  96. 100. What is GDR? Global Depository Receipts means any instrument in the form of a Depository receipt or certificate (by whatever name it is called ) created by the Overseas Depository Bank outside India and issued to non-resident investors against the issue of ordinary shares or Foreign Currency Convertible Bonds of issuing company
  97. 101. Whose approval is required for FCCB / GDR ? The issue of GDRs/FCCBs requires the Approval of a Board of Directors, shareholders, ”In principle and Final” approval of Ministry of Finance, Approval of Reserve Bank of India, In-principle consent of Stock Exchange for listing of underlying shares and In-principle consent of Financial institutions. The issue must be as per SEBI guidelines
  98. 102. What are External Commercial Borrowings? External Commercial Borrowings (ECB) include commercial bank loans, buyers’ credit, suppliers credit, securitised instruments such as floating rate notes and fixed rate bonds. They can be under two routes, viz., (i) Automatic Route and (ii) Approval Route.
  99. 103. Are FCCBs secured instruments? No, The FCCBs are unsecured, carry a fixed rate of interest and an option for conversion into a fixed number of equity shares of the issuer company.
  100. 104. What are TDS requirements on FCCB ? interest payments on the bonds, until the conversion option is exercised, are subject to deduction of tax at source at the rate of ten per cent. Tax on dividend on the converted portion of the bond is subject to deduction of tax at source at the rate of ten per cent. Conversion of Foreign Currency Convertible Bonds into shares does not give rise to any capital gains liable to income-tax in India. Transfers of Foreign Currency Convertible Bonds made outside India by a non-resident investor to another non-resident investor does not give rise to any capital gains liable to tax in India.
  101. 105. What are TDS requirements regarding GDR? dividend on shares is taxed at the rate of 10 per cent. The issuing company is required to transfer the dividend payments net after deducting tax at source to the Overseas Depositary Bank. If any capital gains arise on the transfer of the aforesaid shares in India to the non-resident investor, he will be liable to income-tax
  102. 106. How FCCB is priced ? The pricing should not be less than the higher of the following two averages: The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date (thirty days prior to the date on which the meeting of the general body of shareholders is held); The average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the two weeks preceding the relevant date.
  103. 107. What is Domestic Custodian Bank? It is a banking company which acts as a custodian for the ordinary shares or foreign currency convertible bonds of an Indian Company which are issued by it against global Depository receipts or certificates
  104. 108. What is Overseas Depository Bank? Overseas Depository Bank means a bank authorised by the issuing company to issue global Depository receipts against issue of Foreign Currency Convertible Bonds or ordinary shares of the issuing company
  105. 109. What are the purposes for which ECB can be obtained ? a. investment such as import of capital goods, new projects, modernization/expansion of existing production units] in real sector - industrial sector including small and medium enterprises (SME) and infrastructure sector b. for overseas direct investment in Joint Ventures c. first stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public under
  106. 110. What are the cases where FCCB is permitted under Automatic approval To Financial institutions dealing exclusively with infrastructure or export finance such as IDFC, IL&FS, Power Finance Corporation, Power Trading Corporation, IRCON and EXIM Bank are considered on a case by case basis. Banks and financial institutions which had participated in the textile or steel sector restructuring package as approved by the Government are also permitted to the extent of their investment in the package and assessment by Reserve Bank based on prudential norms. ECB with minimum average maturity of 5 years by Non-Banking Financial Companies (NBFCs) from multilateral financial institutions, reputable regional financial institutions, official export credit agencies and international banks to finance import of infrastructure equipment for leasing to infrastructure projects.
  107. 111. What is limit on ECB for automatic route ?
  108. 112. Can additional ECB be raised ? Yes Corporates can avail of ECB of an additional amount of USD 250 million with average maturity of more than 10 years under the approval route, over and above the existing limit of USD 500 million under the automatic route, during a financial year. However, other ECB criteria such as end-use, all-in-cost ceiling, recognized lender, etc. need to be complied with. Prepayment and call/put options, however, are not permissible for such ECB up to a period of 10 years
  109. 113. Who are recognised lenders? 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). 'foreign equity holder' where the minimum equity held directly by the foreign equity lender is 25 per cent but debt-equity ratio exceeds 4:1(i.e. the proposed ECB exceeds four times the direct foreign equity holding).
  110. 114. What are the activities for which ECB proceeds is not permitted to be used ? for on-lending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate except banks and financial institutions eligible (b), real estate, working capital, general corporate purpose and repayment of existing Rupee loans.
  111. 115. Can ECB be parked abroad till they are required in India ? Yes the funds can be invested in the deposits or Certificate of Depost or other products offered by banks rated not less than AA(-) by Standard and Poor/Fitch IBCA or Aa3 by Moody’s; deposits with overseas branch of an AD bank in India; and Treasury bills and other monetary instruments of one year maturity having minimum rating.
  112. 116. Is prepayment of ECB permitted ? Prepayments below USD 400 million is allowed without RBI permission, subject to compliance with the stipulated minimum average maturity period. .Prepayments exceeding USD 400 million is considered by the Reserve Bank under the Approval Route.
  113. 117. Can ECB be converted into equity ? Yes, provided : The activity of the company is covered under the Automatic Router for Foreign Direct Investment or Government approval for foreign equity participation has been obtained by the company, The foreign equity holding after such conversion of debt into equity is within the sectoral cap, if any, Pricing of shares is as per SEBI and erstwhile CCI guidelines/regulations in the case of listed/unlisted companies as the case may be.
  114. 118. What are the forms for reporting ECB conversion into equity? Submit FC-GPR to the concerned Regional Office of the Reserve Bank as well as in form ECB-2 to the DESACS, RBI within seven working days from the close of month . The words "ECB wholly / partially converted to equity" should be clearly indicated on top of the ECB-2 form.
  115. 120. What is the main document relating to FCCB ? FCCB AND ORDINARY SHARES (THROUGH DEPOSITORY RECEIPT MECHANISM) SCHEME, 1993
  116. 122. Why do foreign investors prefer FCCB? Foreign investors prefer FCCBs because of the Dollar denominated servicing, the conversion option and, the arbitrage opportunities presented by conversion of the FCCBs into equity at a discount on prevailing Indian market price.
  117. 123. Can FCCB proceeds be used for corporate restructuring? Yes 25% of the FCCB proceeds can be used for general corporate restructuring.
  118. 124. What is the drawback of FCCB? the issuing company cannot plan its capital structure as it is not assured of conversion of FCCBs. Moreover, the projections for cash outflow at the time of maturity cannot be made.
  119. 125. Who are QIBs? Qualified Institutional Buyers (QIBs) are the institutional investors who have atleast USD 100 Million under their portfolio to invest.
  120. 126. Can an investor convert GDR / ADR into shares? Yes An investor has an option to convert the GDR into a fixed number of equity shares of issuer company after a cooling period. He can do so by advising the depository. The depository, in turn, will instruct the custodian about cancellation of GDR and release the corresponding shares in favour of the non-resident investor,
  121. 127. What are limits on ADR / GDR ? ADR/GDR are reckoned as part of Foreign Direct Investment (FDI). Accordingly, such issue would need to confirm to the existing FDI Policy and only in areas where FDI is permissible.
  122. 129. What is IDR ? IDR (Indian Depository Receipt) means any instrument in the form of a depository receipt created by Domestic Depository in India against the underlying equity shares of issuing company. “Domestic Depository” means custodian of securities registered with SEBI and authorised by the issuing company to issue Indian Depository Receipts.
  123. 130. What is eligibility condition for issue of IDR ? Its pre-issue paid-up capital and free reserves are at least US$ 100 millions and it has had an average turnover of US$ 500 million during the 3 financial years preceding the issue. It has been making profits for at least five years preceding the issue and has been declaring dividend of not less than 10% each year for the said period. Its pre-issue debt equity ratio is not more than 2:1.& other conditions of SEBI
  124. 131. How to obtain permission for issue of IDR? Apply to the SEBI at least 90 days prior to the opening date of the issue in the notified manner along with a non-refundable fee of US $10,000. After the permission being granted, an applicant has to pay an issue fee of half a percent of the issue value subject to a minimum of Rs.10 lakhs where the issue is upto Rs.100 crore in Indian rupees & additional fees beyond Rs. 100 Crore.
  125. 132. Is prospectus required for IDR also ? Yes prospectus or letter of offer certified by two authorized signatories of the issuing company must be submitted through a merchant banker, one of whom shall be a whole-time director and other the Chief Accounts Officer, stating the particulars of the resolution of the Board by which it was approved along with a due diligence report with the Registrar and also with SEBI at least 21 days prior to the filing of an application
  126. 133. What other documents are required to be submitted to SEBI? instrument constituting or defining the constitution of the issuing company. the enactments or provisions having the force of law by or under which the incorporation of the issuing company was effected. if the issuing company has established place of business in India, address of its principal office in India. if the issuing company does not establish principal place of business in India, an address in India where the said instrument, enactments or provision or copies thereof are available for public inspection. a certified copy of the certificate of incorporation of the issuing company in the country in which it is incorporated; copies of the agreements entered into between the issuing company, the overseas custodian bank and the domestic depository.
  127. 134. Can IDR be converted to foreign shares ? Yes, invesstor can through Domestic Depository request the Overseas Custodian Bank to get the corresponding underlying equity shares released in favour of the Indian investor for being sold directly on behalf of Indian resident, or being transferred in the books of issuing company in the name of Indian resident.
  128. 135. What are disclosure requirements regarding IDR? The company must periodically submit indormation and documents to SEBI and registrar of companies. The quarterly audited financial results should be prepared and published in newspapers in the manner specified by the listing conditions
  129. 136. What are the other requirements regarding issue of IDR? At least 50% of the IDRs issued must be subscribed by QIBs; The balance 50% should be available for subscription by non-institutional investors (i.e., investors other than QIBs and retail individual investors) and retail individual investors, including employees. IDRs shall be allocated among non institutional investors, retail individual investors and employees at the discretion of the issuer. The manner of allocation should be disclosed in the prospectus for IDRs. The minimum application amount in an IDR issue shall be Rs. 20,000.
  130. 137. What is Minimum issue size for IDR? It should not be less than Rs. 50 crores.
  131. 138. What is unique identification number ? SEBI (Central Database of Market Participants) Regulations, 2003 requires every specified intermediary, other entity, specified listed company and specified investor to make application for allotment of Unique Identification Number for itself and for its related persons. It is a Number generated in the Central Database for and allotted to each applicant under the regulations.
  132. 139. What are the activities for which investor education and protection fund is used ? Education programme through Media Organizing Seminars and Symposia Proposals for registration of Voluntary Associations or Institution or other organizations engaged in Investor Education and Protection activities Proposals for projects for Investors’ Education and Protection including research activities and proposals for financing such projects Coordinating with institutions engaged in Investor Education, awareness and protection activities.
  133. 140. Important websites by investor education and protection fund :
  134. 141. Who can be an ombudsman? either a retired District Judge or qualified to be appointed a District Judge, or having at least ten years experience of service in any regulatory body, or having special knowledge and experience in law, finance, corporate matters, economics, management or administration for a period of not less than ten years, or an office bearer of investors’ association recognised by the Board having experience in dealing with matters relating to investor protection for a period of not less than 10 years. Minimum age = 45 years
  135. 142. Who can be a stipendiary ombudsman ? If he has held a judicial post or an executive office under the Central or State Government for atleast ten years; or is having experience of at least ten years in matters relating to consumer or investor protection; or has been a legal practitioner in corporate matters for atleast 10 years; or has served for a minimum period of ten years in any public financial institution.
  136. 143. What are the matters for which an investor may approach ombudsman ? Non-receipt of refund orders, allotment letters in respect of a public issue of securities of companies or units of mutual funds or collective investments schemes /share certificates, unit certificates, debenture certificates, bonus shares /dividend / interest on debentures, redemption amount /annual reports or statements / redemption amount from a mutual fund or returns from collective investment scheme
  137. 144. How should complaint be made to ombudsman? The complaint is required to be in writing duly signed by the complainant or his authorised representative (not being a legal practitioner) in the Form specified in the Schedule to the regulations and supported by documents, if any.
  138. 145. Is the decision of Ombudsman final and binding ? An award given by the Ombudsman shall be final and binding on the parties and persons claiming under them respectively.Any party aggrieved by the award on adjudication may within one month from the receipt of the award or corrected award may file a petition before the SEBI setting out the grounds for review of the award.The award will be implemented by the party so directed within one month
  139. 146. How can you become entrepreneur in investor education ? RBI has advised State Level Bankers’ Committee convenor banks to set up, on a pilot basis, a financial literacy-cum-counselling centre in any one district, and based on the experience gained, to ask the concerned lead banks to set up such centres in other districts. It has also undertaken a project on financial literacy by asking banks to introduce comic books explaining terms like inflation, how to open an account, interest rates, et
  140. 147. How can a person seek informal guidance from SEBI ? SEBI (INFORMAL GUIDANCE) SCHEME, 2003: - The person must make a requies stating whether it is being made under which scheme (there are 2 schemes : no-action letter or an interpretive letter scheme) and should be accompanied with a fee of Rs. 25,000/- and addressed to the concerned Department of SEBI. SEBI may dispose off the request as early as possible and in any case not later than 60 days after the receipt of the request.
  141. 148. What is NO – ACTION LETTER scheme ? A no-action letter or an interpretive letter issued by any Department of SEBI constitutes the view of the Department but will not be binding on the Board, though the Board may generally act in accordance with such a letter. The letter issued by a Department under this scheme should not be construed as a conclusive decision
  142. 150. How to investors come to know about ombudsman? Every listed company or intermediary is required to display the name and address of the Ombudsman as specified by the Board to whom the complaints are to be made by any aggrieved person in its office premises in such manner and at such place, so that it is put to notice of the shareholders or investors or unit holders visiting the office premises of the listed company or intermediary. The listed company or intermediary is required to give full disclosure about the grievance redressal mechanism through Ombudsman in its offer document or client agreement.
  143. 153. What is upper limit for IDR ? IDR issued by any issuing company in any financial year should not exceed 15 per cent of its paid-up capital and free reserves.
  144. 155. What is a mutual fund ? Mutual Fund means a fund established in the form of a trust to raise monies through the sale of units to the public or a section of the public under one or more schemes for investing in securities including money market instruments or gold or gold related instruments.
  145. 156. What is a Money Market Mutual Fund? a scheme of a mutual fund set up with the objective of investing exclusively in money market instruments (short term investment).
  146. 157. What are Money Market Instruments ? commercial papers, commercial bills, treasury bills, Government securities having an unexpired maturity upto one year, call or notice money, certificate of deposit, and any other like instruments as specified by RBI from time to time.
  147. 158. What is the difference between closed end and open end scheme? Close-ended scheme means any scheme of a mutual fund in which the period of maturity of scheme is specified. Open-ended scheme means a scheme of a mutual fund which offers units for sale without specifying any duration for redemption.
  148. 159. What are Gold related instruments? Gold related instrument means such instrument having gold as underlying, as may be specified by the Board from time to time
  149. 160. What is Gold exchange traded fund scheme? Gold exchange traded fund scheme means a mutual fund scheme that invests primarily in gold or gold related instruments.
  150. 161. Who is a Sponsor ? any person who, acting alone or in combination with another body corporate establishes a mutual fund.
  151. 162. Who can be a sponsor ? who is carrying on business in financial services for a period of not less than five years; and who has a positive networth in all the immediately preceding five years; and the networth in the immediately preceding year is more than the capital contribution of the sponsor in the asset management company; and the sponsor has profits after providing for depreciation, interest and tax in three out of the immediately preceding five years, including the fifth year;
  152. 163. What is trust deed and investment management agreement ? When a mutual fund is setup, there is a trust deed with trustees and there is an investment management agreement.
  153. 164. What is Investment management agreement? The trustees and the AMC shall with the prior approval of SEBI enter into an investment management agreement, which contains all the clauses as detailed in the Fourth Schedule to the Regulations or as well as other clauses necessary for the purpose of making investments; The fourth Schedule contains clauses which are to be included as contents of the investment management agreement
  154. 165. Can AMC udertake other businesses also ? No, AMC can not undertake any other business activity other than management of mutual funds and such other activities as financial services consultancy, exchange of research and analysis on commercial basis as long as these are not in conflict with the fund management activity itself without the prior approval of the trustees and SEBI;
  155. 166. Can AMC randomly invest the money raised under various schemes ? No , AMC has to invest the funds raised under various schemes in accordance with the provisions of the Trust Deed and the Regulations
  156. 167. Can trustees acquire information from an AMC? Yes, the trustees have the right to obtain from the AMC all information concerning the operations of the various schemes of the mutual fund managed by the AMC at such intervals and in such a manner as required by the trustees to ensure that the AMC is complying with the provisions of the Trust Deed, and Regulations. AMC has to submit quarterly report also.
  157. 168. When should trustees take permission of unitholders for their decisions ? whenever required to do so by SEBI in the interest of the unit holders; or whenever required to do so on the requisition of 3/4 of the unit holders of any scheme; or when the majority of the trustees decide to wind up or pre-maturely redeem the units;
  158. 169. What information must be circulated by AMC ? Trustees and AMCs must ensure the dissemination to all unit holders of adequate, accurate, explicit and timely information fairly presented in a simple language about the investment policies, investment objectives, financial position and general affairs of the scheme.
  159. 170. What reports should be submitted by trustees to SEBI every 6 months? They have to submit a report on the activities of the mutual fund and a certificate that the trustees have not found any instances of self dealing or front running by any of the trustees, directors or key personnel of the AMC and a certificate to the effect that the AMC has been managing the schemes independently of any other activities and protecting the interest of the unit holders. The independent trustees shall give their comments on the report of the AMC as regards investments by the mutual fund
  160. 171. How should mutual funds give advertisements? All advertisements shall be in accordance with the advertisement code given in the Sixth Schedule and shall be submitted to SEBI within 7 days from the date of their issue. The advertisement code contains clauses which have to be complied with carefully by the AMC. The advertisement must avoid misleading statements
  161. 172. Is it necessary to give some disclosure about risk in mutual fund advertisement? All advertisements must make a clear statement to the effect that all mutual funds and securities investments are subject to market risks, and there can be no assurance that the fund’s objectives will be achieved.
  162. 173. What are the regulations regarding capital protection schemes? the units of the scheme are rated by a registered credit rating agency from the viewpoint of the ability of its portfolio structure to attain protection of the capital invested therein; the scheme is close ended; and there is compliance with such other requirements as may be specified by the Board in this behalf.
  163. 174. What is the investment limit by a mutual fund in a company ? No mutual fund under all its schemes should own more than 10% of any company’s paid up capital carrying voting rights
  164. 175. How are inter-scheme transfers made by mutual funds ? transfers must be done at the prevailing market price for quoted instruments on spot basis. the securities so transferred shall be in conformity with the investment objective of the scheme to which such transfer has been made.
  165. 176. How are securities are valued ? When the securities are traded on more than one recognised stock exchange, the securities shall be valued at the last quoted closing price on the stock exchange where the security is principally traded. the reasons for the selection of stock exchange should be recorded in writing. Non-traded securities shall be valued ‘in good faith’ by the AMC on the basis of appropriate valuation methods
  166. 177. What are appropriate valuation methods for valuation of non-traded units? Equity = capitalisation of earnings debt instruments =on a yield to maturity basis invstment in call money / bills = cost plus accrual instrument on ‘repo’ basis= at the resale price after deduction of applicable interest upto date of resale warrant = their sale price convertible instruments = separate value for debt and equity components
  167. 178. How is value of rights is calculated ? Vr = n/m * ( Pex - Pof ) Vr = Value of rights n = no. of rights offered m = no. of original shares held Pex = Ex-rights price Pof = Rights Offer Price
  168. 179. Calculate value of right if share price ex-right is 200 and price of right is 90 per share. 3 Rights are available against 10 shares. 3/10 (200 – 90) =3/10 * 110 =33 answer
  169. 180. What are regulation regarding pricing of units? The repurchase price should not be lower than 93% of the NAV and the sale price not more than 107% of the NAV. However, the repurchase price of units of a close ended scheme should not be lower than 95% of the NAV and the difference between the repurchase price and sale price of the unit should not exceed 7% calculated on the sale price
  170. 181. Can entry load be charged for close-ended scheme. No
  171. 182. How long should mutual funds preserve their documents? documents shall be preserved by the AMC for a period of 8 years.
  172. 183. When should dividend income be recognised by a mutual fund ? Dividend income earned by a scheme should be recognised, not on the date of dividend is declared, but on the date the share is quoted on an ex-dividend basis
  173. 184. How should mutual fund mark their investment? mutual fund must mark all investments to market and carry investments in the balance sheet at market value.
  174. 185. How are initial expenses adjusted by mutual funds ? AMCs, (trustee company or sponsor) may launch schemes either on a ‘load’ or ‘no-load basis’ or on a mixed basis with two classes of units in the same scheme - one with load and the other without load, provided that the implications of such load on the NAV for the investors shall be clearly explained through a worked-out example in the offer document. AMC may also launch ‘partial load’ schemes in which a part of the load would be borne by the AMCs and the balance by the scheme.
  175. 186. How should initial expenses be shown in case of a close ended scheme floated on a ‘load’ basis? For a close ended scheme floated on a ‘load’ basis, the initial issue expenses shall be amortised on a weekly basis over the period of the scheme.
  176. 187. What fees may be levied on schemes issues on no-load basis ? For schemes floated on a no-load basis, the AMC may levy an additional management fee not exceeding 1% of the NAV.
  177. 188. Is it required to prepare scrip wise statement? Yes scheme-wise annual report of a mutual fund or an abridged summary thereof shall be published through an advertisement and that an abridged scheme-wise annual report shall be mailed to all unit holders within 6 months from the date closure of the relevant accounting year.
  178. 189. Is annual report necessary by mutual fund ? Yes an annual statement of accounts of the schemes and the fund as specified in the Eleventh Schedule which runs to 10 pages. Every mutual fund shall have the annual statement of accounts audited by a practising Chartered Accountant who is not in any way associated with the auditor of the AMC.
  179. 190. What are the risks in investing in mutual funds ? Excessive diversification of portfolio; losing focus on the securities of the key segments; Too much concentration on blue-chip securities; Poor planning of investment with minimum returns; Unresearched forecast Market fluctuations may impact the returns
  180. 191. What is front end load ? Front end load is a one time fixed fee which is paid by an investor while he buys into a scheme. Printed load determines the public offer price (POP) which in turn determines how much of the initial investment gets actually invested. Front end loads decrease as the initial investment amounts increase.
  181. 192. If an investor invests Rs. 20,000/- in a scheme that charges a 2% Front end Load at an NAV per unit of Rs. 20/-, the Public Offer Price (POP) will be ? Public Offer Price = Net Asset Value /(1-Front end load) =20/(1-.02) = 20.41 answer
  182. 193. What is Back end Load? This will be a fixed fee redemption load or a contingent deferred sales charge. A redemption load exists permanently and is paid only at the time of redeeming units
  183. 194. How is redemption price calculated with back-end load ? Net Asset Value/ (1+ Back end load)
  184. 195. What is CDSC? Contingent Deferred Sales Charges (CDSC) is a structured back end load paid when the units are redeemed during the initial of ownership. The longer the investor remains invested in the fund the lower the CDSC.
  185. 196. What is entry load for direct applications ? Nil, There is no entry load for direct applications received by the Asset Management Company (AMC) i.e. applications received through internet, submitted to AMC or collection centre/ Investor Service Centre that are not routed through any distributor/agent/broker.
  186. 197. What are No Load Funds ? Funds selling their shares directly to the public at the NAV do not collect sales charge. The expenses are borne by the fund itself. As there are no brokerage firms involved, the investor deals directly with the investment company which offers funds.
  187. 198. What is roll over of a scheme? Roll over means extension of period of a scheme. A mutual fund can roll over a close ended scheme on or before the redemption of the scheme after giving an option to investors to redeem their units at NAV based price. The roll over scheme may include a fresh extension of period or continue under the same terms of the original scheme with or without modifications.
  188. 199. What is AMC? Asset Management Company means a company formed by mutual fund for managing its assets and registered under the Companies Act, 1956 and approved as such by SEBI under Regulation 21(2).
  189. 200. Who is a custodian ? Custodian means a person who has been granted a certificate of registration to carry on the business of custodian securities under SEBI (Custodian of Securities) Regulations, 1996.
  190. 202. Which are the main intermediaries in primary market ? Merchant Bankers/Lead Managers. Registrars and Share Transfer Agents. Underwriters. Bankers to issue. Debenture Trustees.
  191. 203. Who are merchant bankers ? They are the firms / companies which look after issue management. Those financial intermediaries involved with the activity of transferring capital funds to those borrowers who are interested in borrowing. they are also called “issuing and accepting houses”. Unlike in the past, their activities are now primarily non-fund based (Fee based). They offer a package of financial services. The basic function of merchant banks is marketing corporate and other securities. They undertake activities such as management of customer services, portfolio management, credit syndication, acceptance credit, counseling, insurance, etc.
  192. 204. Registrars and Share Transfer Agents. They are companies /firms which are engaged in share transfers and other related work. They have to be registered with SEBI as per (REGISTRARS TO AN ISSUE AND SHARE TRANSFER AGENTS) RULES, 1993 Their main roles are : * Physical share transfer * Dematerialization of securities through Depository (both NSDL and CDSL) * Dividend / Interest payout including ECS transfers
  193. 205. Records to be maintained by registrar to issue ? (a) all the applications received from investors in respect of an issue; (b) all applications of investors rejected and reasons therefor; (c) basis of allotment of securities to the investors as finalised in consultation with the stock exchange; (d) terms and conditions of purchase of securities; (e) allotment of securities; (f) list of names of allottees and non-allottees of the securities; (g) refund orders despatched to investors in respect of application monies received from them in response to an issu
  194. 206. Records to be maintained by share transfer agent? (a) list of holders of securities of such body corporate; (b) the names of transferor and transferee and the dates of transfer of securities; (c) such other records as may be specified by the SEBI for carrying out the activities as share transfer agents.
  195. 207. Who are underwriters ? They agree to subscribe some shares if there are inadequate applications. An underwriter must follow : SEBI (Underwriters) Regulations, 1993 and must be registered with SEBI The networth should not be less than Rs. 20 lakhs. The stock broker-underwriter should have capital adequacy as prescribed by the stock exchange. The merchant banker-underwriter shall fulfill capital adequacy as laid down in Merchant Banker’s Regulations.
  196. 208. What are the main issues in code of conduct of underwriters? The underwriter must not derive any direct or indirect benefit from underwriting the issue other than the commission or brokerage payable under an agreement for underwriting. The total underwriting obligations under all the agreements shall not exceed 20 times the networth. Every underwriter, in the event of being called upon to subscribe for securities of a body corporate pursuant to an agreement shall subscribe to such securities within 45 days of the receipt of such intimation from such body corporate.
  197. 209. Who are bankers to the issue ? SEBI (Bankers to an Issue) Regulations, 1994 : any bank doing following work is bankers to the issue : (i) acceptance of application and application monies; (ii)acceptance of allotment or call monies; (iii refund of application monies; (iv)payment of dividend or interest warrants;
  198. 210. What is a warrant ? It entitles the holder to buy stock of the issuing company at a specified price, which can be higher or lower than the stock price at time of issue. It is an option. It can be call or put warrant. Call = right to buy, put = right to sell
  199. 211. What records must be maintained by a banker to issue ? the number of applications received, the names of the investors, the dates on which the applications were received and the amounts so received from the investors; the time within which the applications received from the investors were forwarded to the body corporate or registrar to an issue as the case may be; the dates and amount of the refund monies paid to the investors; dates, names and amount of dividend/interest warrant paid to the investors.
  200. 212. What are the matters in the agreement of bankers to the issue with the body corporate? the number of centres at which the application and the application monies of an issue of a body corporate will be collected from the investors; the time within which the statements regarding the applications and the application monies received from the investors investing in an issue of a body corporate will be forwarded to the registrar to an issue of the body corporate, as the case may be; the daily statement will be sent by the designated controlling branch of the bankers to the issue to the registrar to an issue indicating the number of body corporate and the amount of application money received.
  201. 213. Who are debenture trustees ? Must be registered as per SEBI (Debenture Trustees) Regulations, 1993
  202. 214. Who can start a credit rating agency ? a public financial institution; a scheduled commercial bank; a foreign bank operating in India with the approval of the Reserve Bank of India; a foreign credit rating agency recognised under Indian Law and having at least five years experience in rating securities; any company or a body corporate, having continuous net worth of minimum rupees one hundred crores (for 5 years)
  203. 215. What are main issues in code of conduct of credit rating agency ? A credit rating agency in the conduct of its business should observe high standards of integrity and fairness in all its dealings with its clients and should fulfil its obligations in an ethical manner. A credit rating agency should render at all times high standards of service, exercise due diligence, ensure proper care and exercise independent professional judgement. It shall wherever necessary, disclose to the clients, possible sources of conflict of duties and interests, while providing unbiased services. The credit rating agency should avoid any conflict of interest of any member of its rating committee participating in the rating analysis. Any potential conflict of interest shall be disclosed to the client. A credit rating agency should not indulge in unfair competition nor they wean away client of any other rating agency on assurance of higher rating.
  204. 217. Which is the first credit rating agency of the world ? The first Mercantile Credit Agency was established in New York in 1841. Its first rating guide was published in 1859 by Robert Dun. Another similar agency was set up by John Bradstreet which published its rating guide in 1857. These two agencies were merged to form Dun and Bradstreet in 1933 which acquired Moody’s Investor Service in 1962. Moody’s was founded by Moody in 1900. The other world renowned rating agency namely Standard and Poor was created in 1941
  205. 218. What are the various types of credit rating ? Rating of equity and Long-term/Medium-term debt obligations such as debentures, bonds, preference shares or project finance debts are considered long-term and debts ranging from 1 to 3 years like fixed deposits are considered medium-term; Rating of Short-term debt obligations - the period involved is one year or less and cover money market instruments such as commercial paper, credit notes, cash certificates etc.; Rating of customers & borrowers. Equity Grading and Assessment and rating of structured obligations, municipal bonds, mutual fund schemes, plantation schemes, real estate projects, infrastructure related debts, ADR, GDR issues, bank securities etc.
  206. 219. What factors contribute to success of credit rating ? Credible and independent structure and procedures; Objectivity and impartiality of opinions; Analytical research, integrity and consistency; Professionalism and industry related expertise; Confidentiality; Timeliness of rating review and announcement of changes; Ability to reach wide range of investors by means of Press reports,
  207. 220. What is CAMEL methodology of credit rating ? Look at : Capital adequacy, Asset quality Management, Earnings and Liquidity
  208. 221. What is securitisation? The process of converting loans or receivables into negotiable instruments is known as securitisation.
  209. 222. Can the ratings be published by the agency without approval and with the permission of the issuer? No, The ratings can be published by the agency only after approval and with the permission of the issuer. Subsequent changes emerging out of the monitoring by the credit rating agency will be published even if such changes are not found acceptable to the issuers.
  210. 223. How many types of ratings are there ? Ratings are broadly divided into two categories - Secure and Vulnerable. Secure = AAA to BBB Vulnerable = BB to D.
  211. 224. Can a rating agency undertake rating of a company which is subsidiary of the company which is promotor of the credit rating agency ? No No credit rating agency should rate a security issued by an entity, which is a borrower of its promoter or a subsidiary of its promoter or an associate of its promoter, if there are common Chairman / Directors / common employees, /common Chairman, Directors, Employees on the rating committee. No credit rating agency should rate a security issued by its associate or subsidiary, if the credit rating agency or its rating committee has a Chairman, director or employee who is also a Chairman, director or employee of any such entity.
  212. 225. Can a credit rating disclose information relating to a company to others ? Every credit rating agency must keep confidential, every information supplied to it by the client and no credit rating agency shall disclose the same to any other person, except where such disclosure is required under any law.
  213. 226. When can a credit rating company withdraw its ratings ? . A credit rating agency should not withdraw a rating so long as the obligations under the security rated by it are outstanding, except where the company whose security is rated is wound up or merged or amalgamated with another company.
  214. 227. Should a credit rating agency periodically review its ratings ?
  215. 228. Can companies issue shares with differential rights? Rules 3 of the Rules enables companies limited by shares to issue shares with differential rights as to dividend, voting or otherwise, subject to fulfilment of certain conditions. section 2(46A) a share with differential rights: means a share that is issued with differential rights in accordance with the provisions of section 86 of the Act. The equity shares with differential rights include equity shares with differential rights as to—(a) voting; (b) dividend; and (c) otherwise.
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