CAPITAL MARKET INTRODUCTION A good capital market is

CAPITAL MARKET

INTRODUCTION �A good capital market is essential pre requisite for industrial and commercial development of a country. � credit is required and supplied on both short term and long term basis. �The money market caters to the short term needs only. �The long term needs are met by the capital market.

MEANING �The term, refers to the institutional arrangements for facilitating the borrowing and lending of long term funds. . �It may be defined as an organised mechanism for effective and efficient transfer of money capital or financial resources from the investing parties to the entrepreneurs engaged in industry or commerce.

OBJECTIVES AND IMPORTANCE Capital market, Ø Ensures best possible coordination and balance between the flow of savings on the one hand the flow of investment leading to capital formation on the other. Ø Directs the flow of savings into most profitable channels and thereby ensures optimum utilisation of financial resources.

In a gist, Capital market strives for, Ø the mobilisation or concentration of national saving for economic development. Ø the mobilisation and import of foreign capital and investment to supplement the deficit in the required financial resources so as to maintain the expected rate of economic growth.

FUNCTIONS �Mobilisation of financial resources on a nation wide scale. �Import of foreign capital to supplement the deficit in the required financial resources for economic growth. �Effective allocation of mobilised financial resources.

STRUCTURE OF CAPITAL MARKET Capital market in India may be classified into two parts: Ø Organised and, Ø Unorganised.

ORGANISED MARKET § Demand comes from: Corporate enterprises, PSU, government and semi- government institutions. § Supply of funds is from: Individual investors, corporate and institutional investors, investment intermediaries, financial institutions commercial banks and government.

UNORGANISED SECTOR It consists of indigenous bankers and private moneylenders. �Demand comes from—agriculturalists, private individuals for consumption. �Supply comes from– own resources of money lenders.

COMPONENTS OF CAPITAL MARKET New issue or primary market. Secondary market Financial institutions

COMPONENTS OF CAPITAL MARKET � Clearing house Supply of money capital: Individuals, Corporations Institutions Banks Government for long term capital � 1) New Issue Market � 2)stock Exchange � 3) Financial Institutions Borrowers: Individuals, Corporations Institutions Government Entrepreneurs

NEW ISSUE MARKET OR PRIMARY MARKET �New securities, i. e. , shares or bonds that have never been issued previously, are offered. �Both new and existing companies can raise capital on the new issue market. �The main function is to facilitate the transfer of funds from the willing investors to the entrepreneurs.

CAPITAL MARKET INSTRUMENTS Ownership securities Creditor ship securities Equity shares. Debentures Preference shares Bonds

OWNERSHIP SECURITIES �Every company, except company limited by guarantee, has a statutory right to issue shares. �The capital of a company is divided into number of equal parts known as shares. � kinds of Ownership securities: (i) Equity Shares (ii) Preference Shares

EQUITY SHARES �It represents the owners capital in a company �The holders of these shares are the real owners of the company. �They have a control over the working of the company. �They are paid dividend after paying it to the preference shareholders. �Rate of dividend depends upon the profits of the company. �Equity capital is paid after meeting all the claims(including prf. shareholders)

CHARACTERISTICS �Maturity – Cannot be redeemed during lifetime �Right to income—Residual claim �Claim on assets — Residual claim �Voting rights – Yes �Pre-emptive rights – Rights shares �Limited liability – upto face value.

ADVANTAGES �No obligation of fixed dividend �No charge over the assets of company �Permanent source of capital �Shareholders carry voting rights DISADVANTAGES • Danger of overcapitalisation • Obstacles in mgt. by equity shareholders • Higher dividends have to be paid during high profits

PREFERENCE SHARES �Certain preferences as compared to other type of shares. �Preference over the payment of dividend. �Preference in the repayment of capital during liquidation. �Fixed rate of dividend is paid. �Do not have voting rights except if their own rights are affected.

TYPES OF PREFERENCE SHARES �Cumulative preference shares �Non-Cumulative preference shares �Redeemable preference shares �Irredeemable preference shares �Participating preference shares. �Non-Participating preference shares. �Convertible preference shares �Non- Convertible preference shares

FEATURES �Maturity �Claim on income �Claim on assets �Control �Hybrid form of security

ADVANTAGES �No legal obligation to pay fixed dividend �Provide long term capital �Do not carry voting rights so no dilution of control �Superior security over equity shares DISADVANTAGES: �Expensive source of finance �Dividend is not tax deductible �Market price of shares keep fluctuating �Rate of dividend is generally low

CREDITORSHIP SECURITIES �Also known as debt capital represents debentures and bonds. �Significance place in the financial plan of the company. �It is a certificate issued by company acknowledging debt. �It reduces the capital of capital.

DEBENTURES OR BONDS �A debenture is an acknowledgement of debt. �A debenture holder is creditor of company �A fixed rate of interest is paid on debentures. �Floating charge over the assets of company. �Secured debenturescare given priority over all other creditors.

TYPES OF DEBENTURES �Simple, naked or unsecured debentures. �Secured debentures �Bearer debentures �Registered debentures �Redeemable debentures �Irredeemable debentures �Convertible debentures

�Zero interest bond/ debentures �Zero coupon bonds �First debentures or second debentures �Guaranteed debentures �Collateral debentures �Other innovative debt instruments: equity warrants, secured premium notes, collable bond, inflation adjusted bond.

FEATURES �Maturity �Claim on income �Claim on assets �Control �Call feature.

ADVANTAGES �Provides long term funds to company �Rate of interest is generally lower �Interest is tax deductible �No dilution of control � provide flexibility in capital structure. DISADVANTAGES: �Fixed interest charges. �Charge on the assets of the company. �Cost of raising finance is high. �No voting rights.

METHODS OF MARKETING SECURITIES �Public issue by prospectus, which includes (i) Direct selling (ii) Sale through investment intermediaries (iii) Underwritten placement � Offer for sale � Placement method � Tender method � Over the counter placement � Right issue � Bonus issue

CAPITAL MARKET INTERMEDIARIES

MEANING OF INTERMEDIARIES �Firm or person (such as a broker or consultant) who acts as a mediator on a link between parties to a business deal, investment decision, negotiation, etc. �Intermediaries usually specialize in specific areas, and serve as a conduit for market and other types of information.

INTRMEDIARIES �Intermediaries are service providers in the market, including stock brokers, subbrokers, financiers, merchant bankers, underwriters, depository participants, registrar and transfer agents, FIIs/ sub accounts, mutual Funds, venture capital funds, portfolio managers, custodians, etc

MERCHANT BANKERS STOCK BROKERS DEPOSITORY PARTICIPTANT UNDERWRITERS INTERMEDIARIES PUBLIC PORTFOLIO MANAGERS MUTUAL FUNDS CAPITAL MARKETS INTERMEDIARIES FINANCIERS VENTURE CAPTAL

FINANCIERS � Is a person OR a business entity who makes their money from investments, typically involving large sums of money and usually involving private equity and venture capital, corporate finance, investment banking and/or largescale asset management. � A financier makes money through this process when his or her investment is paid back with interest, from part of the company's equity, or a financier can generate income through commission, performance, and management fees

MERCHANT BANKERS � A merchant bank is a financial institution that provides capital to companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters to the firms they lend to. � Both commercial banks and investment banks may engage in merchant banking activities.

DEPOSITORY PARTICIPTANT �Depository system introduced in India in the year 1996. �In India, a Depository Participant (DP) is described as an agent of the depository. They are the intermediaries between the depository and the investors. �Service provided- Dematerialization, Rematerialization, Transfers of securities, settlement of trades. �In India- NSDL & CDSL are the two entity.

STOCK BROKER �A stockbroker is a regulated professional individual, usually associated with a brokerage form firm or broker-dealer, who buys and sells stocks and other securities for both retail and institutional clients, through a stock exchange or over the counter, in return for a fee or commission. �Stockbrokers are known by numerous professional designations, depending on the license they hold, the type of securities they sell, or the services they provide.

SUB BROKERS • An intermediary broker, from whom another broker acquires the reinsurance that needs to be placed. • Person who is not a Trading Member of a Stock Exchange but who acts on behalf of a Trading Member as an agent or otherwise for assisting investors in dealing in securities through such Trading Members. • All Sub-Brokers are required to obtain a Certificate of Registration from SEBI without which they are not permitted to deal in securities. a Sub-Broker unless they are registered with SEBI can wok as a Sub-Broker.

UNDERWRITERS �A company or other entity that administers the public issuance and distribution of securities from a corporation or other issuing body. �They have taken on the risk of distributing the securities. �Underwriters make their income from the price difference (the "underwriting spread") between the price they pay the issuer and what they collect from investors or from broker-dealers who buy portions of the offering.

Advantages of Underwriting 1. The company is sure of getting the value of shares issued 2. It enhances goodwill of the company 3. It facilitates wide distribution of securities 4. The company gets expert advice from underwriters in the matter of marketing securities 5. It fulfills requirement of minimum subscription

Provisions regarding Underwriting 1. A company cannot pay any commission on the issue of shares unless permitted by its Articles. 2. Commission cannot be paid to any person for shares or debentures which are not offered to the public for subscription. 3. The commission is limited to 5% of issue price in case of shares and 2 ½ % in case of debentures. However, in practice, SEBI has allowed underwriting commission only at the rate of 2. 5% of issue price of equity shares. 4. The amount or rate of commission should be disclosed in the prospectus. 5. The directors must state in the prospectus that the underwriters are capable of meeting their obligations under the underwriting contract

VENTURE CAPITALS � Venture capital (VC) is financial capital provided to early-stage, high-potential, high risk, growth start-up companies. � The venture capital fund makes money by owning equity in the companies it invests in. The typical venture capital investment occurs after the seed funding round as the first round of institutional capital to fund growth. � Venture capital is a subset of private equity. Therefore, all venture capital is private equity, but not all private equity is venture capital.

OVER THE COUNTER EXCHANGE OTC Exchange Of India (OTCEI) • is the first exchange for small companies. It is the first screen based nationwide stock exchange in India. Location Mumbai, India • It was set up to access high-technology Founded enterprising promoters in raising finance Owner for new product development in a cost Key effective manner. people 1990 OTC Exchange of India Mr. Praveen Mohnot, MD

• OTCEI is promoted by 1. the Unit Trust of India, 2. the Industrial Credit and Investment Corporation of India, 3. the Industrial Development Bank of India, the Industrial Finance Corporation of India and 4. others and is a recognized stock exchange under the SCR Act.

STOCK EXCHANGE

STOCK MARKET • the secondary market where existing securities (shares and debentures) are traded. STOCK EXCHANGE • Stock Exchanges are organised and regulated markets for various securities issued by corporate sector and other institutions. • 24 approved stock exchanges in our country

DEFINITIONS OF STOCK EXCHANGE “ Security exchanges are market places where securities that have been listed thereon may be bought and sold for either investment or speculation” Pyle Stock Exchange means any body of individuals whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling in securities” Securities Contract (Regulation) Act, 1956

CHARACTERISTICS OF STOCK EXCHANGE �Place where securities are purchased and sold. �Association of persons whether incorporated or not. �Trading in a stock exchange is strictly regulated and rules are prescribed for various transactions �Both genuine investors and speculators buy or sell shares �Securities of corporations, trust, governments, municipal corporations etc. are allowed to be dealt at stock exchange.

FUNCTIONS OF STOCK EXCHANGE 1. Ensure liquidity of capital • Provide ready market where buyers and sellers are always available • Provide hard cash after selling their holdings 2. Continuous market of securities • Securities once listed continue to be traded at the exchange irrespective of the fact that owners go on changing 3. Evaluation of Securities • Investors can evaluate the worth of their holdings from the prices quoted at different exchanges for these securities.

4. Mobilising surplus savings • Investors do not have any difficulty in investing their savings by purchasing shares, bonds etc. from the exchanges 5. Helping in Raising new capital • Shares of new concerns are registered at stock exchanges • Existing companies also sell their shares through brokers etc. at exchanges. 6. Safety in dealings. • Dealings at stock exchanges are governed by well defined rules and regulations of Securities Contract (Regulation) Act, 1956. • No scope of manipulating transactions.

7. Listing of securities 8. Platform for public dept 9. Clearing house of business information • Only Listed securities can be purchased • Every company desirous of listing its securities will apply to the exchange authorities • Increasing government’s role in economic development has necessitated the raising of huge amounts for this purpose • It provides platform for raising loans • Companies listed securities with exchanges have to provide financial statements, annual reports and other reports to ensure maximum publicity of company operations and working

LISTING OF SECURITIES �Listing of securities means permission to quote shares and debentures officially on the trading floor of the stock exchange �Every security listed by companies cannot be traded at a stock exchange. The stock exchange fix certain standards which the company must fulfill before getting the securities listed.

REQUIREMENTS FOR LISTING � Memorandum and Articles of Association �Copies of all prospectus or statements in lieu of prospectus �Copies of Balance sheet, audited accounts, agreements with promoter, underwriters, brokers �Letter of consent from Controller of capital issues, now replaced with SEBI �Details of shares and debentures issued and shares forfeited

�Details of issue of bonuses and dividends declared �History of the company in brief. �Agreement with managing directors. �An undertaking regarding compliance with the provision of the Companies Act, 1956 and Securities Contracts (Regulation) Act, 1956 as well as rules made therein �A list of the highest ten holders of each class and kind of securities of the company. The Stock exchange are empowered to withdraw or suspend the admission granted for trading following any breach of condition.

OBJECTIVE OF LISTING OF SECURITIES Proper supervision and control of dealing in securities Protect the interest of shareholders and the investors Avoid concentration of economic power Ensure liquidity of securities Regulate dealings in securities Requiring promoters to have reasonable stake in the company

ADVANTAGES OF LISTING � Publicity of Securities The name of companies are mentioned along with the rates and the investors become familiar with securities � Protection of investors interest Disclosure of full information by the companies � Ensure liquidity Listed securities have a ready market at stock exchange. � Better Goodwill Listed Securities are rated high in the market and bank accept such securities as collateral securities

LISTING PROCEDURE AT NSE Initial Discussions Authorised persons of the concerned company hold discussion with the NSE officials regarding requirements to be filled, qualification of the issuer for listing. Approval of Memorandum and Articles of Association Rule 19(2) (a) of the Securities (Regulation) Rules, 1957 require that the Articles of Association of the issuer wanting to list its securities must contain the necessary provision.

Approval of Draft Prospectus While drafting the prospectus, the issuer must keep in mind the following: � the provision of the Companies Act �The provisions of the Securities Contract (Regulation) Act �The SEBI Act and subordinate legislations thereto �Various notifications, circulars, guidelines etc, governing preparation and issue of prospectus prevailing at the relevant time. The issuer files the draft prospectus along with the SEBI acknowledgement card or letter indicating observations on draft prospectus or letter of offer by SEBI.

Submission of Application All issuers whose securities are going to be listed for the first time and those who wanting to list further issues have to submit application to the NSE along with the requisite fees. Listing Fees: The listing fees depends on the paid up share capital of the company: PARTICULAR AMOUNT( Rs) Initial Listing Fees 7500 Annual Listing Fees for Companies With Paid up share 4200 and/ or debentures capital of Rs. 1 crore Between 1 crore- 5 crore 8400 5 crore – 10 crore 14000 10 crore – 20 crore 28000 20 crore – 50 crore 42000 Above 50 crore 70000 + 1400 for every increase of Rs.

Listing Conditions and Requirements The issuers has to fulfill the listing conditions and requirements contained in the listing agreement form. After that following information for further processing to manager of listing department of NSE. � A brief note on the promoters and management �Company profile �Copies of the Annual Report for last 3 years �Copies of the Draft offer document �Memorandum and Articles of Association

PROCEDURE FOR DEALING AT STOCK EXCHANGES 1. Selection of a Broker Select broker through whom the purchase or sale is to be made Investor or seller may approach his bank Banks have appointed their own broker at exchanges On recommendation from bank client’s account is opened by the broker

2. Placing an order After selecting the broker the investor specifies the type and number of securities the wants to buy or sell. 3. Making the Contract The trading floor of the stock exchange is divided into different parts known as trading posts. Different posts deals in different types of securities. The authorised clerk of the broker goes to the concerned post and expresses his intention to buy and sell the securities. A deal is struck when the other party agrees.

4. Contract Note The buying and selling brokers prepare note after their mutual consent next day. The seller is sent a selling note and the buying is sent a buying note. The details of securities traded are given mentioning their number, price, etc. 5. Settlement The spot dealings are settled there in full. The selling broker hand over the transfer form and share certificates to the buying broker after receiving the price. The settlement for ready delivery and forward contracts is done with a different procedure.

Settlement of Ready Delivery Contracts Between 3 to 7 days of the transaction Settlement of Forward Delivery Contracts Speculative purposes Liquidation in full Liquidation by payment of differences Carry over to the next settlement

DEPOSITORY SYSTEM �One of the biggest problem faced by Indian capital market has been the manual and paper based settlement system. �It poses many problems like -- delay in settlements, high level of failed trade, high cost of transactions, bad deliveries etc. �Thus, old system of transfer was replaced with the new and modern system of depositories. �GOI enacted the DEPOSITORY ACT 1996 for orderly growth and development.

� Transfer of securities take place through book entry on the ledger or the depository without the physical movement of securities. �It eliminates paper work. �Facilitates automatic and transparent trading in securities. �There are essentially 4 players in the depository system: (i) The Depository. (ii) The Participant. (iii) The Beneficial owner. (iv) The Issuer.

The Depository— � A depository is a provider(firm) for holding and transacting securities in electronic form(by means of book entry). � A depository functions are somewhat similar to a commercial bank. �At present there are two depositories in India. (I) National securities depositories system(NSDL). (II) central depositories servives limited (CDSL).

The Participant – �A Depository Participant (DP) is an agent of the depository and provides depository services to investors. � To avail the services of the depository, the investors has to open an account with a DP. �Both the depository and participant has to be registered with SEBI.

The Beneficial Owner— �Beneficial Owner is a person in whose name a demat account is opened with CDSL for the purpose of holding securities in the electronic form and �whose name is recorded with CDSL. �He is the real owner of the securities. �He has all the rights and liabilities associated with the securities.

The Issuer: �The Issuer is the company which issues the security. �It maintains a register for recording the names of the registered owners of securities. �The issuer sends a list of shareholders who opt for the depository system to the depositories.

FACILITIES OFFERED BY DEPOSITORY SYSTEM �Dematerialisation. �Rematerialisation. �To maintain record of holdings in the electronic form. �Settlement of trades by delivering / receiving underlying securities from / in BO accounts.

�Pledging of dematerialised securities & facilitating loans against shares. �Nomination facility: (i) Only individual can be appointed as nominee. (ii) Minor can also be appointed as nominee (iii) It can be changed as and when required. �Freezing of the demat account: No transaction will be executed from the account.

ADVANTAGES OF DEPOSITORY SYSTEM �Reduction in paper work �Elimination of risk. �Elimination of bad delivers. �Increased liquidity of securities. �Low transaction cost. �No stamp duty on transfer. �Emergence of healthy and efficient capital market.

DEMATERIALISATION OF SHARES �Securities held in physical form are converted into electronic form and credited to demat account. �It offers a number of benefits to the investor. �It is a safe and convenient way to hold securities compared to holding securities in physical form. �No stamp duty is levied on transfer of securities held in demat form. �Instantaneous transfer of securities enhances liquidity.

�Any number of securities can be transferred/ delivered with one delivery order. �SEBI has made it compulsory for trades in all listed securities to be settled in demat mode. �W. e. f. 2 nd January 2002. �The procedure of opening a demat account with DP is similar to opening an account with a bank.

STEPS INVOLVED IN DEMATERIALISATION �Investor has to first choose a DP based on his convenience and the DP’s charges. �Investor has to be submit Demat Request Form(DRF)and share certificate to DP who in turn will check whether securities are available for demat. �The investor should defaces the certificate by stamping ‘Surrendered for Dematerialisation”. DP punches two holes on the name of the company and draws two parallel lines across the face of the certificate. This ensures that your shares are not lost in transit or misused till credit is received by you in your demat account. The DP upon receipt of the shares and the DRF, will issue the client an acknowledgement and will send an electronic request to the Company.

�DP enters the demat request in his system. �DP dispatches the physical certificates along with the DRF to the R&T Agent or the issuer company. �R&T Agent, on receiving the physical documents and the electronic request, verify and check them. Once the R&T Agent is satisfied, dematerialization of the concerned securities is electronically confirmed to the depository. �Depository credits the dematerialised securities to the beneficiary account of the investor and intimates the DP electronically. �The DP issues a statement of transaction to the client.

ELECTRONIC SETTLEMENT OF TRADE PROCEDURE FOR SELLING DEMATERIALISED SECURITIES: �Investor sells securities in any of the stock exchanges linked to depository through a broker. �Investor instructs his DP to debit his demat account with the number of securities sold and credit the brokers clearing account. �Before the pay in day, broker of the investor transfers the securities to clearing corporation. �The broker receive payment from the stock exchange. �The investor receives payment from the broker for the sale of securities.

PROCEDURE FOR BUYING DEMATERIALISED SECURITIES: �Investor instructs DP to receive credits into his account in the prescribed form. �Broker receive payment from investor and arranges payment to clearing corporation. �Broker receive credit of securities in clearing account on the pay out day. �Broker gives instructions to DP to debit clearing account and credit client’s account. �Investor receive shares into his account by way of book entry.

REMATERIALISATION OF SHARES �Securities can be changed from demat form to physical form. � For this one has to submit a Rematerialisation Request Form (RRF) through the concerned DP in the same manner as Dematerialisation. � The Depository Participant will forward the request to the Depository after verifying that the client has the necessary securities in balance.

�The Depository in turn will intimate the Registrar and Transfer Agents of the Company who will print and dispatch the share certificates for the number of shares so rematerialised and the beneficiary account will be debited by the Depository and credited with the Company. �It is not necessary that one gets the shares of the same folio number. The Registrars and Transfer Agents will print new certificates with a new range of certificate numbers. The investor will be allotted a new folio number;

CONCLUSION �There are two depositories in India, namely, NSDL and CDSL. � For smooth functioning of the depository system, depository participants act as intermediary between the clients and the depository. They help in transfer of securities in a smooth manner. They also help in performing the task of changing physical securities into demat form and vice-versa. � ISIN(International Securities Identification Number) is a unique identification number assigned to all the securities as per ISO (International Standards Organisation).

�Dematerialisation is a process by which the physical share certificates of an investor are taken back by the Company and an equivalent number of securities are credited in electronic form at the request of the investor. � Rematerialisation is a process by which dematted securities are changed into physical form on the request of the client.

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

SECURITIES AND EXCHANGE BOARD OF INDIA (1992) THE GOVERNMENT ISSUE AND ORDINANCE ON JANUARY 30, 1992 FOR GIVING STATUTORY POWER TO SEBI. THIS ACT WAS PASSED BY THE PARLIAMENT AS ACT NO. 15 OF 1992 WHICH RECEIVED ASSENT OF THE PARLIAMENT ON 4 TH APRIL 1992. FURTHER, ON MAY 29, 1992 THE GOVERNMENT ISSUED AN ORDINANCE ABOLISHING THE CAPITAL CONTROL ACT, 1947. THE ORDINANCE ALSO SUPERSEDES THE VARIOUS GUIDELINES ISSUED BY THE CCI FROM TIME TO TIME. ACCORDINGLY, SEBI WAS SET UP UNDER THE SEBI ACT, 1992.

OBJECTIVE OF SEBI ACT 1992 THE OVERALL OBJECTIVE OF SEBI ARE TO PROTECT THE INTEREST OF INVESTORS AND PROMOTE THE DEVELOPMENT OF STOCK EXCHANGE AND TO REGULATE THE ACTIVITIES OF STOCK MARKET. THE OBJECTIVE OF SEBI ARE : 1) TO REGULATE THE ACTIVITIES OF THE STOCK EXCHANGE. 2) TO PROTECT THE RIGHTS OF INVESTORS AND ENSURING SAFETY TO THEIR INVESTMENT. 3) TO PR EVENT FRAUDULENT AND MALPRACTICES BY HAVING BALANCE BETWEEN SELF REGULATION OF BUSINESS AND ITS STATUTORY REGULATION. 4) TO REGULATE AND DEVELOP A CODE OF CONDUCT FOR INTERMEDIARIES SUCH AS

CONSTITUTION AND ORGANISATION THE SEBI IS BODY OF SIX MEMBERS COMPRISING THE CHAIRMAN, TWO MEMBER FROM AMONGST THE OFFICIALS OF THE MINISTRIES OF THE CENTRAL GOVERNMENT DEALING WITH FINANCE AND LAW , TWO MEMBER FROM THE RBI. ALL MEMBERS EXCEPT THE RBI MEMBER, ARE APPOINTED BY THE GOVERNMENT , WHO ALSO LAYS DOWN THEIR TERMS OF OFFICE, TENURE, AND CONDITIONS OF SERVICE, AND WHO CAN ALSO REMOVE ANY MEMBER FROM OFFICE UNDER CERTAIN CIRCUMSTANCES. THE DEPARTMENT HAS BEEN DIVIDED INTO DIVISIONS. THE VARIOUS DEPARTMENTS AND THE SCOPE OF THEIR ACTIVITIES ARE AS FOLLOWS: -

(1)The Primary Market policy, Intermediaries, Self- Regulatory Organization(SRO), and Investor Grievance and Guidance Department: - It looks after all policy matter and regulatory issues in respect of primary market, registration, merchant bankers, portfolio management services, investment advisor, underwriters, guidance , education, and association (2)The Issue Management and Intermediaries Department: - It is for vetting of all prospectuses and letters of offer for public and right issues, for coordinating with the primary market policy, for registration, regulation and monitoring of issue-related

It is responsible for all policy and regulation issue for secondary market and new investment product, registration and monitoring of members of the stock exchange. (4) The Secondary Market Exchange Administration, Inspection and Nonmember Intermediaries Department: - It looks after the smaller stock exchanges of Guwahati, Indoor, Mangalore, Hyderabad, Kanpur, Ludhiana and Cochin. It also responsible for inspection of all stock exchange, and registration, regulation and monitoring of non- member intermediaries such as sub-brokers. (5) Institutional investment (Mutual Funds and Foreign Institutional Investment), Mergers and acquisition Research and Publication and IOSCO Department: - It looks after all policy, registration, regulation and monitoring of Foreign Institutional Investors, domestic mutual funds, merger and substantial acquisitions of shares and IOSCO(International Organization of securities Commission) membership, publication and Annual Report of SEBI. (6) Legal Department : - It looks after all legal matters under the supervision of General Counsel. (7) Investigation department carries out inspection and investigation under the supervision of the Chief of Investigation.

POWER AND FUNCTION OF SEBI 1 FUNCTION OF SEBI a) Regulating the business in stock exchange and any other securities. b) Registering and regulating the working of stock broker, subbroker , share transfer agents, bankers to issue, merchant bankers, underwriters, portfolio manager, investment advisor and such other intermediaries who may be associated with securities markets in any manner. c) Registering and regulating the working of venture capital funds and collective investment schemes, including mutual funds. d) Promoting and regulating self – regulatory organization. e) Prohibiting fraudulent and unfair trade practices relating to securities markets. f) Promoting investor’s education and training of intermediaries of securities markets

g) Prohibiting insider trading in securities. h)Regulating substantial acquisition of shares and take-over of companies. i)Calling for information from, undertaking inspection , conducting inquiries and audits of the stock exchanges, mutual funds, other persons associated with the securities market, intermediaries and self regulatory organizations in the securities market.

(2) Power for inspection : - the board may take measures to undertake inspection of any books, or register , or other document or record of any listed public company or a public company which intends to get its securities listed on any recognized stock exchange. (3) Power of Court : - The board shall have the same powers as are vested in a civil court under the Code of Civil Procedure 1908 while trying a suit in respects of the following matters (a) the discovery and production of books of account and other documents at such place and such time as may be specified by the Board. (b) inspection of any books, registers and other documents of any person referred to in section 12, at any place. (c) issuing commissions for the examination of witnesses or documents. (4)Power in the Interests of Securities Markets : - The Board may by an order for reasons to be recorded in writing in the interests of investors or securities market, take any of the following measures (a) suspend the trading of any securities in a recognized stock exchange (b) restrain persons from accessing the securities market and prohibit any person associated with securities market to buy sell or deal in securities (c) suspend any officer – bearer of any stock exchange or regulatory organization from holding such position (d) retain the proceeds or securities in respect of any transaction which is under investigation

(5) Power to issue directions (section 11 B) : (a) In the interest of investors , or orderly development of securities market. (b) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interest of investors or securities market. (6) Power Regarding Protection of Investor : Without prejudice to the provision of the Companies Act, 1956, SEBI Board may for the protection of investors specify by regulations. (a) the matters relating to issue of capital , transfer of securities and other matters incidental thereto (b) prohibit any company from issuing of prospectus any offer document or advertisement soliciting money from the public for the issue of securities

HIGHLIGHTS OF SEBI’S PERFORMANCE SINCE THE ENACTMENT OF THE SEBI ACT IN 1992, FINANCIAL INSTITUTION, AGENCIES, AND MARKET INTERMEDIARIES MENTIONED ABOVE ARE NOW BEING GOVERNED BY THE GUIDELINES, RULES, AND REGULATIONS NOTIFIED BY THE SEBI FROM TIME TO TIME. THE MAJOR POLICY MEASURES AND REFORMS INTRODUCED BY THE SEBI DURING 1992 TO 1996. (1) q q q PRIMARY SECURITIES MARKET: THE ISSUE OF CAPITAL BY COMPANIES NO LONGER REQUIRE ANY CONSENT FROM ANY AUTHORITY EITHER FOR MAKING THE ISSUE OR FOR PRICING IT. THE OFFER DOCUMENT IS NOW MADE PUBLIC EVEN AT THE DRAFT STAGE. FOR ISSUES ABOVE RS 100 CRORE, BOOK BUILDING REQUIREMENT HAS BEEN INTRODUCED THE PRICING OF PREFERENTIAL ALLOTMENT HAS TO BE AT MARKET RELATED LEVELS AND THERE IS A FIVE-YEAR LOCK IN PERIOD FOR SUCH ALLOTMENTS BANKERS TO AN ISSUE AND PORTFOLIO MANAGERS HAVE TO BE REGISTERED WITH SEBI. THERE WERE 77 BAKERS TO ISSUE WHO WERE THUS REGISTERED AS OF 31 MARCH 1996. SIMILARLY THERE WERE 13 REGISTERED AND 100 PERMITTED PORTFOLIO MANAGERS AT THE END OF MARCH 1996.

(2)Secondary Market and Intermediaries: q The governing boards and various committees of stock exchanges(SE) have q q q q q been recognized, restructured and broad-based. Inspection of all 22 SEs has been carried out to determine the extent of compliance with directives of the SEBI. Computerized or screen based trading has been achieved on almost all exchanges except some of the smaller ones. Corporate membership of SEs is now allowed the Articles of Association of SEs have been amended so as to increase their membership. All the SEs have been directed to establish either a clearing house or a clearing corporation. The Bombay Stock Exchange (BSE) has been asked to reduce trading period or settlement cycle from 14 to 7 days for B group shares. All recommendation of the Dave Committee for improving the working of the OTCEI have been accepted. The brokers are required to ensure segregation of client account and own account. It has been made mandatory for the stock brokers to disclose the transaction price and brokerage separately in the contract notes issued by them to their clients. The trading hours in almost all the SEs have now been increased from 2 and half hours to 3 hours per day.

(3) Mutual Funds : - As on 31 March 1996, 26 mutual funds (MFs) excluding the UTI were registered with SEBI. MFs are required to have a board of trustees or trustee company separate from the asset management company, and securities belonging to the various schemes are required to be kept with an independent custodian. The SEBI (Mutual Funds ) Regulations, 1993 were revised to provide for portfolio disclosure, standardisation of accounting policies. (4) INVESTOR PROTECTION MEASURES q. THE SEBI HAS INTRODUCED AN AUTOMATED COMPLAINTS HANDLING SYSTEM TO DEAL WITH INVESTOR COMPLAINTS. TO CREATE AN AWARENESS AMONG THE ISSUERS AND INTERMEDIARIES OF THE NEED TO REDRESS INVESTOR GRIEVANCES QUICKLY, q TO HELP THE INVESTORS IN RESPECTS OF DELAY IN RECEIVING REFUND ORDERS IN CASE OF OVERSUBSCRIBED ISSUES, A FACILITY IN FORM OF STOCKINVEST HAS BEEN INTRODUCED. q TO ENSURE THAT MALPRACTICE TAKES PLACE IN THE ALLOTMENT OF SHARES, A REPREHENSIVE OF SEBI SUPERVISES THE ALLOTMENT PROCESS. q IT ISSUES ADVISEMENTS FROM TIME TO GUIDE INVESTORS ON VARIOUS ISSUES RELATED TO THE SECURITIES MARKET AND OF THEIR RIGHTS AND REMEDIES.

(4) Miscellaneous: q FIIs are also require to be registered with the SEBI. The total number of them so registered were 367 as 31 March 1996. q It us required that the capital of companies to be registered as depositories must be Rs 100 crore. Similarly custodians are required to have net worth of Rs 50 crore, and they are to get their systems and procedure evaluated externally. q Venture capital funds allowed to invest in unlisted companies to finance turnaround companies, and to provide loans.