Securities & Exchange Board Of India: Vikram.p.g Dinesh Nair Nagendra.r

SECURITIES & EXCHANGE BOARD OF INDIA - Role and Functions

Vikram.P.G Dinesh Nair Nagendra.R

INCORPORATION Securities Contracts (Regulation) Act, 1956 – regulate the working of secondary markets  Capital Issue (Controls) Act, 1947 – administered by CCI to regulate the primary market (new issues); very stringent regulations  Companies Act 1956 

PHILOSOPHY 

“Multiple regulatory bodies for securities divides the regulatory system, causing confusion among the market participants as to who really is in command”

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SEBI - An autonomous body created by GOI in 1988 and given statutory form in 1992 vide The SEBI Act, 1992.

OBJECTIVE

“To protect the interests of investors in securities and to promote the development of, and to regulate the securities market.  “Rapid and healthy market development is the outcome of well-regulated structures” 

COMPOSITION & ORGANIZATION 

6 members  Chairman 2

officials from fin & law ministries of GOI  2 professionals  1 member from RBI (the only one not appointed by the govt.) 

GOI can supersede SEBI in public interest, or under emergency

COMPOSITION & ORGANIZATION - II 

5 operational depts., each headed by an ED who reports to the chairman Primary Market Policy, Intermediaries, SROs and Investor Grievance & Guidance dept.  Issue Mgmt. & Intermediaries Dept.  Secondary Market Policy, Operations & Exchange Administration, New Investment Products & Insider Trading Dept.  Secondary Mkt. Exchange Administration, Inspection & Non-member Intermediaries Dept.  MFs, FIIs, M&A, Research-Publications, Internal. Relations & IOSCO Dept. 

Legal Dept.  Investigation Dept. 

COMPOSITION & ORGANIZATION - III Head office in Mumbai  Regional; offices in Kolkata, Chennai & New Delhi  2 advisory committees consisting of market players, members of recognized investor associations & other eminent persons 

 Primary

Market Advisory Committee  Secondary Market Advisory Committee

REGULATORY APPROACH

Endeavors to create an effective surveillance mechanism  Encourage responsible & accountable autonomy on the part of all players in the market  “Self – regulation” “Regulation by exception” – cornerstones of regulatory framework 

STANDS FOR… 

Investors: protection of their rights & interests through adequate, accurate & authentic information & disclosures on a continuous basis

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Issuers: provide a marketplace in which they can raise all the finances they need in an easy, fair & efficient manner

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Market Intermediaries: provide a competitive, professionalized & expanding market with adequate & efficient infra. So they can serve better

AIMS

Facilitate an efficient mobilization & allocation of resources through the sec. markets  Encourage innovations  Stimulate competition 

SCOPE OF OPERATIONS

Frame or issue rules & regulations  Issue directives, guidelines & norms in respect of both the primary & secondary markets, intermediaries & certain financial institutions 

POWERS 

It can regulate: Depositories & participants  Custodians  Debenture trustees & trust deeds  FIIs  Insider trading  Merchant bankers  Mutual funds  Portfolio managers  Registrar to issue & share transfer agents  Stock brokers & sub-brokers  Substantial acquisition of shares & takeovers  Underwriters, VC funds, bankers to issue 

FUNCTIONS Regulating the business in stock exchanges and any other securities markets  Registering and regulating the working of stock brokers, sub-brokers etc.  Prohibiting fraudulent and unfair trade practices promoting investors' education and training of intermediaries  Prohibiting insider trading  Regulating substantial acquisition of shares and takeover of companies 

FUNCTIONS - II Conducting enquiries & audits of stock exchanges  Calling for records from any bank, corporation etc. which is under enquiry by the Board (19)  Performing functions under SCRA, 1956 as delegated by GoI (20)  Levying fees or other charges for carrying out the purpose of this section  Conducting research for the above purposes  Calling from or furnishing to, any such agencies identified by the Board, as identified for efficient discharge of its duties (21) 

CONSEQUENT TO SEBI ACT, 1995.. Regulatory power over corporates in issuance of capital, transfer of securities vested with SEBI  Amendment provide for the deletion of existing provision relating to disqualification of a SEBI board member on being appointed a dir of a Co.  Demand attendance, summon explanations and call for documents from all mkt participants  Also been empowered to file complaints in courts without prior approval of GoI 

CLASSIFICATION OF COMPLAINTS 

Complaints received by SEBI are classified under 5 categories: Type I: Non-receipt of refund orders/allotment letters  Type II: Non-receipt of dividends  Type III: Non-receipt of share certificates/bonus shares  Type IV: Non-receipt of debenture certificates/interest on debentures/redemption of debentures/delayed payment of interest  Type V: Non-receipt of annual reports, rights issue forms/interest on delayed receipt of refund orders/dividends 

REFORMS – PRIMARY MARKETS   

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Issue of capital - No consent reqd from any authority Accepted Malegam Comm reco regarding disclosure Cos can make public issue only if they have 3 years of dividend paying track record. Those not meeting can if their projects appraised by banks or Fis with min 10% participation in equity cap of issuer & OTCEI listing For issues over 100 Cr, book building introduced Pricing of preferential allotment at mkt rates (5-yr lock-in) Earlier underwriting mandatory, scrapped now Total 40 underwriters recognized

REFORMS – SECONDARY MKT     

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Computerized or screen-based trading on all 22 SEs Regular monitoring of all SEs Corporate membership of Ses allowed/preferred All SEs to have a clearing house/corp System in place for investor grievance against brokers All reco of Dave comm for OTCEI mkt accepted All SEs to have independent market surveillance deptt. Brokers reqd to segregate client acc and own acc PAN card requirement from investors All brokers to file their books and audited B/Ss

REFORMS - MISCELLANEOUS

FIIs required to register with SEBI  MFs required to have a board of trustees or trustee company separate from asset mgmt. co.  VCs allowed to invest in unlisted companies, finance turnaround cos and provide loans  Automated investor grievance cell 

LATEST POLICY INITIATIVES, 2005-06 

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SEBI DIP, 2000 amended to introduce a specific allocation of 5% for mutual funds, proportionate alll for QIBs and margin req for QIBs Facility of electronic clearing services to refunds arising out of public issues extended to 15 centres SEBI (DIP) Guidelines, 2000 amended to have minimum public shareholding of 25 per cent in case of all listed companies barring a few exceptions In-principle approval was given for grading of IPOs by the rating agencies at the option of the issuers. Do away with voluminous and repetitive disclosures in case of rights issues and public issues by the listed companies

Permit an issuer company making a rights issue to despatch an abridged letter of offer which shall contain disclosures as required to be given in the case of an abridged prospectus.  Permit a listed company to fix and disclose the issue price in case of a rights issue, any time prior to fixing of the record date  Listed cos to follow Clause 49 regarding independent directors  SEs permitted a block trading window regarding bulk deals 

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Committee set up under the Chairmanship of Shri G. Anantharaman, Whole Time Member, SEBI to “Review and Examine the Future of the Regional Stock Exchanges (RSEs):Post-Demutualisation”. SEBI allowed mutual funds to participate in the derivatives market in the same manner as the FIIs, subject to position limits Following Madhukar Comm reco, SEBI (MFs) Regulations, 1996 amended permitting MFs to introduce GETFs (Gold Exchange Traded Funds) Mutual funds were permitted to invest in ADRs, GDRs and foreign securities. The Venture Capital Funds were allowed to invest in securities of foreign companies

CRITIQUE ! Adding and deleting and changing too many rules; no one sure of what to expect  Widespread feeling that SEBI not serious about reforming the system and protecting the individual and small investors  Present sttlement or delivery system highly conducive for manipulative competition and unhealthy competition  Allegation that it’s more corporate-friendly than investor-friendly 

THANK YOU !!!