CONTROL OF SECURITY PRICE CONTROL OF SECURITY PRICE OF STOCK EXCHANGE OF STOCK EXCHANGE

Submitted by: Submitted to:Submitted by: Submitted to:

Shah PratikShah Pratik Mrs. rutvi UmrigerMrs. rutvi Umriger

Why do we need a regulatory body Why do we need a regulatory body for Investor protection in India?for Investor protection in India?

India is an ` informationally ' weak marketIndia is an ` informationally ' weak market

Boosting capital market demands restoring the Boosting capital market demands restoring the confidence of lay investors who have been beaten confidence of lay investors who have been beaten down by repeated scamsdown by repeated scams

Progressively softening interest rates and an under Progressively softening interest rates and an under performing economy have eroded investment options, performing economy have eroded investment options, and require enhanced investing skills. and require enhanced investing skills.

Mission of SEBIMission of SEBISecurities & Exchange BoardSecurities & Exchange Board of Indiaof India (SEBI) formed (SEBI) formed

under the SEBI Act, 1992 with the prime objective of under the SEBI Act, 1992 with the prime objective of – Protecting the interests of investors in securities,Protecting the interests of investors in securities,– Promoting the development of, and Promoting the development of, and – Regulating, the securities market and for matters Regulating, the securities market and for matters

connected therewith or incidental thereto.’connected therewith or incidental thereto.’

Focus being the greater investor protection, SEBI has Focus being the greater investor protection, SEBI has become a vigilant watchdogbecome a vigilant watchdog

FUNCTIONS OF SEBIFUNCTIONS OF SEBI Section 11 of the Securities and Exchange Board of India Section 11 of the Securities and Exchange Board of India

Act.Act.

Regulation Of Business In The Stock ExchangesRegulation Of Business In The Stock Exchanges

A review of the market operations, organizational structure A review of the market operations, organizational structure and administrative control of the exchangeand administrative control of the exchange

– All stock exchanges are required to be All stock exchanges are required to be Body CorporatesBody Corporates – The exchange provides a fair, equitable and growing The exchange provides a fair, equitable and growing

market to investors.market to investors.– The exchange’s organisation, systems and practices are The exchange’s organisation, systems and practices are

in accordance with the Securities Contracts (Regulation) in accordance with the Securities Contracts (Regulation) Act (SC(R) Act), 1956 Act (SC(R) Act), 1956

FUNCTIONS OF SEBIFUNCTIONS OF SEBIB) Registration And Regulation Of The Working Of B) Registration And Regulation Of The Working Of

IntermediariesIntermediaries

Portfolio ManagersPortfolio Managers

Sub- BrokersSub- BrokersUnderwritersUnderwriters

Stock brokersStock brokersMerchant BankersMerchant Bankers

Secondary MarketSecondary MarketPrimary MarketPrimary Market

•regulates the working of the depositories [participants], custodians of securities, foreign institutional investors, credit rating agencies and such other intermediaries

FUNCTIONS OF SEBIFUNCTIONS OF SEBIC) Registration And Regulation Of Mutual Funds, Venture C) Registration And Regulation Of Mutual Funds, Venture

Capital Funds & Collective Investment Schemes Capital Funds & Collective Investment Schemes

AMFI-Self Regulatory Organization-'promoting and protecting the AMFI-Self Regulatory Organization-'promoting and protecting the interest of mutual funds and their unit-holders, increasing public interest of mutual funds and their unit-holders, increasing public awareness of mutual funds, and serving the investors' interest by awareness of mutual funds, and serving the investors' interest by defining and maintaining high ethical and professional standards in defining and maintaining high ethical and professional standards in the mutual funds industry'.the mutual funds industry'.

Every mutual fund must be registered with SEBI and registration is Every mutual fund must be registered with SEBI and registration is granted only where SEBI is satisfied with the background of the granted only where SEBI is satisfied with the background of the fund. fund.

SEBI has the authority to inspect the books of accounts, records and SEBI has the authority to inspect the books of accounts, records and documents of a mutual fund, its trustees, AMC and custodian where documents of a mutual fund, its trustees, AMC and custodian where it deems itit deems it necessary necessary

SEBI (Mutual Funds) Regulations, 1996 lays down the provisions forSEBI (Mutual Funds) Regulations, 1996 lays down the provisions for the the appointment of the trustees and their obligationsappointment of the trustees and their obligations

Every new scheme launched by a mutual fund needs to be filed with SEBI Every new scheme launched by a mutual fund needs to be filed with SEBI and SEBI reviews the document in regard to the disclosures contained in and SEBI reviews the document in regard to the disclosures contained in such documents.such documents.

Regulations have been laid down regarding listing of funds, refund Regulations have been laid down regarding listing of funds, refund procedures, transfer procedures, disclosures, guaranteeing returns etcprocedures, transfer procedures, disclosures, guaranteeing returns etc

SEBI has also laid down advertisement code to be followed by a mutual SEBI has also laid down advertisement code to be followed by a mutual fund in making any publicity regarding a scheme and its performancefund in making any publicity regarding a scheme and its performance

SEBI has prescribed norms / restrictions for investment management with SEBI has prescribed norms / restrictions for investment management with a view to minimize / reduce undue investment risks.a view to minimize / reduce undue investment risks.

SEBI also has the authority to initiate penal actions against an erring MF. SEBI also has the authority to initiate penal actions against an erring MF.

In case of a change in the controlling interest of an asset management In case of a change in the controlling interest of an asset management company, investors should be given at least 30 days time to exercise their company, investors should be given at least 30 days time to exercise their exit option.exit option.

FUNCTIONS OF SEBIFUNCTIONS OF SEBID) Promoting & Regulating Self Regulatory OrganizationsD) Promoting & Regulating Self Regulatory Organizations

– In order for the SRO to effectively execute its In order for the SRO to effectively execute its responsibilities, it would be required to be structured, responsibilities, it would be required to be structured, organized, managed and controlled such that it retains its organized, managed and controlled such that it retains its independence, while continuing to perform a genuine independence, while continuing to perform a genuine market development rolemarket development role

E) Prohibiting Fraudulent And Unfair Trade Practices In E) Prohibiting Fraudulent And Unfair Trade Practices In The Securities MarketThe Securities Market

– SEBI is vested with powers to take action against these SEBI is vested with powers to take action against these practices relating to securities market manipulation and practices relating to securities market manipulation and misleading statements to induce sale/purchase of securities. misleading statements to induce sale/purchase of securities.

FUNCTIONS OF SEBIFUNCTIONS OF SEBIF] Prohibition Of Insider TradingF] Prohibition Of Insider Trading

– Stock Watch System, which has been put in place, surveillance Stock Watch System, which has been put in place, surveillance

over insider trading would be further strengthenedover insider trading would be further strengthened..

G] Investor Education And The Training Of IntermediariesG] Investor Education And The Training Of Intermediaries– SEBI distributed the booklet titled “A Quick Reference Guide for SEBI distributed the booklet titled “A Quick Reference Guide for

Investors” to the investorsInvestors” to the investors

– SEBI also issued a series of advertisement /public notices in national SEBI also issued a series of advertisement /public notices in national as well as regional newspapers to educate and caution the investors as well as regional newspapers to educate and caution the investors about the risks associated with the investments in collective investment about the risks associated with the investments in collective investment

schemesschemes – SEBI has also issued messages in the interest of investors on National SEBI has also issued messages in the interest of investors on National

Channel and Regional Stations on DoordarshanChannel and Regional Stations on Doordarshan..

VETTING BY SEBIVETTING BY SEBI A company cannot come out with public issue unless A company cannot come out with public issue unless Draft Prospectus Draft Prospectus is filed is filed

with SEBI. Prospectus is a document by way of which the investor gets all the with SEBI. Prospectus is a document by way of which the investor gets all the information pertaining to the company in which they are going to invest. It gives the information pertaining to the company in which they are going to invest. It gives the detailed information about the Company, Promoter / Directors, group companies, detailed information about the Company, Promoter / Directors, group companies, Capital Structure, Terms of the present issue etc.Capital Structure, Terms of the present issue etc.

A company cannot file prospectus directly with SEBI. It has to be filed through a A company cannot file prospectus directly with SEBI. It has to be filed through a merchant banker. After the preparation of prospectus, the merchant banker along merchant banker. After the preparation of prospectus, the merchant banker along with the due diligence certificates and other compliances and sends the same to with the due diligence certificates and other compliances and sends the same to SEBI for Vetting.SEBI for Vetting.

SEBI on receiving the same scrutinizes it and may suggest changes within 21 days SEBI on receiving the same scrutinizes it and may suggest changes within 21 days of receipt of prospectus of receipt of prospectus

The company can come out with a public issue any time within 180 days from the The company can come out with a public issue any time within 180 days from the date of the letter from SEBI or if no letter is received from SEBI, within 180 days date of the letter from SEBI or if no letter is received from SEBI, within 180 days from the date of expiry of 21 days of submission of prospectus with SEBI from the date of expiry of 21 days of submission of prospectus with SEBI

If the issue size is upto Rs. 20 crores then the merchant bankers are required to file If the issue size is upto Rs. 20 crores then the merchant bankers are required to file prospectus with the regional office of SEBI falling under the jurisdiction in which prospectus with the regional office of SEBI falling under the jurisdiction in which registered office of the company is situated. registered office of the company is situated.

If the issue size is more than Rs. 20 crores, merchant bankers are required to file If the issue size is more than Rs. 20 crores, merchant bankers are required to file prospectus at SEBI, Mumbai office. prospectus at SEBI, Mumbai office.

Broker’s CodeBroker’s Code

The four-part model, which was recommended by the M R Mayya The four-part model, which was recommended by the M R Mayya committeecommittee

The market regulator would hold the remote control on the management of The market regulator would hold the remote control on the management of the exchanges by approving nominations of 60 per cent non-broker the exchanges by approving nominations of 60 per cent non-broker members of an exchange board.members of an exchange board.

Induction and removal of managing director would also be controlled by Induction and removal of managing director would also be controlled by SEBI.SEBI.

Lead to increased control by the markets regulator and also impose Lead to increased control by the markets regulator and also impose restrictions on elected brokers without giving them any authority.restrictions on elected brokers without giving them any authority.

Search And SeizureSearch And Seizure

To impose penalties of up to Rs 25 crore or three times the To impose penalties of up to Rs 25 crore or three times the amount involved in the violation of a norm, whichever is amount involved in the violation of a norm, whichever is higher. higher.

In the cases of some offences, including defaults by brokers, a In the cases of some offences, including defaults by brokers, a failure to furnish returns and information by corporates and failure to furnish returns and information by corporates and brokers and other lapses, the market regulator can impose a brokers and other lapses, the market regulator can impose a higher penalty of Rs 1 lakhs a day or a maximum fine of Rs 1 higher penalty of Rs 1 lakhs a day or a maximum fine of Rs 1 crore, whichever is lower.crore, whichever is lower.

At present, the offences carry penalties ranging between Rs At present, the offences carry penalties ranging between Rs 5,000 and Rs 5 lakhs.5,000 and Rs 5 lakhs.

Role and Functions of Role and Functions of Stock Exchange:Stock Exchange:

Established for the purpose of assisting, regulating and Established for the purpose of assisting, regulating and controlling business of buying, selling and dealing in securities.controlling business of buying, selling and dealing in securities.

Provides a market for the trading of securities to individuals Provides a market for the trading of securities to individuals and organizations seeking to invest their saving or excess funds and organizations seeking to invest their saving or excess funds through the purchase of securities.through the purchase of securities.

Provides a physical location for buying and selling securities Provides a physical location for buying and selling securities that have been listed for trading on that exchange.that have been listed for trading on that exchange.

Establishes rules for fair trading practices and regulates the Establishes rules for fair trading practices and regulates the trading activities of its members according to those rules.trading activities of its members according to those rules.

The exchange itself does not buy or sell the securities, nor The exchange itself does not buy or sell the securities, nor does it set prices for them.does it set prices for them.

The exchange assures that no investor will have an The exchange assures that no investor will have an undue advantage over other market participants.undue advantage over other market participants.

This means that orders are executed and This means that orders are executed and transactions are settled in the fastest possible way.transactions are settled in the fastest possible way.

Investors make informed and intelligent decision Investors make informed and intelligent decision about the particular stock based on information.about the particular stock based on information.

Listed companies must disclose information in Listed companies must disclose information in timely, complete and accurate manner to the timely, complete and accurate manner to the Exchange and the public on a regular basis.Exchange and the public on a regular basis.

Evaluation Of SEBI’ s PerformanceEvaluation Of SEBI’ s Performance

Enhancing disclosuresEnhancing disclosures

In most case only the minimum information required under the In most case only the minimum information required under the Companies Act is made available Companies Act is made available

The manner in which the swap ratio is fixed and what the The manner in which the swap ratio is fixed and what the management thinks of the same is largely taken for granted. management thinks of the same is largely taken for granted.

valuation reports are made available for inspection, but access valuation reports are made available for inspection, but access is not easy for all investors. is not easy for all investors.

Quality Of DecisionsQuality Of Decisions

What is worrying is the poor rate of conviction in major cases. What is worrying is the poor rate of conviction in major cases. Virtually every SEBI decision involving major cases — such Virtually every SEBI decision involving major cases — such as Sterlite, BPL, Videocon, Anand Rathi and Associates and as Sterlite, BPL, Videocon, Anand Rathi and Associates and Hindustan Lever — has been overturned by the appeals Hindustan Lever — has been overturned by the appeals process (or the Securities Appellate Tribunal). process (or the Securities Appellate Tribunal).

Accounting, audit quality Accounting, audit quality The plethora of inter-corporate investments, intra-company The plethora of inter-corporate investments, intra-company

and intra-group transactions, guarantees and contingent and intra-group transactions, guarantees and contingent liabilities are areas where there is room for considerable liabilities are areas where there is room for considerable concern. concern.

Change In MarketChange In Market

The complete transformation of the trading, clearing and The complete transformation of the trading, clearing and settlement infrastructuresettlement infrastructure

Dramatic transformation to a paperless market and transparent Dramatic transformation to a paperless market and transparent trading system. All trades on the National Stock Exchange are trading system. All trades on the National Stock Exchange are settled in demat (paperless mode). settled in demat (paperless mode).

By also moving towards rolling settlement (albeit after a By also moving towards rolling settlement (albeit after a considerable and unnecessary delay), cutting the settlement considerable and unnecessary delay), cutting the settlement cycle and now going forward towards a T+1 settlement cycle and now going forward towards a T+1 settlement system, SEBI has made the markets much safer for investors system, SEBI has made the markets much safer for investors

THANK YOU!!!THANK YOU!!!