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Mohit Agarwal

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Test Paper 100 marks

Q.1) Explain clause 49 of Listing Agreements 6

Q.2) Explain ICDR Regulations, 2009 regarding

(i) Public issue of equity shares. 6

(ii) Private placement. 6

(iii) Employees stock purchase scheme 6

Q.3) Discuss the computation of minimum offer price as per T/O code. 4

Q.4) What is SEBI (INFORMAL GUIDANCE) SCHEME, 2003? 4

Q.5) Calculate the return of Mr. A from following details:-- 4


Mutual Fund

Date of investment 1.4.15

Amount of investment Rs. 50,000

NAV on entry date Rs. 10

Dividend received Rs. 10,000

NAV on 31.03.16 Rs. 11

Q.6)Mr. A buys 1000 call options @ Rs. 2/option with strike Price @ 60/share. 5

Compute his final Profit/loss if maximum price of share during tenure of option is

(a) 65/share (b) 75/share (c) 60/share (d) 50/share.

Q.7) Write short notes on.

(a) SCORES 3

(b) Insider Trading 3


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(c) Trend line 3

(d) Clip & Strip Bond 3

(e) Hedge funds 3

Q.8) Differentiate between

(i) close & Open schemes 2

(ii) Listed vs Permitted securities 2

(iii) Money vs capital market 2

(iv)Frontend load & backend load 2

Q.9) Explain market abuse and ways to control it. 10

Q.10) SEBI received a complaint from an investor that he has not received the

payment due to him from a recognized stock broker. Explain the action

that can be taken by SEBI against the stock broker under the provision of

Securities and Exchange Board of India Act, 1992 and the factors that will

be taken into account while taking such action. 6

Q.11) Define angel investor , ---------------- 4

Q.12) Explain Process & types of factoring 8

Q.13) Short note on DMA 4

Q.14) Discuss for exemptions of SEBI T/O code 4


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Answer to Question No 1 :--

CLAUSE 49 OF LISTING AGREEMENT


Clause 49 of LISTING AGREEMENT deals with corporate governance which
focuses that directors should manage the company effectively, efficiently and
transparently for the benefits of stakeholders having interest in the company.
Following are the key areas that Clause 49 encompass:--
a) Board of Directors Composition:-As per the Listing Agreement, the Board of
Directors of the company shall have an optimum combination of executive and non
executive directors. Further–
– not less than 50 per cent of the board of directors shall comprise of non-executive
directors;
– the number of independent directors would depend on whether the chairman is
executive or nonexecutive;
– if the Board has a Non-Executive Chairman, at least one third of the Board should
comprise of independent directors;
– if the Board has an Executive Chairman, at least half of the Board should comprise
of independent
directors. If the non-executive Chairman is a promoter or is related to promoters or
persons occupying management positions at the board level or at one level below the
board, at least one-half of the board of the company should consist of independent
directors. The expression “related to any promoter” means:
(a) If the promoter is a listed entity, its directors other than the independent directors,
its employees or its nominees shall be deemed to be related to it;
(b) If the promoter is an unlisted entity, its directors, its employees or its nominees
shall be deemed to be related to it.
Definition of Independent Director
‘Independent director’ shall mean non-executive director of the company who –
(a) apart from receiving director’s remuneration, does not have any material pecuniary
relationships or
transactions with the company, its promoters, its directors, its senior management or
its holding company, its subsidiaries and associates which may affect the
independence of the director;
(b) is not related to promoters or persons occupying management positions at the
board level or at one
level below the board;
(c) has not been an executive of the company in the immediately preceding three
financial years;
(d) is not a partner or an executive or was not partner or an executive during the
preceding three years, of any of the following:
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(i) the statutory audit firm or the internal audit firm that is associated with the
company;
(ii) the legal firm(s) and consulting firm(s) that have a material association with the
company.
(e) is not a material supplier, service provider or customer or a lessor or lessee of the
company which may effect the independence of the director;
(f) is not a substantial shareholder of the company, i.e. owning two percent or
more of the block of voting shares; and
(g) is not less than 21 year age
b)Code of conduct of Directors to be published on the website

c) Audit committee and its composition and frequency of its meeting


AUDIT COMMITTEE
(i) The requirement of giving terms of reference of the Audit Committee is a
must.
(ii) There should be minimum three members as directors.
(iii) It further provides that 2/3rd of the members of audit committee shall be
independent directors.
Quorum of Audit Committee
The quorum for the Audit Committee meeting shall be either two members or
one-third of the members of the Audit Committee; whichever is greater but there
should be a minimum of two independent directors present.
Powers of the Audit Committee
The powers of the Audit Committee shall include the following:
(i) To investigate any activity within its terms of reference
(ii) To seek information from any employee
(iii) To obtain outside legal or other professional advice
(iv) To secure attendance of outsider with relevant expertise, if it consider necessary
(d) Mandatory review of certain information by Audit Committee
(e) Subsidiary Companies results should be disclosed
(f) Disclosures should be proper
(g) CEO/CFO Certification about compliance
(h) Report on Corporate Governance, Quarterly compliance report
(i) Compliance Certificate from Practising Company Secretary or Company’s
auditor
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Answer to Question No 2(i) :--


Issue of CAPITAL & DISCLOSURE REGULATIONS, 2009 regarding public issue
of equity shares:-
(A)unlisted company:- An unlisted company should make an application for listing to a
recognized stock exchange & satisfy all following 5 condition
(a) The company has net tangible assets of at least Rs. 3 crores in each of the
preceding 3 full years (of 12 months each), of which not more than 50% is held in
monetary assets.
However if more than 50 % of the net tangible assets are held in monetary assets, the
issuer has made firm commitments to utilise such excess monetary assets in its business
or project. Further the limit of 50 % on monetary assets shall not be applicable in case
the public offer is made entirely through an offer for sale.
(b) The company has a minimum average pre-tax operating profit of rupees fifteen
crore, calculated on a restated and consolidated basis, during the three most profitable
years out of the immediately preceding five years.
(c) The company has a net worth of at least Rs. 1 crore in each of the preceding 3 full
years (of 12 months each);
(d) The aggregate of the proposed issue and all previous issues made in the same
financial year in terms of size, does not exceed five (5) times its pre-issue net worth as
per the audited balance sheet of the last financial year.
(e) In case the company has changed its name within the last one year, at least 50% of
the revenue for the preceding 1 full year is earned by the company from the activity
suggested by the new name
(B) listed company:-A listed company shall be eligible to make a public issue of equity
shares or any other security which may be converted into or exchanged with equity
shares at a later date: the aggregate of the proposed issue and all previous issues made
in the same financial year in terms of size, issue size does not exceed 5 times its preissue
net worth as per the audited balance sheet of the last financial year.
However if above conditions are not satisfied still these company may come
out with public issue if entire issue is through book building and atleast 75% is given to
Qualified Institutional buyers
Answer to Question No 2(ii) :--
Issue of CAPITAL & DISCLOSURE REGULATIONS, 2009 regarding Private
placement/preferential issue:-
1.Applicability :The preferential issue of equity shares/Fully Convertible Debentures
(FCDs)/ Partly Convertible Debentures (PCDs) or any other financial instruments which
would be converted into or exchanged with equity shares at a later date, by listed
companies whose equity share capital is listed on any stock exchange, to any select
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group of persons under Section 81(1A) of the Companies Act 1956 on private placement
basis is governed by these Regulations.
2. Pricing of the issue: (i) Where the equity shares of the company have been listed on
a stock exchange for a period of twenty six weeks or more as oh the relevant date, the
issue of equity shares on preferential basis is being made at a price not less than higher
of the following:.
(a) The average of the weekly high and law of the closing prices of the related equity
shares quoted on the stock exchange during the twenty six weeks preceding the
relevant date;
OR
(b) He average of the weekly high and low of the closing prices of the related equity
shares quoted on a stock exchange during the two weeks preceding the relevant date.
(ii) Where the equity shares of a company have been listed on a stock exchange for a
period of less than twenty six weeks as on the relevant date, the issue of shares on
preferential basis has been made at a price not less than the higher of the following:
(a) The price at which shares were issued by the company in its IPO or the value per
share arrived at in a scheme of arrangement under Section 391 to 394 of the Companies
Apt, 1956, pursuant to which shares of the company were listed , as the case may be;
or
(b) 'The average of the weekly high and low of the closing prices of the related shares
quoted on the stock exchange during the period shares have been listed preceding the
relevant date;
OR
(c) 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."
Lock-in-period
(i) The specified securities allotted on a preferential basis to the promoter or promoter
group and the equity shares allotted to such promoter or promoter group pursuant to
exercise of options attached to warrants issued on preferential basis are subjected to
lock in period of three years from the date of their allotment.
However, not more than 20% 6f the total capital of the company, should be locked in for
a period of three years from the date of allotment.
Further the equity shares allotted in excess of twenty percent pursuant to exercise of
options attached to warrants issued on preferential basis to promoter/promoter group
of the issuer, should be locked-in for a period of one year from the date of their
allotment
(ii) The specified securities allotted on preferential basis and the equity shares allotted
pursuant to exercise of options attached to warrants issued on preferential basis to any
person other than the promoter/ promoter group of the issuer should be locked in for a
period of one year from the date of their allotment.
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Answer to Question No 2(iii) :--

Issue of CAPITAL & DISCLOSURE REGULATIONS, 2009 regarding EMPLOYEE


SSTOCK PURCHASE SCHEME (ESPS)
(i) An employee eligible to participate in the scheme should be:
(a) a permanent employee of the company working in India or out of India; or
(b) a director of the company, whether a whole time director or not;
(c) an employee as defined in sub-clauses (a) or (b) of a subsidiary, in India or out of
India, or of a holding company of the company.
(ii) The employee should neither be a promoter nor belongs to the promoter group.
(iii) A director who either by himself or through his relatives or through anybody
corporate, directly or indirectly holds more than 10% of the outstanding equity shares of
the company cannot participate, as he is not eligible to participate the scheme.
SHAREHOLDER APPROVAL
(i) The Scheme should be approved by the shareholders by passing a special resolution
in the meeting of the general body of shareholders.
PRICING AND LOCK-IN-PERIOD
(i) The company has the freedom to determine price of shares to be issued under an
ESPS, provided they comply with the accounting policies specified.
The shares issued under an 'ESPS are subject to lock-in for a minimum period of one
year from the date of allotment.
(iii) if the scheme is part of a public issue and the shares are issued to employees at the
same price as in the public issue, the shares issued to employees under the scheme are
not subject to any lock-inperiod.
Answer to Question No 3:-
Computation of minimum offer price as per T/O code :- Offer price is the price
at which the acquirer announces to acquire shares from the public shareholders under
the open offer. The offer price shall not be less than the price as calculated under
regulation 8 of the SAST Regulations, 2011 for frequently or infrequently traded shares.
If the target company’s shares are frequently traded then the open offer price for
acquisition of shares under the minimum open offer shall be highest of the following:
(a) Highest negotiated price per share under the share purchase agreement (“SPA”)
triggering the offer
(b)Volume weighted average price of shares acquired by the acquirer during 52 weeks
preceding tin; public announcement (“PA”),
(c)Highest price paid for any acquisition by the acquirer during 26 weeks Immediately
preceding the PA,
(d)Volume weighted average market price for sixty trading days preceding the PA,
If the target company’s shares are infrequently traded then the open offer price for
acquisition of shares under the minimum open offer shall be highest of the following:
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(a)Highest negotiated price per share under the share purchase agreement (“SPA”)
triggering the offer;
(b)Volume weighted average price of shares acquired by the acquirer during 52 weeks
preceding the public announcement (“PA”);
(c)Highest price paid for any acquisition by the acquirer during 26 weeks immediately
preceding the PA;
(d)The price determined by the acquirer and the manager to the open offer after taking
into account valuation parameters including book value, comparable trading multiples,
and such other parameters that are customary for valuation of shares of such
companies.
Answer to Question No 4:-
SEBI (INFORMAL GUIDANCE) SCHEME, 2003:- In the interests of better
regulation of and orderly development of the Securities market, SEBI has issued SEBI
(Informal Guidance) Scheme 2003 w.e.f. 24.6.2003. The following persons may make
a request for informal Guidance under the scheme:
(a) any intermediary registered with the SEBI.
(b) any listed company.
(c) any company which intends to get any of its securities listed and which has filed
either a listing application with any stock exchange or a draft offer document with the
Board or the Central Listing authority.
(d) any mutual fund trustee company or asset management company.
(e) any acquirer or prospective acquirer under the SEBI (Substantial Acquisition of
Shares & Takeovers)
Regulations, 2011.
The Guidance Scheme, further deals with various aspects such as the nature of
request, fees to be accompanied alongwith request letter, disposal of requests, SEBI’s
discretion not to respond certain types of requests and confidentiality of requests etc.
The informal guidance may be sought for and given in two forms:
– No-action letters: SEBI indicates that the Department would or would not
recommend any action under any Act, Rules, Regulations, Guidelines, Circulars or
other legal provisions administered by SEBI to the Board if the proposed transaction
described in a request made under para 6 is consummated.
– Interpretive letters: SEBI provides an interpretation of a specific provision of any
Act, Rules, Regulations, Guidelines, Circulars or other legal provision being
administered by SEBI in the context of a proposed transaction in securities or a
specific factual situation.
The request seeking informal guidance should state that it is being made under this
scheme and also state whether it is a request for a no-action letter or an interpretive
letter and should be accompanied with a fee of `25,000/- and addressed to the
concerned Department of SEBI. It should also describe the request, disclose and
analyse all material facts and circumstances involved and mention all applicable legal
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provisions. 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. The Department may give a hearing
or conduct an interview if it feels necessary to do so. The requestor shall be entitled
only to the reply. The internal records or views of SEBI shall be confidential.
SEBI may not respond to the following types of requests:
(a) those which are general and those which do not completely and sufficiently
describe the factual situation;
(b) those which involve hypothetical situations;
(c) those requests in which the requestor has no direct or proximate interest;
(d) where the applicable legal provisions are not cited;
(e) where a no-action or interpretive letter has already been issued by that or any other
Department on a substantially similar question involving substantially similar facts, as
that to which the request relates;
(f) those cases in which investigation, enquiry or other enforcement action has already
been initiated;
(g) those cases where connected issues are pending before any Tribunal or Court and
on issues which are subjudice; and,
(h) those cases where policy concerns require that the Department does not respond.
Where a request is rejected for non-compliance, the fee if any paid by the
requestor shall be refunded to him after deducting therefrom a sum of `
5,000/- towards processing charges.
Answer to Question No 5:-
No of unit bought =Rs. 50,000 ÷ Rs. 10
= 5,000 units
Dividend received per unit = Rs. 10,000 ÷5,000 units
=Rs. 2/ unit
Closing NAV =Rs. 11/unit
Therefor Return per unit = Closing NAV+Dividend– opening NAV
=11 +2-10
= Rs. 3 / unit
Answer to Question No 6 :-
Call option means right to buy the shares at a future date at a predetermined rate.
call option should be exercised only if market price> strike price
(a) Market price (65) > strike price(60)
hence Mr. A should buy 1,000 shares@60 & sell @ 65 each earning a profit
of 1,000 shares ×Rs. 5 i.eRs. 5,000
(-) option premium 2,000
Net profitRs.3,000
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(b) Market price (75) > strike price(60)


hence Mr. A should buy 1,000 shares@60 & sell @ 75 each earning a profit of
1,000 shares ×Rs. 15 i.eRs. 15,000
(-) option premium 2,000
Net profitRs. 13,000
for (c),(d),(e) allow option to lapse & loss will be the option premium
Rs, 2,000
Answer to Question No 7(a) :-
SCORES (SEBI COMPLAINTS REDRESS SYSTEM)
SCORES is a web based centralized grievance redress system of SEBI
(http://scores.gov.in). SCORES enables investors to lodge and follow up their
complaints and track the status of redressal of such complaints online from
the above website from anywhere. This enables the market intermediaries
and listed companies to receive the complaints online from investors, redress
such complaints and report redressal online. All the activities starting from
lodging of a complaint till its closure by SEBI would be online in an
automated environment and the complainant can view the status of his
complaint online. An investor, who is not familiar with SCORES or does not
have access to SCORES, can lodge complaints in physical form at any of the
offices of SEBI. Such complaints would be scanned and also uploaded in
SCORES for processing.
Answer to Question No 7(b) :-
Insider trading
Sec. 15G
a. Where an insider deals in securities of a body corporate listed on any stock
exchanges on the basis of any unpublished price sensitive information.
b. Where an insider communicates any unpublished price sensitive information
to any person except as required in the ordinary course of business or under any
law.
c. Where an insider counsels, or procures for any other person to deal in any
securities of anybody corporate on the basis of unpublished price sensitive
information.
Quantum of penalty -
Higher of –
Rs.25crores; or.
3 times the amount of profits made out of such default.
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Answer to Question No 7(c) :-


Trend Line
When the price of shares moves in a particular direction which persists for a
period of time, a price line is regarded as established. When the movement is
upward, the trend is called ‘BULLISH’ and when the movement is downward it
is called ‘BEARISH’. Bear market is a weak or falling market characterised by
the dominance of sellers. Whereas Bull market is a rising market with abundance
of buyers and relatively few sellers.
Secondary movements that reverse the uptrend temporarily are known as
reactions. The movements that reverse the down trend temporarily are
known as rallies. When an uptrend breaks in the downward direction, it is
called trend reversal.
Answer to Question No 7(d) :-
CLIP AND STRIP BONDS
Clip and strip bonds also referred to as coupon notes, split the principal and
coupon portions of a bond issue and two separate coupon instruments are
sold to the investors.
Answer to Question No 7(e) :-
HEDGE FUNDS
Hedge funds, including fund of funds are unregistered private investment
partnerships, funds or pools that may invest and trade in many different
markets, strategies and instruments (including securities, non-securities and
derivatives) and are not subject to the same regulatory requirements as
mutual funds, including mutual fund requirements to provide certain
periodic and standardized pricing and valuation information to investors.
Answer to Question No 8(i) Differentiate between close &
Open schemes
CLOSE ENDED SCHEMES OPEN ENDED SCHEMES
1. Fixed corpus: no new units can be 1. Variable corpus due to on going
offered purchase and redemption.
beyond the limit.
2. Listed on the stock exchange for 2. No listing on exchange transactions
buying and done directly with the fund.
selling.
3. Two values available namely NAV 3. Only one price namely NAV.
and the
Market Trading Price.
4. Mostly liquid. 4. Highly Liquid.
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Answer to Question No 8(ii)


Differentiate betweenListed vs Permitted securities
(1) Listed cleared Securities: The securities admitted for dealing on stock exchange after
complying with all the listing requirements and played by the Board on the list of cleared
securities are called by this name.
(2) Permitted Securities: The securities listed on some of the recognised stock exchanges,
when permitted to be traded by those stock exchanges where they are not listed are called
permitted securities. Such permission is given if suitable provisions exist in the regulations
of the concerned stock exchanges.

Answer to Question No 8(iii)


MONEY MARKET Vs. CAPITAL MARKET
Basis Money Market Capital Market
Maturity Period The Money Market deals in the The capital market deals in
lending and borrowing of short the lending and borrowing
term finance varying for one of long-term finance for
year or less. more than one
year.
Credit Instruments: The main credit instruments of The main instruments used
the money market are call mon- in the capital
ey, treasury bills, commercial market are stocks, shares,
bills, commercial papers, and debentures, bonds,
bills of exchange. corporate deposits etc.
Institutions: Important institutions operating Important institutions of
in the money market are central the capital market
banks, commercial banks, are stock exchanges,
acceptance houses, non banking commercial banks and non
financial institutions, bill bro- banking institutions, such
kers, etc. as insurance companies,
mortgage
banks, etc.
Purpose of Loan: The money market meets the The capital market, on the
short-term credit needs of busi- other hand, caters the long-
ness; it provides working capital term credit needs of the
to the industrialists. industrialists
and provides fixed capital
to buy land, machinery, etc.
Risk and Liquidity: The degree of risk is small and The higher risk and lower
that of liquidity is higher in the liquidity in the capital
money market market.
Role of Central Bank: The central bank closely and di- Capital market central bank
rectly has impact on the money has an indirect link through
market and its participants other regulators like SEBI.
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by framing its regulations and


deciding various rates of in-
terests that has impact on the
parameters of an
economy,
Market Regulation: In the money market, commer-
cial banks are closely regulated.

Answer to Question 8(iv)


Back end load
Front end load
It means “entry load “ which is paid by It means exit load which is offered by
investor while investing in mutual investor while setting with of mutual
fund fund
Entry load is paid when investor buy a Exit load is paid when investor sells a
unit of mutual fund unit of mutual funds.

Amount to be paid /received by Amount to be received= (NAV)(I –


investors = Exit load )
NAV (I + entry load )

Answer to Question 9
MARKET ABUSE
Market abuse is a broad term which includes abnormal price/ volume movement,
artificial transactions, false or misleading impressions, insider trading, etc. In order to
detect aberrant behaviour/ movement, it is necessary to know the normal market
behaviour. The department uses various tools to determine normal and abnormal
market behaviour. The necessary actions are initiated like imposition of special
margin, reduction of circuit filters, trade to trade settlement, suspensions, de-activation
of terminals, etc. to control abnormal market behaviour.
The department carries out investigation, if necessary, based on the preliminary
examination/analysis and suitable actions are taken against members involved based
on the investigation. The detailed explanation of the various Surveillance activities are
as follows:
(a) Price Monitoring
The functioning of the Price Monitoring is broadly divided into following activities:
(i) On-Line Surveillance
(ii) Off-Line Surveillance
(iii) Derivative Market Surveillance
(iv) Investigations
(v) Surveillance Actions
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(vi) Rumour Verification


(vii) Pro-active Measures
(i) On line Surveillance
One of the most important tools of the Surveillance is the On-line Real Time
Surveillance system which was commissioned in 1999 with main objectives of
detecting potential market abuses at a nascent stage to reduce the ability of the market
participants to unduly influence the price and volumes of the scrips traded at the
Exchange, improve the risk management system and strengthen the self regulatory
mechanism at the Exchange.
(ii) Off-Line Surveillance
The Off-Line Surveillance system comprises of the various reports based on different
parameters and scrutiny thereof.
– High/Low Difference in prices
– % change in prices over a week/fortnight/month
– Top N scrips by Turnover
– Trading in infrequently traded scrips
– Scrips hitting New High/Low
The Surveillance actions or investigations are initiated in the scrips identified from the
above-stated reports.
Reduction of Circuit Filters
The circuit filters are reduced in case of illiquid scrips or as a price containment
measure in low volume scrips. The circuit filters are reduced to 10 % or 5 % or 2 % as
the case may be, based on the criteria decided by the Exchange.
Circuit Breakers
In addition to the price bands on individual scrips, SEBI decided to implement index
based market wide circuit breakers system, w.e.f., July 02, 2001.The circuit breakers
are applicable at three stages of the index movement either way at 10 %, 15 % and 20
%. These circuit breakers will bring about a coordinated trading halt in both
Equity and Derivative market.
The market wide circuit breakers can be triggered by movement of either BSE
SENSEX or the NSE NIFTY, whichever is breached earlier. The percentage
movement are calculated on the closing index value of the quarter. These percentages
are translated into absolute points of index variation (rounded off to the nearest 25
points in case of SENSEX). At the end of each quarter, these absolute points of index
variations are revised and made applicable for the next quarter. The absolute points of
SENSEX variation triggering market wide circuit breaker for a specified time period
for any day of the quarter is informed by the Exchange through Press Release from
time to time.
Trade to Trade
If a scrip is shifted on a Trade-to trade settlement basis, selling/ buying of shares in
that scrip would result into giving/ taking delivery of shares at the gross level and no
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intra day/ settlement netting off/ square off facility would be permitted. The scrips
which form part of ‘Z group’ are compulsorily settled on a trade to trade settlement
basis. In addition to that Surveillance department transfers various scrips from time to
time on a trade to trade settlement basis to contain the excessive volatility and/or
abnormal volumes in the scrip.
Suspension of a scrip
The scrips are suspended by the Surveillance department in exceptional cases pending
investigation or if the same scrip is suspended by any other Stock Exchange as a
Surveillance action.
Warning to Members
The department may issue verbal/ written warning to member/s when market
manipulation in the scrip is suspected.
Imposition of penalty/suspension/de-activation of terminals
The department imposes penalty or deactivate BOLT terminals or suspend the
member/s who are involved in market manipulation, based on the input/ evidence
available from investigation report or as and when directed by SEBI.
Answer to Question 10
Lower of Rs. 1Lakh/ day or 1Crore.
Is the penalty for default in payment of amount due to the investor in the manner and within
the period specified in the regulations (Sec. 15F).

Appointment of Adjudicating Officer


Shall be made by SEBI.
The Adjudicating officer shall not be below the rank of Division Chief.

Purpose Of appointment The Adjudicating Officer shall hold an inquiry.


Opportunity of being heard Shall be given before imposing any penalty.
Factors determining Penalty
Amount of disproportionate gain made as a result of the default.
Amount of loss caused to an investor or group in investors as a Result of the default.
Repetitive nature of the default.

Answer to Question 11
Angel Investors- An angel is an experienced industry based individual with high net
worth. Typically, an angel investor would invest only in his chosen field of technology,
take active participation in day to day running of company, invest small sums and does
not insist on detailed business plans sanction.
Answer to Question 12
FACTORING
Factoring is a financial transaction where an entity sells its receivables to a third party
called a ‘factor’, at
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discounted prices. Factoring is a financial option for the management of receivables.


In simple definition it is the conversion of credit sales into cash. In factoring, a
financial institution (factor) buys the accounts receivable of a company (Client) and
pays up to 80%(rarely up to 90%) of the amount immediately on formation of
agreement. Factoring company pays the remaining amount (Balance 20%-finance
cost-operating cost) to the client when the customer pays the debt. Collection of debt
from the customer is done either by the factor or the client depending upon the type of
factoring.
PARTIES IN FACTORING
The factoring transaction involves three parties:
– The Seller, who has produced the goods/services and raised the invoice.
– The Buyer, the consumer of goods/services and the party to pay.
– The Factor, the financial institution that advances the portion of funds to the seller.
ADVANTAGES FOR THE SELLER
– Seller gets funds immediately after the sale is effected and on presentation of
accepted sales invoices
and Promissory notes.
– Major part of paper work and correspondence is taken care of by the factor.
– Follow-up, for recovery of funds, is done mainly by the factor.
– Interest rates are not as high as normal discounting.
– Increased cash flow to meet payroll.
– Immediate funding arrangements.
Non-Recourse or Full factoring
Under this type of factoring the bank takes all the risk and bear all the loss in case of
debts becoming bad debts.
Recourse Factoring
Under this type of factoring the bank purchases the receivables on the condition that
any loss arising out or bad debts will be borne by the company which has taken
factoring.
Maturity Factoring
Under this type of factoring bank does not give any advance to the company rather
bank collects it from customers and pays to the company either on the date of
collection from the customers or on a guaranteed payment date.
Answer to Question 13
DIRECT MARKET ACCESS (DMA)
Direct Market Access (DMA) is a facility which allows brokers to offer clients direct access
to the exchange trading system through the broker’s infrastructure without manual
intervention by the broker. Some of the advantages offered by DMA are direct control of
clients over orders, faster execution of client orders, reduced risk of errors associated with
manual order entry, greater transparency, increased liquidity, lower impact costs for large
orders, better audit trails and better use of hedging and arbitrage opportunities through the
use of decision support tools / algorithms for trading.
Mohit Agarwal
9830741471

Answer to Question 14
Regulation 10 - Automatic Exemptions
Some of the important exemptions provided therein along with their conditions for
exemption are detailed below:
The following acquisitions shall be exempt from the obligation to make an open offer
under regulation 3 and regulation 4
(1) (a) acquisition pursuant to inter se transfer of shares amongst qualifying persons,
being, --
(i) Immediate relatives;
(ii) Persons named as promoters in the shareholding pattern filed by the target
company in: terms of the listing-agreement or these regulations for not less than three
years prior to the proposed acquisition;
(2) The acquisition of shares of a target company, not involving a change of
control over such target company, pursuant to a scheme of corporate debt
restructuring in terms of the Corporate Debt Restructuring Scheme notified
by the Reserve Bank of India
(3) Acquisition of shares in a target company by any person In exchange for shares of
another target company tendered pursuant.to an open offer for acquiring shares under
these regulations;
(4) Acquisition of shares in a target company from state-level financial institutions or
their subsidiaries or companies promoted by them, by promoters of the target
company pursuant to an agreement between such transferors and such promoter;
Mohit Agarwal
9830741471