The Securities and Exchange

Board of India (SEBI)

INTRODUCTION
SEBI(Securities and Exchange Board of India) was
constituted on April 12,1988 as a non-statutory body

It is an apex body to develop and regulate the stock
market in India

SEBI is the regulator for the securities market in
India, originally set up by the Government of India in
1988,it acquired statutory form in 1992 with SEBI Act
1992 being passed by the Indian Parliament.

OBJECTIVES
To protect the interest of investors so that there is a
steady flow of savings in to the capital market.
To regulate the securities market
Ensure fair practices by the issuers of securities so
that they can raise resources at minimum cost.
To promote efficient services by brokers, merchant
bankers and other intermediaries so that they become
competitive and professional.

FUNCTIONS
Section 11 of the SEBI Act , there are mainly two types of
functions. They are;

1.Regulatory Functions

2.Developmental Functions

Regulatory Functions
(a). Regulation of stock exchange and self
regulatory organisations.
(b). Registration and regulation of stock
brokers,sub-brokers,registrar to all issue,
merchant bankers, underwriters, portfolio
managers and such other intermediaries who
are associated with securities market.

(c). Registration and regulation of the working of
collective investment schemes including
mutual funds.

(d). Prohibition of fraudulent and unfair trade
practices relating to securities market.
(e). Prohibition of insider trading in securities.
f). Regulating substantial acquisitions of shares
and take over of companies.

(a). Promoting investors education.

(b). Training of intermediaries.

(c). Conducting research and published information useful
to all market participants.

d). Promotion of fair practices. Code of conduct for self-
regulatory organizations.

(e). Promoting self-regulatory organizations.



Developmental Functions
POWERS
SEBI has been vested with the
following powers:
1.Power to call periodical returns from
recognized stock exchange.
2.Power to control and regulate stock
exchange.
3.Power to call any information or
explanation from recognized stock
exchanges or their members.
4. Power to levy fees or other charges for
carrying out the purpose of regulation.
5. Power to grant registration to market
intermediaries.
6.Power to direct enquiries to be made in
relation to affairs of stock exchanges or
members.
7. Power to grant approval to bye-laws of
recognized stock exchanges.
8. Power to make or amend bye-laws of
recognized stock exchanges.
9. Power to compel listing of securities by
public companies.
10. Power to declare applicability of
Section 17 of the Securities Contract
(Regulation) Act is any state or area to
grant licenses to dealers in securities.
ORGANISATION


Chapter 2 of the SEBI Act deals with
establishment, incorporation, administration
and management of the Board of Directors
The SEBI Act provides for the establishment
of a statutory board consisting of six(6)
members.
The chairman and two members are to be
appointed by the Central Government, one
member to be appointed by the Reserve Bank
and two members having experience of
securities market to be appointed by the
Central Govt.
SEBI has divided its activities in to four
operational departments, each headed by an
Executive Director.
1.Primary Market Department: It deals with all
policy matters and regulatory issues relating to
primary market.
2.Issue Management and Intermediaries
Departments: This department is concerned
with inspection of offer documents and other
things like registration, regulation and
monitoring of issue related to intermediaries.
3.Secondary Market Department: It looks after
all the policy and regulatory issues for the
secondary market; administration of the major
stock exchanges and other matters related to
it.
4.Institutional Investment Department: It
concerned with framing policy for foreign
institutional investors.
In addition to this, there are two other
departments: They are; Legal
Department and Investigation
Department, also headed by officials of
the rank of Executive Directors.
SEBI has two Advisory Committees, one
each for primary and secondary markets.
They provide advisory inputs in framing
policies and regulations. These committees
are non-statutory in nature and SEBI is not
bound by the committees.
SEBI and Central
Government
The Central Government has power to
issue directions to SEBI Board,
supersede the Board, if necessary
and to call for returns and reports as
and when necessary.
The Central Government has also
power to give any guideline or to
make regulations and rules for SEBI
and its operations.

The activities of SEBI are financed by
grants from Central Government, in
addition to fees, charges etc.
collected by SEBI.
The fund called SEBI General Fund is
set up, to which, all fees, charges and
grants are credited.
This fund is used to meet the
expenses of the Board and to pay
salary of staff and members of the
body.

SEBI GUIDELINES

SEBI has brought out a number of guidelines separately, from time to
time, for primary market, secondary market, mutual funds,
merchant bankers, foreign institutional investors, investor protection
etc.

1. Guidelines for Primary Market.
(a). New Company: Anew company is one, which has not completed
12 months commercial production and does not have audited
results. And the promoters do not have a track record. These
companies have to issue shares only at par.

(b). New Company set-up by Existing Company: When a new
company is being set-up by existing companies with a five year
track record of consistent profitability and a contribution of at least
50% in the equity of new company,
it can issue its shares at premium.
Conti.
(c). Private and closely held companies: These
having a track record of consistent profitability for at
least three years, shall be permitted to price their
issues freely.
The issue price shall be determined only by the issues in
consultation with lead managers ton the issue.

(d). Existing Listed companies: It will be allowed to raise
fresh capital by freely pricing expanded capital provided
the promoters contribution is 50%on first Rs.100crores of
issue, 40% on next Rs.200 crores, 30% on next Rs 300
crores and 15% on balance issue amount.

2. Guidelines for Secondary Market:
Stock Exchange
(a) Board of Directors of stock exchange has to be
reconstituted

so as to include non-members, public representatives,
government representative to the extent of 50% of total
number of members.
(b)Capital adequacy norms have been laid down for members
of various stock exchanges depending upon their turnover
of trade and other factors.
(c). Working hours for all stock exchanges have been fixed
uniformly.
(d). All the recognized stock exchanges will have to inform
about the transaction within 24 hours.

Brokers
(a). Registration of brokers and sub-brokers is made
compulsory.
(b). Compulsory audit of brokers book and filing of audit report
with SEBI have been made mandatory.
(c). In order to ensure that brokers are professionally qualified
and financially solvent, capital adequacy norms for
registration of brokers have been evolved.
Conti.
(d). To bring about greater transparency and
accountability in the broker-client relationship, SEBI
has made it mandatory for brokers to disclose
transaction price and brokerage separately in the
contract notes issued to client.
(e). No broker is allowed to underwrite more than 5% of
public issue.
3.Foreign Institutional Investors(FII)

(a). Foreign institutional investors have been allowed
to invest in all securities traded in primary and
secondary markets.
(b). There would be no restriction on the volume of
investment for the purpose of entry of FIIs.
Holding of single FII will not ecxeed the ceiling of 5%
of equity capital
Tax rate 10% on large capital gain , 30% on short
term capital gains 20 % on dividend

4.Guidelines to issue of Bonus Shares
(a).Issue of bonus shares after any
public/rights issue is subject to the
condition that no bonus shall be made
which will dilute the value or rights of
holders of debenture, convertible fully or
partly.
(b). There should be a provision in the
Articles of Association of the company for
issue of bonus shares.






c). The bonus is made out of free reserves built out of
the genuine profits or share premiums collected in
cash only.
(d). No bonus issue can be made within 12 months of
any public issue/rights issue.
(e). A company which announces bonus issue after
the approval of the Board of Directors must
implement the proposals within a period of six months
from the date of such proposal and shall not have the
option of changing the decision

5.Guidelines for Rights Issue
Where composite issues are made by
listed companies, they can be issued at
different prices.
Gaps between the clearance dates of
right issues and public issues should not
exceed 30 days.
If right issues of listed companies
exceed Rs.50 lakhs, issue should be
managed by an authorized merchant
banker.
Underwriting of right issues is not
mandatory but as per SEBI Rules
right issues can be underwritten.
No preferential allotment shall be
made along with the right issues.
If the company doesnt receive
minimum subscription (90% of the
issue amount) within 120 days
from the date of opening issue, the
entire subscription should be
refunded within 128 days with
interest @ 15 % p.a. for delay. .


Within 45 days of closure of rights issue,
a report in the prescribed form along
with compliance report duly signed by
the statutory auditor should be
forwarded to SEBI.
(c). Companies making rights issues are
now permitted to dispatch an abridged
letter of offer, containing disclosures as
required in the abridged prospectus.
However, such companies may provide the
detailed letter of offer to any shareholder
upon request.
(d). Again, companies that have filed a
draft offer document with full disclosures
can now come out with further capital
issues even before the shares pertaining to
the document are listed on the brochures.
All listed companies making rights
issue shall issue an advertisement
in at least two All India newspapers
about the dispatch of letters of
offer, opening date, closing date
etc.



6. Guidelines to Debentures
(a).The amount of working capital debenture should
not exceed 20% of the gross current asset.
(b). The debt equity ratio should not exceed 2:1.
(c). The rate of interest can be decided by the
company.
(d). Normally debentures above seven years cannot
be issued.
(e). Debentures issued to public have to be secured
and registered.
(f) credit rating is compulsory for all the debentures
except those issued by public sector companies

7.Guidelines for protection of the Debenture
Holders
(a). Servicing of Debentures
(b). Protection of interest of Debenture Holders
8 Guidelines for underwriters
Hold certificate of registration granted by SEBI
Certificate is valid for 3 yrs from the date of issue
Total underwriting obligations should not exceed 20
times of his networth
Furnish all statements within 6 months from the end
of financial year
Books of account to be maintained for a period of
5yrs



9. Investor protection
New issues
Prohibition of unfair trade practices
Investor education
Grievance cell
Stock invest
10. Book building
Usual methods of fixing share price
doesnt take into consideration the
investors demands
So goes for book building
Steps in book bulding
1. Company approaches merchant banker, intimates
about the no of shares to be issued and other
information on the company
2. MB invites its own investors to bid for the share
3. Investors are asked to indicate the no of shares
4. Allocation is made on the highest bid price
5. If company agrees, shares are allocated
6. Company can cancel if the price is too low
7. Trading commences from the next day

Retail investor
Qualified Institutional buyer
Red herring prospectus
Green shoe option
Floor price
Cap price
Cut off price
11. Buy back of shares
Popular in USA & UK
Company can buy back its own
shares and other securities to the
extent of 25 % of the paid up capital
and free reserves
It is a method of cancellation of the
share capital
It leads to reduction in the share
capital of the company
Advantages
Investors
Investors can sell back the shares
instead of going through secondary
market
Increase EPS
Companies
offers flexibility to the company to
reorganise the capital structure
Helps to eliminate discontended share
holders

SEBI Amendment bill ( 2002)
More powers
Fine of 25 crores for insider trading
Suspend governors of SE
Power to appoint investigating agency