Assignment Surveillance in Stock Exchange

1. List key features of Securities Contract (Regulations) Act, 1956. What are the major changes proposed in Securities Laws (Amendment) Bill, 2013? a. SCR(A), 1956 was enacted to keep a vigil on all stock exchanges of India since Feb, 1957. b. It initially empowered the GoI to keep vigil but now empowers SEBI after the passing of SEBI Act, 1992. c. Some of the key features of this act are: i. It defines Securities, Derivatives, Govt. Securities, Members, Stock Exchanges etc. ii. Lays down the provisions for Granting Recognition to Stock Exchanges, Corporatization (giving them the status of a corporate), Demutualization (separating owner's interest from manager's interest), Withdrawal of Recognition, Power to Call Information etc. This act vests these powers with the regulator of the securities market. iii. It gives the stock exchange the power to make/amend rules Restricting Voting Rights, Transfer Duties from Clearing House to Clearing Corporation, Make By-Laws, Establishment of Additional Stock Exchange, Listing & Delisting of Securities, etc. iv. Power of GoI: Amend By-Laws, Supersede Board of Stock Exchange, Suspend Business of Stock Exchange, Issue Directions to Stock Exchange, Contracts in Notified Area (contracts only between recognized stock exchanges and its members are legal), etc. v. Securities Appellate Tribunal: Guided by principle of natural justice regulate their own procedures subject to provisions of this Act. vi. Penalties: Failure to Furnish Information, Failure to Enter into an Agreement with Clients, Failure to Segregate Securities or Monies of Clients, Failure to Comply with Provisions of Listing or Delisting Conditions, Excess Dematerialization or Delivery of Unlisted Securities, Failure to Furnish Periodical Returns, etc. Central Government reserves the power to grant immunity to certain people in case of some offences. d. Highlights of Securities Law (Amendment) Bill, 2013: i. Widens the scope of Collective Investment Schemes (CIS) regulated by SEBI ii. Empowers the Chairman of SEBI to authorize search and seizure of documents relevant to an investigation iii. Provides SEBI with explicit powers to order disgorgement of unfair gains. It also permits SEBI to attach bank accounts and property, and arrest and detain a person for his failure to comply with disgorgement orders or pay any monetary penalty

iv. Establishment of special courts to try offences under the Act v. Two provisions are being enacted with retrospective effect (i) SEBI is being given the powers to settle non-criminal proceedings by issuing consent orders, and (ii) it may sign agreements for exchange of information with foreign financial regulators 2. SEBI is planning to study surveillance systems in overseas markets What are the key areas SEBI intends to study? Also enumerate functions of SEBI in Indian Markets SEBI Act, 1992 entrusted SEBI with two functions viz. Regulatory Functions and Developmental Functions Regulatory Functions: o Regulation of stock exchanges and self-regulatory organizations o Registration and regulation of stock brokers, sub-brokers, registrar to issues, merchant bankers, underwriters, portfolio managers, etc. o Registration and registration of CISs including Mutual Funds o Prohibition of fraudulent and unfair trade practices relating to securities market o Prohibition of insider trading o Regulating substantial acquisition of shares and takeovers of companies Developmental Functions: o Promoting investor's education o Training of intermediaries o Conducting research and publishing information useful to all market participants o Promotion of fair practices o Promotion of self-regulatory organizations 3. Explain Code of conduct requirements for Stock-Broker and Sub-Broker. Download a model stock broker and sub broker agreement from NSEs website and highlight important conditions.

4. Define conditions w.r.t following in SEBI (ICDR) Regulations 2009 a. IPO & FPO b. Appointment of Merchant Banker and other intermediaries c. Differential Pricing d. Promoters Contributions e. Book Building f. IDR/GDR

5. What are the salient features of Justice Sodhi Committee on Insider Trading Regulations submitted to SEBI. Also state important definitions under SEBI (Prohibition of Insider Trading) Regulations, 1992 a. The salient features of Justice Sodhi Commitee on Insider Trading Regulations are: i. While enlarging the definition of insider, the term connected person has been defined more clearly and immediate relatives are presumed to be connected persons, with a right to rebut the presumption. The term immediate relative would cover close relatives who are either financially dependent or consult an insider in connection with trading in securities ii. Insiders would be prohibited from communicating, providing or allowing access to UPSI (Unpublished Price Sensitive Information) unless required for discharge of duties or for compliance with law iii. The regulations would bring greater clarity on what constitutes UPSI by defining what constitutes generally available information (essentially, information to which non-discriminatory public access would be available). A list of types of information that may ordinarily be regarded as price sensitive information has also been provided iv. Trading in listed securities when in possession of UPSI would be prohibited except in certain situations provided in the regulations v. Insiders who are liable to possess UPSI all round the year would have the option to formulate pre-scheduled trading plans. In such cases, the new UPSI that may come into their possession without having been with them when formulating the plan would not impede their ability to trade. Trading plans would, however, be required to be disclosed to the stock exchanges and have to be strictly adhered to vi. Conducting due diligence on listed companies would be permissible for purposes of transactions entailing an obligation to make an open offer under the Takeover Regulations. In all other cases, due diligence would be permissible subject to making the diligence findings that constitute UPSI generally available prior to the proposed trading. In all cases, the board of directors would need to opine that permitting the conduct of due diligence is in the best interests of the company, and would also have to ensure execution of non-disclosure and non-dealing agreements vii. Trades by promoters, employees, directors and their immediate relatives would need to be disclosed internally to the company. Trades within a calendar quarter of a value beyond Rs. 10

lakhs or such other amount as SEBI may specify, would be required to be disclosed to the stock exchanges viii. Every entity that has issued securities which are listed on a stock exchange or which are intended to be so listed would be required to formulate and publish a Code of Fair Disclosure governing disclosure of events and circumstances that would impact price discovery of its securities ix. Every listed company and market intermediary is required to formulate a Code of Conduct to regulate, monitor and report trading in securities by its employees and other connected persons. All other persons such as auditors, law firms, accountancy firms, analysts, consultants etc. who handle UPSI in the course of business operations may formulate a code of conduct and the existence of such a code would evidence the seriousness with which the organization treats compliance requirements x. Companies would be entitled to require third-party connected persons who are not employees to disclose their trading and holdings in securities of the company. b. Definitions under SEBI (Prohibition of Insider Trading) Regulation, 1992: i. Act means the Securities and Exchange Board of India Act, 1992 (15 of 1992) ii. Body Corporate means a body corporate as defined in section 2 of the companies act, 1956 iii. Connected Person means any person who: 1. is a director as defined in clause (13) of section 2 of the Companies Act, 1956 (1 of 1956) of a company, or is deemed to be a director of that company by virtue of sub-clause (10) of section 307 of that Act; or 2. occupies the position of an officer or an employee of the company or holds a position involving a professional or business relationship between himself and the company, whether temporary or permanent, and who may reasonably be expected to have an access to unpublished price sensitive information in relation to that company iv. Dealing in Securities means an act of subscribing, buying, selling or agreeing to subscribe, buy, sell or deal in any securities by any person either as principal or agent v. Insider means any person who, is or was connected with the company or is deemed to have been connected with the company and who is reasonably expected to have access to unpublished price sensitive information in respect of securities of a company or has received or has had access to such unpublished price sensitive information

vi. Investigating Authority means any officer of the board or any other person, not being a firm, body corporate or an association of persons, having experience in dealing with the problems relating to the securities market and who is authorized by the board under Chapter III vii. Officer of a Company means any person as defined in clause (30) of Section 2 of the Companies Act, 1956 (1 of 1956) including an auditor of the company viii. Persons Deemed to be a Connected Person 1. is a company under the same management or group or any subsidiary company thereof within the meaning of subsection (1B) of section 370, or subsection (11) of section 372 of the Companies Act, 1956 (1 of 1956) or sub-clause (g) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969) as the case may be, or 2. is an intermediary as specified in section 12 of the Act, 3. Investment company, Trustee Company, Asset Management company or an employee or director thereof or an official of a stock exchange or of clearing house or corporation, 4. is a merchant banker, share transfer agent, registrar to an issue, debenture trustee, broker, portfolio manager, Investment Advisor, sub-broker, Investment Company or an employee thereof, or is member of the Board of Trustees of a mutual fund or a member of the Board of Directors of the Asset Management Company of a mutual fund or is an employee thereof who have a fiduciary relationship with the company 5. is a Member of the Board of Directors or an employee of a public financial institution as defined in section 4A of the Companies Act, 1956; or 6. is an official or an employee of a Self-regulatory Organization recognized or authorized by the Board of a regulatory body; or 7. is a relative of any of the aforementioned persons; 8. is a banker of the company. ix. relatives of the connected person; or x. is a concern, firm, trust, Hindu undivided family, company or association of persons wherein any of the connected persons mentioned in subclause (i) of clause (c), of this regulation or any of the persons mentioned in sub-clause (vi), (vii) or (viii) of this clause have more than 10 per cent of the holding or interest; xi. Price Sensitive Information means any information which relates directly or indirectly to a company and which if published is likely to materially

xii. xiii.

xiv.

xv.

affect the price of securities of company. Explanation.The following shall be deemed to be price sensitive information : 1. periodical financial results of the company; 2. intended declaration of dividends (both interim and final); 3. issue of securities or buy-back of securities; 4. any major expansion plans or execution of new projects. 5. amalgamation, mergers or takeovers; 6. disposal of the whole or substantial part of the undertaking; 7. significant changes in policies, plans or operations of the company; Relative means a person, as defined in section 6 of the Companies Act, 1956 (1 of 1956); Stock Exchange means a stock exchange which is recognized by the Central Government or Securities and Exchange Board of India under section 4 of Securities Contracts (Regulation) Act, 1956 (42 of 1956); Unpublished means information which is not published by the company or its agents and is not specific in nature. Explanation.Speculative reports in print or electronic media shall not be considered as published information. Working Day shall mean the working day when the regular trading is permitted on the concerned stock exchange where the securities of the company are listed

6. Define the following w.r.t SEBI (Substantial Acquisition of Shares & Takeovers) a. Acquisition of 5% and more shares of a company b. Continual Disclosures c. Acquisition of 15% or more of the shares or voting rights of any company d. Public announcement of offer e. Competitive bid f. Penalties for non-compliance of submission of report to the board What have been the major amendments in this act in 2013? Acquisition of 5% and more shares of a company: o Any acquirer, who acquires shares or voting rights which(taken together with shares or voting rights, if any, held by him) would entitle him to more than 5% or 10% or 14% or 54% or 74% per cent shares or voting rights in a company, in any manner whatsoever, shall disclose at every stage the aggregate of his shareholding or voting rights in that company to the company and to the stock exchanges where shares of the target company are listed.

o Any acquirer who has acquired shares or voting rights of a company under sub-regulation(1) of regulation 11, shall disclose purchase or sale aggregating two percent. or more of the share capital of the target company to the target company, and the stock exchanges where shares of the target company are listed within two days of such purchase or sale along with the aggregate shareholding after such acquisition or sale. o The disclosures mentioned in [sub-regulations(1) and (1A)] shall be made within two days - (a) the receipt of intimation of allotment of shares; or (b) the acquisition of shares or voting rights, as the case may be. o The stock exchange shall immediately display the information received from the acquirer under sub-regulations (1) and (1A) on the trading screen, the notice board and also on its website. o Every company, whose shares are acquired in a manner referred to in subregulation(1)and (1A) shall disclose to all the stock exchanges on which the shares of the said company are listed the aggregate number of shares held by each of such persons referred above within seven days of receipt of information under sub-regulations(1) and (1A) Continual Disclosures: o Every person, including a person mentioned in Regulation6 who holds more than 15% shares or voting rights in any company, shall, within 21 days from the financial year ending March 31, make yearly disclosures to the company, in respect of his holdings as on 31st March. o A promoter or every person having control over a company shall, within 21 days from the financial year ending March31, as well as the record date of the company for the purposes of declaration of dividend, disclose the number and percentage of shares or voting rights held by him and by persons acting in concert with him, in that company to the company. o Every company whose shares are listed on a stock exchange, shall within 30 days from the financial year ending March 31, as well as their cord date of the company for the purposes of declaration of dividend, make yearly disclosures to all the stock exchanges on which the shares of the company are listed, the changes, if any, in respect of the holdings of the persons referred to under sub-regulation (1) and also holdings of promoters or person(s) having control over the company as on 31st March. o Every company whose shares are listed on a stock exchange shall maintain a register in the specified format to record the information received under sub-regulation(3) of Regulation 6,sub-regulation (1) of Regulation7 and sub-regulation (2) of Regulation 8. Acquisition of 15% or more shares or voting rights of a company: o No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise 15% or more of the voting rights

in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the Regulations Public Announcement of Offer: o The public announcement to be made under Regulations 10 or Regulation 11 or Regulation 12 shall be made in all editions of one English national daily with wide circulation, one Hindi national daily with wide circulation and a regional language daily with wide circulation at the place where the registered office of the target company is situated and at the place of the stock exchange where the shares of the target company are most frequently traded. o Simultaneously with publication of the public announcement in the newspaper in terms of sub-regulation (1), a copy of the public announcement shall be, o submitted to the Board through the merchant banker, (ii) sent to all the stock exchanges on which the shares of the company are listed for being notified on the notice board, (iii) sent to the target company at its registered office for being placed before the Board of Directors of the company. o Simultaneous with the submission of the public announcement to the Board, the public announcement shall also be sent to all the stock exchanges on which the shares of the company are listed for being notified on the notice board, and to the target company at its registered office for being placed before the board of directors of the Company. o The offer under these Regulations shall be deemed to have been made on the date on which the public announcement has appeared in any of the newspapers referred to in sub-regulation (1). Competitive Bid: o Any person, other than the acquirer who has made the first public announcement, who is desirous of making any offer, shall, within 21 days of the public announcement of the first offer, make a public announcement of his offer for acquisition of the shares of the same target company. An offer made under sub-regulation(1) shall be deemed to be a competitive bid. o No public announcement for an offer or competitive bid shall be made after 21 days from the date of public announcement of the first offer. o No public announcement for a competitive bid shall be made after an acquirer has already made the public announcement under the proviso to sub-regulation(1) of Regulation 14 pursuant to entering into a Share Purchase or Shareholders Agreement with the Central Government74[or the State Government as the case may be], for acquisition of shares or voting rights or control of a Public Sector Undertaking] o Any competitive offer by an acquirer shall be for such number of shares which, when taken together with shares held by him along with persons acting in concert with him, shall be at least equal to the holding of the first bidder including the number of shares for which the present offer by the first bidder has been made

o Upon the public announcement of a competitive bid or bids, the acquirer(s) who had made the public announcement(s) of the earlier offer(s), shall have the option to make an announcement revising the offer. o Provided that if no such announcement is made within fourteen days of the announcement of the competitive bid(s), the earlier offer(s) on the original terms shall continue to be valid and binding on the acquirer(s)who had made the offer(s) except that the date of closing of the offer shall stand extended to the date of closure of the public offer under the last subsisting competitive bid. o The provisions of these Regulations shall mutatis-mutandis apply to the competitive bid(s) made under sub-regulation(1). o The acquirers who have made the public announcement of offer(s)including the public announcement of competitive bid(s) shall have the option to make upward revisions in his offer(s), in respect to the price and the number of shares to be acquired, at any time up to seven working days prior to the date of closure of the offer: Provided that the acquirer shall not have the option to change any other terms and conditions of their offer except the mode of payment following an upward revision in offer. o Provided further that any such upward revision shall be made only upon the acquirer, making a public announcement in respect of such changes or amendments in all the newspapers in which the original public announcement was made; simultaneously with the issue of public announcement referred in clause (a),informing the Board, all the stock exchanges on which the shares of the company are listed, and the target company at its registered office; increasing the value of the escrow account as provided under subregulation (9) of Regulation 28. o Where there is a competitive bid, the date of closure of the original bid as also the date of closure of all the subsequent competitive bids shall be the date of closure of public offer under the last subsisting competitive bid and the public offers under all the subsisting bids shall close on the same date. Penalties For Non-Compliance: o Any person violating any provisions of the Regulations shall be liable for action in terms of the Regulations and the Act. o If the acquirer or any person acting in concert with him, fails to carry out the obligations under the Regulations, the entire or part of the sum in the escrow amount shall be liable to be forfeited and the acquirer or such a person shall also be liable for action in terms of the Regulations and the Act. o The board of directors of the target company failing to carry out the obligations under the Regulations shall be liable for action in terms of the Regulations and Act. o The Board may, for failure to carry out the requirements of the Regulations by an intermediary, initiate action for suspension or cancellation of

registration of an intermediary holding a certificate of registration under section 12 of the Act. o Provided that no such certificate of registration shall be suspended or cancelled unless the procedure specified in the Regulations applicable to such intermediary is complied with. o For any misstatement to the shareholders or for concealment of material information required to be disclosed to the shareholders, the acquirers or the directors where he acquirer is a body corporate, the directors of the target company, the merchant banker to the public offer and the merchant banker engaged by the target company for independent advice would be liable for action in terms of the Regulations and the Act. o The penalties referred to in sub-regulation (1) to (5) may include criminal prosecution under section 24 of the Act; monetary penalties under section 15 H of the Act; directions under the provisions of Section 11B of the Act. directions under section 11(4) of the Act; cease and desist order in proceedings under section 11D of the Act; adjudication proceedings under section 15HB of the Act. 7. State key features of SEBI (Prohibition of Fraudulent & Unfair Trade Practices Relating to Securities Markets) regulations, 2003 a. The term fraud has been defined by Regulation 2(1)(c). Fraud includes any act, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any other person with his connivance or by his agent while dealing in securities in order to induce another person or his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss. i. also includes misrepresentation, concealment of a true fact, suggestion of a false and misleading fact, promise made without the intention of fulfilling it, misrepresentation, deceptive behavior, or any other act or omission that law decides as unlawful and fraudulent. ii. Prohibition of Certain Dealings in Securities: 1. A person shall not buy, sell or otherwise deal in securities in a fraudulent manner. 2. Use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; 3. Employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange;

4. Engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in 8. What do you mean by Clause 49 of SEBI? Explain requirements of board of directors, audit committee, whistle blower policy and various disclosures as per corporate governance in listed companies

9. What are the various powers & obligations of SEBI w.r.t investigations? What are the new ethics codes for brokers, frequent inspections mulled by SEBI in 2012?