10/21/2010

The Role of SEBI in India

The Watchdog of Indian Market

Group No. 22

2
The Great Indian Bazaar
Securities Market in India

Resource Mobilization in Primary Market

9 Indian Share Market is the oldest Asian stock market

9 Incorporated way back in 1875, BSE. 1994 Æ NSE

9 BSE Market Cap (Sep 2010) Æ $ 1.58 Trillion

9 NSE Market Cap (Sep 2010) Æ $ 1.54 Trillion

Source: RBI Website

1
 10/21/2010

3
Why a Watchdog?
The Need of a Regulatory Body in India

9 Absence of conditions of perfect competition in the securities market

9 Th
The rise
i iin no. off iinvestors
t Æ iincrease iin malpractices
l ti

9 Erosion of Investor Confidence

9 The Government and the stock exchanges were helpless, the existing
legal framework just not enough

4
The Genesis
Securities & Exchange Board of India

9 Constituted by the Government of India in 1922 with SEBI Act

9 Similar to the Securities Exchange Commission in the US

9 Chaired by Shri C. B. Bhave

9 Bound by the Central Govt. which directs policies

9 Vision: “To be the most dynamic and respected regulator - globally.“

sebi.gov.in

2
 10/21/2010

5
The Genesis
SEBI - Departments

SEBI

Market
Intermediaries Market Derivatives & Corporation Investment
Regulation & Regulation New Products Finance Management
Supervision

SEBI

Integrated Enquiries &

Investigations Enforcement Legal Affairs
Surveillance Adjudication

SEBI

Office of Department of
Investor General Economic & Office of the Regional
Assistance & Services Policy Chairman Offices
Education Analysis

6
Scope & Objectives
Securities & Exchange Board of India

Primary
Market

Corporate
Secondary
y
Debt
Market
Market

Demat & Venture

Derivatives SEBI Capital

Foreign
Mutual
Institution
Funds
Investors
Takeovers
& Legal
Affairs

3
 10/21/2010

7
Scope & Objectives
Securities & Exchange Board of India

9 To protect the interests of investors in securities

9 To promote the development of Securities Market

Ensuring steady flow of savings into the market

9 To regulate the Securities Market

Easy Availability of funds at low costs

9 To develop a code of conduct and fair practices by the intermediaries

involved in the capital markets

9For matters connected therewith or incidental thereto

8
Functions
Securities & Exchange Board of India

Regulating the business in stock exchanges

Regulating the working of

•Stock brokers, Share transfer agents, merchant bankers, underwriters, portfolio managers
•Depositories custodians of securities, foreign institutional investors, credit rating agencies
•Venture capital funds and collective investment schemes including mutual funds

Maintaining fair trade practices relating to stock markets

Regulation of acquisition of shares and take-over of companies

Inspection, Inquiries and Audits of the stock exchanges,

intermediaries and other self-regulatory organizations in the
securities market

4
 10/21/2010

9
Powers
Securities & Exchange Board of India

9 Undertake inspection of any book, or register, or other document or record of

any listed public company

9 Suspend the trading of any security in a recognized stock exchange

9 Restrain persons from accessing/buying/selling the securities market

9 Suspend any office-bearer of any stock exchange or self-regulatory organization

9 Impound and retain the proceeds or securities in respect of any transaction

which is under investigation

10
My Company wants to get listed
‘Understanding SEBI’ Series

Stakeholder/Party • Dalal Sons Private Limited

• Dalal Sons wishes to make a public offer of Rs. 
Objective 80 Lakhs. Can it do so?

• If Value > Rs 50 lacs, a draft to be filed  with SEBI
How can SEBI  • SEBI’s DIP guidelines (1992) to be followed
help? • SEBI examines at various levels the compliance with 
g
its DIP guidelines

• Minimum Net Tangible Assets – 3 crores for 3 years

• Issues Size – Not Exceeding 5 times the pre‐issue 
net worth
Constraints • Minimum Net Worth – 1 crore in 3 years
• Issue to be opened within three months from the 
date of SEBI's observation letter

5
 10/21/2010

11
I want to invest in Mutual Funds
‘Understanding SEBI’ Series

Stakeholder/Party • Mr. Deen Dayal Trivedi

• Mr. DDT wishes to invest in Mutual Funds. Will 
Objective it be a Safe bet?

• SEBI approved Asset Management Company (AMC)

How can SEBI  manages the funds by making investments in various
types of securities
help? • All mutual funds are required to be registered with SEBI
before theyy launch any
y scheme

• Two thirds of the directors of trustee company

or board of trustees must be independent
Constraints • 50% of the directors of AMC must be
independent

12
We want to invest in India
‘Understanding SEBI’ Series

Stakeholder/Party • Maze International Co.

• Maze Inc. (US) wants to invest their

Objective proprietary funds in Indian stock market

• Form A to be filed by the company under SEBI’s

How can SEBI  Regulation 1995
help? • SEBI validates the relevant documents and
finally issues the registration certificate

• Registration fee of US $ 5,000

• The applicant has to take permission from RBI
Constraints under the provisions of FEMA 1999
• Appoint a designated bank to route its
transactions

6
 10/21/2010

13
I wish to go Online!
‘Understanding SEBI’ Series

Stakeholder/Party • Ms. Sheetal Anand

• Sheetal wants to trade online and hence

Objective dematerialize her shares of Reliance. Can
she do so?

How can SEBI  • SEBI (Depositories and Participants)

Regulations, 1996 determine whether they will
help? be eligible or not

• She needs a depository account

Constraints • Securities will be in the name of the account
holders and owned by her

14
We want to Invest Venture Capital
‘Understanding SEBI’ Series

Stakeholder/Party • Robin Venture Asset Management

• Invest in the innovative online travel

Objective business to be started by Anil Bros.

• SEBI Act, 1992 and SEBI (Venture Capital Fund)

How can SEBI  Regulations, 1996
help? • Company planning to carry out activity of a VCF should
obtain a grant of certificate by SEBI.

• The VCF should be set up under the Central or State

legislations, should have the certificate from SEBI
• The VCF cannot accept investment < 5 Lacs
Constraints • VCF should have firm commitment of at least 5 Cr.
from the Investors
• VCF cannot invest 25% of the funds in one Venture
Capital Undertaking

7
 10/21/2010

15
We believe in Inorganic Growth
‘Understanding SEBI’ Series

Stakeholder/Party • Batra & Co.

• Batra & Co. wants to acquire Noveltec

Objective Corporation

• Protect Shareholder’s interest Æ Acquirer company to

open an escrow account before making a Public
How can SEBI  Announcement, which will be distributed to the various
help? stakeholders in case the Acquirer fails to make the
subsequent payment
• Ensuring that the regulation constraints are met

• Target company should be a listed company

• Public Announcement is to be made for an
open offer
Constraints • Minimum Offer of 20% shares to be made
(Exceptions possible)
• Periodic disclosures have to be made on
acquiring shares above threshold values

16
Time-line Benchmarks
For Activities Involving Public Interface

Activity Benchmark Time line

Fresh registration - FIIs 7 days

Fresh registration - Credit Rating 30 days

Agencies
Fresh registration - Brokers 30 days

Cancellation/surrender of broker /sub 30 days

brokers
Approval for Trustees of Mutual Funds 7days

Applications for foreign securities / 7days

ADRs/GDRs
Investor Complaints Investor complaints within the
jurisdiction of SEBI within 7 days

8
 10/21/2010

17
SEBI -The Darker Side
Malpractices & Failures

Manipulation of The Osian Art Satyam Fraud

Price Rigging
security prices Fund Case

Delay in Harshad Mehta Ketan Parekh

Insider Trading
Settlement Case Incident

Delay in listing and MS Shoes rigged

commencement of prices of company
trading in shares shares (1995)

18
SEBI -The Darker Side
Malpractices & Failures

“Harshad Mehta in 1992 had caught the SEBI napping.”

-A Journalist

“SEBI has become like a programmed watchdog. The robbery takes

place right under its nose but it barks only the next morning when its
owner (the Ministry of Finance) asks it to do so.
so.”
- Sujay Marathi, Journalist, mouthshut.com

9
 10/21/2010

19
References

9 SEBI Website Æ sebi

sebi.gov.in
gov in

9 ‘Principles of Corporate Finance’ by Brealey, Myers, Allen & Mohanty,

India Edition

9Legal Service India, a premier and leading Indian Legal portal

focused on law and government

9www.icmrindia.org/casestudies

9finance.indiamart.com

20

Your securities & interest are being guarded…

Go ahead, Seal a Deal… Today!

Presented by: 
Group No. 22

10
 10/21/2010

Group No. 22
A
Aarooshi
hi Rai
R i Kumar (PGP‐10‐094), Arpan
K (PGP 10 094) A A
Anand
d (PGP‐10‐106), Himanshu
(PGP 10 106) Hi h Sharma (PGP‐10‐122),
Sh (PGP 10 122)
Mayank Garg (PGP‐10‐132), Prarthana Bagrodia (PGP‐10‐146), Priya Badri (PGP‐10‐151)

PGDM 2010‐12

SP Jain Institute of Management & Research Mumbai

SP Jain Institute of Management & Research, Mumbai

11