SEBI - Introduction

In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government
of India through an executive resolution, and was subsequently upgraded as a fully autonomous
body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange
Board of India Act (SEBI Act) on 30th January 1992. In place of Government Control, a
statutory and autonomous regulatory board with defined responsibilities, to cover both
development & regulation of the market, and independent powers have been set up. Paradoxically this
is a positive outcome of the Securities Scam of 1990-91.

The basic objectives of the Board were identified as:

• to protect the interests of investors in securities;

• to promote the development of Securities Market;
• to regulate the securities market and
• for matters connected therewith or incidental thereto.

Since its inception SEBI has been working targetting the securities and is attending to the fulfillment of
its objectives with commendable zeal and dexterity. The improvements in the securities markets like
capitalization requirements, margining, establishment of clearing corporations etc. reduced the risk of
credit and also reduced the market.

SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the
eligibility criteria, the code of obligations and the code of conduct for different intermediaries like,
bankers to issue, merchant bankers, brokers and sub-brokers, registrars, portfolio managers, credit
rating agencies, underwriters and others. It has framed bye-laws, risk identification and risk
management systems for Clearing houses of stock exchanges, surveillance system etc. which has
made dealing in securities both safe and transparent to the end investor.

Another significant event is the approval of trading in stock indices (like S&P CNX Nifty & Sensex) in
2000. A market Index is a convenient and effective product because of the following reasons:

• It acts as a barometer for market behavior;

• It is used to benchmark portfolio performance;
• It is used in derivative instruments like index futures and index options;
• It can be used for passive fund management as in case of Index Funds.

Two broad approaches of SEBI is to integrate the securities market at the national level, and also to
diversify the trading products, so that there is an increase in number of traders including banks, financial
institutions, insurance companies, mutual funds, primary dealers etc. to transact through the Exchanges.
In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI
in 2000 AD is a real landmark.

SEBI appointed the L. C. Gupta Committee in 1998 to recommend the regulatory framework for
derivatives trading and suggest bye-laws for Regulation and Control of Trading and Settlement of
Derivatives Contracts. The Board of SEBI in its meeting held on May 11, 1998 accepted the
recommendations of the committee and approved the phased introduction of derivatives trading in India
beginning with Stock Index Futures. The Board also approved the "Suggestive Bye-laws" as
recommended by the Dr LC Gupta Committee for Regulation and Control of Trading and Settlement of
Derivatives Contracts.
SEBI then appointed the J. R. Verma Committee to recommend Risk Containment Measures (RCM) in
the Indian Stock Index Futures Market. The report was submitted in november 1998.

However the Securities Contracts (Regulation) Act, 1956 (SCRA) required amendment to include
"derivatives" in the definition of securities to enable SEBI to introduce trading in derivatives. The
necessary amendment was then carried out by the Government in 1999. The Securities Laws
(Amendment) Bill, 1999 was introduced. In December 1999 the new framework was approved.

Derivatives have been accorded the status of `Securities'. The ban imposed on trading in derivatives in
1969 under a notification issued by the Central Government was revoked. Thereafter SEBI formulated
the necessary regulations/bye-laws and intimated the Stock Exchanges in the year 2000. The derivative
trading started in India at NSE in 2000 and BSE started trading in the year 2001.

SEBI - SEBI Offices

The following offices of SEBI may be contacted with regard to investor grievances regarding
CIS and for any other information connected there to:
 Jurisdiction for the companies
Addres of SEBI Officess
having their registered offices in

Head Office:
Mittal court 'A' Wing, Ground floor
224, Nariman Point, Mumbai - 400 Gujarat, Maharashtra, Madhya
021 Pradesh, Goa, Dadra & Nagar Haveli
PH: 2850451,52,53,54,55 FAX:204 and Daman Diu
5633

Northern Regional Office:

Block No.1, Rajendra Bhawan
Haryana, Himachal Pradesh, Jammu
Rajendra Place, District Centre
& Kashmir, Punjab, Rajasthan, Uttar
New Delhi - 110 008
Pradesh, Delhi and Chandigarh
PH: 573 2313, 9784 FAX: 5768992

Eastern Regional Office:

Assam, Bihar, Manipur, Meghalaya,
FMC Fortuna, 5th Floor, 234/3A
Nagaland, Orissa, West Bengal,
AJC Bose Road, Calcutta - 700 020
Arunachal Pradesh, Mizoram,
PH:240 2435, 4307, 6105 FAX:
Tripura, Sikkim and Andaman &
240 4307
Nicobar Islands

Southern Regional Office:

3rd Floor, D'Monte Building, 32
D'Monte Colony, TTK Road,
Alwarpet Andhra Pradesh, Karnataka, Kerala,
Chennai - 600 018. Tamilnadu, Pondicherry and
PH: 499 5676, 5525, 7385, 7480, Lakshadweep & Minicoy.
7540
FAX: 499 8083

Investors may however note that as a regulatory body SEBI cannot guarantee or undertake the
repayment of money to the investors. It is SEBI's endeavour to educate the investors of the general risk
perception of such schemes.

• Investors can also approach District Consumer Redressal forums in case entities fail to honour
their commitments or for any deficiency in service.
• For bouncing of cheques, investors can move the Courts under section 138 of the Negotiable
Instruments Act. The right to file criminal complaint exclusively vests with the beneficiary of the
cheque.

Investors should note that wherever they do not have a right to the land or to the produce arising out of
the land such investment may be a deposit and where a company fails to repay the deposits, it attracts
the provisions of section 58A of the Indian Companies Act, 1956. It is clarified that SEBI has no
jurisdiction over such deposits.

SEBI - SEBI Administration

The Securities and Exchange Board of India Act, 1992 is having retrospective effect and is deemed to
have come into force on January 30, 1992. Relatively a brief act containing 35 sections, the SEBI Act
governs all the Stock Exchanges and the Securities Transactions in India.

A Board by the name of the Securities and Exchange Board of India (SEBI) was constituted under the
SEBI Act to administer its provisions. It consists of one Chairman and five members.

One each from the department of Finance and Law of the Central Government, one from the Reserve
Bank of India and two other persons and having its head office in Bombay and regional offices in Delhi,
Calcutta and Madras.

The Central Government reserves the right to terminate the services of the Chairman or any member of
the Board. The Board decides questions in the meeting by majority vote with the Chairman having a
second or casting vote.

Section 11 of the SEBI Act provides that to protect the interest of investors in securities and
to promote the development of and to regulate the securities market by such measures, it is
the duty of the Board. It has given power to the Board to regulate the business in Stock
Exchanges, register and regulate the working of stock brokers, sub-brokers, share transfer agents,
bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters,
portfolio managers, investment advisers, etc., also to register and regulate the working of collective
investment schemes including mutual funds, to prohibit fraudulent and unfair trade practices and insider
trading, to regulate take-overs, to conduct enquiries and audits of the stock exchanges, etc.

All the stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deed,
registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and
such other intermediary who may be associated with the Securities Markets are to register with the
Board under the provisions of the Act, under Section 12 of the Sebi Act. The Board has the power to
suspend or cancel such registration. The Board is bound by the directions vested by the Central
Government from time to time on questions of policy and the Central Government reserves the right to
supersede the Board. The Board is also obliged to submit a report to the Central Government each year,
giving true and full account of its activities, policies and programmes. Any one of the aggrieved by the
Board's decision is entitled to appeal to the Central Government.

SEBI - Glossary

Depositories
Organisation which holds securities of investor, with request, in electronic form through a registered
Depository Participant (DP) is known as Depository. It can be compared with Bank. It hold securities in
an account, transfers securities between accounts on the instruction of the account holder, facilitates
transfers of ownership without having to handle securities and facilitates safekeeping of shares.
Minimum net worth stipulation needed by SEBI is Rs. 100 crore.

Depository Participant (DP)

The agent through which Depository interfaces with the investor is known as Depository Participant
(DP). It is compared with a branch of a bank like Depository with a bank. DP is offered with depository
services only after it gets proper registration from SEBI.

Derivatives
The value of which is entirely "derived" from the value of the underlying asset like securities,
commodities, bullion, currency, live stock, etc. is termed as "Derivative". It is any hybrid contract of pre
determined fixed duration like forward, future, option, etc. linked for the purpose of contract fulfillment to
the value of a specified real or financial asset or to an index of securities.
Broad Based Fund (sub account)
A fund which has minimum of 20 shareholders without any single investor holding more than 10% of
shares and units of the fund is known as Broad Based Fund.

Proprietary fund (sub account)

Where the ownership of the funds is that of the Foreign Institutional Investor is known as Proprietary
Fund.

Sub-Accounts
A sub-account includes institutions (established or incorporated outside India) and those funds, or
portfolios (established outside India) whether incorporated or not and corporates and individuals, on
whose behalf investments are proposed to be made in India by a Foreign Institutional Investor. NRIs and
Overseas Corporate Bodies (OCB) do not entitle of getting registered as sub- account.

There are two categories of sub-accounts:

• Broad-based / Proprietary sub-accounts which are allowed to individually invest upto 10% of the
total issued capital.
• Foreign Corporates and foreign individuals which is not allowed to exceed 5% of the issued
capital.

Net Asset Value (NAV)

Net Asset Value (NAV) is the market value of the securities held by the scheme of a Mutual Fund. NAV
varies on day to day basis since the market value of securities changes regularly. It is divided by the
total number of units of the scheme on a specific date.

Initial Public Offering (IPO)

When an unlisted company makes either a fresh issue of securities or an offer for sale of its existing
securities or both for the first time to the public is known as Initial Public Offering.

Follow on Public Offering (FPO)

When an already listed company makes either a fresh issue of securities to the public or an offer for sale
to the public, through an offer document, it is known as Follow on Public Offering. An offer for sale in
such case is allowed only if it is made to satisfy listing or continuous listing obligations.

Rights Issue (RI)

When a listed company which proposes to issue fresh securities to its existing shareholders as on a
record date is known as Rights Issue. These are normally offered in a particular ratio to the
number of securities held prior to the issue. It is suitable for those companies who likes to raise
capital without diluting stake of its existing shareholders unless they do not intend to subscribe to their
entitlements.

Disclosures and Investor protection (DIP) guidelines

SEBI (Disclosure and investor protection) guidelines 2000 are in short called DIP guidelines. It provides
a comprehensive framework for issuances buy the companies. DIP guidelines was framed by SEBI in
1992. Many amendments have been carried since then. "Securities and Exchange Board of India
(Disclosure and Investor Protection) Guidelines, 2000" was issued by SEBI in 2000. It is a compilation of
all circulars chanpter wise. These are issued under section 11 of the Securities and Exchange Board of
India Act, 1992.

Collective Investment Scheme (CIS)

According to sub-section (2) of section 11AA of the SEBI Act, CIS is scheme or arrangement made or
offered by any company under which the contributions, or payments made by the investors, are pooled
and utilised with a view to receive profits, income, produce or property, and is managed on behalf of the
investors. Over the management and operation of such scheme or arrangement investors do not have
day to day control.

Secondary Market
Secondary market is a market where securities are traded after initially being offered to the public in the
primary market and/or listed on the Stock Exchange. Maximum of the trading is done in the secondary
market. Secondary market comprises of two markets equity and debt.

1. In Business. A derivative is an investment that derives its value from another more
fundamental investment, as a commitment to buy a bond for a certain sum on a
certain date.

Derivative

In finance, a security whose price is dependent upon or derived from one or more
underlying assets. The derivative itself is merely a contract between two or more parties.
Its value is determined by fluctuations in the underlying asset. The most common
underlying assets include stocks, bonds, commodities, currencies, interest rates and
market indexes. Most derivatives are characterized by high leverage.

Definitions of securities market :- stock exchange: an exchange where security trading is

conducted by professional stockbrokers

Noun 1. securities market - an exchange where security trading is conducted by professional

stockbrokers

security - property that your creditor can claim in case you default on your obligation; "bankers
are reluctant to lend without good security"
"stock exchange" means any body of individuals, whether incorporated or not,
constituted for the purpose of assisting, regulating or controlling the business of
buying, selling or dealing in securities.