Assignment on

Legal Framework of Capital Market and Infrastructure and

Intermediaries and service providing of Capital Market
Course Code: BI 405

Submitted To:
Md. Abu Bakkar Siddik
Assistant Professor
Department of Banking & Insurance
University of Chittagong

Submitted By:
Mizanur Rahman
ID: 16306008
Session: 2015-16, 7th semester
Department of Banking & Insurance
University of Chittagong

Submission Date: 4th April, 2019

Table of contents……………………………………………………………………
Serial No Particular Page
1. Legal Framework of Capital 3-9
Market
 * Securities & Exchange Commission Ordinance,

1969

* Securities & Exchange

Commission Act, 1993
* Depository Act, 1999
* Company Act, 1994
* Trust Act, 1882
* Insurance Act, 1938
* Bank Company Act, 1991
* Financial Institution, 1993
* Anti-Money Laundering Act, 2002

2. Capital Market intermediaries 10-14

infrastructure and service
provider

Securities and Exchange Ordinance, 1969

Securities and Exchange Ordinance, 1969 (Ordinance No. XVII of 1969). An Ordinance to provide
for the protection of investors, 2 [ regulations of capital markets and issue] and dealings in
securities.
WHEREAS it is expedient to provide for the protection of investors, 3[ regulations of capital
markets and issue] and dealings in securities and for matters ancillary thereto;
AND WHEREAS the national interest of Pakistan in relation to the achievement of uniformity
requires Central legislation in the matter;
NOW, THEREFORE, in pursuance of the Proclamation of the 25th day of March, 1969, read with
the Provisional Constitution Order, and in exercise of all powers enabling him in that behalf, the
President is pleased to make and promulgate the following Ordinance:-
The act contains six chapters with many rules & regulations. The chapter I about PRELIMINARY,
The chapter IA about ISSUE OF CAPITAL, The chapter II about REGISTRATION & REGULATIONS
OF STOCK EXCHANGES, The chapter III describes THE REGULATION OF ISSUERS,The chapter IV is
about PROHIBITIONS & RESTRICTIONS ,The chapter V describes ENQUIRIES,PENALTIES,ORDERS
& APPEALS.

Securities and Exchange Commission Act, 1993

The Indian Companies Act 1913 was actually the amended and reformed version of The English
Companies Act 1908. The Companies Act 1994 has eleven parts. ... Part-III mainly narrates the
rules for share capital, registration of unlimited company as limited, and the limited liability of
directors.
An Act made to provide for the establishment of the Securities and Exchange Commission
Whereas it is expedient to establish a commission by the name of Securities and Exchange
Commission for the purpose of providing for the protection of the interests of investors in
securities, the development of the securities market and for matters connected therewith or
ancillary thereto;
Duties and responsibilities under Act XXIX of 1947 and Ord. XVII of 1969, etc. .- Immediately
after the establishment of the Commission-
a) The expression "Controller of Capital Issues" in every Act other than this Act or every
agreement, instrument and document shall be deemed to have been substituted by the word
"Commission";
b) The office of the Controller of Capital Issues, if any, shall be abolished;
c) All the duties and responsibilities of the Government under the Capital Issues (Continuance
of Control) Act, 1947 (XXIX of 1947) and the Securities and Exchange Ordinance, 1969 (XVII of
1969), hereafter referred to as the said two Acts, shall be duties and responsibilities of the
Commission;
d) All agreements concluded and all matters settled by or with the Government under the said
two Acts shall be deemed agreements concluded and matters settled with the Commission;
e) All suits, cases and other legal proceedings filed by or against the Government under the said
two Acts shall be deemed filed by or against the Commission;
f) Anything pending before the Government in accordance with the provisions of the said two
Acts shall be decided by the Commission in accordance with the provisions of the said two Acts.

Depository Act, 1999

Whereas it is expedient to provide for regulating depositories established for the purpose of
maintenance of securities and effecting and recording transfer thereof; It is hereby enacted as
follows:- 1. Short title and commencement (1) This Act may be called the Depositories Act,
1999.
(1) Every depository shall introduce and administer its own depository system in which or, as
the case may be, by which-
(a) Account may be opened and maintained by the participant and the direct account holder
and the ownership of securities deposited in the depository part of the company register may
be recorded;
(b) Ownership of securities
(c) Facilities may be given for pledging and lending and borrowing of securities maintained in
The account;
(d) Other facilities prescribed by regulations may be given.
(2) All provisions under sub-section (1) shall be made in accordance with the conditions and
Method prescribed by regulations may be transferred from one account to another account.
All securities deposited in the depository part of the company register shall be kept in
dematerialized condition and fungible form. In the case of securities deposited with the
depository, section 158 of the Companies Act shall not apply. When any security is
Transferred through the book entry system, the said transfer shall be effective subject to its
entry in the depository register in accordance with the regulations. Subject to the fulfillment of
the Conditions prescribed by bye-laws, the following securities shall be recorded in the
depository register, namely
(a) Eligible securities allotted to the clients;
(b) All additional securities allotted to account holders;
(2) The issuer shall, after recording in the depository part of the company register the name of
the depository relating to the securities allotted to him, inform the depository about the facts
relevant to the said securities in the manner prescribed by regulations, and the depository shall,
after being so informed, record the name of the concerned allotted in the depository register.
If any person intends to transfer any security from the certificated part of the company register
to its depository part, he shall submit to the issuer, in the manner prescribed by regulations,
the certificate relating to the security. Upon receipt of the certificate under sub-section (2) the
issuer shall cancel it and substitute the name of the depository in respect of the said security in
the depository part of the company register and inform the depository in the manner
prescribed by regulations, about the substitution.

Companies Act, 1994

Companies Act 1994 (Act XVIII of 1994) governs company law in Bangladesh. It received the
assent of the President of the People's Republic of Bangladesh on 11 September 1994. Before
its enactment in 1994, company law was governed by the Companies Act 1913 which was
amended in 1915, 1920, 1926, 1930, 1932, 1936, 1938, 1949 and 1969, 1973 and 1984.

The early history of company law of India was laid in the British Companies Act 1844 on the
basis of which the Joint Stock Companies Act 1850, the first company law for the sub-continent,
was formulated. This act was based on 'unlimited liability'. In 1857, the Joint Stock Companies
Act 1850 was amended with the provision of unlimited liability was replaced by 'limited liability'
and the act was renamed as The Companies Act 1857. With the expansion of trade and
commerce in the sub-continent, the Companies Act 1857 was amended in 1860, 1866, 1882,
1887, 1891, 1895, 1900 and 1908. The Indian Companies Act 1913 was actually the amended
and reformed version of The English Companies Act 1908.

The Companies Act 1994 has eleven parts. Part-I contains the preliminary aspects of the act
including the short title of the act, commencement and extent, definitions of various terms.
Part-II is concerned with formulation and incorporation of companies, including bank
companies, and memorandum of association for various types of companies, articles of
association, general provision for registration of memorandum and articles of association,
associations not for profit, and companies limited by guarantee. Part-III mainly narrates the
rules for share capital, registration of unlimited company as limited, and the limited liability of
directors. This part states the rules and procedures for distribution of share capital of
companies and the provisions for reduction of share capital.

Part-IV states the framework for regulating the management and administration of companies,
the requirements for having a registered office of a company with a distinct name at a specific
place, the provisions for penalties for non-disclosure of name, and the way to show the
authorized, subscribed and paid up capital of companies. It contains the procedures and rules
for holding meetings of companies, provisions and procedures for appointment of company
directors, their responsibilities, rights and obligations, powers, tenure, loans to and from a
company, and their relationship with the managers, and managing agents of a company. This
part includes the rules and conditions for appointment of managing agent, the provision for
contracts and execution of deeds, power of companies to use their seal abroad, rules regarding
company prospectus, the powers of a company to pay interests, commissions and discounts
and to allocate and issue additional shares, the provisions for information and procedure as to
mortgage and other unregistered charges. Issuing and redemption of debentures, appointment
of receivers, and their submission of returns, and registration of charges are also the concerns
of this part. It also provides requirements and rules to keep proper accounts, preparation and
submission of balance sheets, other statements and records, as well as provisions for penalty
for not keeping proper books of accounts.

Further, this part states the provisions for statements to be published by banking and certain
other companies; the power of the registrar of joint stock companies to investigate into and
seize any accounts, statements, records and information; the requirements and procedures for
inspection and audit of company affairs; appointment of auditors; their powers and duties,
qualification, remuneration, etc.; provisions for service; issue and authentication of company
documents; provisions for arbitration and compromise; and rules of conversion of private
company into' public company, and protection of interest of minority shareholders.

Part-V of the act provides details of the mode and methods of winding up, liabilities of company
directors, owners of the shares and their successors, procedures and options of winding up,
ordinary and extraordinary power of courts to be involved in the winding up process,
appointment of official liquidator and their powers and duties, settlement of debts of
companies and transfer and distribution of assets and liabilities. Part-VI deals in matters relating
to the registered office/s of companies; appointment of registrar/s by the government; their
powers and responsibilities, payment of registration fees and submission of returns and
documents to registrar by the companies. Part-VII interprets the rules of application of the act
to companies formed and registered under former Companies Acts. Part-VIII identifies and
defines the companies capable of being registered, the various aspects required for registration
and the power to substitute memorandum and articles for deed of settlement, etc.

The main concern of Part-IX of the act is the procedure for winding up of unregistered
companies. This part explains the meaning of unregistered companies; procedure for their
winding up; power to stay or restrain proceedings; suits stayed on winding up order; directions
as to property in certain cases; and the status of provisions of this part cumulative. The
contents of Part-X include the requirements for establishing foreign companies in Bangladesh,
rules for regulating them, preparation, maintenance, audit and submission of their accounts to
the host country regulators; notice for closure of foreign companies in Bangladesh; and
restrictions on sales and offer for sale of shares. Finally, Part-XI is supplemental and relates legal
proceedings, offences, etc. The subject matters elaborated in it are cognizance of offences,
application of fines, power to require limited company to give security for costs, and penalty for
wrongful withholding of property.

The Companies Act has twelve schedules. The following is a list of them along with the section
numbers: Regulation for management of a company limited by shares (sections 2, 17, 18, 86,
367); table of fees to be paid to the registrar (sections 348, 363); particulars of prospectus and
reports incorporated in it (section 135); statement in lieu of prospectus (section 141);
memorandum and articles of associations of the various types of companies; summary of share
capital and lists of shareholders/directors in accordance with Part One of the Companies Act
1994 (section 36); specimen of company balance sheets and instruction for profit and loss
accounts (section 185); and statements to be published by bank and insurance companies,
deposits/provident/welfare associations (section 192).

Trust Act, 1882

An Act to define and amend the law relating to Private Trusts and Trustees.
WHEREAS it is expedient to define and amend the law relating to private trusts and trustees.
The Trust Act has provided for certain restrictions on the investment of trust money. The
Societies Registration Act contains no limitation on investment to be made by a society. A
society cannot be construed as a trust, and the provisions of the Trust Act have no manner of
application in the functioning of a society. Therefore, the embargo in the Trust Act has no
manner of application in the case of any society registered under the Societies Registration Act.
(Per Mahmudul Amin Chowdhury, CJ)
It provides that whenever any vacancy or disqualification in respect of a trustee occurs and it is
found impracticable to appoint a new trustee under section 73 of the Trusts Act, the beneficiary
may apply to the .principal Civil Court of original jurisdiction for the appointment of a trustee or
a new trustee.
If the property is not found abandoned under the law, the possession of the Government is that
of a trustee and transfer by the Government will be in violation of section 94 of the Trust Act.
Insurance Act,1938
The Insurance Act, 1938 is a law originally passed in 1938 in British India to regulate the
insurance sector. It provides the broad legal framework within which the industry operates.
This Act contained provisions regarding matters like definition of insurer and insured,
commission payable to agents, licensing of agents, appointments of staff, register of policies
and register of claims powers of the controller of insurance, acquisition of surrender value by
policy, actuarial report, deposits, investments, loans, valuation of assets and liabilities, account
and balance sheets etc. The Act also contained provisions relating to co constitution,
management and winding up of insurance company. It was applicable to both in life and
general insurance business.
Bank Company Act, 1991

Banking Company Act of Bangladesh that came into force on 14th February, 1991, and that
makes provisions for banking companies. It states that this Act shall not apply to co-operative
banks or any other financial institution registered under the Cooperative Societies Ordinance.
The articles of the Act deal with the following aspects of banking companies:
1) Operations;
2) Prohibited activities;
3) Acquisition of the undertakings;
Suspension of business, winding up and disposal of winding up proceedings. The final articles
deal with provisions in case of violation of the Act.
Financial Institutions Act, 1993
AN ACT to provide for the regulation of banks and other financial institutions which engage in
the business of banking and business of a financial nature, for matters incidental and related
thereto, for the repeal of the Banking Act (Chap. 79: 01) and the Financial Institutions (Non-
Banking) Act, 1979 (Chap. 83: 01) and the re-enactment of certain provisions of those Acts in
consolidated form. 8
Whereas it is expedient to provide for the granting of licenses to financial institutions, their
control and to make other incidental provisions relating thereto;
Anti-Money laundering Act, 2002

Money laundering is now a widely used term. It denotes money acquired by unlawful means
and hiding the source, generally in overseas banks, or otherwise invested but not accounted for
in accordance with law. Black money is the term also used in a more or less similar context. The
legally accepted definition of money laundering is somewhat broader than is ordinarily
perceived.

Nationally and internationally, two factors appear to have dictated the necessity of combatting
money laundering. First, the need to strengthen anti-corruption measures; Second, the
overriding necessity of plugging the sources of financial assistance to acts of terrorism. Both
these factors have been and continue to be matters of global concern.

To prevent money laundering in Bangladesh, the Prevention of Money Laundering Act, 2002
(Act No. VII of 2002) was enacted. The provisions of the said Act having been found insufficient
to prevent money laundering effectively in the year 2008, the non-party caretaker government
promulgated an Ordinance in this respect (Ordinance 12 of 2008). This was examined by the
newly elected government led by the Awami League in 2009. After due process of law-making,
the Prevention of Money Laundering Act, 2009 (Act No. 8 of 2009) was enacted. The Act
consists of 31 sections and repeals the earlier Ordinance of 2008. However, it protects all acts
done or action taken under the preceding Ordinance. The object of the Act is to provide for
continuity of the law and actions taken earlier.
The Act defines 'Money Laundering' by linking it to the commission of what it calls 'predicate
offence'. Sixteen specific offences such as corruption and bribe, counterfeiting currency,
cheating, forgery, theft, robbery or dacoity, smuggling etc. have been described as the
'predicate offences'. In the definition of money laundering, there are a number of ingredients.
First, acquisition of money or other assets through the commission of 'predicate offence', and
to keep secret the illegal source of acquisition of the same, and transfer, transform, sending
abroad or remitting to Bangladesh or bringing the same to Bangladesh or transfer to foreign
countries money or assets acquired with legal or illegal means. Second, completion of
transaction of money or attempting to do the same in the above manner for which there is no
compulsion to report under the Act. Third, any act done which is calculated to keep the illegal
source of acquisition of the said money or asset secret or attempting or abetting the
commission of the act or indulging in conspiracy to do the same act.
The analysis of the definition of Money Laundering given above clearly shows that to constitute
an offence, the money or assets have to be linked to any of the sixteen different offences
described as such to be 'predicate offence'. This list ranges from very serious crimes to theft
including dowry. For each of the sixteen offences specified in the law, there are separate laws.
The key issue is the linkage to money laundering as defined in the Act.
This explains the reason of the scale of punishment prescribed by the Act for the offence of
money laundering. It ranges from a minimum of six months to not exceeding seven years of
imprisonment with provision for seizure of assets.
The Act also provides different scales of punishment for (a) violation of the order of sale of
assets which has been decreed by the court, (b) leakage of information to obstruct investigation
or influence the same, (c) obstruction to investigation by failure to provide the information
needed for investigation and (d) providing false information.
In respect of investigation and trial of offences under the Act, the Anti-Corruption Commission
(ACC) has been given special powers and jurisdiction. Only ACC or any officer authorized by ACC
can investigate offences under the Act. Further, no court can try any of the offences of the Act
unless it is authorized by the Commission. Thus approval to try an offence under the Act is
mandatory for the court to start the trial proceedings. Both of the above restrictions in respect
of investigation and trial thus confer exclusive authority to the ACC. Any investigating officer is
further required to obtain approval to submit report to the court as a step towards starting of
trial proceedings. Only special judges are competent to hold trial under this Act.
The Act overrides the provisions of all other laws. The offences under the Act are cognizable,
non-compoundable and non-bailable. Some restrictions also apply to the grant of bail for
offenders under this Act. There is provision for appeal to the High Court Division of the
Supreme Court of Bangladesh. Further, Bangladesh Bank has been vested with powers and
responsibilities under this Act. The Bangladesh Bank also is required by the Act to establish a
Financial Intelligence Unit (FIU). FIU has to provide and also call for information relating to any
offence to and from other countries in accordance with agreements with the respective country
or countries.'
Therefore, to this end, the Act provides for enabling the government and Bangladesh Bank to
enter into bilateral or multilateral agreements or memorandum of agreement or any other
internationally recognized conventions in order to obtain information in fulfillment of the
objectives of the Act, and also to provide to such countries such information if called for by
them if such information does not constitute a threat to national security. The Act has other
provisions relating to offences by any company.
The Act prohibits any person to file civil or criminal case or take any other measures against the
government or its officer or the organization sending any report even if such action is likely to
cause damage to the person or causes any damage. Such act, however, has to be in good faith.

Regulatory Framework of Capital Market

Regulatory framework refers to the framework by which capital market is run, regulated and
controlled.

The regulatory framework of the capital market of Bangladesh comprises Parliament, the
Ministry of Finance, the Securities and Exchange Commission (SEC), the Dhaka Stock Exchange
Ltd. (SEC) and the Chittagong Stock Exchange (CSE). The Bangladesh Securities and Exchange
Commission (BSEC) is the authority to monitor and control the activities of the stock exchanges
of Bangladesh. The BSEC is controlled by the Ministry of Finance which is obviously empowered
by the Parliament. In spite of the presence of structured and strong regulatory authorities,
surveillant activities of BSEC and DSE and electronic settlement of shares, it is to be
emphatically noted that the capital market had the bitter experience of a nightmarish economic
explosion in the late 2010 and the early 2011 and the regulatory bodies are still in the failure
doldrum zone to regulate the capital market of Bangladesh though a good number of laws are
in force to regulate the functioning of the stock market mechanisms. The research will explore
the loopholes existing in the statutes, ordinances and rules specifically regarding the efficacy of
the regulation of the capital market. The critical investigation and analyses of the regulatory
framework are also the prime concern of this research. At the end of the research, several
recommendations have been categorily made to improve the regulation of the capital market
for a more genuinely effective overall performance.

Intermediaries Infrastructure and Service Provider of Capital Market

Stock Brokers
A stockbroker executes buy and sell orders submitted by investors. Stockbrokers connect the
buyers and sellers of stocks, thereby creating liquidity in the market. Stockbrokers trade on
behalf of individuals and companies, and for their services, stockbrokers charge a flat fee or a
commission, which is a percentage of the sale or purchase price. The growth of discount
brokers on the Internet has made it easier for the general public to invest. But stockbrokers
provide service and expertise that discount brokers don't. Stockbrokers go through extensive
training to learn about securities, and must also pass rigorous licensing exams. There are many
types of brokers, and other licenses are required to trade specific securities, such as
commodities. Stockbrokers advise their clients whether to buy, sell or hold securities. Good
stockbrokers thoroughly research any security on which they make recommendations. And they
will take the time to learn about a clients situation to make suitable recommendations. It’s up
to individual investors to determine if the fees and commissions they pay a stockbroker, which
eat into their returns, is worth the services provided.

Functions Of Stock Brokers:

Customer Service and Recruitment

Stock brokers often must create their own client list – even those who work for larger trading
firms. Customer recruitment and customer service is a large portion of what stock brokers do. A
broker may spend their day calling prospective clients, following up with current clients and
cultivating a relationship with other industry professionals. Since customers rely heavily on their
stock broker to deal with their investments, brokers must help maintain a level of trust and
security by contacting their customers weekly or monthly to update them on their portfolio or
new investment opportunities.

Disclosure and Advisement

Brokers are required to disclose all information related to any investment recommendation –
including risks. Brokers must be honest with their clients and cannot provide false, misleading
or exaggerated statements.

Trade Execution
A stock broker initiates trades – buys and sells – on behalf of their client. This is typically done
electronically, but some brokers execute trades by phone or in-person on a physical trading
floor. Trades depend on what the stock broker feels is necessary for their client’s portfolio at
the time their investments are analyzed.

Client Recommendations
It is imperative that a stock broker fully understand his customer’s investment goals, financial
situation and her risk tolerance. When researching and recommending investments for his
client, a stock broker must do so based on his customer’s needs by selecting investments that
are suitable for her portfolio. For example, a stock broker would not recommend a high-risk
stock for a client with a low-risk portfolio.

Fiduciary Duty and Fair Dealing

Stock brokers earn a living through commissions; therefore, there is a risk for conflict between
a stock broker’s interest and the interests of his clients. The broker, however, has a fiduciary
duty to put the needs of his clients above his own. A stock broker is also subject to the rules
created by regulatory agencies, such as the Financial Industry Regulatory Authority. These
regulatory agencies require all stock brokers to be honest, trade fair and only make trades that
meet the needs of the client – not themselves.

Depositors and Participants

Depository Participant (DP) is described as an Agent (law) of the depository. They are the
intermediaries between the depository and the investors. The relationship between the DPs
and the depository is governed by an agreement made between the two under the
Depositories Act. In a strictly legal sense, a DP is an entity who is registered as such with SEBI
under the sub section 1A of Section 12 of the SEBI Act. As per the provisions of this Act, a DP
can offer depository-related services only after obtaining a certificate of registration from SEBI.

Depository is an institution or a kind of organization which holds securities with it in De-Mat

form, in which trading is done among shares, debentures, mutual funds, derivatives, F&O and
commodities. The intermediaries perform their actions in variety of securities at Depository on
behalf of their clients. These intermediaries are known as Depositories Participants (DPs).
Fundamentally, There are two sorts of depositories in India . One is the
National Securities Depository Limited (NSDL) and the other is the Central Depository Service
(India) Limited (CDSL). Every Depository Participant(DP) needs to be registered under this
Depository before it begins its operation.

Service provided by Depositories :

Dematerialization (usually known as demat) is converting physical certificates of Securities to

electronic form.
Rematerialization, known as remat, is reverse of demat, i.e. getting physical certificates from
the electronic securities
Transfer of securities, change of beneficial ownership
Settlement of trades done on exchange connected to the Depository
Pledging and Unpledging of Securities for loan against shares
Corporate action benefits directly transfer to the Demat and Bank account of customer.

Custodian Services:
A custodian bank , or simply custodian , is a specialized financial institution responsible for
safeguarding a firm's or individual's financial assets and is not engaged in "traditional"
commercial or consumer/retail banking such as mortgage or personal lending, branch banking ,
personal accounts, Automated Teller Machines (ATMs) and so forth. The role of a custodian in
such a case would be to:
hold in safekeeping assets/securities such as stocks , bonds , commodities such as
precious metals and currency (cash), domestic and foreign
arrange settlement of any purchases and sales and deliveries in/out of such securities and
currency
collect information on and income from such assets ( dividends in the case of stocks/equities
and coupons (interest payments) in the case of bonds) and administer related
tax withholding documents and foreign tax reclamation
administer voluntary and involuntary
corporate actions on securities held such as stock dividends, stock splits, business combinations
(mergers ), tender offers , bond calls, etc.
provide information on the securities and their issuers such as annual general meetings and
related proxies
maintain currency/cash bank accounts, effect deposits and withdrawals and manage other cash
transactions
perform foreign exchange transactions
often perform additional services for particular clients such as mutual funds; examples include
fund accounting, administration, legal, compliance and tax support services
Using US definitions, a person who owns street name securities and who is not a member of an
exchange, holds the securities through a registration chain which involves one or more
custodians. This is due to the perceived impracticality of registering traded securities in the
name of each individual holder; instead, the custodian or custodians are registered as the
holders and hold the securities in a fiduciary arrangement for the ultimate security holders.
However, the ultimate security holders are still the legal owners of the securities. They are not
merely beneficiaries of the custodian as a trustee. The custodian does not become at any point
the owner of the securities, but is only a part of the registration chain linking the owners to the
securities. Global securities safekeeping practices vary substantially with markets such as the
UK, Australia and South Africa encouraging designated securities accounts in order to permit
shareholder identification by companies.

Share Transfer Agencies:

It means any person who maintains the record of holders of securities and deals with all the
matters connected with the transfer or redemption of securities or activates incidental thereto
of the Finance Act, 1994.
The work basically done by the transfer agents are as follows:
1. Issue, cancel and transfer securities.

2. Monitor issuances to prevent unauthorized issuances.

3. Track, record, maintain and update an official record each security issued by the

company.
4. Facilitate shareholders communications.

5. Make dividend, principal, interest and other distributions to shareholders.

Credit Rating Agencies:

A credit rating agency ( CRA , also called a
ratings service ) is a company that assigns
credit ratings , which rate a debtor's ability to pay back debt by making timely principal and
interest payments and the likelihood of default. An agency may rate the creditworthiness of
issuers of debt obligations, of debt instruments, and in some cases, of the servicers of the
underlying debt, but not of individual consumers.
The debt instruments rated by CRAs include
government bonds , corporate bonds , CDs ,
municipal bonds , preferred stock , and collateralized securities, such as mortgage-backed
securities and collateralized debt obligations .
The issuers of the obligations or securities may be companies, special purpose entities , state or
local governments, non-profit organizations , or sovereign nations.A credit rating facilitates the
trading of securities on a
secondary market . It affects the interest rate that a security pays out, with higher ratings
leading to lower interest rates. Individual consumers are rated for creditworthiness not by
credit rating agencies but by credit bureaus (also called consumer reporting agencies or credit
reference agencies), which issue credit scores.

A chart can signify the CRG associated with their risk levels:

Services are offered by them:

 Advisory services.
 Rating services.
 Information services.
 Grading services.
 Analysis & Research services.
Debentures and trustees:

Under the Section 71 (5) of the Companies Act, 2013, “no company shall issue a prospectus or
make an offer or invitation to the public or to its members exceeding five hundred for the
subscription of its debentures, unless the company has, before such issue or offer, appointed
one or more debenture trustees and the conditions governing the appointment of such trustees
shall be such as may be prescribed”. Under the rule 18 (2) Companies (Share Capital and
Debentures) Rules, 2014 the company can appoint debenture trustees if the following
conditions are fulfilled-

The rate of redemption cannot exceed 10 years from the date of issue. The company which has
been engaged in setting up of infrastructure projects can issue security debentures crossing 10
years but cannot exceed 30 years.
The issue of debentures should be secured by creation of a charged.
The security of debentures by the way of charge should be treated in the favour of debenture
trustee.

DUTIES OF DEBENTURES TRUSTEES

Under section 71 (6) of the Companies Act 2013, the company must take the steps to protect
the interest of the debenture holders. The duties of every debenture trustees is mentioned
under the rule 18 (3) of the Company’s Rule 2014. These rules are-

There should not be something which is uncertain or inconsistent with the terms of issue
debentures.
The debenture holders must be satisfied in the trust deeds and debenture Trustee should act in
the interest of debenture holders.
Debenture trustees can call for the performance report from the company. There should be a
proper conversation between Debenture holder’s default regarding to the payment of interest
or redemption of debentures.
A nominee director should be appointed on the board of the company in the event of-
“(i) Two consecutive defaults in payment of interest to the debenture holders

(ii) Default in creation of security for debentures

(iii) Default in redemption of debentures.”

The debenture trustee must ensure that there is proper implementation of the conditions
regarding the creation of security for the debentures. When there is any breach of the terms of
issue of Debenture the Debenture Trustee must inform immediately the debenture holders
about this. The trustees of debenture must ensure that the debentures have been properly
converted as per the terms of issue of debentures.