CHAPTER I

INTRODUCTION

1.1 INTRODUCTION

The SEBI, that is, the Securities and the Exchange Board of India, is the national regulatory
body for the securities market, set up under the securities and Exchange Board of India act,
1992, to “protect the interest of investors in securities and to promote the development of,
and to regulate the securities market and for matters connected therewith and incidental too.”

SEBI has its head office in Mumbai and it has now set up regional offices in the metropolitan
cities of Kolkata, Delhi, and Chennai. The Board of SEBI comprises a Chairman, two
members from the central government representing the ministries of finance and law, one
member from the Reserve Bank of India and two other members appointed by the central
government. As per the SEBI act, 1992, the power and functions of the Board encompass the
regulation of Stock Exchanges and other securities markets; registration and regulation of the
working stock brokers, sub-brokers, bankers to an issue (a public offer of capital), trustees of
trust deeds, registrars to an issues, merchant bankers, under writers, portfolio managers,
investment advisors and such other intermediaries who may be associated with the stock
market in any way; registration and regulations of mutual funds; promotion and regulation of
self- regulatory organizations; prohibiting Fraudulent and unfair trade practices and insider
trading in securities markets; conducting necessary research for above purposes and
performing such other functions as may be prescribes from time to time.

SEBI as the watchdog of the industry has an important and crucial role in the market in
ensuring that the market participants perform their duties in accordance with the regulatory
norms. The Stock Exchange as a responsible Self Regulatory Organization (SRO) functions
to regulate the market and its prices as per the prevalent regulations. SEBI and the Exchange
play complimentary roles to enhance the investor protection and the overall quality of the
market.

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1.2 THE PURPOSE AND OBJECTIVE OF SEBI

Purpose and Role of SEBI:

SEBI was set up with the main purpose of keeping a check on malpractices and protect the
interest of investors. It was set up to meet the needs of three groups

1. Issuers:
For issuers it provides a market place in which they can raise finance fairly and easily.

2. Investors:
For investors it provides protection and supply of accurate and correct information.

3. Intermediaries:
For intermediaries it provides a competitive professional market.

1.3 FUNCTIONS OF SEBI

The SEBI performs functions to meet its objectives. To meet three objectives SEBI has three
important functions. These are:

i. Protective functions

ii. Developmental functions

iii. Regulatory functions.

1. PROTECTIVE FUNCTIONS:
These functions are performed by SEBI to protect the interest of investor and provide safety
of investment.

As protective functions SEBI performs following functions:

(i) It Checks Price Rigging:

Price rigging refers to manipulating the prices of securities with the main objective of
inflating or depressing the market price of securities. SEBI prohibits such practice because
this can defraud and cheat the investors.

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(ii) It Prohibits Insider trading:
Insider is any person connected with the company such as directors, promoters etc. These
insiders have sensitive information which affects the prices of the securities. This information
is not available to people at large but the insiders get this privileged information by working
inside the company and if they use this information to make profit, then it is known as insider
trading, e.g., the directors of a company may know that company will issue Bonus shares to
its shareholders at the end of year and they purchase shares from market to make profit with
bonus issue. This is known as insider trading. SEBI keeps a strict check when insiders are
buying securities of the company and takes strict action on insider trading.

(iii) SEBI prohibits fraudulent and Unfair Trade Practices:

SEBI does not allow the companies to make misleading statements which are likely to induce
the sale or purchase of securities by any other person.

(iv) SEBI undertakes steps to educate investors so that they are able to evaluate the securities
of various companies and select the most profitable securities.

(v) SEBI promotes fair practices and code of conduct in security market by taking following
steps:
(a) SEBI has issued guidelines to protect the interest of debenture-holders wherein companies
cannot change terms in midterm.

(b) SEBI is empowered to investigate cases of insider trading and has provisions for stiff fine
and imprisonment.

(c) SEBI has stopped the practice of making preferential allotment of shares unrelated to
market prices.

2. DEVELOPMENTAL FUNCTIONS:
These functions are performed by the SEBI to promote and develop activities in stock
exchange and increase the business in stock exchange. Under developmental categories
following functions are performed by SEBI:

(i) SEBI promotes training of intermediaries of the securities market.

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(ii) SEBI tries to promote activities of stock exchange by adopting flexible and adoptable
approach in following way:

(a) SEBI has permitted internet trading through registered stock brokers.

(b) SEBI has made underwriting optional to reduce the cost of issue.

(c) Even initial public offer of primary market is permitted through stock exchange.

3. REGULATORY FUNCTIONS:
These functions are performed by SEBI to regulate the business in stock exchange. To
regulate the activities of stock exchange following functions are performed:

(i) SEBI has framed rules and regulations and a code of conduct to regulate the intermediaries
such as merchant bankers, brokers, underwriters, etc.

(ii) These intermediaries have been brought under the regulatory purview and private
placement has been made more restrictive.

(iii) SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer
agents, trustees, merchant bankers and all those who are associated with stock exchange in
any manner.

(iv) SEBI registers and regulates the working of mutual funds etc.

(v) SEBI regulates takeover of the companies.

(vi) SEBI conducts inquiries and audit of stock exchanges.

REGULATORY FUNCTIONS
 R e g u l a t i o n o f s t o c k e x c h a n g e , s e l f r e g u l a t o r y organizations and any other
securities market.
 Registration and regulation of stock brokers, sub-brokers, Registrars to all
issues, merchant bankers, underwriters, portfolio managers etc.
 Registration and regulation of the working of collective investment schemes
including mutual funds.

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  P r o h i b i t i o n o f f r a u d u l e n t a n d u n f a i r t r a d e practices relating to securities
market.
 Prohibition of insider trading.
 Regulating substantial acquisition of shares and takeover of companies.
I. Inspection of Stock Exchanges: On-site supervision through inspection of stock
exchanges is considered an effective regulatory tool. Under the policy of risk-based
supervision which has been adopted from the year under review, stock exchanges having a
significant turnover were taken up for onsite inspection. These were The Bombay Stock
Exchange ( BSE), Calcutta Stock Exchange (CSE), National Stock Exchange (NSE), Inter
Connected Stock Exchange( ISE), Ludhiana Stock Exchange (LSE), Hyderabad Stock
Exchange (HS E ) and Ahmedabad Stock Exchange (ASE).

II. Inspection of Subsidiaries of Stock Exchanges

A. Six subsidiaries of stock exchanges were inspected during the financial year 2002-03 viz
ASE Ca p i t a l Ma r k e t s Ltd ( ACML –Subsidiary of ASE), ISE Securities &
Services Ltd (ISS - Subsidiary of ISE), LSE Securities Ltd (LSESL - Subsidiary of LSE) ,
HSE Securities Ltd (HSESL - Subsidiary of HSE), SKSE Securities Ltd (SKSESL -
Subsidiary of Saurashtra Kutch Stock Exchange) and VSE Securities Ltd (VSL- Subsidiary
of Vadodara Stock Exchange). A special inspection of MPSE Securities Ltd (MPSESL –
Subsidiary of MPSE) was carried out. Follow up action included discussion with the parent
exchanges of the subsidiaries. Letters of displeasure were issued to the parent stock
exchanges of those subsidiaries for which findings were serious as well as those which failed
to comply with suggestions/observations of inspection reports.

III. Restructuring of Management of Subsidiaries: The inspection of the subsidiaries of

stock exchanges revealed deficiencies in their functioning and risk management systems The
management structure of the subsidiaries needed to undergo change in order to enable them
to be able to provide a safe and transparent market and effectively discharge their
responsibilities towards investor protection. A Circular dated February 11, 2003 has,
therefore, been issued to stock exchanges directing them to carry out the changes in
management structure of their subsidiaries.

IV. Illegal Trading in Securities

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It had come to the notice of the SEBI that certain persons were engaging in trading in
securities outside the purview of the stock exchanges (‘illegal trading in securities’). Such
trading particularly in Gujarat has come to be known as ‘DABBA’ trading. There were also
reports in the media regarding illegal use of terminals provided to the brokers by the National
Stock Exchange in Kolkata and other places. Media had also reported Kerb trading in the
cities of Kanpur, Kolkata, Mathura, Ahmedabad, Rajkot and Mumbai. Since these activities
are illegal and pose a systemic risk besides luring common investors into the net the Board
tool immediate action by sending t e a m s t o some cities of Gujarat viz . Ahmedabad,
Vadodara and Rajkot to conduct surprise inspections. Since it is not possible to identify the
persons who carry on these activities the Chief Ministers of all the States were requested
through letters and reminders to use the local police force to check these illegal activities.
NSE, BSE and other Stock Exchanges were altered to verify involvement of their members
and take coercive action. The public were also cautioned through a notice issued in the
newspapers in English, Hindi and major regional languages about the illegal activities and
educating them about the perils of such illegal trades.

1.4 REGISTRATION AND REGULATION OF COLLECTIVE INVESTMENT

SCHEMES INCLUDING MUTUAL FUNDS

I. Registration of Collective Investment Schemes (CIS) Subsequent to the notification of

Regulations, SEBI had received applications for grant of registration from 50 CIS entities.
Out of these 50 CIS entities, SEBI had granted provisional registration to six CIS
entities, w h i l e applications of 44 CIS entities were rejected and they were ordered to wind
up their schemes and make repayment to their investors. During the year 2002-2003, the
provisional registration granted to one CIS entity expired. Thus, the total number of
provisionally registered CIS entities is five.

In terms of Regulations, an existing collective investment scheme which has (i) failed to
make an application for registration to the Board; or (ii) not been granted provisional
registration by the Board; or (iii) having obtained provisional registration fails to comply
with the provisions of Regulation 71; or (iv) is not desirous of obtaining provisional
registration; is required to wind up its existing schemes, make repayment to the investors and
thereafter submit “Winding up and Repayment Report ” to SEBI . SEBI has received
“Winding up and Repayment Report” from 57 CIS entities. Prosecution under Section 24 of
SEBI Act, 1992 has been filed by SEBI against 139 erring CIS entities. Other actions such as

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debarring the promoters/ directors/ managers/ persons in charge of the business of the scheme
from operating in the capital market; writing to the State Governments to register civil/
criminal cases against the erring entities for apparent offences of fraud, cheating criminal
breach of trust and misappropriation of public funds; writing to the Department of Company
Affairs to initiate the process of winding up of the erring 555 CIS entities has also been taken
up. Requests have been made to police authorities to file the First Information Reports
against 49 CIS entities for offences such as criminal breach of trust, cheating, etc. In CWP
No. 3352/98 in the matter of Shri. S. D Bhattacharya and others vs. SEBI, the Hon’ble High
Court, Delhi impleaded all the CIS entities. Earlier, the court had, inter-alia, restrained them
from selling, disposing of and /or alienating their immovable properties or parting with the
possession of the same. Their directors had also been interdicted from transferring their
immovable property in any manner whatsoever. The Hon’ble High Court also made it clear
that its order will not come in the way of companies intending to refund the money to their
investors. In an order dated January 22, 2002, the Hon’ble High Court h a s ordered to
freeze the bank accounts of 513 erring CIS entities and their directors/promoters till they
comply with the regulations / SEBI Directions regarding repayment to their investors.

II. Mutual Funds Registered with SEBI during the year, registration was granted to two new
mutual funds in the private sector viz HSBC Mutual Fund and Deutsche Mutual Fund. With
the enactment of the UTI (Repealment Ordinance), the UTI was divided into the UTI-I and
UTI-II. UTI-II known as UTI Mutual Fund was registered with SEBI on January 14, 2003.
During the year 2002-03, the certificate of registration granted to two mutual funds was
cancelled viz JF Mutual Fund (formerly known as Jardine Fleming Mutual Fund) and Pioneer
ITI Mutual Fund (formerly known as Kothari Pioneer Mutual Fund). In case of JF Mutual
Fund, the schemes were taken over by Sun F&C Mutual Fund whereas the schemes of
Pioneer ITI Mutual Fund were merged with Templeton Mutual Fund.

III. Venture Capital Funds

A. Domestic and Foreign Venture Capital Funds During the year, registration was granted to
nine new domestic venture capital funds (DCVFs). Registration was also granted to four
foreign Venture Capital Investors (FVCIs).

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1.5 PROMOTION AND REGULATION OF SELF REGULATORY
ORGANISATIONS

I. Development of Stock Exchanges as Self Regulatory Organizations There are 23 stock

exchanges recognized under Section 4 of the Securities Contracts (Regulation) Act,
1956.These exchanges were recognized /set up over a period of time to stimulate growth of
capital market through channelising the savings of individuals and small investors. These
exchanges are suitably empowered by the section 9 of SC(R)A, 1956 to make bye laws for
the conduct of business, regulation and control of contracts. SEBI is contemplating
development of Self Regulatory Organizations(SROs) for market intermediaries. Stock
exchanges are already acting as SROs and the SRO structure needs to be strengthened
further. The objective for promoting intermediaries like Stock Exchanges as Self Regulatory
Organizations (SROs) is that since they have a better feel on the ground reality, they should
take care of the micro aspects of regulation. The other inherent advantages of self regulation
are:

a. Self regulation becomes the responsibility of market professionals and may result in greater
acceptance of rules by the members of SRO.

b. It also provides market players with greater flexibility to respond to securities market.

c. It avoids duplication of responsibilities: it is observed over years of experience that if the

regulatory body gets into micro r e g u l a t i o n , i t loses the sight of fundamentals and
lands up in duplication of responsibilities, besides d. SROs are expected to have a better
understanding of ground realities. However, for any organization /body like Stock Exchange
to effectively function as an SRO, it is necessary that it has the capacity to enforce
compliance to byelaws, rules and regulations laid down by itself. Further, these SROs should
be able to enforce and establish r u l e s w h i c h p r e v e n t f r a u d u l e n t a n d
manipulative trade practices and promote just and equitable principles of trade. Presently
such powers are conferred to the exchanges by the section 9 of SC(R)A, 1956 whereby they
can make bye laws for the conduct of business, regulation and control of contracts. However,
developing Stock Exchanges as Self Regulatory Organizations and enhancing their effective
regulatory role puts additional responsibility on SEBI to ensure that SROs are efficiently
carrying out/conducting their monitoring responsibilities.

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1.6 INVESTOR EDUCATION AND THE TRAINING OF INTERMEDIARIES

I. Securities Market Awareness

Campaign: SEBI, launched the nation-wide Securities Market Awareness Campaign to

empower investors with education in the securities market in a ceremony held at Vigyan
Bhawan, N e w Delhi on January 17, 2003. T h e campaign was
inaugurated by Shri A.B. Vajpayee, Hon’ble Prime Minister, and Republic of India. Shri
Jaswant Singh, Hon’ble Union Minister for Finance and Company Affairs delivered the
keynote address. Several prominent personalities contributing to the growth of the Indian
Securities Market and other eminent personalities were also present. The inaugural session of
the programme featured a curtain raiser audio vis -ual encompassing the theme of the
campaign “Empowering Investors – A SEBI Initiative”. It showed that people in India have
respect for money but treat it with a little knowledge. A mnemonic especially created by Shri
R.K. Laxman, for the SEBI campaign was also unveiled by Hon’ble Prime Minister. The
inaugural session was followed by three technical sessions where in discussions
emphasising empowerment of investors through education and the roles played by
intermediaries, issuers and professionals in investor education were held by eminent
personalities. This campaign is expected to sustain the felt need for investor education and
awareness across the country.

7. PROHIBITION OF INSIDER TRADING

8. SUBSTANTIAL ACQUISITION OF SHARES AND TAKE-OVERS

9. INSPECTION AND INQUIRIES

1.7 DUTIES AND POWERS OF SEBI

DUTIESOF SEBI:
 Regulation of Stock Exchanges and other securities markets;
 Registration and regulation of the working stock brokers, sub-brokers, bankers to
an issue (a public offer of capital), trustees of trust deeds, registrars to an issues,
merchant bankers, under writers, portfolio managers, investment advisors and
such other intermediaries who may be associated with the stock market in any
way;
 Registration and regulations of mutual funds;

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  Promotion and regulation of self- regulatory organizations;
 Prohibiting Fraudulent and unfair trade practices and insider trading in securities
markets;
 Regulating substantial acquisition of shares and takeover of companies; calling
for information from, undertaking inspection, conducting inquiries and audits of
stock exchanges, intermediaries and self- regulatory organizations of the securities
market;
 Performing such functions and exercising such powers as contained in the
provisions of the Capital Issues (Control) Act,1947 and the Securities Contracts
(Regulation) Act, 1956, levying various fees and other charges, conducting
necessary research for above purposes and performing such other functions as
may be prescribes from time to time.

POWERS OF SEBI

For the discharge of its functions efficiently, SEBI has been invested with the necessary
powers which are:

1. To approve by−laws of stock exchanges.

2. To require the stock exchange to amend their by−laws.
3. Inspect the books of accounts and call for periodical returns from recognized stock
exchanges.
4. Inspect the books of accounts of financial intermediaries.
5. Compel certain companies to list their shares in one or more stock exchanges.
6. Levy fees and other charges on the intermediaries for performing its functions.
7. Grant license to any person for the purpose of dealing in certain areas.
8. Delegate powers exercisable by it.
9. Prosecute and judge directly the violation of certain provisions of the companies Act.
10.Power to impose monetary penalties.
REASONS FOR ESTABLISHMENT OF SEBI:
With the growth in the dealings of stock markets, lot of malpractices also started in stock
markets such as price rigging, ‘unofficial premium on new issue, and delay in delivery of
shares, violation of rules and regulations of stock exchange and listing requirements. Due to
these malpractices the customers started losing confidence and faith in the stock exchange. So

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government of India decided to set up an agency or regulatory body known as Securities
Exchange Board of India (SEBI).

The Organizational Structure of SEBI:

1. SEBI is working as a corporate sector.

2. Its activities are divided into five departments. Each department is headed by an executive
director.

3. The head office of SEBI is in Mumbai and it has branch office in Kolkata, Chennai and
Delhi.

4. SEBI has formed two advisory committees to deal with primary and secondary markets.

5. These committees consist of market players, investors associations and eminent persons.

ELIGIBILITY NORMS FOR COMPANIES ISSUING SECURITIES

Conditions for issue of securities

(The companies issuing securities offered through an offer document shall satisfy the
following at the time of filing the draft offer document with SEBI30 and also at the time of
filing the final offer document with th Registrar of Companies/ Designated Stock Exchange :)

Filing of offer document

No issuer company shall make any public issue of securities, unless a draft Prospectus has
been filed with the Board through a Merchant Banker, at least 30 days prior to the filing of
the Prospectus with the Registrar of Companies (ROC):
Provided that if the Board specifies changes or issues observations on the draft Prospectus
(without being under any obligation to do so), the issuer company or the Lead Manager to the
Issue shall carry out such changes in the draft Prospectus or comply with the observations
issued by the Board before filing the Prospectus with ROC.
Provided further that the period within which the Board may specify changes or issue
observations, if any, on the draft Prospectus shall be 30 days from the date of receipt of the
draft Prospectus by the Board.

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Provided further that where the Board has sought any clarification or additional
information from the Lead Manager/s to the Issue, the period within which the Board may
specify changes or issue observations, if any, on the draft Prospectus shall be 15 days from
the date of receipt of satisfactory reply from the Lead Manager/s to the Issue.
Provided further that where the Board has made any reference to or sought any clarification
or additional information from any regulator or such other agencies, the Board may specify
changes or issue observations, if any, on the draft Prospectus after receipt of comments or
reply from such regulator or other agencies.
Provided further that the Board may specify changes or issue observations, if any, on the
draft Prospectus only after receipt of copy of in-principle approval from all the stock
exchanges on which the issuer company intends to list the securities proposed to be offered
through the Prospectus.) (No listed issuer company shall make any rights issue of securities,
33(where the aggregate value of such securities, including premium, if any, exceeds Rs. 50
lacs,) unless a draft letter of offer has been filed with the Board, through a Merchant Banker,
at least 30 days prior to the filing of the letter of offer with the Designated Stock Exchange
(DSE).
Provided that if the Board specifies changes or issues observations on the draft Letter of
Offer (without being under any obligation to do so), the issuer company or the Lead Manager
to the Issue shall carry out such changes in the draft Letter of Offer or comply with the
observations issued by the Board before filing the Letter of Offer with DSE.
Provided further that the period within which the Board may specify changes or issue
observations, if any, on the draft Letter of Offer shall be 30 days from the date of receipt of
the draft Letter of Offer by the Board.
Provided further that where the Board has sought any clarification or additional
information from the Lead Manager/s to the Issue, the period within which the Board may
specify changes or issue observations, if any, on the draft Letter of Offer shall be 15 days
from the date of receipt of satisfactory reply from the Lead Manager/s to the Issue.
Provided further that where the Board has made any reference to or sought any clarification
or additional information from any regulator or such other agencies, the Board may specify
changes or issue observations, if any, on the draft Letter of Offer after receipt of comments or
reply from such regulator or other agencies .
Provided further that the Board may specify changes or issue observations, if any, on the
draft Letter of Offer only after receipt of copy of in-principle approval from all the stock

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exchanges on which the issuer company intends to list the securities proposed to be offered
through the Letter of Offer.)
Companies barred not to issue security
No company shall make an issue of securities if the company has been prohibited from
accessing the capital market under any order or direction passed by the Board.
Application for listing
No company shall make any public issue of securities unless it has made an application for
listing of those securities in the stock exchange
(s).35(Provided that in case of an unlisted company making an Initial Public Offer, the
company shall make an application for listing of those securities on at least one stock
exchange having nationwide trading terminals.)

Issue of securities in dematerialised form

No company shall make public or rights issue or an offer for sale of securities, unless:
(a) the company enters into an agreement with a depository for dematerialisation of securities
already issued or proposed to be issued to the public or existing shareholders; and (b) the
company gives an option to subscribers/ shareholders/ investors to receive the security
certificates or hold securities in dematerialised
form with a depository.
Explanation:
A “depository” shall mean a depository registered with the Board under the Securities and
Exchange Board of India (Depositories and Participants) Regulations, 1996. (Initial Public
Offerings by Unlisted Companies) (An unlisted company may make an initial public
offering (IPO) of equity shares or any other security which may be converted into or
exchanged with equity shares at a later date, only if it meets all the following conditions:
(a) The company has net tangible assets of at least Rs. 3 crores in each of the preceding 3 full
years (of 12 months each), of which not more than 50% is held in monetary assets:
Provided that if more than 50% of the net tangible assets are held in monetary assets, the
company has made firm commitments to deploy such excess monetary assets in its
business/project; (b) The company has a track record of distributable profits in terms of
Section 205 of the Companies Act, 1956, for at least three (3) out of immediately preceding
five (5) years;
Provided further that extraordinary items shall not be considered for calculating
distributable profits in terms of Section 205 of Companies Act, 1956;
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(c) The company has a net worth of at least Rs. 1 crore in each of the
preceding 3 full years (of 12 months each); (d) In case the company has changed its name
within the last one year, atleast 50% of the revenue for the preceding 1 full year is earned by
the company from the activity suggested by the new name; and
(e) The aggregate of the proposed issue and all previous issues made in the same financial
year in terms of size (i.e., offer through offer document + firm allotment + promoters’
contribution through the offer document), does not exceed five (5) times its pre-issue
networth as per the audited balance sheet of the last financial year.)
(An unlisted company not complying with any of the conditions specified in Clause 2.2.1
may make an initial public offering (IPO) of equity shares or any other security which may be
converted into or exchanged with equity shares at a later date, only if it meets both the
conditions (a) and (b) given below:
Management of SEBI:

As noted above, SEBI is statutory Board i.e. Board formedunder Statue. The Board shall be
headed by a chairman. In addition, there will be eightmembers:

(a) Two members from amongst the officials of the Ministries of the Central
Government dealing with Finance and Law;

(b) One member from amongst the officials of the Reserve bank of India;

(c) Five other members of who at least three shall be the whole time members. Thus, there
are nine members including chairman. Accordingly to section 4(2) of the Act, this Board
exercise general superintendence, direction and management of the affairs of the SEBI. The
Chairman of the Board can exercise all powers of the Board, except those specified in the
regulations framed under SEBI Act. The Chairman and the members are appointed by the
Central Government except that member from Reserve Bank of India is appointed by the
RBI. The Chairman and other members shall be persons of ability, integrity and standing who
have shown capacity in dealing with problems relating to securities market and have special
knowledge or experience of law, finance, economics, accountancy, administration etc.

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1.8 SEBI COMMITTEES

1. Technical Advisory Committee

2. Committee for review of structure of market infrastructure institutions
3. Members of the Advisory Committee for the SEBI Investor Protection and Education
Fund
4. Takeover Regulations Advisory Committee
5. Primary Market Advisory Committee (PMAC)
6. Secondary Market Advisory Committee (SMAC)
7. Mutual Fund Advisory Committee
8. Corporate Bonds & Securitization Advisory Committee
9. Takeover Panel
10.SEBI Committee on Disclosures and Accounting Standards (SCODA)
11.High Powered Advisory Committee on consent orders and compounding of offences
12.Derivatives Market Review Committee
1.9 ACHIEVEMENTS OF SEBI

Guidelines to Issuing Companies:

The SEBI had issued detailed guidelines for all companies — old as well as new — for
disclosure of information and protection of the interests of investors. The guidelines relate to
first issue of new companies, first issue by existing companies, issue of convertible
debentures, etc. The guidelines are in addition to other legal provisions in existence.

The purpose is to reduce the cost of issue. The purpose behind issuing these guidelines is to
give protection to small investors and avoid their exploitation due to misleading information.
The SEBI can take action against companies if these guidelines are not followed in the right
spirit. The SEBI may issue fresh guidelines from time-to-time. This suggests that SEBI has
now effective control on the new issue market. This is one achievement of SEBI.
Regulation of Portfolio Management Services:

The highly infringed portfolio management services (PMS) were placed under the regulation
of SEBI since January 11, 1993. The violations of the PMS scheme and similar schemes
offered by various banks and merchant banking subsidiaries had come to light during the
securities scam.
It is noticed that the role of RBI as supervisory head had been highly inefficient in regard to

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PMS. The same is the case with the Finance Ministry. SEBI has now been entrusted with the
job of policing the portfolio managers and provide adequate protection to the investors. This
is a good beginning on the part of SEBI and can be treated as one achievement of SEBI.
Regulation of Mutual Funds:

The Mutual Funds were placed under SEBI control on January 20, 1993. Next to portfolio
management services, it is the fifth financial activity to be brought under SEBI’s regulatory
framework. Mutual funds have been barred from indulging in option trading, short selling or
carrying forward transactions in securities. Permission has been granted to invest only in
transferable securities in the money/capital market.

Action for Delays in Transfers and Refunds:

SEBI has prosecuted many companies for delaying share transfers and for delay in refund of
public issue money. This step gives protection to investors and avoids their exploitation
through delayed payments.

Issue of guidelines to intermediaries:

In 1991, the Narasimham Committee made certain recommendations relating to capital

market. It suggested that SEBI should formulate a new set of guidelines to protect investors.
By issuing different types of guidelines, the SERI has executed this recommendation of the
Committee and have –issued guidelines to intermediaries. This is an example of positive role
of SEBI

Guidelines on Takeovers and Mergers:

SEBI has issued guidelines as regards takeovers and mergers. The purpose is to ensure
transparency in acquisition of shares, fair and truthful disclosure through public
announcement and avoidance of unfair practices in takeovers and mergers. The guidelines
issued by SEBI are for the protection of the interest of small investors.

Education and Guidance of Investors:

SEBI has brought out number ofpublications for the education and guidance of investors and
other intermediaries. The publications include Investors’ Grievances – Rights and Remedies,
Merchant Bankers – Rules and Regulations, SEBI Act – 1992, SEBI Market Review and
SEBI News letter.

Regulation of Foreign Institutional Investors:

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SEBI has started the registration of foreign institutional investors. This is in pursuance of the
government guidelines for investments by foreign institutional investors issued in September,
1992. This is a step in the right direction for effective control on such investors who are likely
to invest on a massive scale in the near future.

Control on Merchant Banking:

Merchant banking has been statutorily brought under the regulatory framework of SEBI.
Merchant bankers are now to be authorized SEBI. They have to adopt the stipulated capital
adequacy norms, abide by the code of conduct which specifies a high degree of responsibility
towards investors in respect of pricing and premium fixation of issues and disclosures in the
prospectus.

REGULATORY FRAMEWORK OF SECURITIES AND EXCHANGE BOARD OF

INDIA (SEBI)

SEBI acts as a developer and regulator of the capital market in India. SEBI has delegated
powers to two exchanges (Bombay Stock Exchange, National Stock Exchange) to ensure that
their members adhere to the SEBI regulations and instructions.

The total market capitalization as on March 31, 2011 of listed companies in India at Bombay
Stock Exchange is RS.68, 39,084 crores as per SEBI’s annual report for the year ending
March 31, 2011.

Some of the roles that the SEBI performs as a market regulator are:

 To regulate the market by creating rules for functioning of various products.

 To approve/amend the laws of stock exchanges.
 To inspect the books of accounts and call for periodical returns from recognized stock
exchanges.
 To inspect the books of accounts of financial intermediaries and levy fees/charges on
them.
 To prohibit and prevent insider trading.
 To regulate the issues of capital and debt in primary and secondary market.
 To prevent unfair trade practices and market manipulation.

17
1.10 SEBI AND CORPORATE GOVERNANCE

SEBI has set out corporate governance provisions that are intended to drive in a minimum
standard of corporate governance among listed companies in India. This is issued as a part of
the listing agreement that each listed company signs with the stock exchange under the title
‘clause 49’.clause 49 remains the most significant corporate governance reform and
established a new corporate governance regime.

Like Corporate Governance standards in the United States and United Kingdom, India’s
corporate governance reforms followed fiduciary and agency cost model of corporate
governance. These norms lay criterions for:

 Appointment of independence directors in boards.

 Appointment, compositions and power of audit committee.
 Compensation that can be paid to non executive directors.
 Functioning of remuneration committee, investor’s grievances redressal
committee.
 Certification by CEO/CFO on adequacy of internal control system, correctness
of the reported financials.
 Whistle blower policy

Study on state of corporate governance in India.

Eventually, compliance of corporate governance must be carried out by:

 Issuer companies
 Stock exchanges
 Central securities depositors
 Stock brokers
 Mutual funds
 Foreign institutional funds
 Investment banks
 Depository participants
 Credit rating agencies
 Venture funds
 Registrars and underwriters

18
1.11 DIFFERENT DEPARTMENTS OF SEBI

1. Market Intermediaries Regulation and Supervision Department:

The Market Intermediaries Regulation and Supervision Department is responsible for the
registration, supervision, compliance monitoring and inspections of all market intermediaries
in respect of all segments of the markets viz. equity, equity derivatives, debt and debt related
derivatives.

2. Market Regulation Department:

Responsible for supervising the functioning and operations (except relating to derivatives) of
securities exchanges, their subsidiaries, and market institutions such as Clearing and
settlement organizations and Depositories.

3. Derivatives and New Products Departments:

This department is responsible for supervising the functioning and operations of derivatives
exchanges, and addresses investor complaints.

4. Corporation Finance Department:

The Corporation Finance Department deals with matters relating to (i) Issuance and listing of
securities, including initial and continuous listing requirements (ii) corporate governance and
accounting/auditing standards (iii) corporate restructuring through Takeovers / buy backs (iv)
Delisting etc.

5. Investment Management Department:

The Investment Management department is responsible for registering and regulating mutual
funds, venture capital funds, foreign venture capital investors, collective investment schemes,
including plantation schemes, Foreign Institutional Investors, Portfolio Managers and
Custodians.

6. Integrated Surveillance Department:

The integrated Surveillance department is responsible for monitoring market activity through
market systems, data from other departments and analytical software.

19
7. Investigations Department:

The Investigations department is responsible for:Conducting investigations on potentially

illegal market activities. Providing referrals to the enforcement department. Assisting the
enforcement department in enforcing SEBI action against violators.

8. Enforcement Department:

Enforcement Department is responsible for proceedings related to regulatory action and

obtaining redress for violations of securities laws and regulations against all market
participants, issuers and individuals and other entities that breach securities laws and
regulations.

9. Legal Affairs Department:

It is responsible to provide legal counsel to the Board and to its other departments, and to
handle non-enforcement litigation.

10. Enquiries and Adjudication Department:

Handles quasi-judicial matters and provide timely hearings and initiate adjudication brought
by the other Departments against alleged violators who are within SEBI’s disciplinary
jurisdiction.

11. Office Of Investor Assistance and Education:

The office will support SEBI’s operations by handling investor complaints centrally and be
the focal point of SEBI’s investor education effort.

12. General Services Department:

This department supports all of the internal operations of SEBI.

13. Treasury and Accounts Division:

The Division will handle work related to:

Development of SEBI’s internal budget and accounting systems Presentation of reports and
budgets to the SEBI Board Maintaining internal accounting records, developing internal
control systems for collections and disbursements and other financial controls Managing
SEBI’s investments

20
1.12 DETAILS OF SEBI GUIDELINES - FOR CAPITAL MARKET

1. SEBI guidelines were issued after the repeal of the CIC Act whereby the CCI
guidelines became out of date. New guidelines by SEBI were issued starting from the
month of June, 1992. Some CCI guidelines were still retained, as in the case of those
for premium fixation.
2. Guidelines for new issues made by new Companies : They have to be issued at par.
Free pricing is permitted only if the new company is promoted by the existing
company with not less than 50% of equity.
3. New issues made by Private Limited Companies and Closely held companies can be
made by free pricing, for listing purposes if such companies have had three years of
track record of consistent profitability out of last 5 years. Not less than 20% of equity
is to be offered to the public, in such cases. 4. Public issues by existing listed
companies can be made through free pricing, if they are further issues and if they are
disclosed in the prospectus. The NAV and the market price have to be considered for
the last 3 years. The companies with foreign holding wishing to enhance the limit
upto 51% will have to get the prices approved in the general body meeting by a
special resolution under Sec. 81 (A) of the Companies Act, and subject to RBI
approval.
4. Composite Issues : Issues to the public by existing company can be priced differently
as compared to the rights issued to shareholders.
5. Reservation in issues : The unreserved portion offered to public should not be less
than the minimum required for listing purposes. Preferential allotment can be mde to
promoters, Companies, shareholders of those companies. NRIs, Employees and
Associate Compaies of the same group. The allotment shall be subject to a lock in
period of three years, if it is made on firm basis, outside public issue.
6. Deployment of Issue Proceeds : Where the total proceeds exceed Rs. 250 cores, the
company will voluntarily disclose the arrangements made to utilise proceeds. When
the total issue proceeds exceed Rs. 500 crores, there is need for making compulsory
disclosure and for the financial institutions to monitor the deployment of funds, to the
stock exchanges.
7. Minimum interval between two issues : 12 months should elapse between the public
or rights issue and Bonus issue. The promoters should bring in their share of the
capital befor ethe public issue.

21
1.13 PROTECTION OF THE INVESTORS BY SEBI

Some important lines that are offered by the dedicated to the cause of investor’s
protection:

Eligibility Norms For Companies Issuing Securities:-

Provisions regarding this are enshrined in Chapter-II of the said guidelines. No company shall
make any issue of a public issue of securities, unless a draft prospectus has been filed with
the Board, through an eligible Merchant Banker, at least 21 days prior to the filing of
Prospectus with the Registrar of Companies (ROCs). Provided that if, within 21 days from
the date of submission of draft Prospectus, the Board specifies changes, if any, in the draft
Prospectus (without being under any obligation to do so), the issuer or the Lead Merchant
banker shall carry out such changes in the draft prospectus before filing the prospectus with
ROCs.

No listed company shall make any issue of security through a rights issue where the
aggregate value of securities, including premium, if any, exceeds Rs.50 lacs, unless the letter
of offer is filed with the Board, through an eligible Merchant Banker, at least 21 days prior to
the filing of the Letter of Offer with RSE. Provided that if, within 21 days from the date of
filing of draft letter of offer, the Board specifies changes, if any, in the draft letter of offer,
(without being under any obligation to do so), the issuer or the Lead Merchant banker shall
carry out such changes before filing the draft letter of offer. No company shall make an issue
of securities if the company has been prohibited from accessing the capital market under any
order or direction passed by the Board.

Pricing By Companies Issuing Securities:-

These provisions are being dealt in the Chapter-III of the guidelines. A listed company whose
equity shares are listed on a stock exchange, may freely price its equity shares and any
security convertible into equity at a later date, offered through a public or rights issue. An
unlisted company eligible to make a public issue and desirous of getting its securities listed
on a recognized stock exchange pursuant to a public issue, may freely price its equity shares
or any securities convertible at a later date into equity shares. An eligible company shall be
free to make public or rights issue of equity shares in any denomination determined by it in

22
accordance with Sub-section (4) of Section 13 of the Companies Act, 1956 and in compliance
with the following and other norms as may be specified by SEBI from time to time:In case of
initial public offer by an unlisted company, if the issue price is Rs. 500/- or more, the issuer
company shall have a discretion to fix the face value below Rs. 10/- per share subject to the
condition that the face value shall in no case be less than Rs. 1 per share; and, if issue price is
less than Rs. 500 per share, the face value shall be Rs. 10/- per share; The disclosure about
the face value of shares (including the statement about the issue price being “X” times of the
face value) shall be made in the advertisement, offer documents and in application forms in
identical font size as that of issue price or price band.)

Contents Of Offer Document:-

In addition to the disclosures specified in Schedule II of the Companies Act, 1956, the
prospectus shall also contain all material information which shall be true and adequate so as
to enable the investors to make informed decision on the investments in the issue. The
prospectus shall also contain the information and statements specified in this chapter and
shall as far as possible follow the order in which the requirements are listed in this chapter
and summarised in Schedule VIIA.

Consequence Of Non-Observance Of The Guidelines

SEBI in case of non-observance of these guidelines (Section 11B) as it seems to be a bar

from doing such things which may prejudice the interest of the investors the board can give
the following directions:- Direct the persons concerned to refund any money collected under
an issue to the investors with or without requisite interest, as the case may be, direct the
persons concerned not to access the capital market for a particular period, direct the stock
exchange concerned not to list or permit trading in the securities, direct the stock exchange
concerned to forfeit the security deposit deposited by the issuer company, any other direction
which the Board may deem fit and proper in the circumstances of the case. Provided that
before issuing any directions the Board may give a reasonable opportunity to the person
concerned. Provided further that if any interim direction is sought to be passed, the Board
may give post decisional hearing to such person.

23
Future Overcast Of The Investors

SEBI being a premiere institution for dealing with the problems relating to securities has
advanced a long way towards protecting the investors from the hazards of the predators
existing in the market. As already stated before it has compiled a great bunch of guidelines
dedicated to this cause. But the real scenario which came as a consequence was that only the
big fishes could escape the net and the small ones were still striving to uphold their existence.
In this matter, according to a daily newspaper it has become clear that SEBI had already
received suggestion and advice regarding the need for a separate enactment concerning the
small investors. As far as it is concerned, the Government has thought of introducing an
independent legislation on investor protection to safeguard the interests of small investors. A
separate legislation had also been recommended in the report prepared by Mr. Mitra, who
was commissioned by the Finance Ministry to draw up the terms of reference for a new Bill.
A debate has been on over the need for a separate legislation for protecting the interests of
small investors, considering that there are multiple agencies involved in policing companies
that raise funds from the public be it public listed companies, or NBFCs (Non Banking
Financial Companies). These include the capital markets regulator, SEBI, the banking
regulator, RBI, and the Department of Company Affairs (DCA) which is responsible for
regulating unlisted companies. SEBI has been in favour of a separate regulatory agency for
the protection of small investors. The regulator had earlier submitted a proposal to the
Finance Ministry, outlining the need for a new Act.

1.14 ELIGIBILITY NORMS FOR COMPANIES ISSUING SECURITIES CONDITIONS

FOR ISSUE OF SECURITIES
(The companies issuing securities offered through an offer document shall satisfy the
following at the time of filing the draft offer document withSEBI30 and also at the time of
filing the final offer document with the Registrar of Companies/ Designated Stock Exchange.

Filing of offer document

No issuer company shall make any public issue of securities, unless draft Prospectus has been
filed with the Board through a Merchant Banker, at least 30 days prior to the filing of the
Prospectus with the Registrar of Companies (ROC):
Provided that

24
if the Board specifies changes or issues observations on the draft Prospectus (without being
under any obligation to do so), the issuer company or the Lead Manager to the Issue shall
carry out such changes in the draft Prospectus or comply with the observations issued by the
Board before filing the Prospectus with ROC.
Provided further that
the period within which the Board may specify changes or issue observations, if any, on the
draft Prospectus shall be30 days from the date of receipt of the draft Prospectus by the Board.
Provided further that
where the Board has sought any clarification or additional information from the Lead
Manager/s to the Issue, the period within which the Board may specify changes or issue
observations, if any, on the draft Prospectus shall be 15 days from the date of receipt of
satisfactory reply from the Lead Manager/s to the Issue.
Provided further that
where the Board has made any reference to or sought any clarification or additional
information from any regulator or such other agencies, the Board may specify changes or
issue observations, if any, on the draft Prospectus after receipt of comments or reply from
such regulator or other agencies.
Provided further that
the Board may specify changes or issue observations, if any, on the draft Prospectus only
after receipt of copy of in-principle approval from all the stock exchanges on which the issuer
company intends to list the securities proposed to be offered through the Prospectus.)

(No listed issuer company shall make any rights issue of securities,
(where the aggregate value of such securities, including premium, if any, exceeds Rs. 50
lacs,) unless a draft letter of offer has been filed with the Board, through a Merchant Banker,
at least 30 days prior to the filing of the letter of offer with the Designated Stock Exchange
(DSE).
Provided that
if the Board specifies changes or issues observation son the draft Letter of Offer (without
being under any obligation to do so), the issuer company or the Lead Manager to the Issue
shall carry out such changes in the draft Letter of Offer or comply with the observations
issued by the Board before filing the Letter of Offer with DSE.
Provided further that

25
the period within which the Board may specify changes or issue observations, if any, on the
draft Letter of Offer shall be 30 days from the date of receipt of the draft Letter of Offer by
the Board.
Provided further that
where the Board has sought any clarification or additional information from the Lead
Manager/s to the Issue, the period within which the Board may specify changes or issue
observations, if any, on the draft Letter of Offer shall be 15 days from the date of receipt of
satisfactory reply from the Lead Manager/s to the Issue.
Provided further that
where the Board has made any reference to or sought any clarification or additional
information from any regulator or such other agencies, the Board may specify changes
or issue observations, if any, on the draft Letter of Offer after receipt of comments or reply
from such regulator or other agencies .
Provided further that
the Board may specify changes or issue observations, if any, on the draft Letter of Offer only
after receipt of copy of in-principle approval from all the stock exchanges on which the issuer
company intends to list the securities proposed to be offered through the Letter of Offer.

SEBI OPERATIONS

Capital Market

Primary Market Secondary Market

26
The capital market is a place where the suppliers and users of capital meet to share one
another’s views, and where a balance is sought to be achieved among diverse market
participants. The securities decouple individual acts of saving and investment over time,
space and entities and thus allow savings to occur without concomitant investment.
Moreover, yield- bearing securities makes present consumption more expensive relative to
future consumption, inducing people to save. The composition of savings changes with less
of it being held in the form of idle money or unproductive assets, primarily because more
divisible and liquid assets are available.The capital market acts as a brake on channeling
savings to low- yielding enterprises and impels enterprises to focus on performance.

Thus, the capital market converts a given stock of investible resources into a larger flow of
goods and services and augments economic growth. In fact, the literature is full of theoretical
and empirical studies that have established causal robust (statistically significant) two-way
relation between the developments in the securities market and economic growth. The Indian
capital markets dates back to the 18th century when the securities of the East India Company
were traded in Mumbai and Kolkata. However, the orderly growth of the capital market
began with the setting up of The Stock Exchange, Bombay in July 1875 and Ahmedabad
Stock Exchange in 1894. Eventually, 22 other Exchanges in various cities sprang up. Given
the significance of capital market and the need for the economy to grow at the projected over
8 per cent per annum, the managers of the Indian economy have been assiduously promoting
the capital market as an engine of growth to provide an alternative yet efficient means of
resource mobilization and allocation.

Further, the global financial environment is undergoing unremitting transformation.

Geographical boundaries have disappeared. The days of insulated and isolated financial
markets are history. The success of any capital market largely depends on its ability to align
itself with the global order.

27
1.15 IMPORTANCE OF CAPITAL MARKET:-

The capital market serves a very useful purpose by pooling the capital resources of the
country and making them available to the enterprising investors well-developed capital
markets augment resources by attracting and lending funds on the global scale.

A developed capital market can solve this problem of paucity of funds. For an organized
capital market can mobilize and pool together even the small and scattered savings and
augment the availability of investible funds. While the rapid growth of capital markets, the
growth of joint stock business has in its turn encouraged the development of capital markets.

A developed capital market provides a number of profitable investment opportunities for

small savers.

PRIMARY MARKET

Primary market provides opportunity to issuers of securities, Government as well as

corporate, to raise resources to meet their requirements of investment and/or discharge some
obligation. The issuers create and issue fresh securities in exchange of funds through public
issues and/or as private placement. They may issue the securities at face value, or at a
discount/premium and these securities may take a variety of forms such as equity, debt or
some hybrid instrument. They may issue the securities in domestic market and/or
international market through ADR/GDR/ECB route.

Measures undertaken by SEBI

1. Entry norms: -
a) Track record of dividend payment for minimum 3 yrs preceding the issue.
b) Already listed companies - when post-issue net worth becomes more than 5 times
the pre-issue net worth.
c) For Manufacturing company not having such track record – appraise project by a
public financial institution or a scheduled commercial bank.
d) For corporate body – 5 public shareholders for every Rs.1 lakh of the net capital
offer made to the public
e) Banks – 2 yrs of profitability for issues above par. Offer documents to companies.
2. Promoters’ contribution: -
a) Should not be less than 20% of the issued capital.

28
 b) Receiving of promoters’ contribution.
c) Lock in period as per SEBI.
d) Cases of non-under written public issues.
3. Disclosure: -
a) Draft prospectus
b) Un audited financial results
4. Book building: -
a) SEBI recommends two-tier under writing system.
b) One of the modes of public issue thru prospectus.
c) Role of syndicate members and book runners.
d) Minimum 30 centers.
SECONDARY MARKET
Secondary market is the place for sale and purchase of existing securities. It enables an
investor to adjust his holdings of securities in response to changes in his assessment about
risk and return. It also enables him to sell securities for cash to meet his liquidity needs. It
essentially comprises of the stock exchanges, which provide platform for trading of securities
and a host of intermediaries who assist in trading of securities and clearing and settlement of
trades. The securities retarded, cleared and settled as per prescribed regulatory framework
under the supervision of the Exchanges and oversight of SEBI.
Listing of securities:
Listing means admission of securities of an issuer to trading privileges on a stock exchange
through a formal agreement. The prime objective of admission to dealings on the Exchange is
to provide liquidity and marketability to securities, as also to provide a mechanism for
effective management of trading.
Reforms in the secondary market:
1. Governing board
a) Brokers and non-brokers representation made 50:50
b) 60% of brokers in arbitration, disciplinary & default committees
c) For trading members 40% representation
2. Infrastructure
a) On-line screen based trading terminals
3. Settlement & clearing
a) Weekly settlements
b) Auctions for non-delivered shares within 80 days of settlement
29
 c) Advice to set up clearing houses, clearing corporation or settlement guarantee fund.
d) Warehousing facilities permitted by SEBI.
4. Debt market segment

a) Regulates thru SEBI (depository & participants) regulation Act 1996.

b) Listing of debt instruments
c) Investment. Range for FIIs
d) Dual rating for above Rs.500 million

CLEARING AND SETTLEMENT

The stock exchanges in India were following a system of account period settlement for cash
market transactions, except for transactions in a few active securities, which were settled
under T+3 rolling settlement. The stock exchanges were also offering deferral products to
provide leverage to members to postpone their settlement obligations. The transactions are
not settled immediately but after 2 days after the trade day. The members receive the
funds/securities in accordance with the pay-in/pay-out schedules notified by the respective
exchanges. Given the growing volume of trades and market volatility, the time gap between
trading and settlement gives rise to settlement risk. In recognition of this, the exchanges and
their clearing corporations employ risk management practices to ensure timely settlement of
trades. The regulators have also prescribed elaborate margining and capital adequacy
standards to secure market integrity and protect the interests of investors. The exchanges not
providing counter-party guarantee have been advised by SEBI to set up trade guarantee
funds, which would honor pay-in liabilities in the event of default by a member. Movement
of securities has become almost instantaneous in the dematerialised environment. Two
depositories viz., National Securities Depositories Ltd. (NSDL) and Central Depositories
Services Ltd. (CDSL) provide electronic transfer of securities and more than 99% of turnover
is settled in dematerialised form. All actively traded scrips are held, traded and settled in
demat form. The obligations of members are downloaded to members/custodians by the
clearing agency. Select banks have been empanelled by clearing agency for electronic
transfer of funds. The members are required to maintain accounts with any of these banks.
The members are informed electronically of their pay-in obligations of funds. The members
make available required funds in their accounts with clearing banks by the prescribed pay-in
day. The clearing agency forwards funds obligations file to clearing banks which, in turn,
debit the accounts of members and credit the account of the clearing agency. In some cases,

30
the clearing agency runs an electronic file to debit members' accounts with clearing banks and
credit its own account. As per the schedule of allocation of funds determined by the clearing
agency, the funds are transferred on the pay-out day by the clearing banks from the account
of the clearing agency to the accounts of members. In some cases, the clearing agency
directly credits the members' accounts with clearing banks and debits its own account. The
pay-in and pay-out of funds as well as securities take place 2 working days after the trade
date.

SETTLEMENT PROCESS:-

The National Securities Clearing Corporation Ltd. (NSCCL) determines the funds/securities
obligations of the trading members and ensures that trading members meet their obligations.
The clearing banks and depositories provide the necessary interface between the
custodians/clearing members (who clear for the trading members or their own transactions)
for settlement of funds/securities obligations of trading members.

The core functions involved in the process are:

a)Trade Recording:The key details about the trades are recorded to provide basis for
settlement. These details are automatically recorded in the electronic trading system
of the exchanges.
b) Trade Confirmation:The counterparties to trade agree upon the terms of trade like
security, quantity, price, and settlement date, but not the counterparty which is the
NSCCL. The electronic system automatically generates confirmation by direct
participants. The ultimate buyers/sellers of securities also affirm the terms, as the
funds/securities would flow from them, although the direct participants are
responsible for settlement of trade.
c) Determination of Obligation:The next step is determination of what counter-parties
owe, and what counter-parties are due to receive on the settlement date. The NSCCL
interposes itself as a central counterparty between the counterparties to trades and nets
the positions so that a member has security wise net obligation to receive or deliver a
security and has to either pay or receive funds.
d) Pay-in of Funds and Securities: The members bring in their funds/securities to the
NSCCL. They make available required securities in designated accounts with the
depositories by the prescribed pay-in time. The depositories move the securities
available in the accounts of members to the account of the NSCCL. Likewise

31
 members with funds obligations make available required funds in the designated
accounts with clearing banks by the prescribed pay-in time. The CC sends electronic
instructions to the clearing banks to debit member's accounts to the extent of payment
obligations. The banks process these instructions, debit accounts of members and
credit accounts of the NSCCL.
e) Pay-out of Funds and Securities: After processing for shortages of funds/securities
and arranging for movement of funds from surplus banks to deficit banks through RBI
clearing, the NSCCL sends electronic instructions to the depositories/clearing banks
to release pay-out of securities/funds

1.16 SEBI IN THE NEW MILLENNIUM

By beginning of the new millennium in 2000 SEBI has strengthened and established itself as
an all powerful regulatory body for the capital market, all intermediaries in it, SROs, stock
Exchanges, listed companies, Venture Funds Mutual Funds including M.M.F.s, etc. Already
it has been regulating the FFIs and FIIs and other foreign bodies in respect of their operations
in the capital market A code of conduct has been laid down for each of the category of
players in the capital market.

Early in January 2000, the SEBI has come out with a series of measures to enhance
transparency and deepen the capital market. These measures include permission for e-
broking, share trading via net with orders to be routed through the websites of brokers,
acceptance of Kumar mangalan Birla Report on.

Corporate Governance and of K.B. Chandrasekhar Panel Report on Venture Funds. The SEBI
has given directives to the listed companies and to the top 150 companies in particular to
observe the code of corporate governance by March end 2001. The SEBI has relaxed the
entry norms for IPOs of Venture Funds, I.T. Companies and knowledge based companies for
listing purposes and entry and exit norms were relaxed for high net worth foreign individuals
and companies to operate in the capital market as in the case of FIIS and FFIs.

It is understood that, SEBI has set a creditable record of regulation for growht of capital
market on healthy lines during the quinquennium of 1995-2000. In the coming years the tasks
set for itself are the following in particular.

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1.17 UNDER SEBI FORMATION

SEBI

MUTUAL FUND CAPITAL MARKET

VENTURE CAPITAL

PRIMARY MARKET SECONDARY MARKET

STOCK EXCHANGE GOVERNMENT SECURITY MARKET

MUTUAL FUND

An investment vehicle that is made up of a pool of funds collected from many investors for
the purpose of investing in securities such as stocks, bonds, money market instruments and
similar assets. Mutual funds are operated by money managers, who invest the fund's capital
and attempt to produce capital gains and income for the fund's investors. A mutual fund's
portfolio is structured and maintained to match the investment objectives stated in its
prospectus.

33
SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS)
(SECOND AMENDMENT) REGULATIONS, 2012.

No. LAD-NRO/GN/2012-13/17/21502 - In exercise of the powers conferred under section

30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby
makes the following regulations to amend the Securities and Exchange Board of India
(Mutual Funds) Regulations, 1996, namely:-
 These regulations may be called the Securities and Exchange Board of India (Mutual
Funds) (Second Amendment) Regulations, 2012.
 These regulations shall come into force on the first day of October, 2012.

 In the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996-
 in regulation 48, sub-regulation (2) and the proviso shall be substituted with the
following, namely -"(2) The Net Asset Value of the scheme shall be calculated on
daily basis and published in at least two daily newspapers having circulation all over
India.".
 after regulation 51, the following new regulation shall be inserted, namely- “Credit
of exit load to scheme.
51A. The exit load charged, if any, after the commencement of the SEBI (Mutual
Funds) (Second Amendment) Regulations, 2012, shall be credited to the scheme.”
 in regulation 52,-
o sub- regulation (2) shall be substituted with the following, namely- “(2) The asset
management company may charge the scheme with investment and advisory fees
which shall be fully disclosed in the offer document.”.
o in sub-regulation (4), the words “mutual fund” shall be substituted with the word
“scheme”.
o in sub-regulation (6),-
 for clause (a), the following shall be substituted, namely- “(a) in case of a fund
of funds scheme, the total expenses of the scheme including weighted average
of charges levied by the underlying schemes shall not exceed 2.50 per cent of
the daily net assets of the scheme.”.
 in clause (b), the words “weekly average” shall be substituted with the words
“daily”.

34
  in clause (c), the words "or average weekly" and “or weekly average”
wherever appearing shall be omitted.
o after sub-regulation (6), the following new sub-regulation shall be inserted,
namely-"(6A) In addition to the limits specified in sub-regulation (6), the
following costs or expenses may be charged to the scheme, namely-
 brokerage and transaction costs which are incurred for the purpose of
execution of trade and is included in the cost of investment, not exceeding
0.12 per cent in case of cash market transactions and 0.05 per cent in case of
derivatives transactions;
 expenses not exceeding of 0.30 per cent of daily net assets, if the new
inflows from such cities as specified by the Board from time to time are at
least –
(i) 30 per cent of gross new inflows in the scheme, or;
(ii) 15 per cent of the average assets under management (year to date) of
the scheme, whichever is higher:
Provided that if inflows from such cities is less than the higher of sub-clause (i) or sub- clause
(ii), such expenses on daily net assets of the scheme shall be charged on proportionate basis:
Provided further that expenses charged under this clause shall be utilised for distribution
expenses incurred for bringing inflows from such cities:
Provided further that amount incurred as expense on account of inflows from such cities
shall be credited back to the scheme in case the said inflows are redeemed within a period of
one year from the date of investment; additional expenses, incurred towards different heads
mentioned under sub-regulations (2) and (4), not exceeding 0.20 per cent of daily net assets
of the scheme.”. in sub-regulation (7), the words, symbols and number "sub-regulation (6)"
shall be substituted with the words, symbols and numbers "subregulations (6) and (6A)".for
regulation 59, the following shall be substituted, namely-“Half-yearly Disclosures.A mutual
fund and asset management company shall within one month from the close of each half
year, that is on 31stMarch and on 30thSeptember, host a soft copy of its unaudited financial
results on their website: Provided that the half-yearly unaudited report referred to in this
subregulation shall contain details as specified in Twelfth Schedule and such other details as
are necessary for the purpose of providing a true and fair view of the operations of the mutual
fund.

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1.18 CAPITAL MARKET
ROLE OF SEBI IN INDIAN CAPITAL MARKET
SEBI is regulator to control Indian capital market. Since its establishment in 1992, it is doing
hard work for protecting the interests of Indian investors. SEBI gets education from past
cheating with naive investors of India. Now, SEBI is more strict with those who commit
frauds in capital market.The role of security exchange board of India (SEBI) in regulating
Indian capital market is very important because government of India can only open or take
decision to open new stock exchange in India after getting advice from SEBI.If SEBI thinks
that it will be against its rules and regulations, SEBI can ban on any stock exchange to trade
in shares and stocks.Now, we explain role of SEBI in regulating Indian Capital Market more
deeply with following points:

 Power to make rules for controlling stock exchange :-

SEBI has power to make new rules for controlling stock exchange in India. For example,
SEBI fixed the time of trading 9 AM and 5 PM in stock market.

 To provide license to dealers and brokers :-

SEBI has power to provide license to dealers and brokers of capital market. If SEBI sees
that any financial product is of capital nature, then SEBI can also control to that product
and its dealers. One of main example is ULIPs case. SEBI said, " It is just like mutual
fundsand all banks and financial and insurance companies who want to issue it, must
take permission from SEBI."
 To Stop fraud in Capital Market:-
SEBI has many powers for stopping fraud in capital market.
 It can ban on the trading of those brokers who are involved in fraudulent and unfair
trade practices relating to stock market.
 It can impose the penalties on capital market intermediaries if they involve in insider
trading.
 To Control the Merge, Acquisition and Takeover the companies :
Many big companies in India want to create monopoly in capital market. So, these
companies buy all other companies or deal of merging. SEBI sees whether this merge or
acquisition is for development of business or to harm capital market.

 To audit the performance of stock market :

36
 SEBI uses his powers to audit the performance of different Indian stock exchange for
bringing transparency in the working of stock exchanges.

 To make new rules on carry - forward transactions :

 Share trading transactions carry forward can not exceed 25% of broker's total
transactions.
 90 day limit for carry forward.
 To create relationship with ICAI:-
ICAI is the authority for making new auditors of companies. SEBI creates good
relationship with ICAI for bringing more transparency in the auditing work of company
accounts because audited financial statements are mirror to see the real face of company
and after this investors can decide to invest or not to invest. Moreover, investors of India
can easily trust on audited financial reports. After Satyam Scam, SEBI is investigating
with ICAI, whether CAs are doing their duty by ethical way or not.
 Introduction of derivative contracts on Volatility Index:-
 For reducing the risk of investors, SEBI has now been decided to permit Stock
Exchanges to introduce derivative contracts on Volatility Index, subject to the
condition that;
 The underlying Volatility Index has a track record of at least one year.
 The Exchange has in place the appropriate risk management framework for such
derivative contracts.
 Before introduction of such contracts, the Stock Exchanges shall submit the
following:
 Contract specifications
 Position and Exercise Limits
 Margins
 The economic purpose it is intended to serve
 Likely contribution to market development
 The safeguards and the risk protection mechanism adopted by the exchange to
ensure market integrity, protection of investors and smooth and orderly trading.
 The infrastructure of the exchange and the surveillance system to effectively
monitor trading in such contracts, and
 Details of settlement procedures & systems

37
 To Require report of Portfolio Management Activities:-
SEBI has also power to require report of portfolio management to check the capital
market performance. Recently, SEBI sent the letter to all Registered Portfolio Managers
of India for demanding report.

 To educate the investors:-

Time to time, SEBI arranges scheduled workshops to educate the investors. On 22 may
2010 SEBI imposed workshop. If you are investor, you can get education through SEBI
leaders by getting update information on this page.

VENTURE CAPITAL

APPLICATION FOR GRANT OF CERTIFICATE OF REGISTRATION AS

VENTURE CAPITAL FUND SECURITIES AND EXCHANGE BOARD OF INDIA

INSTRUCTIONS

 This form is meant for use by the company or trust (hereinafter referred to as the
applicant) for application for grant of certificate of registration as venture capital fund.
 The applicant should complete this form, and submit it, along with all supporting
documents to the Board at its head office at Mumbai.
 This application form should be filled in accordance with these regulations.
 The application shall be considered by the Board provided it is complete in all respects.\
 All answers must be legible.
 Information which needs to be supplied in more detail may be given on separate sheets
which should be attached to the application form.
 The application must be signed and all signatures must be original.
 The application must be accompanied by an application fee as specified in the Second
Schedule to these regulations.
 Name, address of the registered office, address for correspondence, telephone
number(s), fax number(s), telex number(s) of the applicant and the name of the
contact person.
 Please indicate to which of the following categories the applicant belongs.
 a company established under the Companies Act, 1956 (1 of 1956)
 a trust set up under the Indian Trusts Act, 1882 (2 of 1882).

38
 Date and place of incorporation or establishment and date of commencement of
business (enclose certificate of incorporation, memorandum and articles of
association or trust deed in terms of which incorporated or established).
 Details of members of the Board of Trustees or directors of the trustee company, as
the case may be, in case the applicant has been set up as a trust. Details of members
of the Board of Directors of the venture capital fund in case the applicant has been
set up as a company.
 Please state whether the applicant, his partner, director or principal officer is
involved in any litigation connected with the securities market which has an adverse
bearing on the business of the applicant; or has at any time been convicted for any
moral turpitude or at any time has been found guilty of any economic offence. In
case the applicant is a trust, the above information should be provided for the
members of the Board of Trustees or of the abovementioned persons connected with
the trustee company. If yes, the details thereof.
 Please also state whether there has been any instance of violation or non adherence to
the securities laws, code of ethics/conduct, code of business rules, for which the
applicant, or its parent or holding company or affiliate may have been subject to
economic, or criminal, liability, or suspended from carrying out its operations, or the
registration revoked temporarily.
 Details of asset management company, if any (enclose copy of agreement with the
asset management company).
 Declaration statement (to be given as below).We hereby agree and declare that the
information supplied in the application, including the attachment sheets, is complete
and true. AND we further agree that, we shall notify the Securities and Exchange
Board of India immediately any change in the information provided in the
application. We further agree that we shall comply with, and be bound by the
Securities and Exchange Board of India Act, 1992, and the Securities and Exchange
Board of India (Venture Capital Funds) Regulations, 1996, and Government of India
guidelines/instructions as may be announced by the Securities and Exchange Board
of India from time to time. We further agree that as a condition of registration, we
shall abide by such operational instructions/directives as may be issued by the
Securities and Exchange Board of India from time to time.

39
Review of certain policies in the primary market - Amendments to SEBI (Issue of
Capital and Disclosure Requirements) Regulations, 2009 / Equity Listing Agreement.

The Board considered the Memorandum and decided as under:

 Public Announcement by Companies proposing to access the capital market:-

While filing Draft Offer Document (DoD) with SEBI, the issuer company shall make a
public announcement about the filing, simultaneously but not later than one day from the
date of filing the (DoD) with SEBI.

 Preferential issue of equity shares or convertible securities or warrants to

promoters and promoter group:-
In case of preferential issues, where any promoter or any member of the promoter group
has previously subscribed to the warrants of the company but failed to exercise the
warrants, the promoters and promoter group shall be ineligible for issue of equity shares
or convertible securities or warrants for a period of one year from the date of expiry of
the currency /cancellation of the warrants. Further, if any member of the promoters/
promoter group has sold shares in the previous six months, then the promoters/
promoter group would be ineligible for allotment on preferential basis.

 News reports appearing in the media after filing of Draft Offer Document (DOD)
with SEBI :-
The merchant bankers shall submit a compliance certificate as to whether the contents of
the news reports/ articles that appear after filing of DOD are supported by disclosures in
the offer document or not. This would apply in respect of news reports/ articles
appearing in newspapers stipulated in ICDR for issue advertisements, major business
magazines and also in the print and electronic media controlled by a media group where
the media group has a private treaty/ shareholders’ agreement with the issuer company/
promoters of the issuer company.

 Uniform/ single payment option in rights issues:-

Only one payment option shall be given by the issuer to all the shareholders, i.e.,either
(i) part payment on application with balance money to be paid on calls, or (ii) full
payment on application. Where the issuer opts for part payment, it shall be incumbent on
the issuer to obtain approvals, if any, as may be necessary for the purpose.

40
 Minimum Promoters’ contribution in Further Public Offers (FPOs):-
The requirement of promoters’ contribution shall not be applicable to FPOs where equity
shares of the issuer are not infrequently traded in a recognised stock exchange for three
years and the issuer has a track record of dividend payment for three years.
 Allocation in public issues:-
Pursuant to recent amendments to SCRR, consequential amendments shall be made in
ICDR Regulations by deleting the second proviso to clause (c) of subregulation (2) of
Regulation 43.

 Extension of applicability of clause 5A of Equity Listing Agreement for unclaimed

equity shares in physical form:-
Clause 5A of the Equity Listing Agreement shall be amended to provide that the
unclaimed shares issued in physical form shall be dealt in the manner similar to the
unclaimed shares issued in demat form.

SEBI AND ITS ROLE IN THE SECONDARY MARKET

The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 toprotect
the interests of the investors in securities and to promote the development of,and to regulate,
the securities market and for matters connected therewith andincidental thereto.Securities and
Exchange Board of India constituted under the Resolution of theGovernment of India in the
Department of Economic Affairs No.1 (44)SE/86, dated the12th day of April, 1988;The
Board shall consist of the following members, namely:-1. A Chairman2. Two members from
amongst the officials of the Ministry of the CentralGovernment dealing with Finance (and
administration of the Companies Act,1956;) 2 of 19343. One member from amongst the
officials of [the Reserve Bank 4. Five other members of whom at least three shall be the
whole-time members
Departments of SEBI regulating trading in the secondary market
 Market Intermediaries Registration and Supervision department (MIRSD):-
Registration, supervision, compliance monitoring and inspections of all market
intermediaries in respect of all segments of the markets viz. equity, equity derivatives,
debt and debt related derivatives.

41
 Market Regulation Department (MRD):-
Formulating new policies and supervising the functioning and operations (except relating
to derivatives) of securities exchanges, their subsidiaries, and market institutions such as
Clearing and settlement organizations and Depositories(Collectively referred to as
µMarket SROs.
 Derivatives and New Products Departments (DNPD):-
Supervising trading at derivatives segments of stock exchanges, introducing new products
to be traded, and consequent policy changes.

STOCK EXCHANGES

Powers of sebi in stock exchanges

 Power to call for information:-

The Board may from time to time call for any information, documents or records from the
recognised stock exchange or the recognised clearing corporation, or their governing
board or any shareholder thereof.

 Power of inspection:-
 The Board may at any time undertake inspection, conduct inquiries and audit of any
recognised stock exchange or recognised clearing corporation, any associate of such
exchange or clearing corporation, any shareholder of such stock exchange or clearing
corporation or any associate and agent of such shareholder.
 Where an inspection under sub-regulation (1) is undertaken by the Board, such
recognised stock exchange or recognised clearing corporation or shareholder or
associate and every manager, director, managing director, chairperson or officer and
other employee of such recognised stock exchange, recognised clearing corporation,
shareholder or associate shall co-operate with the Board.

 Directions by the Board:-

Without prejudice to exercise of its powers under the provisions of the Act or the
Securities and Exchange Board of India Act, 1992 and rules and regulations made there
under, the Board may, either suo motu or on receipt of any information or during
pendency of any inspection, inquiry or investigation or on completion thereof, in the

42
 interest of public or trade or investors or the securities market, issue such directions as it
deems fit, including but not limited to any or all of the following:
 directing a person holding equity shares or rights over equity shares in a recognised
stock exchange or recognised clearing corporation in contravention of these
regulations to divest his holding, in such manner as may be specified in the direction;

 directing transfer of any proceeds or securities to the Investor Protection Fund of a

recognised stock exchange or Settlement Guarantee Fund of a recognised clearing
corporation;
 debarring any recognised stock exchange or recognised clearing corporation, any
shareholder of such recognised stock exchange or recognised clearing corporation, or
any associate and agent of such shareholder, or any transferee of shares from such
shareholder, directors and key management personnel of recognised stock exchange
and recognised clearing corporation from accessing the securities market or dealing in
securities for such period as may be determined by the Board.

 Power to remove difficulties:-

In order to remove any difficulties in the interpretation or application of the provisions of
these regulations, the Board shall have the power to issue directions through guidance
notes or circulars.
 Power to specify procedures, etc. and issue clarifications.
For the purposes of implementation of these regulations and matters incidental thereto,
the Board may specify norms, procedures, processes, manners or guidelines as specified
in 21 these regulations, by way of circulars to recognised stock exchange(s) and
recognised clearing corporation(s).

 Repeal and savings.:-

 On and from the commencement of these regulations, the Securities Contracts
(Regulation) (Manner of Increasing and Maintaining Public Shareholding in
Recognized Stock Exchanges) Regulations, 2006, shall stand repealed.
 Notwithstanding such repeal, anything done or any action taken or purported to have
been taken or contemplated under the repealed regulations before the commencement
of these regulations shall be deemed to have been done or taken or commenced or
contemplated under the corresponding provisions of these regulations.
43
REGISTRATION CERTIFICATE
 Registration of stock brokers, sub-brokers, share transfer agents, etc.
 No stock-broker, sub- broker, share transfer agent, banker to an issue, trustee of trust
deed, registrar to an issue, merchant banker, underwriter, portfolio manager,
investment adviser and such other intermediary who may be associated with securities
market shall buy, sell or deal in securities except under, and in accordance with, the
conditions of certificate of registration obtained from the Board in accordance with
the
[regulations] made under this Act:
Provided that a person buying or selling securities or otherwise dealing with the
securities market as a stock- broker, sub-broker, share transfer agent, banker to an
issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter,
portfolio manager, investment adviser and such other intermediary who may be
associated with securities market immediately before the establishment of the Board
for which no registration certificate was necessary prior to such establishment, may
continue to do so for a period of three months from such establishment or, if he has
made an application for such registration within the said period of three months, till
the disposal of such application.
Provided further that any certificate of registration, obtained immediately before the
commencement of the Securities Laws (Amendment) Act, 1995, shall be deemed to
have been obtained from the Board in accordance with the regulations providing for
such registration.
 No depository, [participant,] custodian of securities, foreign institutional
investor, credit rating agency or any other intermediary associated with the
securities market as the Board may by notification in this behalf specify, shall
buy or sell or deal in securities except under and in accordance with the
conditions of a certificate of registration obtained from the Board in
accordance with the regulations made under this Act:
Provided that a person buying or selling securities or otherwise dealing with
the securities market as a depository, [participant,] custodian of securities,
foreign institutional investor or credit rating agency immediately before the
commencement of the Securities Laws (Amendment) Act, 1995, for which no

44
 certificate of registration was required prior to such commencement, may
continue to buy or sell securities or otherwise deal with the securities market
until such time regulations are made under clause (d) of sub-section (2) of
section 30.
 No person shall sponsor or cause to be sponsored or carry on or cause to be
carried on any venture capital funds or collective investment schemes
including mutual funds, unless he obtains a certificate of registration from the
Board in accordance with the regulations:
Provided that any person sponsoring or causing to be sponsored, carrying on
or causing to be carried on any venture capital funds or collective investment
schemes operating in the securities market immediately before the
commencement of the Securities Laws (Amendment) Act, 1995, for which no
certificate of registration was required prior to such commencement, may
continue to operate till such time regulations are made under clause (d) of
sub-section (2) of section 30.
 Every application for registration shall be in such manner and on payment of such
fees as may be determined by regulations.
 The Board may, by order, suspend or cancel a certificate of registration in such
manner as may be determined by regulations. Provided that no order under this sub-
section shall be made unless the person concerned has been given a reasonable
opportunity of being heard.

45
INVESTIGATION, ENFORCEMENT AND SURVEILLANCE

A well-regulated market fosters investors’ confidence in its fairness and integrity by ensuring
true and fair price discovery, prompt detection of market manipulations and safety of the
markets through risk containment measures and effective enforcement. With a view to
achieve these objectives, the SEBI took several initiatives both at macro and micro level,
which are briefly discussed below.

 Market surveillance:-
The Investigation, Enforcement and Surveillance Department since its inception
organised itself to carry out its responsibility of protecting the investors and ensuring a
healthy development of the securities markets. Market Surveillance Division was set up
in the SEBI in July 1995, with a view to effectively monitor abnormal market movements
and detect market manipulations. It was involved in monitoring the market movements,
identifying price volatility, analysing its causes and overseeing the surveillance activities
of the stock exchanges. The main source of information for the Market Surveillance
Division is the trading data obtained from the stock exchanges, newspaper reports,
investor complaints, market intelligence, etc. It also analyses major market movements in
the wake of significant market sensitive information. Some of the surveillance systems
and risk containment measures that were put in place during 1997-98 are:

 market monitoring by independent surveillance cells of stock exchanges;

 stock exchanges reporting to SEBI through settlement reports and pre-issue
monitoring reports;
 risk containment measures in the form of elaborate margining system comprising of
daily, special, penal and mark to market margins;
 circuit filters, daily price bands and weekly price caps to curb abnormal price
behaviour and volatility;
 intra-day trading and gross exposure limits for stock brokers linked with capital
adequacy;
 suspension of trading in scrips to prevent market manipulation;
 inspection of intermediaries;
 enhancement of SRO capabilities of stock exchanges;
 interactive and pro-active oversight by the SEBI;

46
 Strengthening of surveillance and monitoring mechanisms:-
During 1997-98, further steps were taken at the level of the SEBI and the stock exchanges
under the oversight of the SEBI to improve and strengthen their surveillance capabilities.
Some of the developments in this regard are briefly given below.

 Meetings of the Inter Exchange Market Surveillance Group:-

During 1997-98, SEBI convened two meetings of the Inter Exchange Market Surveillance
Group. The first meeting was held on July 14, 1997 and the second meeting was held on
December 17, 1997. The Group discussed market trends, various risk containment
measures that needed to be revised and new measures to be implemented. It also
discussed issues relating to dissemination of price sensitive information to the public,
dealing with market rumours and co-ordination between stock exchanges. The Group was
reconstituted with representatives from the Stock Exchange, Mumbai, NSElL, Delhi,
Calcutta, Ahmedabad, Ludhiana and Bangalore stock exchanges. The further initiatives
taken by the SEBI during the year are given in the following paragraphs.
 Uniform intra-day price band of 10 per cent:-
Presently, there is a price variation cap of 25 per cent during a settlement which was
uniformally implemented by all the stock exchanges. The intra-day price variation was
flexible in range upto 10 per cent subject to the settlement variation cap of 25 per cent.
Now, it is implemented uniformly at 10 per cent intra-day variation by all the stock
exchanges.
 Price bands in respect of infrequently traded scrips:-
There was a need to have a uniform guideline in respect of price bands on infrequently
traded scrips. A small group was formed comprising of representatives of Mumbai,
NSEIL and Delhi stock exchanges to frame guidelines and a basis on which such price
bands could be fixed. The group has already given some deliberation on this issue and
their final report is expected shortly.

 Public disclosure of information relating to actions taken against stockbrokers:-

As the action taken against the member brokers of the stock exchanges including penal
actions were not disclosed to other market participants by all the stock exchanges, it was
felt that such actions need to be disclosed in the larger interest of the investors and market
participants. The stock exchanges were therefore asked to make public the actions taken
by the Disciplinary Action Committee of the stock exchanges against their member
47
 brokers. The stock exchanges were also asked to issue press releases when such actions
are of serious nature.

 Dissemination of price sensitive information to public:-

There was a need to have proper method for dissemination of price sensitive and other
important information relating to corporate and market to the public so that they can make
informed investment decisions. The stock exchanges were asked to display such
information on their terminals in the quickest possible manner
.
 Dealing with market rumours:-
Market rumours can do considerable damage to the normal functioning and behaviour of
the market. It is therefore essential to have quick verification of such rumours from the
corporates as well as from other entities whenever it is so necessary. Therefore, it was
decided that all stock exchanges should verify such rumours in the quickest possible
manner and inform investors and other market participants, if possible through their
terminals. The SEBI had asked around 150 companies to designate compliance officers
who could be contacted by the stock exchanges whenever such verification is needed. As
much as 115 of such companies have already designated compliance officers and have
informed SEBI. The SEBI subsequently has circulated the names of the companies and
details about their compliance officers to all the stock exchanges.

 Co-ordination between stock exchanges:-

To facilitate better and quicker co-ordination among the stock exchanges, all stock
exchanges were asked to designate a co-ordination officer who could be contacted by
other stock exchanges for immediate exchange of information.
 Joint inspection and investigation in case of stock brokers having multiple
membership:-
It was decided that in some suitable cases the stock exchanges would co-ordinate and
carry out joint inspection of member brokers having multiple membership. Besides there
should be sharing of information in such cases between the stock exchanges.

 Inspection of surveillance cells of stock exchanges:-

The surveillance cells of stock exchanges have been strengthened in terms of manpower
and systems at the behest of the SEBI. Since December 1996, the inspections of the
48
 surveillance cells are being taken up on a regular basis for the purpose of assessing the
quantum and quality of surveillance done and suggesting improvements in the proactive
surveillance capability of the stock exchanges. During 1997-98, the SEBI inspected
surveillance cells of 10 stock exchanges and the shortcomings and suggestions have been
communicated to them for improvement of the functioning of the surveillance cells.
 Development and implementation of Stock Watch System:-
While the existing risk containment measures have served well their intended purpose of
imparting safety, fairness and transparency to the Indian securities markets, the challenge
lies in enmeshing the surveillance measures with the development of the market. Trading
in the Indian securities markets now being on-line has become more sophisticated, which
calls for further sophistication in surveillance and regulatory oversight. A system of
market monitoring and surveillance was initiated and the stock exchanges are reporting
abnormal price and volume movements to SEBI in prescribed formats. In this direction,
to have more effective system of market surveillance keeping in line with the
international standards, it was been decided to develop a Stock Watch System at the level
of the stock exchanges under the initiative and oversight of the SEBI. The objectives of
the Stock Watch System is to give suitable indicators or alerts for the detection of
potential illegal or improper activity to protect the integrity of the securities markets and
its participants. The Stock Watch System would consist of various databases of issuers,
securities, trading and members with the stock exchanges that would help in generating
various alerts. These alerts would assist the stock exchanges in keeping effective
surveillance on the market to bring an era of transparency and fairness in the dealings.
The Core Group, which was formed during 1996-97 consisting of representatives from
the major stock exchanges of the country, to help in the process of implementation of the
Stock Watch System, held several meetings. A workshop on the Stock Watch System was
also organised by the SEBI and conducted by the NASDAQ staff in which the Core
Group and the staff of surveillance cells of the stock exchanges participated.
With the help of the Core Group, the SEBI has finalised the basic parameters for various
databases and generation of alerts for Phase I of the Stock Watch System. The same has
been communicated to stock exchanges and they are in the process of implementation of
the same.

 Interaction and co-ordination with stock exchanges:-

49
 There is frequent informal exchange of information and ideas to create purposeful market
monitoring and surveillance between the SEBI and stock exchanges. During exceptional
market conditions, the SEBI calls for information and feedback on market conditions
from the stock exchanges and steps taken by them. This, in turn results in timely and
effective surveillance by the SEBI.
 Surveillance Measures:-
SEBI conducts meetings at regular intervals with stock exchanges and depositories to
monitor their surveillance activities and market movements. In consultation with the stock
exchanges and depositories, the following surveillance measures have been taken:
 SEBI has mandated that when market value of a stock is quoting less than the face
value of that stock, then there shall be no stock split in those shares. Also, it was
decided that subsequent to any split consolidation, a cooling off period of three years
is mandatory before any further split/consolidation can be undertaken.
 SEBI has stipulated that when there is substantial change in shareholding of an entity
which would require disclosures under the various provisions of SEBI Act and
Regulations, the depositories would provide such information to the stock exchanges.
The stock exchanges would then verify whether disclosures as required have been
made and in the event of any irregularities, report the same to SEBI. It has also been
decided that depositories shall display ISIN-wise information pertaining to pledged
shares on their websites. SEBI has advised the exchanges that a list of companies
which are non-compliant with the Listing Agreement be displayed on the websites of
BSE and NSE after notice has been sent to the companies for non-compliance of
Listing Agreement.
SEBI has decided that trading shall be suspended in partly paid shares of companies
whose issue size is less than `500 crore and wherein the partly paid shares have been in
existence for more than 12 months. The companies having issue size greater than`500
crore shall be required to include the information about partly paid shares and fully paid
shares in their secretarial audit report that is submitted to stock exchanges. Failure to do
so shall attract appropriate action by the stock exchanges. In addition to the above, all
instruments issued by a company other than debentures and which are linked to equity
shares of the company or have equity like features (warrants, etc), shall attract uniform
surveillance action. For exchange traded funds, SEBI has advised the stock exchanges to
apply price bands on the NAV of two days before trading day of exchange traded funds.

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 INVESTIGATION
Timely completion of investigation cases and effective, proportionate and dissuasive
action in case of violations of established securities laws is important for protection of
investors’ interest and ensuring fair, transparent and orderly functioning of the market. It
is also vital for improving the confidence in the integrity of the securities market. SEBI is
therefore constantly striving to upgrade its investigative skills by making use of
Information Technology. Importance of effective and credible use of investigation has
also been underscored by IOSCO in its “Principles for the Enforcement of Securities
Regulation”.Keeping the above objectives and principles of securities regulations in view,
SEBI initiates investigation to examine alleged or suspected violations of laws and
obligations relating to securities market. The possible violations may include price
manipulation, creation of artificial market, insider trading, capital issue related
irregularities, takeover related violations, non-compliance of disclosure requirements and
any other misconduct in the securities markets.
 Initiation of Investigation There are various sources of information for initiation of
investigation. SEBI initiates investigation based on reference received from sources
such as stock exchanges, internal surveillance department, other government
departments, information submitted by market participants and complainants. In
appropriate cases, investigation may also be initiated suo moto, where there are
reasonable grounds to believe that investors’ interests are being adversely affected or
there is a suspected violation of the provisions of the securities laws.

 Process of Investigation The steps involved during investigation process include an

analysis of market data (order and trade log, transaction statements etc.) and static
data (KYC documents obtained from brokers, depository participants etc., bank
records, financial results, events around major corporate developments etc.) The
purpose of such investigation is to gather evidence and to identify persons/ entities
behind irregularities and violations so that appropriate and suitable regulatory action
can be taken, wherever required. Outcome of investigation in the form of enforcement
action is a clear signal the market players to comply with the law and expected
standards of conduct in the market.

51
 CHAPTER II

Research Methodology

2.1 Research Methodology

The research is exploratory research. The data is collected from various sources like Internet,
News paper, Magazines, Personals

2.2 DataCollection
Primary sources - Surveys to various broking firms and analysis on the same

Study through investors from questionnaire.

Secondary sources- Study from books

Analysis of IPOs of various sectors Search from Various investor sites.

2.3 Limitations
The study is not proposed to be an expert study as it was done by a student for the purpose of
a partial fulfillment of the course in the Finance training, which is an integral part, in
completion and reward . The study was conducted in shortspan of eighteen weeks, so the
findings cannot be generalized for all times. Some of the information’s being confidential
was not included in the study. During my project I would not be able to track performance of
IPO already listed of everysector. The scope of the study, by and large is very vast. It is very
difficult to satisfy all the areas. Therefore an attempt is made to cover as much as possible
included in the study

2.4 STATISTICAL TOOLS AND TECHNIQUES USED

The processing, categorization, tabulation, psychoanalysis and understanding of data are done
with the help of Frequency distribution Analysis and Pie diagram. The following statistical
tools and mathematical techniques have been applied on the data collected from the
respondents.

52
Frequency distribution analysis; Frequency distribution analysis is applied to analyze the
descriptive study of IPO

Pie Charts; A Pie chart (or a circle chart) is a circular statistical graphic, which illustrate
numerical proportion. In a pie chart, the arc length of each slice (and consequently its central
angle and area), is proportional to the quantity it represents. While it is named for its
resemblance to a pie which has been sliced, there are variations on the way it can be
presented.

Bar Chart; A bar chart or bar graph is a chart that presents grouped
data with rectangular bars with lengths proportional to the values that they represent. The
bars can be plotted vertically or horizontally. A vertical bar chart is sometimes called a Line
graph. A bar graph is a chart that use either horizontal or vertical bars to show comparisons
among categories. One axis of the chart shows the specific categories being compared, and
the other axis represents a discrete value. Some bar graphs present bars clustered in groups of
more than one.

53
 CHAPTER III

REVIEW OF LITERATURE

Mutual funds attracted the interests of academicians, researchers and financial

analysts mostly since 1986. A number of articles have been published in
financial dailies like economic times, business line and financial express,
periodicals like capital market, Business India etc., and in professional and
research journals. Literature Review on performance evaluation of mutual fund
is enormous. Various studies have been carried out in India and abroad to
evaluate the performance of mutual funds schemes from time to time.

 Jack Treynor (1965) developed a methodology for

performanceevaluation of a mutual fund that is referred to as reward to
volatility measure, which is defined as average excess return on the
portfolio. This is followed by Sharpe (1966) reward to variability
measure, which is average excess return on the portfolio divided by the
standard deviation of the portfolio.
 Sharpe (1966) developed a composite measure of
performanceevaluation and imported superior performance of 11 funds
out of 34 during the period 1944-63.
 Michael C. Jensen (1967) conducted an empirical study of mutualfunds
in the period of 1954-64 for 115 mutual funds. The results indicate that
these funds are not able to predict security prices well enough to
outperform a buy the market and hold policy. The study ignored the
gross management expenses to be free. There was very little evidence
that any individual fund was able to do significantly better than which
investors expected from mere random chance.
 Jensen (1968) developed a classic study; an absolute measure

54
 ofperformance based upon the Capital Asset Pricing Model and reported
that mutual funds did not appear to achieve abnormal performance when
transaction costs were taken into account.
 Carlsen (1970) evaluated the risk-adjusted performance andemphasized
that the conclusions drawn from calculations of return depend on the
time period, type of fund and the choice of benchmark. Carlsen
essentially recalculated the Jensen and Shape results using annual data
for 82 common stock funds over the 1948-67 periods. The results
contradicted both Sharpe and Jensen measures.
 Fama (1972) developed a methodology for evaluating
investmentperformance of managed portfolios and suggested that the
overall performance could be broken down into several components.
 John McDonald (1974) examined the relationship between the
statedfund objectives and their risks and return attributes. The study
concludes that, on an average the fund managers appeared to keep their
portfolios within the stated risk. Some funds in the lower risk group
possessed higher risk than funds in the most risky group.
 James R.F. Guy (1978) evaluated the risk-adjusted performance ofUK
investment trusts through the application of Sharpe and Jensen measures.
The study concludes that no trust had exhibited superior performance
compared to the London Stock Exchange Index.
 Henriksson (1984) reported that mutual fund managers were not ableto
follow an investment strategy that successfully times the return on the
market portfolio. Again Henriksson (1984) conclude there is strong
evidence that the funds market risk exposures change in response to the
market indicated. But the fund managers were not successful in timing
the market.
 Grinblatt and Titman (1989) concludes that some mutual
fundsconsistently realize abnormal returns by systematically picking

55
 stocks that realize positive excess returns.
 Richard A. Ippolito (1989) concluded that mutual funds on anaggregate
offer superior returns. But expenses and load charges offset them. This
characterizes the efficient market hypothesis.

 Ariff and Johnson (1990) made an important study in Singapore

andfound that the performance of Singapore unit trusts spread around the
market performance with approximately half of the funds performing
below the market and another half performing above the market on a
risk-adjusted basis.

 Cole and IP (1993) investigated the performance of Australian

equitytrusts. The study found evidence that portfolio managers were
unable to earn overall positive excess risk-adjusted returns.

 Vincent A. Warther(1995) in the article entitled “aggregate mutualfund

flows and security returns” concluded that aggregate security returns are
highly correlated with concurrent unexpected cash flows into MFs but
unrelated to concurrent expected flows. The study resulted in an
unexpected flow equal to 1 percent of total stock fund assets corresponds
to a 5.7 percent increase in stock price index. Fund flows are correlated
with the returns of the securities held by the funds, but not the returns of
other types of securities. The study found an evidence of positive
relation between flows and subsequent returns and evidence of a
negative relation between returns & subsequent flows.

 Bansal’s book (1996) “mutual fund management & working”included a

descriptive study of concept of mutual funds, Management of mutual
funds, accounting & disclosure standards, Mutual fund schemes etc.

56
 Sujit sudhakar and Amrit pal singh (1996) of Gawahati
Universitystudied the “Investment in Equity and Mutual Funds”. The
study attempted to highlight the investment decision vis. – a vis. (1)
income earning (2) capital appreciation and (3) tax benefits. The largest
population of the survey was mainly urban investing in corporate scrip’s
and mutual funds. The period chosen was 1992-94. It is gathered that the
major investors of mutual funds are salaried & self employed people.
This was presumably due to tax concessions. The self employed
professionally qualified practicing persons have a higher investible
surplus and they could take the risk of investing in stock market. It was
found that investors are very much conscious of diversification of their
portfolios and they preferred combination of mutual funds and equity
shares. Another noteworthy finding is that majority of the investors have
become, interested in capital Market instruments only after 1985.Further
80 percent of the respondents have preferred either UTI & SBI mutual
fund schemes. Other mutual funds have not proved to be hit among the
investing public in that part of the country. Another important finding
was that middle class investors being first generation investors tend to
hold their portfolio of comparatively longer period for tax benefits and
capital appreciation.
 Sadhak’s book (1997) “Mutual funds in India, Marketing strategiesand
investment practices” is highly analytical & thought provoking. Much
research has gone into writing of this book and hence highly useful to
researchers. An attempt is made of the first time in presenting Marketing
strategies of Mutual funds.
 Verma’s book (1997) ‘Guide to mutual funds & Investmentportfolios of
Indian mutual funds with some statistical data guidelines to the investors
in selection of schemes etc.

57
 National Council of Applied Economic Research (NCAER)
“UrbanSaving survey” noticed that irrespective of occupation followed
and educational level and age attained, households in each group thought
saving for the future was desirable. It was found that desire to make
provision for emergencies were a very important motive for saving for
old age. It is found out from the survey ‘Survey of Indian Investors’
conducted by NCEAR (2000) and the regulatory authority SEBI,
reported that Safety and liquidity were the primary considerations which
had determined the choice of an investment asset. In this paper NCAER
found out the Factors which influence individual the investment
decision, is the difference in the perception of Investors in the investing
process on the basis of Age and the difference in perception of the
Investors on the basis of Gender.
 K. Pendaraki (2001) et al. studied construction of mutual
fundportfolios, developed a multi- criteria methodology and applied it to
the Greek market of equity mutual funds. The methodology is based on
the combination of discrete and continuous multi-criteria decision aid
methods for mutual fund selection and composition. UTADIS multi-
criteria decision aid method is employed in order to develop mutual
fund’s performance models. Goal programming model is employed to
determine proportion of selected mutual funds in the final portfolios.
 Michael K. Berkowitz and Yehuda Katouritz (2002) in their
paperexamined the relationship between the fees changes by mutual
funds and their performance. The work distinguished between high &
low quality funds and sheds some additional light on the growing
controversy concerning the role of independent directors as monitors of
the fee setting practices written the funds. They found that for high
quality managers, there is a positive relationship between fees &
performance. In contrast for lower Quality Managers, there is a negative

58
 relationship between fees and performance. The authors believed this
reflects the incentive for poor managers to extract shorter benefits from
investors as the likelihood of survival is lower for poor performing
managers. The results were consistent with the notion that the
independent directors whose responsibility is to safeguard the interest of
shareholders may not be effective in doing so.
 S.Narayan Rao (2003) et. al., evaluated performance of Indianmutual
funds in a bear market through relative performance index, risk-return
analysis, Treynor’s ratio, Sharpe’s ratio, Jensen’s measure, and Fama’s
measure. The study used 269 open-ended schemes (out of total schemes
of 433) for computing relative performance index. Then after excluding
funds whose returns are less than risk-free returns, 58 schemes are
finally used for further analysis. The results of performance measures
suggest that most of mutual fund schemes in the sample of 58 were able
to satisfy investor’s expectations by giving excess returns over expected
returns based on both premium for systematic risk and total risk.
 Bijan Roy & Saikat Sovan Deb (2003) in the article “conditionalalpha
& performance persistence for Indian Mutual funds Empirical evidence”
investigated the Indian MF mangers contribution to better performance.
The research found that on an average the Indian MF managers only
captures the opportunities from the available economic information, they
do not contribute beyond it. The paper stresses that, the above basing on
when the beta the fund is conditioned to lag economic information
variables, the fund on an average becomes negative. The information
variables used in the study are interest rates, dividend yields, term
structure yield spread and a dummy. The authors also examined the
evidence of persistence in the performance of IMF based on cross
sectional regressions of future excess returns on a measure of past fund
performance and used both conditional & unconditional measures of

59
 performance as measure of part fund performance. The results indicated
that conditional measures of past performance predict the future fund
returns significantly.
 Nalini Prava Tripathy(2005) in the article entitled “An
EmpiricalEvaluation of Market Timing Abilities of Indian fund
Managers on Equity Linked Saving Scheme” analysed the market timing
abilities of Indian Fund manager in form of two models, one by Treynor
and Mazuy and the other by Henriksson and Merton. The results
indicated that Indian fund managers are not able to time the market
correctly. There is only one scheme out of 31 which exhibited the timing
ability of the fund manager.
 Zakri Y.Bello (2005) matched a sample of socially responsible
stockmutual funds matched to randomly select conventional funds of
similar net assets to investigate differences in characteristics of assets
held, degree of portfolio diversification and variable effects of
diversification on investment performance. The study found that socially
responsible funds do not differ significantly from conventional funds in
terms of any of these attributes. Moreover, the effect of diversification
on investment performance is not different between the two groups. Both
groups underperformed Domini 400 Social Index and S & P 500 during
the study period.
 D.N. Rao (2005) in the study “Investment styles and performance
ofequity MFs in India” classified 419 open ended equity MF schemes
into six investment styles and analyzed the performance selected open
ended equity MF schemes for the period 1 April 2005 – 31 march 2006
pertaining to the two dominant investment styles and tested the
hypothesis whether the differences in performance are statistically
significant. The variables chosen or analyzing financial performance are
monthly compounded mean return, risk per unit return and sharp ratio. A

60
comparison of the financial performance of 21 open ended equity
dividend plans was made and found that 17 growth plans gave hyper
returns than dividend plans but at a higher risk. 1 dividend plan
generated higher return than growth plan & 3 growth plans & dividend
plans had the same returns. It was also found that out of 21 growth plans
4 growth plans had higher co-efficient of variation (risk per unit) than
corresponding dividend plans & 13 dividend plans had higher co-
efficient of variation than growth plans offered by AMC. Three growth
plans & dividend plans had almost equal risk per unit return. A
comparison of the Sharpe’s ratio’s of growth plans & the corresponding
dividend plans indicated 18 growth plans out of 21 had better risk
adjusted excess returns highlighting the fat that growth plans are likely
to reward the investors more for the extra risk they are assuming. Finally
Pearson’s correlation co-efficient between the 2plans found to be
moderate and proved equity growth funds provide higher returns than
that of equity dividend funds and differences were statistically
significant.

 S. Anand and V. Murugaiah (2006) in the paper “Analysis

ofComponents of Investment Performance - An Empirical Study of
Mutual Funds in India” examined the components and sources of
investment performance in order to attribute it to specific activities of
Indian fund managers. The author also attempted to identify a part of
observed return which is due to the ability to pick up the best
securities at given level of risk. For this purpose, Fama's methodology
is adopted here. The study covered the period between April 1999 and
March 2003 and evaluated the performance of mutual funds based on
113 selected schemes having exposure more than 90 percent of corpus

61
 to equity stocks of 25 fund houses. The empirical results reported here
reveal the fact that the mutual funds were not able to compensate the
investors for the additional risk that they have taken by investing in
the mutual funds. The study concluded that the influence of market
factor was more severe during negative performance of the funds
while the impact selectivity skills of fund managers was more than the
other factors on the fund performance in times of generating positive
return by the funds. It was also observed from the study that
selectivity, expected market risk and market return factors have shown
closer correlation with the fund return.
 Sharad Panwar and R. Madhumathi (2006) in the paper
entitled“characteristics and performance evaluation of selected mutual
funds in India” studied a sample of public sector sponsored & private
sector sponsored funds of varied net assets to investigate the
differences in characteristics of assets held, portfolio diversification
and variable effects of diversification on investment performance for
the period may 2002 to may 2005. The paper resulted that public
sector sponsored funds also not differ significantly from private sector
sponsored funds in term of mean returns percent however they said
there is a significant difference between public sector sponsored MFs.
& private sector sponsored MFs in terms of average standard
deviation, average variance and average co-efficient of variation. It is
also found out that there is no statistical difference between
sponsorship classes in terms of excess standard deviation adjusted
returns as a performance measure. When they used residual variance
(RV) as a measure of MF portfolio diversification characteristic, there
was a statistical difference between public – sector sponsored mutual
fund and private sector sponsored MF for the study period. The model
built on testing the impact of diversification on fund performance they

62
 found a statistical difference among sponsorship classes when residual
variance is used as a measure of portfolio diversification and excess
standard deviation adjusted returns as a performance measure.
 D.N. Rao (2006)“4 step model to evaluate performance of
mutualfunds in Saudi Arabia” studied 4 step model for selecting the
right equity fund and illustrated the same in the context of equity
mutual funds in Saudi Arabia. The study revealed that most of the
funds invested in Arab stocks had been in existence for less than a
year and the volatility of the GCC stock markets contributed to the
relatively poor performance of these funds and the turnaround of these
funds could take place only with the rallying of GCC and other Arab
markets. Out of the six categories of equity mutual funds in Saudi
Arabia discussed above, Funds invested in Asian and European stocks
were more consistent in their performance and yielded relatively
higher returns than other categories, though funds invested in Saudi
stocks yielded higher 3-year returns. Given the future outlook of Asian
economies, particularly China and India and the newly emerging
economies such as Brazil and Russia, funds invested in the stocks of
these countries are likely to continue their current performance in near
future.

63
 CHAPTER IV
Findings& Analysis

Q1) Which area do you belong to?

o Rural
o Urban

Area Belongs

40% Rural
Urban

60%

Explanation:-

From The above pie graph,

 60% of Respondent belongs from Rural Area.

 40% of Respondent belongs from Urban Area .

64
Q2) Occupation..?
o Businessman
o Engineer
o Builder
o Consultant

Occupation
20%
10%

Businessman
Engineer
10%
Builder
Consultant

60%

Explanation:-

From The above pie graph,

 20% of Respondent are Businessman.

 20% of Respondent are Engineers.
 40% of Respondent are Builder.
 20% of Respondent are Consultants.

65
Q3) How long are you trading in Stock and IPO’s?
o 0-2years
o 2-5years
o 5-10years
o 10 & above years

Trading in Stock & IPO

20%

40%

0-2 Years
2-5 Years
5-10 Years
10 & above

20%

20%

Explanation:-

From The above pie graph,

 40% of Respondent doing trading in stock and IPO from 0-2 years.
 20% of Respondent doing trading in stock and IPO from 2-5 years
 20% of Respondent doing trading in stock and IPO from 5-10 years
 20% of Respondent doing trading in stock and IPO from 10 & above years

66
Q4) Do you go by the grading before investing?
o Yes
o No

Grading Before Investing

40% Yes
No

60%

Explanation:-

From The above pie graph,

 60% of Respondent watching grading before investing.

 40% of Respondent doesn’t watching any grading before investing.

67
Q5) You’re Proportion of financial investment for IPO’s
o Less than 10% of annual income
o 10% - 15% of annual income
o 15% - 20% of annual income
o 20% - 25% of annual income

Portion for Financial Investment in IPO

20% 20%

Less than 10%

10-15%
15-20%
20-25%

20%

40%

Explanation:-

From The above pie graph,

 20% of Respondent investing in IPO from less than 10% of their financial investment.
 40% of Respondent investing in IPO from 10% - 15% of their financial investment.
 20% of Respondent investing in IPO from 15% - 20% of their financial investment.
 20% of Respondent investing in IPO from 20% - 25% of their financial investment.

68
Q6) what do you see before investing in IPO?
o Promoter Background
o Sector Performance
o Performance of existing company
o Premium amount

Investing in IPO

20% 20%

Promoter Background
Sector Performance
Performace of Existing Company
Premium amount
20%

40%

Explanation:-

From The above pie graph,

 20% of Respondent watching Promoter Background before investing.

 40% of Respondent watching Sector Performance before investing.
 20% of Respondent watching Performance Existing of company before investing.
 20% of Respondent watching Promoter Background before investing.

69
Q7) what is the reasonable amount of returns on IPO’s in 6 months period?
o 4% - 8%
o 9% - 12%
o 13% - 15%
o 16% - 20%

Returns
20% 20%

4% - 8%
9%-12%
13%-15%
16%-20%

20% 20%

Explanation:-

From The above pie graph,

 20% of Respondent are getting 4% - 8% returns on IPO’S from 6 Months period

 40% of Respondent are getting 16% - 12% returns on IPO’S from 6 Months period
 20% of Respondent are getting 13% - 15% returns on IPO’S from 6 Months period.
 20% of Respondent are getting 16% - 20% returns on IPO’S from 6 Months period

70
Q8) what do you think is about the procedure of IPO?
o Easy
o Lengthy
o Difficult

Procedure of IPO
20%

40%

Easy
Lengthy
Difficult

40%

Explanation:-

From The above pie graph,

 40% of Respondent thinks IPO procedure is easy.

 40% of Respondent thinks IPO procedure is lengthy.
 20% of Respondent thinks IPO procedure is difficult.

71
Q9) Is it better to invest in IPO or pick the same stock from Listings?
o Invest in IPO’s
o Pick the same stock on Listings
o Partly invest in IPO’s & pick the stock on listing
o Wait sometime after listing

Better invest in IPO fromlisting

20% 20%

Invest in IPO's
Same Stock
Partly Invest
Wait sometimes

20%

40%

Explanation:-

From The above pie graph,

 20% of Respondent agreed that invest in IPO is better investment.

 40% of Respondent agreed that invest in IPO same stock is better investment.
 20% of Respondent agreed that invest in IPO are partly investment.
 20% of Respondent agreed that invest in IPO wait sometimes

72
Q10) how do you come to know about the new IPO listing?
o Through Broker
o Through Friend
o Through TV
o Through Newspaper

Know of IPO
20% 20%

Through Broker
Through Friend
Through TV
Through Newspaper
20%

40%

Explanation:-

From The above pie graph,

 20% of Respondent come to know about IPO through Brokers

 40% of Respondent come to know about IPO through Friends
 20% of Respondent come to know about IPO through TV
 20% of Respondent come to know about IPO through Newspaper

73
Q11) What is your purpose of investing in IPO?
o Listing Gain
o Longterm Gain

Purpose of Investing

20%

Listing Gain
Longterm gain

80%

Explanation:-

From The above pie graph,

 20% of Respondent Investing in IPO by Listing Gain.

 80% of Respondent Investing in IPO for Long-term Gain

74
4.2 Suggestions& Recommendations

 The investment in IPO can prove too risky because the investor does not know
anything about the company because it is listed first time in the market so its
performance cannot be measure.
 On the other hand it can be said that the higher the risk higher the returns
earned. So we can say that the though risky if investment is done then it can
give higher returns as well.
 Primary market is more volatile than the secondary market because all the
companies are listed for the first time in the market so nothing can be said
about its performance.
 If higher risk is taken, it is always rewarded with the higher returns. So higher
the risk the more the returns rewarded for it.
 “We can fairly predict the future, but can’t make it happen as it is.”

75
 Conclusion
The Capital Market Regulator, SEBI has carefully developed good stability mechanisms to
keep the Market functioning with stability and sustainability. There are difficulties, but the
Capital Market Regulator devises careful working strategies to overcome them. Such
strategies come in the form of rules, regulations and innovative market reforms. SEBI has
been granted powers by the Law Courts and the Government of India which helps its
machinery to function as expected. SEBI is very much engaged in the education of investors
and the careful training of all Capital Market participants. This is the source of stability and
sustainability in the Indian Capital Market. The situation of the Indian Capital Market is
evidence of the fact that investors’ interest is well protected. They should have confidence in
the market and invest without fear of abnormal or excess losses. The evidence in the
corporate management environment indicates that the Securities and Exchange Board of
India (SEBI) can make Rules and Regulations on good Corporate Governance for
companies, but it is very difficult to force them to implement such Rules and Regulations.
Some directors deliberately abuse Corporate Governance Rules and Regulations, while
others inadvertently Act on the spur of the moment and take unnecessary risks, motivated by
high interest benefits. It is only discovered that there exist an abuse of Corporate
Governance in a any corporate body, when risk taking goes wrong. This means that
corporate bodies abuse Corporate Governance Rules and Regulations more often, because of
the advantage of very high benefits. This is typically a practice that prevails in the banking
environment. It is a bad practice, but very difficult to stamp out. Abuse of Corporate
Governance Rules and Regulations by corporations is difficult to detect, since it is always
done off the company’s records. SEBI cannot be held responsible for the bad Corporate
Governancepracticesinitiatedbydirectorsofcompanies.SEBIisanadvisorybodycharged with
the formulation of good Corporate Governance Rules and Regulations, which should be
implemented and followed by all corporations. A number of significant first-generation
Capital Market reforms have been implemented in the India Capital Market. For instance,
spot prices for index (e.g. Sensex) stocks are usually "market" determined, the volumes in
the derivative markets have grown beyond those in the spot markets, and the market
mechanisms (e.g. the speed of settlement and dematerialisation) are comparable to
international best practices. This has made the NSE and BSE to attain a relatively high
degree of sophistication. However, the BSE is not yet corporatised and the NSE could do
with more competition.

76
 BIBLOGRAPHY
BOOKS
1. Berenson Mark and Levine David (2000), “Basic Business Statistics, Concepts and
Applications”, Prentice Hall.

2. Branscomb Anne Wells (2004), “Who Owns Information”, Basic Books.

3. Grinblatt Mark, Titman Sheridan (2008), “Financial markets and Corporate Strategy”,
McGraw-Hill.

4. Shapiro Carl and Varian Hal R. (2009), “Information Rules: A Strategy Guide to the
Network Economy”, Harvard Business School Press.

5. Udayan Gupta (2006), “Done Deals: Venture capitalists tell their stories”, Harvard
Business School Press.

Webliography

 www.ipohome.com/hie-gerieooie/htm

 www.essortment.com/gteorerui-100%dkfjdkei.pdf

 www.investopedia.com/reserchpaper.froee-heofdvl%fkldks/

 www.ipoavenue.com/ariownnipo-progress&arojsrei/5%akd2e32/

 www.moneycontrol.com/reliance/ipo/areoi/rechares=kadkf=akdfd&

 www.wikipedia.com/ipo$alfjdkfjd5wieirnaZ?oadjfe=jjfjf.jpg

 www.moneycentral.hoovers.com

 www.bullishindian.com

 www.rupya.com

 www.investorguide.com

 www.hdil.in/

77
 Questionnaire

Q1) Which area do you belong to?

o Rural
o Urban
Q2) Occupation..?
o Businessman
o Engineer
o Builder
o Consultant
Q3) How long are you trading in Stock and IPO’s?
o 0-2years
o 2-5years
o 5-10years
o 10 & above years
Q4) Do you go by the grading before investing?
o Yes
o No
Q5) You’re Proportion of financial investment for IPO’s
o Less than 10% of annual income
o 10% - 15% of annual income
o 15% - 20% of annual income
o 20% - 25% of annual income
Q6) What do you see before investing in IPO?
o Promoter Background
o Sector Performance
o Performance of existing company
o Premium amount

Q7) What is the reasonable amount of returns on IPO’s in 6 months period?

o 4% - 8%
o 9% - 12%

78
 o 13% - 15%
o 16% - 20%

Q8) What do you think is about the procedure of IPO?

o Easy
o Lengthy
o Difficult
Q9) Is it better to invest in IPO or pick the same stock from Listings?
o Invest in IPO’s
o Pick the same stock on Listings
o Partly invest in IPO’s & pick the stock on listing
o Wait sometime after listing
Q10) How do you come to know about the new IPO listing?
o Through Broker
o Through Friend
o Through TV
o Through Newspaper
Q11) What is your purpose of investing in IPO?
o Listing Gain
o Longterm Gain

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