ROLE OF SEBI

HISTORY
Securities Exchange Board of India (SEBI) is a board (autonomous body) created by the Government of India in 1988 and given statutory form in 1992 with the Securities of Exchange Board of India Act 1992. Its head office is in Mumbai, and other offices in Chennai, Kolkata, Delhi and Ahmadabad. SEBI is the regulator of Securities markets in India. It is chaired by Mr. Chandrasekhar Bhaskar Bhave is the sixth chairman of the Securities Market Regulator. Prior to taking charge as Chairman SEBI, he had been the chairman of NSDL (National Securities Depository Limited) ushering in paperless securities. Prior to his stint at NSDL, he had served SEBI as a Senior Executive Director. He is a former Indian Administrative Service officer of the 1975 batch. SEBI has three functions rolled into one body quasi-legislative, quasi-judicial and quasi-executive. It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. Though this makes it very powerful, there is an appeals process to create accountability. There is a Securities Appellate Tribunal which is a three-member tribunal and is presently headed by a former Chief Justice of a High court - Mr. Justice NK Sodhi. A second appeal lies directly to the Supreme Court.

Introduction
In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution, and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. In place of Government Control, a statutory and autonomous regulatory board with defined responsibilities, to cover both development & regulation of the market, and independent powers has been set up. Paradoxically this is a positive outcome of the Securities Scam of 1990-91. SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the quick movement towards making the markets electronic and paperless rolling settlement on T+2 basis). SEBI has been active in setting up the regulations as required under law. SEBI has also been instrumental in taking quick and effective steps in light of the global meltdown and the Satyam fiasco. It had increased the extent and quantity of disclosures to be made by Indian corporate promoters. More recently, in light of the global meltdown, it liberalized the takeover code to facilitate investments by removing regulatory strictures. Two broad approaches of SEBI is to integrate the securities market at the national level, and also to diversify the trading products, so that there is an increase in number of traders including banks, financial institutions, insurance companies, mutual funds, primary dealers etc. to transact through the Exchanges. In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark.

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Definitions
(1) In this Act, unless the context otherwise requires, (a) "Board" means the Securities and Exchange Board of India established under section 3; (b) "Chairman" means the Chairman of the Board; (c) "Existing Securities and Exchange Board" means the Securities and Exchange Board of India constituted under the Resolution of the Government of India in the Department of Economic Affairs No.1 (44) SE/86, dated the 12th day of April, 1988; (d) "Fund" means the Fund constituted under Section 14; (e) "Member" means a member of the Board and includes the Chairman; (f) "Notification" means a notification published in the Official Gazette; (g) "Prescribed" means prescribed by rules made under this Act; (h) "Regulations" means the regulations made by the Board under this Act; (i) "Securities" has the meaning assigned to it in section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).

[(2) Words and expressions used and not defined in this Act, but defined in the Securities Contracts (Regulation) Act, 1956(42 of 1956), [or the Depositories Act, 1996], shall have the meanings respectively assigned to them in that Act.]

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ESTABLISHMENT OF THE SECURITIES AND EXCHANGE BOARD OF INDIA Establishment and incorporation of Board
(1) With effect from such date as the Central Government may, by notification, appoint, there shall be established, for the purposes of this Act, a Board by the name of the Securities and Exchange Board of India. (2) The Board shall be a body corporate by the name aforesaid, having perpetual succession and a common seal, with power subject to the provisions of this Act, to acquire, hold and dispose of property, both movable and immovable, and to contract, and shall, by the said name, sue or be sued. (3) The head office of the Board shall be at Bombay. (4) The Board may establish offices at other places in India.

Management of the Board
1. The Board shall consist of the following members, namely:a. b. a Chairman; two members from amongst the officials of the [Ministry] of the Central Government dealing with Finance [and administration of the Companies Act, 1956(1 of 1956)]; c. d. 2. one member from amongst the officials of [the Reserve Bank]; Five other members of whom at least three shall be the whole-time members to be appointed by the central Government. The general superintendence, direction and management of the affairs of the Board shall vest in a Board of members, which may exercise all powers and do all acts and things which may be exercised or done by the Board. 3. Save as otherwise determined by regulations, the Chairman shall also have powers of general superintendence and direction of the affairs of the Board and may also exercise all powers and do all acts and things which may be exercised or done by that Board. 4. The Chairman and members referred to in clauses (a) and (d) of sub-section (1) shall be appointed by the Central Government and the members referred
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to in clauses (b) and (c) of that sub-section shall be nominated by the Central Government and the [Reserve Bank] respectively. 5. The Chairman and the other members referred to in clauses (a) and (d) of sub-section (1) shall be persons of ability, integrity and standing who have shown capacity in dealing with problems relating to securities market or have special knowledge or experience of law, finance, economics, accountancy, administration or in any other discipline which, in the opinion of the Central Government, shall be useful to the Board.

Term of Office and Conditions of Service of Chairman and Members of the Board
(1) The term of office and other conditions of service of the Chairman and the members referred to in clause (d) of sub- section (1) of section 4 shall be such as may be prescribed. (2) Notwithstanding anything contained in sub-section (1), the Central Government shall have the right to terminate the services of the Chairman or a member appointed under clause (d) of sub-section (1) of section 4, at any time before the expiry of the period prescribed under sub-section (1), by giving him notice of not less than three months in writing or three months¶ salary and allowances in lieu thereof, and the Chairman or a member, as the case may be, shall also have the right to relinquish his office, at any time before the expiry of the period prescribed under sub-section (1), by giving to the Central Government notice of not less than three months in writing.

Removal of member from office
The Central Government shall remove a member from office if he a. is, or at any time has been, adjudicated as insolvent; b. is of unsound mind and stands so declared by a competent court; c. has been convicted of an offence which, in the opinion of the Central Government, involves a moral turpitude;

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d. has, in the opinion of the Central Government, so abused his position as to render his continuation in office detrimental to the public interest: Provided that no member shall be removed under this clause unless he has been given a reasonable opportunity of being heard in the matter.

Meetings
1. The Board shall meet at such times and places, and shall observe such rules of procedure in regard to the transaction of business at its meetings (including quorum at such meetings) as may be provided by regulations. 2. The Chairman or, if for any reason, he is unable to attend a meeting of the Board, any other member chosen by the members present from amongst themselves at the meeting shall preside at the meeting. 3. All questions which come up before any meeting of the Board shall be decided by a majority votes of the members present and voting, and, in the event of an equality of votes, the Chairman, or in his absence, the person presiding, shall have a second or casting vote.

Vacancies etc., not to invalidate proceedings of Board
No act or proceeding of the Board shall be invalid merely by reason of a. any vacancy in, or any defect in the constitution of, the Board; or b. any defect in the appointment of a person acting as a member of the Board; or c. Any irregularity in the procedure of the Board not affecting the merits of the case.

Officers and employees of the Board
(1) The Board may appoint such other officers and employees as it considers necessary for the efficient discharge of its functions under this Act. (2) The term and other conditions of service of officers and employees of the Board appointed under sub- section (1) shall be such as may be determined by regulations.

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CONSTITUTION OF SEBI
I. SEBI was established by the government to promote orderly and healthy growth by securities market and for the investor`s protection. II. III. SEBI shall be headed by the chairman appointed by the Central Government. The Chairman shall hold office during the pleasure of the government and shall be governed by such terms and conditions as may be determined by the government time-to-time. IV. Other members of SEBI, not exceeding four shall be nominated by the Central Government who shall be persons having experience and knowledge relevant to the securities and investment industry. V. The Chairman of SEBI shall have appropriate powers to discharge the functions of SEBI effectively. For the purpose of, SEBI shall provide itself with suitable supporting staff and raise adequate resources. VI. The initial financing of the SEBI would be through contributions from the public financial and investment institutions. VII. SEBI shall:a. Deal with small matters relating to development and regulation of securities market and investor protection, and advise Government on these matters; b. Prepare a comprehensive legislation for the regulation and development of the securities market; c. Carry out such functions as may be delegated to the Board/Chairman by the Central Government for the development and regulation of securities market.

VIII.

SEBI shall be free to determine its own procedures and will have the power to call for records, returns, notes, memoranda, data or any other material relevant to its working from official and non-official bodies and also hold discussions with them.

IX. X.

SEBI will have its headquarters in Mumbai. SEBI shall submit reports to the Government periodically on various aspects of the securities market an on such other specific matter as may be called for by the Government.
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Why SEBI was constituted?
The ever expanding investor`s population and market capitalization led to a variety of malpractices on the part of companies, brokers, merchant bankers, investment consultant and others involved in new issues and stock in India. The glaring examples of these malpractices are as under:i. ii. iii. iv. v. vi. Existence of self-styled merchant bankers, investment consultant without sufficient expertise and infrastructure for proper services. Unofficial private placement Jacking up of prices Unofficial premiums on new issues. Manipulation of prices even before listing Violation of rules and regulation of the stock exchange and listing requirements. vii. Problem of odd lots and poor liquidity of a number of shares in the secondary market. viii. The malpractices and unfair trade practices have eroded investor¶s confidence. It multiplied the investor¶s grievances. The government and the stock exchanges were rather helpless in redressing the investor¶s problems because of lack of proper penal provision in the existing legislation. Realizing this, SEBI was constituted by the government in April, 1988 as a supervisory body to regulate and promote securities market.

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Functions of SEBI
y

The Board is responsible for the securing the interests of investors in securities and to facilitate the growth of and to monitor the securities market in an appropriate manner. To monitor and control the performance of stock exchange and derivative markets.

y

y

Listing and monitoring the functioning of stock brokers, sub brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and others associated with securities markets by any means.

y

Monitoring and controlling the functioning of venture capital funds and mutual funds.

y

Forbid unjust and dishonest trade practices in the security markets and forbid insider trading in the security market.

y

Undertake periodic audits of stock exchanges, mutual funds, individuals and self regulatory organizations associated with the security market.

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What SEBI does with its powers?
The SEBI exercise powers under section11 and 11b of sebi act, 1992.
y y

SEBI can ask any intermediary or market participant for information. SEBI can inspect books of depository participant, issuers or beneficiary owners.

y

SEBI can suspend or cancel a certificate of registration granted to a depository participant or issuer.

y

SEBI can request the RBI to inspect books of a banker to an issue and suspend or cancel the registration of the banker to an issue.

y

SEBI can suspend or cancel registration granted to foreign institutional investor(FIIs)

y

SEBI can investigate any person dealing in securities on complaint of contravention of training regulation.

y y y

SEBI can suspend or cancel the registration of errant portfolio managers. SEBI can cancel the certificate of registers and share transfer agents. SEBI can cancel certificate of brokers who fail to furnish false information.

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SEBI GUIDELINES
Guidelines to investors:y y y

Deal only with the registered member of the stock exchange Insist that all your deals be done through stock exchange Give specific orders to buy or sell within the fixed price, limits and/or time periods within which orders have to be executed.

y

Insist on contract notes for the deals done on your behalf.

Guidelines for Primary Market:y

A new company which has not completed 12 months commercial production and does not have audited results and where the promoters don¶t have audited results and where the promoters don¶t have a track record will have to issue shares only at par value.

y

When a company is being set up by an existing company having a track record of five years of profitability and who holds 50 percent equity in the new company, such a company will be free to price its issue.

y

The private and closely held companies having a track record of consistent profitability for at least three years shall be permitted to price their issues freely.

y y y y

Existing listing companies can price their issues freely. Risk factors must be highlighted in the prospectus. Abridged prospectus must be attached with every application form. Objectives of the issues and the cost of the project should be disclosed in the prospectus.

y

Company¶s management, past history and present business of the firm should be disclosed.

y

Particulars of the company and other listed companies under the same management who have made public issues during the past 3 years are to be disclosed in the prospectus.

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THE TRADITIONAL STRUCTURE OF THE STOCK EXCHANGES IN INDIA
According to legal structure, the stock exchanges in India could be segregated into
y y

2 broad groups 20 stock exchanges which were set up as companies, either limited by guarantees or by shares. 3 stock exchanges which are functioning as associations of persons (AOP) viz. BSE, ASE and Madhya Pradesh Stock Exchange.

y

The 20 stock exchanges which are companies are the stock exchanges of:
y y y y y y y y y y y y y y y y y y y y

Bangalore Bhubaneswar Calcutta Cochin Coimbatore Delhi Gauhati Hyderabad Interconnected SE Jaipur Ludhiana Madras Magadha Mangalore NSE Pune OTCEI Saurashtra-Kutch Uttar Pradesh Vadodara Apart from NSE, all stock exchanges whether established as corporate bodies or Association of Persons (AOPs), are non-profit making organizations.

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ROLE OF SEBI
Public Issue
Any company or a listed company making a public issue or a rights issue of value of more than Rs 50 lakhs is required to file a draft offer document with SEBI for its observations. The company can proceed further only after getting observations from SEBI. The company has to open its issue within three months from the date of SEBI's observation letter. Through public issues, SEBI has laid down eligibility norms for entities accessing the primary market. The entry norms are only for companies making a public issue (IPO or FPO) and not for listed company making a rights issue. The entry norms are as follows Entry Norm I (EN I): The company shall meet the following requirements:y y y y

Net Tangible Assets of at least Rs. 3 crores for 3 full years. Distributable profits in at least three years. Net worth of at least Rs. 1 crore in three years. If change in name, at least 50% revenue for preceding 1 year should be from the new activity.

y

The issue size does not exceed 5 times the pre- issue net worth.

SEBI has provided two other alternative routes to company not satisfying any of the above conditions to provide sufficient flexibility and also to ensure that genuine companies do not suffer on account of rigidity of the parameters, for accessing the primary Market. They are as under Entry Norm II (EN II)
y

Issue shall be through book building route, with at least 50% to be mandatory allotted to the Qualified Institutional Buyers (QIBs).

y

The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years.
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OR

Entry Norm III (EN III)
y

The "project" is appraised and participated to the extent of 15% by FIs/Scheduled Commercial Banks of which at least 10% comes from the appraiser(s).

y

The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years.

Note: - The Company should also satisfy the criteria of having at least 1000 prospective allotees The following are exempted from the ENs
y y y

Private Sector Banks Public sector banks An infrastructure company whose project has been appraised by a PFI or IDFC or IL&FS or a bank which was earlier a PFI and not less than 5% of the project cost is financed by any of these institutions.

y

Rights issue by a listed company

Mutual Funds
To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. MF either promoted by public or by private sector entities including one promoted by foreign entities are governed by these Regulations.

SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody.

According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent. They should not be associated with the
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sponsors. 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme. Increase of load more than the level mentioned in the offer document i applicable s only to prospective investment by the MFs. For original investments, the offer document has to be amended to make investors aware of loads at the time of investments.

Foreign Institutional Investor
One who propose to invest their proprietary funds or on behalf of "broad based" funds or of foreign corporate and individuals and belong to any of the under given categories can be registered for FII.
y y y y y y y

Pension Funds Mutual Funds Investment Trust Insurance or reinsurance companies Endowment Funds University Funds Foundations or Charitable Trusts or Charitable Societies who propose to invest on their own behalf, and

y y y y y y

Asset Management Companies Nominee Companies Institutional Portfolio Managers Trustees Power of Attorney Holders Bank

An application for registration has to be made in Form A, the format of which is provided in the SEBI(FII) Regulations, 1995 and submitted with under mentioned documents in duplicate addressed to SEBI as well as to Reserve Bank of India (RBI) and sent to the following address within 10 to 12 days of receipt of application.

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Supporting documents required are
y

Application in Form A duly signed by the authorized signatory of the applicant.

y

Certified copy of the relevant clauses or articles of the Memorandum and Articles of Association or the agreement authorizing the applicant to invest on behalf of its clients

y

Audited financial statements and annual reports for the last one year, provided that the period covered shall not be less than twelve months.

y

A declaration by the applicant with registration number and other particulars in support of its registration or regulation by a Securities Commission or Self Regulatory Organization or any other appropriate regulatory authority with whom the applicant is registered in its home country.

y

A declaration by the applicant that it has entered into a custodian agreement with a domestic custodian together with particulars of the domestic custodian.

y y

A signed declaration statement that appears at the end of the Form. Declaration regarding fit & proper entity.

The eligibility criteria for applicant seeking FII registration As per Regulation 6 of SEBI (FII) Regulations, 1995, Foreign Institutional Investors are required to fulfill the following conditions to qualify for grant of registration:
y

Applicant should have track record, professional competence, financial soundness, experience, general reputation of fairness and integrity;

y

The applicant should be regulated by an appropriate foreign regulatory authority in the same capacity/category where registration is sought from SEBI. Registration with authorities, which are responsible for incorporation, is not adequate to qualify as Foreign Institutional Investor.

y

The applicant is required to have the permission under the provisions of the Foreign Exchange Management Act, 1999 from the Reserve Bank of India. Applicant must be legally permitted to invest in securities outside the country or its in-corporation / establishment.

y

y

The applicant must be a "fit and proper" person.

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y

The applicant has to appoint a local custodian and enter into an agreement with the custodian. Besides it also has to appoint a designated bank to route its transactions.

y

Payment of registration fee of US $ 5,000.00

Derivatives
Derivatives trading take place under the Securities and Exchange Board of India Act, 1992 and the framework including suggestive bye-law and its Clearing Corporation/House has been laid down by Dr. L.C. Gupta Committee, constituted by SEBI.

Some

of the

eligibility

conditions

laid

down

by SEBI for

Derivative

Exchange/Segment and its Clearing Corporation/House are as follows:
y

The Derivatives Exchange/Segment shall have on-line surveillance capability to monitor positions, prices, and volumes on a real time basis so as to deter market manipulation.

y

The Derivatives Exchange/ Segment should have arrangements for dissemination of information about trades, quantities and quotes on a real time basis through at least two information vending networks, which are easily accessible to investors across the country.

y

The Derivatives Exchange/Segment should have arbitration and investor grievances redressed mechanism operative from all the four areas / regions of the country.

y

The Derivatives Exchange/Segment should have satisfactory system of monitoring investor complaints and preventing irregularities in trading.

y

The Derivative Segment of the Exchange would have a separate Investor Protection Fund.

y

The Clearing Corporation/House shall perform full novation, i.e., the Clearing Corporation/House shall interpose itself between both legs of every trade, becoming the legal counterparty to both or alternatively should provide an unconditional guarantee for settlement of all trades.

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y

The Clearing Corporation/House shall have the capacity to monitor the overall position of Members across both derivatives market and the underlying securities market for those Members who are participating in both.

y

The level of initial margin on Index Futures Contracts shall be related to the risk of loss on the position. The concept of value-at-risk shall be used in calculating required level of initial margins. The initial margins should be large enough to cover the one-day loss that can be encountered on the position on 99% of the days.

y

The Clearing Corporation/House shall establish facilities for electronic funds transfer (EFT) for swift movement of margin payments.

y

In the event of a Member defaulting in meeting its liabilities, the Clearing Corporation/House shall transfer client positions and assets to another solvent Member or close-out all open positions. The Clearing Corporation/House should have capabilities to segregate initial margins deposited by Clearing Members for trades on their own account and on account of his client. The Clearing Corporation/House shall hold the clients' margin money in trust for the client purposes only and should not allow its diversion for any other purpose. The Clearing Corporation/House shall have a separate Trade Guarantee Fund for the trades executed on Derivative Exchange / Segment.

y

y

Presently, SEBI has permitted Derivative Trading on the Derivative Segment of BSE and the F&O Segment of NSE. The rights of investors in the Derivative Market are well protected by SEBI. The measures specified by SEBI are as follows:
y

Investor's money has to be kept separate at all levels and is permitted to be used only against the liability of the Investor and is not available to the trading member or clearing member or even any other investor. The Trading Member is required to provide every investor with a risk disclosure document which will disclose the risks associated with the derivatives trading so that investors can take a conscious decision to trade in derivatives.
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y

y

Investor would get the contract note duly time stamped for receipt of the order and execution of the order. The order will be executed with the identity of the client and without client ID order will not be accepted by the system. The investor could also demand the trade confirmation slip with his ID in support of the contract note. This will protect him from the risk of price favour, if any, extended by the Member.

y

In the derivative markets all money paid by the Investor towards margins on all open positions is kept in trust with the Clearing House / Clearing Corporation and in the event of default of the Trading or Clearing Member the amounts paid by the client towards margins are segregated and not utilised towards the default of the member. However, in the event of a default of a member, losses suffered by the Investor, if any, on settled / closed out position are compensated from the Investor Protection Fund, as per the rules, bye-laws and regulations of the derivative segment of the exchanges

Depositories and Custodians
There are two Depositories and approximately 390 Depository Participants (DP) are registered with SEBI at present. The two Depositories are:
y y

National Securities Depository Limited Central Depository Services (I) Limited

The benefits of availing Depository Services are as follows:
y y y y

A safe, convenient way to hold securities; Instant transfer of securities; Stamp duty is not required on transfer of securities; Elimination of risks associated with physical certificates such as bad delivery , fake securities, Delays, thefts etc.;

y y y

Reduction in paperwork involved in transfer of securities; Reduction in the cost of transaction, No odd lot problem, even one share can be sold;
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y y

Facility of nomination; Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately;

y

Transmission of securities is done by DP eliminating correspondence with companies;

y

Credited automatically into demat account of shares, arising out-of bonus or split or consolidation or merger etc.

Opening of an account The investor has to approach a Depository Participant and fill up an account opening form with the support proof of identity and address. Proof of Identity: Photograph and Signature of investor must be authenticated by investor's bank or by an existing demat account holder. Alternatively, one can submit a copy of a valid Passport, Voters Id Card, Driving License or PAN card with photograph. Proof of Address: A copy of ration card or passport or voter ID or PAN card or driving license or bank passbook as proof of address. The investor has to sign an agreement with DP in a depository prescribed standard format, which holds a detail of investor's and DPs rights and duties. DP provides investor with a copy of the agreement and schedule of charges for future reference. The DP opens the account for the investor in the system and gives an account number, which is also called BO ID (Beneficiary owner Identification number). Kindly note that there is no balance of securities required in the account and more than one account in the same name can be opened either with the same DP or with other irrespective of the brokers account.

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Collective Investment Schemes
At the time of commencement of CIS Regulations i.e. (October 15, 1999), entities operating a collective investment scheme are deemed to be an existing collective investment scheme. SEBI does not ensure the refund of money invested in defaulting entities registered before October 15, 1999. By any means the under mentioned do not constitute a CIS where any scheme or arrangement
y

Made or offered by a co-operative society or a society being a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State

y

BeinUnder which deposits are accepted by non-banking financial companies¶ a contract of insurance to which the Insurance Act, applies.

y

Providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund and Miscellaneous Provisions Act, 1952.

y

Under which deposits are accepted under section 58A of the Companies Act, 1956 (1 of 1956). Under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society under section 620A of the Companies Act, 1956 (1 of 1956).

y

y

Falling within the meaning of Chit business as defined in clause (d) of section 2of the Chit Fund Act, 1982 (40 of 1982).

y

Under which contributions made are in the nature of subscription to a mutual fund.

Registered with SEBI under the SEBI (Collective Investment Schemes) Regulations, 1999 and incorporated under the provisions of the Companies Act, 1956 whose object is to organise, operate and manage a Collective Investment Scheme forms a Collective Investment Management Company. These companies can raise funds from the public by launching schemes which has to be credit rated and appraised by appraising agencies. It also has to be approved by the Trustee and contain disclosures

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according to the Regulations to enable investors to make informed decision. The offer document to the public is issued after 21 days of filing document to SEBI and in return no modifications are suggested by SEBI.

SEBI is not responsible either for the financial soundness of any scheme for which the offer document has been filed or for the correctness of the statements made or opinions expressed in the offer document. CIMC has to ensure the disclosures.

Buy Back of Securities
A company buy back its shares in any one of the under mentioned manners even without shareholders' resolution to the extent of 10% of paid up equity capital and reserves. For 25% buy back, it has to get approved by Shareholders Resolution as specified in Section 77a of Companies Act, 1956.
y

From the existing shareholders on a proportionate basis through the tender offer;

y

From open market through:
y y

Book building process Stock exchange,

y

From odd lot holders.

The listed companies requires intimation to the stock exchange of general meetings and resolutions passed thereof. The information¶s can be obtained from the stock exchanges. SEBI issues a press release and the offer document is put on the SEBI website when buyback offer document or public announcement is filed.

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IMPACT OF SEBI
1. DISGORGEMENT:It is well established worldwide that the power to disgorge is an equitable remedy and is not a penal or even a quasi-penal action. Thus it differs from actions like forfeiture and impounding of assets or money. Unlike damages, it is a method of forcing a defendant to give up the amount by which he or she was unjustly enriched. Disgorgement is intended not to impose on defendants any demand not already imposed by law, but only to deprive them of the fruit of their illegal behavior. It is designed to undo what could have been prevented had the defendants not outdistanced the investors in their unlawful project. In short, disgorgement merely discontinues an illegal arrangement and restores the status quo ante (See 1986 (160) ITR 969). Disgorgement is a useful equitable remedy because it strips the perpetrator of the fruits of his unlawful activity and returns him to the position he was in before he broke the law. The order of disgorgement would not prejudice the right of the regulator to take such further administrative, civil and criminal action as the facts of the case may warrant.

SEBI's disgorgement order on financier Kolkata, April 8 SEBI has slapped a disgorgement order of Rs 77, 81,946 on Amadhi Investments Ltd, the financier to a key market operator, Sugandh Estate and Investments Private Ltd (SEIPL), for unlawful gain during the IPOs of IDFC Ltd, Sasken and FCS. Mr. M.S. Sahoo, Whole-Time Member, SEBI, passed the final order on April 6 on a matter pertaining to ³irregularities in the IPOs´ against Amadhi, a press release by the market regulator said on Thursday. Amadhi would also have to pay interest amounting to Rs 21, 01,125 on the unlawful gains made, the SEBI order said ± at the rate of 6 per cent per annum for the period from September 2005 to March 2010, from the date of listing of the IPOs of Sasken
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and FCS till the order. It would thus have to pay a total amount of Rs 98,83,071 within 45 days from the date of the order, by way of a crossed demand draft drawn in favour of the µSecurities and Exchange Board of India', payable in Mumbai. Mr. Sahoo directed Amadhi not to buy, sell or deal in the securities market in any manner whatsoever or access the securities market, directly or indirectly, for a period of one year from the date of the order. In case the amount is not paid within the specified time, the restrictions will apply for a further period of seven years, without prejudice to SEBI's right to enforce disgorgement 2. Fake Shares: SEBI bars Pyramid Saimira from accessing market for 7 years Mumbai, Nov. 10 SEBI in an order issued on Tuesday barred Pyramid Saimira Theatre Ltd (PSTL) from accessing the securities market, directly or indirectly, for a period of seven years. The market regulator found the entertainment company guilty of aiding and abetting seven persons to corner shares of the company under the employee category to the detriment of the common investors. The IPO of PSTL was oversubscribed only 0.015 times in the employee category (excluding the applications made by the seven persons who were masquerading as employees). There would have been a shortfall in subscription in the employee category which would have gone to other categories if the seven persons would not have cornered the shares. SEBI said that PSTL assisted the seven persons to ³don the cloak of the employees´ and helped them to corner shares; this artifice employed by PSTL is prohibited under the Prevention of Fraudulent & Unfair Trade Practices regulations. A SEBI investigation into the allotment of shares reserved for the employee category in PSTL¶s initial public offering of December 2006 revealed that the company had allotted 98.5 per cent of shares under the employee category to seven persons who were not its employees. Accordingly SEBI had issued a show cause notice to PSTL and these seven persons in February 2008.
- 24 -

Earlier in April, SEBI had debarred Mr. Nirmal Kotecha, a former promoter of PSTL, and over 250 other entities from dealing in the securities market including IPOs in any manner till further orders. SEBI had investigated into the origin of a fake SEBI order in December 2008 and its impact on the share price of PSTL which greatly benefited Mr. Kotecha, who emerged as the biggest seller of the shares of PSTL on December 22, 2008. The SEBI order had also debarred Mr. P.S. Saminathan, PSTL¶s promoter-cumManaging Director, from dealing in the securities market for his misleading public announcement and for facilitating Mr. Kotecha to produce a fake SEBI order to enable him to offload the shares of PSTL in the market at artificially raised prices. 3. PAN must for demat account holders The requirement of having a PAN has been made mandatory by the Securities and Exchange Board of India (SEBI). In accordance with the SEBI guidelines, the Depositories, NSDL and CSDL requirements state that a PAN card is now compulsory documents for all categories of demat account holders. In case of joint accounts, this requirement applies to each of the joint holders to the account. The demat account holders need to visit the nearest branch with their PAN card and submit a copy at the earliest. As per NSDL¶s and CSDL¶s policy, demat account holders will not be permitted to operate their accounts from October 1, 2006, if a copy of the PAN card is not made available by September 30, 2006. Any investor who has PAN but not having the PAN card may be permitted to open a Beneficiary Owner (BO) account subject to producing the PAN allotment letter. However, such investors would be required to produce the PAN card on or before September 30, 2006 failing which the DPs will freeze such accounts as µsuspended for debit¶ till the PAN card is produced for verification. NRIs and PIOs would also be required to comply with the mandatory requirement of producing the PAN card at the time of opening a beneficiary owner account. However, NRIs and PIOs who are not able to obtain PAN for one reason or the other

- 25 -

but are holding securities in physical form and want to sell them, may be permitted to open a µlimited purpose BO account¶ without a PAN. The operation of such BO accounts will be subject to these conditions: ? These accounts will be µsuspended for credit¶. So only credits arising out of corporate benefits and demat of physical certificates will be permitted. ? These accounts cannot be used for getting credit from IPOs, off-market transactions, any secondary market transactions etc. ? These accounts can remain operational only for a limited period of six months from the date of opening of the account. Meanwhile, the account holders may be permitted to convert the account into a normal BO account subject to complying with the PAN requirements. If the account holder fails to produce the PAN card within the stipulated period of six months, the DPs will freeze the account. The account holders will be permitted to sell the securities lying in these accounts only through a registered broker on the stock exchange In case of a HUF, association of persons (AoP), partnership firm, unregistered trust etc, though the BO account would be in the name of people, the PAN of the respective body will be obtained. As regards a registered trust, corporate body and minors, the PAN of the respective entities will be obtained when accounts are opened in their respective names. In case where there is difference in the maiden name and current name of the investor (predominantly in the case of married women), DPs can collect the PAN card proof as submitted by the account holder. However, this would be subject to the DPs verifying the claim by collecting sufficient documentary evidence in support of the identity of the investor. All entities registered with SEBI under Section 12 of the SEBI Act 1992 and having some difficulty in producing PAN card for verification at the time of opening the BO account may be permitted to open a BO account without producing the PAN card. However, such entities would be required to submit the PAN card to the depository
- 26 -

participants within a period of 30 days from the date of opening of the BO account for verification, failing which the DPs will freeze the account. As regards proof of address of FIIs/subaccounts , a copy of the power of attorney (PoA), duly notarized, given by the FIIs/FII sub-accounts to the custodians, that gives the registered address of the FIIs/sub-accounts , can be accepted as proof of address. UN entities and multilateral agencies which are exempt from paying taxes/filing tax returns in India are exempted from the mandatory requirement of PAN. The exemption, however, would be subject to the DPs collecting documentary evidence in support of such claim of the investors. The investors residing in the State of Sikkim are exempted from the mandatory requirement of PAN. However, this would be subject to the DPs verifying the claim of the investors that they are residents of Sikkim, by collecting sufficient documentary evidence in support of the address

- 27 -

ADVANTAGES OF SEBI
1. Guidelines to issuing companies: The SEBI head issued guidelines to all companies, first related to first issue of new companies, first issue by the exiting companies, issues of convertible debentures etc. The SEBI directed companies to disclose information to give protection to small investors and avoid their exploitation at the hands of corrupt people. 2. Regulation of portfolio management services: SEBI has taken under its control management services from Jan 11, 1993 to ensure investor protection. It was large scale misuse of portfolio management services scheme which was responsible for securities scam in India. 3. Regulation of mutual funds: The mutual funds in security market were placed under SEBI has permitted mutual funds to invest only transferable securities in money or capital market. SEBI made clear that in future the registration would be granted to those mutual funds that can prove their efficiency and conduct business in an ordinary manner. 4. Action for delays in transfer and funds: On the basis of recommendation of SEBI the central government has prosecuted 30 companies for delaying shares transfers and for companies for delaying in refund of public issue money. 5. Rolling settlement scheme and derivatives trading: SEBI has introduced compulsory rolling settlement scheme in 10 selected scripts in Jan 2000. SEBI has introduced derivatives trading in June 2000.

- 28 -

LIMITATION OF SEBI
1. Less protection to small investors: According to critics the SEBI has failed to protect small investor. SEBI has often failed to take strict against the people who are responsible for causing abnormal price fluctuation in the stock market. The SEBI failed to punish the market manipulators though they duped millions of small investors of the country. 2. Large number of rules and regulations: According to the critics there is large number of rules framed by SEBI which goes on changing every year with additional guidelines. His has created a lot of uncertainty and confusion in capital market. 3. Soft towards corporate sectors: According to critics SEBI as regulator has been softer in operation towards corporate sector. Its approach has been more corporate friendly rather than investor friendly. 4. Ineffective investor complaint system: According to critics L.C.Gupta 90% of the respondent investor strongly felt that they have suffered because there is no effective system of dealing with investor complaints. Despite several complaints done by investors regarding price rigging done by certain market operators the SEBI has not made sincere efforts to redress their grievances. 5. Lack of sufficient power: The major limitation in functioning of SEBI is that it is still not genuinely autonomous body. It does not have an absolute authority and power to take strong action against corporate sector and market manipulation who are close to the government in power. The central government still enjoys absolute power to appoint and remove SEBI Chairman and its members of Board of governors. This has restricted the SEBI to take independent action against market manipulation.

- 29 -

SEBI ADMINISTRATION

The Securities and Exchange Board of India Act, 1992 is having retrospective effect and is deemed to have come into force on January 30, 1992. Relatively a brief act containing 35 sections, the SEBI Act governs all the Stock Exchanges and the Securities Transaction in India. A Board by name of the Securities and Exchange Board of India (SEBI) were constituted under the SEBI Act to administer its provisions. It consists of one Chairman and five members. One each from the department of Finance and Law of the Central Government, one from the Reserve Bank of India and two other person having its head office in Bombay and regional offices in Delhi, Calcutta and Madras. The Central Government reserves the right to terminate the services of the chairman or any member of the Board. The Board decides questions in the meeting by majority vote with the chairman having a second or casting vote. Section 11 of the SEBI Act provides that to protect the interest of investors in securities and to promote the development of and to regulate the securities market by such measures, it is the duty of the Board. It has given power to the board to regulate the business in the Stock Exchanges, register and regulate the working of stock brokers , sub-brokers , share transfer agents , bankers to an issue , trustees of trust deeds , registers to an issue , merchant bankers , underwriters , portfolio managers , investment advisers . etc., also to register and regulate the working of collective investment schemes including mutual funds , to prohibit fraudulent and unfair trade practices and insider trading , to regulate take-over , to conduct enquiries and audits of the stock exchange, etc. All the stock brokers , sub-brokers , share transfer agents , , bankers to an issue , trustees of trust deeds , registers to an issue , merchant bankers , underwriters , portfolio managers , investment advisers and such other intermediary who may be associated with the securities markets are to register with the board under the provisions of the Act , under Section 12 of the SEBI act. The board has the power to suspend or cancel such registration. The board is bound by the directions vested by the central government from time to time on questions of policy and the central
- 30 -

government reserves the right to supersede the board. The board is also obliged to submit a report to the central government each year, giving true and full account of its activities, policies and programmers¶. Any one of the aggrieved by the board¶s decision is entitled to appeal to the central government.

- 31 -

PRIME DIVISION OF SEBI
Policing the Securities Market: An Overview of the SEC (Oct 21, 2005) Shortly after the stock market crash of 1929, a regulatory body called the Securities & Exchange Commission (SEC) was born. Its goal was to restore investor confidence and faith in a financial sector that was notorious for fraudulent activities, easy credit and hazardous investments. Two significant proposals by the U.S. Congress, the Securities Act of 1933 and the Securities Exchange Act of 1934, led the way to the formation of the SEC and, ultimately, a structured financial industry under government supervision. The aim of both of these acts was to protect investors from any indiscretions that could arise from:
y y

Fraudulent and questionable public companies. Dishonest and unscrupulous individuals dealing in the securities markets.

The SEC is divided into four main divisions. They work together, but have specific areas in which they mandate and ensure compliance. These departments are Corporate Finance, Market Regulation, Investment Management and Enforcement. Division of Corporate Finance This division is responsible for overseeing the disclosure documents that are required to be filed with the SEC by U.S. public companies. Meant to increase transparency so that investors are able to make informed decisions, the filings require companies to provide prudent and truthful disclosure of financial and material information. According to the SEC, the definition of material information is any information pertaining to a particular business that might be relevant to an investor's decision to buy, sell or hold the security. The documents that companies are required to file include the registration statements for public offerings, quarterly and annual filings (Forms 10-Q and 10-K), annual reports to shareholders, documents detailing mergers and acquisitions and

proxy/voting materials sent out to shareholders before annual meetings. The SEC
- 32 -

mandates that all public companies file these documents in a timely fashion unless the company is foreign or has less than $10 million in assets and fewer than 500 shareholders. All material information, whether positive or negative, must be available first to the SEC, which, in turn, provides it to investors electronically through its electronic data gathering and retrieval (EDGAR) database. Division of Market Regulation This division establishes and maintains fair, orderly and efficient markets by regulating the participants in the securities industry. These participants range from the largest clearing corporations and exchanges, which are also known as self-regulatory organizations (SROs), to the various broker-dealer firms and investment houses. In short, the Division of Market Regulation establishes the rules of the investment industry. This division also interprets any proposed changes to existing regulations and reviews any disagreements over the operations of the securities industry. It maintains constant surveillance of market activity to ensure that no policies are being manipulated. With ever-expanding securities markets and new synthetic investment products being created every year, the Division of Market Regulation faces a continual need to create new rules and amend others. Division of Investment Management As overseers of the investment management industry, this division ensures the preservation of all rules affecting investment companies and their advisors. To make certain that all rules and regulations are being upheld, the SEC requires that all investment companies and federally registered investment advisors file the appropriate documents. More specifically, this division looks at public regulations and laws, and makes changes to existing rules if circumstances provide reason to do so. Division of Enforcement Working closely with the other three divisions, this group investigates possible violations of securities laws and provides recommendations when further action is needed. Keep in mind that the division of enforcement has only civil enforcement
- 33 -

authority; it must cooperate with different law-enforcement agencies such as the FBI or local police to bring about criminal charges. The process of enforcement involves three separate steps: 1. An informal investigation is privately conducted. This involves the meticulous examination of brokerage trading records, cross examination of witnesses and inspection of public documents. 2. The SEC then issues a formal order of investigation requiring the parties involved to release any records or documents that are material to the investigation. 3. The SEC decides whether the case should be forwarded to federal court or administrative action should be taken. Common violations include insider trading, misrepresentation, deliberate omission of significant information regarding public company filings, market manipulation, violation of fiduciary duties/single theory and any related disturbances that affect the smooth operation of the U.S. securities market and the market's integrity.

- 34 -

ORGANISATION STRUCTURE
Shri C B BHAVE CHAIRMAN [email protected]

Shri M S SAHOO WHOLE TIME MEMBER [email protected]

Dr. K M ABRAHAM WHOLE TIME MEMBER [email protected]

Shri PRASHANT SARAN WHOLE TIME MEMBER [email protected]

FUNCTION

EXECUTIVE DIRECTOR

Phone No./E-mail ID

Market Intermediaries Regulation and Supervision Department Legal Affairs Department Enforcement Department

Shri P K Nagpal

+91 22 26449995

Shri J Ranganayakulu Shri J Ranganayakulu
- 35 -

+91 22 26449991 +91 22 26449991

Derivatives and New Products Department Office of Investor Assistance and Education General Services Department (Facilities Management, Establishment, Treasury and Accounts, Protocol and Security, Official Languages) Board Matters Parliament Questions (PQ) Cell Corporation Finance Department Market Regulation Department Investigations Department Integrated Surveillance Department Vigilance Cell

Shri J N Gupta

+91 22 26449990

Shri Ananta Barua

+91 22 26449989

Shri P K Nagpal

+91 22 26449995

Shri P K Nagpal Shri Ananta Barua Smt. Usha Narayanan Shri J N Gupta Dr. Pradnya Saravade Shri J N Gupta Dr. Pradnya Saravade

+91 22 26449995 +91 22 26449989 +91 22 26449992 +91 22 26449990 +91 22 26449690 +91 22 26449990 +91 22 26449690 +91 22 26449989

Investment Management Department Shri Ananta Barua - Division of Funds (Portfolio Managers, Venture Capitals, etc.) Department of Economic and Policy Analysis Regional Offices Investment Management Department-Division of Foreign Institutional Investors (FIIs) and Custodians Investment Management Department Shri K N Vaidyanathan - Division of Funds (Mutual Funds) Division of Collective Investment Schemes Shri K N Vaidyanathan Shri Ananta Barua Shri K N Vaidyanathan Shri Ananta Barua

+91 22 26449989

+91 22 26449989 +91 22 26449993

+91 22 26449993

+91 22 26449993

- 36 -

INTERNATIONAL CO-OPERATION Securities and Exchange Board of India is an active and a leading member of the International Organization of Securities Commissions (IOSCO) which is an assembly of securities market regulators. Currently, IOSCO has 193 members regulating more than 95 percent of the world¶s securities markets. It is the standard setting body for the world¶s securities markets and promotes international co-operation for sharing of information and providing mutual assistance. In addition to its association with IOSCO, SEBI actively engaged in co-operation with foreign regulators, self-regulatory organizations, international financial institutions, international standard setting bodies and other international agencies of repute and relevance for development and regulation of securities markets. SEBI also contributed actively to the cause of development of securities markets in other jurisdictions in Asia as well as other regions.
I.

SEBI Association with G20/FSB work and other Multi-lateral Agencies India is a member of G20. The implementation of G20 decisions and recommendations relating to strengthening regulation and supervision of securities markets, maintaining financial stability and other financial sector regulatory reforms are being co-ordinate by the Financial Stability Board (FSB). India is also a member of the FSB. Chairman, SEBI attends meetings of the Plenary of FSB. SEBI actively contributed to the work of the FSB towards strengthening financial regulation as per the G20 decisions and recommendations. During the year, the FSB initiated/furthered its work in key areas like thematic peer review of implementation of FSB Principles and Standards of sound compensation practices, measures to address ³too big to fail´ problems associated with systemically important financial institutions, monitoring perimeter and consistency of regulation, strengthening Accounting Standards and strengthening adherence to international standards. SEBI made timely and effective contribution by sending inputs
- 37 -

as well as participating in the meetings and conference calls organized by the FSB/MoF in this regard. The position of SEBI has been particularly highlighted with regard to implementation of international standards related to cooperation. FSB has stated that there would be no further evaluation of India with regard to co-operation related standards since SEBI is one of early signatories to the IOSCO MMoU, and also the level of implementation of IOSCO Principles relating to co-operation for securities regulation is significantly high in India. II. i) Association with IOSCO SEBI¶s membership of the Technical Committee/Standing Committees SEBI is a member of the Technical Committee (TC), the main standard setting body of the IOSCO. SEBI acquired this membership on the basis of size of the Indian securities markets, the international nature of Indian securities markets, development of regulatory systems for securities markets in India and its involvement with IOSCO. The TC has several Standing Committees (SC) which assist TC in its work. SEBI is a member of SC1 on Disclosure and Accounting, SC2 on Regulation of Secondary Markets, SC3 on Regulation of Market Intermediaries, SC4 on Enforcement and the Exchange of Information and SC5 on Investment Management. SEBI hosted the meeting of the SC5 on Investment Management in November 2009 at Mumbai. ii) Appointment as Asia Pacific Regional Committee (APRC) Chair At the 34th IOSCO Annual Conference in Tel Aviv, Israel in May 2009, Chairman, SEBI was elected to the IOSCO Asia Pacific Regional Committee¶s Chair. The APRC is one of four regional committees constituted by the IOSCO to focus on regional issues relating to securities regulation. The APRC comprises 25 members representing securities regulators from the Asia-Pacific jurisdictions.

- 38 -

SEBI chaired the APRC meeting held at Melbourne in October 2009 which discussed issues like the regulatory and supervisory challenges and issues arising out of the recent global financial crisis, implementation of the IOSCO Standards and Principles, Mutual Recognition/Co-operation, Capacity Building, and other concerns about matters of systemic risk, investor protection etc in the APRC region. SEBI remains an active member of various committees and task forces of IOSCO and is currently a co-chair of the EMC Task Force on Securitization. The mandate of the Task Force includes working on factfinding with regard to the level of development of markets for securitized products, regulatory issues thereof and recommending guidelines for sound securitization markets in emerging jurisdictions. iii) SEBIµs participation in IOSCO & other international meetings S E B I delegates participated in various IOSCO and other international meetings held during the year such as the 34th Annual Conference of IOSCO, meetings of the Technical Committee (TC), Executive Committee (EC), Emerging Markets Committee (EMC), Asia Pacific R e g i o n a l Committee (APRC), EMC Advisory Board, CPSS-IOSCO Working Group, Implementation Task Force, Standing Committee 2, Standing Committee 5, Screening Group of the Standing Committee 4 and the Task Force on Supervisory Co- operation. SEBI delegates also attended other international meetings like the Plenary Session at the Aflatoun MidCampaign, World Capital Market Symposium, and Asian Roundtable on Corporate Governance, Structured Products Asia 2009 and the FSB Plenary Meeting. iv) IOSCO Technical Committee Reports A Technical Committee (TC) member of the IOSCO, SEBI approved the publication of the TC reports during the year such as Principles for Periodic Disclosure by Listed Entities, Principles on Point of Sale Disclosure, Transparency of Structured Finance Products, Unregulated
- 39 -

Financial Markets and Products, Disclosure Principles for Public Offerings and Listings of Asset-Backed Securities etc.
III.

MoU Agreements signed during 2009-10 During the year, SEBI signed a bilateral MoU for Mutual Co-operation and Information sharing with the Dubai Financial Services Authority (DFSA). The MoU was signed by Mr. C.B. Bhave, Chairman, SEBI and Mr. Paul Koster, Chairman of DFSA on October 28, 2009 in Mumbai. SEBI also signed a Capital Market Collaborative Agreement with the Securities Commission (SC) of Malaysia. The Agreement was signed by Mr. C. B. Bhave, Chairman, SEBI and Ms. Zarina Anwar, Chairman, Securities Commission, Malaysia in the presence of Hon¶ble Prime Minister of India, Dr. Manmohan Singh and Hon¶ble Prime Minister of Malaysia, Dato' Sri Mohd Najib bin Tun Haji Abdul Razak on January 20, 2010 in New Delhi. The agreement incorporates measures to facilitate the development of deeper and broader capital markets, greater cross-border activities between the capital markets and to attain closer regulatory cooperation in a mutually beneficial manner.

IV.

MMoU and MoU Requests During the year, SEBI received several requests from the securities regulators overseas seeking SEBI¶s assistance under the aegis of the Multilateral Memorandum of Understanding (MMoU/MoU). SEBI through its best efforts executed the requests so received, subject to the provisions of the MMoU/MoU. SEBI also made several requests to other securities regulators overseas within the framework of the MMoU/MoU, seeking their assistance in the enforcement actions initiated by SEBI.

V.

Technical Assistance During the year, SEBI provided technical assistance to the Securities and Exchange Commission (SEC) of Sri Lanka for introducing Exchange Traded Funds in Sri Lanka. The Securities Board of Nepal (SEBON) has
- 40 -

requested technical assistance from SEBI to undertake the study on the Nepalese Regulatory Framework. A team of five SEBI officials have been nominated to visit Nepal, for the same.
VI.

SEBI¶s Participation in the International Training Programmes The International training programs provide a platform for capital market regulators to meet, discuss and share ideas, experiences and expertise on significant capital market regulation and development issues. SEBI nominated its officials at all levels to various training

Programs/Conferences/ Seminars held by various international bodies like IOSCO, IMF, OECD, ADB, CFTC, APEC, IFIE, PCAOB, EC and securities market regulators of other jurisdictions.
VII.

Visits by Foreign Delegations/ Dignitaries to SEBI During the year, SEBI had the honour of welcoming a number of dignitaries/ delegations from various developed and developing

jurisdictions. The Lord Mayor of the City of London; Mr. Peter Burleigh, Ambassador of the U.S. in India accompanied by Mr. Paul Folmsbee, U.S. Consulate General; Sir Richard (Dickie) Stagg, British High

Commissioner; Mr. Charles Bean, Deputy Governor, Bank of England; Mr. Thomas Scholar, Second Permanent Secretary, HM Treasury; Mr. Nicholas Ferrari, Financial Counselor of the Embassy of France, Ms. Idanna Appio, Deputy Head of the Macroeconomics and Mr. Joseph Caron, Canadian High Commissioner to India visited SEBI to discuss various issues. SEBI also welcomed representatives from USA, European Union, South Africa, Hong Kong, UK and Thailand. Meetings with the various delegations enabled sharing of knowledge and exchange of ideas related to the securities market and establishing inter- regulatory dialogue between the respective authorities.

- 41 -

Satyam scandal

The Satyam Computer Services scandal was publicly announced on 7 January 2009, when Chairman Ramalinga Raju confessed that Satyam's accounts had been falsified. Details On 7 January 2009, company Chairman Ramalinga Raju resigned after notifying board members and the Securities and Exchange Board of India (SEBI) that Satyam's accounts had been falsified Raju confessed that Satyam's balance sheet of 30 September 2008 contained:
y

inflated figures for cash and bank balances of Rs 5,040 crore (US$ 1.07 billion) as against Rs 5,361 crore (US$ 1.14 billion) crore reflected in the books.

y

an accrued interest of Rs. 376 crore (US$ 80.09 million) which was nonexistent.

y

an understated liability of Rs. 1,230 crore (US$ 261.99 million) on account of funds was arranged by himself. an overstated debtors' position of Rs. 490 crore (US$ 104.37 million) (as against Rs. 2,651 crore (US$ 564.66 million) in the books).

y

Raju claimed in the same letter that neither he nor the managing director had benefited financially from the inflated revenues. He claimed that none of the board members had any knowledge of the situation in which the company was placed.

- 42 -

He stated that "What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over t he years. It has attained unmanageable proportions as the size of company operations grew significantly (annualized revenue run rate of Rs 11,276 crore (US$ 2.4 billion) in the September quarter of 2008 and official reserves of Rs 8,392 crore (US$ 1.79 billion)). As the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover, thereby exposing the gap. The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. It was like riding a tiger, not knowing how to get off without being eaten. Aftermath Raju had appointed a task force to address the Maytas situation in the last few days before revealing the news of the accounting fraud. After the scandal broke, the thenboard members elected Ram Mynampati to be Satyam's interim CEO. Mynampati's statement on Satyam's website said: "We are obviously shocked by the contents of the letter. The senior leaders of Satyam stand united in their commitment to customers, associates, suppliers and all shareholders. We have gathered together at Hyderabad to strategize the way forward in light of this startling revelation." On 10 January 2009, the Company Law Board decided to bar the current board of Satyam from functioning and appoint 10 nominal directors. "The current board has failed to do what they are supposed to do. The credibility of the IT industry should not be allowed to suffer." said Corporate Affairs Minister Prem Chand Gupta. Chartered accountants regulator ICAI issued show-cause notice to Satyam's auditor PricewaterhouseCoopers (PwC) on the accounts fudging. "We have asked PwC to reply within 21 days," ICAI President Ved Jain said. On the same day, the Crime Investigation Department (CID) team picked up Vadlamani Srinivas, Satyam's then-CFO, for questioning. He was arrested later and kept in judicial custody.

- 43 -

On 11 January 2009, the government nominated noted banker Deepak Parekh, former NASSCOM chief Kiran Karnik and former SEBI member C Achuthan to Satyam's board. Analysts in India have termed the Satyam scandal India's own Enron scandal.[7]. Some social commentators see it more as a part of a broader problem relating to India's caste-based, family-owned corporate environment (http://kafila.org/2009/02/13/thecaste-of-a-scam-a-thousand-satyams-in-the-making/). 1. Immediately following the news, Merrill Lynch Now with Bank of America and State Farm Insurance, USA terminated its engagement with the company. Also, Credit Suisse suspended its coverage of Satyam. It was also reported that Satyam's auditing firm PricewaterhouseCoopers will be scrutinized for complicity in this scandal. SEBI, the stock market regulator, also said that, if found guilty, its license to work in India may be revoked. Satyam was the 2008 winner of the coveted Golden Peacock Award for Corporate Governance under Risk Management and Compliance Issues which was stripped from them in the aftermath of the scandal. The New York Stock Exchange has halted trading in Satyam stock as of 7 January 2009. India's National Stock Exchange has announced that it will remove Satyam from its S&P CNX Nifty 50-share index on 12 January. The founder of Satyam was arrested two days after he admitted to falsifying the firm's accounts. Ramalinga Raju is charged with several offences, including criminal conspiracy, breach of trust, and forgery. Satyam's shares fell to 11.50 rupees on 10 January 2009, their lowest level since March 1998, compared to a high of 544 rupees in 2008. In New York Stock Exchange Satyam shares peaked in 2008 at US$ 29.10; by March 2009 they were trading around US $1.80. The Indian Government has stated that it may provide temporary direct or indirect liquidity support to the company. However, whether employment will continue at precrisis levels, particularly for new recruits, is questionable.

- 44 -

On

14

January

2009,

Price

Waterhouse,

the

Indian

division

of

PricewaterhouseCoopers, announced that its reliance on potentially false information provided by the management of Satyam may have rendered its audit reports "inaccurate and unreliable´ On 22 January 2009, CID told in court that the actual number of employees is only 40,000 and not 53,000 as reported earlier and that Mr. Raju had been allegedly withdrawing INR 20 crore rupees every month for paying these 13,000 non-existent employees. Roots Prof. Sapovadia, in his study, shows that in spite of there being a strong corporate governance framework and strong legislation in India, top management sometimes violates governance norms either to favor family members or because of jealousy among siblings. He finds that there is a lack of regulatory supervision and inefficiency in prosecuting violators. He investigates in detail the recent governance failure at India's 4th largest IT firm, Satyam Computers Services Limited, and considers possible reasons underlying such large failures of oversight. New CEO and special advisors On 5 February 2009, the six-member board appointed by the Government of India named A. S. Murthy as the new CEO of the firm with immediate effect. Murthy, an electrical engineer, has been with Satyam since January 1994 and was heading the Global Delivery Section before being appointed as CEO of the company. The twoday-long board meeting also appointed Homi Khusrokhan (formerly with Tata Chemicals) and Partho Datta, a Chartered Accountant as special advisors.

- 45 -

Satyam Gets SEBI's Approval To Auction 51 Percent Stake The Securities and Exchange Board of India (SEBI) has allowed the scamtainted Satyam Computer Services to auction its 51 percent stake. After getting SEBI's permission Satyam will be able to sell the majority of its stake to an investor which will bring back the fraud-hit firm on track. The prospective investors will require to have minimum net assets of $150 million to acquire Satyam's stakes.

The bidding for Satyam's stakes will include the subscription of newly issued equity shares, representing 31 percent of the company¶s share capital. After this, the interested investor will make a mandatory public offer for purchasing a minimum of 20 percent of the company¶s share capital. After the closure of offer period, the investor will get the right to subscribe to additional newly issued equity so that the resultant share acquisition becomes 51 percent.

According to a statement issued by SEBI, the investors will not be able to sell any equity shares acquired for a period of three years from the date of the acquisition. Hyderabad-based Satyam Computer Services has been making headlines since its founder B Ramalinga Raju's confession of $1.43-billion fraud. Following the financial scam, the government had replaced the entire board of Satyam. Satyam is one of the leading providers of business and information technology services and offers consulting, integration, and outsourcing solutions to clients across the globe. Among the companies which have shown interest in Satyam, include B.K. Modi-controlled Spice group, infrastructure major Larsen and Toubro and the Hinduja group

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CASE STUDY
The Case of Insider Trading (HLL-BBLIL Merger) Case Details: Case Code Case Length Period Pub. Date Teaching Note Organization Industry Countries Abstract: The case study analyses the issues related to the insider trading charges against HLL with regard to its merger with Brooke Bond Lipton India Ltd. The case focuses on the legal controversy surrounding these charges. The controversy involved HLL's purchase of 8 lakh shares of BBLIL two weeks prior to the public announcement of the merger of the two companies (HLL and BBLIL). SEBI, suspecting insider trading, conducted enquiries, and after about 15 months, in August 1997, SEBI issued a show cause notice to the Chairman, all Executive Directors, the Company Secretary and the then Chairman of HLL. Later in March 1998 SEBI passed an order charging HLL with insider trading. SEBI directed HLL to pay UTI compensation, and also initiated criminal proceedings against the five common directors of HLL and BBLIL. Later HLL filed an appeal with the appellate authority, which ruled in its favour. Through a description of the legal causes surrounding the SEBI's charges against HLL, this case, is designed to enable students to understand and appreciate the role of the legal framework under organizations function. : FINC014 : 8 Pages : 1995 - 1998 : 2002 : Available : HLL, BBLIL, SEBI, UTI : Diversified : India Price: For delivery in electronic format: Rs. 200; For delivery through courier (within India): Rs. 200 + Rs. 25 for Shipping & Handling Charges Themes Ethics in Business

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It also stimulates the students to understand the legal implications of decisions made by an organization and provides an insight into how a typical legal case proceeds. At the end of the case-discussion, students should have grasped the following issues: A general understanding of the legal framework covering the securities market in India. An understanding of the role and importance of a regulating agency in checking financial crimes such as insider trading. An understanding of the responsibilities of organizations. The case is intended for MBA/PGDBM level students as a part of their Business Ethics curriculum. "...it can be conclusively said that while entering into the transaction for purchase of 8 lakh shares of BBLIL from UTI, HLL was acting on the basis of the privileged information in its possession, regarding the impending merger of BBLIL with HLL. It also may be stated that, by its very nature, when it comes to motives and intentions, there may not always be any direct evidence. However, the chain of circumstances, the timing of the transaction, and other related factors, as discussed earlier, demonstrates beyond doubt that the transaction was founded upon and effected on the basis of unpublished price sensitive information about the impending merger." - Excerpt from SEBI order that tried to establish an insider trading case against HLL management. Locking Horns It was battle royale, a unique one at that. In one corner was the capital market regulator SEBI, cracking down with India's first-ever 'guilty' verdict for an insider trading offence. In the other corner was Unilever subsidiary, Hindustan Lever Ltd. (HLL) marshalling its formidable corporate resources to defend itself. On August 4, 1997, SEBI issued a show cause notice to HLL claiming that there was prima facie evidence of the company indulging in insider trading through the use of 'Unpublished price sensitive information' prior to its merger with Brooke Bond Lipton India Ltd. (BBLIL). In March 1998, SEBI passed an exhaustive order, which sent shock waves through the country's corporate sector. SEBI found HLL guilty of insider trading because it
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bought shares of BBLIL from Unit Trust of India (UTI), knowing that HLL and BBLIL were going to merge. Since it bought the shares before the merger was formally announced, SEBI held that HLL was using unpublished, price-sensitive information to trade, and was therefore guilty of insider trading. SEBI directed HLL to pay UTI Rs 3.4 crore in compensation, and also initiated criminal proceedings against the five common directors of HLL and BBLIL: S.M. Datta, K.V. Dadiseth, R. Gopalakrishnan, A. Lahiri, and M.K. Sharma, who were on the core team which discussed the merger. Predictably, HLL decided to appeal against the SEBI verdict to the Union Ministry of Finance, the appellate authority in such cases. The question, which lingered in everyone's mind was - Is HLL, guilty of insider trading and would SEBI's charges hold? Background Note The merger of HLL and BBLIL had always been on the cards. The HLL group had started the process of consolidation with mergers of some Tea Estates with Brooke Bond, and then the latter with Lipton India. With the formation of BBLIL, the question was not if HLL and BBLIL would be merged, but when. After these mergers, it was clear that HLL wanted to follow in the footsteps of Unilever, its global parent, in India. As a result of the relaxation of controls after liberalization, the HLL group could operate in India in much the same way as Unilever did globally. Besides, the operations of the two (HLL and BBLIL), when combined bestowed considerable cost advantages. In April 1996, HLL announced its merger with BBLIL. At the time of the merger, there was market gossip about insider trading. In the days preceding the merger announcement, the BBLIL counter had seen heavy trading and SEBI was known to be making discreet inquiries about the spurt in BBLIL's trading volumes at that time.

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It was only after about 15 months of detailed analysis that SEBI issued a notice to HLL asking why it shouldn't be slapped with an insider trading charge. And then in March 1998, SEBI announced criminal prosecution of five HLL directors for insider trading and asked it to pay Rs. 3.04 crores to UTI as compensation.

Excerpts Face To Face The SEBI's charges were based on HLL's purchase of 8 lakh shares of BBLIL from UTI at Rs 350.35 per share (At a premium of 9.5% of the ruling market price of Rs. 320). This transaction took place on March 25, 1996, just 25 days before the HLLBBLIL merger was announced on April 19, 1996. UTI was on the verge of closing its accounts for 1995-96 and had been selling shares in the market to fund its dividend payouts. On 19 April 1996, HLL notified the stock exchanges of its proposal to merge BBLIL... Is HLL An Insider? According to HLL, though it was deemed to be connected to BBLIL, and though it knew about the merger before it bought BBLIL's shares, it received the information only because it was one of the parties to the merger itself and not merely because of its connection to BBLIL. According to HLL this distinction was important because, to be considered an insider, HLL should have received the information "by virtue of such connection" to the other company. HLL's defense revolved around the fact that as an initiator and also the transferee, it was the 'primary party' to the merger. M.K Sharma, Legal director, HLL, said, "Nowhere in the world is the primary party to a merger considered to be an insider from the point of view of insider-trading." (Refer Box)...

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Is the Information Un-Published? HLL contended that before the transaction, the merger was the subject of wide speculation by the market and the media. After the formal announcement, press articles mentioned that the merger was no surprise to anyone. HLL pointed out that the share price of BBLIL moved up from Rs. 242 to Rs. 320 between January and March, before the transaction, indicating that the merger was "generally known information"... Information About Merger-Price-Sensitive? In this regard, HLL argued that only the information about the swap ratio could be deemed to be price-sensitive and that this ratio was not known to HLL or its directors when the BBLIL shares were purchased in March, 1996. HLL pointed out that the two audit firms who valued the merger, S.S. Billimoria & Co. and M.N. Raiji & Co., recommended the ratio to the HLL board only in mid-April, 1996, which was only after the UTI transaction, i.e. after HLL's purchase of shares from UTI. HLL further argued that the news of the merger was not price-sensitive as it had been announced by the media before the official announcement... Did HLL Gain Financially? HLL defended itself by pointing out that SEBI had to establish the financial benefit from the transaction in order to prove an insider trading charge. It pointed out that though establishing "financial benefit" was not explicit in the law, it was implied, because the act said that it should be taken into account when levying penalties. Said Justice Bhagwati, "though the SEBI regulations did not contain any specific requirement of the presence of any element of m aking profit or avoiding loss, this factor is inherent in the offence of insider trading"... Prosecution Not Justifiable Round two of the battle between SEBI and HLL took place under the aegis of the Appellate Authority of the Finance Ministry. In response to the SEBI's charge, HLL appealed to the Appellate Authority pleading that it be absolved of the charges of insider trading. UTI later filed an appeal with the Appellate authority, claiming a
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higher compensation of Rs. 75.2 million (7.52 crore). It pleaded that it had to incur a notional loss as it was not aware that a merger of the two Unilever group companies was on the cards... HLL Not Guilty-Proposal 'Generally Known' In support of its ruling, the Appellate Authority cited press reports that indicated "prior market knowledge of the merger." However, by its own admission, there were only a few reports "prior to the actual purchase (of shares from UTI)." The Authority had cited 21 news reports to support the contention that the prospect of a merger between HLL and BBLIL was widely known. In its judgment, the Appellate Authority said that under Regulation 11B, SEBI was not capable of initiating investigations and then taking recourse to powers under the Act for awarding compensation without passing an order under the above mentioned regulation... Time to Introspect The charge against HLL had brought to the fore the debate over SEBI's role as a watchdog of the Indian Capital market and its ability to control financial crimes such as insider trading. It also highlighted the inability of the legal machinery to handle such cases. Though SEBI issued regulations governing this area in 1992, there had been no proven case of insider trading since then. But the question here was: did the market regulator have any system in place to monitor such instances and take suo moto action as provided in the Regulations? The answer to the question seemed to be 'no'...

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The GTB-UTI Bank Merger Story

THE SEBI PROBE
Amidst all these developments, SEBI was probing the role of Parekh in the unusual price spurt in GTB stock prior to its merger announcement with UTI Bank. SEBI found that Parekh was one of the most active traders in the stock and had substantial purchases in the scrip during October to December 2000. Parekh also sold actively. SEBI sought client details from five entities, which were directly linked, to Parekh and scrutinized client details of some other brokerage houses to identify whether there was any concerted attempt to push up the share price. SEBI found that there was a prima facie case of manipulation owing to the nature of the spurt in the scrip price. In March 2001, in a report to the RBI, SEBI said there was evidence of price manipulation by GTB, and termed the price movement as ³unusual´ Commented a senior SEBI official, ³There is also an element of insider trading pre-merger announcement when GTB share price touched Rs 114´. Parekh, it was alleged was granted a credit limit of over Rs. 400 crore. Parekh denied this and put his exposure with GTB at less than Rs. 100 crore. Meanwhile, in Hyderabad, Gelli was tight lipped over Parekh's hand in propping up the shares in a bid to wrangle a better swap ratio ahead of the merger announcement. However, sources said that GTB's total exposure to Parekh and his associate companies could be as much as Rs. 250-300 crore at one time, which was clearly above the prudential limit of 20% of net worth set by the RBI. In several meetings with Business world, Gelli admitted that GTB had given loans to over 200 brokers (including Parekh) in 2000. Gelli said that GTB had lent at least Rs. 118 crore to Parekh. SEBI conducted an investigation to find out if Gelli used his influence with the brokers to rig the bank's scrip price to get a favorable swap ratio for the proposed merger. Parekh and his companies purchased huge chunks of GTB stock in the period November-December 2000, prior to the merger. In March 2001, Gelli for the first time admitted that Parekh held close to 4% stake in GTB with another 2% held in benami transactions. GTB however denied the insider trading allegations. It said that none of the promoters purchased or sold GTB shares in the past one year.
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SEBI planned to complete its investigations and hand over the reports to the RBI as soon as possible; but it did not set any deadlines for completing the work. Meanwhile, the RBI refused to comments on the entire merger issue. An RBI official said, ³We are awaiting the SEBI report.´ THE MERGER IS CALLED OFF In mid March 2001, it became clear that the proposed merger of UTI Bank with GTB might not come through, as the SEBI preliminary investigation report found manipulation and rigging in the share price of GTB prior to the merger announcement. L. K. Singhvi, senior executive director, SEBI, said, ³The investigation, prima facie, indicates that there was manipulation in GTB shares during October-December 2000. Since the merger proposal was pending with the Reserve Bank of India, we have sent our report to the RBI.´ ³The final report will be submitted shortly´, he added. Another SEBI official hinted that the investigation revealed that the manipulation in the GTB scrip ³was motivated and done with the help of the bank's senior management team´. SEBI's findings had not only questioned the merger proposal but also opened a Pandora's box that may put the management in a major jam. Sources added that the final investigation was also looking at the shareholding pattern of GTB and the major beneficiaries from the swap ratio.

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LATEST NEWS (SEBI) has proposed an extension of trading hours of stock exchanges to align the domestic bourses with international markets. ''With the increased integration of the global markets, information originating from different countries has a bearing on Indian securities market,'' SEBI said in a statement. Trading on Asia Pacific bourses commences a little ahead of the Indian markets while the European and American markets open much later. Extending the trade timings may enable the domestic market participants to take advantage of global information flows.¶ Some of the exchanges in these countries have adopted longer trading hours, sometimes even extending up to 23 hours.'' SEBI said. ''In a world where different exchanges are competing with each other to increase participation, it is imperative that the Indian markets align themselves to global markets to attract such trading interest. Extension of market hours would enable market participants to execute trading strategies in Indian markets based on information flowing in, which otherwise would have been executed outside India.'' ''Additionally, Indian markets have been in the pursuit of matching the best international standards and practices, and the extension of market hours would, perhaps, be a further step in this direction,'' SEBI said. While the benefits of increasing market hours of trading in exchanges are evident, at the same time, issues with market wide implications such as those pertaining to risk management, collateral management, infrastructural constraints etc as well as the perception of the market participants and stakeholders would also play an important role in determining optimum market timing. At present, the exchange-traded equity derivatives market is open from 9:55 am to 3:30 pm and the market timings are co-terminus with those of the underlying cash market. While exchange-traded currency derivatives market operates from 9:00 am to 5:00 pm, exchange-traded commodity futures market operates from 8:00 am till 11:30 pm.
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SEBI permits mobile-based trading and Smart Order Routing in stock markets
August 27, 2010 In one swoop, the capital market regulator has introduced two new systems for securities trading, which were the subject of much acrimony between rival exchanges BSE and NSE Market watchdog Securities and Exchange Board of India (SEBI) today introduced two game-changing initiatives in securities trading, which could alter the dynamics of Indian stock markets. It has decided to allow Smart Order Routing (SOR) and trading using wireless technology, two subjects that have been the bone of contention between rival stock exchanges Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) for a while now. The SOR mechanism allows the brokers' trading engines to systematically choose the execution destination based on factors like price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of the order. When an order has a reasonable chance of a fill at more than one location (when the instrument is dual-listed) there is an opportunity to search for a better price. SOR instantly performs that search for you, sending your order to the best place possible at that time. SOR uses a number of techniques to achieve best execution. For example, it stores real-time feedback on individual stocks at each venue, so that orders that are not getting filled can be onward routed instantly to a venue with a better chance of a fill. This move will benefit the BSE immensely, which has been in a protracted battle with its larger rival over the matter of algorithmic trading. Until now, NSE's approval system for algorithms rejected any smart order routing that involved a transaction on BSE or on any other exchange. As such, if the software decided that BSE is where the best price is available, then that algorithm was flatly rejected by NSE's system. In doing so, BSE was short-changed out of huge potential volumes in the cash segment. The argument made by NSE was that it was merely trying to protect the sanctity of the market as it was not certain of the security system put in place by BSE. Its claim
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was that BSE had no time-stamping or audit trails in place, which could potentially create difficulties in trading algorithms. In another victory for BSE, the market regulator has also allowed trad through ing wireless technology that will enable investors to place orders through their mobiles or wireless Internet devices, if they have an online trading account with their brokers. BSE has been rooting for this technology for some time. In allowing wireless trading facilities, SEBI has also asked brokers to ensure that investors are provided secure access, encryption and security of communication for Internet-based trading and securities trading using wireless technology. It has also asked that adequate measures should be taken for user identification, authentication and access control using means such as user-ID, passwords, smart cards, biometric devices or other reliable means, to prevent misuse of facility by unauthorized persons. The unique identification number as given in case of Internet-based trading will be made applicable for securities trading using wireless technology. SEBI seems to have moved with surprising alacrity after facing a barrage of criticism about the shocking state of affairs in the stock markets. Minister of state for finance Namo Narain Meena's recent startling disclosures in Parliament regarding investor participation in stock markets, particularly on the NSE, seems to have put SEBI on the back foot. Money life has written about Mr. Meena's revelations (see here: http://www.moneylife.in/article/72/8312.html). SEBI may also be reeling under pressure after the Multi Commodity Exchange-Stock Exchange (MCX-SX) openly criticized SEBI, alleging favoritism and support for NSE, regarding the delay in granting approval for its stock market segment.

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Sebi bars 14 firms from issuing Ulips
April 10, 2010 The Securities and Exchange Board of India, the capital markets regulator, restrained 14 insurance entities from raising fresh money through Ulips - Unit Linked Insurance Products. In a late evening notice posted on the Sebi website, the regulator said insurance companies need its approval before launching any product with an investment option. There is already a tussle on the subject between Sebi and the Insurance regulatory Development Authority, on who had the jurisdiction to regulate Ulips and, by extension, any other insurance product with an investment component. IrDA has already made it clear that Sebi should keep off from what it believes is its turf alone. The product (Ulip) is being sold as an insurance component and regulating that is its job, not Sebi's, was IrDA¶s view. The insurance companies named in the Sebi order are Aegon Religare, Aviva , Bajaj Allianz, Bharti AXA, Birla Sun Life, HDFC Standard Life, ICICI Prudential, ING Vyasa, Kotak Mahindra Old Mutual, Max New York Life, MetLife India, Reliance Life, SBI Life and TATA AIG Life. The 11-page order, which takes effect immediately, was issued by Sebi's whole-time member Prashant Saran. "It is... necessary to restrain the entities... from raising further monies/subscription, new and/or additional, from the investors for any product (including Ulips) having an investment component in the nature of mutual funds till they obtain registration from Sebi," says the order. It, however, does add that the "order will not affect soliciting money/subscription from public with respect to any pure contract of insurance or the insurance component of a combination product". According to Sebi, many characteristics of Ulips push it under its purview. "The product is unit-linked and money is raised from the public through sale of units to them... premium will be used to allocate units in the fund chosen by the investor... the product has characteristics such as fund management, charges, switch and partial withdrawal options," argued the Sebi order.
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And, made clear its stand that the Sebi Act clearly said any product with exposure to the securities market comes under its purview. "The Sebi Act and the regulations made there under are also special laws made/laid before Parliament and any investment product or investment contract having any characteristic of securities or exposing investors to securities' market risks is under the jurisdiction of Sebi under the Sebi Act," said the order. Some of the insurance companies sought a personal hearing, which was not given. "Some of the entities also sought an opportunity of personal hearing. I note that each entity has been served with separate notices and each of them has availed of the opportunity of making its written submissions," explained the Sebi order.

Integrity a must in the stock market
Thiruvananthapuram, Nov 29 (IANS) Securities Exchange Board of India (SEBI) member K.M. Abraham has said integrity was a must in stock trading. 'If there is no integrity, it can play a lot of havoc,' Abraham said Saturday night while delivering the inaugural address at the 20th anniversary celebrations of share broking company Cap stocks and Securities. 'There are about 8,500 registered stock brokers, 60,000 sub-brokers, 200 registrars, 250 portfolio managers, 1,700 FIIs, and 5,000 subaccounts. It is a hard job for SEBI to regulate such a huge infrastructure,' he said. 'There should be some sort of self-regulation. The first line of regulations used to start with stock exchanges, but I think it is no longer that and would say the first line is stock brokers,' Abraham added. Referring to a survey covering 40,000 people across 27 countries on whether they wanted more regulation or less, he said: 'About 54 percent of respondents in the country said they wanted either the same level of regulation that exists or more.' According to the survey's findings, he said, only 20 percent wanted less regulation. 'What was more surprising is that in the US and the UK, about 75-85 percent surveyed wanted more regulation. We need to regulate prudently, and intelligently, without stifling the market.' Abraham also said for brokers, the investor should come before personal interests or that of the employer. 'While applying the rules of capital market, one should not obey a compliance that is without a soul. Keep the investor as driving force.'

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New listing norms unveiled for small enterprises

Mumbai, Nov 9 (IANS) The Securities and Exchange Board of India (SEBI), the country's markets watchdog, Monday notified new norms for listing and raising of funds by small and medium enterprises (SMEs) but ruled out a new stock exchange for such entities. The minimum market capitalization for follow-on public issues by large companies also stands reduced to Rs.5000 crore, against Rs.10,000 crore earlier, said SEBI chairman C.B. Bhave after a meeting of the watchdog's board.

'The SME platform can come on existing exchanges,' Bhave told a press conference, ruling out separate exchanges for small and medium-sized companies as demanded by a section of the investing community. 'The minimum trading under the SME platform will be Rs.100,000,' he said, adding Rs.25 crore would be the maximum capital permissible to be raised under the SME platform. 'If the paid-up capital is more than Rs.25 crore, trading will be on the main platform.' He said the entire public offer of such companies will have to be under-written.

Bhave said all listed companies will have to disclose their balance sheets - audited or un-audited - every six months, as against the present mandatory requirement of every year. Listed companies, he said, will also be permitted to submit accounts under what is called the international financial reporting standards (IFRS), which calls for greater disclosures. 'We are going to transfer our accounting into IFRS.'

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CONCLUSION

By the information provided in this project it concludes that SEBI is a body created by the Government of India in 1988 and given statutory form in 1992 with the SEBI Act 1992. It is crated to regulate the business in the stock exchange and any other secur ities market. Its primary duty is to protect the interest of the investor in securities. Therefore for this purpose SEBI has issued some guidelines that are to be followed by all those who deal in any securities market. SEBI had a great impact on the securities market and played a very crucial role in the economic market. Thus SEBI has created a very healthy market for the investors and managed in a very effective manner.

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