SEBI-Regulator of the Market The Securities and Exchange Board of India (SEBI) is the regulatory authority in India established

under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting the interests of investors in securities (b) promoting the development of the securities market and (c) regulating the securities market. Its regulatory jurisdiction extends over corporates in the issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with securities market. SEBI has been obligated to perform the aforesaid functions by such measures as it thinks fit. The regulator ensures that the market participants behave in a desired manner so that securities market continues to be a major source of finance for corporate and government and the interest of investors are protected. The responsibility for regulating the securities market is shared by Department of Economic Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI).

Why do we need a regulatory body for Investor protection in India  India is an ` informationally ' weak market  Boosting capital market demands restoring the confidence of lay investors who have been beaten down by repeated scams  Progressively softening interest rates and an underperforming economy have eroded investment options, and require enhanced investing skills. The Genesis of SEBI In the 1980s, Indian capital markets witnessed significant changes. During the sixth Five-Year plan (1980-85), many major industrial policy changes were introduced. These included opening up the Indian economy to foreign corporations and

emphasizing a greater role for the private sector. Many companies tapped the primary market to raise required funds from the public. The total capital raised from the primary market increased from Rs 1.96 bn in the fiscal 1979-80 to Rs. 65 bn in 1989-90. With more companies raising money by issuing shares, retail investors got another investment avenue to park their surplus funds. Between 1987 and 1991, 12% of household savings were invested in equity and corporate debentures as compared to only 7% between 1982 and 1985, signifying the increasing number of retail investors in the stock market. With the increasing interest of retail investors, many dubious companies that did not have any real plans to do business raised money by issuing shares, only to vanish at a later date. These malpractices took on significant proportions and the grievances of retail investors increased alarmingly. The investors turned to Govt. of India for redressal. However, Govt. of India was rather helpless in solving the retail investors' grievances in such large volumes because of the lack of proper penal provisions.

The government, therefore, constituted SEBI as a supervisory body to regulate and promote security markets...

Securities and Exchange Board of India, popularly called SEBI, is a quasi government body that was initially formed in 1988 by an administrative order. The Indian capital market had started developing very fast during the 1980s. The amount of capital raised by companies from the primary market increased from a modest 200 crores in 1980 to a substantial 6500 crores in 1990. This implied a great exposure of public money, which also attracted a number of fly-by-night operators. This necessitated a watchdog that could safeguard the interests of investors.

SEBI was provided an statutory status in the immediate aftermath of infamous securities scam perpetrated by Harshad Mehta. The scam shook up the foundations of the Indian financial framework. The stock market, which was making a frenzied climb upwards, collapsed on its face. Thousands of crores of market equity was destroyed overnight and a number of financial institutions and banks were forced to shut shop. That a single individual could twist and tweak the system, with all is apparent loopholes, for earning tremendous profits became painfully apparent to everyone. A number of financial institutions and other market players were left high and dry after the scam, but the biggest loser turned out to be the common investor. The economy had just started opening up after the 1991 economic reforms, and the India market was just taking its first tottering steps. At this stage, such a huge scam would not only have damaged the market, but would have severely damaged investor confidence. In time, investors could have lost trust in the system, thus adversely affecting the ability of companies to raise money in stock market. This, in turn, would have severely restricted industrial growth at a time when the economy had started improving. The Securities and Exchange Board of India Act was passed in 1992, thus giving the regulatory teeth to the body. SEBI was entrusted with the primary task of protecting the interests of the investors. In addition, SEBI was also entrusted with the twin objectives of developing and regulating the stock market. In this regard, SEBI has done a decent job, though admittedly, there have been instances when the regulator has been caught napping! But overall, the lot of investors has definitely improved due to the policies and steps taken by the regulator.

Role of SEBI in Capital Market SEBIs Principal Tasks

 To regulate the business in Stock Exchange & other Securities Market.  To register & regulate the working of Capital market intermediaries.  To register & regulate the working of Mutual Funds.

 To promote & regulate Self-regulatory Organization  To prohibit fraudulent unfair trade practices in Security Market.  To promote investors education & training to intermediaries of Capital Market.  Prohibit insider training in Securities.  Regulate acquisition of shares & takeover of companies.

FUNCTIONS OF SEBI Section 11 of the Securities and Exchange Board of India Act. Regulation Of Business In The Stock Exchanges A) Review of the market operations, organizational structure and administrative control of the exchange All stock exchanges are required to be Body Corporates The exchange provides a fair, equitable and growing market to investors. The exchanges organisation, systems and practices are in accordance with the Securities Contracts (Regulation) Act (SC(R) Act), 1956

B) Registration And Regulation Of The Working Of Intermediaries Primary Market Merchant Bankers Underwriters Portfolio Managers SEBI regulates the working of the depositories [participants], custodians of securities, foreign institutional investors, credit rating agencies and such other intermediaries Secondary Market Stock Brokers Sub-brokers

C) Registration And Regulation Of Mutual Funds, Venture Capital Funds & Collective Investment Schemes AMFI-Self Regulatory Organization-'promoting and protecting the interest of mutual funds and their unit-holders, increasing public awareness of mutual funds, and serving the investors' interest by defining and maintaining high ethical and professional standards in the mutual funds industry'. Every mutual fund must be registered with SEBI and registration is granted only where SEBI is satisfied with the background of the fund. SEBI has the authority to inspect the books of accounts, records and documents of a mutual fund, its trustees, AMC and custodian where it deems it necessary SEBI (Mutual Funds) Regulations, 1996 lays down the provisions for the appointment of the trustees and their obligations

Every new scheme launched by a mutual fund needs to be filed with SEBI and SEBI reviews the document in regard to the disclosures contained in such documents. Regulations have been laid down regarding listing of funds, refund procedures, transfer procedures, disclosures, guaranteeing returns etc SEBI has also laid down advertisement code to be followed by a mutual fund in making any publicity regarding a scheme and its performance SEBI has prescribed norms / restrictions for investment management with a view to minimize / reduce undue investment risks. SEBI also has the authority to initiate penal actions against an erring MF. In case of a change in the controlling interest of an asset management company, investors should be given at least 30 days time to exercise their exit option.

D) Promoting & Regulating Self Regulatory Organizations In order for the SRO to effectively execute its responsibilities, it would be required to be structured, organized, managed and controlled such that it retains its independence, while continuing to perform a genuine market development role

E) Prohibiting Fraudulent And Unfair Trade Practices In the Securities Market SEBI is vested with powers to take action against these practices relating to securities market manipulation and misleading statements to induce sale/purchase of securities. F] Prohibition Of Insider Trading Stock Watch System, which has been put in place, surveillance over insider trading would be further strengthened. G] Investor Education And The Training Of Intermediaries SEBI distributed the booklet titled A Quick Reference Guide for Investors to the investors SEBI also issued a series of advertisement /public notices in national as well as regional newspapers to educate and caution the investors about the risks associated with the investments in collective investment schemes SEBI has also issued messages in the interest of investors on National Channel and Regional Stations on Doordarshan. H) I) Inspection And Inquiries Regulating Substantial Acquisition Of Shares And Take-overs

J) Performing Such Functions And Exercising Such Powers Under The Provisions Of The Securities Contracts (Regulation) Act, 1956 As May Be Delegated To It By The Central Government; K) Levying Fees Or Other Charges For Carrying Out The Purposes Of This Section L) Conducting Research For The Above Purposes

SEBI Powers
y y y y y y y y y y Call periodical Returns. Call for any information from Stock Exchanges. Direct enquiries of the affairs of Stock Exchanges. Power to grant approval to the bye-laws of recognized Stock Exchange. Power to make or amend the bye-laws. Power to compel listing of Securities by Public Companies Power to control & regulate Stock Exchanges. Power to grant registration to market intermediaries. Power to levy fees or other charges. Power to regulate FIIs etc.

Special power given to SEBI

Chapter VIA of the SEBI Act, 1992 empowers SEBI to inflict monetary penalties directly without the intervention of any court. Adjudicating Officers, who are employees of SEBI, acting as quasi-judicial officers have the power to impose civil monetary penalties. These penalties can be as high as Rs 25 crores or three times the benefit gained due to the violation. SEBI has also written subordinate legislation in the form of regulations governing market intermediaries registered with it to impose disciplinary penalties ranging from censure to cancellation of registration. The only area where SEBI does not have powers for direct action without an intervention of a court is the ability to send people to jail. Section 24 of the SEBI Act requires SEBI to file a complaint before a criminal court to get an accused convicted and jailed for contravention of any provision of the SEBI Act, or rules or regulations made under it.

For all other regulatory action, SEBI has powers to act by itself without having to knock the doors of a court or any judicial body and present compelling evidence to take such action. The only check and balance on SEBI s power is the Securities Appellate Tribunal, which is empowered to hear appeals from any order passed by SEBI. Judicial intervention of any nature can come into play only after SEBI has taken action.

SEBI in Capital Market

            Guidelines for First Issue of New Company. Guidelines for the New issues made by the Private Limited Company. Guidelines for Issue to the public by existing Company. The terms & conditions of the New Instruments. Disclose the arrangement of the amount received by issuing of Shares Public issue by the existing listed companies & the calculation of NAV & Market price. Credit rating is compulsory in case of convertible debentures. Minimum Interval criteria. Bonus issues. Debenture maturity period and redemption. Disclosure of application amount rose through issue of shares. Issues to Promoters, Shareholders & Employees

VETTING BY SEBI A company cannot come out with public issue unless Draft Prospectus is filed with SEBI. Prospectus is a document by way of which the investor gets all the information pertaining to the company in which they are going to invest. It gives the detailed information about the Company, Promoter / Directors, group companies, Capital Structure, Terms of the present issue etc. A company cannot file prospectus directly with SEBI. It has to be filed through a merchant banker. After the preparation of prospectus, the merchant banker along with the due diligence certificates and other compliances and sends the same to SEBI for Vetting. SEBI on receiving the same scrutinizes it and may suggest changes within 21 days of receipt of prospectus

The company can come out with a public issue any time within 180 days from the date of the letter from SEBI or if no letter is received from SEBI, within 180 days from the date of expiry of 21 days of submission of prospectus with SEBI If the issue size is upto Rs. 20 crores then the merchant bankers are required to file prospectus with the regional office of SEBI falling under the jurisdiction in which registered office of the company is situated. # If the issue size is more than Rs. 20 crores, merchant bankers are required to file prospectus at SEBI, Mumbai office.

Broker s Code The four-part model, which was recommended by the M R Mayya committee The market regulator would hold the remote control on the management of the exchanges by approving nominations of 60 per cent non-broker members of an exchange board. Induction and removal of managing director would also be controlled by SEBI. Lead to increased control by the markets regulator and also impose restrictions on elected brokers without giving them any authority.

Search And Seizure To impose penalties of up to Rs 25 crore or three times the amount involved in the violation of a norm, whichever is higher. In the cases of some offences, including defaults by brokers, a failure to furnish returns and information by corporates and brokers and other lapses, the market regulator can impose a higher penalty of Rs 1 lakhs a day or a maximum fine of Rs 1 crore, whichever is lower. At present, the offences carry penalties ranging between Rs 5,000 and Rs 5 lakhs.

Corporate Governance The listing requirements, are ensured in two ways. Corporates are expected to submit compliance reports as per clause 49 of the listing agreement They are also required to provide details of the same in their annual reports.

Delisting The exit price to be determined in accordance with the book building process (known as reverse book building) through an electronically-linked transparent facility. The offer price shall have a floor price, which will be the average of 26 weeks traded price preceding the date of the public announcement. The final offer price shall be determined as the price at which maximum number of shares has been offered.

After the final price is determined based on the book-building process, the promoter or the acquirer will have to make a public announcement of the final price and communicate to the exchanges from which the delisting is sought to be made within two working days. Further, the number of bidding centres shall not be less than 30, including all the stock exchange centres, which should have at least one electronicallylinked computer terminal each.

In case the promoter does not accept the above price, he should not make an application to the exchange for delisting of the securities, as per the guidelines. Instead, he shall ensure that the public shareholding is brought up to the minimum limits specified under the listing conditions within six months. Strict norms for compulsory delisting by stock exchanges

Public Issues An unlisted company has to satisfy the following criteria to be eligible to make a public issue Pre-issue networth of the co. should not be less than Rs.1 crore in last 3 out of last 5 years with minimum networth to be met during immediately preceding 2 years Track record of distributable profits for at least three (3) out of immediately preceding five (5) years The issue size (i.e. offer through offer document + firm allotment + promoters contribution through the offer document) shall not exceed five (5) times its pre-issue networth.

In case an unlisted company does not satisfy any of the above criterions, it can come out with a public issue only through the Book-Building process. In the Book Building process the company has to compulsorily allot at least sixty percent (50%) of the issue size to the Qualified Institutional Buyers (QIB s), failing which the full subscription monies shall be refunded.

Initial Public Offer In case of an Initial Public Offer (IPO) i.e. public issue by unlisted company, the promoters have to necessarily offer at least 20% of the post issue capital. In case of public issues by listed companies, the promoters shall participate either to the extent of 20% of the proposed issue or ensure post-issue share holding to the extent of 20% of the post-issue capital. In case of any issue of capital to the public the minimum contribution of promoters shall be locked in for a period of 3 years, both for an IPO and Public Issue by listed companies. In case of an IPO, if the promoters contribution in the proposed issue exceeds the required minimum contribution, such excess contribution shall also be locked in for a period of one year. In case of a public issue by a listed company, participation by promoters in the proposed public issue in excess of the required minimum percentage shall also be locked-in for a period of one year as per the lock-in provisions as specified in Guidelines on Preferential issue. paid up share capital prior to IPO and shares issued on a firm allotment basis along with issue shall be locked-in for a period of one year from the date of allotment in public issue. In case of over-subscription in a fixed price issue the allotment is done in marketable lots, on a proportionate basis

In case of a book building issue, allotment to Qualified Institutional Buyers and Non-Institutional buyers are done on a discretionary basis. Allotment to retail investors is done on a proportionate basis all steps for completion of the necessary formalities for listing and commencement of trading at all stock exchanges where the securities are to be listed are taken within 7 working days of finalization of basis of allotment.

Establishment of Securities Appellate Tribunals.- (1) The Central Government shall, by notification, establish one or more Appellate Tribunals to be known as the Securities Appellate Tribunal to exercise the jurisdiction, powers and authority conferred on such Tribunal.
Procedure for filing appeals (1) A memorandum of appeal shall be presented in the form annexed to these rules by the Appellant either in person to the Registrar of the Appellate Tribunal within whose jurisdiction his case falls or shall be sent by registered post addressed to such Registrar. (2) Where the appellant is company a memorandum of appeal may be preferred, (a) by one or more legal practitioners authorised by such company; or (b) by any of the officers of such company to act as Presenting Officers and every person so authorised may present the appeal before the Appellate Tribunal. (3) Where the appellant is other than a company he may prefer an appeal in person or by his agent or by a duly authorised legal practitioner. (4) An appeal sent by post under sub-rule (1) shall be deemed to have been presented to the Registrar on the day on which it is received in the office of the Registrar.

(5) The appeal under sub-rule (1) shall be presented in four sets in a Paper Book alongwith an empty file size envelope bearing full address of the respondent and where the number of respondents are more than one, then sufficient number of extra paper books together with empty file size envelope bearing full addresses of each respondent shall be furnished by the appellant. Place of filing memorandum of appeal 7. The memorandum of appeal shall be filed by the appellant with the Registrar of the Appellate Tribunal having jurisdiction in the matter. Fee 8. (1) Every memorandum of appeal under section 15T of the Act shall be accompanied with a fee provided in sub-rule (2) and such fee may be remitted either in the form of crossed demand draft drawn on a nationalised bank in favour of the Registrar and payable at the station where the Registrar's office is situated or remitted through a crossed Indian Postal Order drawn in favour of the Registrar and payable in Central Post Office of the Station where the Appellate Tribunal is located. (2) The amount of fee payable in respect of appeal under section 15T shall be as follows:-

AMOUNT OF PENALTY IMPOSED 1. Less than rupees ten thousand; 2. Rupees ten thousand or more but less than one lakhs; 3. Rupees one lakh or more.

AMOUNT OF FEES PAYABLE Rs.500 Rs.1200 Rs.1200 plus Rs.1000 for every additional one lakh of penalty.

Ketan Parekh Scam:

SEBI's role as a regulator of Indian capital markets was questioned on March 02, 2001, when the BSE index crashed by 176 points. This was the result of the large

position taken by a stockbroker - Ketan Parikh (KP) in ten stocks, popularly known as K10. Ketan parekh targeted small exchanges like the Allahabad Stock Exchange and the Calcutta Stock Exchange, and bought shares in fictitious names. His dealings revolved around shares of ten companies like Himachal Futuristic, Global TeleSystems, SSI Ltd, DSQ Software, Zee Telefilms, Silver line, pent media Graphics and Satyam Computer (K-10 scripts). Ketan borrowed Rs 250 crore from Global Trust Bank to fuel his ambitions. Ketan along with his associates also managed to get Rs 1,000 crores from the Madhavpura Mercantile Co-operative Bank. According to RBI regulations, a broker is allowed a loan of only Rs 15 crores (Rs 150 million). There was evidence of price rigging in the scripts of Global Trust Bank, Zee Telefilms, HFCL, Lupin Laboratories, Aftek Infosys and Padmini Polymer. On Dec. 2, 2002, Ketan Parekh was arrested by a Kolkata police team here in connection with the Rs. 120-crore payment crisis in the Calcutta Stock Exchange. Thereafter SEBI implemented several measures to control the damage. An additional 10% deposit margin was imposed on outstanding net sales in the stock markets. Also, the limit for application of the additional volatility margins was lowered from 80% to 60%. To revive the markets, SEBI imposed restriction on short sales and ordered that the sale of shares had to be followed by deliveries. It suspended all the broker member directors of BSE's governing board. SEBI also banned trading by all stock exchange presidents, vice-presidents and treasurers. A historical decision to ban the badla system in the country was taken, effective from July 2001, and a rolling settlement system for 200 Group Ashares[5] was introduced on the BSE. The first arrest in the scam was of the noted bull[5], Ketan Parekh (KP), on March 30, 2001, by the Central Bureau of Investigation (CBI). Soon, reports abounded as to how KP had single handedly caused one of the biggest scams in the history of Indian financial markets. He was charged with defrauding Bank of India (BoI) of about $30 million among other charges. KP was released on bail in May 2001. The

duped investors could do nothing knowing that the legal proceedings would drag on, perhaps for years.

HLL Case: 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. 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...

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, from this case can be helpful to understand and appreciate the role of the legal framework under organizations function. 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 2002 regulations

The new regulations of 2002 further fortified the 1992 regulations and increased the list of persons that are deemed to be connected to Insiders. Listed companies and other entities were required to frame internal policies and guidelines to preclude insider trading by directors, employees, partners, etc. New rules cover 'temporary insiders' like lawyers, accountants, investment bankers etc. Directors and substantial shareholders have to disclose their holding to the company periodically. The New Regulations added relatives of connected persons, as well as, the companies, firms, trust, which relatives of connected persons, bankers of the company and of persons deemed to be connected persons hold more than 10% . The importance of policing insider trading also assumed international significance as overseas regulators attempt to boost the confidence of domestic investors and attract the international investment community. So, SEBI took the role of a regulator only. Special Courts were set up for faster and efficacious disposal of cases. Regulation 2(h) identifies seven broad categories of secondary insiders within which these were a few sub-categories, such as (a) Companies under the same management;(b) Members and employees of Stock exchanges;(c) Market Intermediaries, Mutual Funds etc.;(d) Directors and employees of financial institutions ;( e) Officers and employees of self-regulatory bodies;(f) Relatives;(g) Bankers

Aastha Broadcasting Network Limited Case

Securities and Exchange Board of India (SEBI) vide order dated September 06, 2005 has debarred Aastha Broadcasting Network Limited (Aastha) and 39 other entities, including ATN Telefilms Ltd., CMM Ltd., etc., from dealing in securities and accessing the capital market till January 14, 2007. These entities were associated with the irregular preferential allotment of shares made by Aastha in August 2000. Further, the shares allotted in the preferential allotment and lying in the demat accounts of 17 entities forming part of the 39 entities specified above, which were frozen by an earlier interim order of SEBI dated January 15, 2004 and confirmed by an interim order dated June 15, 2004, has been continued till January 14, 2007. Aastha has been charged with violating the provisions of Clause 13.5A and 13.3 of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 and Aastha along with the 39 other entities has been charged with violating the provision of Regulation 5(1) and 6(a) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities market) Regulations, 1995. Cheneena Impex which was involved in the case was banned by the Securities and Exchange Board of India (SEBI) for two years in 2005. Afterwards SEBI had found that it had indulged in irregular and illegal preferential allotment of 93 lakh shares of Aastha Broadcasting Network formerly known as CMM Broadcasting Network Ltd. SEBI had also frozen 20 lakh shares of Cheneena Impex, along with 30 entities lying in Demat accounts for that period. On Aug 3 2010, Supreme Court of India has imposed a life-time ban on Cheneena Impex.

New Regulatory powers to SEBI

New Delhi, March 29, Companies Bill, 2009.

y SEBI guidelines directed all issuer companies with IPOs of even less than Rs 500 crore to appoint an agency to monitor the use of such proceeds. y Before 2009, SEBI guidelines specify that a monitoring agency is required only for issues of over Rs 500 crore. The monitoring agency, such as a bank or a financial institution, will be appointed by the company going for an IPO. The agency will report to the company's Audit Committee regarding the use of IPO money. y The Companies Act does not grant SEBI powers to look into the enduse of IPOs. Previously it had powers only until the issue of the IPO and not beyond it. But now, SEBI will have a control over end-use of IPOs. SEBI 2008-09 Annual report SEBI prescribed eligibility criteria for recognized stock exchanges for trading in exchange traded currency derivatives segment. These include: The trading should take place through an online screen-based trading system, which also has a disaster recovery site. The clearing of the currency derivatives market should be done by an independent Clearing Corporation. The exchange must have an online surveillance capability which monitors positions, prices and volumes in real time so as to deter market manipulation. The exchange shall have a balance sheet net worth of at least Rs. 100 crores. Information about trades, quantities, and quotes should be disseminated by the exchange in real time to at least two information vending networks which are accessible to investors in the country. The segment should have at least 50 members to start currency derivatives trading. The exchange should have arbitration and investor grievances redressal mechanism operative from all the four areas/regions of the country.

If already existing, the exchange should have a satisfactory record of monitoring its members, handling investor complaints and preventing irregularities in trading. The trading and the order driven platform of currency futures should be separate from the trading platforms of the other segments. The membership of the currency futures segment should be separate from the membership of the other segments.

Amendment in the year 2009 to Securities Contracts Regulations

a) Six categories of entities, viz., stock exchanges, depositories, clearing corporations, banks, insurance companies; and public financial institutions may hold, directly or indirectly, a maximum of 15 per cent of the paid-up equity share capital of a stock exchange. b) Any shareholder, other than the aforesaid six categories of investors, may hold either directly or indirectly, not more than 5 per cent of the paid-up equity share capital of a recognized stock exchange.

ULIP ISSUE
ULIPs account for more than 50 per cent of the life insurance business in the country. The money collected is invested in equities. On 10 April 2010 Market regulator SEBI has barred 14 private life insurance companies from selling unit-linked insurance plans without its approval, giving a fresh twist to the turf war between SEBI and insurance watchdog IRDA. The 14 companies mentioned in this order include Aegon Religare, Aviva, Bajaj Allianz Life Insurance, Bharti AXA, Birla Sun Life, HDFC Standard Life, ICICI Prudential, ING Vyasa Life, Kotak Mahindra Old Mutual Life, Max New York Life,

Metlife India, Reliance Life, SBI Life, TATA AIG Life. A few months back, SEBI had questioned individual life companies why they were selling investment products without its approval. Companies had responded individually that insurance laws permit them to offer an investment component within a life insurance policy. They also said that they were regulated by SEBI who had cleared all these products. The life companies were supported by the market regulator, who reiterated the stand taken by life companies. As expected, after a couple of days the Government intervened. Both the regulators were persuaded to seek a legal mandate from the court and seek clarification on the jurisdiction issue. June 19, 2010 The President of India has promulgated an Ordinance late last evening amending the RBI Act 1934, Insurance Act 1938, SEBI Act 1992 and Securities Contract Regulations Act 1956, thereby clarifying by way of an explanation that Life Insurance business shall include any Unit Linked Insurance Policy or scripts or any such instruments. This would set at rest all the issues regarding ULIPs between two financial regulators i.e. Securities Exchange Board of India (SEBI) and Insurance Regulatory Development Authority (IRDA) IRDA wins ULIPs battle June 20, 2010 Government settles issue by issuing ordinance. The government has brought down curtains on the two-month long tussle between two regulators by ruling that Unit-linked Insurance Products (ULIPs) will be governed by the Insurance Regulatory and Development Authority (IRDA). An amendment favoring IRDA over the Securities and Exchange Board of India was signed by President Pratibha Patil on June 18. On Friday, the law ministry issued an ordinance amending the RBI Act 1934, Insurance Act 1938, SEBI Act 1992 and Securities Contract Regulations Act 1956,

clarifying that life insurance business will include any unit-linked insurance policy or scripts or any such instruments. This has thus settled the issue of regulating ULIPs.

Requirement for Additional Regulations regarding Mutual Funds: 14 Jul 2010, The Securities and Exchange Board of India (SEBI) is planning a standard set of disclosures for mutual fund fact sheets, advertisements and scheme information documents (SID). This will not only give a clearer picture about the performance of the schemes, but will also help investors compare similar schemes of different fund houses. The regulator is aiming at more of quantitative disclosures, and not just qualitative disclosures as is the case at present. Following are some of the aspects which will be given special attention  For instance, take returns. The thinking within SEBI is that returns alone do not define performance. A scheme may generate high returns by taking more risks, but this may not be palatable to the conservative investors in that scheme. Once the risks taken by fund managers are quantified, investors can compare the performance of various schemes before deciding on the one that suits their temperament.  Around three years ago, the Association of Mutual Funds in India (AMFI) had issued a standard format for fact sheets. But many fund houses do not adhere to that.  For example, certain funds disclose the volatility on a monthly basis, while other funds disclose the annualized volatility. The funds do not disclose the risk-free rate they have taken as the standard while calculating the Sharpe ratio the measure of risk-adjusted returns.  Many funds do not disclose portfolio turnover, which tells an investor how often the fund manager churns his holdings.  Similarly, the recurring expenses being charged by the scheme are also important for the investor as most funds in their SID only disclose the

maximum expenses they would charge. These generally comprise the outer limit and do not reflect the actual expenses being charged.  Similarly, in debt schemes, the fund must reveal the short-term and long-term risk-free rates to help the investor assess whether the fund manager has actually attained higher returns for them.

RIL Case 20 th August 2010 The capital market regulator has rejected a second attempt by India s largest private sector firm, Reliance Industries (RIL), to settle charges of insider trading out of court. The Securities and Exchange Board of India, or SEBI, will instead continue its investigation into trades carried out by entities allegedly linked to RIL, in November 2007, said a senior official. It s not clear when the so-called consent application, akin to a negotiated settlement, was rejected, but it is believed to be fairly recent. The regulator is probing the sale of stock futures of Reliance Petroleum (RPL), in the first week of November 2007, a few days before parent RIL, India s most valuable company by market capitalization, started trimming its stake in its refining arm. The regulator has not issued a final order on the veracity of these complaints. It will now pass a final order after hearing RIL. SEBI s orders can be challenged before the Securities Appellate Tribunal, or SAT.