Securities and Exchange Board of India

Securities and Exchange Board of India

SEBI Bhavan, Mumbai headquarters Agency overview Formed Jurisdiction Headquarters Employees Agency executive 12 April 1992 Government of India Mumbai, Maharashtra 525 (2009)[1] U. K. Sinha, Chairman

SEBI - Introduction
In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution, and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. In place of Government Control, a statutory and autonomous regulatory board with defined responsibilities, to cover both development & regulation of the market, and independent powers have been set up. Paradoxically this is a positive outcome of the Securities Scam of 1990-91. The basic objectives of the Board were identified as: to protect the interests of investors in securities; to promote the development of Securities Market; to regulate the securities market and for matters connected therewith or incidental thereto.

Since its inception SEBI has been working targetting the securities and is attending to the fulfillment of its objectives with commendable zeal and dexterity. The improvements in the securities markets like capitalization requirements, margining, establishment of clearing corporations etc. reduced the risk of credit and also reduced the market. SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility criteria, the code of obligations and the code of conduct for different intermediaries like, bankers to issue, merchant bankers, brokers and sub-brokers, registrars, portfolio managers, credit rating agencies, underwriters and others. It has framed bye-laws, risk identification and risk management systems for Clearing houses of stock exchanges, surveillance system etc. which has made dealing in securities both safe and transparent to the end investor. Another significant event is the approval of trading in stock indices (like S&P CNX Nifty & Sensex) in 2000. A market Index is a convenient and effective product because of the following reasons: It acts as a barometer for market behavior; It is used to benchmark portfolio performance; It is used in derivative instruments like index futures and index options; It can be used for passive fund management as in case of Index Funds.

Two broad approaches of SEBI is to integrate the securities market at the national level, and also to diversify the trading products, so that there is an increase in number of traders including banks, financial institutions, insurance companies, mutual funds, primary dealers etc. to transact through the Exchanges. In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark. SEBI appointed the L. C. Gupta Committee in 1998 to recommend the regulatory framework for derivatives trading and suggest bye-laws for Regulation and Control of Trading and Settlement of Derivatives Contracts. The Board of SEBI in its meeting held on May 11, 1998 accepted the recommendations of the committee and approved the phased introduction of derivatives trading in India

beginning with Stock Index Futures. The Board also approved the "Suggestive Bye-laws" as recommended by the Dr LC Gupta Committee for Regulation and Control of Trading and Settlement of Derivatives Contracts. SEBI then appointed the J. R. Verma Committee to recommend Risk Containment Measures (RCM) in the Indian Stock Index Futures Market. The report was submitted in november 1998. However the Securities Contracts (Regulation) Act, 1956 (SCRA) required amendment to include "derivatives" in the definition of securities to enable SEBI to introduce trading in derivatives. The necessary amendment was then carried out by the Government in 1999. The Securities Laws (Amendment) Bill, 1999 was introduced. In December 1999 the new framework was approved. Derivatives have been accorded the status of `Securities'. The ban imposed on trading in derivatives in 1969 under a notification issued by the Central Government was revoked. Thereafter SEBI formulated the necessary regulations/bye-laws and intimated the Stock Exchanges in the year 2000. The derivative trading started in India at NSE in 2000 and BSE started trading in the year 2001. The Securities and Exchange Board of India (frequently abbreviated SEBI) is the regulator for the securities market in India.

History
It was formed officially by the Government of India in 1992 with SEBI Act 1992[2] being passed by the Indian Parliament. SEBI is headquartered in the business district of Bandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices in New Delhi, Kolkata, Chennai and Ahmedabad. Controller of Capital Issues was the regulatory authority before SEBI came into existence;[3] it derived authority from the Capital Issues (Control) Act, 1947. Initially SEBI was a non statutory body without any statutory power. However in 1995, the SEBI was given additional statutory power by the Government of India through an amendment to the securities and Exchange Board of India Act 1992. In April, 1998 the SEBI was constituted as the regulator of capital market in India under a resolution of the Government of India. [edit] Organization structure Upendra Kumar Sinha was appointed chairman on 18 February 2011 replacing C. B. Bhave.[4] The Board comprises[5] Name Designation Upendra Kumar Sinha Chairman Prashant Saran Whole Time Member CA. T.V. Mohandas Pai Director, Infosys Dr. Thomas Mathew Joint Secretary, Ministry of Finance V. K. Jairath Member Appointed Anand Sinha Deputy Governor, Reserve Bank of India List of former Chairmen[6]: Name From To C. B. Bhave 18 February 2008 18 February 2011 M. Damodaran 18 February 2005 18 February 2008 G. N. Bajpai 20 February 2002 18 February 2005 D. R. Mehta 21 February 1995 20 February 2002 S. S. Nadkarni 17 January 1994 31 January 1995 G. V. Ramakrishna 24 August 1990 17 January 1994 Dr. S. A. Dave 12 April 1988 23 August 1990 [edit]

Organization structure
Upendra Kumar Sinha was appointed chairman on 18 February 2011 replacing C. B. Bhave.[2] The Board comprises[3] Name Designation

Upendra Kumar Sinha

Chairman

Prashant Saran

Whole Time Member

CA. T.V. Mohandas Pai Director, Infosys

Dr. Thomas Mathew

Joint Secretary, Ministry of Finance

V. K. Jairath

Member Appointed

Anand Sinha

Deputy Governor, Reserve Bank of India

Functions and responsibilities

SEBI has to be responsive to the needs of three groups, which constitute the market: the issuers of securities the investors the market intermediaries.

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.

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.[citation needed] It had[when?] increased the extent and quantity of disclosures to be made by Indian corporate promoters. More recently, in light of the global meltdown,it liberalised the takeover code to facilitate investments by removing regulatory structures. In one such move, SEBI has increased the application limit for retail investors to Rs 2 lakh, from Rs 1 lakh at present.[5]

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

1. to approve bylaws of stock exchanges. 2. to require the stock exchange to amend their bylaws. 3. inspect the books of accounts and call for periodical returns from recognised stock exchanges. 4. inspect the books of accounts of a financial intermediaries. 5. compel certain companies to list their shares in one or more stock exchanges. 6. levy fees and other charges on the intermediaries for performing its functions. 7. grant licence to any person for the purpose of dealing in certain areas. 8. delegate powers exercisable by it. 9. prosecute and judge directly the violation of certain provisions of the companies Act.

SEBI Committees
1. Technical Advisory Committee 2. Committee for review of structure of market infrastructure institutions 3. Members of the Advisory Committee for the SEBI Investor Protection and Education Fund 4. Takeover Regulations Advisory Committee 5. Primary Market Advisory Committee (PMAC) 6. Secondary Market Advisory Committee (SMAC) 7. Mutual Fund Advisory Committee 8. Corporate Bonds & Securitization Advisory Committee 9. Takeover Panel 10. SEBI Committee on Disclosures and Accounting Standards (SCODA) 11. High Powered Advisory Committee on consent orders and compounding of offences 12. Derivatives Market Review Committee 13. Committee on Infrastructure Funds

SEBI Administration
The Securities and Exchange Board of India Act, 1992 is having retrospective effect and is deemed to have come into force on January 30, 1992. Relatively a brief act containing 35 sections, the SEBI Act governs all the Stock Exchanges and the Securities Transactions in India. A Board by the name of the Securities and Exchange Board of India (SEBI) was constituted under the SEBI Act to amminister its provisions. It consists of one Chairman and five members. One each from the department of Finance and Law of the Central Government, one from the Reserve Bank of India and two other persons and having its head office in Bombay and regional offices in Delhi, Calcutta and Madras. The Central Government reserves the right to terminate the services of the Chairman or any member of the Board. The Board decides questions in the meeting by majority vote with the Chairman having a second or casting vote. Section 11 of the SEBI Act provides that to protect the interest of investors in securities and to promote the development of and to regulate the securities market by such measures, it is the duty of the Board. It has given power to the Board to regulate the business in Stock Exchanges, register and regulate the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers, etc., also to register and regulate the working of collective investment schemes including mutual funds, to prohibit fraudulent and unfair trade practices and insider trading, to regulate take-overs, to conduct enquiries and audits of the stock exchanges, etc. All the stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deed, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediary who may be associated with the Securities Markets are to register with the Board under the provisions of the Act, under Section 12 of the Sebi Act. The Board has the power to suspend or cancel such registration. The Board is bound by the directions vested by the Central Government from time to time on questions of policy and the Central Government reserves the right to supersede the Board. The Board is also obliged to submit a report to the Central Government each year, giving true and full account of its activities, policies and programmes. Any one of the aggrieved by the Board's decision is entitled to appeal to the Central Government. FAQs Does SEBI tag make your money safe? What is the procedure for registering a mutual fund with SEBI? What derivative contracts are permitted by SEBI? Whom to approach for Grievance Redressal? Any many more thing you always wanted to know about everything in SEBI. We have segregated all your queries topic wise for easy and fast search in this section.

Public Issue Secondary Market Mutual Funds Takeover Opening of an account

Depositories And Custodians Buy Back of Securities

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. FAQs on Public Issue Does SEBI approve the contents of the issue? It is to be distinctly understood that submission of offer document to SEBI should not in any way be deemed or construed that the same has been cleared or approved by SEBI. The Lead manager certifies that the disclosures made in the offer document are generally adequate and are in conformity with SEBI guidelines for disclosures and investor protection in force for the time being. This requirement is to facilitate investors to take an informed decision for making investment in the proposed issue. Does SEBI tag make my money safe? The investors should make an informed decision purely by themselves based on the contents disclosed in the offer documents. SEBI does not associate itself with any issue/issuer and should in no way be construed as a guarantee for the funds that the investor proposes to invest through the issue. However, the investors are generally advised to study all the material facts pertaining to the issue including the risk factors before considering any investment. They are strongly warned against any 'tips' or news through unofficial means. How does SEBI ensure compliance with DIP? The Merchant Banker are the specialized intermediaries who are required to do due diligence and ensure that all the requirements of DIP are complied with while submitting the draft offer document to SEBI. Any non compliance on their part, attract penal action from SEBI, in terms of SEBI (Merchant Bankers) Regulations. The draft offer document filed by Merchant Banker is also placed on the website for public comments. Officials of SEBI at various levels examine the compliance with DIP guidelines and ensure that all necessary material information is disclosed in the draft offer documents. With the presence of the Central Listing Authority (CLA), what would be the role of SEBI in the processing of Offer docume nts for an issue? The Central Listing Authority's (CLA) functions have been detailed under Regulation 8 of SEBI (Central Listing Authority) Regulations, 2003 (CLA Regulations) issued on August 21, 2003 and amended up to October 14, 2003. In brief, it covers processing applications for letter precedent to listing from applicants; to make recommendations to the Board on issues pertaining to the protection of the interest of the investors in securities and development and regulation of the securities market, including the listing agreements, listing conditions and disclosures to be made in offer documents; and; to undertake any other functions as may be delegated to it by the Board from time to time.

SEBI as the regulator of the securities market examines all the policy matters pertaining to issues and will continue to do so even during the existence of the CLA. Since the CLA is not yet operational, the reply to this question would be updated thereafter. Who decides the price of an issue? Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines have provided that the issuer in consultation with Merchant Banker shall decide the price. There is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The company and merchant banker are however required to give full disclosures of the parameters which they had considered while deciding the issue price. There are two types of issues one where company and LM fix a price (called fixed price) and other, where the company and LM stipulate a floor price or a price band and leave it to market forces to determine the final price (price discovery through book building process). How does one come to know about the issues on offer? And from where can I get copies of the draft offer document? SEBI issues press releases every week regarding the draft offer documents received and observations issued during the period. The draft offer documents are put up on the website under Reports/Documents section. The final offer documents that are filed with SEBI/ROC are also put up for information under the same section. Copies of the draft offer documents in hard copy form may be obtained from the office of on a payment of Rs.100 or from SES, LMs etc. The soft copies can be downloaded from the SEBI website under Reports/Documents section. Some LMs also make it available on their webisties for download. The final offer documents that are filed with SEBI/ROC can also be downloaded from the same section of the website. Who is eligible to be a BRLM? A Merchant banker possessing a valid SEBI registration in accordance with the SEBI (Merchant Bankers) Regulations, 1992 is eligible to act as a Book Running Lead Manager to an issue. What are the relevant regulations and where do I find them? The SEBI Manual is SEBI authorized publication that is a comprehensive databank of all relevant Acts, Rules, Regulations and Guidelines that are related to the functioning of the Board. The details pertaining to the Acts, Rules, Regulations, Guidelines and Circulars are placed on the SEBI website under the "Legal Framework" section. The periodic updates are uploaded onto the SEBI website regularly. Will SEBI answer my queries online in case of doubts and clarifications? The "Feedback" section on the SEBI website has a provision for the visitors to the site to ask questions on clarifications on smaller issues pertaining to the availability of information and a facility for users to provide feedback on the same. However, if the queries are legalistic and deep in nature, they are to be referred to SEBI under the SEBI (informal Guidance) Scheme, 2003.

Secondary Market
Section 3 of SEBI Act protects the interests of the investors in securities and also promotes the development of, and regulates, the securities market and related matters. The following are the financial products/instruments which the secondary market deals with Equity Shares

Rights Issue/ Rights Shares Bonus Shares Preferred Stock/ Preference shares Cumulative Preference Shares Cumulative Convertible Preference Shares Participating Preference Share Bond Zero Coupon Bond Convertible Bond Debentures Commercial Paper Coupons Treasury Bills

FAQs on Secondary Market What is EDIFAR? In July 2002 SEBI launched Electronic Data Information Filing and Retrieval System (EDIFAR) in association with National Informatics Center (NIC) to facilitate filing of certain material information/ documents/statements by the listed companies on line in the EDIFAR web site - www.sebiedifar.nic.in. What is a Central Listing Authority? The Central Listing Authority (CLA) is set up to address the issue of multiple listing of the same security and to bring about uniformity in the due diligence exercise in scrutinizing all listing applications on any stock exchanges. The functions of CLA as enumerated in SEBI (Central Listing Authority) Regulations, 2003 include:

processing the application made by any body corporate, mutual fund or collective investment scheme for the letter of recommendation to get listed at the stock exchange, making recommendations as to listing conditions, and any other functions that may be specified by the SEBI Board from time to time.

What is the exit opportunity available for investors in case a company gets delisted? SEBI (Delisting of Securities) Guidelines, 2003 provide an exit mechanism, whereby the exit price for voluntary delisting of securities is determined by the promoter of the concerned company which desires to get delisted, in accordance to book building process. The offer price has a floor price ,which is average of 26 weeks average of traded price quoted on the stock exchange where the shares of the company are most frequently traded preceding 26 weeks from the date public announcement is made. There is no ceiling on the maximum price. For infrequently traded securities, the offer price is as per Regulation20 (5) of SEBI (Substantial Acquisition and Takeover) Regulations. Regarding this, infrequently traded securities is determined in the manner as provided in Regulation 20 (5) of SEBI (Substantial Acquisition and Takeover) Regulations. What is demutualisation of stock exchanges? Demutualisation refers to the transition process of an exchange from a "mutually-owned" association to a company "owned by shareholders". In other words, transforming the legal structure of an exchange from

a mutual form to a business corporation form is referred to as demutualisation. The above, in effect means that after demutualisation, the ownership, the management and the trading rights at the exchange are segregated from one another. How is a demutualised exchange different from a mutual exchange? The three functions of ownership, management and trading are intervened into a single Group in a mutual exchange. The broker members of the exchange over here are both the owners and the traders on the exchange and they further manage the exchange as well. A demutualised exchange has all these three functions clearly segregated. Currently are there any demutualised stock exchanges in India? Yes currently there are two stock exchanges in India The National Stock Exchange (NSE) Over the Counter Exchange of India (OTCEI)

These are not only corporatised but also demutualised with segregation of ownership and trading rights of members. What steps have been taken by SEBI to give a head start to the process of demutualisation in India? SEBI had formed a Group on Corporatisation and Demutualisation of Stock Exchanges under the Chairmanship of Justice M H Kania, former Chief Justice of India, for advising SEBI on corporatisation and demutualisation of exchanges and to recommend the steps that need to be taken to implement the same. The Group submitted its Report to SEBI on August 28, 2002. SEBI has taken up with Central Government to amend the SC( R) A to effect Corporatisation and Demutualization . What is the traditional structure of the stock exchanges in India? According to legal structure, the stock exchanges in India could be segregated into 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 Bangalore Bhubaneswar Calcutta Cochin Coimbatore Delhi Gauhati Hyderabad Interconnected SE Jaipur Ludhiana Madras Magadh

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

Managalore 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. What is meant by corporatisation of stock exchanges? Corporatisation of Stock Exchanges is the process of converting the organizational structure of the stock exchange from a non-corporate structure to a corporate structure. Traditionally, some of the stock exchanges in India were established as "Association of persons", like BSE, ASE and MPSE. Corporatisation of these exchanges is the process of converting them into incorporated Companies. What recourses are available to me for redressing my grievances?

Investor Grievance Redressal Cell (IGG) Arbitration Court of Law

What happens if I do not get my money or share on the due date? You can file a complaint with the respective stock exchange. The exchange is required to resolve the complaints. To resolve the dispute, the complainant can also resort arbitration as provided on the reverse of contract note /purchase or sale note. However, if the complaint is not addressed by the Stock Exchanges or is unduly delayed, then the complaints along with supporting documents may be forwarded to Secondary Market Department of SEBI. Your complaint would be followed up with the exchanges for expeditious redressal. In case of complaint against a sub broker, the complaint may be forwarded to the concerned broker with whom the sub broker is affiliated for redressal. What is the maximum brokerage that a broker/sub broker can charge? 1.5% of the value mentioned in the respective purchase or sale note. How do I know whether my order is placed? Unique Order Code Number is assigned by Stock Exchanges to each transaction, which is intimated by broker to his client and once the order is executed, this order code number is printed on the contract note. The broker member also maintains the record of time when the client has placed order and reflect the same in the contract note along with the time of execution of the order.

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. The general power of superintendence and direction over AMC is vested with the trustees. 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 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 is applicable only to prospective investments by the MFs. For original investments, the offer documents has to be amended to make investors aware of loads at the time of investments. Can a mutual fund change the asset allocation while deploying funds of investors? Considering the market trends, any prudent fund managers can change the asset allocation i.e. he can invest higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed in the offer document. It can be done on a short term basis on defensive considerations i.e. to protect the NAV. Hence the fund managers are allowed certain flexibility in altering the asset allocation considering the interest of the investors. In case the mutual fund wants to change the asset allocation on a permanent basis, they are required to inform the unitholders and giving them option to exit the scheme at prevailing NAV without any load. How long will it take for transfer of units after purchase from stock markets in case of close-ended schemes? According to SEBI Regulations, transfer of units is required to be done within thirty days from the date of lodgment of certificates with the mutual fund. Can a mutual fund change the nature of the scheme from the one specified in the offer document? Yes. However, no change in the nature or terms of the scheme, known as fundamental attributes of the scheme e.g.structure, investment pattern, etc. can be carried out unless a written communication is sent to each unitholder and an advertisement is given in one English daily having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. The unitholders have the right to exit the scheme at the prevailing NAV without any exit load if they do not want to continue with the scheme. The mutual funds are also required to follow similar procedure while converting the scheme form close-ended to open-ended scheme and in case of change in sponsor. If mutual fund scheme is wound up, what happens to money invested? In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after adjustment of expenses. Unitholders are entitled to receive a report on winding up from the mutual funds which gives all necessary details. How can the investors redress their complaints? Investors would find the name of contact person in the offer document of the mutual fund scheme whom they may approach in case of any query, complaints or grievances. Trustees of a mutual fund monitor the activities of the mutual fund. The names of the directors of asset management company and trustees are also given in the offer documents. Investors can also approach SEBI for redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up with them till the matter is resolved. Investors may send their complaints to: Securities and Exchange Board of India Mutual Funds Department Mittal Court 'B' wing, First Floor, 224, Nariman Point, Mumbai - 400 021. Phone: 2850451-56, 2880962-70 What is the procedure for registering a mutual fund with SEBI ? An applicant proposing to sponsor a mutual fund in India must apply in Form A with a fee of Rs.25,000. The application is examined and once the sponsor satisfies certain conditions such as being in the

financial services business and possessing positive net worth for the last five years, having net profit in three out of the last five years and possessing the general reputation of fairness and integrity in all business transactions, it is required to complete the remaining formalities for setting up a mutual fund. These include inter alia, executing the trust deed and investment management agreement, setting up a trustee company/board of trustees comprising two- thirds independent trustees, incorporating the asset management company (AMC), contributing to at least 40% of the net worth of the AMC and appointing a custodian. Upon satisfying these conditions, the registration certificate is issued subject to the payment of registration fees of Rs.25.00 lacs For details, see the SEBI (Mutual Funds) Regulations, 1996. What is the procedure for redressal of investor grievances? When investors send complaints to SEBI, SEBI takes up the matter with the concerned mutual funds and follows up with them till they are resolved.

Takeover
Imposing of curbs on off-market deals.

1. Upto a threshold level of 5 per cent, off-market deals to be allowed.

2. Between 5 per cent and 15 per cent, all deals to be made only through the stock market. Otherwise, open offer will be attracted.

3. Exception : the "preferential allotment" route with approval from shareholders.

Reducing the time limit for completion of the open offer from 4 months at present to 3 months. Putting restrictions on the sale of shares by the acquirer during the open offer period. Independant comment to be ginven by the board of directors to the shareholders of a target company regarding its future plans. Merchant banker to stop dealing in the shares of the target company, following his appointment as manager to the offer. Also to disclose its shareholding in the offer document.

What is meant by Takeovers & Substantial acquisition of shares? When "acquirer" takes the control of the "target company", it is termed as Takeover. When it acquires "substantial quantity of shares or voting rights" of the Target Company, it results into substantial acquisition of shares. What is a Target company? A Target company is a listed company whose shares are listed on any stock exchange and whose shares or voting rights are acquired/ being acquired or whose control is taken over/being taken over by an acquirer. Who is an Acquirer? An Acquirer includes persons acting in concert (PAC) with him i.e. any individual/company/any other legal entity which intends to acquire or acquires substantial quantity of shares or voting rights of target company or acquires or agrees to acquire control over the target company. How is "control" defined? Control is the right to appoint either directly or indirectly or by virtue of agreements or in any other manner majority of directors on the Board of the target company or to control management or policy decisions affecting the target company. However, in case there are two or more persons in control over the target company the cesser of any one of such persons from such control shall not be deemed to be a change in control of management nor shall any change in the nature and quantum of control amongst them constitute change in control of management provided this transfer is done in terms of Reg. 3(1)(e). Also if consequent upon change in control of the target company in accordance with regulation 3, the control acquired is equal to or less than the control exercised by person (s) prior to such acquisition of control,

such control shall not be deemed to be a change in control. Can Acquirer make an offer for less than 20% of shares? No. Who is required to make a Public Announcement and when is the Public Announcement required to be made? The Acquirer appoints a Merchant Banker (MB) who has been registered with SEBI before making a PA . PA is required to be made through the said MB. The acquirer is required to make the P.A within 4 working days of the entering into an agreement to acquire shares or deciding to acquire shares/ voting rights of target company or after any such change or changes as would result in change in control over the target company. In case of indirect acquisition or change in control, the PA is made by the acquirer within 3 months of consummation of such acquisition or change in control or restructuring of the parent or the company holding shares of or control over the target company. The offer price in these cases is determined with reference to the date of the public announcement for the parent company and the date of the public announcement for acquisition of shares of the target company, whichever is higher, in accordance with the parameters mentioned in the Takeover Regulations. What documents are to be filed with SEBI after making a P.A. and when are these documents to be filed ? A copy (hard and soft) of the PA are required to be submitted to SEBI simultaneously with the publication of the same in the newspapers. A draft letter of offer is required to be filed with SEBI within 14 days from the date of Public Announcement alongwith a filing fee of Rs.50,000/- per letter of offer (payable by Banker's Cheque / Demand Draft) A due diligence certificate as well as registration details as per SEBI circular no. RMB (G1) series dated June 26, 1997 are also required to be filed alongwith the draft letter of offer. What happens once SEBI gives comments on the draft letter of offer? The MB will incorporate in the letter of offer the comments made by SEBI and send it within 45 days from the date of PA the letter of offer alongwith the blank acceptance form , to all the shareholders whose names appear in the register of the company on the Specified Date. The offer remains open for 30 days. The shareholders sends their Share certificate(s) / related documents to registrar or Merchant banker as specified in PA and letter of offer. The pays consideration to all those shareholders whose shares are accepted under the offer, within 30 days from the closure of offer. Can an acquirer withdraw the offer once made? No, the offer once made can not be withdrawn except in the undermentioned circumstances: Statutory approval(s) required have been refused; The sole acquirer being a natural person has died; Such circumstances as in the opinion of the Board merits withdrawal.

What are the safeguards incorporated in the takeover process so as to ensure that shareholders get their payments under the offer/ receive back their share certificates? The acquirer has to open an escrow account before making the Public Announcement, in the form of cash deposited with a scheduled commercial bank or bank guarantee in favour of the Merchant Banker or deposit of acceptable securities with appropriate margin with the Merchant Banker. The Merchant Banker is also required to confirm the firms financial arrangements. If the acquirer fails to make the payment then the MB has a right to forfeit the escrow account and distribute the proceeds in the following way. 1/3 of amount to target company 1/3 to regional SEs, for credit to investor protection fund etc. 1/3 to be distributed on pro rata basis among the shareholders who have accepted the offer.

The Merchant Banker is sends back the rejected documents which are kept in the custody of the Registrar / Merchant Banker to the shareholder through Registered Post. Besides forfeiture of escrow account, SEBI can also initiate separate action against the acquirer which may include prosecution / barring the acquirer from entering the capital market for a specified period etc. Which are those acquisitions/ transactions where reporting to SEBI is mandatory? Reporting is mandatory according to the Regulation 3(4) in respect of acquisitions arising out of firm allotment in public issues, rights issues, inter-se transfer amongst group companies, relatives, promoters, acquirer and PACs, Indian promoters and foreign collaborators and transfer of shares from state level Financial Institutions to co-promoters of company pursuant to the agreement. What is the time frame to submit such report and procedure fee thereof? The report is submitted to SEBI within 21 days from the date of acquisition / allotment with a fee of Rs.10,000/- per report.

Depositories And Custodians

There are two Depositories and approximately 390 Depository Participants (DP) are registered with SEBI at present. The two Depositories are: National Securities Depository Limited Central Depository Services (I) Limited 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.; Reduction in paperwork involved in transfer of securities; Reduction in the cost of transaction, No odd lot problem, even one share can be sold; 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; Transmission of securities is done by DP eliminating correspondence with companies; Credited automatically into demat account of shares, arising out-of bonus or split or consolidation or merger etc.

The benefits of availing Depository Services are as follows:

Opening of an account with any of the depository Participant of any depository is required to avail the services.

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 give 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.

Buy Back of Securities

A company buy back its shares in any one of the undermentioned 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 77 A of Companies Act, 1956. From the existing shareholders on a proportionate basis through the tender offer; From open market through: Book building process Stock exchange,

From odd lot holders.

The listed companies requires intimation to the stock exchange of general meetings and resolutions passed thereof. The informations 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.

Legal Framework
Acts
May 28, 2007 Securities Contracts (Regulation) Amendment Act, 2007

Sep 20, 1995

The Depositories Act, 1996 - No. 22 of 1996

Jan 30, 1992

Securities and Exchange Board of India Act

Feb 16, 1957

The Securities Contract (Regulations) Act 1956

SEBIs Time Line Benchmark

The timelines benchmarks mentioned below is the 'working days' except as otherwise stated. The counting starts from the next day. The time taken by external agencies is not included in the indicated timeline. Departments Activities Fresh registration of depository/depository participants/custodians. Renewal of registration/ cancellation thro surrender of depository/depository participants/custodians. Activities Fresh registration Renewal of registration Activities Fresh registration Depositories And Custodians Division 30 days -

30 days -

Foreign Institutional Investors Division FIIs - 13 days. Sub-account - 3 days. FIIs - 5 days. Sub-account - 3 days. Collective Investment Schemes Division 21 Days.

Renewal of registration/ cancellation. 21 Days. Observations on the offer documents. Activities Fresh registration - Credit Rating Agency Fresh registration - Approved intermediary under Stock Lending Scheme Fresh registration - Brokers Fresh registration - Sub- Brokers Rule 4 ( c ) approvals for brokers 21 days Secondary Market Department 21 days 21 days

30 days 30 days 30 days

Cancellation/surrender of broker /sub 30 days brokers Activities Fresh registration Investor Grievances And Guidance Division Investors associations - 21 days

Renewal of registraion/ cancellation. Processing of applications for release of 1% deposit from stock exchanges Processing of payments to investor associations Activities Approval for Trustees of Mutual Funds Applications for foreign securities / ADRs/GD Rs Fresh registration

Investors associations - 21 days 15 days

21 days Mutual Funds And Venture Capital Dept. 7 days 7 days 21 days

Change in controlling interest / 21 days conversion from close ended to open ended schemes Observations on the offer documents. Activities Fresh registration of intermediaries 21 days Primary Market Department 21 days

Renewal of registration/ cancellation. 21 days Observations on the offer documents. Listing related issues ( Preferential offers, exemption from Rule 19(2)(b) etc) Activities Observations on the offer documents. 21 days from the date of filing with SEBI. 21 days

Takeovers Division 21 days from the date of filing with SEBI

Disposal of an application made u/r 4 60 days (2) Examination of Complaints on alleged violations Disposal of a report submitted u/r 3(4) Activities Investor Complaints. 20 days 20 days All Divisions Investor complaints which are redressable and fall within the jurisdiction of SEBI would be taken up by SEBI within 7 days and followed up vigorously.The complaints which relate to matters falling within the juirisdiction of SEBI should only be taken up with SEBI at the appropriate offices of SEBI as given in the Annexure

NSE
The National Stock Exchange (NSE), located in Bombay, is India's first debt market. It was set up in 1993 to encouragestock exchange reform through system modernization and competition. It opened for trading in mid-1994. It was recently accorded recognition as a stock exchange by the Department of Company Affairs. The instruments traded are, treasury bills, government security and bonds issued by public sector companies. The number of members trading on the exchange has been on a steady increase, helping integrate the national market and providing a modern system with a complete audit trail of all transactions. Membership

1026 trading members on the Capital Market segment, of which around 86% account for corporates and the remaining individuals and firms. 113 trading members on the Wholesale Debt Market segment, all of which account for corporates. (Out of these 113 trading members, 106 are members of the Capital Market segment also and are included in the 1026 members indicated above).

Number of Companies

On the Capital Market segment, 600 securities are listed and 762 securities are permitted to trade as of December 31st, 1997. On the Wholesale Debt Market segment, 470 securities are listed and 369 securities are permitted to trade as of December 31st, 1997. Of the 470 securities listed, 267 are Government Securities, T-Bills and the balance account for other securities.

Capital Market Operations

NSE is working to increase the capacity of the trading system from the present 4,00,000 trades per day to more than 10,00,000 trades per day. The average daily numbers of trades have gone up from over 893 trades in November-94 to over 1,48,783 trades in November 97. On August 7, 97 the number of trades reached a record high of 2,36,411 which makes NSE one of the largest stock exchanges in the world. Average daily traded value has increased from Rs.7 crores in November-94 to more than Rs. 1480 crores in December-97 with a high of Rs.3,080.61 crores recorded on 26th June-97. Number of shares traded has increased from 76.10 lakhs in November-94 to 11,148.21 lakhs in December-97.

Net traded value has increased from Rs.125 crores in November -94 to Rs. 32,549 crores in December-97. Delivered value (settlement wise) has increased from Rs.60 crores in November -94 to Rs.5,008 crores in December -97. Number of shares traded (depository segment) has increased from 200 shares in December -96 to 1,19,102 shares in December-97. Net traded value (depository segment) has increased from Rs.0.43 lakhs in December -96 to Rs.185.44 lakhs in December-97. Market share of cities other than five metros (Mumbai, Delhi, Calcutta, Chennai & Ahmedabad) which was about 16% in first quarter of 1996 grew to as high as 24% during the last quarter of 1997. The ratio of contribution to turnover from Non Stock Exchange centres to Stock Exchange centres has risen from 0.36% in first quarter (Jan to Mar) of 1996 to over 10% in fourth quarter of 1997. The market capitalisation of companies has increased from Rs. 292637 crores in November'94 to Rs. 4571663 crores in February'98.

Clearing & Settlement

Completed 170 settlements successfully without any delay or postponement as on February 28, 1998. Value of shares handled by the Clearing house per week has increased from Rs. 30 crores in November-94 to over Rs.1042 crores per week in December-97. The highest value of shares handled during the period was more than Rs. 2251.40 crores. Inter-Region Clearing : NSCCL has Regional Clearing Centres at Delhi, Calcutta, Chennai and a Central Clearing Centre at Mumbai. Members have the option of delivering/receiving the securities at a clearing centre chosen by them.

Bombay Stock Exchange Of the 22 stock exchanges in the country, Mumbai's (earlier known as Bombay), Bombay Stock Exchange is the largest, with over 6,000 stocks listed. The BSE accounts for over two thirds of the total trading volume in the country. Established in 1875, the exchange is also the oldest in Asia. Among the twenty-two Stock Exchanges recognised by the Government of India under the Securities Contracts (Regulation) Act, 1956, it was the first one to be recognised and it is the only one that had the privilege of getting permanent recognition ab-initio. Approximately 70,000 deals are executed on a daily basis, giving it one of the highest per hour rates of trading in the world. There are around 3,500 companies in the country which are listed and have a serious trading volume. The market capitalization of the BSE is Rs.5 trillion. The BSE `Sensex' is a widely used market index for the BSE. The main aims and objectives of the BSE is to provide a market place for the purchase and sale of security evidencing the ownership of business property or of a public or business debt. It aims to promote, develop and maintain a well regulated market for dealing in securities and to safeguard the interest of members and the investing public having dealings on the Exchange. It helps industrial development of the country through efficient resource mobilization. To establish and promote honourable and just practices in securities transactions

BSE Sensex The BSE Sensex is a value-weighted index composed of 30 companies with the base April 1979 = 100. It has grown by more than four times from January 1990 till date.The set of companies in the index is essentially fixed. These companies account for around one-fifth of the market capitalization of the BSE. We can use information from April 1979 onwards in estimating the long-run rate of return on the BSE Sensex and that comes to 0.52% per week (continuously compounded) with a standard deviation of 3.67%. This translates to 27% per annum, which translates to roughly 18% per annum after compensating for inflation.