ROLES

&

FUNCTIONS OF

SEBI

www.sebi.gov.in

W HY DO WE NEED A REGULATORY BODY FOR I NVESTOR PROTECTION IN I NDIA ?

India is an ` Informationally ' weak market

Boosting capital market demands restoring the confidence of investors who have been beaten down by repeated scams

Progressively softening interest rates and an under performing economy have eroded investment options, and require enhanced investing skills.

C ONTENTS
Establishment

Organizations Structure
Current Board Members Objectives of SEBI Functions of SEBI Powers of SEBI

Various Departments & their functions

Few Cases

E STABLISHMENT
It was in the 1980s that India witnessed a phenomenal growth and development of the securities market. During the phase, India was entering into the period of liberalization and decontrol which was to accelerate and gather momentum in the 1990s. In order to sustain the growth of the market and form the growing awareness and interest in investment opportunities.

SECURITIES AND EXCHANGE BOARD OF INDIA

. The establishment of the securities and exchange board of india(SEBI) was a land mark government measure to monitor and regulate capital market activities and to promote healhty development of the market.

SEBI was set up as a non-statutory body. Securities and Exchange Board of India (SEBI) is a autonomous body created by the Government of India in 1988 and given statutory form in 1992 with the SEBI Act 1992 It took almost four years for the government to bring about a separate legislation in the name of securities and exchange board of India act, 1992 conferring statutory powers.

E STABLISHMENT
The regulatory function should have a Sharpe objective of fostering fair competition and correcting market deficiencies and irregularities with a view to bringing about healthy growth of the sector and the protection of participants. It is autonomous and fragmentation of regulating agencies and laws should be avoided.

The practices of regulations as well as the organization of the regulatory body are much more so.

E STABLISHMENT
On April 12, 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. INTRODUCTION The introduction of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as ..to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto

O RGANIZATION S S TRUCTURE
8

Management of the Board

The Board shall consist of the following members, namely:a)
b)

A Chairman
Two members, One from amongst the officials of the Ministry of the Central Government dealing with Finance and second from administration of the Companies Act, 1956. One member from amongst the officials of the Reserve Bank of India. Five other members of whom at least three shall be the whole-time members to be appointed by the central Government .

c)

d)

C URRENT

BOARD MEMBERS

10

C URRENT BOARD MEMBERS CONTINUE ..

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C URRENT BOARD MEMBERS CONTINUE ..

N EED FOR REGULATION BY SEBI

O BJECTIVES

OF

SEBI

The primary objective of SEBI is to promote healthy and orderly growth of the securities market and secure investor protection. The objectives of SEBI are as follows:

To protect the interest of investors, so that, there is a steady flow of savings into the capital market.
To regulate the securities market and ensure fair practices. To promote efficient services by brokers, merchant bankers, and other intermediaries, so that, they become competitive and professional.

14

F UNCTIONS

OF

SEBI

The SEBI Act, 1992 has entrusted with two functions, they are

Regulatory functions And Developmental functions

R EGULATORY F UNCTIONS

Regulation of stock exchange and self regulatory organizations.

Registration and regulation of stock brokers, sub-brokers, Registrars to all issues, merchant bankers, underwriters, portfolio managers etc. Registration and regulation of the working of collective investment schemes including mutual funds.

Prohibition of fraudulent and unfair trade practices relating to securities market.

Prohibition of insider trading

Regulating substantial acquisition of shares and takeover of companies.

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D EVELOPMENTAL F UNCTIONS

Promoting investors education

Training of intermediaries
Conducting research and publishing information useful to all market participants. Promotion of fair practices Promotion of self regulatory organizations

J OB E NTRUSTED

TO

SEBI

SEBI shall create a proper and conductive atmosphere require for raising money from the capital market.

SEBI shall educate investors and make them aware of their rights in clear and specific terms.
SEBI shall create a proper investment climate and enable the corporate sector to raise industrial securities easily, efficiently and at affordable minimum cost.

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J OB E NTRUSTED

TO

SEBI

SEBI shall develop a proper infrastructure so that the market automatically facilitates expansion and growth of business to middlemen like brokers, jobbers, commercial banks, merchant bankers, mutual funds, etc. SEBI shall make more effective the law in the existing status as far as they relate to the industrial securities, mutual finds, investments in units, LIC savings plan, Chit-fund companies and securities issued by housing/ industrial and corporations with the purpose of making investment in housing/ industrial projects.

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J OB E NTRUSTED

TO

SEBI

SEBI shall create the framework for more open, orderly and unprejudiced conduct in relation to takeovers and mergers in the corporate sector to ensure fair and equal treatment to all the security holders, and to facilitate such takeovers and mergers.

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P OWERS

OF

SEBI

Power to call periodical returns from recognized stock exchanges.

Power to compel listing of securities by public companies.

Power to levy fees or other charges for carrying out the purposes of regulation.
Power to call information or explanation from recognized stock exchanges or their members. Power to grant approval recognized stock exchanges. to bye-laws of

21

P OWERS

OF

SEBI

CONTINUE ..

Power to control and regulate stock exchanges. Power to direct enquiries to be made in relation to affairs of stock exchanges or their members. Power to make or amend bye-laws of recognized stock exchanges. Power to grant registration to market intermediaries. Power to declare applicability of Section 17 of the Securities Contract (Regulation) Act 1956, in any State or area, to grant licenses to dealers in securities.

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G UIDELINES

TO I NVESTORS

Deal with a registered member of the stock exchange. Insist that all your deals are done in the trading ring. Give specific orders to buy or sell within the fixed price limits and/or time periods within which orders have to be executed. Insist on contract notes to be passed on to you on the dates, when the orders are executed.

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G UIDELINES

TO I NVESTORS

Make sure that your deal is registered with the stock exchange in a Trade book. Collect a settlement table from the stock exchange mentioning the pay-in and pay-out days. Keep separate records of dealings in specified shares and non-specified share. Execute period settlements of dues and delivery of shares to avoid accumulation of transactions.

24

G UIDELINES

TO I NVESTORS

Insist on delivery. Ensure that shares bought are transferred in your name before the companys book closure date. Complain if the broker does not deliver the shares bought in your name.

Do not sell shares that are not transferred in your name after the book closure as these are not valid in the market.

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G UIDELINES

TO I NVESTORS

Do not sell/deal in shares where any one of the holders has passed away. Do not expect the money for share to come immediately. Unless you have a special arrangement with the broker, do not expect the adjustment of purchases and sales against one another. You have to complain to the Grievance Cell of the stock exchange or the SEBI for any type of delay.

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L EGISLATIVE P ROTECTION TO I NVESTORS

Relief Provided Payment of interest for the delayed period beyond 30 days from the closure of issue at 15% As per listing agreement, the time limit is only one month from the lodgement of shares. Transfer can be refused only for specified and valid reasons given in the act and not otherwise. Need for consolidation of odd lots and ensuring the issue of shares.

Complaints Delay in refund of excess application money or allotment letters Delay in transfer of shares Refusal to transfer shares Problem of odd lots

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L EGISLATIVE P ROTECTION TO I NVESTORS

Relief Provided Purchases or acquisition of shares beyond 5% to be notified to the stock exchange. The investors have to guard themselves regarding the price and their investment. Complain to the company law board.

Complaints Takeover bids

Insider trading

Delay and non-payment of interest/ fixed deposits by companies

Delay and non-payment of dues Complain to the Grievance Cell of or non-delivery of shares, etc. by the concerned Stock Exchange brokers and to SEBI

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L IMITATIONS

Limited transparency Lack of professionalism Long and complex procedures Lack of serious approach to investors needs

Weak legislation
Too mechanical procedures

S OME

COMMON TERMS

Insider trading is the trading of a public company's stock or other securities (such as bonds or stock options) by individuals with access to non-public information about the company.

When the insider buys or sells based upon company owned information, he is violating his obligation to the shareholders. corporate insiders are defined as a company's officers, directors and any beneficial owners of more than 10% of a class of the company's equity securities.

R ECENT C ASE LAWS

Nokia Finance International Finance P. Ltd. Vs SEBI In exercise of the powers conferred under section 15-I(2) of the SEBI Act, 1992, read with Rule 5 of SEBI Adjudication Rules, respondent impose a penalty of Rs. 18,00,000/- on the basis of unjust enrichment and disproportionate gain accrued to the entity. The appellant had been given more than one opportunity (three summonses) and a personal hearing to submit the required information which was submitted only partially. It is a serious case of excess dematerialized shares than the authorized capital being traded in the market.

The appellant could have availed of the opportunity of submitting all the required information and come clean, but he failed to do so. Decided that there is no violation of natural justice in this particular case and the penalty has been imposed as per the regulations. The impugned order indicates that the various factors to be reckoned under Section 15(J) of SEBI Act, 1992 were duly considered before deciding on the quantum of penalty imposed. In view of the fact that appellant has failed to give the necessary information to the respondent for conducting investigation into a very serious irregularity in the market,

R ECENT C ASE

LAWS

Pavak Securities Ltd. Vs. SEBI: ( 2005) 63 SCL 455

It was held that though the appellant have been found guilty of violation of code of conduct, however, having regard to the fact that in similar cases, SEBI has taken lenient view and ordered minor or less severe penalties, penalty in the matter be reduced from Rs. 150,000 to Rs. 50,000.

15 HA

Applicability
Listed Companies / Intermediaries / Any Other Person Contravention Penalty

Indulgence in any Penalty of Rs. 25 crore or 3 Fraudulent and Unfair Trade times the amount of profits Practices. made out of such practices, whichever is higher.

15 HB

Applicability
Listed Companies / Intermediaries / Any Other Person Contravention Contravention of any of the provision of the Act where no specific penalty is specified Penalty penalty which may be extend to Rs. 1 Crore

SECURITIES APPELLATE TRIBUNAL, MUMBAI Continental Device India Ltd.v.Securities and Exchange Board of India

Section 15H SEBI Act, 1992, read with regulation 3(1)(c)(ii) of the SEBI(SAST) Reg, 1997 - Penalty - For nondisclosure of acquisition of shares and takeovers SEBI, holding that appellant-company allotted certain shares on preferential basis to promoters without disclosing identity of proposing allottees, consequential changes in voting rights, changes in board of directors and shareholding pattern, imposed penalty of Rs. 1 lakh on appellant-company

However, from material on record, it appeared that it had disclosed all facts in boards resolution to SEBI and also informed same details at annual general meeting to shareholders and that only violation was that identity of class of persons was not fully disclosed

Whether since most of details were correctly disclosed to SEBI; there was no loss to shareholders; management of company had not changed after issue; and issue was listed in two stock exchanges, misconduct was of technical nature and, therefore, fine was to be reduced from Rs. 1 lakh to Rs. 25,000 - Held, yes

C ASE L AW 15G
SECURITIES APPELLATE TRIBUNAL, MUMBAI S. Ramesh and S. Padmalata Asis Bhaumik v. Securities and Exchange Board of India

Section 15G SEBI Act, 1992, read with reg 3 of the SEBI (Prohibition of Insider Trading) Regulations, 1992 Penalty - For insider trading

Appellants, being company secretary and executive director of a company, had bought shares of that company on behalf of their family members on basis of unpublished price sensitive information, which was not known to general public but to appellants as employees of company

They, later on, tendered said shares in open offer announced by acquirer at higher price, thereby making an unlawful gain - SEBI held appellants guilty of misconduct of insider trading and imposed penalty Appellants admitted that they had made a mistake and were willing to pay back profit earned by sale of shares

Whether any violation of provision relating to inside trading will make a person guilty of being an inside trader - Held, yes - Whether however, taking into account said financial position of both parties, their admission and their offer to pay back profit, which they had earned by sale of said shares, penalty was to be reduced - Held, yes

SECURITIES APPELLATE TRIBUNAL, MUMBAI Subhash A. Gandhi v.SEBI

Section 15A, read with, reg 7 of the S EBI (SAST) Reg, 1997 - Penalty - For failure to furnish information, return, etc. Appellant informed target company about his shareholding exceeding prescribed limit of 5 per cent by .03 per cent but did not inform about aggregate shareholding and exact percentage of shareholding in company in desired format Hence, SEBI imposed penalty of Rs. 10,000 on appellant for a delay in submitting information's in prescribed format as prescribed under regulation 7 Whether since appellant had complied with part of requirements and had exceeded limit only by .03 per cent, this was a case for taking a lenient view and consequently, penalty could be reduced to Rs. 1,000 - Held yes

15 A

Applicability
Listed Companies / Intermediaries / Any other person
Contravention Penalty

Failure to furnish any document, return or report to the Board

File any return or furnish any information, books or other documents within the time specified therefore in the regulations To maintain books of account or records Penalty of Rs.1 Lakh Per Day during which such failure continues or Rs. 1 Crore, whichever is less

Roopram Sharma v. SEBI

Facts : Appellant, a company-secretary in practice, was held guilty of violating terms of issue of prospectus, circulars and SEBI guidelines on disclosure and protection of investors by SEBI in the public issue of a company with which he was alleged to be associated Consequently, invoking section 11B respondent directed that appellant be prohibited from accessing capital market and dealing in securities market in any capacity for a period of three years from date of order

41

Appellant challenged said prohibition contending that alleged violation had taken place after he vacated office of director. Further, he challenged validity of direction issued against him as tantamounting to imposition of penalty which was beyond scope and purview of section 11B
Whether SEBI is competent to issue a direction under section 11B which tantamounts to imposition of penalty Held, no

Integrated Amusement Ltd. v. SEBI

Facts: Company raised certain amount towards share capital by public issue. Having come to know that appellant had not utilised funds for purpose specified in prospectus, SEBI directed appellant to submit details of funds so utilised but appellant failed to do so.
-

SEBI declared appellant as vanishing company and issued directions debarring appellant from associating with any capital market activity and also prohibiting them from accessing capital market for a certain period

THE STOCK EXCHANGE

Share = Stocks
Stock is a piece of ownership of a company. Ownership of such a portion gives the holder the right to receive part of the companys profits and to participate in its management as if you own enough stock you also have some decision-making power within the company. When a company needs to acquire extra money to help grow the business, they can sell some or all of the ownership of the company in the form of stocks. So if you were to buy 100% of a company's stock, you would own the whole company.

Buying stock is a very popular form of investing.

WHAT IS STOCK EXCHANGE?

Definition of Stock Exchange : The securities regulation act of 1956 defined stock exchange as an association , organization , or a individual which is established for for the purpose of assisting , regulating , and controlling business in buying ,selling and dealing in securities. Meaning : This comes under treasury sector ,which provides service to stock brokers & traders to trade stocks ,bonds and securities. Stock exchanges helps the companies to raise their fund. Therefore the companies needs to list themselves in the Stock Exchange and the shares will be issued which is known as equity or a ordinary share and these shareholders are the real owners of the company the Board Of Directors of the Company are elected out of these Equity Shareholders only.

STOCK EXCHANGE: special markets where buyers and sellers are brought together to buy and sell stocks.

Professionals in a hectic activity buying and selling stocks.

The New York Stock Exchange (=The Big Board) is a stock exchange located at 11 Wall Street, New York City. It is the world's largest stock . It provides a means for buyers and sellers to trade shares in companies registered for public trading.

TWO MAJOR STOCK MARKETS

BSE
(BOMBAY STOCT EXCHANGE )

NSE
(NATIONAL STOCK EXCHANGE)

BOMBAY STOCK EXCHANGE

It is oldest and first stock exchange of India established in the year 1875. First it was started under baniyan tree opposite to town hall of Bombay over 22 stock brokers. The top gainer in BSE is 100 companies in that GMR infra is first

NA TIONAL S TOCK EXCHANGE OF INDIA(NSE OR NSEI )

T H E N S E O F I N D I A I S T H E L E A D I N G S TO C K EXCHANGE OF I NDIA, COVERING 3 7 0 CITIES A N D TO W N S I N T H E C O U N T RY. I T WA S E S TA B L I S H E D I N 1 9 9 4 A S A TA X C O M PA N Y. I T WA S E S TA B L I S H E D B Y 2 1 L E A D I N G F I N A N C I A L

Features of NSEI

INSTITUTIONS AND BANKS LIKE THE I D B I , I C I C I , I F C I , L I C , S B I , ETC.

Nation wide coverage i.e., investors from all over country Ringless i.e., it has no ring or trading floor Screen-based trading i.e., trading in this stock exchange is done

electronically. Transparency,i.e.,the use of computer screen for trading makes the dealings in securities transparent. Professionalization in trading, i.e., it brings professionalism in its functions

SPECULATION AND SPECULATOR

SPECULATION : It is the transaction of members to buy or sell securities on stock exchange with a view to make profits to anticipated raise or fall in price of securities. SPECULATOR : The dealer in stock exchange who indulge in speculation are called speculator . They do not take delivery of securities purchased or sold by them , but only pay or rescue the difference between the purchase price and sale price . The different types of speculators are BULL

BEAR
STAG LAME DUCK

BULL {TEJIWALA}

He is speculator who expects the future raise in price of securities he buys the securities to sell them at future date at the higher price. He is called as bull because his activities resembles as a bull , as the bull tends to throw its victims up in the air through its horns. In simple the bull speculator tries to raise the price of securities by placing a big purchase orders.

BEAR {MANDIWALA}
He is speculator who expects future fall in prices , he does an agreement to sell securities at future date at the present market rate . He is called as bear because his altitude resembles with bear , as the bear tends to stamp its victims down to earth through its paws . In simple the bear speculator forces of prices of securities to fall through his activities.

STAG {DEER}
He operates in new issue of market . He is just like a bull speculator . He applies large number of shares in the issue market only by paying , application money , allotment money. He is not a genuine investor because , he sells the alloted securities at the premium and makes profit. In simple he is cautious in his dealings . He creates an artificial rise in prices of new shares and makes profits.

LAME DUCK
He is speculator when the bear operator finds it difficult to deliver the securities to the consumer on a particular day as agreed upon , he struggles as a lame duck in fullfilling his commitment . This happens when the prices do not fall as expected by the bear and the other party is not willing to postpone the settlement to the next period.

M ARKET T IMINGS
Trading on the equities segment takes place on all days of the week (except Saturdays and Sundays and holidays declared by the exchange in advance)

The market timings of the equities segment are:

Normal market open : 9:00 am hours Normal market close : 3:30 pm hours The closing session is held between 15.50 hours and 16.00 hours in NSE and 15.40 hours and 16.00 hours in BSE

T RADING R EQUIRED
Step1 PAN Card Step 2(Demat a/c) Subscribe to a trading account with one of the major online broking houses. Step 3 Now major challenge starts is to learn trading. You can read books, join online charting communities, blogs, membership site or get into a mentorship program. Step 4 Apply your knowledge and start trading.

Offline Trading In offline trading the investor places orders with the stockbroker either verbally (personally or telephonically) or in a written form (fax). This may be because he is not comfortable in accessing the Internet.

Highlights

Trading over the phone

No access to live market watch Absence of online Fund transfer

Online trading Online trading means trading/investing in equities, derivatives, commodities etc through the Internet. It enables the investor to electronically connect (through Internet) to buy or sell stocks, derivatives etc with the other investors. In online trading, one can access a stockbroker's website through an Internetenabled PC and can place orders. Online trading started in February 2000 when a couple of brokers started offering an online trading platform for their customers. Highlights

Streaming quotes Self-execution and instant confirmation Complete control over their trading decisions Can access accounts Online Convenience of trade Wide access to historical charts and past data

W HY S TOCK P RICES R ISES ?

News about company

News about the Country Exchange rate regime Demand & Supply

THE GREAT QUESTION: HOW DO I KNOW WHICH STOCK TO BUY? Checking the technical indicators?

Stocks recommended on TV, experts, newspapers, experts?

Based on rumors? Stocks from big, stable and successful companies?

Choosing randomly?

W HY DO THE PRICES OF SHARE

INCREASE OR DECREASE IN THE MARKET ?

There is one major factor that causes the movement of the market and this is BUYER / BUYERS.
The more buyers for a given security, the higher the price of that security will go, if there are no buyers, the price of the security will drop. Companies can have the greatest product/service in the world but if no one wants to buy, the price of the stock will go no

where and if it does move it will

move down.