Securities and exchange board of India(SEBI)

SEBI

The Government has setup the Securities and Exchange Board of India (SEBI) by a notification of Ministry of Finance issued on 12 April, 1988. SEBI is the apex body for the development and regulation of the stock market in India. The securities and Exchange Board of India has been enacted an Act in the year 1992, till then it was acted as an advisory body.

a. To collect information and advise the government on matters relating to stock and capital market.

b. Licensing and regulation of intermediaries in SE

c. To prepare the legal drafts for regulatory and development role of SEBI

d. To perform any other functions as may be authorized to it by the Central Government.

Objectives of SEBI

The primary objective of SEBI is to promote healthy and orderly growth of the securities market and secure investor protection.

The other objectives are:

a) To protect the interest of investors.

b) To regulate securities market and ensure fair practices.

c) To promote efficient services by brokers, merchant bankers, and other intermediaries.

Functions of SEBI (Sec. 11)

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

Regulatory Function and Developmental Function

a) Regulatory Function:

(i) Regulation of stock exchange.

(ii) Registration and regulation of stock brokers, sub-brokers, Registrars to all issue, merchant bankers etc

(iii) Registration and regulation of the working of mutual funds.

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

(v) Prohibition of insider trading.

(vi) Regulating substantial acquisition of shares and take over of companies.

b) Developmental Function:

(i) Promoting investors education.

(ii) Training of intermediaries.

(iii) Conducting research and publishing information.

(iv) Promotion of fair practices.

(v) Promotion of self regulatory organizations.

Powers of SEBI

1. Power to call periodical returns from recognized stock exchanges.

2. Power to compel listing of securities by public companies.

3. Power to levy fees or other charges for carrying out the purposes of regulation.

4. Power to call information or explanation from recognized stock exchanges or their members.

5. Power to grant approval to bye-laws of recognized stock exchanges.

6. Power to control and regulate stock exchanges.

7. Power to direct enquiries to be made in relation to affairs of stock exchanges or their members.

8. Power to make or amend bye-laws of recognized stock exchanges.

9. Power to grant registration to market intermediaries.

Organisation of SEBI

1. Primary market Department

2. Issue Management and Intermediaries Department

3. Secondary market Department

4. Institutional Investment Department

SEBI Guidelines

1. Guidelines for Primary Market : - A New Company

A new company is one which has not completed 12 months commercial production and doesn’t have audited results or where the promoters do not have a track record. Such companies will have to issue shares only at par.

A new company set up by existing companies with a five year track record of consistent profitability and a contribution of at least 50%in the equity share of new company, it can issue its shares at premium.

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

Existing listed companies will be allowed to raise fresh capital by freely pricing expanded capital.

In the case of composite issues (rights cum public issue) by existing listed companies, differential pricing shall be allowed.

The lock in period for promoters contribution is one year.

2. Guidelines for Public Issue

a. Abridged prospectus

b. Risk factors in the prospectus

c. Objective of the issue and the cost of project

d. Company’s management, past history

e. The collection centers should be at least 30

f. If minimum subscription of 90% has not been received, the entire amount is to be refunded to investors within 120 days

g. The capital issue should be fully paid up within 120 days

h. Underwriting has been made mandatory

3. Guidelines for Secondary Market

Stock Exchanges

Brokers

4. Guidelines for Foreign Institutional Investors (FIIs)

Foreign Institutional Investors have been allowed to invest in all securities traded in primary and secondary markets.

5. Guidelines on Bonus Issues

a. There should be a provision in the Articles of Association of the company for the issue of bonus shares.

b. The bonus issue is made out of free reserves.

c. Reserves created by revaluation of fixed assets are not permitted to be capitalized.

d. The declaration of bonus issues in lieu of dividend is not to be made.

e. Bonus issues are not permitted, unless the existing partly paid shares are fully paid.

6. Guidelines on Right Issues

a. Where composite issues are made by listed companies, they can be issued at different prices.

b. Gaps between the clearance dates of right issues and public issues should not exceed 30 days.

c. Underwriting of right issues is not mandatory.

7. SEBI Guidelines on Underwriters

a. Underwriter should register with SEBI.

b. The certificate of registration is valid for 3 years.

SEBI and Investor Protection

1. The issuing company should provide fair and correct information.

2. Allotment process should be transparent.

3. The draft prospectus of the is scrutinized for full and fair disclosure.

4. No delay in refunds or dispatches of share certificates is allowed.

5. Listing should be made in time.

6. Registration of players in the market.

The other measures initiated by SEBI for the protection of interest of investors are:-

Prohibition of unfair trade practices

Prohibition of Insider Trading

Investor Education