ROLE OF SEBI IN CAPITAL MARKET

Presented by :
GAGANPREET KAUR MBA(TYC)- 3rd semester Roll no :430

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SEBI
(Securities & Exchange Board Of India)

INTRODUCTON
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

BOARD MANAGMENT
The Board shall consist of the following members, namely:a)A Chairman b)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. c) One member from amongst the officials of the Reserve Bank of India. d)Five other members of whom at least three shall be the whole-time members to be appointed by the central Government .

OBJECTIVE OF SEBI
Securities & Exchange Board of India (SEBI) formed under the SEB1 Act, 1992 with the prime objective of 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. Focus being the greater investor protection, SEBI has become a vigilant watch dog.

FUNCTIONS OF SEBI
1) Regulation of stock exchange and self regulatory organizations. 2) Registration and regulation of stock brokers, sub-brokers, Registrars to all issues, merchant bankers, underwriters, portfolio managers etc. 3) Registration and regulation of the working of collective investment schemes including mutual funds. 4) Prohibition of fraudulent and unfair trade practices relating to securities market. 5) Prohibition of insider trading. 6) Regulating substantial acquisition of shares and takeover of companies.

REGULATARY FUNCTIONS

DEVELOPMENT FUNCTIONS

1) Promoting investors education 2) Training of intermediaries 3) Conducting research and publishing information useful to all market participants. 4) Promotion of fair practices 5) Promotion of self regulatory organizations

POWERS 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 to bye-laws of recognized stock exchanges. 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.

SEBI REGULATES.

SEBI regulates

Primary Market

Secondary Market

Mutual Funds

Foreign Institutional Investment

INTRODUCTION TO CAPITAL MARKET

CAPITAL MARKET The capital market is the market for securities, where Companies and governments can raise long-term funds. It is a market in which money is lent for periods longer than a year. A nation's capital market includes such financial institutions as banks, insurance companies, and stock exchanges that channel long-term investment funds to commercial and industrial borrowers. Capital market is classified in to 2 types and they are : Primary market and Secondary market. E.g.: Shares, Debentures, and Loans etc.

GROWTH OF CAPITAL MARKET SEGMENT YEAR WISE

2013-2014

2012-2013 Securities traded is less Companies participating more 2006-2007 Securities traded increased Companies participating increased 2003-2004 Number of securities traded is less Number of companies trading is also less

GROWTH OF SEGMENT
Growth of CM segment 1,600 2000 1500 1000 1,400 1,200
NUMBER OF COMPANIES AVAILABLE FOR TRADING

2500
NUMBER OF SECURITIES TRADED

1,800

1,000
800 600

500
0

400 200 0

Number of securities traded

Number of companies available for trading

PRIMARY MARKET AND SEBI

Measures undertaken by SEBI: Entry norms Promoters contribution Disclosure Book building Allocation of shares Market intermediaries

TYPES OF ISSUES

STATISTICS OF PRIMARY MARKET

Growth of CM segment
2500 1,800

2000

NUMBER OF SECURITIES TRADED

1,400

1,200 1500 1,000

800 1000 600

500

400

200

0 2012-2013 2011-2012 2010-2011 2009-2010 2008-2009 2007-2008 2006-2007 2005-2006 2004-2005 2003-2004 2002-2003 2001-2002 Number of securities traded Number of companies available for trading

NUMBER OF COMPANIES AVAILABLE FOR TRADING

1,600

FINANICIAL YEAR WISE SUCCEED VS FAILED IPOS

120 120

ISSUE SUCCEEDED AND FAILED

100

100
TOTAL NUMBER OF IPO's

80

80

60
40

60
40

20

20

2007

2008

2009

2010

2011

2012
No. of IPOs

2013 *

Issue Succeeded

Issue Failed

FUNDS MOBILIZATION ON EXCHANGE

Particulars
No. of Issues Equity Public Issues IPOs 26 4,871 12 6,289

2011-12
Amount (crore) No. of Issues

2012-13
Amount (crore)

1 FPOs
0 IDR issue Rights Issues QIP* Preferential Allotment Non-Convertible Debentures Public Issue Total 9 241 25,383 66,503 11 6,629 10 2,154 184 22,886

4,578
0 12 7,725 14 209 13,964 42,881

9 256 11,905 82,763

SECONADRY MARKET AND SEBI

Reforms in the secondary market:1. Governing board 2. Infrastructure 3. Settlement & clearing 4. Debt market 5. Price stabilization 6. Delisting 7. Brokers 8. Insider Trading

TRADING VALUE OF SECONADARY MARKET

4,500,000 4,000,000 3,551,038 3,577,412 2,810,893 4,138,024

3,500,000 3,000,000
2,500,000 2,000,000 1,500,000 1,000,000 500,000 0
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13*

2,752,023

2,708,279

1,945,287

Capital market(crores)

SEBI & CENTRAL GOVT

The Central Government has power to issue directions to SEBI Board, supersede the Board, if necessary and to call for returns and reports as and when necessary. The Central Government has also power to give any guideline or to make regulations and rules for SEBI and its operations.

The activities of SEBI are financed by grants from Central Government, in addition to fees, charges etc. collected by SEBI. The fund called SEBI General Fund is set up, to which, all fees, charges and grants are credited. This fund is used to meet the expenses of the Board and to pay salary of staff and members of the body.

FII AND SEBI

Union Govt. allowedForeign Institutional Investors (FIIs) Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs) to enter into both Primary & Secondary market in India through the portfolio investment scheme (PIS), under Liberalized policy regime. Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian companies through the stock exchanges in India. Implications:Affects the sensex movements Determines the market indications Guidelines announced in 1992 In 1993, 12 FIIs got registered At the end of 1996-97, 439 FIIs were registered Can trade in securities of listed companies including OTCEI.

FII AND SEBI

The ceiling for overall investment for FIIs:-

24% of the paid up capital of the Indian company 10% for NRIs/PIOs. 20% of the paid up capital in the case of public sector banks, including the State Bank of India. Modifications in ceilings:The ceiling of 24 % for FII investment can be raised up to sectoral cap/statutory ceiling, subject to the approval of the board and the general body of the company passing a special resolution to that effect. The ceiling of 10 % for NRIs/PIOs can be raised to 24% subject to the approval of the general body of the company passing a resolution to that effect.

RECENT DEVELOPMEMTS IN FIIs

Exemption from attaching copy of RBI approval with each market lots. Allowed to invest in unlisted stocks of any company. Allowed to invest up to 100% in debt instruments. Mandatory to settle transactions thru dematerialized mode for FIIs having securities more than Rs.10 cr. Qualified Foreign Investors permitted to directly invest in equity shares of Indian listed companies

TREND OF FII IN INDIA

900,000.00

Gross purchase/ sales/ net investment

800,000.00 700,000.00 600,000.00 500,000.00 400,000.00 300,000.00 200,000.00 100,000.00 0.00

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jan-13 Feb-13 Mar-13 Apr-13 May-13

-100,000.00

Gross Purchase

Gross sales

Net investment

SENSEX MOVEMENT FROM 2001-2013

SOME RECENT DEVELOPMEMTS IN CAPITAL MARKET FOR INVESTOR PROTECTION

1) Launched SEBI Complaints Redress System (SCORES) to enable
investors register complaints with SEBI . 2) Assured allotment for retail investors in IPOs. 3) Place Circuit Breakers. 4) Intraday Trading Limit

5) Investor Awareness Campaign

ADVANTAGES AND LIMITATIONS

1) 2) 3) Orderly growth of securities market and protects investors. Maintain steady low of savings into capital market. Regulate security market and ensures fair practice by issuers to help them raise resources at minimum cost. Promotes efficient services by brokers, merchant bankers and other intermediaries to make them professional and competitive. Contributes in promoting investor education. SEBI operated to develop the capital market.

ADVANTAGES

4) 5) 6)

LIMITATIONS

1) 2) 3) 4) 5) 6) 7) 8) 9)

No dent on price manipulation. Poor rate of conviction and very few cases of exemplary penal action. No due process for framing/changing regulations. Waking up to trouble spots too late in the day. Ruining a blind eye in bullish market. Implementation of existing disclosure norms inadequate. No warning on US-64, MIPs, collective investment and finance schemes II. Regulatory bias towards corporate sector and large investors. Indications of extraneous pressures, including government. No disclosure norms for mergers, demergers, asset sell-offs, intercorporate transactions.

TWO SCAMS OF CAPITAL MARKET

COMPARITIVE ANALYSIS OF BOTH SCAMS

a
Harshad Mehta Ketan Parekh
Used to buy stock at rock bottom prices and then push it up Self-made man Media Savvy Banks involved in the scam Instruments misused were Ready Forward Deal and Bank Receipts Promoters of Companies were involved Operated through close network of brokers Foreign banks like Citibank, Standard Chartered and ANZ Grindlays were involved SBI suffered Rs. 600 cr loss Played with Old Economy stocks Scam occurred inspite of presence of SEBI

a
Used to buy stock at rock bottom prices and then push it up

Hailed from the family of stock-brokers

Shied away from media Banks involved in the scam Instruments misused were Pay Order and Circular Trading Promoters of Companies were involved Had wider network of brokers FIIs like Credit Suisse, First Boston and JM Morgan Stanley were involved Bank of India suffered Rs. 130 cr loss Played with New Economy stocks

Scam occurred inspite of presence of SEBI

Sources: http://flame.org.in/knowledgecenter/scam.aspx

Impact on Stock Markets and Indian Economy

The immediate impact of these scams were sharp fall in the share prices and indices Post Harshad Mehta Scam, markets lost Rs. 0.1mn crore loss in market capitalisation The Governments liberalization policies came under severe criticism Subsequently, these policies were put on hold for a while SEBI, the securities market regulator, postponed sanctioning of private sector mutual funds The entry of much talked about foreign pension funds and mutual funds became the remotest possibility The Euro-issues planned by many Cos. Were delayed
Sources: http://www.slideshare.net/

Indian

MEASURES TAKEN BY SEBI AGAINST SCAMS Measures post Mehta Scam

Suspended brokers acting as Directors and other office bearers of BSE, for alleged insider trading Imposed an additional 10% volatility margin on A Group shares as well as margins on ALBM and BLESS Schemes

Imposed volatility margins on net outstanding sale positions of FIIs, financial institutions, banks and mutual funds
Banned naked short sales in March 2001 Reduced the gross exposure limit for brokers to 10 times the base capital for NSE and 15 times for other stock exchanges Rolling settlements system made compulsory Allowed banks to offer collateralized lending only through BSE & NSE, to increase liquidity Launched trade guarantee fund to guarantee all transactions

Sources: icmrindia.org; Note: ALBM: Automated Lending and Borrowing Mechanism; BLESS: Borrowing and Lending of Securities Scheme

Measures post KP Scam

Trading cycle was cut short from a week to a day
The carry-forward system in stock trading called BADLA was banned Introduced forward trading in the form of exchange-traded derivatives Withdrew broker control over stock exchanges

NATURE OF INVESTIGATIONS TAKEN UP AND COMPLETED

Cases taken up
2010-11
Particular Issues Market Manipulation and Price Rigging Capital "Issue" related Manipulation Insider Trading Takeovers Miscellaneous 28 4 10 24 2 20 6 35 2 56 3 73

Cases completed
2010-11
4 51

2011-12

2011-12
5 37

15 4 10

21 2 10

Total

104

154

82

74

RECEIPT AND DISPOSAL OF INVESTOR GRIEVANCE

Against members
Year Pending at the beginning 169 246 153 967 1138 804 1161 1067 Pending Pending at the at the end beginning 246 153 967 1138 804 1161 1067 878 405 228 233 309 60 169 430 113

Against companies
Pending at the end 228 233 309 60 169 430 113 257

received
1128 1367 1915 5191 5892 6610 5401 4721

disposed
1051 1460 1101 5020 6226 6253 5495 4910

received
1023 774 964 734 881 1418 1334 1644

disposed
1200 769 888 983 772 1157 1651 1500

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

FINDINGS
The studies in capital market have established that there is a direct correlation between the growth and vibrancy of the capital market and economic development of the country. Capital market performs four functions namely, making available variety of opportunities to investors to park their disposable wealth; formation of capital both risk capital and debt capital; allocation of capital; and corporate governance.
SEBI from its very inception, has been continuously endeavoring to make the Indian Capital Market effective, transparent and investor friendly. In this direction, SEBI has undertaken several initiatives of far-reaching consequences which have not only radically reformed but totally transformed Indian Securities Market. The Central Govt. has authorized SEBI to frame its rules and regulations for actively monitoring capital markets. These rules and regulations will have to be approved by the government first. This will cause unnecessary delays and interference by the Ministry of Finance.

FINDINGS
While Mehta scam empowered SEBI to regulate markets more effectively, several other scams forced it to ensure that markets operate transparently and efficiently.However, post Mehta scam, several scams came to light, casting doubt on the efficiency of SEBI as a regulatory body Although many reforms are introduced by SEBI, there remains significant lapses in the law implementation and enforcement

Certain areas wherein SEBI needs to think upon and take action includes: Bear/Bull Cartels Insider Trading Circular Trading Uniform settlement cycle A few actions taken by SEBI were criticized of it being clueless about its supervisory duties

Other Popular Scams

Year
1992-96 1995 2000 2001 2006 2009

Scams
CRB Scam Cobbler Scam UTI Scam DSQ Software IPO Scam Satyam Scam

Amount (Rs. Cr)

1,200 3,500-4,000 595 8,000

Its high time that market regulators implement appropriate measures else the ghost from past will continue haunting the Indian bourses

RECOMMENDATIONS
ENHANCING DISCLOSURES
Minimum information required under the Companies Act is made available

INABILITY TO UTILIZE THE EXISTING POWERS EFFECTIVELY

The provision for mandatory punishment of imprisonment in addition to award for penalty has scarcely has been used.

QUALITY OF DECISIONS
Poor rate of conviction in major cases

RECOMMENDATIONS
ACCOUNTING, AUDIT QUALITY
Intra-group transactions, guarantees and contingent liabilities are areas where there is room for considerable concern.

PRICE MANUPULATION NO DENT

Price manipulation, informed trading and insider trading with key operators/investors is now routine.

ENTICING ADS AND INVESTOR RISK

Advertisement sans indication of performance by mutual funds has continued regardless of the SEBI guidelines on this.

SEBIS INITIATIVES(important links)

http://flame.org.in/knowledgecenter/scam. aspx flame.org.in/knowledgecenter/scam.aspx

http://www.businessandeconomy.org/3004 2012/storyd.asp?sid=6860&pageno=1