1

Manipulation of share prices

Price rigging
Insider trading
Delay in settlements & listing

1.
2.

3.

4.
5.

Lack of variety in financial instruments

Misleading & deceptive information of issue of
securities
Speculative trading (only a small portion of trading was
genuine)
Poor liquidity
Lack of control over brokers

Set up on April 12, 1988 as a non statutory body

In 1992 through SEBI Act powers to control capital

markets were conferred

Primary objectives : to promote healthy & orderly growth

of securities market & protect investors
To maintain steady flow of savings into capital markets
To regulate securities market & ensure fair practice by
issuers to help them raise resources at minimum cost
To promote efficient services by brokers, merchant bankers
and other intermediaries to make them professional and
competitive

The SEBI Act 1992 has entrusted with two functions

they are
1. Regulatory functions and
2. Developmental functions

I.

Regulatory function:

1.

Regulation of stock exchanges & other organisations

Registration & regulation of stock brokers, sub brokers,
merchant bankers, underwriters and other intermediaries
Registration & regulation of working of collective
investment schemes like mutual funds
Prohibition of unfair trade practices, insider trading,
substantial acquisition of shares by companies

2.

3.

4.

5.
6.

Prohibiting of insider trading.

Regulating substantial acquisition of shares and
takeovers of the company.
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II.

Development function :

1.

4.

Promoting investors education

Training of intermediaries
Conduct research & provide information to market
participants
Promoting self regulatory organizations

5.

Promoting of fair practices.

2.
3.

Chapter II of SEBI Act deals with incorporation,

administration & management ,.

The Statutory Board consists of six members

The chairman & two members are appointed by central

govt

One member by RBI

Another two with experience of securities market - to be

appointed by central govt

1.

Primary market department : all policy matters &

regulatory issues relating to primary market, market
intermediaries, investors grievances, matters relating to
Self Regulatory Organisations (SROs)

2.

Issue Management & Intermediaries Department :

registration, regulation & monitoring issue related
information

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3.

Secondary Market Department : policy & regulatory

issues, administration of major stock exchanges,

4.

Institutional Investment Department: framing policy of

foreign Institutional investors, mutual funds,
membership in international organisations,.

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1.

To call periodical returns from recognised stock exchanges

2.

To ask explanation from recognised stock exchanges /

their members

3.

To direct enquiries on any stock exchange

4.

To make / amend by laws of recognised stock exchanges

5.

To compel listing of securities by public companies

6.

To control and regulate stock exchanges

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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
10. To levy fees or charges for carrying out the purpose of
regulations

13

Code of conduct- Has to be strictly observed and those

employees, officers, or directors of company who violate will
be subject to disciplinary action by SEBI or by the company.
Duty of officers- every listed company has to employ a
compliance officer who as to report to MD or CEO of the
company.
Security- confidential files should be protected and kept
secure.
These pertain to all files but especially computer files and
passwords, which are likely to have sensitive price
information.

14

Information;- to avoid insider trading practices each listed

company has to provide sensitive information on a
continuous basis to stock exchange.

Problems:- SEBI deals with problems faced by investors.

These are dealt with investor grievance cell.

15

Investor grievances are usually due to delays in dispatch

of allotment letters, refund orders, misleading statements
in ads or in prospectus, non-payment of interest or
dividend.

These grievances are dealt either with SEBI/ Dept.of

company affairs.

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To participate and to vote in AGMs and right to

receive a notice for them or their proxy to attend the
meeting.
To receive dividend, rights, bonus, from company,
after their approval by board.
To receive B/S, P&L A/c, Auditors &Directors report.
To receive allotment letters and share certificates.
To requisition an EGM
To apply for winding up of company.
To proceed in civil or criminal proceedings against
company.

17

Corporates may raise capital in the primary market by

way of an initial public offer, rights issue or private
placement.

This Initial Public Offering can be made through the fixed

price method, book building method or a combination of
both.

18

Offer Price at which

securities are offered and
would be allotted is made
known in advance to
investors

A 20 % price band is offered by

issuer within which investors are
allowed to bid and final price is
determined only after closure of
bidding.

Demand for securities

offered is known only
after closure of the issue

Demand for securities offered ,

and at various prices, is available
on a real time basis on BSE
website during bidding period.

19

100% advance payment is

required to be made by
investors at time of
application.

50% of shares offered are

reserved for applications
below Rs. 1 lakh and
balance for higher amount
applications.

10% advance payment is

required to be made by
QIBs along with
application, while other
categories of investors
have to pay 100 %
advance

50% of shares offered are

reserved for QIBS, 35 %
for small investors and
balance for all other
investors.
20

Process by which an underwriter attempts to determine at

what price to offer an IPO based on demand from
institutional investors.

An underwriter "builds a book" by accepting orders from

fund managers indicating number of shares they desire and
price they are willing to pay.

Book-building is most practical mechanism for quick and

efficient management of mega issues (including offers of
sale).

21

Book-building is a mechanism by which issue price

is discovered on basis of bids received from syndicate
members/brokers and not by issuers/merchant
bankers.

However, it is felt that this system will be more suited

for companies that are in existence for some time as
past financial data are available for analysis and there
will be awareness of the company, etc. and for
Follow on Public Offers (FPO)
22

Introduction of book-building in India in 1995 followed

the recommendation of an expert committee appointed by
SEBI under Y. H. Malegam

The committee recommended and SEBI accepted the

book building route in Nov 1995

23

BSE offers a book building platform through Book Building

software that runs on BSE Private network.
This system is one of the largest electronic book building
networks in the world, spanning over 350 Indian cities
through over 7000 Trader Work Stations via leased lines,
VSATs and Campus LANS.
Software is operated by book-runners of issue and by
syndicate members, for electronically placing bids on line
real-time for entire bidding period.
In order to provide transparency, the system provides visual
graphs displaying price v/s quantity on the BSE website as
well as all BSE terminals.
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1.

2.

3.

4.

Issuer who is planning an offer nominates lead

merchant banker(s) as 'book runners'.
Issuer specifies number of securities to be issued and
the price band for bids.
Issuer also appoints syndicate members with whom
orders are to be placed by the investors.
Syndicate members input orders into an 'electronic
book'. This process is called 'bidding' and is similar to
open auction.

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5.

The book normally remains open for a period of 5 days.

6.

Bids have to be entered within the specified price band.

7.

Bids can be revised by bidders before book closes.

8.

On close of book building period, book runners

evaluate bids on the basis of demand at various price
levels.

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9.

10.

11.

Book runners and Issuer decide final price at which

securities shall be issued.
Generally, number of shares are fixed, issue size gets
frozen based on the final price per share.
Allocation of securities is made to successful bidders.
The rest get refund orders.

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A prospectus that does not have complete particulars on

the price of securities offered and the quantum of
securities offered.

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A legal designation assigned to a purchaser of securities

who meets a certain minimum level of sophistication, size
and market savvy with respect to complicated or risky
securities.
Issuers and their banks may elect to market private
placement, stock or bond offerings only to QIB clients as
a means to save time and transaction costs

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are those institutional investors who are generally

perceived to possess expertise and the financial muscle to
evaluate and invest in the capital markets
--- SEBI

30

Public financial institutions as defined in sec 4A of

Companies Act, 1956
Scheduled commercial banks;
Mutual funds
FIIS
Multilateral and bilateral development FIs
Venture capital funds

31

 Foreign Venture capital investors

State Industrial Development Corporations

Insurance Companies
Provident Funds with minimum corpus of Rs.25 crores
Pension Funds with minimum corpus of Rs. 25 crores

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