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Manipulation of share prices

Price rigging

Insider trading Delay in settlements & listing

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1. Lack of variety in financial instruments

2. Misleading & deceptive information of issue of

securities

3.

peculative trading !only a small portion of trading "asgenuine#

$. Poor li%uidity

. Lack of control over 'rokers

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et up on (pril 12) 1*++ as a non statutory 'ody

In 1**2 , through -I (ct ,po"ers to control capitalmarkets "ere conferred

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Primary o'/ectives 0 to promote healthy & orderly gro"thof securities market & protect investors

o maintain steady flo" of savings into capital markets

o regulate securities market & ensure fair practice 'y

issuers to help them raise resources at minimum cost o promote efficient services 'y 'rokers) merchant 'ankers

and other intermediaries to make them professional and

competitive

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he -I (ct 1**2 has entrusted "ith t"o functions

they are

1. egulatory functions and

2. Developmental functions

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I. egulatory function:

1. egulation of stock echanges & other organisations

2. egistration & regulation of stock 'rokers) su' 'rokers)

merchant 'ankers) under"riters and other intermediaries

3. egistration & regulation of "orking of collectiveinvestment schemes like mutual funds

$. Prohi'ition of unfair trade practices) insider trading)

su'stantial ac%uisition of shares 'y companies

. Prohi'iting of insider trading.4. egulating su'stantial ac%uisition of shares and

takeovers of the company.

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II. Development function 01. Promoting investors education

2. raining of intermediaries

3. 5onduct research & provide information to market

participants

$. Promoting self regulatory organi6ations

. Promoting of fair practices.

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5hapter II of -I (ct deals "ith incorporation)administration & management )7.

he tatutory oard consists of si mem'ers

he chairman & t"o mem'ers are appointed 'y centralgovt

8ne mem'er 'y I

(nother t"o "ith eperience of securities market 9 to 'eappointed 'y central govt

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1. Primary market department : all policy matters &

regulatory issues relating to primary market) market

intermediaries) investors grievances) matters relating to

elf egulatory 8rganisations !8s#

2. Issue Management & Intermediaries Department :

registration) regulation & monitoring issue related

information

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3. econdary Market Department : policy & regulatory

issues) administration of ma/or stock echanges)7

$. Institutional Investment Department: framing policy of

foreign Institutional investors) mutual funds)

mem'ership in international organisations)7.

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1. o call periodical returns from recognised stock echanges

2. o ask eplanation from recognised stock echanges :

their mem'ers

3. o direct en%uiries on any stock echange

$. o make : amend 'y la"s of recognised stock echanges

. o compel listing of securities 'y pu'lic companies

4. o control and regulate stock echanges

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;. Po"er to direct en%uiries to 'e made in relation to affairsof stock echanges or their mem'ers.

+. Po"er to make or amend 'ye9la"s of recogni6ed stock

echanges.*. Po"er to grant registration to market intermediaries

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5ode of conduct9 =as to 'e strictly o'served and thoseemployees) officers) or directors of company "ho violate "ill

'e su'/ect to disciplinary action 'y -I or 'y the company. Duty of officers9 every listed company has to employ a

compliance officer "ho as to report to MD or 5-8 of thecompany.

ecurity9 confidential files should 'e protected and kept

secure.

hese pertain to all files 'ut especially computer files andpass"ords) "hich are likely to have sensitive price

information.

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Information>9 to avoid insider trading practices each listed

company has to provide sensitive information on a

continuous 'asis to stock echange.

Pro'lems09 -I deals "ith pro'lems faced 'y investors.

hese are dealt "ith investor grievance cell.

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Investor grievances are usually due to delays in dispatch

of allotment letters) refund orders) misleading statements

in ads or in prospectus) non9payment of interest or

dividend.

hese grievances are dealt either "ith -I: Dept.ofcompany affairs.

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o participate and to vote in (?Ms and right to

receive a notice for them or their proy to attend the

meeting.

o receive dividend) rights) 'onus) from company)

after their approval 'y 'oard. o receive :) P&L (:c) (uditors &Directors report.

o receive allotment letters and share certificates.

o re%uisition an -?M

o apply for "inding up of company.

o proceed in civil or criminal proceedings against

company.

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5orporates may raise capital in the primary market 'y

"ay of an initial pu'lic offer) rights issue or private

placement.

his Initial Pu'lic 8ffering can 'e made through thefixed

price method, book building methodor a com'ination of

'oth.

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Offer Price at "hichsecurities are offered and

"ould 'e allotted is made

kno"n in advance to

investors

Demand for securities

offered is kno"n onlyafter closure of the issue

( 2< @ price 'and is offered 'y

issuer "ithin "hich investors are

allo"ed to 'id and final price is

determined only after closure of

'idding.

Demand for securities offered )

and at various prices) is availa'leon a real time 'asis on -

"e'site during 'idding period.

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Process 'y "hich an under"riter attempts to determine at"hat price to offer an IP8 'ased on demand from

institutional investors.

(n under"riter B'uilds a 'ookB 'y accepting orders fromfund managers indicating num'er of shares they desire and

price they are "illing to pay.

ook9'uilding is most practical mechanism for %uick and

efficient management of mega issues !including offers ofsale#.

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ook9'uilding is a mechanism 'y "hich issue priceis discovered on 'asis of 'ids received from syndicate

mem'ers:'rokers and not 'y issuers:merchant

'ankers.

=o"ever) it is felt that this system "ill 'e more suited

for companies that are in eistence for some time as

past financial data are availa'le for analysis and there"ill 'e a"areness of the company) etc. and for

Collo" on Pu'lic 8ffers !CP8#

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Introduction of 'ook9'uilding in India in 1** follo"ed

the recommendation of an epert committee appointed 'y

-I under . =. Malegam

he committee recommended and -I accepted the

'ook 'uilding route in Eov 1**

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- offers a 'ook 'uilding platform through ook uildingsoft"are that runs on - Private net"ork. his system is one of the largest electronic 'ook 'uilding

net"orks in the "orld) spanning over 3< Indian cities

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1. Issuer "ho is planning an offer nominates leadmerchant 'anker!s# as H'ook runnersH.

2. Issuer specifies num'er of securities to 'e issued and

the price 'and for 'ids.

3. Issuer also appoints syndicate mem'ers "ith "hom

orders are to 'e placed 'y the investors.

$. yndicate mem'ers input orders into an Helectronic

'ookH. his process is called H'iddingH and is similar toopen auction.

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.

he 'ook normally remains open for a period of days.4. ids have to 'e entered "ithin the specified price 'and.

;. ids can 'e revised 'y 'idders 'efore 'ook closes.

+. 8n close of 'ook 'uilding period) 'ook runnersevaluate 'ids on the 'asis of demand at various price

levels.

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*. ook runners and Issuer decide final price at "hich

securities shall 'e issued.

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( prospectus that does not have complete particulars onthe price of securities offered and the %uantum of

securities offered.

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( legal designation assigned to a purchaser of securities"ho meets a certain minimum level of sophistication) si6e

and market savvy "ith respect to complicated or risky

securities.

Issuers and their 'anks may elect to market private

placement) stock or 'ond offerings only to AI clients as

a means to save time and transaction costs

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are those institutional investors "ho are generally

perceived to possess epertise and the financial muscle to

evaluate and invest in the capital marketsJ 999 -I

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Pu'lic financial institutions as defined in sec $( of5ompanies (ct) 1*4

cheduled commercial 'anks>

Mutual funds

CII

Multilateral and 'ilateral development CIs

Genture capital funds

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Coreign Genture capital investors tate Industrial Development 5orporations

Insurance 5ompanies

Provident Cunds "ith minimum corpus of s.2 crores Pension Cunds "ith minimum corpus of s. 2 crores