Control of Capital Issues Before SEBI came into existence issue of capital by companies

was regulated by Controller of Capital Issue under Capital issue (Control ) Act in 1947.

The act was repealed on 29th May, 1992.With the abolition of CCI companies are not required to take permission of govt. for issue of capital they just have to get clearance from SEBI.

Govt. of India set up Securities and Exchange Board of India on 12th April, 1988. it was given statutory powers by an Act of parliament known Securities and Exchange Board of India Act, Act, 1992.

Organisation of SEBI: SEBI has got 5 departments

Primary Market department Issue Management Intermediaries department Secondary market department Institutional Investment department Advisory Investment department

FUNCTIONS OF SEBISection 11 of SEBI Act, 1992 gives the functions to be

performed by the board. These are:-

1. Regulatory Functions

2. Development Functions

3. Powers given by Securities Contract Regulation Act, 1956

Objectives of SEBI Act, 1992

Provide investors protection and safeguard their rights and interest.

Promote fair dealings by the issue of securities and ensure a market place where funds can be raised at a relatively low costs.

Promote efficient services by the intermediaries in the capital market such as brokers and merchant bankers

SEBI GUIDELINESSEBI GUIDELINES

IPO & Primary MarketIPO & Primary MarketCompanyCompany Merchant bankersMerchant bankers UnderwritersUnderwriters Stock Broker & Sub-broker to the issueStock Broker & Sub-broker to the issue Banker to the issueBanker to the issue Registrar to the issue & Share transfer agentRegistrar to the issue & Share transfer agent Investors protection & EducationInvestors protection & Education Venture Capital Venture Capital Foreign Institutional Investors (FII)Foreign Institutional Investors (FII)

Initial Public Offering & Primary Market- SEBI (Disclosure Initial Public Offering & Primary Market- SEBI (Disclosure & Investors Protection) Rules and Regulation, 24& Investors Protection) Rules and Regulation, 24thth Feb., 2009. Feb., 2009.

1.1. Minimum offering of 25% of post issue capital to the public. This requirement was Minimum offering of 25% of post issue capital to the public. This requirement was relaxed to 10% frelaxed to 10% first for IT sector, later it was relaxed to all the sectors.irst for IT sector, later it was relaxed to all the sectors.

2.2. IPO of issue size up to 5 times of pre-issue , shall be allowed only to those IPO of issue size up to 5 times of pre-issue , shall be allowed only to those companies having consistent track record of making profit at least for 5 companies having consistent track record of making profit at least for 5 years.years.

3.3. For issue above Rs. 100 crores book building route has been made For issue above Rs. 100 crores book building route has been made compulsory for comp. making IPO.compulsory for comp. making IPO.

4.4. Time for finalizing the allotment of shares and refund has been reduced Time for finalizing the allotment of shares and refund has been reduced from 30 to 15 days.from 30 to 15 days.

5.5. Issue shall open within 12 months from the date of issue of observation Issue shall open within 12 months from the date of issue of observation letter by SEBI.letter by SEBI.

6.6. Should disclose price band at least 2 working days before opening of bid by Should disclose price band at least 2 working days before opening of bid by announcement in all newspapers in which pre-issue advt. was released.announcement in all newspapers in which pre-issue advt. was released.

SEBI Guidelines regarding Companies Act

Free pricing of issues. A new issue can be priced freely provided it is backed by promoters with good track record of at least 5 years.

Underwriting made mandatory. The new guidelines issued by SEBI have directed full underwriting of public issue.

Issue of shares at par. A new company with no previous track record will be permitted to issue capital only at par.

Promoters contribution is fixed at 25% of total issue of less than Rs. 100 crores size and 20% of the issues above Rs. 100 crores

For public issue of existing listed companies, the issuer will have to disclose the high and low prices of the shares for the last 2 years.

No bonus issue shall be made within 12 months of any public issue or right issue.

SEBI (Merchant Banking) Rules and Regulation,2006SEBI (Merchant Banking) Rules and Regulation,2006

MBs are intermediaries who perform the activity of pre-issue and post-issuemanagement activity and also act as co-mangers, underwriters, portfoliomanagers and advisors. Guidelines framed by govt.:--- Catagories of MBs CAT I- MBs who conduct all above activities. They also act as co-managers,

underwriters or portfolio managers. CAT II- MBs who can act as advisors, consultants, co-managers and portfolio

managers. CAT-III- MBs act as underwriters, advisors and consultants. CAT-IV- MBs act as advisors or consultants to an issue. Certificate of registration:-- Minimum adequacy norms in terms of its net worth is satisfied by each

category of MBs. They have necessary infrastructure, office , space, equipment and manpower. They employ at least 2 persons competent to handle merchant banking business. They are not involved in any litigation connected with security market. They pay the prescribed fees.

Capital Adequacy Norms:---

CAT-I MBs – Rs 5 corers

CAT-II MBs- Rs 50,00,000

CAT-III MBs-Rs 20,00,000

CAT-IV MBs- NIL.

No. of MBs depending on the size of issue

Size of issue Max. no. of MBs

Below Rs 50 crores 2

Rs 50 to 100 crores 3

Rs 100- 200 4

Rs 200-400 5

Rs 400 and above More than 5

Renewal of registration

At the time of renewals of registration shall continue to fulfill all the conditions required at the time of registration , pay prescribed renewal fees.

Maintenance of the books of A/cs:---- The copy of B/S at each accounting period. The statement containing the name of the issue co, size of the issue, timing of the issue and activities performed by merchant bankers on behalf of issue company. P/L account and auditors report.

SEBI ( Underwriters) Rules and Regulation Act,1993

Underwriters are intermediaries who undertake to subscribe the unsubscribed portion of issued capital.

Condition for grant or renewal of certificate

In case of any change in the constitution, underwriter shall obtain prior permission of the Board to continue to act as underwriter.

the underwriter should enter into valid agreement with body corporate on whose behalf he is acting as underwriter.

He shall pay the amount of fees of registration in the manner

An underwriter may, if so desired makes an application in FORM A for renewal of certificate before 3months of the expiry of period of certificate.

Which is Rs 2 lakh for 1st ,2nd year and Rs 20,000 for 3rd year. Registration is granted for 3 years.

Has the necessary infrastructure like adequate office space, equipment manpower to effectively discharge his activities.

Has any past experience in underwriting or has in his employment minimum 2 persons who had the experience in underwriting.

Not to Act as underwriter without certificate:--

No person shall act underwriter unless he holds a certificate granted by the Board under the regulation.

Notwithstanding anything contained in sub-rule(1), every stock- broker or merchant banker holding a valid certificate of registration under Section 12 of the Act, shall be entitled to act as an underwriter without obtaining a separate certificate for underwriting activities which shall be governed by the rules and regulations.

CAPITAL ADEQUACY NORMS:-

The capital adequacy requirement referred to insub-regulation 6 shall not be less than the networth of Rs 20 lakhs.

SEBI ( Stock Broker and Sub-brokers) Rules,1992

•Stock broker means a member of stock exchange

• Sub-broker means any person not being a member of stock exchange who acts on behalf of a stock broker as an agent or otherwise for assisting the investors in buying, selling or dealing in securities through stock broker.

• No stock broker or sub broker shall buy,sell or deal in securities unless he holds a certificate granted by board under the regulation, provided that such person may continue to buy, sell or deal in securities if he has made an application for such registration.

CONDITION FOR GRANT OF CERTIFICATE OF REGISTRATION:-

• He holds the membership of any stock exchange

• He shall abide by rules, regulation and bye-laws of stock exchange of which he is a member.

• He shall pay the fees for registration in the manner provided in the regulations

• He shall take adequate steps for redressal of grienvances of the investors within one month of the date of receipt of complaints.

Condition for the grant of Certificate to Sub- Broker:--ificate to Sub- Broker:-- He shall pay the fees in the manner provided in the regulations

Every stock broker shall subject to pay registration fees in the manner set out below :

(a) where the annual turnover does not exceed rupees Rs. 1 crore during any

financial year, a sum of Rs. 5,000 for each financial year;

(b) where the annual turnover of the stock-broker exceeds Rs 1 crore during

any financial year, a sum of Rs. 5,000 plus 1 % of the turnover in excess of Rs. 1 crore for each financial year

He shall take adequate steps in redressal of grievances of the investors within one month of the date of complaints.

In case of any change in constitution , the sub-broker shall obtain prior permission of the board to continue to buy , sell or deal in securities in any stock exchange.

He is authorized in writing by a stock- broker being a member of stock exchange for affiliating himself in buying, selling or dealing in securities.

SEBI (Banker to the Issue) Rules and Regulation Act,1992

Banker to the issue helps in functioning in primary market by engaging in Banker to the issue helps in functioning in primary market by engaging in activities of acceptance of application for shares/debentures along with activities of acceptance of application for shares/debentures along with application money from investors.application money from investors.

A bank can operate as banker to the issue only after obtaining a certificate of A bank can operate as banker to the issue only after obtaining a certificate of registration from SEBI. It considers past experience, nature, size of bank.registration from SEBI. It considers past experience, nature, size of bank.

Certificate of registration is granted if it satisfies :--Certificate of registration is granted if it satisfies :-- The applicant has necessary infrastructure, office space,equipemnet, data The applicant has necessary infrastructure, office space,equipemnet, data

processing and manpower.processing and manpower. Applicant is scheduled bank.Applicant is scheduled bank. Application fees is paid i.e. Rs 2.5 lakh for 1-2 years from date of initial Application fees is paid i.e. Rs 2.5 lakh for 1-2 years from date of initial

registration and Rs. 1 lakh for 3registration and Rs. 1 lakh for 3rdrd year. year. Renewal is made 3 months before expiry by paying renewal fees of Rs 1 lakh

annually for 1-2 years and Rs 20,000 for 3rd year. Banker to the issue should record in the statement the agreement with issuing

company, Submission of daily statements, furnishing the information to SEBI i.e. details of issue, No. of applicants and details of application money, refund to the investors. Inspection by RBI.

SEBI (Registrar to the Issue and Share transfer agent) Rules and SEBI (Registrar to the Issue and Share transfer agent) Rules and Regulation Act,1993Regulation Act,1993

Registrar to the issue perform the function to collect application from investors and keep a proper record of application and money received from investor, assist co. in determining the basis of allotment of securities.

Share transfer agent maintain record of holder of securities of company for & on behalf of company & handle all matters related to transfer and redemption of securities of the company.

Category of Registrar and Share transfer agent CAT-I -those who carry on activities of both Registrar and STA CAT-II- Those who carry on activities of either Registrar and STA Both require registration with SEBI for carrying on with their operations.

They can also seek renewal of registration. Capital adequacy is net worth of Rs 6 lakh for CAT-I and Rs 3 lakh for

CAT-II Annual fees of Rs 15,000 & Rs 10,000 respectively for initial registration. Maintenance of book of Account- record relating to all applications

received from investors relating to the issue, record all rejected application together with reasons, basis of allotment of shares in consultation with stock exchange, date of transfer of shares, name of transferor and transferee.

SEBI (Investors protection & Education Fund) Regulations, 2009 “ “ Fund” means Investors Protection and Education Fund created ” means Investors Protection and Education Fund created

by the Board under section 11 of the Act.by the Board under section 11 of the Act. “ “ Legal Proceedings” means any proceedings before a court Legal Proceedings” means any proceedings before a court

where one thousand or more are effected by misstatement in where one thousand or more are effected by misstatement in connection with the issue sale , purchase of securities.connection with the issue sale , purchase of securities.

Non payement of dividendNon payement of dividend Non receipt of shares allotted or refund of application money. Non receipt of shares allotted or refund of application money.

Utilization of fund:-Utilization of fund:- The fund shall be utilized for the purpose of protection of The fund shall be utilized for the purpose of protection of

investors and promotion of investors education and awareness with investors and promotion of investors education and awareness with these regulations.these regulations.

Education activities including seminar, training, research and Education activities including seminar, training, research and publications aimed at investors.publications aimed at investors.

The fund is utilized to provide aid which shall not exceed 70% of The fund is utilized to provide aid which shall not exceed 70% of the total expenditure on legal proceedings.the total expenditure on legal proceedings.

• Such an aid shall not be considered for more than one legal proceedings in a particular matter.

• If more than one investor applies for seeking legal aid , the application is received first is considered first for such an aid Classification of complaints:-• Type I- Non-receipt of refunds orders/allotment letters/ stock invest.

• Type II- Non-receipt of dividend

• Type III- Non-receipt of share certificate/ bonus shares

• Type IV- Non receipt of debenture certificate/interest on debentures/redemption amount of debentures/ interest on delayed payments of interest.

• Type V- Non-receipt of annual reports, right issue forms/ interest on delayed receipt of refund orders/ dividends.

SEBI (Venture Capital fund) Amended Regulation, 2010 Venture capital Fund means fund established in form of trust under

Indian trust Act,1882 or a company including body corporate and registered under these regulations which:--

Dedicated pool of capital Raised in a manner specified in the regulation.Or venture capital undertaking domestic company whose shares are not

listed on recognized stock exchange in India, which is engaged in the activity of providing services, production or manufacturing of articles or thing.

Registration of VC Funds:-- Application of grant of certificate Any company or trust proposing to carry on any activity as a

venture capital fund on or after the commencement of these shall make an application to the Board for grant of certificate.

Eligibility Criteria:---

For the purpose of grant of Certificate by Board the application should fulfill these criteria Memorandum of association and Article of Association prohibits to form making an invitation to public to subscribe its securities.Its director, employee is not involved in any litigation connected with security market.

Minimum Investment in Venture Capital Fund:--

• A venture capital fund may raise monies from any investor whether Indian or foreign or NRI.• No VCF set up as a company shall accept any investment from any investor which is less than Rs 5lakhs.

SEBI Guidelines for FIIs

All foreign institutional investors including pension funds, mutual

funds, asset mangement companies and portfolio managers were

permitted to invest in Indian capital market fulfilling the following

conditions:- The FIIs are required to obtain certificate of registration from

the SEBI. For grant of certificate SEBI checks the applicant's track record, professional competence, financial soundness, experience, general reputation of fairness and integrity

They have to obtain approval from RBI under Foreign Exchange Regulation Act (FERA), 1973.

Certificate of registration is granted for period of 3 years and after it can be renewed.

FIIs are permitted to invest in securities in the primary and secondary markets including shares, debentures

listed or to be listed on a recognized stock exchange in India; and Units of schemes floated by domestic mutual funds including Unit Trust of India, whether listed on a recognized stock exchange or not.

• A registered foreign institutional investor shall pay a fee of US $ 10,000 for every block of three years after grant of registration during which the registration subsist.

• The fee mentioned in shall be paid at least one month before expiry of the period of three years.