June,2011 ImportantquestionsonsecuritiesLaws STUDYI GENESISANDDEVELOPMENTOFREGULATORYFRAMEWORK Q1Whatisscriplesstrading? Ans.Scriplesstradingisatermusedtodescribeaprocedureoftradinginshares,whereactualshare certificatesarenottradedbutsharesaretradedinelectronicforms,thesharetradedbeingadjustedby accountingbyanorganisationknownasdepository.InIndiascriplesstradingfirststartedwiththe emergenceofOTCEI.Butitwasverylimited.TheadventofonlineautomatedtradinginIndiabrought withitseveralassociatedbenefitssuchastransparencyintradingandequalopportunityformarket playersalloverthecountrybuttheproblemsrelatedtosettlementoftradessuchashighinstancesof baddeliveriesandlongsettlementcyclescontinued.Asananswertothesesettlementproblemsandin ordertoprovideasafeandefficientsystemoftradingandsettlement,DepositoriesAct,1996was enacted.SEBInotifiedRegulationsinordertoprovidetheregulatoryframeworkforthedepositories.

. Depositoriesgaveanewdimensionandanewscopeforconductingtransactionsincapitalmarket primaryaswellassecondary,inamoreefficientandeffectivemanner,inapaperlessformonan electronicbookentrybasis.Itprovidedelectronicsolutiontotheaforementionedproblemsofbad deliveriesandlongsettlementcycles.Onlyafterthescriplesstradingourcapitalmarkethascomeupto internationallevel. Q2WhatisthepositionofSecuritiesAppellateTribunal?Whatistheprocedurefollowedbyit. Ans.Section 23A provides that, any person aggrieved by an order of the SEBI, under SEBI Act, or the regulationsmadethereunderorbyanordermadebyanadjudicatingofficerunderthisActmayprefer anappealtoaSecuritiesAppellateTribunalhavingjurisdictioninthematter.However,noappealshall lietotheSecuritiesAppellateTribunalfromanordermadebytheBoardwiththeconsentoftheparties. Every appeal under subsection (1) shall be filed within a period of fortyfive days from the date on whichacopyoftheordermadebytheBoardisreceivedbythepersonreferredtoinsubsection(1)and itshallbeinsuchformandbeaccompaniedbysuchfeeasmaybeprescribed: ProvidedthattheSecuritiesAppellateTribunalmayentertainanappealaftertheexpiryofthesaid periodoffortyfivedaysifitissatisfiedthattherewassufficientcausefornotfilingitwithinthatperiod. Subsection(4)providesthatonreceiptofanappealundersubsection(1),theSecuritiesAppellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass such orders thereonasitthinksfit,confirming,modifyingorsettingasidetheorderappealedagainst. Subsection(5)providesthattheSecuritiesAppellateTribunalshallsendacopyofeveryordermade byittotheBoardandpartiestotheappeal. Subsection(6)furtherprovidesthattheappealfiledbeforetheSecuritiesAppellateTribunalunder subsection(1)shallbedealtwithbyitasexpeditiouslyaspossibleandendeavourshallbemadebyitto

 disposeoftheappealfinallywithinsixmonthsfromthedateofreceiptoftheappeal. ProcedureandpowersofSecuritiesAppellateTribunal Section23BprovidesthattheSecuritiesAppellateTribunalshallnotbeboundbytheprocedurelaid downbytheCodeofCivilProcedure,1908,butshallbeguidedbytheprinciplesofnaturaljusticeand, subjecttotheotherprovisionsofthisActandofanyrules,theSecuritiesAppellateTribunalshallhave powerstoregulatetheirownprocedureincludingtheplacesatwhichtheyshallhavetheirsittings.The SecuritiesAppellateTribunalshallhave,forthepurposeofdischargingtheirfunctionsunderthisAct,the samepowersasarevestedinacivilcourtundertheCodeofCivilProcedure,1908,whiletryingasuit,in respectofthefollowingmatters,namely (a) summoningandenforcingtheattendanceofanypersonandexamininghimonoath; (b) requiringthediscoveryandproductionofdocuments; (c) receivingevidenceonaffidavits; (d) issuingcommissionsfortheexaminationofwitnessesordocuments; (e) reviewingitsdecisions; (f) dismissinganapplicationfordefaultordecidingitexparte; (g) settingaside anyorderofdismissalofanyapplicationfordefaultoranyorderpassedbyitex parte;and (h) anyothermatterwhichmaybeprescribed. SubSection (3) provides that every proceeding before the Securities Appellate Tribunal shall be deemedtobeajudicialproceedingwithinthemeaningofsections193and228,andforthepurposesof section196oftheIndianPenalCodeandtheSecuritiesAppellateTribunalshallbedeemedtobeacivil courtforallthepurposesofsection195andChapterXXVIoftheCodeofCriminalProcedure,1973. AppealtoSupremeCourt Section23FprovidesthatanypersonaggrievedbyanydecisionororderoftheSecuritiesAppellate TribunalmayfileanappealtotheSupremeCourtwithinsixtydaysfromthedateofcommunicationof thedecisionororderoftheSecuritiesAppellateTribunaltohimonanyquestionoflawarisingoutof suchorder.ProvidedthattheSupremeCourtmay,ifitissatisfiedthattheappellantwaspreventedby sufficientcausefromfilingtheappealwithinthesaidperiod,allowittobefiledwithinafurtherperiod notexceedingsixtydays. RighttoLegalRepresentation Section 23C provides that the appellant may either appear in person or authorise one or more CharteredAccountantsorCompanySecretariesorCostAccountants,inpracticeorLegalPractitionersor anyofitsofficerstopresenthis/itscasebeforetheSecuritiesAppellateTribunal.

 Limitations Section23DprovidesthattheprovisionsoftheLimitationAct,1963(36of1963)shall,asfarasmay be,applytoanappealmadetoaSecuritiesAppellateTribunal. CivilCourtnottohavejurisdiction Section23EprovidesthatNoCivilCourtshallhavejurisdictiontoentertainanysuitorproceedingin respect of any matter which a Securities Appellate Tribunal is empowered by or under this Act to determine and no injunction can be granted by any court or other authority in respect of any action takenortobetaken.InpursuanceofanypowerconferredbyorunderthisAct. Q3DistinguishbetweenprimarymarketandSecondarymarket? Ans. PRIMARYMARKET Marketfornewissuesofsecurities,asdistinguishedfromtheSecondaryMarket,wherepreviously issuedsecuritiesareboughtandsold. Amarketisprimaryiftheproceedsofsalesgototheissuerofthesecuritiessold.Securitieswhichare issuedintheprimarymarketarethroughpublicoffers,preferentialissues,rightsissues,ESOPS,bonus issues. Thisispartofthefinancialmarketwhereenterprisesissuetheirnewshares,debenuresandbonds.,Itis characterizedbybeingtheonlymomentwhentheenterprisereceivesmoneyinexchangeforselling itsfinancialassets. IssuersaregovernedbytherequirementsofcompaniesActandICDRRegulations. SECONDARYMARKET Themarketwheresecuritiesaretradedaftertheyareinitiallyofferedintheprimarymarket.Most tradingisdoneinthesecondarymarket. Toexplainfurther,itisTradinginpreviouslyissuedfinancialinstruments.Anorganizedmarketforused securities.ExamplesaretheNewYorkStockExchange(NYSE),BombayStockExchange(BSE),National StockExchangeNSE,bondmarkets,overthecountermarkets,residentialmortgageloans, governmentalguaranteedloansetc. Theissuersofsecuritieshavetofirstlisttheirsecuritiesonthestockexchangesandhavetoagreeon compliancewiththestipulationsoflistingagreementnotonlyforthesecuritiesforwhichapplicationis madebytheissuerbutallsecuritiesissuedinpastandtobeissuedinfuture.

 Secondarymarketensuresliquidityforthefinancialassetspurchasedbybuyersfromtheprimary market.Theissuersfindbuyersbecauseofthisassurance.Youcanhaveonlylimitedmarketasinthe caseofunlistedcompanies. MarketisregulatedbySEBIandallintermediarieshavetoobtainalicencefromSEBI.TheSecurites ConractsRegulationAct1956aandrulesthereunderarethemajorlaws. Q4.Writeanoteonundisclosedfactoring Inundisclosedfactoring,afactorbuysthegoodsfromaprimaryparty(producer,manufacturer,or seller)andthenappointsthesamepartyasitsagenttoresellthosegoodsandtocollectthepayments. Thisarrangementpreventsthedisclosurethatgoodsarebeingsoldunderafactoringagreement.The undisclosedfactor,asinallothertypesoffactoring,remainsliableforuncollectiblepayments. Q5.WhatistheRoleSEBIIninvestorprotection? Or SEBIwasformedforthepurposeofpromotingandprotectingtheinterestsofinvestorsElucidate Section11oftheActlaysdownthatitshallbethedutyoftheBoardtoprotecttheinterestsofthe investorsinsecurities.Asapexmarketregulatorwhiledevelopingthemarketsithastoensurethat interestsoftheinvestorsareprotected.Ithasachievedthisbyperformingthefollowingfunctions effectively (a)regulatingthebusinessinstockexchangesandanyothersecuritiesmarkets; (b) registering and regulating the working of stock brokers, subbrokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters,portfoliomanagers,investmentadvisersandsuchotherintermediarieswhomay beassociatedwithsecuritiesmarketsinanymanner; (c) registeringandregulatingtheworkingofthedepositories,participants,custodiansofsecurities, foreigninstitutionalinvestors,creditratingagenciesandsuchotherintermediariesastheBoard may,bynotification,specifyinthisbehalf; (d) registering and regulating the working of venture capital funds and collective investment schemes,includingmutualfunds; (e) promotingandregulatingselfregulatoryorganisations; (f) prohibitingfraudulentandunfairtradepracticesrelatingtosecuritiesmarkets; (g) promotinginvestorseducationandtrainingofintermediariesofsecuritiesmarkets; (h) prohibitinginsidertradinginsecurities; (i) regulatingsubstantialacquisitionofsharesandtakeoverofcompanies; (j) callingforinformationfrom,undertakinginspection,conductinginquiriesandauditsofthestock exchanges, mutual funds, other persons associated with the securities market, intermediaries

 andselfregulatoryorganisationsinthesecuritiesmarket; (k) callingforinformationandrecordfromanybankoranyotherauthorityorboardorcorporation established or constituted by or under any central, state or provincial Act in respect of any transactioninsecuritieswhichisunderinvestigationorinquirybytheBoard; (l) performing such functions and exercising such powers under the provisions of the Securities Contracts(Regulation)Act,1956,asmaybedelegatedtoitbytheCentralGovernment; (m) levyingfeesorotherchargesforcarryingoutthepurposesofthissection; (n) conductingresearchfortheabovepurposes; (o) calling from or furnishing to any such agencies, as may be specified by the Board, such informationasmaybeconsiderednecessarybyitfortheefficientdischargeofitsfunctions; The issuers of securities are made to make certain minimum disclosures as prescribed under IssueofCapitalDisclosureRegulations..Itisthedutyofmerchantbankerstoensurethatissuer company makes the disclosures required and he has to exercise due diligence so that statementsmadeintheprospectusareverifiedandthatobservations/commentsmadebySEBI are adequately taken care of before filing the offer documents with ROC and or Stock Exchanges, Registrars and Share Transfer Agents activities are monitored to ensure that allotmentismadeasperthebasisapprovedandthatthereisnomanipulation.Further,refund orders,allotmentadviceissentpromptly.

In the secondary market SEBI is keeping strict vigilance and surveillance over the activities of brokers,andsubbrokers, SEBIismonitoringtheactivitiesofmutualfunds,collectiveinvestmentsschemes.Inconclusionone can say that by controlling and monitoring the activities of all players SEBI protects the interestsofinvestors. Q6discusstheimpactofglobalizationonthefinancialdecisionmaking. Ans Globalisationisthenewbuzzwordthathascometodominatetheworldsincethenineties ofthelast centurywiththeendofthecoldwarandthebreakupoftheformerSovietUnionandtheglobaltrend towardstherollingball.Thefrontiersofthestatewithincreasedrelianceonthemarketeconomyand renewed faith in the private capital and resources, a process of structural adjustment spurred by the studiesandinfluencesoftheWorldBankandotherInternationalorganisationshavestartedinmanyof thedevelopingcountries.AlsoGlobalisationhasbroughtinnewopportunitiestodevelopingcountries. Greater access to developed country markets and technology transfer hold out promise improved productivityandhigherlivingstandard.Butglobalisationhasalsothrownupnewchallengeslikegrowing inequality across and within nations, volatility in financial market and environmental deteriorations.

 Another negative aspect of globalisation is that a great majority of developing countries remain removed from the process. Till the nineties the process of globalisation of the Indian economy was constrained by the barriers to trade and investment liberalisation of trade, investment and financial flows initiated in the nineties has progressively lowered the barriers to competition andhastened the paceofglobalisation Indiaopeneduptheeconomyintheearlyninetiesfollowingamajorcrisisthatledbyaforeignexchange crunchthatdraggedtheeconomyclosetodefaultingonloans.TheresponsewasaslewofDomesticand externalsectorpolicymeasurespartlypromptedbytheimmediateneedsandpartlybythedemandof themultilateralorganisations.Thenewpolicyregimeradicallypushedforwardinfavourofamoreopen andmarketorientedeconomy. Major measures initiated as a part of the liberalisation and globalisation strategy in the early nineties includedscrappingoftheindustriallicensingregime,reductioninthenumberofareasreservedforthe public sector, amendment of the monopolies and the restrictive trade practices act, start of the privatisation programme, reduction in tariff rates and change over to market determined exchange rates. Over the years there has been a steady liberalisation of the current account transactions, more and more sectors opened up for foreign direct investments and portfolio investments facilitating entry of foreigninvestorsintelecom,roads,ports,airports,insuranceandothermajorsectors. Globalisation has intensified interdependence and competition between economies in the world market.ThisisreflectedinInterdependenceinregardtotradingingoodsandservicesandinmovement of capital. As a result domestic economic developments are not determined entirely by domestic policiesandmarketconditions.Rather,theyareinfluencedbybothdomesticandinternationalpolicies andeconomicconditions.Itisthusclearthataglobalisingeconomy,whileformulatingandevaluatingits domesticpolicycannotaffordtoignorethepossibleactionsandreactionsofpoliciesanddevelopments intherestoftheworld.Thisconstrainedthepolicyoptionavailabletothegovernmentwhichimplies lossofpolicyautonomytosomeextent,indecisionmakingatthenationallevel. Q.7Howfinancialmarketsandfinancialservicesareregulated?ExaminetheroleofSEBI Ans.Thefinancialmarketshavetwomajorcomponents;themoneymarketandthecapitalmarket. MoneymarketisregulatedbytheReserveBankofIndiaandthecapitalmarketisregulatedbytheapex regulatorSEBI Theprincipalaimofthemarketregulatoristoprotecttheinterestsoftheinvestorsandregulatethe activitiesofvariousmarketplayerswhoprovidevarioustypesoffinancialservices.Allsuchagenciesare requiredtoobtainregistrationfromtheSEBI.Undersection12oftheAct.SEBImonitorsandcontrols theiractivities.ForthispurposeSEBIhasprescribedregulations.Toensurethattheintermediary renderingfinancialservicesismanagedbyfitandproperpersonsSEBIhasprescribednormsforeachof themunderrespectiveregulations.Theseregulationsprescribetheregulationsaimedatregulatingtheir activitiesandtheyarerequiredtofollowtheseduringtheperiodtheycontinuetoholdthelicense, whichtheymustrenewfromtimetotime.

 TheseRegulationsinclude: (a) regulatingthebusinessinstockexchangesandanyothersecuritiesmarkets; (b) registering and regulating the working of stock brokers, subbrokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters,portfoliomanagers,investmentadvisersandsuchotherintermediarieswhomay beassociatedwithsecuritiesmarketsinanymanner; (c) registeringandregulatingtheworkingofthedepositories,participants,custodiansofsecurities, foreigninstitutionalinvestors,creditratingagenciesandsuchotherintermediariesastheBoard may,bynotification,specifyinthisbehalf; (d) registering and regulating the working of venture capital funds and collective investment schemes,includingmutualfunds; (e) promotingandregulatingselfregulatoryorganisations; (f) prohibitingfraudulentandunfairtradepracticesrelatingtosecuritiesmarkets; (g) promotinginvestorseducationandtrainingofintermediariesofsecuritiesmarkets; (h) prohibitinginsidertradinginsecurities; (i) regulatingsubstantialacquisitionofsharesandtakeoverofcompanies; (j) callingforinformationfrom,undertakinginspection,conductinginquiriesandauditsofthestock exchanges, mutual funds, other persons associated with the securities market, intermediaries andselfregulatoryorganisationsinthesecuritiesmarket; (k) callingforinformationandrecordfromanybankoranyotherauthorityorboardorcorporation established or constituted by or under any central, state or provincial Act in respect of any transactioninsecuritieswhichisunderinvestigationorinquirybytheBoard; SEBI is vested with powers of a civil court for carrying out its functions. They have power of inspection, investigation, summoning and examining any person and for discovery of any documents

Q8Theresponsibilitiesoffinancialmanagersarelinkedtogoalofmeasuringliquidity,profitabilityor bothandarealsorelatedtothemanagementofassetsandfundsofanybusinessenterprise. Theresponsibilitiesoffinancialmanagersinclude 1.InvestmentDecision 2.FinanceDecision 3.Divivdentdecision 4.WorkingCapitalDecisionetc. SincetheFinancialManagementisthesubjectthatbridgesthegapbetweentheinvestorsoffundand thesavesofthefund,soistheroleoffinancialmanagerinan organisation. ThekeyresponsibilitiesofFinancialManagerinanOrganisationare:

 1)ArrangementofShortTermandLongTermfundsi.e,workingcapitalandtermloanforthesurvivalof aparticularproject. 2)Tomakedecisionsregardingthefinancialfeasibilityofprojects(bycheckingtheNetPresentvalueor DiscountedCashFlowsofaparticularproject) 3)TofocusontheCostMinimisationandProfitMaximation.prepare (1)cashflowstatement (2)profitandlossa/c (3)balancesheets 4.Thefinancialmanagerhastodealwith (1)anticipationoffunds(capitalisation) (2)anticipationoffund(raisingoffund) (3)allocationoffund(investmentdecision) (4)assessmentoffund(evaluationoffinancial activities) Q9.Writenoteontakeoverofalistedcompany InordertopreventtakeovertheoflistedcompanywithoutintimationSEBIActprovides thatifanypersonfailsto: (i) disclosetheaggregateofhisshareholdinginthebodycorporatebeforeheacquiresanyshares ofthatbodycorporate;or (ii) makesuchapublicannouncementtoacquiresharesataminimumprice,heshallbeliabletoa penaltynotexceedingfivelakhrupees; (iii) makeapublicofferbysendingletterofoffertotheshareholderswhosoldtheirsharespursuant toletterofoffer, heshallbeliabletoapenaltyoftwentyfivecrorerupeesorthreetimestheamountofprofitsmadeout ofinsidertrading;whicheverishigher. Section 15H provides that if a person indulges in fraudulent and unfair trade practices relating to securities,heshallbeliabletoapenaltyoftwentyfivecrorerupeesorthreetimestheamountofprofits madeoutofsuchpractices,whicheverishigher. Q.10writenoteonuniqueidentificationnumber. SEBIhasissuednewregulationsin2003forgettingdatabaseUniqueIdentificationNumbersfor marketparticipants

 Everyspecifiedintermediary,otherentity,specifiedlistedcompanyandspecifiedinvestoristomake applicationforallotmentofuniqueidentificationnumbersforitselfandforitsrelatedpersonsin accordancewiththeseregulations. Q11Financialmarkets,financialservicesandfinancialinstrumentsareintegratedpartofFinancial systemcriticallyexamine. Financialsystemcoversbothcreditandcashtransactions.Allfinancialtransactionsaredealtwithby cash payment or issue of negotiable instruments like cheque, bills of exchanges, hundies etc. Thus a financial system is a set of institutional arrangements through which financial surpluses are mobilised from the units generating surplus income and transferring them to the others in need of them. The activities include production, distribution, exchange and holding of financial assets/instruments of different kinds by financial institutions, banks and other intermediaries of the market. In a nutshell, financial market, financial assets, financial services and financial institutions constitute the financial system. FinancialMarkets Efficienttransferofresourcesfromthosehavingidleresourcestootherswhohaveapressingneed forthemisachievedthroughfinancialmarkets.Statedformally,financialmarketsprovidechannelsfor allocationofsavingstoinvestment.Theseprovideavarietyofassetstosaversaswellasvariousformsin whichtheinvestorscanraisefundsandtherebydecoupletheactsofsavingandinvestment.Thesavers andinvestorsareconstrainednotbytheirindividualabilities,butbytheeconomysability,toinvestand saverespectively.Thefinancialmarkets,thus,contributetoeconomicdevelopmenttotheextentthat thelatterdependsontheratesofsavingsandinvestment. Thefinancialmarketshavetwomajorcomponents;themoneymarketandthecapitalmarket.,The Capitalmarketagainhastwomajorcomponents(a)primarymarketand(b)Secondarymarket FinancialInstruments Savingsarelinkedtoinvestmentsbyavarietyofintermediariesthrougharangeofcomplexfinancial productscalledsecuritieswhichisdefinedintheSecuritiesContracts(Regulation)Act,1956toinclude shares,scrips,stocks,bonds,debentures,debenturestock,orothermarketablesecuritiesoflikenature inorofanyincorporatecompanyorbodycorporate,governmentsecurities,derivativesofsecurities, unitsofcollectiveinvestmentscheme,securityreceipts,interestandrightsinsecurities,oranyother instrumentssodeclaredbythecentralgovernment.

 Financialservices . The issuers and investors are the consumers of services rendered by the intermediaries while the investors are consumers of securities issued by issuers. Those who receive funds in exchange for securitiesandthosewhoreceivesecuritiesinexchangeforfundsoftenneedthereassurancethatitis safetodoso.Thisreassuranceisprovidedbythelawandcustom,oftenenforcedbytheregulator.The regulator develops fair market practices and regulates the conduct of issuers of securities and the intermediaries so as to protect the interests of investors in securities. The regulator ensures a high standardofservicefromintermediarieswhorenderspecializedfinancialserviceandensuresupplyof qualitysecuritiesandnonmanipulateddemandfortheminthemarket. Q.12.ExplainInsidertrading.DiscussinspectionandInvestigationmechanismforinsidertrading.What isthepenaltyforinsidertrading? Insimpletermsinsidertradingbuyingorsellingasecurity,inbreachofafiduciarydutyorother relationshipoftrust,andconfidence,whileinpossessionofmaterial,nonpublicinformationaboutthe security Thus,innutshell,insidertradingisthebuying,sellingordealinginsecuritiesofalistedcompanybya director,memberofmanagement,employeeofthecompany,orbyanyotherpersonsuchasinternal auditor,advisor,consultant,analystetc,whohasknowledgeofmaterialinsideinformationwhichis notavailabletogeneralpublic InsubstantialInvestigativeInfrastructure ProvingInsiderTradingisabizarrelydifficulttaskowingtothelackofmaterialproofinmajorityofcases. InsiderTradingcannotbeprovedbeyondreasonabledoubtsunlessthereissubstantialmaterialproof supportingitorwhentheinsiderhimselfconfessesinanadmissibleform,tohaveindulgedinthe dealingofconfidentialinformationforpersonalgains,whichisveryrareapossibilityandisnotexpected tohappeninpracticalworld.IndulginginbuyingandsellingofSecuritiesisalegalpractice.Itisonly whatsinthemindofthedealerthatconstitutesthebasisofitslegality. LoweringdownthedegreeofproofrequiredtoproveacaseofInsiderTradingwouldbeunaccounted for,asIndianJudiciaryhasalwaysbelievedinacquitting100guiltyoffendersinanattemptnotto convictoneinnocentperson.Eventhoughtheremovalofthewords,byvirtueofsuchconnection cameasarelieftoSEBIandsimplifieditstaskofprovinganinsidertradingcasetoagreatextent,itis stillrecommendedthattheSEBIshouldbegrantedslightlyextendedpowersformoreexhaustiveand efficaciousinvestigationofcasesinvolvingInsiderTrading,whichwoulddefinitelybehelpfulin impartingjusticeandconvictingeverysuchviolatoroftheInsiderTradingregulationsbyproviding greaterdegreesofpositiveevidencesupportingeverysuchconvictionthusprovingeverycasebeyond reasonabledoubts.Becausedespiteofnothavingtoprovetheconnectionoftheaccusedwiththe company,mostofthecasesarenotestablishedowingtothelackofevidencegatheredagainstthe accused.

 Furthermore,itisnecessarythattheSEBIshouldbeprovideddownrightassistanceoftheofficial governmentinvestigativeagencieslikeCentralEconomicIntelligenceBureau(CEIB)toinvestigateinto themattersrelatingtoInsiderTradingsoastoimprovethestandardsofinvestigationandhastenupthe processofgatheringproofagainsttheinsider.SEBIalreadyhasaccesstotheCBI(CentralBureauof Investigation)wheneveritseekshelpininvestigationandcollectionofevidence.Butanyadditionalhelp wouldprovetobeusefulandverymuchwelcomebySEBI.Suchapracticeofofficialgovernmental assistanceininvestigationintoInsiderTradingmattershasalsoprovedtobeextremelysuccessfuland efficientintheUnitedStates,whereTheFederalBureauofInvestigation(FBI)aidstheSecuritiesand ExchangeCommission(SEC)ininspectingthecasesofInsiderTradinginamorecomprehensiveandyet expeditiousway.Ithas,therefore,shownahigherrateofindictmentsintherecentpast. PenaltyforInsiderTrading Section15Glaysdownthatifanyinsider: (i) eitheronhisownbehalforonbehalfofanyotherperson,dealsinsecuritiesofabodycorporate listedonanystockexchangeonthebasisofanyunpublishedpricesensitiveinformation;or (ii) communicates any unpublished price sensitive information to any person, with or without his requestforsuchinformationexceptasrequiredintheordinarycourseofbusinessorunderany law;or (iii) counsels,orprocuresforanyotherpersontodealinanysecuritiesofanybodycorporateonthe basisofunpublishedpricesensitiveinformation, heshallbeliabletoapenaltyoftwentyfivecrorerupeesorthreetimestheamountofprofitsmadeout ofinsidertrading,whicheverishigher.

 STUDYIII MONEYMARKET Q13BrieflydiscussguidelinesfortheIssueofcommercialpaper Ans .IssueofCommercialPaper Corporates and primary dealers (PDs), and the allIndia financial institutions (FIs) that have been permitted to raise shortterm resources under the umbrella limit fixed by Reserve Bank of India are eligibletoissueCP. AcorporatewouldbeeligibletoissueCPprovided: (a) thetangiblenetworthofthecompany,asperthelatestauditedbalancesheet,isnotlessthan Rs.4crore; (b) companyhasbeensanctionedworkingcapitallimitbybank/sorallIndiafinancialinstitution/s; and (c) theborrowalaccountofthecompanyisclassifiedasaStandardAssetbythefinancingbank/s/ institution/s. RatingRequirement AlleligibleparticipantsshallobtainthecreditratingforissuanceofCommercialPaperfromeitherthe CreditRatingInformationServicesofIndiaLtd.(CRISIL)ortheInvestmentInformationandCreditRating AgencyofIndiaLtd.(ICRA)ortheCreditAnalysisandResearchLtd.(CARE)ortheFITCHRatingsIndiaPvt. Ltd. or such other credit rating agencies as may be specified by the Reserve Bank of India from time to time,forthepurpose.TheminimumcreditratingshallbeP2ofCRISILorsuchequivalentratingbyother agencies.TheissuersshallensureatthetimeofissuanceofCPthattheratingsoobtainediscurrentand hasnotfallendueforreview. Maturity CPcanbeissuedformaturitiesbetweenaminimumof7daysandamaximumuptooneyearfrom the date of issue. The maturity date of the CP should not go beyond the date up to which the credit ratingoftheissuerisvalid. Denominations CP can be issued in denominations of Rs.5 lakh or multiples thereof. Amount invested by a single investorshouldnotbelessthanRs.5lakh(facevalue). LimitsandtheAmountofIssueofCP CP can be issued as a "stand alone" product. The aggregate amount of CP from an issuer shall be within the limit as approved by its Board of Directors or the quantum indicated by the Credit Rating Agencyforthespecifiedrating,whicheverislower.BanksandFIswill,however,havetheflexibilitytofix working capital limits duly taking into account the resource pattern of companies financing including

 CPs.AnFIcanissueCPwithintheoverallumbrellalimitfixedbytheRBIi.e.,issueofCPtogetherwith other instruments viz., term money borrowings, term deposits, certificates of deposit and intercorporatedepositsshouldnotexceed100percentofitsnetownedfunds,asperthelatestaudited balancesheet.ThetotalamountofCPproposedtobeissuedshouldberaisedwithinaperiodoftwo weeksfromthedateonwhichtheissueropenstheissueforsubscription.CPmaybeissuedonasingle dateorinpartsondifferentdatesprovidedthatinthelattercase,eachCPshallhavethesamematurity date.EveryissueofCPincludingrenewalshouldbetreatedasafreshissue. Issuing&PayingAgent(IPA) OnlyascheduledbankcanactasanIPAforissuanceofCP. InvestmentinCP CPmaybeissuedtoandheldbyindividuals,bankingcompanies,othercorporatebodiesregistered or incorporated in India and unincorporated bodies, NonResident Indians (NRIs) and Foreign Institutional Investors (FIIs). However, investment by FIIs would be within the limits set for their investmentsbySecuritiesandExchangeBoardofIndia(SEBI). ModeofIssuance CPcanbeissuedeitherintheformofapromissorynoteorinadematerializedformthroughanyof thedepositoriesapprovedbyandregisteredwithSEBI.CPwillbeissuedatadiscounttofacevalueas maybedeterminedbytheissuer.NoissuershallhavetheissueofCPunderwrittenorcoaccepted. PreferenceforDematerialisation While option is available to both issuers and subscribers to issue/hold CP in dematerialised or physical form, issuers and subscribers are encouraged to prefer exclusive reliance on dematerialized formofissue/holding.However,witheffectfromJune30,2001,banks,FIsandPDsarerequiredtomake freshinvestmentsandholdCPonlyindematerialisedform. PaymentofCP The initial investor in CP shall pay the discounted value of the CP by means of a crossed account payee cheque to the account of the issuer through IPA. On maturity of CP, when the CP is held in physicalform,theholderoftheCPshallpresenttheinstrumentforpaymenttotheissuerthroughthe IPA. However, when the CP is held in demat form, the holder of the CP will have to get it redeemed throughthedepositoryandreceivepaymentfromtheIPA. StandbyFacility InviewofCPbeinga'standalone'product,itwouldnotbeobligatoryinanymanneronthepartof the banks and FIs to provide standby facility to the issuers of CP. Banks and FIs have, however, the flexibilitytoprovideforaCPissue,creditenhancementbywayofstandbyassistance/credit,backstop facility etc. based on their commercial judgement, subject to prudential norms as applicable and with specificapprovaloftheirBoards. Nonbank entities including corporates may also provide unconditional and irrevocable guarantee forcreditenhancementforCPissueprovided:

 (i) theissuerfulfilstheeligibilitycriteriaprescribedforissuanceofCP; (ii) theguarantorhasacreditratingatleastonenotchhigherthantheissuergivenbyanapproved creditratingagency;and (iii) the offer document for CP properly discloses the net worth of the guarantor company, the namesofthecompaniestowhichtheguarantorhasissuedsimilarguarantees,theextentofthe guaranteesofferedby theguarantorcompany,andthe conditionsunderwhichthe guarantee willbeinvoked. ProcedureforIssuance Every issuer must appoint an Issuing and Paying Agent (IPA) for issuance of CP. The issuer should disclose to the potential investors its financial position as per the standard market practice. After the exchangeofdealconfirmationbetweentheinvestorandtheissuer,issuingcompanyshallissuephysical certificatestotheinvestororarrangeforcreditingtheCPtotheinvestor'saccountwithadepository. InvestorsshallbegivenacopyofIPAcertificatetotheeffectthattheissuerhasavalidagreementwith theIPAanddocumentsareinorder. STUDYIV CAPITALMARKETINSTRUMENTS O14Writeashortnoteondualoptionwarrants Ans. Dual option warrants are designed to provide the buyer with good potential of capital appreciation and limited downside risk. Dual option warrants may be used to sell equity shares in different markets. For example, equity shares or debentures may be issued with two warrants one warrantgivingrighttothepurchasertobeallottedoneequityshareattheendofacertainperiodand anotherwarrantwithadebtorpreferenceshareoption. Q15.Writeashortnote ExchangeTradedfund Exchangetradedfunds(ETFs)areanewvarietyofmutualfundthatfirstbecameavailablein1993 Theyaresimilartoindexmutualfundsbutaretradedmorelikeastock.Astheirnameimplies,Exchange TradedFundsrepresentabasketofsecuritiesthataretradedonanexchange.Aswithallinvestment products,exchangetradedfundshavetheirshareofadvantagesanddisadvantages. AdvantagesofExchangeTradedFunds Beingsimilartostocks,exchangetradedfundsoffermoreflexibilitythanatypicalmutualfund. ETFscanbeboughtandsoldthroughoutthetradingday,allowingforintradaytradingwhichis rarewithmutualfunds. TradershavetheabilitytoshortorbuyETFsonmargin. Lowannualexpensesrivalthecheapestmutualfunds.

 TaxefficiencyduetoSECregulations,ETFtendtobeatoutmutualfundswhenitcomestotax efficiency(ifitisanontaxableaccountthentheyareequal). DisadvantagesofExchangeTradedFunds Unfortunately,exchangetradedfundsdohavesomenegatives: Commissionslikestocks,tradingexchangetradedfundsareanextracost. OnlyinstitutionsandtheextremelywealthycandealdirectlywiththeETF.Companiesmustbuy throughabroker. Unlike mutual funds, ETFs dont necessarily trade at the net asset values of their underlying holdings, meaning an ETF could potentially trade above or below the value of the underlying portfolios. Slippageaswithstocks,thereisabidaskspread,meaningyoumightbuytheETFfor151/8butcan onlysellitfor15(whichisbasicallyahiddencharge). Q16Distinguishbetweendisasterbondsanddualconvertiblebonds Ans. DisasterBonds Theseareissuedbycompaniesandinstitutionstosharetheriskandexpandthecapitaltolink investorsreturnwiththesizeofinsurerlosses.Thebiggerthelosses,thesmallerthereturnand viceversa.Thecouponrateandtheprincipalofthebondsaredecidedbytheoccurrenceofthe casualtyofdisasterandbythepossibilityofborrowersdefaults DualConvertibleBonds Adualconvertiblebondisconvertibleintoeitherequitysharesorfixedinterestrate debentures/preferencesharesattheoptionofthelender.Dependingontheprospectsofthe projectduringtheconversionperiod,thelendermayexerciseeitheroftheoptions.Thefixed interestratedebenturemayhavecertainadditionalfeaturesincludinghigherrateofinterest distinctfromtheoriginaldebtinstrument Q17.WriteanoteonHybridinstruments Hybridinstruments:Hybridinstrumentsarethosewhicharecreatedbycombiningthefeatures of equity with bond, preference and equity etc. Examples of Hybrid instruments are: Convertible preference shares, Cumulative convertible preference shares, non convertible debentures with equity warrants, partly convertible debentures, partly convertible debentures with Khokha (buyback arrangement), Optionally convertible debenture, warrants convertible into debentures or shares, securedpremiumnoteswithwarrantsetc.Futuresandoptionsbelongtothecategoriesofderivatives.

 Q18.WhatismeantbysweatEquity? SweatEquityShares Sweat equity share is a instrument permitted to be issued by specified Indian companies, under Section79AofCompaniesAct,1956insertedbyCompanies(Amendment)Act,1999w.e.f.31stOctober, 1998. According to this section a public company may issue sweat equity shares of a class of shares alreadyissuedifthefollowingconditionsarefulfilled: (a) Theissueofsweatequityshareisauthorisedbyaspecialresolutionpassedbythecompanyin thegeneralmeeting. (b) Theresolutionspecifiesthenumberofshares,currentmarketprice,considerationifanyandthe classorclassesofdirectorsoremployeestowhomsuchequitysharesaretobeissued. (c) Not less than one year has elapsed at the date of the issue, since the date on which the companywasentitledtocommencebusiness. (d) The sweat equity shares of a company whose equity shares are listed on a recognised stock exchangeareissuedinaccordancewiththeregulationsmadebySEBIinthisregard. However, in the case of a company whose equity shares are not listed on any recognised stock exchange, the sweat equity shares are to be issued in accordance with the guidelines as may be prescribed. The expression company means company incorporated, formed and registered under the CompaniesAct,1956,andincludesitssubsidiarycompanyincorporatedinaCountryoutsideIndia. All the limitations, restrictions and provisions relating to equity shares are also applicable to such sweatequitysharesissuedunderthenewSection79A. As per explanation II under the Section, sweat equity shares can be issued by the company to employeesordirectorsatadiscountorforconsiderationother than cash,forproviding knowhowor makingavailablerightsinthenatureofintellectualpropertyrightsorvalueadditions,bywhatevername called. It may be noted that the intellectual property right, know how or value additions arise as of now mainly in the case of Information Technology related companies and Pharmaceutical companies. Categoriesofindustrieswhichareeligibletoissuesweatequityshareshavenotbeenindicatedbythe GovernmenteitherintheActorotherwise. The term sweat equity indicates equity issued to directors and long time employees who have toiled from the inception of the company to build it with a brand image and thus contributed significantlybytheireffortsinthisdirection. Sincethesesharesareissuedatadiscountorforconsiderationotherthancash,thecompanywill generallyselectthoseemployeesanddirectorsaspernormsapprovedbytheBoardofDirectors,based ontheknowhowprovidedorintellectualpropertyrightscreatedandgivenforvalueadditionsmadeby suchdirectorsandemployeestothecompany.

 STUDYV CREDITRATING Q19.Explainthegradingscalesforhealthcareinstitutions Thegradingscaleforhealthcareinstitutionswillhavetwocomponents.Thefirstwillbethehospital classificationsuchas Nursinghome Generalsecondarycare Specialtysecondarycare Singlespecialtytertiarycare Multispecialtytertiarycare Thesecondcomponentofthegradingscalewillbethehospital'sgradingwithinthatclassificationon afourpointscale.Thus,atypicalgradingcouldreadGeneralsecondarycarehospitalassignedGradeC orNursinghomeassignedGradeB. The hospital classification will be based on the number of specialties offered by the hospital. The definitionforvariousgrades,asenvisagedcurrently,isgivenbelow: GradeA: ReflectsVeryGoodQualityofdeliveredpatientcare.Ahealthcareinstitutiongraded inthiscategoryhasfacilities,equipment,manpowerandservicequalitylevelswhich areconsistentwiththehigheststandardsintheIndianhealthcareindustry. GradeB: Reflects Good Quality of delivered patient care. A healthcare institution graded in this category has facilities, equipment, manpower and service quality levels which areconsistentwithhighstandardsintheIndianhealthcareindustry,althoughthese wouldbelowerthanhealthcarequalitylevelsinGradeAhospitals. GradeC: Reflects an Average Quality of delivered patient care. A healthcare institution graded in this category has facilities, equipment, manpower and service quality levels which are consistent with adequate standards in the Indian healthcare industry.Improvementsinspecificareaswouldberequiredforsuchhospitalstobe eligibleforahighergrade. The grading reflects Poor Quality of delivered patient care. The healthcare institutiongradedinthiscategoryhasfacilities,equipment,manpowerandservice quality levels which are below the average standards in the Indian healthcare industry.Thegradingindicatesthatqualitystandardswouldneedtobesetupinthe institutionandsubstantialimprovementsinpatientcarewouldbeneededtoobtain ahighergrade.

GradeD:

.Q20.Explainthefollowingcreditratingsymbols Ans. ER1A ExcellentEarningsProspects;LowRisk

 ER1C M1 ExcellentEarningsProspects;HighRisk Indicatesverylowsensitivitytochanginginterestratesand othermarketconditions.Thisisfordebtfunds STUDYVI CAPITALMARKETINTERMEDIARIES Q.21whatactionliesagainstSEBIRegisteredIntermediariesincaseofdefaultunderSEBIAct,1992. Ans.Theactioncouldbeanyofthefollowing (i)suspensionofcertificateofregistrationforaspecifiedperiod; (ii) cancellationofcertificateofregistration; (iii) prohibitingtheintermediarytotakeupanynewassignmentorcontractorlaunchanewscheme fortheperiodspecifiedintheorder; (iv) debarring a principal officer of the intermediary from being employed or associated with any registeredintermediaryorotherregisteredpersonfortheperiodspecifiedintheorder; (v) debarringabranchoranofficeoftheintermediaryfromcarryingoutactivitiesforthespecified period; (vi) warningtheintermediary. Q32Discusstheregulatoryframeworkgoverningprimarymarketintermediaries. Ans. 1.SEBIhasissuedregulationsinrespectofeachintermediarytoensureproperservicestoberendered bythemtotheinvestorsandthecapitalmarket. In the present regime a dozen regulations govern different categories of intermediaries. The broad frameworkofsuchregulationsissimilartooneanother.SEBIhasissuedSecuritiesandExchangeBoardof India(Intermediaries)Regulations,2008. 1PermanentRegistration SubjecttocompliancewiththeSEBIAct,regulations,updationofrelevantdisclosuresandpayment offeesregistrationshallbepermanent. 2.Registrationformultipleactivities Theprocessforregistrationforundertakingmultipleactivitiesbythesameintermediaryhasbeen simplified. 3.RegistrationForminformationdividedintotwoparts Part 1 of the form will be disclosed and available to the public and Part II will contain such informationwhichwillberetainedwiththeBoardasregulatoryfiling. 4.FitandProperpersonrequirements The criteria to determine whether the intermediary is a Fit and Proper person have been revised

 andarenowprinciplebased. 5.Suspension/Cancellationofcertificateofregistration Themannerofsuspension/cancellationofanycertificategrantedtoanypersonhasbeenprovided intheregulations.ConsequentlytheSEBI(Procedureforholdingenquirybyenquiryofficerandimposing penalty) Regulations, 2002 will be repealed. The procedure for suspension/cancellation has been simplifiedandthetimetakeninthisregardissoughttobereduced. Q22.Whatarethedutiesandresponsibilitiesofthemerchantbankerwithrespecttoofferdocuments Ans 1. TheCompaniesarerequiredtoAppointmentaleadmerchantbanker&exerciseofduediligence byhim 2. Paymentofrequisitefeeinaccordancewithregulation24AofSecuritiesandExchangeBoardof India(MerchantBankers)RulesandRegulations,1992bytheleadmerchantbanker,alongwith draftofferdocumenttobepaid/filedwiththeBoard. 3. DocumentstobesubmittedalongwiththeOfferDocumentbytheLeadManager i. MemorandumofUnderstanding(MOU) ii. InterseAllocationofResponsibilitiestherearemorethanoneleadmangers iii. DueDiligenceCertificate iv. CertificatesSignedbytheCompanySecretaryorCharteredAccountant,inCaseofListed CompaniesMakingFurtherIssueofCapital v. PrescribedUndertakingregardingtransactionsinsecuritiesbythe`promoter'the 'promotergroup'andtheimmediaterelativesofthe`promotersduringtheperiod betweenthedateoffilingtheofferdocumentswiththeRegistrarofCompaniesorStock ExchangeasthecasemaybeandthedateofclosureoftheissuetobereportedtoStock Exchangeswithin24hoursofsuchtransactions vi. ListofPromotersGroupandotherDetails 4. OfferDocumenttobeMadePublic:ThedraftofferdocumentfiledwiththeBoardshallbemade publicforaperiodof21daysfromthedateoffilingtheofferdocumentwiththeBoard. 5. DespatchofIssueMaterial 6. NoComplaintsCertificate:Tobefiledbyleadmerchantbankerafteraperiodof21daysfrom thedatethedraftofferdocumentwasmadepublic, 7. Thestandardofduediligenceshallbesuchthatthemerchantbankershallsatisfyhimselfabout alltheaspectsofoffering,veracityandadequacyofdisclosureintheofferdocuments.The liabilityofthemerchantbankerasreferredaboveshallcontinueevenafterthecompletionof issueprocess.

 DueDiligenceCertificate 1. TheLeadMerchantBanker,shallfurnishtotheBoardaduediligencecertificateasspecifiedin ScheduleIIIalongwiththedraftprospectus. 2. Incaseofadebentureissue,theleadmerchantbankershallalsofurnishtotheBoardadue diligencecertificategivenbythedebenturetrusteeintheformatspecifiedinScheduleIIIAalong withthedraftofferdocument 3. Inadditiontotheduediligencecertificatefurnishedalongwiththedraftofferdocument,the LeadMerchantBankershallalso: i. certifythatallamendmentssuggestionorobservationsmadebyBoardhavebeen incorporatedintheofferdocument; ii. furnishafresh"duediligence"certificateatthetimeoffilingtheprospectuswiththe RegistrarofCompaniesaspertheformatspecifiedatScheduleIVoftheRegulations iii. furnishafreshcertificateimmediatelybeforetheopeningoftheissuethatnocorrective actiononitspartisneededaspertheformatspecifiedatScheduleVoftheRegulations iv. furnishafreshcertificateaftertheissuehasopenedbutbeforeitclosesforsubscription aspertheformatspecifiedatScheduleVIoftheRegulations 4. Theleadmanagerswhoareresponsibleforconductingduediligenceexercisewithrespectto contentsoftheofferdocument,asperinterseallocationofresponsibilitiesshallsigndue diligencecertificate CertificatesSignedbytheCompanySecretaryorCharteredAccountant,inCaseofListedCompanies MakingFurtherIssueofCapital TheLeadMerchantBankershallfurnishthefollowingcertificatesdulysignedby(CompanySecretary)or CharteredAccountantsalongwiththedraftofferdocuments: i. ii. iii. iv. v. vi. allrefundordersofthepreviousissuesweredespatchedwithintheprescribedtimeandinthe prescribedmanner; allsecuritycertificatesweredespatchedtotheallotteeswithintheprescribedtimeandinthe prescribedmanner; thesecuritieswerelistedontheStockExchangesasspecifiedintheofferdocuments. ThedraftofferdocumentfiledwiththeBoardshallbemadepublicforaperiodof21daysfrom thedateoffilingtheofferdocumentwiththeBoard. Theleadmerchantbankershall,whilefilingthedraftofferdocumentwiththeBoardalsofilethe draftofferdocumentwiththestockexchangeswherethesecuritiesareproposedtobelisted makecopiesofdraftofferdocumentavailabletothepublic.hostthedraftandfinaloffer documentsonthewebsitesofthealltheleadmanagers/syndicatemembersassociatedwith theissueandalsoensurethatthecontentsofdocumentshostedonthewebsitesarethesame asthatoftheirprintedversions) obtainandfurnishtotheBoard,aninprincipleapprovalofthestockexchangesforlistingofthe securitieswithin15daysoffilingofthedraftofferdocumentwiththestockexchanges.

vii.

 Q23ListoutthesalientfeaturesofthecodeofconductprescribedbySEBItoStockBrokers. Ans.Salientfeaturesare (1)Tomaintainhighstandardsofintegrity,promptitudeandfairnessintheconductofallhisbusiness. (2)Toactwithdueskill,careanddiligenceintheconductofallhisbusiness. (3)Nottoindulgeinmanipulative,fraudulentordeceptivetransactionsorschemesorspreadrumours (4)Nottocreatefalsemarketeithersinglyorinconcertwithothers (5)ToabidebyalltheprovisionsoftheActandtherules,regulationsissuedbytheGovernment,the Boardandthestockexchangefromtimetotimeasmaybeapplicabletohim. B.DUTYTOTHEINVESTOR (1Tofaithfullyexecutetheordersforbuyingandsellingofsecuritiesatthebestavailablemarketprice andnotrefusetodealwithaSmall ((2)Itoissuewithoutdelaytohisclient[orclientofthesubbroker,asthecasemaybe]acontractnote foralltransactionsintheformspecifiedbythestockexchange. (3)Nottodiscloseordiscusswithanyotherpersonormakeimproperuseofthedetailsofpersonal investmentsandotherinformationofaconfidentialnatureoftheclientwhichhecomestoknowinhis businessrelationship. (4)BUSINESSANDCOMMISSION: (a)Nottoencouragesalesorpurchasesofsecuritieswiththesoleobjectofgeneratingbrokerageor commission. (b)Nottofurnishfalseormisleadingquotationsorgiveanyotherfalseormisleadingadvice (5)Nottodealortransactbusinessknowingly,directlyorindirectlyorexecuteanorderforaclientwho hasfailedtocarryouthiscommitmentsinrelationtosecuritieswithanotherstockbroker. (6)Tobefairtoclients (7)Nottomakearecommendationtoanyclientwhomightbeexpectedtorelythereontoacquire, disposeof,retainanysecuritiesunlesshehasreasonablegroundsforbelievingthatthe recommendation Q 24. Discuss briefly the provisions of SEBI Act, regarding the penalties leviable on merchant bankers andmutualfunds. Ans.ChapterVIAofSEBIAct,1992,containsSection15AtoJAwhichdealswithpenaltieswhichcanbe imposedundertheActforvariousfailures,defaults,nondisclosureandotheroffences Section11(2)(i)empowersSEBItocallforinformationandconductenquiriesandauditsofthemutual funds,and,intermediariesconnectedwithsuchasmerchantbankers. Section15AlaysdownthatifanypersonwhoisrequiredunderSEBIActoranyrulesorregulations madethereunder:

 (a) to furnish any document, return or report to the Board, fails to furnish the same, he shall be liabletoapenaltyofonelakhrupeesforeachdayduringwhichsuchfailurecontinuesorone crorerupeeswhicheverisless. (b) to file any return or furnish any information, books or other documents within the time specified therefor in the regulations, fails to file return or furnish the same within the time specifiedthereforintheregulations,heshallbeliabletoapenaltyofonelakhrupeesforeach dayduringwhichsuchfailurecontinuesoronecrorerupeeswhicheverisless. (c) to maintain books of accounts or records, fails to maintain the same, he shall be liable to a penaltyofonelakhrupeesforeachdayduringwhichsuchfailurecontinuesoronecrorerupees whicheverisless. Section15BlaysdownthatifanypersonwhoisregisteredasanIntermediaryandisrequiredunder thisActoranyrulesorregulationsmadethereunder,toenterintoanagreementwithhisclient,failsto enter into such agreement, he shall be liable to pay a penalty of one lakh rupees for each day during whichsuchfailurecontinuesoronecrorerupeeswicheverisless. Section 15C lays down that if any listed company or any person who is registered as an Intermediary,afterhavingbeencalleduponbySEBIinwritingtoredressthegrievancesofInvestor,fails toredresssuchgrievanceswithinthetimespecifiedbytheBoard,suchcompanyorintermediaryshall beliabletopayapenalty ofonelakhrupeesforeachday duringwhichsuchfailurecontinuesorone crorerupeeswhcheverisless. PenaltiesforDefault Section15Dand15Fprovideforpenaltiesfordefault. Section15Dlaysdownthatincaseofmutualfunds,ifanypersonwhois: (a) required under this Act or any rules or regulations made thereunder to obtain a certificate of registration from the Board for sponsoring or carrying on any collective investment scheme, including mutual funds, sponsors or carries on any collective investment scheme, including mutualfunds,withoutobtainingsuchcertificateofregistration,heshallbeliabletoapenaltyof one lakh rupees for each day during which he sponsors or carries on any such collective investmentscheme,includingmutualfunds,oronecrorerupees,whicheverisless; (b) registeredwiththeBoardasmutualfund,forsponsoringorcarryingonanyinvestmentscheme, failstocomplywiththetermsandconditionsofcertificateofregistration,heshallbeliabletoa penaltyofonelakhrupeesforeachdayduringwhichsuchfailurecontinuesoronecrorerupees, whicheverisless; (c) registeredwiththeBoardasmutualfund,failstomakeanapplicationforlistingofitsschemes asprovidedforintheregulationsgoverningsuchlisting,heshallbeliabletopenaltyofonelakh rupeesforeachdayduringwhichsuchfailurecontinuesoronecrorerupees,whicheverisless; (d) registered as mutual fund, fails to dispatch unit certificates of any scheme in the manner providedintheregulationgoverningsuchdespatch,heshallbeliabletoapenaltyofonelakh rupeesforeachdayduringwhichsuchfailurecontinuesoronecrorerupees,whicheverisless; (e) registeredasmutualfund,failstorefundtheapplicationmoniespaidbytheinvestorswithinthe

 periodspecifiedintheregulations,heshallbeliabletoapenaltyofonelakhrupeesforeachday duringwhichsuchfailurecontinuesoronecrorerupees,whicheverisless; (f) registeredasmutualfund,failstoinvestmoneycollectedbysuchcollectiveinvestmentschemes inthemannerorwithintheperiodspecifiedintheregulations,heshallbeliabletoapenaltyof one lakh rupees for each day during which such failure continues or one crore rupees, whicheverisless. Section 15E lays down that where any asset management company of a mutual fund registered under SEBI Act fails to comply with any of the regulation providing for restrictions on the activities of suchcompany,itshallbeliabletoapenaltyofonelakhrupeesforeachdayduringwhichsuchfailure continuesoronecrorerupees,whicheverisless. Q25SEBIexpectstheinvestorswiththeireyesandearsopenComment. SEBIhasprescribedregulationsforthedisclosurestobemadebyissuersofsecuritiestappingthe market.Theentireemphasisoftheseregulationsistoensurethatalltheinformationrequiredbythe investorformakinganinformeddecisionisavailableintheofferdocuments.Theissuerisrequirednot onlytogivetheriskfactorsintheofferdocumentsbuthemustalsodrawattentionoftheprospective investorstosuchriskfactorswheneveranyadvertisementisissuedwhetheronair,T.V,hoardings, newspaperandanyotherplace.Itisthedutyofhtemerchantbankerstoexerciseduediligenceto ensurethatdisclosurerequirementsarefulfilledandverifytothepossibleextenttruthfulnessofthe statementsmade.Further,importantmattersoftheprospectusorofferdocumentshavetobegiven alongwitheveryapplicationissued.SEBIhasthusmademechanismavailabletoinvestorstoinvesttheir moneyaftercarefullyconsideringallmaterial. Q26DefinefolioingauthoritiesasperSATRules2000. Ans .(a)PresidngofficerAccordingtoSection15L,whichdealswiththecompositionoftheTribunal,the Securities Appellate Tribunals shall consist of a Presiding Officer and two other members to be appointedbytheCentralGovernmentbynotification. Section15MprescribesthatapersonshallnotbequalifiedforappointmentasthePresidingOfficer ofSecuritiesAppellateTribunalsunlessheisasittingorretiredJudgeoftheSupremeCourtorasitting or retired Chief Justice of a High Court. It has also been prescribed that the presiding officer of the Securities Appellate Tribunal shall be appointed by the Central Government in consulation with chief justice of India or his nominee. A person shall not be qualified for appointment as a member of Securities Appellate Tribunal unless he is a person of ability, integrity and standing who has shown capacityindealingwithproblemsrelatingtosecuritiesmarketandhasqualificationandexperienceof

 corporatelaw,securitieslaws,finance,economicsoraccountancy. (b)Registrar "Registrar" means the Registrar of the Appellate Tribunal and includes an officer of such Appellate TribunalwhoisauthorizedbythePresidingOfficertofunctionasRegistrar. (c)AppellateTribunal Inordertoaffordproperappellateremedies,ChapterVIBofSEBIActprovidesfortheestablishment oftheSecuritiesAppellateTribunalstoconsiderappealsagainstSEBIsorders,ofpenalties. AsperSection15K,theCentralGovernmentisempoweredtoestablishbynotificationsoneormore AppellateTribunals,tobeknownastheSecuritiesAppellateTribunalstoexercisethejurisdiction,power andauthoritiesconferredonsuchTribunalbySEBIAct orundertheActoranyotherlawforthetimebeinginforce.TheCentralGovernmenthassetupa tribunalatMumbai (d)adjudicatingofficer AnordermadebyanadjudicatingofficerunderSEBIAct,isappealable toaSecuritiesAppellateTribunalhavingjurisdictioninthematter. NoappealshalllietotheSecuritiesAppellateTribunalsfromanordermade byanadjudicatingofficer,withtheconsentoftheparties. EveryappealagainsttheorderoftheadjudicatingOfficer,mustbemadewithini45daysoftheorder received by appellant and it shall be in such form and be accompanied by such fee as may be prescribed.. Q27WhenisthestockbrokerliableforprosecutionunderSEBIActandRegulationsmadethereunder. Ans.AstockbrokerorasubbrokershallbeliableforprosecutionunderSection24oftheActfor anyofthefollowingviolations,namely (i) Dealing in securities without obtaining certificate of registration from the Board as a stock brokerorasubbroker. (ii) Dealing in securities or providing trading floor or assisting in trading outside the recognized stock exchange in violation of provisions of the Securities Contract (Regulation) Act, 1956 or rulesmadeornotificationsissuedthereunder. (iii) Marketmanipulationofsecuritiesorindex. (iv) IndulgingininsidertradinginviolationofSecuritiesandExchangeBoardofIndia(Prohibitionof InsiderTrading)Regulations,1992. (v) ViolatingtheSecuritiesandExchangeBoardofIndia(ProhibitionofFraudulentandUnfairTrade PracticesrelatingtoSecuritiesMarket)Regulations,2003. (vi) Failurewithoutreasonablecause (a) toproducetotheinvestigatingauthorityoranypersonauthorizedbyhiminthisbehalf,any

 books,registers,recordsorotherdocumentswhichareinhiscustodyorpower;or (b) toappearbeforetheinvestigatingauthoritypersonallyortoansweranyquestionwhichis puttohimbytheinvestigatingauthority;or (c) tosignthenotesofanyexaminationtakendownbytheinvestigatingauthority. (vii) Failuretopaypenaltyimposedbytheadjudicatingofficerorfailuretocomplywithanyofhis directionsororders. Q28.WhatarestepsinitiatedbytheSEBItoimprovetheworkingofthestockbrokers? 1. EverystockbrokerhastocompulsorilygetregisteredwithSEBIaftersatisfyingcapitaladequacy normsandfitandproperpersonrequirements. 2. Thecodeofconductspecifiedforthestockbrokerisapplicabletothetradingmember,clearing memberandselfclearingmemberandsuchmembersshallatalltimesabidebythesame.The code prescribes compulsory issue of contract notes and fixes obligation to avoid manipulation andensuresfairdealtocustomers. 3. SEBIconductsinspectiontoensureadherencetorules 4. ProcedureforActioninCaseofDefaultisalsolaiddown 5Heavypenaltiesareleviedondefaultingstockbroker 6Stockexchangeshavebeendemutualised STUDYVII STOCKEXCHANGES Q.29.ListoutanyfourmostimportantclausesofthelistingAgreement. Ans Reference Clause16 SubjectMatter Bookclosure/RecordDate Requirement (a) Atleast once in a year the booksshouldbeclosed. (b) Gap between two book closures and/or record dates would be atleast 7 days. (c) No delivery period for all types of corporate actions in case of scrips traded in compulsory dematerializedmode

Reference

SubjectMatter

Requirement (d) Intimate atleast 7 days before corporate actions like mergers, demergers, splits and bonus shares in case of company whose stock derivatives are available or whose stocks form part of an Index on which derivatives are available. (a) Intimate atleast 2 days in advance about the convening of a board meeting to decide the matters (a) to (g) alongside. No prior intimation is required about board meeting in respect of issue of bonus sharesiftheissueisnotin the Agenda of board meeting. (b) Undertakestorecommend to declare all dividend and/or cash bonuses at least 5 days before the commencement of the closure of its transfer books or the record date (c) fixedforthatpurpose. Prior intimation to the exchange for shares on right basis to the existing shareholders at least two daysinadvance. (d) Intimationtotheexchange at least 48 hours in advance, for determination of issue price.

Clause19

ConveningofaBoardMeeting forDeclaration/Decision regarding:

(e) Issue of debentures carrying a right to subscribe to equity shares. (f) Passingoverofdividend (g) Buybackofsecurities (h) Further public offer to be made through the fixed priceroute

Reference

SubjectMatter

Requirement Furnish information to the Stock Exchanges within 15 minutes of the closure of the Board Meeting. (a) CompaniestoprepareCash Flow Statement in accordance with AS3 of ICAI and present it under the indirect method. Companies to send a statement containing the salient features of the BalanceSheet,P&LA/cand Auditors Report to each share holder. Unabridged Annualreporttobesentto memberoflistedexchange on his request. Company will publish Consolidated Financial Statements duly audited by the statutory auditors and file the same withStockExchange. (b) Company will also make relatedpartydisclosuresin itsAnnualReports. File with the exchange the shareholding pattern in the prescribed form within 21 days fromtheendofthequarterona quarterlybasis. The format for reporting the shareholding pattern must includedetailsofsharespledged bythepromotersandpromoters groupandisrequiredtobegiven for each class of security separately.Theadditionalformat should disclose the voting right

Clause20& Decision regarding declaration 22 of dividend, bonus interest paymentbuybackofsecurities, rights, reissue of forfeited shares,callstobemade. Clause32 Cash Flow Statement in the Annual Report, Consolidated Financial Statement and relatedpartydisclosures

Clause35

Shareholding pattern containingdetailsofpromoters holding and nonpromoters holding

Reference

SubjectMatter

Requirement patterninthecompany.

Q30DiscussbrieflytheprovisionsofthelistingagreementwithregardtotheCorporate Governance.

Ans.Theclause49ofthelistingagreementisforensuringcorporategovernancemainrequirementsare asunder CompositionofBoardofDirectors The Board of Directors of the company shall have an optimum combination of executive and non executivedirectors.Further notlessthan50percentoftheboardofdirectorsshallcompriseofnonexecutivedirectors; the number of independent directors would depend on whether the chairman is executive or nonexecutive; iftheBoardhasaNonExecutiveChairman,atleastonethirdoftheBoardshouldcompriseof independentdirectors; if the Board has an Executive Chairman, at least half of the Board should comprise of independentdirectors. If the nonexecutive Chairman is a promoter or is related to promoters or persons occupying managementpositionsattheboardleveloratonelevelbelowtheboard,atleastonehalfoftheboard of the company should consist of independent directors. The expression related to any promoter means: (a) If the promoter is a listed entity, its directors other than the independent directors, its employeesoritsnomineesshallbedeemedtoberelatedtoit; (b) Ifthepromoterisanunlistedentity,itsdirectors,itsemployeesoritsnomineesshallbedeemed toberelatedtoit. DefinitionofIndependentDirector Independentdirectorshallmeannonexecutivedirectorofthecompanywho (a) apart from receiving directors remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associates which may affect the independenceofthedirector; (b) isnotrelatedtopromotersorpersonsoccupyingmanagementpositionsattheboardlevelorat onelevelbelowtheboard; (c) hasnotbeenanexecutiveofthecompanyintheimmediatelyprecedingthreefinancialyears; (d) isnotapartneroranexecutiveorwasnotpartneroranexecutiveduringtheprecedingthree

 years,ofanyofthefollowing: (i) thestatutoryauditfirmortheinternalauditfirmthatisassociatedwiththecompany; (ii) thelegalfirm(s)andconsultingfirm(s)thathaveamaterialassociationwiththecompany; (e) is not a material supplier, service provider or customer or a lessor or lessee of the company whichmayeffecttheindependenceofthedirector; (f) isnotasubstantialshareholderofthecompany,i.e.owningtwopercentormoreoftheblockof votingshares;and (g) isnotlessthan21yearsofage. NomineeDirectorsaretreatedasIndependentDirector Nonexecutivedirectorscompensationanddisclosures The clause provides that all fees/compensation, if any paid to nonexecutive directors, including independent directors, shall be fixed by the Board of Directors and require previous approval of shareholdersingeneralmeeting. DisclosuresonRemunerationofDirectors The specific disclosures on the remuneration of directors regarding all elements of remuneration package of individual directors summarized under major groups such as salary, benefits, bonuses, pensions etc., details of fixed component and performance linked incentives, along with performance criteria,servicecontracts,noticeperiod,severancefees,stockoptiondetails,ifany,andwhetherissued atadiscountaswellastheperiodoverwhichaccruedandoverwhichexercisable,shouldbemadein thesectiononCorporateGovernanceoftheAnnualReport. LimitsonMembershipofCommittees For the purpose of considering the limit of the committees on which a director can serve, Chairmanship/membershipoftheAuditCommitteeandtheShareholders'GrievanceCommitteealone aretobeconsidered. DeclarationtobesignedbyCEO The clause states that all Board members and senior management personnel shall affirm compliance with the code on an annual basis and the Annual Report of the company shall contain a declarationtothiseffectsignedbytheCEO. BoardMeetings TheBoardshallmeetatleastfourtimesayearwithamaximumtimegapoffourmonthsbetween anytwomeetings. BoardCommittees Every company is required to appoint (i) Audit Committee (ii) Shareholders/Investors Grievance Committee

 SubsidiaryCompany (i) AtleastoneindependentdirectorontheBoardofDirectorsoftheholdingcompanyshallbea directorontheBoardofDirectorsofmaterialnonlistedIndiansubsidiarycompany. (ii) TheAuditCommitteeofthelistedholdingcompanyshallalsoreviewthefinancialstatements,in particulartheinvestmentsmadebytheunlistedsubsidiarycompany.

Disclosures Thefollowingdisclosuresarerequiredtobemadeundertheclause: (i) BasisofrelatedPartyTransactions (ii) DisclosureofAccountingTreatment (iii) RiskManagement (iv) Proceedsfrompublicissues,Rightsissues,preferentialissuesetc. (v) RemunerationofDirectors (vi) Management (vii) Shareholders. CEO/CFOCertification TheCEO,i.e.theManagingDirectororManagerappointedintermsoftheCompaniesAct,1956and the CFO i.e. the wholetime Finance Director or any other person heading the finance function dischargingthatfunctionshallcertifytotheBoardthat: (a) Theyhavereviewedfinancialstatementsandthecashflowstatementfortheyearandthatto thebestoftheirknowledgeandbelief: (i) thesestatementsdonotcontainanymateriallyuntruestatementoromitanymaterialfact orcontainstatementsthatmightbemisleading; (ii) thesestatementstogetherpresentatrueandfairviewofthecompanysaffairsandarein compliancewithexistingaccountingstandards,applicablelawsandregulations.

(b) There are, to the best of their knowledge and belief, no transactions entered into by the company during the year which are fraudulent, illegal or violative of the companys code of conduct. (c) Theyacceptresponsibilityforestablishingandmaintaininginternalcontrolsforfinancialreporting and that they have evaluated the effectiveness of the internal control systems of the company pertainingtofinancialreportingandtheyhavedisclosedtotheauditorsandtheAuditCommittee, deficienciesinthedesignoroperationofsuchinternalcontrols,ifany,ofwhichtheyareawareand thestepstheyhavetakenorproposetotaketorectifythesedeficiencies.

 (d) TheyhaveindicatedtotheauditorsandtheAuditcommittee (i) significantchangesininternalcontroloverfinancialreportingduringtheyear; (ii) significant changes in accounting policies during the year and that the same have been disclosedinthenotestothefinancialstatements;and (iii) instances of significant fraud of which they have become aware and the involvement therein, if any, of the management or an employee having a significant role in the companysinternalcontrolsystemoverfinancialreporting.

ReportonCorporateGovernance Thecompanieshavetosubmitaquarterlycompliancereporttothestockexchangeswithin15days fromthecloseofquarteraspertheformatprescribedintheclause.Thereportisrequiredtobesigned eitherbytheComplianceOfficerortheChiefExecutiveOfficerofthecompany. ComplianceCertificate The practising Company Secretaries have also been recognised to issue Certificate of Compliance of ConditionsofCorporateGovernance.Theclauseprovidesthatthecompanyshallobtainacertificatefrom either the auditors or practicing company secretaries regarding compliance of conditions of corporate governanceasstipulatedinthisclauseandannexthecertificatewiththedirectorsreport,whichissent annually to all the shareholders of the company. The same certificate shall also be sent to the Stock Exchangesalongwiththeannualreportfiledbythecompany. Q31Youarecompanysecretaryofanewlistedcompanyandyourmanagingdirectorwantsyouto prepareanoteontheobligationofthecompanyregardingpublicationoffinancialresults. Ans.anoteontheobligationofthecompanyregardingpublicationoffinancialresults. Underclause41alistedhasthefollowingobligations To submit quarterly results to date and annual financial results to the stock exchangeinthemannerprescribed. Tosubmitauditedorunauditedquarterlyandyeartodatefinancialresultstothe stock exchange within one month of end of each quarter (other than the last quarter),subjecttothefollowing: (a) Tosubmitacopyofthelimitedreviewreporttothestockexchange within two months from end of the quarter, in case the company optstosubmitunauditedfinancialresults (b) Financialresultstobeaccompaniedbyauditorsreportincasethe companyoptstosubmitauditedfinancialresults Tosubmitunauditedfinancialresultsforthequarterwithinonemonthofendof the financial year or to submit audited financial results for the entire financial yearwithinthreemonthsofendofthefinancialyear,subjecttothefollowing: To submit audited financial results for the entire financial year, as soonastheyareapprovedbytheBoard,incasethecompanyopts

 tosubmitunauditedfinancialresultsforthelastQuarter Tointimatetheoptiontothestockexchangeinwritingwithinone month of end of the financial year, in case the company opts to submitauditedfinancialresultsfortheentirefinancialyear. Companieshavingsubsidiariesmay,inadditiontosubmittingquarterlyandyear todatestandalonefinancialresultstothestockexchangealsosubmitquarterly and year to date consolidated financial results; and while submitting annual auditedfinancialresultspreparedonstandalonebasis,itshallalsosubmitannual auditedconsolidatedfinancialresultstothestockexchange. To submit financial results to the stock exchange within fifteen minutes of conclusion of the meeting of the Board or Committee in which they were approved. The quarterly financial results submitted shall be approved by the Board of Directors of the company or by a committee thereof, other than the audit committee. Provided that when the quarterly financial results are approved by the Audit CommitteetheyrequiredbeplacedbeforetheBoardatitsnextmeeting: Provided further than while placing the financial results before the Board, the Chief Executive Officer and Chief Financial Officer of the company, by whatever namecalled,havetocertifythatthefinancialresultsdonotcontainanyfalseor misleading statement or figures and do not omit any material fact which may makethestatementsorfigurescontainedthereinmisleading. TheAuditCommitteeshallconsistofnotlessthanonethirdofthedirectorsand shallincludethemanagingdirectorandatleastoneIndependentdirector. The financial results submitted to the stock exchange are be signed by the Chairmanormanagingdirector,orawholetimedirector.Intheabsenceofallof them, it shall be signed by any other director of the company who is duly authorizedbytheBoardtosignthefinancialresults. The limited review report has to be placed before the Board of directors or the Committeebeforebeingsubmittedtothestockexchange. WhenthelimitedreviewreportisplacedbeforetheCommitteetheyshallalsobe placedbeforetheBoardatitsnextmeeting. The annual audited financial results have to be approved by the Board of Directorsofthecompanyandshallbesigned. To give prior intimation of the date and purpose of meetings of the Board or Committee in which the financial results will be considered at leasty two clear calendardayspriortothemeeting(excludingthedateoftheintimationanddate ofthemeeting).

ToissueapublicnoticeinatleastinoneEnglishdailynewspapercirculating in the whole or substantially the whole of India and in one daily newspaper published in the language of the region, where the registered office of the companyissituated. Where there is a variation between the unaudited quarterly or year to date financialresultsandtheresultsamendedpursuanttolimitedreviewforthesame period,and (i) thevariationinnetprofitornetlossaftertaxisinexcessof10%or Rs.10lakhs,whicheverishigher;or (ii) the variation in exceptional or extraordinary items is in excess of 10%orRs.10lakhs,whicheverishigher thecompanyhastosubmittothestockexchangeanexplanationofthereasons for variations, while submitting the limited review report. The explanation of variationssosubmittedshallbeapprovedbytheBoardofDirectors: If the auditor has expressed any qualification or other reservation in respect of auditedfinancialresultssubmittedorpublishedunderthisclause,thecompanyis requireddisclosesuchqualificationorotherreservationandimpactofthesame ontheprofitorloss,whilepublishingorsubmittingsuchresults. If the auditor has expressed any qualification or other reservation in his audit reportorlimitedreviewreportinrespectofthefinancialresultsofanyprevious financial year or quarter which has an impact on the profit or loss of the reportable period, the company is required to include as a note to the financial results (i) howthequalificationorotherreservationhasbeenresolved;or (ii) ifithasnotbeenresolved,thereasonthereforandthestepswhich thecompanyintendstotakeinthematter. Ifthecompanyhaschangeditsnamesuggestinganynewlineofbusiness,itshall disclose the net sales or income, expenditure and net profit or loss after tax figures pertaining to the said new line of business separately in the financial resultsandshallcontinuetomakesuchdisclosuresforthethreeyearssucceeding thedateofchangeinname.

If the company had not commenced commercial production or commercial operationsduringthereportableperiod,thecompanyshall,insteadofsubmitting financialresults,disclosethedetailsofamountraised,theportionsthereofwhich isutilizedandthatremainingunutilized,thedetailsofinvestmentmadepending utilisation,briefdescriptionoftheprojectwhichispendingcompletion,statusof the project and expected date of commencement of commercial production or commercialoperations. The company shall, within 48 hours of conclusion of the Board or Committee meeting at which the financial results were approved, publish a copy of the financial results which were submitted to the stock exchange in at least in one English daily newspaper circulating in the whole or substantially the whole of Indiaandinonedailynewspaperpublishedinthelanguageoftheregion,where theregisteredofficeofthecompanyissituated: Providedthatwherethecompanyhasoptedtosubmitauditedfinancialresults,it shall also publish the qualifications or reservations, if any, expressed by the auditortogetherwiththeauditedresults. Where the company has submitted consolidated financial results in addition to standalonefinancialresults,itshallhaveanoptiontopublisheitherstandalone financialresultsorconsolidatedfinancialresultsinthenewspapers,subjecttothe following: (i) Ifitisdesirousofpublishingconsolidatedfinancialresultsalone,it shallexercisetheoptioninthefirstquarterofthefinancialyearand suchoptionshallnotbechangedduringthefinancialyear; (ii) Incasethecompanychangesitsoptioninanysubsequentyear,it shallfurnishcomparablefiguresforthepreviousyearinaccordance withtheoptionexercisedforthecurrentyear. (iii) Ifthecompanyoptstopublishonlyconsolidatedfinancialresults,it shall give a reference in the newspaper publication, to the places, such as the companys website and stock exchanges websites, wherethestandaloneresultswillbeavailableforperusal. (iv) Ifthecompanyoptstopublishonlystandalonefinancialresults,it shallalsopublishconsolidatedfiguresforturnover,netprofitafter taxandearningspershare.

 STUDYVIII STOCKEXCHANGETRADINGMECHANISM Q32.WritenoteonRollingSettlement

IncaseofRollingSettlements,payinandpayoutofbothfundsandsecurities,iscompletedonthe sameday.

The memberbrokers are required to make payment for securities sold and/ or deliver securities purchasedtotheirclientswithinoneworkingday(excludingSaturday,Sunday,bank&Exchangetrading holidays)afterthepayoutofthefundsandsecuritiesfortheconcernedsettlementiscompletedbythe Exchange. This is the timeframe permitted to the memberbrokers of the Exchange to settle their funds/securitiesobligationswiththeirclientsaspertheByelawsoftheExchange. The settlement calendar, which indicates the dates of the various settlement related activities, is drawnbytheExchangeinadvanceonaquarterlybasisandiscirculatedamongthemarketparticipants. ThesettlementcalendarssodrawnhavebeenstrictlyadheredtobytheExchangeandtherehasbeen generallynocaseofclubbingofsettlementsorpostponementofpayinand/orpayoutduringthelast oversevenyears. The Exchange maintains database of fake/forged, stolen, lost and duplicate securities in physical form with the Clearing House so that distinctive numbers submitted by memberbrokers in case of physical securities on delivery may be matched against the database to weed out bad paper from circulation at the time of introduction of such securities in the market. This database has also been madeavailabletothememberbrokerssothatbothdeliveringandreceivingmemberbrokerscancheck theentryoffake,forgedandstolensharesinthemarket. Q35Writenoteoncircuitbreakers Ans.CircuitBreakers Inadditiontothepricebandsonindividualscrips,SEBIdecidedtoimplementindexbasedmarket widecircuitbreakerssystem,w.e.f.,July02,2001.Thecircuitbreakersareapplicableatthreestagesof the index movement either way at 10 %, 15 % and 20 %. These circuit breakers will bring about a coordinatedtradinghaltinbothEquityandDerivativemarket. ThemarketwidecircuitbreakerscanbetriggeredbymovementofeitherBSESENSEXortheNSENIFTY, whicheverisbreachedearlier.Thepercentagemovementarecalculatedontheclosingindexvalueof thequarter.Thesepercentagesaretranslatedintoabsolutepointsofindexvariation(roundedofftothe nearest25pointsincaseofSENSEX).Attheendofeachquarter,theseabsolutepointsofindex variationsarerevisedandmadeapplicableforthenextquarter.TheabsolutepointsofSENSEXvariation triggeringmarketwidecircuitbreakerforaspecifiedtimeperiodforanydayofthequarterisinformed bytheExchangethroughPressReleasefromtimetotime.

 Q34WriteanoteonBasketTradingSystem Ans.BasketTradingSystem .IntheBasketTradingSystem,theinvestorsthroughthememberbrokersoftheExchangeareable tobuy/sellall30scripsofSensexinonegointheproportionoftheirrespectiveweightsintheSensex. TheinvestorsneednotcalculatethequantityofSensexscripstobeboughtorsoldforcreatingSensex linkedportfoliosandthisfunctionisperformedbythesystem.Theinvestorscanalsocreatetheirown baskets by deleting certain scrips from 30 scrips in the Sensex. Further, the investors can alter the weightsofsecuritiesinsuchprofiledbasketsandentertheirownweights.Theinvestorscanalsoselect lessthan100%weightagetoreducethevalueofthebasketaspertheirownrequirements. Toparticipateinthissystem,thememberbrokersneedtoindicatenumberofSensexbasket(s)to beboughtorsold,wherethevalueofoneSensexbasketisarrivedatbythesystembymultiplyingRs.50 toprevailingSensex.Fore.g.,iftheSensexis4000,thenvalueofonebasketofSensexwouldbe4000 50=i.e.,Rs.2,00,000/.Theinvestorscanalsoplace ordersbyenteringvalue ofSensexportfoliotobe boughtorsoldwithaminimumvalueofRs.50,000/foreachorder. The Basket Trading System provides the arbitrageurs an opportunity to take advantage of price differencesinthe underlyingSensex andFutures ontheSensexbysimultaneousbuying andsellingof baskets comprising the Sensex scrips in the Cash Segment and Sensex Futures. This is expected to providebalancingimpactonthepricesinbothcashandfuturesmarkets. TheBasketTradingSystem,thus,meetstheneedofinvestorsandalsoimprovesthedepthincash andfuturesmarkets. Q.35Writeanoteonstockoptions Anoptioncontractconveystherighttobuyorsellaspecificsecurityorcommodityatspecifiedprice withinaspecifiedperiodoftime.Therighttobuyisreferredtoasacalloptionwhereastherighttosell isknownasaputoption.Anoptioncontractcomprisesofitstypeaputorcall,underlyingsecurityor commodityexpirydate,strikepriceatwhichitmaybeexercised.Optionsaregenerallydescribedbythe natureofunderlyingcommodity.Anoptiononcommonstockissaidtobestockoption;anoptionona bond,abondoption;anoptiononaforeigncurrency,acurrencyoption,anoptiononfuturecontract,a futureoption;andsoon.Thespecifiedpriceatwhichtheunderlyingcommoditymaybebought(inthe caseofcall)orsold(inthecaseofput)iscalledexercisepriceorthestrikingpriceoftheoption.Tobuy or sell the underlying commodity pursuant to option contract is to exercise the option. Most of the optionmaybeexercisedatanytime,uptoandincludingtheexpirationdate.

 The buyer of an option pays the option writer (seller) an amount of money called the option premiumoroptionprice.Inreturn,thebuyerreceivestheprivilege,butnottheobligation,ofbuying(in thecaseofcall)orselling(inthecaseofaput)theunderlyingcommodityfortheexerciseprice.Inthe caseofacalloption,ifthepriceofthecommodityexceedstheexerciseprice,thecalloptionissaidto be in the money and the call option buyer could exercise the option, thereby earning the difference between the two pricesthe exercise value or intrinsic value. On the other hand, if the price of the commodityisbelowtheexerciseprice,thecalloptionisoutofthemoneyandwillnotbeexercised,its intrinsicvalueiszero.Inthecaseofaputoption,ifthepriceofthecommodityisbelowtheexercise price,theputoptionissaidtobeinthemoney.Theputoptionbuyercouldexercisetheoptiontoearn thedifferencebetweentheexercisepriceandthepriceofthecommodity.Aputoptionissaidtobeout ofthemoneywhenthecommoditypriceexceedtheexerciseprice. Option provide investors with the opportunity to hedge investments in the underlying shares and shareportfoliosandcanthusreducetheoverallriskrelatedtotheinvestmentssignificantly. Q36Writenotesonstraightthroughprocessing STRAIGHTTHROUGHPROCESSING .StraightThroughProcessing(STP)isgenerallyunderstoodtobeamechanismthatautomatesthe endtoendprocessingoftransactionsoffinancialinstruments.Itinvolvesuseofasystemtoprocessor controlallelementsoftheworkflowofafinancialtransaction,whatarecommonlyknownastheFront, Middle,BackofficeandGeneralLedger.Inotherwords,STPallowselectroniccapturingandprocessing oftransactionsinonepassfromthepointoforderoriginationtofinalsettlement.STPthusstreamlines theprocessoftradeexecutionandsettlementandavoidsmanualentryandreentryofthedetailsofthe same trade by different market intermediaries and participants. Usage of STP enables orders to be processed,confirmed,settledinashortertimeperiodandinamorecosteffectivemannerwithfewer errors. Apart from compressing the clearing and settlement time, STP also provides a flexible, cost effective infrastructure, which enables ebusiness expansion through online processing and access to enterprisedata. AdvantagesofStraightThroughProcessing Reducedrisk Automationofmanualprocessminimizingerrors Improvedoperationalefficiencyinhandlinglargervolumes Facilitatesmovementtowardsshortersettlementcycles(T+1) Lowercostpertrade Timelysettlementoftradesandinstructions Eliminatespaperworkandminimizesmanualintervention Enablesincreasedcrossbordertrading(FIItrades) Greatertransparencywithclearaudittrail Increasescompetitiveadvantageofourmarkets

 MessagingstandardsasperISO15022standards Straight Through Processing (STP) thus aims to bring in nonduplication of work, efficiency and automationofthemanualproceduresrightfromtradeinitiationtosettlementprocesses.

Q37.WriteanoteonSecuritiesLending SecuritiesLending Underthescheme,apersonwithidlesharescanlendthemtoanotherwhodoesnothavethesharesto fulfillhisobligationunderatradefinalisedbyhim.Therewillbenodirectcontactsbetweenthe borrowerandlenderofsecurities.Anintermediarywhocanguaranteetheschemeandmakegoodthe lossintheborrowerwhofailstohonourhisobligationscanaloneprovidesubstancetothescheme.The borrowerhastoputupcollateralforhisborrowingsandpaycashmarginleviedonthesecuritiesbythe authorities.IncomefromsecuritieslendingisexemptfromCapitalGainsTax. O38.DistinguishbetweenListedsecuritiesandpermittedsecurities Ans.Securitiestradedinthestockexchangesareclassifiedasunder: (1) ListedSecurities:Thesecuritiesadmittedfordealingonstockexchangeaftercomplyingwithall thelistingrequirements (2) PermittedSecurities:Thesecuritieslistedonsomeoftherecognisedstockexchanges,when permittedtobetradedbythosestockexchangeswheretheyarenotlistedarecalledpermitted securities.Suchpermissionisgivenifsuitableprovisionsexistintheregulationsoftheconcernedstock exchanges Q39.Whataredifferenttypesofdeliveriesonstockexchange? Ans.Typesofdeliveryinthestockexchangesarespotdelivery,handdeliveryandspecialdelivery. Thedeliveryissaidtobespotdelivery,ifthedeliveryofandpaymentforsecuritiesaretobemade onthesamedayorthenextday. Thedeliveryissaidtobehanddelivery,ifthedeliveryandpaymentaretobemadeonthedelivery datefixedbythestockexchangeauthorities. Aspecialdeliveryisonewherethedeliveryistobemadeafterthedeliveryperiodfixedbythestock exchangeauthorities.

 Q39Distinguishbetweenfuturesandoptions. Futurestrading A future contract is an arrangement by which a buyer/seller agrees to take/give delivery of the securities on a specified future date at a fixed price and make payment on the delivery date. Such contractsarezerosumgameswherethegainequalsloss.Theclearinghouseisthecounterpartyinsuch contracts.Abuyeriscalledthelongandthesellershort. Amarginhastobedepositedattheclearinghouseforfutures.Thesizeofthemarketislargeand investingpublicimpersonalduetopresenceofacentraldepository. Future markets provide precise price information and make it possible to transfer risk from those whowantedtoshedit(hedgers)tothosewhoarewillingtoacceptit(speculators) Options Anoptionisacontractbetweentwopartiesinwhichthemakeroftheoption(optionwriter)agrees tobuyorsellaspecifiednumberofsharesatlaterdateforanagreedprice(strikeprice)totheholderof the option (option buyer) on a due date (answer date) and time, when and if the later so desires, in considerationofasumofmoney(premium).Thestrikepriceorpremiumisthepricewhichisrequired tobepaidforpurchaseofrighttobuyorsell.Thepremiumisinfluencedbylevelofinterestrate,market liquidity,dividendandexpectedvarianceinpriceinfutureandtimeperiodofoption.Thetermsofthe contractallowtheholder,notthemaker,tocanceltheoption. Theoptionbuyerisrequiredtonotifytheoptionmakerontheanswerdayifheintendstoexercise hisrights,andincasetheformerdoesnotdoso,theoptioncontractlapses.Thepremium(optionprice) isdeterminedonthebasisofmarketvolatility,interestrates,thespotprice,thedurationoftheoption, theagreedpriceandinvestorssentiment. Q40DistinguishbetweenEuropeanoptionsystemandAmericanoption Therearetwowaysofexercisingoptions(i)Ontheexpirydate(Europeanoptionssystem)and(ii) anytimebeforetheexpiryofspecifiedtime(Americanoptionsystem).Therateofpremiumishigherin caseofAmericanoptionsystemasitcoversriskallthetimesduringtheoptionperiod. Q41.Distinguishbetweenbullandbear Ans. Bull is a person who expects that price of security will go up. He goes on buying security in anticipationthatitspricewillgoupandsellsthemwhenpricegoesup.Heisanoptimist. Bearontheotherhandispersonwhofearsthatpricewillgodown.Hesellssecuritiesinabidto minimizehislossesandbuysthemagainwhenthepriceactuallygoesdown. Whenthemovementisupward,thetrendiscalledBULLISHandwhenthemovementisdownwarditis called BEARISH. Bear market is a weak or falling market characterised by the dominance of sellers. WhereasBullmarketisarisingmarketwithabundanceofbuyersandrelativelyfewsellers.

 STUDYIX MUTUALFUNDS Q42.Closeendedschemeandopenendedscheme.

(i) Open ended mutual funds: An open ended mutual funds is a fund with a nonfixed number of outstanding shares/units, that stands ready at any time to redeem them on demand. The fund itself buysbackthesharessurrenderedandisreadytosellnewshares.Generallythetransactiontakesplace atthenetassetvaluewhichiscalculatedonaperiodicalbasis.Thenetassetvalue(NetAssetValueper share value of the funds is total net assets after liabilities divided by the total number of shares outstandingonagivenday)ofthemutualfundsrisesorfallsasaresultoftheperformanceofsecurities intheportfolioandthestockexchanges. (ii)Closeendedmutualfunds:Itisthefundwheremutualfundmanagementsellsalimitednumber of shares and does not stand ready to redeem them. Primary example of such mutual fund is UTIs Mastershare.Thesharesofsuchmutualfundsaretradedinthesecondarymarkets.Therequirement for listing is laid down to grant liquidity to the investors who have invested with the mutual fund. Therefore, close ended funds are more like equity shares. The main differences between close ended andopenendedfundsare: CLOSEENDEDSCHEMES OPENENDEDSCHEMS 1. Fixedcorpus:nonewunitscanbe 1. Variable corpus due to ongoing offeredbeyondthelimit purchaseandredemption 2. Listed on the stock exchange for 2. Nolistingonexchangetransactions buyingandselling donedirectlywiththefund 3. Two values available namely NAV 3. OnlyonepricenamelyNAV andtheMarketTradingPrice 4. Mostlyliquid 4. HighlyLiquid Q43DefineNAVandofferprice. Mutualfundsraisemoneybysellingtheirsharestopublicandredeemingthematcurrentnetasset value.Netassetvalueisthevalueoftheassetsofeachunitofthescheme.ThusiftheNAVisthemore thanthefacevalueofRs.10/,thereisanappreciationfortheinvestment.IftheNAVislessthantheface value, it indicates depreciation of the investment. NAV also includes dividends, interest accruals and reduction of liabilities and expenses apart from market value of investments. Every mutual fund shall computetheNAVofeachschemebydividingthenetassetoftheschemebythenumberofunitsofthat scheme outstanding on the date of valuation and public the same at least in two daily newspapers at

 intervalsnotexceedingoneweek.However,thenetassetvalueofanyschemeforspecialtargetsegment oranymonthlyschemewhicharenotmandatorilyrequiredtobelistedinthestockexchangemaypublish theNAVatmonthlyorquarterlyintervalsaspermittedbySEBI. Offerpriceisthepriceatwhichunitsareofferedtotheinvestors.IfafundsunitsnominalvalueisRs 10andfundischarging2%entryloadthentheofferpricewillbeRs10.20 Q44.Writenoteonmoneymarketmutualfunds Ans.MoneyMarketMutualFunds: These funds invest in short term debt securities in the money market like certificates of deposits,commercialpapers,governmenttreasurybillsetc.Owingtotheirlargesize,thefunds normally get a higher yield on such short term investments than an individual investor. The schemesofsuchfunds,likeothermutualfundschemeswouldexclusivelybegovernedbySEBI (MutualFunds)Regulations,1996.Thesearepreferredbytheinvestorswhowanttoinvestfor short term and who want liquidity. Returns on these schemes are low and the risk is also minimum

Q45.Writeanoteonoffshoremutualfunds Ans. OffshoreFunds: SuchfundsinvestinsecuritiesofforeigncompanieswithRBIpermission. Q46WhatismeantbyAssetmanagementcompany? Ans.AssetManagementCompany(AMC) Under SEBI Regulations, every mutual fund is required to have an Asset Management Company (AMC) incorporated in the Companies Act, 1956 to manage the funds of the mutual fund. The AMC shouldbeapprovedbySEBIandshouldenterintoanagreementwiththetrusteesofthemutualfundto formulateschemes,raisemoneyagainstunits,investthefundsinaccruedsecuritiesandaftermeeting thepermissiblecostsaspernorms,distributeincometotheunitholdersofthefunds. DutiesandresponsibilitiesofAMC (i)the AMC appointed by the trustees with the prior approval of SEBI is responsible for floating schemesforthemutualfundafterapprovalofthesamebythetrusteesandmanagingthefunds mobilized under various schemes; in accordance with the provisions of the Trust Deed and Regulations; (ii) the AMC can not undertake any other business activity other than activities specified therein and management of mutual funds and such other activities as financial services consultancy, exchangeofresearchandanalysisoncommercialbasisaslongasthesearenotinconflictwith thefundmanagementactivityitselfwithoutthepriorapprovalofthetrusteesandSEBI; (iii) theAMCmustinvestthefundsraisedundervariousschemesinaccordancewiththeprovisions oftheTrustDeedandtheRegulations; (iv) the AMC can not acquire any of the assets out of the scheme property which involves the

 assumption of any liability which is unlimited or which may result in encumbrance of the schemepropertyinanyway; (v) theAMCshouldnottakeupanyactivityincontraventionoftheRegulations; (vi) nolossordamageorexpensesincurredbytheAMCorofficersofAMCoranypersondelegated bytheAMC,canbemetoutofthetrustproperty; (vii) the AMC has to ensure that no offer document of a scheme, key information memorandum, abridgedhalfyearlyresultsandannualresultsisissuedorpublishedwithoutthetrusteesprior approvalinwriting,andcontainsanystatementormatterextraneoustotheTrustDeedorOffer DocumentschemeparticularsapprovedbythetrusteesandBoard; (viii) theassetmanagementcompanyisrequiredprovideanoptionofnominationtotheunitholders intermsofregulation29A,intheprescribedform, (ix) the AMC has to disclose the basis of calculating the repurchase price and NAV of the various schemes of the fund in the scheme particulars and disclose the same to the investors at such intervalsasmaybespecifiedbythetrusteesandSEBI; (x) the trustees shall have the right to obtain from the AMC all information concerning the operations of the various schemes of the mutual fund managed by the AMC at such intervals andinsuchamannerasrequiredbythetrusteestoensurethattheAMCiscomplyingwiththe provisionsoftheTrustDeed,andRegulations; (xi) theAMCmustlsubmitquarterlyreportonthefunctioningoftheschemesofthemutualfundto thetrusteesoratsuchintervalsasmayberequiredbythetrusteesorSEBI; Q47Distinguishbetweenincomeorientedschemesandgrowthorientedschemes. Ans. S.N0 1 Incomeorientedschemes Growthorientedschemes

The fund primarily offer fixed income to These funds offer growth potentialities investors associated with investment in capital market namely: (i) high source of income by way of dividend and (ii) rapid capital appreciation, bothfromholdingofgoodqualityscrips. The main securities in which investments are made by such funds are the fixed income yieldingoneslikebonds. Thesefunds,withaviewtosatisfyingthe growthneedsofinvestors,primarily concentrateonthelowriskandhigh yieldingspectrumofequityscripsof thecorporatesector.

3 Lowrisklowreturnschemes

Comparativelyhighriskandhighreturn

 Q48.Distinguishbetweenfrontendloadandbackendload Ans.MutualfundscanbeclassifiedintotwotypesLoadmutualfundsandNoLoadmutualfunds.Load fundsarethosefundsthatchargecommissionatthetimeofpurchaseorredemption.Theycanbe furthersubdividedinto(1)Frontendloadfundsand(2)Backendloadfunds. Frontendloadarefeesorexpensesrecoveredbymutualfundsagainstcompensationpaidtobrokers, theirdistributionandmarketingcosts.Theseexpensesaregenerallycalledassalesloads.Frontendload fundschargecommissionatthetimeofpurchase.Similartofrontendloadstherearebackendloads. Backendloadfundschargecommissionatthetimeofredemption. Q49Whatarehedgefunds? Ahedgefundisaprivateinvestmentfund,chargingaperformancefeeandisopentoonlyalimited numberofinvestors.Thesefundsarelikemutualfunds,whichcollectmoneyfrominvestorsandusethe proceedstobuystocksandbonds.Theycaninvestonalmostanytypeofopportunity;inanymarket whereingoodreturnsareexpectedwithlowrisklevels. Protectingcapitalandproducinggoodreturninallkindsofmarketconditions,whileattemptingto minimizetherisk,isthemainobjectiveofmostofthehedgefunds. Hedgefundshavegrowninsizeandhaveagreatinfluenceonpublicsecuritiesandprivateinvestment markets.Hedgefundsarenotcurrentlysubjecttoanydirectregulation,unlikemutualfunds,pension fundsandinsurancecompanies.Theyarelimitedonlybythetermsofcontactsgoverningtheparticular fund. Hedgefundsmaybeeitherlongorshortassetsandmayenterintofutures,swaps,andotherderivative contracts.Inthisway,hedgefundsareabletofollowcomplexstrategies,intendingtoprofitfrom marketvolatilityorfromfallingmarket. CharacteristicsofHedgeFunds:

Ahedgefundgenerallyusesseveralkindsoffinancialinstrumentstoreduceriskandaddmore returns.Ittriestoreducethecorrelationwithequityandfixedincomemarkets.Manyhedge fundsuseshortselling,leverage,derivativessuchasputs,calls,options,futures,etc.to accomplishtheirgoals. Thenatureofhedgefundsdiffersalotintermsofinvestmentreturns,instabilityandrisk symptoms.Normally,hedgefundstrategiesintendtohedgeagainstMarkeyfluctuations. However,thisdoesnotmeanthatallhedgefundscangivegreatadvantageinunfavorable marketconditions.

Thehedgefundmanagerscompensationislinkedtohisoverallperformance.Thisstimulatesthe fundmanagerstodelivertheirbest.Attimes,hedgefundmanagersmayinvesttheirown moneyinthefundsthattheymanage. Mostoftheinvestorsinhedgefundssuchaspensionfunds,endowments,insurancecompanies, privatebanks,andhighnetworthindividualsinvestinhedgefundstominimizetheiroverall portfolioriskandenhancereturns. Manyhedgefundscanproduceuncorrelatedreturnsi.e.returnsthatarenotdependanton marketfluctuations.Suchabnormalreturnsfromhedgefundsareagreatadvantageindifficult marketconditions. Highlyskilled,specializedandexperiencedfundmanagersmanagehedgefunds.Theyare disciplinedanddiligentandbelieveindoingeverythingwithinthereareofcompetencyand competitiveadvantage.

Q 50. Mutual funds are essential vehicles for collective investments which provide to the small investors, benefits in stock markets, risk diversification and expert management advice of a fund managers.Comment.Andanswerthefollowingquestions(a)whataretheorgansofthemutualfund? (b)Whatarethebenefitsofmutualfunds Ans. (a)Organsofmutualfund InamutualfundstructureprescribedbySEBI,investorsmoneyisnothandedovertoanyone else.Itiskeptinatrust,whereinvestorsarethebeneficiary,andwhoseoperationsaresupervisedby thetrustees. Thetrusteesappointaprofessionalmanager,theassetmanagementcompany(AMC)tomanagethe fund. Thetrusteesalsoappointacustodian,usuallyalargebank,whoholdsthefundsandthesecurities. TheAMCmakestheinvestmentdecisions,butthecustodianimplementsthem, Amutualfundisstructuredfortheprotectionofinvestorsmoneyfrom misuse Regulationensuresthatatleasttwothirdsofthetrusteesareindependent.Anindependent trusteeisonewhodoesnotreceiveanyothermonetaryconsiderationfromthemutualfund,otherthan thetrusteefee (c)whataretheschemesofmutualfunds

 . ThetrusteeappointstheAMCtomanagethefunds,andtheAMCisaccountabletothetrustees. TheAMCrunsthemutualfundbusinessunderthesupervisionandguidanceofthetrustees.Thetrustees areresponsibleforensuringthatallactivitiesundertakenbythemutualfundareintheinterestsofthe investorswhohaveinvestedinthefund.TrusteesareappointedwiththeapprovalofSEBIandthey ensurethatoperationalsystemsandproceduresareinplacesothatnoactionoftheAMCoranyother constituentcouldbedetrimentaltotheinvestorsinterest.Importantdecisionsrelatingtothefund, suchaslaunchinganewproduct,canbetaken onlywiththeapprovalofthetrustees. Andthereismore.Thecustodian,whoactuallyholdstheinvestorsfundsinthebankaccountandthe securitiesthathavebeenboughtforthemutualfundportfolio,hastobeindependentaswell.TheAMC whoistheinvestmentmanager,iscreatedbyasponsor.Suchsponsorcanalsohaveabankthatoffers custodialservices.Butregulationsdonotallowthesponsorandthecustodiantobeownedbythesame entity.Thisensuresthatthcustodyofinvestorsmoneyandsecuritiesisevensafer.Thecustodianis appointednotbytheAMC,butbythetrusteesthemselves. Regulationalsorequiresthatinvestorsknowwhatisbeingdonewiththeirmoney.Theinvestorsmoney iskeptschemewiseinseparateaccounts.Theentireportfolioofinvestmentsofaschemehastobe disclosedtotheinvestorsatleasteverysixmonths.Mutualfundsmakethisdisclosurevoluntarilyona monthlybasis.Theschemeaccountsarepublishedandpubliclyavailableforinvestorstoseethe expensesthatarebeingchargedtothem. Theextentofexpensesthatcanbecharged,andtheheadsunderwhichtheycanbechargedarealso subjecttoregulation.MutualfundsaresubjecttodetailedregulationsbySEBI,andareinspected periodicallyforcompliance. Thestructureofamutualfundisrobust,wellthoughtoutandregulatedtoprotectinvestorsinterest. Totheinformedinvestorswhoiswillingtolookbeyondguaranteesthataretoughtokeepanywayin themodernworld,mutualfundsofferthebestchoiceinfinancialstructure. AdvantagesofMutualFunds Theadvantagesofinvestinginamutualfundare: 1. ProfessionalManagement:Investorsavailtheservicesofexperiencedandskilledprofessionals whoarebackedbyadedicatedinvestmentresearchteamwhichanalysestheperformanceand prospects of companies and selects suitable investments to achieve the objectives of the scheme. 2. Diversification: Mutual funds invest in a number of companies across a broad crosssection of industriesandsectors.Thisdiversificationreducestheriskbecauseseldomdoallstocksdecline at the same time and in the same proportion. Investors achieve this diversification through a MutualFundwithfarlessmoneythanonecandoonhisown. 3. ConvenientAdministration:Investinginamutualfundreducespaperworkandhelpsinvestors

 to avoid many problems such as bad deliveries, delayed payments and unnecessary follow up with brokers and companies. Mutual funds save investors time and make investing easy and convenient. 4. Return Potential: Over a medium to long term, Mutual funds have the potential to provide a higherreturnastheyinvestinadiversifiedbasketofselectedsecurities. 5. LowCosts:Mutualfundsarearelativelylessexpensivewaytoinvestcomparedtodirectlyinvesting inthecapitalmarketsbecausethebenefitsofscaleinbrokerage,custodialandotherfeestranslate intolowercostsforinvestors. 6. Liquidity:Inopenendedschemes,investorscangettheirmoneybackpromptlyatnetassetvalue relatedpricesfromthemutualfunditself.Withcloseendedschemes,investorscanselltheirunits onastockexchangeattheprevailingmarketpriceoravailofthefacilityofdirectrepurchaseat net asset value (NAV) related prices which some close ended and interval schemes offer periodicallyorofferitforredemptiontothefundonthedateofmaturity. 7. Transparency:Investorsgetregularinformationonthevalueoftheirinvestmentinadditionto disclosureonthespecificinvestmentsmadebyscheme,theproportioninvestedineachclassof assetsandthefundmanagersinvestmentstrategyandoutlook. (c)SchemesofMutualFunds TheMFsinIndiaofferawidearrayofschemesthatcatertodifferentneedssuitabletoanyage,financial position,risktoleranceandreturnexpectations.Theseinclude:openendedschemes,whichprovide easyliquidity;closeendedschemeswithastipulatedmaturityperiod;growthschemes,whichprovide capitalappreciationovermediumtolongterm;incomeschemes,whichprovideregularandsteady incometoinvestors;balancedschemes,whichprovidebothgrowthandincomebyperiodically distributingapartofincomeandcapitalgainstheyearn;moneymarketschemes;whichprovideeasy liquidity,preservationofcapitalandmoderateincome;andtaxsavingschemes,whichoffertaxrebates toinvestorsundertaxlawsasprescribedfromtimetotime. STUDYXI COLLECTIVEINVESTMENTSCHEMES Q51.WriteanoteoncollectiveInvestmentscheme AnsACollectiveInvestmentManagementCompanyisacompanyincorporatedundertheprovisionsof theCompaniesAct,1956andregisteredwithSEBIundertheSEBI(CollectiveInvestmentSchemes) Regulations,1999,whoseobjectistoorganise,operateandmanageaCollectiveInvestmentScheme. AnexistingCollectiveInvestmentSchemecannotlaunchanynewschemeorraisemoneyfromthe investorsevenundertheexistingscheme,unlessacertificateofregistrationisgrantedtoitbySEBI. AregisteredCIMCiseligibletoraisefundsfromthepublicbylaunchingschemes.Suchschemeshaveto becompulsorilycreditratedaswellasappraisedbyanappraisingagency.Theschemesalsohavetobe

 approvedbytheTrusteeandcontaindisclosures,asprovidedintheRegulations,whichwouldenable theinvestorstomakeinformeddecision. AcopyoftheofferdocumentoftheschemehastobefiledwithSEBIandifnomodificationsare suggestedbySEBIwithin21daysfromthedateoffilingthentheCIMCisentitledtoissuetheoffer documenttothepublicforraisingfundsfromthem. TheyhavetobecompulsorilylistedontheStockExchangesasmentionedintheOfferdocument. TheinvestorsareentitledtoreceiveacopyoftheBalanceSheet,ProfitandLossaccountandacopyof thesummaryoftheyearlyappraisalreportfromCIMC,withintwomonthsfromtheclosureofthe financialyear. Further,theschemewiseannualreportoranabridgedformthereofhaspublishedinanationaldailyas soonaspossiblebutnotlaterthantwocalendarmonthsfromthedateoffinalisationofaccounts. Also,schemewiseunauditedquarterlyfinancialresultshavetobepublishedinanationaldailybyCIMC withinonemonthfromthecloseofeachquarter. ItistheresponsibilityoftheCIMCtoensurethatthedisclosuresmadeintheofferdocumentare generallyadequateandareinconformitywiththeRegulations. STUDYXII BUYBACKOFSECURITIES Q52WritenotesonEscrowAccount Ans.EscrowAccountmeansanaccountopenedbyacompanywithascheduledcommercialbankby wayofasecurityfordischargingitsobligationandshallconsisteitherofcashorbankguarantee infavourofamerchantbankerordepositofacceptablesecuritieswithappropriatemarginwith amerchantbankeroranycombinationthereofforthepurposeofbuybackofsecuritiess Q65Whichsecuritiesarenotavailableforbuyback? Ans.Securitiesnotavailableforbuyback 1.Securitiesinlockinperiod Inthecaseofalistedcompany,securitiesissuedtothepromoters,toagroup,ortoemployees, subjecttolockinperiodasperSEBI(DisclosureandInvestorProtection)Guidelines,2000arenot availableforbuybackuntilthelockinperiodexpires.[Regulation19(5)].

 2.Nontransferablesecurities Securities which are under lien or are pledged or restricted by any court for transfer or which otherwise statutorily cannot be transferred are not available for buyback until such securities againbecomefreelytransferable.[Regulation19(5)]. 3.Disputedsecuritieskeptinabeyance Securities which are under dispute and have been kept in abeyance under Section 206A, or in respectofwhichtransferortransmissionhasnotbeeneffected,arenotavailableforbuyback. Beforeundertakinganybuyback,thecompanyshouldensurethatnotransferdeedispending forregistration. ISSUEMANAGEMENTANDCOMPLIANCES STUDYXIV PUBLICISSUEOFSECURITIES Q 53 What do you understand by promoters quota ? what is the rationale behind lock in period for promotersquotashares. AnsPromotersquotameansthesharesreservedforallotmenttopromoterandgroup.Promoters contributioninanyissueshallbeinaccordancewiththefollowingprovisionsason(i)thedateoffiling redherringprospectus(incaseofabookbuiltissue)orprospectus(incaseofafixedpriceissue)with ROCorletterofofferwithDesignatedStockExchange,asthecasemaybe,incaseofafasttrackissue; and(ii)thedateoffilingdraftofferdocumentwiththeBoard,inanyothercase. Promoterscontribution UnlistedCompany ListedCompany IncaseofPublicIssue IncaseofPublicIssue Not less than 20% of the postissuecapital To the extent of 20% of theproposedissueor20% ofthepostissuecapital 20% of the proposed

ListedCompany

CompositeIssue*

 publicissueor20%ofthe postissuecapital. * Rights issue component of the composite issue shall be excluded while calculating the postissue capital. PromotersContributiontobebroughtinbeforePublicIssueOpens Promotersshallbringinthefullamountofthepromoterscontributionincludingpremiumatleast one day prior to the issue opening date which shall be kept in an escrow account with a Scheduled Commercial Bankandthesaidcontribution/amountshallbereleasedtothecompanyalongwith the publicissueproceeds. However, where the promoters contribution has been brought prior to the public issue and has already been deployed by the company, the company shall give the cash flow statement in the offer documentdisclosingtheuseofsuchfundsreceivedaspromoterscontribution. IfthepromotersminimumcontributionexceedsRs.100crores,thepromotersshallbringinRs.100 crores before the opening of the issue and the remaining contribution shall be brought in by the promotersinadvanceonproratabasisbeforethecallsaremadeonpublic. Thepromoterscontributionissubjecttolockinperiodof3yearsfromthedateofcommencementof commercialproductionordateofallotmentinthepublicissuewhicheverislater. Anycontributionmadebypromotersoverandabovetheminimumcontributionshallbesubject toalockinperiodof1yearincaseofallthecompanies. Incaseofissueofsecuritiesbyacompanylistedonastockexchangeforatleast3yearsand havingatrackrecordofdividendpaymentforatleast3immediatelyprecedingyearspromoters contributionshallnotbesubjecttolockinperiod. The entire preissue share capital, other than that lockedin as minimum promoters contribution, shall be lockedin for a period of one year from the date of commencement of commercialproductionorthedateofallotmentinthepublicissue,whicheverislater. Thelogicbehindthelockinrequirementsisthatpromotersshouldhavecertainstakein theprojectforwhichtheycollectfundsfromfrompublic,Theyshouldnotgetoutoftheprojectfora periodof3yearsfromthedateofcommencementofcommercialproductionordateofallotmentinthe publicissuewhicheverislater.

Q54AdvantageProductsLimitedisalistedcompanywithauthorizedissuedandsubscribedcapitalofRs 25croredividedinto2.50croreequitysharesofRs10each.PaidupcapitalofthecompanyisRs24 croreandcallinarrearswereRs1crore.TheCompanywantstoissuebonussharesinthe2:5.Asa companysecretaryofAdvantageProductsLimitedprepareanotehighlightingtheguidelinesapplicable tothecompany. Ans.Bonussharesareissuedbyconvertingthereservesofthecompanyintosharecapital.Itisnothing butcapitalizationofthereservesofthecompany.Therearesomeconditionswhichneedtobesatisfied beforeissuingBonusshares: 1)BonussharescanbeissuedbyacompanyonlyiftheArticlesofAssociationofthecompanyauthorizes abonusissue.Wherethereisnoprovisioninthisregardinthearticles,theymustbeamendedby

 passingspecialresolutionactatthegeneralmeetingofthecompany. 2)ItmustbesanctionedbyshareholdersingeneralmeetingonrecommendationsofBoardofDirectors ofcompany. 3)GuidelinesissuebySEBImustbecompliedwith.Caremustbetakenthatissueofbonussharesdoes notleadtototalsharecapitalinexcessoftheauthorizedsharecapital.Sincetheauthorized,issuedand subscribedcapitalisRs25crore,theauthorizedcapitalmustbeincreasedbyamendingthecapital clauseoftheMemorandumofassociation.InthiscasethebonusissuewillbeRs9.6crore.However,it isadvisabletoincreaseitbyatleast10crore. 4,Ifthecompanyhasavailedofanyloanfromthefinancialinstitutions,priorpermissionistobe obtainedfromtheinstitutionsforissueofbonusshares.Ifthecompanyislistedonthestockexchange, thestockexchangemustbeinformedofthedecisionoftheboardtoissuebonussharesimmediately aftertheboardmeeting. 5.Onlyfullypaidupbonussharecanbeissued.Partlypaidupbonussharescannotbeissuedsincethe shareholdersbecomeliabletopaytheuncalledamountonthoseshares. Thebonusissuehastobemadeoutoffreereserves,thereservesbyrevaluationshouldnotbe capitalized.Bonusissueshouldnotbemadeinlieuofdividend.Thereshouldbenodefaultinrespectto fixeddeposits.Bonusissueshouldbemadewithin6monthfromdateofapproval. Q55whatistheduediligenceprocessofpublicissueofsecurities? Ans.TheLeadManagersstatethattheyhaveexaminedvariousdocumentsincludingthoserelatingto litigationlikecommercialdisputes,patentdisputes,disputeswithcollaboratorsetc.andothermaterials inconnectionwiththefinalizationoftheofferdocumentpertainingtothesaidissue;andonthebasisof suchexaminationandthediscussionswiththeCompany,itsDirectorsandotherofficers,otheragencies, independentverificationofthestatementsconcerningtheobjectsofthe issue,projectedprofitability,pricejustification,etc.,theystatethatthey haveensuredthattheyareincompliancewithSEBI,theGovernmentandanyothercompetent authorityinthisbehalf. Whentherearemorethanoneleadmanagersinvolvedinanypublicissueinterseallocationof responsibilitiesmustbespecified.Accordinglyduediligenceresponsibility Willalsobesharedamongthem. Incaseoffasttrackissue,theleadmanagershallfurnishaduediligencecertificateintheprescribed formatalongwithacopyofredherringprospectus,prospectusorletterofofferasthecasemaybe. In addition to the due diligence certificate to be furnished alongwith the draft prospectus, lead managersarealsorequiredto (i) Certifythatalltheamendmentssuggested/observationsmadebySEBIhavebeengiveneffectto intheprospectus,

 (ii) FurnishafreshduediligencecertificateatthetimeoffilingtheprospectuswiththeRegistrarof Companies, (iii) Furnishafreshcertificateimmediatelybeforetheopeningoftheissuethatnocorrectiveaction isneeded,and (iv) Furnishafreshandfinalcompliancecertificatebeforetheissueisclosedforsubscription. Q56WhatarethedisclosurestobemadeintheDirectorsReportUnderESOPandESPSGuidelines ,1999? Directorsreportshallcontainthefollowingdisclosures: (i) thetotalnumberofsharescoveredbytheESOPasapprovedbytheshareholders; (ii) thepricingformula; (iii) options granted, options vested, options exercised, options forfeited, extinguishment or modificationofoptions,moneyrealisedbyexerciseofoptions,totalnumberofoptionsinforce, employeewise details of options granted to senior managerial personnel and to any other employeewhoreceiveagrantinanyoneyearofoptionsamountingto5%ormoreofoptions grantedduringthatyear. (iv)Fully diluted earning per share (EPS) computed in accordance with International Accounting Standards TheBoardofDirectorsarerequiredtodiscloseeitherintheDirectorsReportorintheAnnexureto theDirectorsReport,thefollowingdetailsoftheScheme: (a) optionsgranted; (b) thepricingformula; (c) optionsvested; (d) optionsexercised; (e) thetotalnumberofsharesarisingasaresultofexerciseofoption; (f) optionslapsed; (g) variationoftermsofoptions; (h) moneyrealisedbyexerciseofoptions; (i) totalnumberofoptionsinforce; (j) employeewisedetailsofoptionsgrantedto (i) seniormanagerialpersonnel; (ii) any other employee who receives a grant in any one year of option amounting to 5% or

 moreofoptiongrantedduringthatyear; (iii) identifiedemployeeswhoweregrantedoption,duringanyoneyear,equaltoorexceeding 1%oftheissuedcapital(excludingoutstandingwarrantsandconversions)ofthecompany atthetimeofgrant;

(k) dilutedEarningsPerShare(EPS)pursuanttoissueofsharesonexerciseofoptioncalculatedin accordancewithAccountingStandard(AS)20EarningPerShare. (l) Wherethecompanyhascalculatedtheemployeecompensationcostusingtheintrinsicvalueof the stock options, the difference between the employee compensation cost so computed and theemployeecompensationcostthatshallhavebeenrecognisedifithadusedthefairvalueof the options, shall be disclosed. The impact of this difference on profits and on EPS of the companyshallalsobedisclosed. (m) Weightedaverageexercisepricesandweightedaveragefairvaluesofoptionsshallbedisclosed separatelyforoptionswhoseexercisepriceeitherequalsorexceedsorislessthanthemarket priceofthestock. (n) Adescriptionofthemethodandsignificantassumptionsusedduringtheyeartoestimatethe fairvaluesofoptions,includingthefollowingweightedaverageinformation: (1) riskfreeinterestrate, (2) expectedlife, (3) expectedvolatility, (4) expecteddividends,and (5) thepriceoftheunderlyingshareinmarketatthetimeofoptiongrant.

Until all options granted in the three years prior to the IPO have been exercised or have lapsed, disclosuresshallbemadeeitherintheDirectorsReportorinanAnnexuretheretooftheinformation specifiedaboveinrespectofsuchoptionsalsoandoftheimpactontheprofitsandontheEPSofthe companyifthecompanyhadfollowedtheaccountingpoliciesspecifiedintheseguidelinesinrespectof suchoptions. Q57.Explaintheprocedureofbiddinginbookbuildingissues. Ans.BookBuildingreferstothecollectionofbidsfrominvestors,whichisbasedonanindicativeprice range,theissuepricebeingfixedafterthebidclosingdate.Theprincipalintermediariesinvolvedina bookbuildingprocessarethecompany,BookRunningLeadManager(BRLM)andsyndicatemembers whoareintermediariesregisteredwithSEBIandeligibletoactasunderwriters.Syndicatemembersare appointedbytheBRLM.Thebookbuildingprocessisundertakenbasicallytodetermineinvestor appetiteforashareataparticularprice.Itisundertakenbeforemakingapublicofferandithelps determinetheissuepriceandthenumberofsharestobeissued.Theprocessbeginswithconsultations betweenissuercompany,thefundmanagersandtheinstitutionalinvestors.Theaboveprocessisused toderiveapricebandwithamedianpointatwhichthedemandforthecompanysstockismaximum. Theissuercompany,intandemwiththeleadmanagerandthebookrunner,thenfixesapricebandfor theissue.Theinvestorisinformedofthepricebandandhethenbidsatapricehethinksappropriate.

 Thebiddingisdonejustlikeanopenauction.Thebiddingperiodiskeptopenforatleastfiveworking days.Theadvertisementannouncingthebiddingcontainsthedateoftheopeningoftheofferandthe closingdate.Theissuedocumentcontainsthenameofsyndicatememberswhoareentitledtoreceive thebids.Eventheofferdocumentcontainstheconditionsofacceptingthebidsandtheprocedureof bidding.Thebiddingcentersareelectronicallyconnectedtomaintaintransparencyandalsoeliminate thetimelagbetweenmakingandreceivingofthebid.Individualandinstitutionalinvestorshaveto placetheirbidsonlythroughthesyndicatememberswhohavetherighttovetthebids.Thebidscan berevisedinnumerablenumberoftimesbeforetheissuecloses.Tomaintaintransparencyinthe biddingprocess,attheendofeverybiddingsessionthedemandfortheissueisshowninthegraph formatontheterminals. Oncethecompanygetsvariousbidsfromtheinvestor,itdecidesthefinalpriceatwhichitiswillingto issuethestock.Sincethecompanyhasalreadydecidedthequantumoffundsitwantstoraiseitfinalizes thenumberofsharesitwillnowissueatthepricefixed.Theissuepricefortheplacementportionand offertothepublicshallbethesame. Q58DiscusssvariousformalitiesfortheissueofbonussharesunderSEBIGuidelines? Ans. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 with regard to bonus issuesbylistedcompanies. When a company has accumulated free reserves and is desirous of bridging the gap between the capitalandfixedassets,itissuesbonussharestoitsequityshareholders.Suchanissuewouldnotplace any fresh funds in the hands of the company. On the contrary, after a bonus issue it would become necessary for the company to earn more to effectively service the increased capital. The shareholder will,however,bebenefittedbywayofincreasedreturnoninvestmentandincreasednumberofshares intheirhands. Thefollowingconditionsmustbesatisfiedbeforeissuingbonusshares: (a) Bonus Issue must be authorised by the articles of the company. Such a provision is generally there in articles of almost all the companies as they adopt Table A of Schedule 1 of the Act (Regulation96). (b) BonusIssuemustbesanctionedbyshareholdersingeneralmeetingonrecommendationofthe Boardofdirectorsofthecompany. (c) RegulationsissuedbySEBImustbecompliedwith. (d) AuthorisedCapitalmustbeincreasedwherenecessary. The proposed bonus issue should not dilute the value or rights of the fully or partly convertible debentures. Thereservescreatedbyrevaluationoffixedassetsshouldnotbecapitalised.Thesereservesarein fact capital reserves. However, if the assets are subsequently sold and the profits are realised, such profits could be utilised for capitalisation purposes. In fact the Government has in the past approved issueofbonussharesoutofcapitalreservesrepresentingrealisedcapitalprofits

 Bonusissueshouldnotbemadeinlieuofdividend Ifthereareanypartlypaidupsharesoutstandingonthedateofallotment,thesesharesshouldbe madefullypaidupbeforethebonusissueismade. Thecompanyshouldnothavedefaultedinthepaymentofanyinterestorprincipalinrespectofits fixeddeposits,debtsecuritiesissuedbyit. Thecompanyshouldnothavedefaultedinthepaymentofitsstatutoryduestotheemployeessuchas contributiontoprovidentfund,gratuity,bonus A company which announces bonus should implement bonus issue within fifteen days issue after the approval of board of directors and does not require shareholders approval for capitalisation of profits or reserves for making bonus issue as per the Articles of Association and shall not have the optionofchangingthedecision. However,wherethecompanyisrequiredtoseekshareholdersapprovalforcapitalisationofprofits or reserves for making bonus issue as per the Articles of Association, the bonus issue should be implemented within two months from the date of the meeting of the board of directors wherein the decisiontoannouncebonuswastakensubjecttoshareholdersapproval.. Q59Outlinepreissueandpostissuemanagementactivities. AnsPreIssueActivities: 1.SigningofMoU:SigningofMoUbetweentheclientcompanyandthemerchantbankerissue managementactivitiesmarkstheawardofthecontract.Theroleandresponsibilityofthemerchant bankerasagainsttheissuingcompanyareclearlyspeltoutintheMoU. 2.Obtainingappraisalnote:Anappraisalnotecontaininghedetailsoftheproposedcapitaloutlayofthe projectandthesourcesoffundingiseitherpreparedinhouseorisobtainedfromexternalappraising agenciesviz.,financialinstitutions/banksetc.Aprojectmaybefundedeitherbyborrowingmoneyfrom outsideagenciesorbyinjectingcapital. 3.Optimumcapitalstructure:Thelevelofcapitalthatwouldmaximizetheshareholdersvalueand minimizetheoverallcostofcapitalhastobedetermined.Thishastobedoneconsideringthenature andsizeoftheproject.Equityfundingispreferableespeciallywhentheprojectiscapitalintensive. 4.Conveningmeeting:Ameetingoftheboardofdirectorsoftheissuingcompanyisconvened.Thisis followedbyanEGMofitsmembers.Thepurposeofthesemeetingsistodecidethevariousaspects relatedtotheissueofsecurities.AnapplicationtoRBI,seekingitspermissionismade,wherecapital

issueofsharesistobeofferedtoNRIs/OCBsorFIIs. 5.AppointmentfinancialIntermediary:FinancialintermediariessuchasUnderwriters,Registrars,etc. havetobeappointed.Necessarycontractsneedtobemadewiththeunderwritertoensuredue subscriptiontooffer.SimilarcontractswhenenteredintowiththeRegistrarstoanissue,willhelpin shareallotmentrelatedwork,appointmentofbankerstoanissueforhandlingthecollectionof applicationsatvariouscenters,printersforbulkprintingofIssuerelatedstationery,legaladvisorsand advertisingagency.Simultaneouslyconsentsfromvariousexpertssuchasauditors,solicitors,legal advisorsetchastobeobtainedunderSection58oftheCompaniesAct,1956. 6.Preparingdocuments:Aspartoftheissuemanagementprocedurethedocumentstobepreparedare initialapplicationsofsubmissiontothosestockexchangeswheretheissuingcompanyintendstogetits securitieslisted.MoUwiththeregistrar,withbankerstotheissue,withadvisorstotheissueandco managerstotheissue,agreementforpurchaseofpropertiesetc.Thishastobesentforinclusioninthe prospectus. 7.Duediligencecertificate:Theleadmanagerissueaduediligencecertificatewhichcertifiesthatthe companyhasscrupulouslyfollowedalllegalrequirementshasexercisedutmostcarewhilepreparingthe offerdocumentandhasmadeatruefairandadequatedisclosuresinthedraftofferdocument. 8.Submissionofofferdocument:Thedraftofferdocumentalongwiththeduediligencecertificateis filedwithSEBI.TheSEBIinturnmakesnecessarycorrectionsintheofferdocumentandreturnsthe samewithrelevantobservations,ifanywithin21daysfromthereceiptoftheofferdocument. 9.Finalizationofcollectioncenters:Inordertocollecttheissueapplicationformsfromtheprospective investorstoleadmanagerfinalizesthecollectioncenters. 10.FilingwithRoC:TheofferdocumentcompletedinallrespectsafterincorporatingSEBIobservationis filedwithRegistrarofCompanies(RoC)toobtainacknowledgement. 11.Launchingtheissue:Theprocessofmarketingtheissuestartsoncelegalformalitiesarecompleted andstatutorypermissionforissueofcapitalisobtained.Theleadmanagerhastoarrangeforthe distributionofpublicissuestationarytovariouscollectingbanks,brokers,investorsetc.Theissueis openedforpublicimmediatelyafterobtainingtheobservationletterfromSEBIwhichisvalidfora periodof365daysfromthedateofissue.Conductingpressconferences,brokersmeets,issuing advertisementsinvariousnewspapersandmobilizingbrokersandsubbrokersmarksthelaunchingofa publicissue.Theannouncementregardingopeningofissueisalsorequiredtobemadethrough advertisinginnewspapers,10daysbeforetheopeningofthepublicissue. 12.Promoterscontribution:Acertificatetotheeffectthattherequiredcontributionofthepromoters hasbeenraisedbeforeopeningtheissue,hastobeobtainedfromaCharteredAccountant,andduly filedwithSEBI. 13.Issueclosure:Anannouncementregardingtheclosureoftheissueshouldbemadeinthe newspaper.

PostIssueactivities 1.Collectfiguresofapplicationsmoneyfromthecontrollingbranchesandasfaraspossiblefromother keybranches,andsendonedayreporttotheSEBI.Iftheissueissubscribedobtainthecertificatesfrom theregistrarsfor30percent/100percent(asthecasemaybe)subscriptionandsendthecopyofthe sametotheSEBIandtheregionalstockexchange. 2.Writetotherelatedstockexchangeregardingclosureofsubscriptionlistandadvertisements declaringissuetobeclosedispublished. 3.CompliancereportstotheSEBIaretobesent.Therewerefourdifferenttypesofreportsincaseof subscribedpublicissues(7,45,70and90daysreports)andsixreportsincaseofunsubscribedpublic issues(7,30,45,60,90and100daysreports).WitheffectfromJuly1995,onlytwopostissuereports forpublicissuearetobesubmitted(3and78dayspostissuemonitoringreports)(Annexures10(a)and 10(b)).ThemerchantbankershavetokeeptheSEBIinformedonimportantdevelopmentsaboutthe particularissuesbeingleadmanagedbythemduringtheinterveningperiodofthereports. 4.Thefollowingaretobesubmittedtheregionalstockexchange: (a)Statementofvalidapplication (b)Certificateof90percentsubscription (c)Bankcertificates 5.Obtainletterfromregionalstockexchangeapprovingbasisofallotmentfordifferentcategories. 6.Sendcopyoftheletterofregionalstockexchangetootherexchangeswherelistingpermissionis sought. 7.Makepublicacopyofbasisofallotmentintwonationaldailies 8.Publishadvertisementsmentioningthevariousdatesonwhichrefunds/allotmentsandlistingwere dispatchedandsoughtrespectively. 9.Incaseofdelaybymorethan78daystheleadmanagershouldseethattheinterestforthedelayed periodispaidbytheissuer. 10.Confirmthatthelistingformalitieshavebeencompletedwherethelistinghasbeensought 11.Arrangeforpermissionfordealinginsecurities 12.Confirmthatvariouscommissions/brokerage/paymentstovariousintermediariesrangedbythe merchantbankerhavebeenpaidbythecompany. 13.ObtainRBIpermissionofallotmentofshares/debenturestoNRIsandFIIs.

 Q60Whataretheobligationsofcapitalmarketintermediariesunderthepreventionofmoney launderingAct,2002? Section12ofthePreventionofMoneyLaunderingAct,2002laysdownfollowingobligationsonan intermediary: Everybankingcompany,financialinstitutionandintermediaryshall (A) maintainarecordofalltransactions,thenatureandvalueofwhichmaybeprescribed,whether such transactions comprise of a single transaction or a series of transactions integrally connectedtoeachother,andwheresuchseriesoftransactionstakeplacewithinamonth; (B) furnishinformationoftransactionsreferredtoinclause(a)totheDirectorwithinsuchtimeas maybeprescribed; (C) verify and maintain the records of the identity of all its clients, in such a manner as may be prescribed. ProvidedthatwheretheprincipalofficerofanIntermediaryorfinancialinstitutionorintermediary, as the case may has reason to believe that a single transaction or series of transactions integrally connectedtoeachotherhavebeenvaluedbelowtheprescribedlimitsoastodefeattheprovisionsof thissection,suchofficershallfurnishinformationinrespectofsuchtransactionstotheDirectorwithin theprescribedtime. The records shall be maintained for a period of ten years from the date of cessation of the transactionsbetweentheclientsofthebankingcompanyorfinancialinstitutionorintermediary,asthe casemaybe. CashTransactionReport The Prevention of Money Laundering Act, 2002 and the Rules thereunder require every intermediarytofurnishdetailsofthefollowingcashtransactions: (A) All cash transactions of the value of more than rupees ten lakhs or its equivalent in foreign currency. (B) Allseriesofcashtransactionsintegrallyconnectedtoeachotherwhichhavebeenvaluedbelow rupees ten lakhs or its equivalent in foreign currency where such series of transactions have takenplacewithinamonth. SuspiciousTransactionReport The Prevention of Money Laundering Act, 2002 and the Rules notified thereunder require every intermediary to furnish details of suspicious transactions whether or not made in cash. Suspicious transactionmeansatransactionwhetherornotmadeincashwhich,toapersonactingingoodfaith (a) givesrisetoareasonablegroundofsuspicionthatitmayinvolvetheproceedsofcrime;or (b) appearstobemadeincircumstancesofunusualorunjustifiedcomplexity;or (c) appearstohavenoeconomicrationaleorbonafidepurpose;or

 (d) gives rise to a reasonable ground of suspicioun that it may involve financing of the activities relatingtoterrorism. Broad categories of reason for suspicion and examples of suspicious transactions for an intermediaryareindicatedasunder: IdentityofClient Falseidentificationdocuments Identificationdocumentswhichcouldnotbeverifiedwithinreasonabletime Nonfacetofaceclient Doubtovertherealbeneficiaryoftheaccount Accountsopenedwithnamesveryclosetootherestablishedbusinessentities SuspiciousBackground Suspiciousbackgroundorlinkswithknowncriminals MultipleAccounts Largenumberofaccountshavingacommonaccountholder,introducerorauthorizedsignatory withnorationale Unexplainedtransfersbetweenmultipleaccountswithnorationale ActivityinAccounts Unusualactivitycomparedtopasttransactions Useofdifferentaccountsbyclientalternatively Suddenactivityindormantaccounts Activityinconsistentwithwhatwouldbeexpectedfromdeclaredbusiness Accountusedforcirculartrading NatureofTransactions Unusualorunjustifiedcomplexity Noeconomicrationaleorbonafidepurpose Sourceoffundsaredoubtful Appearstobecaseofinsidertrading Investmentproceedstransferredtoathirdparty Transactionsreflectlikelymarketmanipulations Suspiciousoffmarkettransactions ValueofTransactions Valuejustunderthereportingthresholdamountinanapparentattempttoavoidreporting Largesumsbeingtransferredfromoverseasformakingpayments Inconsistentwiththeclientsapparentfinancialstanding

 Inconsistencyinthepaymentpatternbyclient Blockdealwhichisnotatmarketpriceorpricesappeartobeartificiallyinflated/deflated . Q61.Define (a) Outofmoney1.Foracall,whenanoption'sstrikepriceishigherthan themarketpriceoftheunderlyingasset. 2.Foraput,whenthestrikepriceisbelowthemarketpriceofthe underlyingasset. (b)CalloptionBasically,anoptionthatwouldbeworthlessifitexpired today CalloptionAnoptioncontractgivesthebuyertheright,butnot theobligationtobuy/sellanunderlyingassetatapredeterminedprice onorbeforeaspecifiedtime.Theoptionbuyeracquiresaright,while theoptionsellertakesonanobligation.Itisthebuyersprerogativeto exercisetheacquiredright.Ifandwhentherightisexercised,theseller hastohonourit.Theunderlyingassetforoptioncontractsmaybe stocks,indices,commodityfutures,currencyorinterestrates Whatarethetypesofoptions? Broadlyspeaking,optionscanbeclassifiedascalloptionsandput options.Whenyoubuyacalloption,onastock,youacquirearightto buythestock.Andwhenyoubuyaputoption,youacquirearightto sellthestock.Youcanalsosellacalloption,inwhich,youwillacquire anobligationtodeliverthestock. (C)strikeprice thestrikeprice(orexerciseprice)isakeyvariableinaderivatives contractbetweentwoparties.Wherethecontractrequiresdeliveryof theunderlyinginstrument,thetradewillbeatthestrikeprice, regardlessofthespotprice(marketprice)oftheunderlyinginstrument atthattime. Formally,thestrikepricecanbedefinedasthefixedpriceatwhichthe ownerofanoptioncanpurchase(inthecaseofacall),orsell(inthe caseofaput),theunderlyingsecurityorcommodity.

 STUDYX VENTURECAPITAL Q62whatisaventurecapital?Howdoesitoperate? AnsVenturecapitalisthecapitalthatisinvestedinequityordebtsecurities(withequityconversion terms)ofyoungunseasonedcompaniespromotedbytechnocratswhoattempttobreaknewpath.Itis asourceoffinanceforneworrelativelynew,highrisk,highprofitpotentialproductsastheprojects belongtountriedsegmentsortechnologies.Itisdifficultforthepromoterstoobtainfinancefrom conventionalsources.Theventurecapitalistsstepintofillthisgap.Theventurecapitalistsare knowledgeableandsophisticatedinvestorswhocomeforwardtofacehigherriskswiththecalculated hopeofmakingmuchhighergainswhenthenewprojectssucceed.Theyworkonthetheorythatthe greatertherisk,thegreaterwillbetheprofit.Thesuccessofaventurecapitalprojectdependsonthe carewithwhichtheprojectsareevaluatedandselectedforinvestmentandthetrustinthecapabilities ofthepromotersinmakingasuccesssoftheirprojects.Venturecapitaliststakefasterdecisionsin appraisingprojectsandreleasingfundsthanBanksandFIs Venture Capital is money provided by professionals who invest alongside management in rapidly growing companies; Venture Capital derives its value from the brand equity, professional image, constructivecriticism,domainknowledge,industrycontacts;theybringtotableatasignificantlylower managementagencycost. Q63Whatdoyouunderstandbythefollowinginrelationtoventurecapitalfunds: (a) Incubators (b) AngelInvestors (c) Privateequityplayers? Ans.Theventurefundsavailablecouldbeform: Incubators Anincubatorisahardcoretechnocratwhoworkswithanentrepreneurtodevelopabusinessidea, andpreparesaCompanyforsubsequentroundsofgrowth&funding.EVentures,Infinityareexamples ofincubatorsinIndia. AngelInvestors Anangelisanexperiencedindustrybredindividualwithhighnetworth.Typically,anangelinvestor

 would invest only his chosen field of technology, take active participationin daytoday running of the CompanyinvestsmallsumsintherangeofUSD13millionnotinsistondetailedbusinessplanssanction theinvestmentinuptoamonthhelpcompanyforsecondroundoffunding. PrivateEquityPlayers Theyareestablishedinvestmentbankers.Theytypicallyinvestintoproven/establishedbusinesses. TheyhavefinancialpartnersapproachandinvestbetweenUSD5100million. Q64.Whatisaplacementmemorandum?Listoutitsessentialcontents. Ans The venture capital fund established as a trust before issuing any units file a placement memorandumwithSEBIwhichshouldgivedetailsofthetermssubjecttowhichmoniesareproposedto beraisedfrominvestors. A venture capital fund established as a company should before making an offer inviting any subscription to its securities, file with SEBI a placement memorandum which shall give details of the termssubjecttowhichmoniesareproposedtoberaisedfromtheinvestors. Theplacementmemorandumshouldcontainthefollowing,namely: (i) detailsofthesecuritiesthatarebeingoffered; (ii) detailsofinvestmentsthatareproposedtobemade; (iii) detailsofdirectorsofthecompany; (iv) taximplicationsthatarelikelytoapplytoinvestors; (v) mannerofsubscriptiontothesecuritiesthataretobeissued; (vi) mannerinwhichthebenefitsaccruingtoinvestorsinthesecuritiesaretobedistributed;and (vii) detailsoftheassetmanagementcompany,ifany,andoffeestobepaidtosuchacompany. Theplacementmemorandumistobeissuedforprivatecirculationonlyaftertheexpiryoftwenty one days of its submission to SEBI. However it has been provided that if within twenty one days of submission of the placement memorandum, SEBI communicates any amendments to the placement memorandum, the venture capital fund should carry out such amendments in the placement memorandumbeforesuchmemorandumiscirculatedtotheinvestors. AmendmentsorchangestoanyplacementmemorandumalreadyfiledwithSEBIcanbemadeonlyif a copy of the placement memorandum indicating the changes is filed with SEBI and secondly within twentyonedaysofsuchfiling,ifSEBIhasnotcommunicatedanyobjectionsorobservationsonthesaid amendmentsorchanges. Q65Explainbrieflyinvestmentcriteriaforforeignventurecapitalinvestor. Ans.InvestmentCriteriaforaForeignVentureCapitalInvestor Allinvestmentstobemadebyforeignventurecapitalinvestorsshouldbesubjecttothefollowing conditions:

 (a) itshoulddisclosetoSEBIitsinvestmentstrategy. (b) itcaninvestitstotalfundscommittedinoneventurecapitalfund. (c) itshallmakeinvestmentsasenumeratedbelow: (i) atleast66.67%oftheinvestiblefundsshouldbeinvestedinunlistedequitysharesorequity linkedinstruments. (ii) notmorethan33.33%oftheinvestiblefundsmaybeinvestedbywayof: (a) subscription to initial public offer of a venture capital undertaking whose shares are proposedtobelisted; (b) debtordebtinstrument ofaventure capitalundertakinginwhich theforeignventure capitalinvestorhasalreadymadeaninvestmentbywayofequity. (c) preferentialallotmentofequitysharesofalistedcompanysubjecttolockinperiodof oneyear. (d) theequitysharesorequitylinkedinstrumentsofafinanciallyweakcompanyorasick industrialcompanywhosesharesarelisted. Afinanciallyweakcompanymeansacompany,whichhasattheendoftheprevious financialyearaccumulatedlosses,whichhasresultedinerosionormorethan50%but lessthan100%ofitsnetworthasatthebeginningofthepreviousfinancialyear. (e) Special Purpose Vehicles which are created for the purpose of facilitating or promotinginvestmentinaccordancewiththeseRegulations. The investment conditions and restrictions stipulated in clause (c) of regulation 11 shallbeachievedbytheForeignVentureCapitalInvestorbytheendofitslifecycle. (f) Itshalldisclosethedurationoflifecycleofthefund.

Q.66Discussthenormsforwindingofventurecapitalscheme. Ans,Aschemeofaventurecapitalfundsetupasatrustshouldbewoundupif (a) theperiodofthescheme,ifany,mentionedintheplacementmemorandumisover; (b) intheopinionofthetrusteesorthetrusteecompany,thattheschemeshouldbewoundupin theinterestsofinvestorsintheunits; (c) if seventy five percent of the investors in the scheme pass a resolution at a meeting of unit holdersthattheschemebewounduporifSEBIsodirectsintheinterestsofinvestors. Aventurecapitalfundsetupasacompanyshouldbewoundupinaccordancewiththeprovisions of the Companies Act, 1956. It should be wound up in accordance with the provisions of the statute underwhichitisconstituted.Thetrusteesortrusteecompanyoftheventurecapitalfundsetupasa trustorSEBIofDirectorsinthecaseoftheventurecapitalfundissetupasacompany(includingbody corporate) should intimate SEBI and investors of the circumstances leading to the winding up of the FundorScheme.

 Nofurtherinvestmentsshouldbemadeonbehalfoftheschemesowounduponandfromthedate of intimation. Within three months from the date of intimation, the assets of the scheme should be liquidated,andtheproceedsaccruingtoinvestorsintheschemebedistributedtothemaftersatisfying allliabilities. Q67.WriteanoteonOffshoreventurefunds Offshorefunds CommonlytherearetwoalternativesavailabletooffshoreinvestorsparticipatinginIndianventure capitalinvestments.Theoffshoreinvestorscaneitheruseanoffshorestructureoraunifiedstructure. Offshorestructure Underthisstructureaninvestmentvehicle,whichcouldbeaLLCoranLPorganizedinajurisdiction outsideIndia,makesinvestmentsdirectlyintoIndianportfoliocompanies.Therewouldgenerallybean offshoremanagerformanagingtheassetsofthefundandaninvestmentadvisorinIndiaforidentifying dealsandtocarryoutpreliminaryduediligenceonprospectiveinvestmentopportunities.Unified structure Thisstructureisgenerallyusedwheredomestic(ieIndian)investorsareexpectedtoparticipateinthe fund.Underthisstructure,atrustoracompanyisorganizedinIndia.Thedomesticinvestorswould directlycontributetothetrustwhereasoverseasinvestorspooltheirinvestmentsinanoffshorevehicle andthisoffshorevehicleinvestsinthedomestictrust.Theportfolioinvestmentsaremadebythetrust. Thetrustwouldgenerallyhaveadomesticmanageroranadviser.Theoffshorefundmayalsohaveits ownoffshoremanager/adviser.Thisstructurealsoenablesthedomesticmanagertodrawitsshareof carrydirectlyfromthetrust. Theregulatoryframework InIndia,bothdomesticandoffshoreventurecapitalfundsinvestinginIndiaareregulatedbythe SecuritiesandExchangeBoardofIndia(SEBI).Untilrecently,SEBIonlyregulatedthedomesticVCFsvide itsSEBI(VentureCapitalFunds)Regulations,1996(asamendedbySEBI(VentureCapitalFunds (Amendment))Regulations2000)(VCFRegulations).However,inSeptember2000,SEBIannounceda newsetofguidelinesenablingforeignventurecapitalandprivateequityinvestorstoregisterwithitself. ThenewguidelinesarecalledtheSEBI(ForeignVentureCapitalInvestors)Regulations,2000(FVCI Regulations) Q68ExplaintheprocedureforregistrationofventurecapitalfundinIndia Ans.TheapplicantforregistrationasVentureCapitalFundshouldfulfilthefollowingconditions: (1)iftheapplicationismadebyacompany, (a) memorandum of association has as its main objective, the carrying on of the activity of a

 venturecapitalfund; itisprohibitedbyitsmemorandumandarticlesofassociationfrommakinganinvitationto thepublictosubscribetoitssecurities; itsdirectororprincipalofficeroremployeeisnotinvolvedinanylitigationconnectedwith thesecuritiesmarketwhichmayhaveanadversebearingonthebusinessoftheapplicant; its director, principal officer or employee has not at any time been convicted of any offence involvingmoralturpitudeoranyeconomicoffence. itisafitandproperperson.

(b) (c) (d) (e)

(2)iftheapplicationismadebyatrust, (a) the instrument of trust is in the form of a deed and has been duly registered under the provisionsoftheIndianRegistrationAct,1908(16of1908); (b) themainobjectofthetrustistocarryontheactivityofaventurecapitalfund; (c) the directorsof its trustee company, if any, or any trustee is not involved in any litigation connectedwiththesecuritiesmarketwhichmayhaveanadversebearingonthebusinessof theapplicant; (d) thedirectorsofitstrusteecompany,ifany,oratrusteehasnotatanytime,beenconvicted ofanyoffenceinvolvingmoralturpitudeorofanyeconomicoffence; (e) theapplicantisafitandproperperson. (3)iftheapplicationismadebyabodycorporate (a) itissetuporestablishedunderthelawsoftheCentralorStateLegislature. (b) theapplicantispermittedtocarryontheactivitiesofaventurecapitalfund. (c) theapplicantisafitandproperperson. (d) the directors or the trustees, as the case may be, of such body corporate have not been convictedofanyoffenceinvolvingmoralturpitudeorofanyeconomicoffense. (e) the directors or the trustees, as the case may be, of such body corporate, if any, is not involvedinanylitigationconnectedwiththesecuritiesmarketwhichmayhaveanadverse bearingonthebusinessoftheapplicant.

(4)theapplicanthasnotbeenrefusedacertificatebySEBIoritscertificatehasnotbeensuspended orcancelledundertheRegulations30. ThesecuritiesandExchangeBoardofIndiawillscrutinizeapplication,.Theapplicantshouldbegiven an opportunity to remove, within thirty days of the date of receipt of communication, the objections indicated by SEBI. On being satisfied that it is necessary to extend the period, SEBI can extend such periodbysuchfurthertimenotexceedingninetydaysandifitismeetingthecriteriaforregistrationit will grant the certificate. However, no application will be refused unless the applicant is given an opportunitytobeheard.ThedecisionofSEBItorejecttheapplicationshouldbecommunicatedtothe applicant within thirty days. Any applicant whose application has been rejected cannot carry on any activityasaventurecapitalfund

 Q69ExplaintheprocedureforregistrationofventurecapitalfundinIndia Ans.TheapplicantforregistrationasVentureCapitalFundshouldfulfilthefollowingconditions: (1)iftheapplicationismadebyacompany, (a) memorandum of association has as its main objective, the carrying on of the activity of a venturecapitalfund; (b) itisprohibitedbyitsmemorandumandarticlesofassociationfrommakinganinvitationto thepublictosubscribetoitssecurities; (c) itsdirectororprincipalofficeroremployeeisnotinvolvedinanylitigationconnectedwith thesecuritiesmarketwhichmayhaveanadversebearingonthebusinessoftheapplicant; (d) its director, principal officer or employee has not at any time been convicted of any offence involvingmoralturpitudeoranyeconomicoffence. (e) itisafitandproperperson. (2)iftheapplicationismadebyatrust, (a) the instrument of trust is in the form of a deed and has been duly registered under the provisionsoftheIndianRegistrationAct,1908(16of1908); (b) themainobjectofthetrustistocarryontheactivityofaventurecapitalfund; (c) the directors of its trustee company, if any, or any trustee is not involved in any litigation connectedwiththesecuritiesmarketwhichmayhaveanadversebearingonthebusinessof theapplicant; (d) thedirectorsofitstrusteecompany,ifany,oratrusteehasnotatanytime,beenconvicted ofanyoffenceinvolvingmoralturpitudeorofanyeconomicoffence; (e) theapplicantisafitandproperperson. (3)iftheapplicationismadebyabodycorporate (a) itissetuporestablishedunderthelawsoftheCentralorStateLegislature. (b) theapplicantispermittedtocarryontheactivitiesofaventurecapitalfund. (c) theapplicantisafitandproperperson. (d) the directors or the trustees, as the case may be, of such body corporate have not been convictedofanyoffenceinvolvingmoralturpitudeorofanyeconomicoffense. (e) the directors or the trustees, as the case may be, of such body corporate, if any, is not involvedinanylitigationconnectedwiththesecuritiesmarketwhichmayhaveanadverse bearingonthebusinessoftheapplicant.

(4)theapplicanthasnotbeenrefusedacertificatebySEBIoritscertificatehasnotbeensuspended orcancelledundertheRegulations30. ThesecuritiesandExchangeBoardofIndiawillscrutinizeapplication,.Theapplicantshouldbegiven

 an opportunity to remove, within thirty days of the date of receipt of communication, the objections indicated by SEBI. On being satisfied that it is necessary to extend the period, SEBI can extend such periodbysuchfurthertimenotexceedingninetydaysandifitismeetingthecriteriaforregistrationit will grant the certificate. However, no application will be refused unless the applicant is given an opportunitytobeheard.ThedecisionofSEBItorejecttheapplicationshouldbecommunicatedtothe applicant within thirty days. Any applicant whose application has been rejected cannot carry on any activityasaventurecapitalfund STUDYXV DEBTMARKET Q70.Whatisassetsecuritization? Ans.Assetsecuritizationisafinancialinstrumentofstructuredfinanceinwhichloaninterestand receivablesarepackedandsoldintheformofABSsecurities.Assetsecuritizationmaximizescapital& minimizesriskduetoitsdiversificationnature. Thisistheprocesswhichhelpscreateafinancialinstrumentbycombiningotherfinancialassetsand thenmarketingthemtoinvestors.Again,inthisprocesscertainassetsfromthebalancesheetofa companygetseparatedandareusedascollateralfortheissuanceofsecurities.Thesecuritizedassets likecommercialpapers,notesorbondsaretypicallysoldthroughspecialpurposevehicle(SPV)inorder toprovidefunding. Assetsecuritizationdiffersfromcollateralizeddebtortraditionalassetbackedlending.Loansaresoldto athirdpartythroughaspecialpurposevehicle(SPV)ortrust.ThisSPVissuesoneormoredebt instrumentsassetbackedsecuritieswhoseinterestandprincipalpaymentsaredependentonthecash flowscomingfromtheunderlyingassets. . Q71. What is the bail out take over? Describe the procedure for bail out take over prescribed underSEBI(SubstantialAcquisitionnandTakeOverRules. Ans.Bailouttakeovers.

 Substantialacquisitionofsharesinafinanciallyweakcompanynotbeingasickindustrialcompany,in pursuanceofaschemeofrehabilitationapprovedbyapublicfinancialinstitutionofascheduledbank isreferredtoastheleadinstitution).Iscalledbailouttakeover. (2)Theleadinstitutionisresponsibleforensuringcompliancewiththefollowing (3)Ithastoappraisethefinanciallyweakcompanytakingintoaccountthefinancialviability,andassess therequirementoffundsforrevivalanddrawuptherehabilitationpackageontheprincipleof protectionofinterestsofminorityshareholders,goodmanagement,effectiverevivalandtransparency. (4)Therehabilitationschemeshouldalsospecificallyprovidethedetailsofanychangeinmanagement. (5)Theschememayprovideforacquisitionofsharesinthefinanciallyweakcompanyinanyofthe followingmanner: a. outrightpurchaseofshares,or b. exchangeofshares,or c. acombinationofboth: Theschemeasfaraspossiblemayensurethataftertheproposedacquisitiontheerstwhile promotersdonotownanysharesincasesuchacquisitionismadebythenewpromoters pursuanttosuchscheme. Fnanciallyweakcompanymeansacompany,whichhasattheendofthepreviousfinancialyear accumulatedlosses,whichhasresultedinerosionofmorethan50percentbutlessthan100percentof itsnetworthasatthebeginningofthepreviousfinancialyearthatistosayofthesumtotalofthepaid upcapitalandfreereserves. Mannerofacquisitionofshares. (1)Beforegivingeffecttoanyschemeofrehabilitationtheleadinstitutionhastoinviteoffersfor acquisitionofsharesfromatleastthreeparties. (2)Afterreceiptoftheoffersundersubregulation(1),theleadinstitutionmustselectoneoftheparties havingregardtothemanagerialcompetence,adequacyoffinancialresourcesandtechnicalcapabilityof thepersonacquiringsharestorehabilitatethefinanciallyweakcompany. (3)Theleadinstitutionshouldprovidenecessaryinformationtoanypersonintendingtomakeanoffer toacquiresharesaboutthefinanciallyweakcompanyandparticularlyinrelationtoitspresent managementtechnology,rangeofproductsmanufactured,shareholdingpattern,financialholdingand performanceandassetsandliabilitiesofsuchcompanyforaperiodcoveringfiveyearsfromthedateof theofferasalsotheminimumfinancialandothercommitmentsexpectedoffromthepersonacquiring sharesforsuchrehabilitation.

 Mannerofevaluationofbids. Theleadinstitutionisrequiredtoevaluatethebidsreceivedwithrespecttothepurchasepriceor exchangeofshares,trackrecord,financialresources,reputationofthemanagementoftheperson acquiringsharesandensurefairnessandtransparencyintheprocess. Aftermakingevaluationasaforesaidtheoffersreceivedshallbelistedinorderofpreferenceandafter consultationwiththepersonsintheaffairsofthemanagementofthefinanciallyweakcompanyaccept oneofthebids. Personacquiringsharestomakeanoffer. Thepersonacquiringshareswhohasbeenidentifiedbytheleadinstitution,onreceiptofa communicationinthisbehalffromtheleadinstitutionhastomakeaformaloffertoacquiresharesfrom thepromotersorpersonsinchargeoftheaffairsofthemanagementofthefinanciallyweakcompany, financialinstitutionsandalsoothershareholdersofthecompanyatapricedeterminedbymutual negotiationbetweenthepersonacquiringthesharesandtheleadinstitution. Leadinstitutionmayoffertheshareholdingsheldbyitinthefinanciallyweakcompanyaspartofthe schemeofrehabilitation. Personacquiringsharestomakepublicannouncement. (1)Thepersonacquiringsharesfromthepromotersorthepersonsinchargeofthemanagementofthe affairsofthefinanciallyweakcompanyorthefinancialinstitutionhastolmakeapublicannouncement ofhisintentionforacquisitionofsharesfromtheothershareholdersofthecompany. (2)Suchpublicannouncementmustcontainrelevantdetailsabouttheofferincludingtheinformation abouttheidentityandbackgroundofthepersonacquiringshares,thenumberandpercentageofshares proposedtobeacquired,offerprice,thespecifieddate,thedateofopeningoftheofferandtheperiod forwhichtheoffershallbekeptopenandsuchotherparticularsasmayberequiredbytheBoard. (3)Theletterofoffershouldbeforwardedtoeachoftheshareholdersotherthanthepromotersorthe personsinchargeofthemanagementofthefinanciallyweakcompanyandthefinancialinstitutions. (4)Iftheofferreferredresultsinthepublicshareholdingbeingreducedto10percentorlessofthe votingcapitalofthecompany,theacquirershalleither a. withinaperiodofthreemonthsfromthedateofclosureofthepublicoffer,makeanofferto buyouttheoutstandingsharesremainingwiththeshareholdersatthesameofferprice,which mayhavetheeffectofdelistingthetargetcompany;or b. undertaketodisinvestthroughanofferforsaleorbyafreshissueofcapitaltothepublicwhich shallopenwithinaperiodofsixmonthsfromthedateofclosureofthepublicoffer,such numberofsharessoastosatisfythelistingrequirements.

 (5)Theletterofoffershallstateclearlytheoptionavailabletotheacquirerundersubregulation(4). (6)Forthepurposesofcomputingthepercentagereferredtoinsubregulation(4),thevotingrightsas attheexpirationoftwentydaysaftertheclosureofthepublicoffershallbereckoned. (7)Whileacceptingtheofferfromtheshareholdersotherthanthepromotersorpersonsinchargeof thefinanciallyweakcompanyorthefinancialinstitutions,thepersonacquiringsharesshallofferto acquirefromtheindividualshareholderhisentireholdingsifsuchholdingisuptohundredsharesofthe facevalueofrupeesteneachortensharesofthefacevalueofrupeeshundredeach. Competitivebid. .Nopersoncanmakeacompetitivebidforacquisitionofsharesofthefinanciallyweakcompanyonce theleadinstitutionhasevaluatedthebidandacceptedthebidoftheacquirerwhohasmadethepublic announcementofofferforacquisitionofsharesfromtheshareholdersotherthanthepromotersorthe personsinchargeofthemanagementofthefinanciallyweakcompany. ExemptionfromtheoperationsofChapterIII. (1)Everyofferwhichhasbeenmadeinpursuanceofregulation30shallbeaccompaniedwithan applicationtotheBoardforexemptingsuchacquisitionsfromtheprovisionsofChapterIIIofthese regulations. (2)ForconsideringsuchrequesttheBoardmaycallforsuchinformationfromthecompanyasalsofrom theleadinstitution,inrelationtothemannerofvettingtheoffersevaluationofsuchoffersandsimilar othermatters. (3)NotwithstandinggrantofexemptionbytheBoard,theleadinstitutionortheacquirerasfarasmay bepossible,shalladheretothetimelimitsspecifiedforvariousactivitiesforpublicofferspecifiedin ChapterIII. AcquisitionofsharesbyaStatelevelpublicfinancialinstitution. WhereaproposalforacquisitionofsharesinrespectofafinanciallyweakcompanyismadebyaState levelpublicfinancialinstitution,theprovisionsoftheseregulationsinsofarastheyrelatetoschemeof rehabilitationpreparedbyapublicfinancialinstitution,shallapplyexceptthatinsuchacasethe IndustrialDevelopmentBankofIndia,acorporationestablishedundertheIndustrialDevelopmentBank ofIndiaAct,1964(10of1964),shallbetheagencyforensuringcompliancewiththeseregulationsfor acquisitionofsharesinthefinanciallyweakcompany.

 Q72.DefineAcquirerandControl Ans. a. acquirermeansanypersonwho,directlyorindirectly,acquiresoragreestoacquireshares orvotingrightsinthetargetcompany,oracquiresoragreestoacquirecontroloverthe targetcompany,eitherbyhimselforwithanypersonactinginconcertwiththeacquirer; b. controlshallincludetherighttoappointmajorityofthedirectorsortocontrolthe managementorpolicydecisionsexercisablebyapersonorpersonsactingindividuallyorin concert,directlyorindirectly,includingbyvirtueoftheirshareholdingormanagement rightsorshareholdersagreementsorvotingagreementsorinanyothermanner. Explanation: i. Wheretherearetwoormorepersonsincontroloverthetargetcompany,the cesserofanyoneofsuchpersonsfromsuchcontrolshallnotbedeemedtobea changeincontrolofmanagementnorshallanychangeinthenatureandquantum ofcontrolamongstthemconstitutechangeincontrolofmanagement: Providedthatthetransferfromjointcontroltosolecontroliseffectedin accordancewithclause(e)ofsubregulation(1)ofregulation3. ii. Ifconsequentuponchangeincontrolofthetargetcompanyinaccordancewith regulation3,thecontrolacquiredisequaltoorlessthanthecontrolexercisedby person(s)priortosuchacquisitionofcontrol,suchcontrolshallnotbedeemedto beachangeincontrol;] Q73.Definepersonsactinginconcert

a. personactinginconcertcomprises, 1. personswho,foracommonobjectiveorpurposeofsubstantialacquisitionofsharesor votingrightsorgainingcontroloverthetargetcompany,pursuanttoanagreementor understanding(formalorinformal),directlyorindirectlycooperatebyacquiringor agreeingtoacquiresharesorvotingrightsinthetargetcompanyorcontroloverthe targetcompany, 2. Further,thefollowingpersonswillbedeemedtobepersonsactinginconcertwithother personsinthesamecategory,unlessthecontraryisestablished: i. acompany,itsholdingcompany,orsubsidiaryorsuchcompanyorcompany underthesamemanagementeitherindividuallyortogetherwitheachother; ii. acompanywithanyofitsdirectors,oranypersonentrustedwiththe managementofthefundsofthecompany; iii. directorsofcompaniesreferredtoinsubclause(i)ofclause(2)andtheir associates; iv. mutualfundwithsponsorortrusteeorassetmanagementcompany; v. foreigninstitutionalinvestorswithsubaccount(s); vi. merchantbankerswiththeirclient(s)asacquirer;

 vii. viii. ix. portfoliomanagerswiththeirclient(s)asacquirer; venturecapitalfundswithsponsors; bankswithfinancialadvisers,stockbrokersoftheacquirer,oranycompany whichisaholdingcompany,subsidiaryorrelativeoftheacquirer: anyinvestmentcompanywithanypersonwhohasaninterestasdirector,fund manager,trustee,orasashareholderhavingnotlessthan2percentofthe paidupcapitalofthatcompanyorwithanyotherinvestmentcompanyinwhich suchpersonorhisassociateholdsnotlessthan2percentofthepaidupcapital ofthelattercompany. Note:Forthepurposesofthisclauseassociatemeans, a. anyrelativeofthatpersonwithinthemeaningofsection6ofthe CompaniesAct,1956(1of1956);and b. familytrustsandHinduundividedfamilies STUDYXIII DEPOSITORIES Q.74Whatismeantbydemat? Ans.ThetermDemat,inIndia,referstoadematerialisedaccountforindividualIndiancitizenstotrade inlistedstocksordebenturesrequiredforinvestorsbyTheSecuritiesExchangeBoardofIndiaSEBIIna demataccount,sharesandsecuritiesareheldelectronicallyinsteadoftheinvestortakingphysical possessionofcertificates.ADematAccountisopenedbytheinvestorwhileregisteringwithan investmentbroker(orsubbroker).TheDemataccountnumberisquotedforalltransactionstoenable electronicsettlementsoftradestotakeplace. AccesstotheDemataccountrequiresaninternetpasswordandatransactionpasswordaswellas initiatingandconfirmingtransfersorpurchasesofsecurities.Purchasesandsalesofsecuritiesonthe Demataccountareautomaticallymadeoncetransactionsareexecutedandcompleted. Thedemataccountreducesbrokeragecharges,makespledging/hypothecationofshareseasier,enables quickownershipofsecuritiesonsettlementresultinginincreasedliquidity,avoidsconfusioninthe ownershiptitleofsecurities,andprovideseasyreceiptofpublicissueallotments. Italsohelpsavoidbaddeliveriescausedbysignaturemismatch,postaldelaysandlossofcertificatesin transit.Further,iteliminatesrisksassociatedwithforgery,counterfeiting,andlossduetodamagestock certificates.Demataccountholdersalsoavoidstampduty(asagainst0.5percentpayableonphysical shares),fillingupoftransferdeeds,andobtainquickreceiptofbenefitslikestocksplitsandbonuses.

 Q75Whatismeantbydepositoryparticipant? Ans.InIndia,aDepositoryParticipant(DP)isdescribedasanagentofthedepository.Theyarethe intermediariesbetweenthedepositoryandtheinvestors.TherelationshipbetweentheDPsandthe depositoryisgovernedbyanagreementmadebetweenthetwoundertheDepositoriesAct.Inastrictly legalsense,aDPisanentitywhoisregisteredassuchwithSEBIunderthesubsection1AofSection12of theSEBIAct.AspertheprovisionsofthisAct,aDPcanofferdepositoryrelatedservicesonlyafter obtainingacertificateofregistrationfromSEBI. SEBI(D&P)Regulations,1996prescribeaminimumnetworthofRs.50lakhforstockbrokers,R&T agentsandnonbankingfinancecompanies(NBFC),forgrantingthemacertificateofregistrationtoact asDPs.IfastockbrokerseekstoactasaDPinmorethanonedepository,heshouldcomplywiththe specifiednetworthcriterionseparatelyforeachsuchdepository.Nominimumnetworthcriterionhas beenprescribedforothercategoriesofDPs;however,depositoriescanfixahighernetworthcriterion fortheirDPs. Q76,Distinguishbetweendepositoryandacustodian "Depository"isgenerally(orhistorically)usedtotalkaboutcentralinstitutions(nearlyutilities)that registertheinitialdepositofsecuritiesonrequestoftheissuer.Therearetwodepositoriesviz.NSDL andCDSLareformedunderDepositoriesAct..Theyaremarketinfrastructureinstitutions. "Custodian"describesafirm(generallybanks)thatholdssecuritiesonbehalfofdepositngfirms.They areregisteredwithSEBIasasecondarymarketintermediary. Depositoriesaremeantfordematerialisationofsecurities.Custodianskeepphysicalsecurities. Q77;Whatisimmobilisationanddematerialisation ImmobilisationWherephysicalsharecertificatesarekeptinvaultswiththedepositoryforsafe custody. All subsequent transactions in these securities take place in book entry form. The actual owner has the right to withdraw his physical securities as and when desired. The immobilization of fresh issue may be achieved by issuing a jumbo certificate representing the entireissueinthenameofdepository,asnomineeofthebeneficialowners. Dematerialisation No Physical scrip in existence, only electronic records maintained by depository.ThistypeofsystemiscosteffectiveandsimpleandhasbeenadoptedinIndia.

 Q78.Distinguishbetweendematerisationandrematerialisation Dematerialisationisaprocessbywhichthephysicalsharecertificatesofaninvestoraretakenbackby theCompanyandanequivalentnumberofsecuritiesarecreditedhisaccountinelectronicformatthe requestoftheinvestor.AninvestorwillhavetofirstopenanaccountwithaDepositoryParticipantand thenrequestforthedematerialisationofhissharecertificatesthroughtheDepositoryParticipantso thatthedematerialisedholdingscanbecreditedintothataccount.ThisisverysimilartoopeningaBank Account Rematerialisationisexactlyreverseprocessofdematerialisation.Investorgetsbackthesecuiritiesin physicalformandhisaccountinelectronicrecordisdebitedtothatextent/ Thedifferencebetweenthetwo Dematerialisation 1. 2. 3. 4. 5. 6. 7. 8. InvestoropensaccountwithDP FillsDematerialisationRequestForm(DRF)forregisteredshares InvestorlodgesDRFandcertificateswithDP DPintimatestheDepository DepositoryintimatesRegistrar/Issuer DPsendscertificatesandDRFtoRegistrar/Issuer Registrar/IssuerconfirmsdemattoDepository Depositorycreditsinvestora/c Rematerialisation 1ClientsubmitsRematerialisationRequestForm(RRF)toDP 2.DPintimatesDepository 3.DepositoryintimatestheRegistrar/Issuer 4.DPsendsRRFtotheRegistar/Issuer 5.Registrar/IssuerprintscertificatesandsendstoInvestor 6.Registrar/IssuerconfirmsremattoDepository 7.InvestorsaccountwithDPdebited Q79.Whatistheeligibilitycriteriaforvoluntarydelisting? Any consolidation of holdings or acquisitions by management by management by which Public Shareholdingfallsbelowminimumlimits.Thepromotersmayoptfordelisting .Eligibilitycriteria comesoutbestwhenwestudythestepsinvolved

 Companymaydelistsecuritiesprovidedthat 1.Securitiesarelistedforminimum3yrs,. 2. Provided further that exit opportunity is given to investors and exit price is determined by book buildingprocessforthatopportunity. Q71WhatisIPOgrading?. IPORatings,IPOGradingandIPORankingareamongthefewpopularinputsinvestor'susesbefore applyinginaninitialpublicofferingsIPO. IPORatingsareprovidedbyvariousfinancialinstitutions&independentbrokers.FewpopularIPORating providersinIndiaareCapitalMarket,MoneyControl,SPTulsian'sIPOrecommendationsetc. IPOGradingisprovidedbySEBIapprovedratingagenciesincludingCRISIL,CAREandICRA.IPOGradingis designedtoprovideinvestorsanindependent,reliableandconsistentassessmentofthefundamentals ofIPOIssuerCompanies.AsIPOGradingisdecidedmuchearlierthentheissuepriceorissuedatesare finalize(usuallyontheIPOfiling)andtheyjusttellaboutthefundamentalsofthecompany,investors shouldnotconsiderthemas'BuyIPO'or'SkipIPO'recommendations. Q80Whatisagreenshoeoption?Explainitssignificance GreenshoeOption(GSO).isapostlistingpricestabilizingmechanism,bywhichthecompanyintendsto ensurethatthesharespriceontheStockexchangesdoesnotfallbelowtheissueprice. The term Green shoe option derived its name from the company in US which excercised this mechanismforthefirsttime. TheSecuritiesandExchangeBoardofIndia(SEBI)guidelinespermitexerciseofthegreenshoeoptionby a company making a public issue. A preissue contract is required to be entered into for this purpose with an existing shareholder often one of the promoters. The guide lines requires the promoter to lendhissharestobeusedforpricestabilisationtobecarriedoutbyastabilisingagentonbehalfofthe company. Thestabilizingagentcanbeoneoftheleadbookrunnerandthestabilizationperiodcanbeforaperiod ofmaximumperiodof30daysfromthedateofallotmentofshares. Thecompanythengoesontomakeallotment,includingoverallotment,totheextentithasexercised thegreenshoeoption.Theproceedsofthepublicissuetotheextentitrelatestosuchoversubscription permitted by the green shoe option is, however, kept in an escrow account to be used in the price stabilisationexercise(explainedclearlyhowthesefundsaretobeused).

 Green shoe option is to be exercised in an IPO. The SEBI guideline requires the promoters of the companytolendsomeshares(themaximumupperlimitbeing15%ofthetotalnumberofsharesbeing issued through IPO) to the stabilizing agent whose duty is to monitor the post listing price of the companiesshareinthestockexchange. HowGreenshoeoptionworks? The entire process of a greenshoe option works on overallotment of shares. Say, for instance, that a companyisplanningtoissueonly100,000shares,butinordertoutilizethegreenshoeoption,itactually issues115,000shares,inwhichcasetheoverallotmentwouldbe15,000shares.Howeverthepointthat thecompanydoesnotissueanynewsharesfortheoverallotmentshouldbenoted. The 15,000 shares used for the overallotment are actually borrowed from the promoters with whom thestabilizingagententersintoaseparateagreement.Forthesubscribersofapublicissue,itmakesno differencewhetherthecompanyisallottingsharesoutofthefreshlyissued100,000sharesorfromthe 15,000sharesborrowedfromthepromoters.Onceallotted,ashareisjustashareforaninvestor. For the company, however, the situation is totally different. The money received from the over allotmentisrequiredtobekeptinaseparatebankaccount(whichisGSObankAccount). The main job of the stabilizing agent begins only after trading in the share starts at the stock exchanges. Incasethesharesaretradingatapricelowerthantheofferprice,thestabilizingagentstartsbuyingthe shares by using the money lying in the separate bank account. In this manner, by buying the shares when others are selling, the stabilizing agent tries to put the brakes on falling prices. The shares so boughtfromthemarketarehandedovertothepromotersfromwhomtheywereborrowed. Incasethenewlylistedsharesstarttradingatapricehigherthantheofferprice,thestabilizingagent doesnotbuyanyshares. Thenhowwouldhereturntheshares?Atthispoint,thecompanybyexercisingthegreenshoeoption issuesnewsharestothestabilizingagent,whichareinturnhandedovertothepromotersfromwhom theshareswereborrowed STUDYXVI RESOURCEMOBILISATIONININTERNATIONALCAPITALMARKET Q81.WriteanoteonFCCB Ans. International offering may made by companies for tapping the international capital marketsareforeignCurrencyconvertiblebonds(FCCBs)

 TheFCCBsareunsecured,carryafixedrateofinterestandanoptionforconversionintoafixed number of equity shares of the issuer company. Interest and redemption price (if conversion option is not exercised) is payable in dollars. Interest rates are very low by Indian domestic standards.FCCBsshallbedenominatedinanyfreelyconvertibleForeignCurrency.However,it mustbekeptinmindthatFCCBissueproceedsneedtoconformtoECBenduserequirements. FCCBshavebeenpopularwithissuers.Localdebtmarketscanberestrictedwithcomparatively shortmaturitiesandhighinterestrates. Q82.WriteanoteonOverseasDepositorybank AnsOverseasDepositoryBank ItisthebankwhichisauthorisedbytheissuingcompanytoissueDepositoryReceiptsagainstissue ofordinarysharesorForeignCurrencyConvertibleBondsofissuingcompany. Q83ListoutvariousapprovalsrequiredforGlobalDepositoryReceiptsanddocumentationthere for. Ans.ApprovalsrequiredforissueofGDRs TheissueofGDRs/FCCBsrequirestheApprovalofaBoardofDirectors,shareholders,Inprinciple and Final approval of Ministry of Finance, Approval of Reserve Bank of India, Inprinciple consent of StockExchangeforlistingofunderlyingsharesandInprincipleconsentofFinancialinstitutions 1. ApprovalofBoardofDirectors 2. ApprovalofShareholders A special resolution under Section 81(1A) of the Companies Act, 1956 is required to be passed at a duly convened general meeting of the shareholders of the company. In case of Euro optionally convertible debentures, resolution is also required to be passed under Section 81(3)(b). Approvals underSections94,16and31oftheCompaniesAct,1956mayalsobeobtained,ifrequired 3. ApprovalofMinistryofFinanceInPrincipleandFinal IncaseofFCCBissueexceedingUS$100million,thecompanyneedstoapplyMinistryofFinance forapprovalprivateplacementofADR/GDRwillalsonotrequirepriorapprovalprovidedtheissueis leadmanagedbyinvestmentbanker. 4. (ApprovalofDepartmentofCompanyAffairs TheissuercompanyrequiresapprovalfromDeptt.ofCompanyAffairsunderSection81(3)(b),where the convertible bonds are being issued, which after such conversion are likely to increase the subscribedcapitalofthecompany. ApprovalastocomplianceofSection187C,nonapplicabilityofprovisionsrelatingtoprospectusand Section108fortransferofsharesarealsosoughtfor.

 5. ApprovalofReserveBankofIndia The issuer company has to obtain approvals from Reserve Bank of India under circumstances specifiedundertheguidelinesissuedbytheconcernedauthoritiesfromtimetotime. RBI vide its press release dated January 20, 2000 granted general permissions to make an international offering of rupee denominated equity shares of the company by way of issue of ADR/GDR. FCCBcoveredundertheautomaticrouterequiresnoRBIapproval. FCCBissuewhichexceedsUSD50millionbutdoesnotexceed100millionneedtoapplytoRBI. 6. InprincipleconsentofStockExchangesforlistingofunderlyingshares 7. InprincipleconsentofFinancialInstitutions Where term loans have been obtained by the company from the financial institutions, the agreementrelatingtotheloancontainsastipulationthattheconsentofthefinancialinstitutionhas tobeobtained.Thecompanymustobtaininprincipleconsentonthebroadtermsoftheproposed issue. Q84WhatdoyouunderstandbyofferingcircularunderEuroissues Offering Circular is a mirror through which the prospective investors can access vital information regardingthecompanyinordertoformtheirinvestmentstrategies.Itistobepreparedverycarefully giving true and complete information regarding the financial strength of the company, its past performance,pastandenvisagedresearchandbusinesspromotionactivities,trackrecordofpromoters andthecompany,abilitytotradethesecuritiesonEurocapitalmarket. The Offering Circular should be very comprehensive to take care of overall interests of the prospective investor. The Offering Circular for Euroissue offering should typically cover the following contents: (i) Backgroundofthecompanyanditspromotersincludingdateofincorporationandobjects,past performance,production,salesanddistributionnetwork,futureplans,etc. (ii) Capitalstructureofthecompanyexisting,proposedandconsolidated. (iii) Deploymentofissueproceeds. (iv) Financialdataindicatingtrackrecordofconsistentprofitabilityofthecompany. (v) Group investments and their performance including subsidiaries, joint venture in India and abroad. (vi) Investmentconsiderations. (vii) Descriptionofshares. (viii) Termsandconditionsofglobaldepositoryreceiptandanyotherinstrumentissuedalongwithit.

 (ix) EconomicandregulatorypoliciesoftheGovernmentofIndia. (x) Details of Indian securities market indicating stock exchange, listing requirements, foreign investmentsinIndiansecurities. (xi) Marketpriceofsecurities. (xii) Dividendandcapitalisation. (xiii) Securitiesregulationsandexchangecontrol. (xiv) TaxaspectsindicatinganalysisoftaxconsequencesunderIndianlawofacquisition,membership andsaleofshares,treatmentofcapitalgainstax,etc. (xv) StatusofapprovalsrequiredtobeobtainedfromGovernmentofIndia. (xvi) SummaryofsignificantdifferencesinIndianGAAP,UKGAAPandUSGAAPandexpertsopinion. xvii) Reportofstatutoryauditor. ( (xviii)Subscriptionandsale. (xix) Transferrestrictionsinrespectofinstruments. (xx) Legalmattersetc. (xxi) Othergeneralinformationnotformingpartofanyoftheabove AcopyoftheOfferingCircularisrequiredtobesenttotheRegistrarofCompanies,theSecurities ExchangeBoardofIndiaandtheIndianStockExchangesforrecordpurposes. O85Discusstheenduseofexternalcommercialborrowingsundertheapprovalroute. Ans. (1) ECBcanberaisedonlyforinvestment[suchasimportofcapitalgoods(asclassifiedby DGFTintheForeignTradePolicy),implementationofnewprojects,modernization/expansionof existing production units] in real sector industrial sector including small and medium enterprises (SME) and infrastructure sector in India. Infrastructure sector for the purpose of ECBisdefinedas(i)power,(ii)telecommunication,(iii)railways,(iv)roadincludingbridges,(v) seaportandairport(vi)industrialparks(vii)urbaninfrastructure(watersupply,sanitationand sewageprojects)and(viii)mining,refiningandexploration; (2) OverseasdirectinvestmentinJointVentures(JV)/WhollyOwnedSubsidiaries(WOS)subjectto theexistingguidelinesonIndianDirectInvestmentinJV/WOSabroad. (3) The first stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public under the Governments disinvestment programme of PSU shares; (4) ECBcanberasiedbycorporatesengagedinthedevelopmentofintegratedtownshipasdefined by Ministry of Commerce and Industry, DIPP, SIA (FC Division). Integrated township includes housing, commercial premises, hotels, resorts, city and regional level urban infrastructure facilities such as roads and bridges, mass rapid transit systems and manufacture of building materials.Developmentoflandandprovidingalliedinfrastructureformsanintegratedpartof townships development. The minimum area to be developed should be 100 acres for which

 normsandstandardsaretobefollowedasperlocalbyelaws/rules.Intheabsenceofsuchbye laws/rules,aminimumoftwothousanddwellingunitsforaboutten thousandpopulationwill needtobedeveloped. (5) BuybackofFCCBsubjecttotermsandconditions. EndusesnotPermitted (i) Utilisation of ECB proceeds is not permitted for onlending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate except banks and financial institutionseligible. (ii) Utilisation of ECB proceeds is not permitted in real estate. However, the term real estate excludesdevelopmentofintegratedtownshipasdefinedbyMinistryofCommerceandIndustry, DIPP,SIA(FCDivision). (iii) UtilisationofECBproceedsisnotpermittedforworkingcapital,generalcorporatepurposeand repaymentofexistingRupeeloans. STUDYXVII INDIANDEPOSITORYRECEIPTS Q86.WriteanoteonIndianDepositoryReceipt. Indian Depository Receipt means any instrument in the form of a depository receipt created by Domestic Depository in India against the underlying equity shares of issuing company. Domestic DepositorymeanscustodianofsecuritiesregisteredwithSEBIandauthorisedbytheissuingcompany toissueIndianDepositoryReceipts. OverseasCustodianBankmeansabankingcompanywhichisestablishedinacountryoutsideIndiaand hasaplaceofbusinessinIndiaandactsascustodianfortheequitysharesofissuingcompanyagainst whichIDRsareproposedtobeissuedbyhavingacustodialarrangementoragreementwiththe DomesticDepositoryorbyestablishingaplaceofbusinessinIndia The Central Government vide its powers conferred by clause (a) of subsection (1) of section 642 read with section 605A of the Companies Act, 1956, notified Companies (Issue of Indian Depository Receipts) Rules, 2004. These rules are applicable only to those companies incorporated outside India, whethertheyhaveorhavenotestablishedanyplaceofbusinessinIndia.

 STUDYXVIII INVESTORPROTECTION Q87Writeanoteonombudsmaninthestockmarket OmbudsmanmeansanypersonappointedunderSEBI(Ombudsman)Regulations,2003Theregulations furtherdealwithestablishmentofofficeofOmbudsman,powersandfunctionsofOmbudsman, procedureforredressalofGrievancesandimplementationoftheaward. TheOmbudsmanhasthefollowingpowersandfunctions: (a) toreceivecomplaintsspecifiedinregulation13againstanyintermediaryoralistedcompanyor both; (b) toconsidersuchcomplaintsandfacilitateresolutionthereofbyamicablesettlement; (c) toapproveafriendlyoramicablesettlementofthedisputebetweentheparties; (d) to adjudicate such complaints in the event of failure of settlement thereof by friendly or amicablesettlement.

Q88.Whatdoyoumeanbyinvestorprotection?InvestorprotectionistheresponsibilityofSEBIExplain Ans.Capitalmarketsprovidesourcesoffundingforcompaniesandindoingso,achievemoreeffective mobilizationofinvestorssavings.Inthecapitalmarkettherearenotonlyissuercompaniesbutthere arelargenumberintermediaries.Sincetheentiremarketdependuponthesavingsandgiventhefact thatindividualinvestorascomparedtootherplayersisinaweakerpositionitbecomesnecessaryto ensurethatheisnottakenforaride.Investorconfidenceisvitalforthesuccessofthemarket. ThefirstobjectiveofSEBIisprotectingtheinterestoftheinvestorsinsecurities.SEBIasamarket regulatorensuresthatitensuresthatfitandproperpersonsareallowedfunctioninthemarket.Section 12oftheSEBIAct,providesthatnointermediarycanfunctionunlessitisregisteredwithSEBI.SEBIhas issueddifferenttregulationsforeachofthemarketintermediarieswhichprescribecapitaladequacy normsandalsofitandproperpersonrequirements.Itmakesregulationsfortheiroperationsandputs themundersurveillancemechanism.SEBIActprovidesfortheirinspectionandinvestigation.Huge penaltiesandprosecutionprovisionshaveestablisheddeterrents

 SEBIhasalsosetupofficeofOmbudsman,powersandfunctionsofOmbudsman,procedurefor redressalofGrievancesandimplementationoftheaward. SEBIhasmadeissueofCapitalDisclosureRegulationstoensurethatissuersmakeadequateandtruthful disclosuressothattheinvestorstakeinformeddecisions.SEBIensuresthatissuersthroughthelisting agreementthatissuersmakeperiodicandeventbaseddisclosures.Thesedisclosureshelptheinvestors totakebuy,holdorselldecisions.Periodicdisclosuresarealsomandatoryforthemutualfunds. Q89Discusstheroleofstockexchangesininvestorgrievances. Ans.ThefollowingareofinvestorsgrievancesforwhichcomplaintscouldbelodgedwithStock Exchanges Incaseofanypublicissue Nonreceiptof: Refundorder Interestondelayedrefund Allotmentadvice Sharecertificates Duplicatesforalloftheabove Revalidations Theissuercompanyisrequiredtokeepasecuritydepositof1%oftheissueamountwithstock exchangeswhichwillberefundedonlyaftersatisfyingthatinvestorsgrievancesareresolved. Incaseofalistedsecurity Nonreceiptofthecertificatesafter: transfer transmission conversion endorsement consolidation splitting duplicatesofsecurities Regardinglisted Debentures, nonreceiptof: interestdue interestondelayedpayment redemptionproceeds

 Theinvestorcanalsoapproachtheexchangeforresolvingthedisputethrougharbitration. Exchangesuspendstradingormaydelistasecurityinextremecases.Beforetakingthesehardsteps showcausenoticesareissuedbytheexchange. Q.90Whatisinvestoreducation?DiscussroleofSBIininvestoreducation Ans An increased need for financial education is felt on account of the increasing number of financial products, its complexity, importance of retirement savings, increased growth of secondary market. This has made the imparting of financial education imperative for all age groups, including studentssothatindividualsareeducatedaboutfinancialmattersasearlyaspossibleintheirlives.,the growing number of investors, technically advanced financial markets, liberalised economy etc.necessitates imparting offinancial education for better operation of markets and economy and in theinterestofinvestor.Furtherimpartingoffinancialeducationisinternationalconcernduetogrowth of international transactions, international financial instruments like ADR, GDR, IDR etc., mobility of individualsfromonecountrytoanotheretc. InvestoreducationformsanimportantpartofSEBIseffortstoprotecttheinterestoftheinvestors insecuritiesmarkets.Aseriesofinformationbrochuresandpamphletshavebeenissuedinthepastfor thebenefitoftheinvestors.Thesepublicationsindicatethevariousrisksassociatedwithcapitalmarket investment, the rights of the investors, the responsibilities and details of the grievance redressal machinery available to them and the remedy/relief to be obtained from different agencies like SEBI, MinistryofCompanyAffairs,StockExchanges,ReserveBankofIndiaandRegistrarstotheIssue,apart from seeking relief through Consumers Disputes Redressal Forums, Company Law Board and Court of Law. The investors associations registered with SEBI, the stock exchanges and professional bodies also conductinvestoreducationprogrammesfromtimetotimetoappraisetheinvestorsofthechangesin the law and regulations and the methods of protecting themselves against malpractices and delays croppingupinthemarket.Thisisfurthersupplementedby thejournalsand magazinesinthefieldof corporate investment as well as newspaper articles which highlight the newly emerging problems, pitfallsandthemethodstoprotect. Q91.DiscussbrieflytheprovisionsofSEBI(ProhibitionofManipulativeandunfairTradepractices)Rules. TheSecuritiesandExchangeBoardofIndia(ProhibitionofFraudulentandUnfairTradePracticesrelating toSecuritiesMarkets)Regulations,2003. Undertheserules"fraud"includesanyact,expression,omissionorconcealmentcommittedwhetherin adeceitfulmannerornotbyapersonorbyanyotherpersonwithhisconnivanceorbyhisagentwhile

 dealinginsecuritiesinordertoinduceanotherpersonorhisagenttodealinsecurities,whetherornot thereisanywrongfulgainoravoidanceofanyloss,andshallalsoinclude (1)aknowingmisrepresentationofthetruthorconcealmentofmaterialfactinorderthat anotherpersonmayacttohisdetriment; (2)asuggestionastoafactwhichisnottruebyonewhodoesnotbelieveittobetrue; (3)anactiveconcealmentofafactbyapersonhavingknowledgeorbeliefofthefact; (4)apromisemadewithoutanyintentionofperformingit; (5)arepresentationmadeinarecklessandcarelessmannerwhetheritbetrueorfalse; (6)anysuchactoromissionasanyotherlawspecificallydeclarestobefraudulent, (7)deceptivebehaviourbyapersondeprivinganotherofinformedconsentorfullparticipation, Therulesmakeprovisionforpreventionoftradingiebuy,sellorotherwisedealinsecuritiesin afraudulentmanner.Further,theyprovideforProhibitionofmanipulative,fraudulentandunfairtrade practicessuchasafalsestatementmadewithoutreasonablegroundforbelievingittobetrue Therulesprovideforappointing"InvestigatingAuthority"meansanyofficeroftheBoardnotbelowthe rankofDivisionChief,authorizedbytheBoardtoundertakeinvestigationunderSection11CoftheAct; The investigating authority has a right and powers of the court for summoning and examining the persononoath.AfterconsideringthereporttheBoardmay a)Issueawarningorcensure (b)suspendtheregistrationoftheintermediary;or (c)canceloftheregistrationoftheintermediary