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SEBI cheif Mr. D.R. Mehta demands more power for the regulator

At the meeting of the ministry of finance standing committee, SEBI chief D.R.Mehta demamnded more powers for the regulator in order to enable it towith the non-serious players in the market as well as to enable it to tackle with the takeover cases more effectively, The SEBI chief also indicated at filing of a Public Interest Litigation (PIL) in order to enable it to get more powers.

SEBI plans to make Stock-exchanges and depositories disclose their balancesheets

The stock-Exchanges and the Depositories may now be required to diclose their balancesheets in order to bring greater transperency. The idea behind such a requirement is to require the investors to have a greater information about their investments be it in mutual funds, depositories or exchanges.SEBI has made it mandatory for the AMCs to disclose their financial statements to the unit holders.

Sebi ties up with NIC for online corporate filing system

India’s desi online filing system for corporates, which is based on the popular Edgar system of the US, has moved a step forward with the securities regulator set to cut a deal with the National information Center (NIC), NIC has a 1400 VSAT network called NICNET and the state owned agency, set up in 77, today provides a host of services. It runs a website (www.nic.in) which is like a directory of government websites, Sebi executive director Pratip Kar said that NIC has agreed to provide the necessary platform for hosting the website, as well as address the safety issue. NIC would now be attending further meetings of the working group which is setting up the online filling system. The finer details of the agreement would be worked out in due course. The move to use NIC will save time for Sebi as otherwise it would have had to call for tenders to select a private sector partner. This is because the regulator itself does not have the required infrastructure to run a web enabled filling and retrieval system. We are now hopeful of starting with about 100 top companies from April 1, ’01. However, in the interim, we have to sort out a few issues pertaining to content and security, said Mr Kar . The group will meet later this month and NIC officials will be attending the meeting. A sub-group is already working on the content that companies need to provide in their online filings. If the deal goes through, NIC will provide the encryptions, digital signatures etc, they have also pointed out that bandwidth will not be an issue for they have direct satellite links, he added. The project is expected to bring about a major change to the method in which critical information on companies was made available to investors. Sebi is planning to make it mandatory on companies to disclose, on a quarterly basis, the shareholding pattern, the extent of debt on their books, net worth and asset details in online filings to the securities regulator. This is all in addition to the information they already provide to stock exchanges. The ideas is to pull all this together and make it available to investors through the internet. There is however, a security issue as the information being posted on the site would be highly price sensitive and it would be necessary to ensure that only authentic information is put up on the website. “This is more than just a website. It is a retrieval mechanism as well and a lot of issues need to be addressed, ’’said a Sebi official. Officials are, However, confident that they would be able to now launch the mechanism in the first half of next year. (Source : “The Economic Times)

SEPARATE DISCLOSURE OF PAT & TURNOVER FROM NEXT Q1

Companies will have to disclose their profit after tax and turnover separately across their business segments from the first quarter of the next financial, June 01. Companies will also now be required to disclose all material developments immediately and decisions taken at board meeting within 15 minutes. The ban on disclosure of results and other information during trading hours will be lifted. In case, the accounting standards on consolidation of accounts and deferred taxes are not issued by ICAI by march 31, ‘01, the Sebi committee has recommeded that the listing agreement may be amended to make the International Accounting Standards on consolidation of accounts and deferred taxation mandatory for listed companies till such time as the final standards on these subjects are issued by ICAI. Companies have also been given the option to publish audited half yearly financial results within two months instead of publishing unaudited result within one month, followed by a limited review after two months. The Reserve Bank of India’s prescribed format for the declaration of quarterly and hlaf- yearly result, and the review report for banks is also to be made applicable under Clause 41 of the Listing Agreement for Banks. The Sebi-appointed accounting standards committee, headed by YH Malegam, which met on Thursday, also recommended that RBI be requested to recommend formats for quarterly and half-yearly results and review report for NBFC’s for the purposes of satisfying clause 41 of the listing agreement. A circular bringing these decisions into effect will be issued shortly. “ The norms for segment-wise reporting of results will come into effect from April 1 ,’01,” but these will be reflected only in the market would get to know only after March 31,’02”. W want the impact of the disclosures on segment-wise reporting to be felt much before and have hence taken a decision to direct companies to disclose some details like profit after tax and turnover, frmo the ned of the first quarter of the next fiscal itself,” said Sebi executive director Pratip Kar. The decision to ask companies to disclose result, segment wise, was taken by the Kumar Mangalam Birla committee on corporate governance. The ICAI has worked out the accounting standards, on segment reporting and related-party Transaction. The institute is likely to issue the final accounting standards on consolidation of account, deferred tax and earnings per share before March 31,’01 said a Sebi release. Sebi has also finalised its decision to ask companies to revert to disclosing results and other information immediately and not after trading hours only. It has been decided that all material information not emanating from a board meeting of the company should be made public immediately to minimise the possibility of insider trading. All material information emanating from a board meeting should however, be made public within 15 minutes of the board meeting. “The onus is on companies to disclose this information to the regional stock exchanges (RSEs), where they are listed and the RSE’s shall be responsible for instantaneously communicating the same to other stock exchanges where the securities of the company are listed,” said Mr Kar. The move aimed at placing responsibility on RSEs will also help the RSE’s to tone up their infrastructure and will expose any systemic problems at these exchanges, expect , market observers. Clause 41 of the listing agreement between companies and stock exchange, requires that all financial information on companies, like results, be declared only after trading hours while dividend announcements could be made within trading hours. “But dividend announcements are almost inevitably made along with result. So, to resolve this apparent conflict we have decided to harmonise the reporting standards for disclosure of material information,” Mr. Kar said. Sebi has also decided that the current disclosure requirement, which are prescribed under Schedule VI of the companies Act for unutilised monies of public Issues and the form in which such unutilised funds have been invested, may also be prescribed under clause 41 of the Listing Agreement, for companies which are yet to commence commercial production. Source: The Economic Times Dated : 8 December 2000

Sebi to look into cos gaining backdoor listing via merger

THE MARKET regulator is now trying to plug the loophole in the system that allows an unlisted company not meeting the listing eligibility criteria, to get listed by merging a listed company with itself. Sebi is moving a proposal to seek changes in the Securities Contracts (Regulation) Act. The entire Sebi top brass was locked in a late-evening meeting with chiefs of leading stock exchanges on Thursday, and the issue may be addressed by the Sebi board in its meeting scheduled for December 27. According to top Sebi sources, some cases of misuse have been reported to the securities regulator, and it fears that this may snowball into a major issue and therefore wants to plug the loophole now. This is the problem in brief. If a listed company gets merged with an unlisted company, then the combined entity has two options. One, the unlisted, combined entity can seek a listing so that the shareholders of the listed company can continue to get an exit route. However, if the unlisted entity is not eligible for listing, then by merging with a listed company, it gets listed almost automatically and tantamounts to gaining listing through the backdoor. According to sources, a situation could arise (and has in some cases) where a small listed company is merged into an unlisted company, and as this merger has been approved by a court of law, an automatic listing is demanded by the merged entity. So far, Sebi has largely been approving the listing applications as it feels that since the courts have approved the merger, there is little that the regulator can do. The hurriedly-convened meeting on Thursday was attended by most executive directors and the heads of NSE and BSE. "We fear that there could be a misuse, and at the same time, want to ensure that the decision we take is in conjunction with the law of the land. The matter may be discussed by the board and a final decision would be taken by it," said a top Sebi source. The Sebi board is also taking up the issue of allowing all companies to make initial public offers for 10 per cent of their equity against 25 per cent now, and this too may call for a change in the SCRA. It has, therefore, decided to take up the issue of mergers of listed companies with unlisted companies as well. Source: The Economic Times Dated: 15th December 2000

Sebi changes MF overseas investment norms

SEBI has changed the eligibility criteria for overseas investments by Indian mutual funds. It is expected to remove the $10-million floor that MFs have to stick to while investing abroad. Speaking to Economic Times, a senior Sebi official said, "We have decided to apportion the overall limit of overseas investments by MFs set at $ 500 million by the Government and the RBI, amongst Indian MFs on the basis of their net assets under management as of March 1999." Earlier MFs could invest in ADRs/GDRs provided the minimum investment across schemes was $10 million. Besides, it was laid down that the overseas investment could not exceed 10 per cent of the assets managed. However, the regulator has not changed the investment ceiling which remains unchanged at $50 million. This has been done to permit a larger number of MFs to invest in ADRs/Global depository receipts of Indian companies listed overseas. "If the March 2000 figures for assets under management were taken then the $ 500-milion cap would have been exhausted among10 MFs, as against nearly 40 odd MFs licensed to operate in the country," the official said. Sebi has now allowed MFs to invest up to a maximum of $50 million or 10 per cent of their net assets under management at market value as on March 1999, whichever is lower. "The permission to invest in overseas assets is subject to approval being taken from the board of directors of the AMC and trustees. The trustees also need to be satisfied that the AMC has the necessary expertise in managing such investments," said the Sebi official. As of now five MFs have been allowed permission to acquire such securities by RBI and Sebi. These are UTI, Prudential ICICI MF, Morgan Stanley MF, Reliance MF and Kothari Pioneer MF. Of the five fund houses, UTI has been granted permission for the highest possible amount of $ 50-million of investments, while others like Pru-ICICI have received approval for smaller amounts like $19.37 million. Of the MFs who have received permission, UTI has not made any investments as yet. "We feel the domestic market offers a greater potential," said a senior UTI official. On the other hand, KPMF, PruICICI and Morgan Stanley have already commenced investments in such securities. Reliance MF which has so far refrained from making any investment overseas securities, is understood to be stepping in. According to fund managers, this permission is helpful if for instance one wants to invest in stocks like Rediff or Sify which are not listed in India at all. "The ability of our schemes to invest in overseas assets can also serve as a marketing USP for domestic investors as they are themselves not allowed to buy/sell such securities," said the chief investment officer of one of the fund houses who has received the permission. MFs are also excited by the opportunity to arbitrage the price differentials on stocks between the two markets and the ability to trade in overseas listed stocks where price variations are quick and large. Said Prudential ICICI AMC chief investment officer Dileep Madgavkar: "We have invested between $1-1.5 mn in the ADR of Wipro. The permissions to invest in such assets help investors since many of these companies tend to command a premium on the market

MERCHANT BANKS WANT TO KEEP IT PRIVATE

Look to circumvent amendments to debt issue rules, seek clarifications The amendment to Section 67 of the Companies Act, which has made public issue of debt mandatory if the issuer has invited 50 or more investors to subscribe, has led merchant bankers to look for ways to circumvent the norms. The purpose behind this is to allow the issuance to remain within the ambit of a private placement. Merchant Bankers are seeking clarification from the Securities & Exchange Board of India (Sebi), whether issuance of bonds could be made in separate tranches, so as to avoid the prospect of inviting 50 or more investors to the issue and thereby remain within the purview of private placement. Section 67 of the Companies Act was amended this month. The new legislation stipulates that if the debt issuer invites 50 or more investors to subscribe to a debt issue, it would no longer be a private placement, but become a public issue. In this situation, the issuer will be subject to Sebi’s norms. In the absence of clear guidelines on the matter in the past, issuers have preferred the private placement route, which is a contract between the issuer and the investors, without the regulatory formalities attached to a public issue. According to merchant bankers, though the investors will benefit through higher disclosures and regulation, issuers may have to bear higher costs for selling an issue. They feel that as a result of the legislation, the average intermediation cost for the issuer will rise from 20-25 basis points (bps) at present to 300-400 bps. Sebi had been demanding the amendment to Section 67 for the past few years. Sebi had recommended this to the Department of Company Affairs (DCA) that issuers falling under this category should file prospectus with it. In a private placement of bonds, the merchant banker to the issue invites bids from subscribers through an information of memorandum sent to them. The memorandum is marked “Strictly private and confidential—not for publication”, implying that it’s a pure bi-partite agreement between the bond issuer and investor. The legislation is expected to make issuers to observe higher standards on issues such as rating, disclosure of information, regulatory compliance and accountability. Due to the unregulated nature of the present private placement market, many bond issues specially from PSUs and state government undertakings are unrated. This does not give the investor a clear idea of the credit worthiness of the borrower. Source: The Economic Times Dated: 25th December, 2000

SEBI RELAXES IPO NORMS, MUTUAL FUND REGULATIONS

The board of Securities and Exchange Board of India today took a slew of decisions including relaxation of IPO norms, continuous listing requirements for companies, amendments to mutual funds regulations and venture capital norms. The Sebi board at its meeting in New Delhi slashed the minimum stake a company must offload in an initial public share offering (IPO) and tightened rules for calculating mutual funds’ net asset values. The changes will take effect early in the New Year. In a move to create a level playing field, Sebi extended to all companies the right to offload just 10 per cent of their post-issue capital instead of the current minimum of 25 per cent. Earlier, only firms in the information, communication and entertainment sectors were allowed to offer 10 per cent. Sebi chairman DR Mehta said the rules were relaxed to avoid discrimination against firms. He warned against misuse of the new rules through price manipulation as a consequence of the reduced liquidity. The Sebi Primary Markets Advisory Committee had recommended a minimum offering size of Rs. 250 crore. The board, however, felt that such a high issue size will make very few companies in India eligible to avail this facility. The board, therefore, decided to reduce the limit to Rs 100 crore and retain the existing limit of minimum public offer of 20 lakh securities ( excluding reservations, firm allotment and promoters’ contribution). The board also decided that the issue should be made only through Book Building method with allocation of 60 per cent to Qualified Institutional Buyers (QIBs). These new guidelines would be applicable to all sectors and would replace the existing guidelines in this regard. The Board also removed the restriction of minimum public issue size of 25 crore in the case of an IPO through Book Building and allowed all companies to make issue through Book Building. However, if the track record criterion is satisfied, allocation to QIBs can be less than 60 per cent. Sebi has decided that there will be a requirement for all listed companies to maintain a minimum level of non-promoter holding on a continuous basis as a condition for listing. All new companies should be required to maintain on a continuous basis the non-promoter holding at the same level as applicable at the point of entry (i.e. 10 per cent of 25 per cent) For existing listed companies, where the non promoter holding is less than the applicable limit at the point of entry, the companies will be given time up to one year to raise the level of non-promoter holding to at least 10 per cent. In case they fail to do so, they will be required to buy out the public shareholding in a manner similar to that provided in the SEBI ( Substantial Acquisitions and Takeovers) regulations. No preferential allotment/ buy back of listed companies would be permitted if as its result the non promoter holding falls below the ceilings permitted under the SEBI (DIP) Guidelines applicable at the point of entry. These conditions will not be apply to BIFR companies. The stock exchanges will monitor the level of non- promoter holding on a half yearly basis from the returns to be submitted by companies in specified formats. The non-promoter holding will also be disclosed half yearly as part of half-yearly disclosures by the companies. Source: Business Standard Dated: 24th December, 2000

Small is not truly profitable: SEBI

There is a new problem that the securities regulator has to grapple with. It has come to light that a few companies with profits as low as Rs 10,000- Rs 15000 have staked a claim for a listing. The companies say they meet the three-year profit track record laid down by SEBI for listing but the regulator is clearly worried over the rather disturbing trend. What’s worse, some of these companies are meeting the minimum paid-up capital requirement by showing assets as equity while the actual cash component is abysmal. In fact, so worried is SEBI that it has decided to urgently call a meeting of the primary market advisory committee which had met recently and taken some key decisions on norms for primary issues. The regulator has also decided to call a meeting of its board shortly (which otherwise meets once in three months) after the meeting of primary market advisory committee, to bring changes in the law to plug what seems to be a loophole. SEBI chief DR Mehta admitted that he was concerned over the trend that had been brought to his notice over the past few days. Source: The Economic Times Dated: 26th December, 2000

Sebi wants cos to maintain at least 25% public holding

The Securities and Exchange Board of India (Sebi) board, which met recently, has taken an in-principle decision to ask existing listed companies to bring the public holding in these companies to levels of at least 25 per cent, within an unspecified time frame, if they had made their initial public floats for 25 per cent of the company's equity. Most Indian companies had come out with public issues amounting to 25 per cent of their total equity, but subsequently, the holding of promoters has gone up to levels as high as 90 per cent in some cases, and over 75 per cent in many others. This means that the floating stock of these companies has shrunk to levels even lower than 10 per cent and the securities regulator has now corrected the lacunae in the system. "We discussed the issue at our board meeting recently and the board was of the view that companies who had made issues for 25 per cent of their equity, must bring the non-promoter holding to that level. But while the board took an inprinciple decision on the need to do this, it was decided not to set a time frame at this point of time. We restricted ourselves to ensuring at least 10 per cent non-promoter holding within a year for existing companies," Sebi chairman DR Mehta told ET. The board has decided not to lay down a time frame for ensuring that companies bring the non-promoters holding to at least 25 per cent at this point of time, but has restricted itself to saying that all existing companies must have at least 10 per cent non-promoter holding within a year. Recently, some companies made public issues for 10 per cent of their equity, and for these companies, the minimum non-promoter holding requirement at all times would be 10 per cent. Currently there is no regulatory requirement to maintain a minimum floating stock post listing on a continuous basis. The Sebi board had also decided that there will be a requirement for all listed companies to maintain a minimum level of non-promoter holding on a continuous basis as a condition for listing. All new companies shall be required to maintain on a continuous basis the non-promoter holding, at the same level as applicable at the point of entry ( 10 per cent or 25 per cent) . For the existing listed companies, where the non-promoter holdings is less than the applicable limit at the point of entry, the companies will be given time up to one year to raise the level of non-promoter holding to at least 10 per cent. In case they fail to do so, they will be required to buy out the public shareholding in a manner similar to that provided in the sebi's takeover regulations. Existing listed companies, will not be allowed preferential allotment ad buy back if, as a result of this, the non-promoter holding falls below the ceilings permitted under the entry norms, either 10 per cent or 25 per cent. Source: The Economic Times Dated: 2 January 2001

Sebi tries to get VCFs & scientific bodies together

The securities regulator is trying to don a new avatar in the new year. It has decided to turn matchmaker by providing a platform for India's scientific community to touch base with the leading venture capital funds (VCFs) of the world. The regulator, which looks at venture capital reforms as a big feather in its cap, is now setting up an advisory, which will include members of the scientific community and top venture capitalists from across the globe. " We want to adopt an integrated approach to developing this industry. There is a huge pool of scientific talent available in the country and we feel that a lot of these ideas can be commercialsed Members of the scientific community will form part of our advisory panel and we will also be calling top notch venture capitalists to be on the committee," said Sebi's senior executive director in charge of venture capital LK Singhvi. “ The aim would be to provide a platform for the two sides to interact. At times, some regulatory issues may also be thrown up and we will try and implement changes wherever required,” said Mr Singhvi. “ There are a large number of research institutes in the country who have not had access to venture funding. We have strongly believed that there are a number of areas apart from IT where venture funding could lend a big boost to the development of businesses in the country,” he added. In the past, Sebi has had KB Chandrashekhar of Exodus Communications fame on its committee which framed a new set of guidelines for the venture fund industry. These guidelines have been issued and most of the recommendations of the committee have been incorporated. “The pace of registrations is picking up by the day. Just last week, we have come close to giving registration to two more venture funds. The number of registered funds would go up to 35 now which is a big jump from 8 last year,” said Mr Singhvi. The Sebi chairman DR Mehta had recently told ET that the regulator is planning a series of road shows abroad to educate venture funds about the regulatory changes for the venture fund industry in India. The regulator also plans to send individual emails to all venture funds across the world on the new regulatory structure. Source: The Economic Times Dated: 8 January, 2001

Panel wants dotcoms to disclose accounting policies

The Sub-committee of the Malegam panel on disclosure and valuations for dotcoms has recommended that dotcoms will have to disclose their significant accounting policies. They will also have to disclose issues like revenue recognition, membership and subscription, merchandising activities, advertising services and services like web hosting, cintent selling, among others In addition, they will have to disclose recognition and measurement of associated costs, accounting for website development costs, rebate, discounts and other incentives. The Sub-committee has considered the draft Monograph on Accounting by Dotcoms prepared by Institute of Chartered Accountants of India (ICAI), and has given its suggestions to the ICAI. It has also requested to the ICAI to issue this monograph expeditiously. It has said that dotcoms should be required to give a declaration in the offer document, confirming their complete compliance with the recommendations contained in the monograph. The sub-committee felt that manufacturing companies that sell their products through Internet may not be classified as dotcoms. It has however, recommended that the disclosure requirements applicable4 to dotcoms should also be applicable to companies having a business segment in which internet is the principle distribution channel for delivery of products or services, and the concept of materiality shall be applied to classify a company or a business segment as dotcom or not. On treatment of membership fees, the sub-committee feels that if a dotcom incurs certain costs to provide services to its member-customers beyond a period of five years, it will not be appropriate for the company to recognize non-refundable fees as their revenues within initial period of five years only. The sub-committee suggested that any amount recognized as revenue in any year out of the non-refundable fees received from the member customers, for providing services for a period exceeding five years, should not exceeding annual fees charged. On treatment of shipping and handling charges, the sub-committee felt that the same basic accounting principles, which are applicable to all enterprises, should be applied And when the shipping and handling charges are not separately identifiable, it is appropriate to include them in the gross revenues, as there is no other alternative. On accounting for website development costs, the sub-committee has recommended that all website development costs an pre-operative expenses, incurred up to the opening of the first website, can be amortised over a period of two years as deferred revenue expenditure. The Sub-committee has recommended, for the sake of simplicity, the site development costs and other preoperative expenses incurred prior to the opening of the first website for the member-users, can be treated as preoperative expenditure and amortized over 2 years. The site development and other costs incurred after that shall be expensed as incurred. On accounting for rebates, discounts and other sales incentives, the sub-committee examined whether rebates, discounts, sales incentives and introductory offers at heavily discounted prices can be treated like deferred revenue expenditure, since advertising expenditure incurred on launch of products is generally treated as deferred revenue expenditure, and whether there is any justification to treat rebates by dotcoms differently. The Sub-committee has recommended that in view of the uncertainty of future benefits, the concept of deferred revenue should be given up and as customer loyalty is not certain in case of dotcoms, such expenditure should be expensed as incurred. It has also recommended that when a benefit in cash or kind is given to a specific customer on sale, it shall be treated as a rebate and it should be reduced from gross revenues. When such benefits are extended to all customers, it shall be treated as a selling expense. On treatment of equity-based consideration, the sub-committee felt in the case of related-party transactions, the contracted value mentioned in the transaction may not be the transactional fair value. The sub-committee also noted that as per Accounting standard 10 on accounting for fixed assets, issued by the ICAI, fixed assets acquired in exchange for shares should be recorded at their air value or the fair value of the shares issued, whichever is more clearly evident. It has recommended that when dotcoms use equity-based considerations to fund expenditure, the following principle shall be adopted: · For arm’s length transaction, the consideration mentioned in the contract shall be taken as fair value. · For transactions where the consideration mentioned in the contract, then if the fair value of the assets and services is determinable, the transaction shall be recorded at the same. If the fair value is not determinable, then the transaction should be recorded at the fair value of the shares issued. If value of shares and assets or services is not determinable then the transaction should be recorded at nominal value. Source: The Economic Times Dated: 20 December 2000

Sebi to proscribe transactions by SE chiefs, elected directors

Elected directors of stock exchanges (SEs) presidents and vice-presidents may soon have to disclose details of their proprietary transactions in securities to the governing board of SEs. The matter which is part of the proposed code of ethics for such personnel is likely to come up for discussion at the annual meting of the 23 SEs with Sebi on January 17. When contacted, Sebi senior executive director LK Singhvi confirmed that the draft code of ethics, which was finalised by a working group set up for this purpose earlier, was discussed at a meting of the inter-exchange surveillance group last week. " However, no conclusion was reached on this matter and we expected to take this up tomorrow". Sebi would ideally be speaking to such officials of the exchange to abstain from proprietary trading on their own account due to a potential conflict of interest situation. " Th ideal is to have restrictions of some kinds on people who have access to information," said Sebi chairman DR Mehta. In order to ensure that there is no conflict of interest whether real or perceived, Sebi has decided to develop a code of ethics. The code seeks to establish a minimum level of professional and business ethics to be followed by functionaries of the level of general manger an dabove. The code covers areas pertaining to exercising f due diligence i performance of duties, and avoidance of conflict of interest between directors, key functionaries and the interest of the exchange and the investors. The code recommends that the office bearers of SEs sets an example for other to follow by not using their positions to do or get favours from the exchange's executive or administrative staff, its suppliers or any listed company. " Elected directors and key functionaries will not commit any act hich will put the reputation of the exchange in jeopardy", said proposed code. Dealings in securities by key functionaries who have access to non-public price-sensitive iformation like margins and positions of other market participants, shall be subject to trading restrictions laid down in the Sebi Insider Trading Regulations. All transactions must be for investments only and securities purchased would have to be held for a minimum period to be determined by the exchange, recommends the draft code. These persons will also not be allowed to sell any security which has not been held by them for a minimum time period, in their name. No director or committee member of the exchange shall participate in decision making/adjudication in a case where he/she is an interested party.

NEW SEBI RULE LETS INDIAN COS MANAGE OVERSEAS FUNDS

Indian portfolio managers will now be able manage raised overseas following a change in the Sebi (Forign Institutional Investors) Regulations 1995, which creates a level playing field for foreign and Indian portfolio managers. " The Indian portfolio managers will be granted a deemed FII status to allow them to manage assets raised from overseas investors," said Sebi chairman DR Mehta. However, these deemed FIIs will not be allowed to avail of benefits like convertibility with respect to their proprietary trading activities, he added. Indian portfolio managers and approved asset management companies who are registered portfolio managers can get a deemed foreign institutional investor (FII) status. The management of foreign funds would involve procurement of FEMA approval ( for convertibility of funds), appointment of domestic custodian and designated bank, daily reporting of transactions etc. As compared to deemed FIIs, FIIs can invest their own funds too, a facility not available to Indian portfolio managers. So far, Sebi has granted registration to four firms as deemed FIIs. These include Anand Rathi Securities, Munoth Financial Services, Reliance Capital Asset Management and first Global Stock Broking. Two mpre applications for the deemed FII status from UTI investment Research are currently under process, said a Sebi communiqué.

Sebi to up vigil on broker-client link

THE SECURITIES and Exchange Board of India will step up implementation of provisions on client-broker relations to tighten control on margins charged to investors, board member J R Verma said on Friday. "The regulatory reforms have happened rapidly for the broker-stock exchange relations. Focus will be to ascertain if brokers and sub-brokers charged margins to the clients," Verma said at the annual financial services convention organised by Bombay Management Association here. He said, "regulating half-a-dozen active exchanges is a relatively easy task but implementing regulations for over 10,000 brokers and large number of sub-brokers is a complex one." Exchanges charged margins to brokers and that has brought in funds to protect investors however, it was difficult to know if the brokers asked clients to pay margins on the trades, he said. On the prompt payment to investors for trades, Verma said, "it is difficult to ensure delivery against payments for transactions. Dematerialisation of shares has ensured safety for the trade but the same is not true of funds settlement," he added. "The system has remained as it is for the last five years," he said adding the computer-based bank transactions will create pressure for prompt payments for the trades

SEBI TO SLASH SECURITIES TRANSFER TIME FROM 15 TO 2 DAYS IN TWO PHASES

SEBI TO SLASH SECURITIES TRANSFER TIME FROM 15 TO 2 DAYS IN TWO PHASES

 In a far reaching move aimed at preventing misuse of the Securities pool account, the Securities and Exchange Board of India (Sebi) is reducing the time for transfer of securities from the pool accounts to the beneficiary account in two phases, from the current 15 days to two days, by April 2, 2001.

With effect from February 12, 2001, clearing members will be required to transfer the securities from their respective clearing member pool account to the respective beneficiary account of their clients within 6 days after the pay-out day, instead of the existing time limit of 15 days.

 Balances lying in the pool account beyond the specified period would not be eligible for delivery in the subsequent settlement and would also not be eligible for pledging or stock lending purpose.

 Further, the balances lying in the pool account beyond the above period would also attract a penalty at the rate of 6 basis points (0.06 per cent) per week on the value of securities lying in the clearing member's pool account.

The penalty collected will be used by the depository for spnding on investor education and awareness.

The sub-group constituted under the chairmanship of J R Varma, whole time member, Sebi, met on thusday to work out th modalities to introduce the system to ensure that settlement is made directly to the investors.

Intially the securities lying in the pool accounts beyond the time limit given, will beidentified based on first-in first-out basis.

However, with effect from March 5, 2001, securities will be identified based on the number basis. The clearing corporation/house shall provide the settlement-wise details of securities to the depositories and the depositories shall maintain the settlement-wise records for the purpose. The above decisions are not applicable to the securities lying in clearing member pool account maintained with clearing corporation/house for the purpose of Vyaj Badla or automated lending and borrowing transactions.

Sebi refuses for norms for valuing investments in unlisted Companies

THE SECURITIES and Exchange Board of India has rejected the demand of certain mutual funds to prescribe norms for valuation of investments by MFs in companies whose securities are not listed on any recognised Stock Exchanges. Sebi has norms in place for valuation of thinly-traded, illiquid and other listed securities. “Even the formula-based approach that we have prescribed for valuation of thinlytraded and illiquid securities is a departure from what regulators elsewhere do. It’s not the regulator’s job to prescribe detailed valuation formulae,” said Sebi board member Jayanth R Varma. The only norms that exist for valuation of unlisted investments — which are primarily shares — are that they should be valued on a good faith basis and in a fair and reasonable manner. listed investments are to be valued at the last-traded market price while an elaborate formula — involving market values, book values and price earning ratios — has been prescribed for valuation of thinly-traded and illiquid securities. “A formula-based approach like that prescribed for illiquid stocks, for instance, might require funds to mark down a dotcom investment to zero the day it was bought,” said Varma, explaining the problems associated with prescription of valuation norms for unlisted investments. A certain section of the MF industry had written to the Sebi asking to prescribe norms for valuation for these investments as there is no standard policy being followed by the fund houses. With unlisted investments ranging between 2 and 20 per cent of some scheme’s net assets for some of the popular MFs, the valuation of these investments has a material impact on the net asset values and the comparability between NAVs.

Sebi to club petitions for allotment

The next time the primary market booms, you won’t have to take resource to multiple applications, in different combinations of names to get an allotment of an issue. In order to make the allotment process fair and transparent and to protect the interest of small investors, the Sebi has decided that all such applications would be clubbed and will be considered in the highest category at the time of finalizing the basis of allotment. Actual allotment of shares to each applicant too, would be made on pro-rata basis, said a Sebi communiqué issued here today. For this purpose, Sebi has defined, multiple applications in an issue as two or more applications made in single and/or joint names, wherein the first name of the applicant is one and the same. Such applicants would be required to make a declaration that they have made multiple applications and identify all such applications, said a release. In case of wrong/false declaration by the applicant to this effect, all applications would be compulsory rejected and the applications monies refunded, the release added. With regard to fictitious applications, the Sebi group headed by JR Varma which met today, recommended that, all fictitious applications should be detected before finalizations of the basis of allotment. Allotments to such applications would be completed and the dispatch of share certificates or crediting shares to the demat account would be kept in abeyance till the identity and genuineness of the applicants are established, said Sebi. Only after verification of the genuineness of the applicant, the share would be credited or released to the allottees. In the interim, investors would be given an option to sell the shares kept in abeyance. However, the proceeds of such a sale would remain frozen and would be released only after the completion of verification and identification of the applicants. Prosecutions under Section 68A of the Companies Act, should also be initiated where appropriate, said the release. The group also recommended doing away with the requirement of allotment in market lots for IPOs where allotment is in demat mode. However with a view to prevent fractional allotment and allotment s of minuscule value, it is decided that the minimum allotment would be the higher of one share or smallest integral number of share that have a value of Rs 1,000 calculated on the basis of issue price, said Sebi.The group recommended that applications for new issues can be made available through the internet, newspapers, photocopying, etc. To enable this, the requirement of pre-numbering of application forms would be dispended with and application numbers would be assigned by the collecting banker and/or registrar, the release added. Source : The Economic Times Dated : 3 February, 2001

New officials appointed on Sebi board

Top level changes have been announced at the securities regulatory authority. While the government has appointed Rakesh Mohan, chief economic advisor and department of company affairs secretary V Govind Rajan as Sebi board members, the Sebi chairman has on Tuesday handed over the takeovers and primary market portfolios to board member J R Varma and the foreign institutional investors portfolio has gone to executive director C M Mehra. Mohan replaces Shankar Acharya, former chief economic advisor who represented the finance ministry on the Sebi board and Govind Rajan replaces Sanjeeva Reddy, the former DCA secretary. Reserve Bank of India deputy governor S P Talwar and Kumar Mangalam Birla are the other two board members in addition to Sebi chairman D R Mehta and full time board member J R Varma. In the internal changes at Sebi, Mehra will also handle the portfolio of the IOSCO (the international association of securities regulators of which Sebi is a prominent member) and vigilance. The crucial portfolio of coordinating with the high level committee on capital markets has been handed over to executive director Pratip Kar. These portfolios have fallen vacant after Sebi senior executive director O P Gahrotra's extension was turned down by the government and he was asked to report back to the Maharashtra cadre on February 8. Interestingly, Varma will directly take charge of the primary markets and takeovers departments unlike the other portfolios which he handles where he overlooks a portfolio already being handled by an executive director or senior executive director. Currently, Varma is responsible for mutual funds, derivatives, depositories and investor education. He is also taking care of risk management and corporate disclosures related issues. Mehra has so far been looking after administration at the securities regulator and will now take care of the high profile FIIs and IOSCO portfolios. Kar, on the other hand, handles depositories and secondary markets. Source : The Economic Times Dated : 14 February, 2001

Sebi empowered to approve overseas funds

The Securities and Exchange Board of India (Sebi) has been empowered to grant approval to overseas funds promoted by financial instituions, mutual funds and banks. Earlier, the finance ministry was the nodal agency. A proposal to amend the necessary clauses has been moved in the Finance Bill 2001-2002. Under the existing provision in Section 115AB, the Central government has the powers to approve overseas fund promoted by domestic financial institutions, mutual funds or state-run banks. In order to simplify the procedure, Sebi has been given the mandate. "The change will not affect existing ventures, only new ventures will now have to get approval," Sebi senior executive director Pradeep Kar said. At present, the Unit Trust of India (UTI) and Canbank Mutual Fund have overseas funds. The bill has also sought to extend tax exemption to venture capital funds floated by the trust. Under the existing provision, venture funds set up by the trust are not eligible for I-T exemption as they do not come under the definition of venture funds. As per the regulation, venture capital has been defined as a fund operating under a trust deed registered under the provisions of The Registration Act 1908. However, such schemes promoted by the UTI did not come under this definition as the trust was set up under the Unit Trust of India Act, 1963. The proposed amendment now seeks to extend tax benefits to UTI-promoted venture funds, with retrospective effect from April 1 2001.

Sebi bans short sales

THE SECURITIES and Exchange Board of India has imposed restrictions on short sales effective March 8 to curb volatility in share prices. Sales of shares will have to be followed by deliveries, It means that sale positions cannot be carried forward. "Effective from tomorrow all sales transactions shall be backed by delivery, unless the sales position is preceded by a purchase of at least an equal amount, in the name of the same client in the same or any other exchange," Sebi officials said sales positions can be settled by borrowing securities. Sebi said the restrictions would be reviewed after a period of two weekly settlements. The measures come as Sebi is investigating various funds and brokers who allegedly played a role in causing a market slump.

Margins on outstandings raised to 25%

In response to the bear hammering on the markets after the budget and to contain further volatility, the Securities and Exchange Board of India has asked stock exchanges to increase additional margins on net outstanding sales position to 25 per cent from 10 per cent. Sebi had imposed the 10 per cent margin on sales position on March 5. Sebi's decision follows the 400 points fall in the stockmarket in the last five trading sessions. The increase in the additional margins was among a series of measures announced by Sebi on Sunday. Sebi has also asked exchanges other than the Bombay Stock Exchange and the National Stock Exchange to limit the broker-wise end of the day outstanding position to Rs 50 crore with effect from March 12. The two exchanges have been excluded from the purview of this stipulation in view of the size of their trade and settlement guarantee fund. The regulator has also asked the exchanges to reduce the overall exposure of the brokers. Brokers on the NSE will be allowed to take exposure in stocks up to 10 times of their base capital and additional base capital compared to 12.5 times, earlier. Brokers on other exchanges will be allowed to take exposure of only 15 times their capital compared to 20 times, earlier. The regulator said as a temporary measure, banks would be allowed to provide collateralised funding in the carry forward schemes of the NSE and the BSE. Banks will be allowed to use NSE’s ALBM and BSE’s BLESS facilities to offer to lend money against share, these facilities are guaranteed by the trade and settlement funds of the clearing house and exchange, respectively. On Saturday Sebi had told RNI that a sudden clampdown on exposure by banks to the stockmarkets would further deepen the crisis. Sebi has also barred any lending of securities outside the ALBM and BLESS mechanisms. The securities that have been borrowed from custodians such as the Stock holding Corporation of India and banks like Deutsche Bank or HSBC will have to be returned to these authorised intermediaries by the close of the business on March 15, 2001. The trade guarantee fund set up by the stock exchanges will provide counter party guarantees for all transactions which take place on the stock exchanges and meet the payment obligations of the brokers without waiting to declare them as defaulters. At present, most exchanges barring the NSE offer counter-party guarantees to only settlements and not all transactions, according to a Sebi release. The Economic Times had reported on March 10 that Sebi was likely to ask stock exchanges to change the structure of their trade guarantee funds, so that it was not necessary to declare brokers as defaulters before meeting their payment obligations. This means that the settlement (pay-in and pay-out) will be effected immediately and investors will get their money immediately without any delay. In January 2000, when the stock prices were rising Sebi had imposed fresh margins. These margins were imposed after the regulatory body had met with the various exchanges and arrived at a consensus decision. Source : The Economic Times Dated : March 12, 2001

Takeover Code review panel wants 5% creeping limit relaxed

The Bhagwati Panel, set up by Sebi to review the 1997 Takeover Code Regulations, has recommended in its draft report that the creeping acquisition limit of five per cent per year for persons in control should be relaxed. Persons in control should be allowed to consolidate till they reach 51 per cent, after which they would have to make an open offer. However, acquisitions beyond five per cent per year would be subject to approval from the shareholders who are free to impose any conditions, including lock-in clauses. Also purchases would have to be from the open market. The draft report is expected to be finalised by the middle of April. The report’s rationale for relaxing the creeping acquisition limit is the need for Indian industry to restructure, primarily in view of greater competition facing Indian industry post WTO. However, the draft report says that the relaxation should apply only till the end of 2003. The relaxation in the creeping acquisition norms will not apply to companies with a widely dispersed shareholding where no identifiable promoter group exists. In such a case, any person or entity making an open offer for acquiring such a company has to aim for reaching a minimum 51 per cent stake in the company. The panel has decided to retain the existing provision by which the minimum offer size for an open offer under the provisions of the takeover code should not be less than 20 per cent of the company’s paid-up equity capital. This should be applicable even for companies where promoters hold 75 per cent or more of the equity, as in such cases any acquisition beyond 75 per cent gives the acquirer absolute control. The company also loses its character as a publicly listed company, said the draft report. In the case of transfer of equity holdings among promoters from joint to sole control or vice versa, the code recommends an exemption from making an open offer, provided shareholders approve of the move. However, in case of transfer of control from joint to sole ownership, the code stipulates that both parties should be in control of the company for at least three years prior to the change. The committee has also decided against giving the target company any advance notice of acquisition by the acquirer and has instead favoured a simultaneous announcement to all concerned. The draft code also recommends that Sebi should have the power to reschedule the date of opening/closure of the offer where it has become subjudice or involves some investigation by Sebi. The committee is not in favour of raising the minimum offer size beyond 20 per cent since 94 per cent of open offers so far have not elicited full acceptance and public funding for leveraged buy-outs is not easily available. The committee has also ruled against giving a 100 per cent exit option to small shareholders within the ambit of the 20 per cent open offer, as it felt that it would not be equitable and is likely to discriminate against MFs which act on behalf of small investors. Most open offers do not accept all the shares tendered by small investors, who then usually end up with odd lots. The draft report also recommends granting Sebi the power to seek an independent valuation of the target company’s shares where the justification provided by the acquirer is not appropriate. The report also recommends that the offer price be calculated with respect to an average of 13 weeks preceding the public announcement, rather than 26 weeks as currently prevalent. This has been done to reflect the market fluctuations just prior to the public announcement because of market expectations about an impending offer, said the report. However, some exceptions to the 13-week rule are envisaged in the draft report. If the acquirer has bought shares through negotiations or allotment in a public or rights issue during a period of 52 weeks prior to the open offer, then the price paid in that transaction should be taken into account for determining the minimum open offer price. This is being done to obviate the possibility of the acquirer entering into such deals earlier at a disproportionate price for a larger quantity, waiting for 26 weeks and then making a further offer under the takeover code. However, some members of the committee have raised concerns about the extension of the period for determining the open offer price to 52 weeks from 26 weeks, if the earlier transaction was for an insignificant quantity. The code further recommends that creeping acquisitions through negotiated purchases, within six months from the date of closure of the offer, should be made at a price not higher than the offer price. In response to the question as to whether the offer price should include any payments made towards non-compete agreements, the report suggests that non-compete fees amounting to not more than 25 per cent of total consideration paid may be permitted, if the agreement is registered with the MRTP. A payment in excess of 25 per cent or one not registered with Sebi would be considered as part of consideration paid while reckoning the offer price. Source : The Economic Times Date : 28 March, 2001

Bill to protect investors for a powerful SEBI

THE DRAFT Investor Protection Bill, 2001 has called for search and seizure powers for Sebi, something which the government has till now opposed. The full report together with the draft Bill, prepared by the former National Law School director N L Mitra, was submitted to the finance ministry a week ago. The Bill also calls for creating standing committees on investor protection and capital market operations, each of which should have among others, a senior representative from the Central Bureau of Investigations. In the event of a financial fraud, it has fixed a fine of five times the damage caused to the market as well as imprisonment upto seven years. Prof Mitra, who was asked by the government to undertake a detailed study on investor protection and then submit a draft bill on the matter, met senior officials of Sebi and RBI last week. Interestingly, the proposed legislation calls for appointing market referees or inspectors which will monitor recording of contracts and preparation of documents as also the clearing and settlement system. These market referees would be appointed by Sebi or by stock exchanges in consultation with the regulator. Mitra has said that two standing committees should be set up, and the first should be on investors’ protection. This should primarily stipulate policy issues on investor protection and prescribe norms for best practices. This committee should be chaired by the Sebi chairman and include three members from an investor protection organisations, two Sebi board members, two independent experts nominated by the Department of Company Affairs, a nominee from the Reserve Bank of India not below the rank of chief general manager and a nominee of CBI not below the rank of joint director. Sebi’s executive director (legal) would be the member secretary. The second standing committee would be on capital market operations. This would among others, review the functioning of stock exchanges and stipulate policy issues on market operation. This committee would include presidents of NSE and BSE, two presidents of other stock exchanges, three independent experts, and a nominee each from RBI and CBI. The Bill also calls for powers to Sebi to prohibit the issue of any offer document by a company or an advertisement soliciting money from the general public for issue of securities and could specify the conditions subject to which any such offer document or advertisement should be issued. The draft Investor Protection Bill has also sought to confer investigating powers on Sebi. This would be done after permission from a magistrate having jurisdiction. The investigations could be launched under various sections of the Code of Criminal Procedure, 1973. After the investigation, Sebi would place the report to the magistrate concerned seeking permission for the prosecution of the person concerned. During the course of the investigations, Sebi should be empowered to search, seize and attach bank accounts and assets of any company, its promoters, directors or market intermediaries. If the securities regulator apprehends that the funds and assets are likely to be diverted or transferred unlawfully, then it could seize these and report the same to the magistrate within 24 hours. There is also a specific power incorporated to allow Sebi to disallow a person or entity from alienating any asset or transfer any funds, during the course of proceedings initiated against this person or entity. Financial frauds would include conducting unfair practice in the capital market, price rigging, noncompliance of market regulations, vanishing company, diversion of funds collected from shareholders, members or participants of any collective investment schemes and funds raised through a public issue without any intention of conducting the business for which the fund has been raised. A stiff penalty has also been suggested for violation of the listing agreement. Here again, the corporate would have to pay five times the claim of the affected investors, in the event of failing to comply with provisions of the listing agreement. The listing agreement is a very crucial document since through this Sebi regulates most corporates. So far, a violation of this agreement invited a minimal penalty of Rs 5,000.

SEs told to ensure 10% non-promoter holding

Almost five months after the Sebi board decided that non-promoter holdings must reach at least 10 per cent of a company equity capital within a year, the securities regulator has finally directed stock exchanges to make the necessary changes to the listing agreement with companies. The Sebi board endorsed these decisions at its meeting held on December 22. This was after a recommendation to this effect by the SS Tarapore committee on secondary markets. However, the Sebi issued its final guidelines on the subject only on May 2. Sebi executive director Pratip Kar was not available for comment as to why the regulator took five months to issue a directive on a decision already taken by the Sebi board. In cases where the non-promoter holding of an existing listed company as on April 1, 2001, is less than the limit of public shareholding as required at the time of initial listing, the company will within one year raise the level of non-promoter holding to at least 10 per cent, according to Sebi guidelines. In case the company fails to do so, it will have to buy back the public share holding in the manner provided in the Sebi (Substantial Acquisition of Shares and Takeovers) Regulations 1997. The company will not make preferential allotment or an offer to buy back its securities, if this leads to a reduction in the non-promoter holding below the limits prescribed by Sebi. Sebi’s listing norms make it mandatory on companies to make a public issue for at least 25 per cent of the equity capital. Source : The Economic Times Dated : 14 May, 2001

Companies ( Acceptance of Deposits ) Third Amendment Rules,2001.

 
GOVERNMENT OF INDIA
MINISTRY OF LAW, JUSTICE AND COMPANY AFFAIRS
DEPARTMENT OF COMPANY AFFAIRS
 NEW DELHI,                               THE   28th NOVEMBER, 2001
NOTIFICATION                                                    
G.S.R.873(E).-   In exercise of the powers conferred by section 58A read with section 642 of the Companies Act, 1956 ( 1 of 1956),  the Central Government, in consultation with the Reserve Bank of India, hereby makes the following rules further to amend the Companies ( Acceptance of Deposits ) Rules, 1975, namely :-
1.      (1)  These rules may be called the Companies ( Acceptance of Deposits ) Third   Amendment       
              Rules, 2001.
        (2)  They shall come into force on the date of their publication in the Official Gazette.
2.      In the  Companies ( Acceptance of Deposits ) Rules, 1975, --
 (              (a)    in rule 2, after clause (d ),   the following clause shall be inserted, namely :-
                      `(e)  “net owned fund”  has the same meaning as  assigned to it in the Reserve Bank of
                        India Act,1934 ( 2 of 1934);’;
         (b)    in rule 3, in sub-rule (1), after clause (d ),   the following clause shall be inserted, namely:-
                `(e) “no company with a net owned fund of less than rupees one crore shall invite public     
                       deposits;”  ’;  
         (c)   after rule 8, the following rule shall be inserted, namely:
 
   “8A Penal rate of interest.-    A penal rate of interest of eighteen per cent.  shall be paid for the overdue   period in case of public deposits matured and claimed but remaining unpaid.  In case of deposit made by a small depositor,  the penal rate of interest shall  be twenty  per cent. compoundable on an annual basis.
 
 
Explanation.-  For the purposes of this rule, the expression  “a small depositor” has the same meaning as assigned to it  in the explanation to Section 58AA of the Act.”
( No.1/17/2000-CL.V)
A. RAMASWAMY
Joint Secretary
 

Insider Trading Regulations, 2002

AMENDMENTS TO INSIDER TRADING REGULATIONS.

                       -By Shailesh Bathiya, Chartered Accountant

 

The bane of insider trading has always inflicted stock markets. To curb this menace, Securities and Exchange Board of India (SEBI) framed Regulations in 1992 titled as SEBI (Insider Trading Regulations), 1992. Learning from experience and to improve the efficacy of present Regulations and to expand their scope in certain areas, SEBI has amended these Regulations in February, 2002. The Amendments to Regulations were notified in the Gazette of India Extra Ordinary on 20th February, 2002 and are effective from that day. These are titled as Securities and Exchange Board of India (Insider Trading) (Amendment) Regulations, 2002. following are some of the  salient features of these Amendments.

 

1   Change in title of Regulations:- By an amendment to the original title and  Regulation 1, now these Regulations will be called as SEBI (Prohibition of Insider Trading Regulations), 1992. Words “ prohibition of ’ have now been added in the name/title of the Regulations perhaps to designate its new focus on the prohibition of insider trading.

 

2   Amendments in Definitions: -

2.1      By an amendment to Regulation 2(c) which defines a “ connected person”, the words

 “ Whether temporary or permanent” have been inserted in the definition of connected person. Any person who occupies the position as an officer or an employee of the company or holds a position involving a professional or business relationship between himself and the company and who may reasonably be expected to have an access to unpublished price-sensitive information in relation to that company is considered a “connected person” [Regulation 2(C)]. By insertion of words “whether temporary or permanent” it is now specified that any such relationship may be even of a temporary nature to cover it under the definition of “connected person” A professional firm of lawyers or accountants or architects or a business associate who may have a temporary assignment with the company will also now be covered as a “Connected Person”.

 

2.2      By insertion of an Explanation after Regulation 2(c)(ii), the scope of the definition of the phrase “connected person” has been expanded to include any person who is a connected person six months prior to an act of insider trading. Thus, now a person would be guilty of insider trading even if he is not a connected person at the time of insider trading but was a connected person within a period of 6 months prior to an act of insider trading. Thus directors who may have resigned or retired from a company can still be treated as “connected persons” for a period of six months from the date of resignation/retirement.

 

2.3      The definition of phrase “dealing in securities “ [Regulation 2(d)] has been expanded to cover an act of “subscribing” to any securities. Old definition covered acts of buying, selling or agreeing to buy, sell or deal in any securities and thus did not cover explicitly an act of subscribing to new issues of shares. Similarly, agreeing to subscribe will also be covered as an act of dealing in securities.

 

2.4      Regulation 2(e), which defines an “insider”, has been amended by omission of words “ by virtue of such connection”. In the earlier definition, it was necessary to establish that an insider is a connected person and who is reasonably expected to have access, by virtue of such connection, to unpublished price-sensitive information. Now, it will not be necessary to establish that by virtue of a connection the insider is reasonably expected to have access to price-sensitive information. It will be sufficient to prove that a person is connected with the company and is reasonably expected to have access (whether by virtue of such connection or otherwise) to price-sensitive information.

 

2.5      The definition of a “person is deemed to be a connected person” has been amended to include all intermediaries as specified in Section12 of SEBI Act.  Section 12 of SEBI Act refers to a stock broker, a sub-broker, a share-transfer agent, a banker to the issue, a trustee of trust deed, a registrar to an issue, a merchant banker, an underwriter a portfolio manager, an investment advisor, a depository, a depository participant, a custodian of securities, a foreign Institution investor, a credit rating agency and such other intermediaries who may be associated with the securities market. Besides, a trustee company is also now included. Regulation 2(h) (iii) already covered some of these persons. Some new categories are now included like Bankers to an issue, an Underwriter, a depository, a depository participant, FII, Credit Rating Agency, etc. Additionally, directors of all the above-mentioned persons and officials of a clearing-house or corporation are also now included in this definition [Regulation 2(h)(ii)].

 

2.6      The definition of a “person is deemed to be a connected person” has been further expanded by insertion of Regulation 2(h)(viii) by which now relatives of the connected persons and a concern, firm, trust, HUF, company or association of persons in which the relatives of persons mentioned in Regulation 2(h)(vi),(vii) and (viii) have more than 10% of the holding or interest. This definition has a loop in itself as sub- clause (viii) also refers to relatives mentioned in sub-clause (viii). Thus, concern, firm, etc. of relatives of relatives will also now be covered.

 

2.7      Price sensitive information has now been defined in Regulation 2(ha). Earlier, unpublished price sensitive information was defined in Regulation 2(k). Price sensitive information means any information, which relates directly or indirectly to a company and which if published, is likely to materially affect the price of securities of a company. The Explanation also gives certain information, which are deemed to be price sensitive information. At the same time, Regulation 2(k) is now substituted and defines “unpublished” as information, which is not published by the company or its agents and is not specific in nature. Thus, unpublished information is one, which is not published and is not specific in nature. Thus, even if information is known in the market, if it is not published by the company, it will remain unpublished information under these Regulations. The Explanation to Regulation 2 (k) provides that speculative report in print or electronic media shall not be considered as published information. Thus a company/ insider cannot take shelter under the argument that the information was published speculatively in media and thus known to the market.

 

   3       Regulation 3 relating to prohibition on dealing, communicating or counseling on matters relating to insider trading has been amended. In Clause 3(i) in place of words ”on the basis of” the words “when in possession of” have been substituted. Thus now an insider cannot take shelter under the argument that it is to be proved by SEBI that he dealt in securities of a listed company on the basis of unpublished price-sensitive information. It will be sufficient if is established that he was in possession of such information and dealt in securities of that company.

 

4       New Regulation 3A has been inserted which specifies that no company shall deal in the securities   of another company or associate of that other company while in possession of any unpublished price-sensitive information. Thus, now, specifically companies are also prohibited from dealing in securities of another company while in possession of any unpublished price-sensitive information. It appears that unpublished price-sensitive information should be regarding Investee Company or its associates. It appears that unlisted companies can also not deal in the securities of a company if they are in possession price-sensitive information.

 

5       Power to make enquiries and inspection. A new Regulation 4A has been inserted for this purpose. Under the existing Regulations, SEBI has the powers to investigate on the basis of written information in its possession and if it is of the opinion that it is necessary to investigate and inspect the records of an Insider. Now, under the new Regulation 4A if the Board suspects that any person has violated any provision of Insider Trading Regulations it may make enquiries with such person or any other person mentioned in Section 11(2) as deemed fit to form a prima facie opinion as to whether there is any violation of insider trading regulations. The Board may appoint one or more officers to inspect the books and records of insiders or any other persons as mentioned in Clause 11(2)(i) fro the above purpose. Thus mere suspicion by the Board regarding violation is sufficient for making enquiries by the SEBI. After enquiries SEBI can form a prima facie opinion.

 

        6.1     Board’s right to investigate as prescribed in old Regulation 5 has been now amended to provide that instead of “ on the basis of written information in its possession is of the opinion” the Board can be of “prima facie opinion” to start investigation. Thus it is not necessary for SEBI now to have a considered opinion but a mere prima facie opinion will be sufficient.

 

        6.2     The amendment to Regulation 5 further provides that besides the insider, investigation can be carried out in respect of any other person mentioned in clause (i) of Sub-section (1) of Section 11 of SEBI Act. It appears that the correct reference should be Section 11(2)(i) as it refers to various categories of persons like Stock Exchanges, Mutual Funds and other persons associated with the securities market, intermediaries and self-regulatory oranisations in the securities market. Thus the scope of persons who can be investigated has been widened.

 

7            Obligations on Insider on Investigation by the Board. The obligation of the insider to produce to the investigating authority books etc. is now extended to cover other persons, besides insiders, against whom investigation can now be carried on as mentioned above. Additionally, it has been provided that besides the Insider any other person, against whom investigation can now be carried on, shall allow the investigating authority to have reasonable access to the premises. Similarly, investigating authority shall be entitled to examine or record statements of any such other person.

 

8            Time limit for submission of report of the investigating authority was earlier one month which can now  be given within reasonable time.

 

9            Under the old Regulation an opportunity of hearing was available to the insider before any action is taken by the Board on the findings of the investigating authority. Now, instead of an opportunity of hearing the person affected can reply within 21 days.

 

10        The auditor who may be appointed by the Board to investigate into books of accounts or the affairs of the insider, shall have the same powers of the inspecting authority as mentioned in Regulation 4A above, besides the existing power of inspecting authority under Regulation 5.

 

11        Directions by the Board. The old regulation specified that the board may initiate criminal prosecution and also give directions to protect the interest of investors and in the interest of securities market as it may deem fit for any of the following three purposes: -

 

    1. directing the insider not to deal in securities in any particular manner;
    2. prohibiting the insider from disposing of any of the securities acquired in violation of these Regulations;
    3. restraining the insider to communicate or counsel any person to deal in securities;

By the amendment it has been provided in a. and b. above that such directions or prohibition shall now also apply to such person as mentioned in clause (i) of sub-section (2) of section 11 of the Act. Further, the following clauses have now been added.

    1. declaring the transaction(s) in securities as null and void;
    2. directing the person who acquired the securities in violation of these regulations to deliver the securities back to the seller;

Provided that in case the buyer is not in a position to deliver such securities, the market price prevailing at the time of issuing of such directions or at the time of transactions whichever is higher, shall be paid to the seller.
 

f.    Directing the person who has dealt in securities in violation of these regulations to transfer an amount or proceeds equivalent to the cost price or market price of securities, whichever is higher to the investor protection fund of a Recognised Stock Exchange.

 

If the transactions are declared as null and void as mentioned in d. above they can create many complications in the market place. It remains to be seen how such a direction will be implemented in real life situations.

 

 

12        A new chapter IV has now been added namely POLICY ON DISCLOSURES AND INTERNAL PROCEDURE FOR PREVENTION OF INSIDER TRADING. This chapter contains new Regulations 12, 13 and 14.

 

 

12.1       New Regulation 12 has introduced a code of internal procedures and conducts for listed companies and entities.  The new Regulation requires that :-

All listed companies and oranisations associated with securities markets including:

a.               the intermediaries as mentioned in section 12 of the Act, asset management company and trustees of mutual funds;

b.               the self regulatory oranisations recognised or authorised by the Board;

c.               the recognised stock exchanges and clearing house or corporations;

d.               the public financial institutions as defined in Section 4A of the Companies Act, 1956; and

e.  the professional firms such as auditors, accountancy firms, law firms, analysts, consultants, etc., assisting or advising listed companies, shall frame a code of internal procedures and conduct as near there to the Model Code specified in Schedule I of these Regulations.[Regulation 12(1)] Thus professional firms advising listed company clients will now be required to frame a code of internal procedure and conduct and to have appropriate mechanisms and procedures to enforce this code. 

The entities mentioned above, shall abide by the Code of Corporate Disclosure Practices as specified in Schedule II of these Regulations.[ Regulation 12(2)]

All entities mentioned above, shall adopt appropriate mechanisms and procedures to enforce the codes specified under sub-regulations (1) and (2).

Action taken by the entities mentioned in sub-regulation (1) against any person for violation of the code under sub-regulation (3) shall not preclude the Board from initiating proceedings for violation of these Regulations."

Schedule I Part A contains Model Code of Conduct for prevention of Insider trading for listed companies which includes provisions relating to appointment of a Compliance officer, his reporting to M.D./C.E O, his duties, obligations of employees/directors to maintain confidentiality, handling of unpublished price-sensitive information on need to know basis, prevention of misuse of price-sensitive information, limited access to confidential information, trading window opening and closure requirements, pre-clearance of trades by directors/ officers/designated employees and time limit for their execution, reporting requirement for directors/employees for holdings and transactions, penalty for violation, etc.

Schedule I Part B contains Model Code of Conduct for prevention of Insider trading for other entities. This will include all professional firms advising listed companies.

Schedule II contains Code of Corporate Disclosure Practices  for prevention of insider trading which prescribes norms to be followed by listed companies for timely and adequate disclosure of price-sensitive information. This includes appointment of compliance officer, prompt disclosure, improvement in investor access to information, responding to rumours, timely reporting of shareholding and changes in it, guidelines for disclosure to analysts and institutional investors, medium of disclosure, and dissemination of information by stock exchanges. Etc.

13.  Regulation 13 provides for initial disclosures when a director or officer joins a listed company. such disclosure should be made within 4 working days of becoming a director or officer of a company stating number of shares held in the company. It also prescribes that any person who holds more than 5% shares or voting rights in any listed company shall disclose to the company, the number of shares or voting rights held by such person, on becoming such holder, within 4 working days of:-

      1. the receipt of intimation of allotment of shares; or
      2. the acquisition of shares or voting rights, as the case may be

Similarly Regulation 13 also provides for Continual Disclosures (subject to certain monetary and quantity limits) by abovementioned persons within 4 working days of

      1.  the receipt of intimation of allotment of shares, or
      2. the acquisition or sale of shares or voting rights, as the case may be."

As can be seen from above elaborate and far-reaching amendments have been made in Insider Trading Regulations and with proper implementation, the amended Regulations can be an effective tool to curb the menace of insider trading.

 

SEBI COMMITTEE RECOMMENDATION ON PUBLIC ISSUES:

Securities and Exchange Board of India (SEBI)’s committee, headed by Mr. Y.H. Malegam, has recommended that Companies should not be allowed to make public/right issue of shares unless75% of the finance amount (other than equity capital) for the project is tied up. The Report of the Committee says that a Company should tie - up 75% of other sources of funds before raising funds from the public. Such partial financial closure would make the project more certain and thus investors’ interest would get protected. The existing SEBI guidelines do not impose any financial committments on Qualified Institutional Buyers (QIBs) participating in book building issues. However, the Committee has proposed (i) some financial committments for QIBs participating in book building process. (ii) that QIBs should not be allowed to withdraw bids made by them. (iii) that identity of QIBs participating for issue of shares should not be made public as this may influence the bidding sentiments of retail investors. The Committee also recommended : (i) That the draft offer document submitted to the SEBI should be signed and approved by the Board of Directors of the Company. (ii) That photographs of the promoters and proofs of their odentities like PAN number should be disclosed in the offer document. (iii) That the end use of the funds raised from the market should be disclosed. i.e.funds required for fixed assets or for working capital, etc. The panel also wants underwriting norms to be changed. Under the present guidelines, an underwriter could take maximum underwriting obligation of 20 times its networth. As the committee finds it too high it recommended that the underwriting obligation should be linked to net worth under different slabs such as: Rs. 1-5 crores 10 times their networth Rs. 5 crores and multiples 20 times their networth Mumbai, 18th November, 2002

SEBI eases rules for FII registration

The Securities and Exchange Board of India, with an eye on attracting portfolio inflows into India, said on Tuesday it was cutting the registration time and fee for foreign institutional investors. "We have simplified procedures for registration of FIIs. Secondly, what we have done is to bring down the time lag for registration," G N Bajpai, chairman of the market regulator, told Reuters during a trip to Hong Kong. "Earlier it used to be three to four weeks. Now it is fourteen days," Bajpai said. SEBI also reduced the registration fees for FIIs to $5,000 from $10,000. Asked when the changes come into effect, Bajpai said, "Immediately." The market watchdog's chief also said that all securities traded on domestic bourses will switch to a shorter settlement cycle of T+2 days from April 2003. Earlier this year, trading on Indian bourses moved to a T+3 basis, replacing the old five-day settlement cycle (T+5).

Securities and Exchange Board of India (Amendment) Act,

Securities and Exchange Board of India (Amendment) Act, 2002

[59 of 2002]

An Act further to amend the Securities and Exchange Board of India Act, 1992

BE it enacted by Parliament in the Fifty-third Year of the Republic of India as follows :—

Short title and commencement.

1. (1) This Act may be called the Securities and Exchange Board of India (Amendment) Act, 2002.

(2) It shall be deemed to have come into force on the 29th day of October, 2002.

Amendment of section 2.

2. In section 2 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) (hereinafter referred to as the principal Act), in sub-section (1), after clause (h), the following clause shall be inserted, namely:—

‘(ha)“Reserve Bank” means the Reserve Bank of India constituted under section 3 of the Reserve Bank of India Act, 1934 (2 of 1934);’.

Amendment of section 4.

3. In section 4 of the principal Act,—

(a)  in sub-section (1),—

  (i)  in clause (b)

       (A) for the word “Ministries”, the word “Ministry” shall be substituted;

       (B) for the words “and Law”, the words and figures “and administration of the Companies Act, 1956 (1 of 1956)” shall be substituted;

(ii)  in clause (c), for the words and figures “the Reserve Bank of India constituted under section 3 of the Reserve Bank of India Act, 1934 (2 of 1934)”, the words “the Reserve Bank” shall be substituted;

(iii)  for clause (d), the following clause shall be substituted, namely:—

“(d)  five other members of whom at least three shall be the whole-time members,”;

(b)  in sub-section (4), for the words “Reserve Bank of India”, the words “Reserve Bank” shall be substituted.

Amendment of section 11.

4. In section 11 of the principal Act,—

(a)  in sub-section (2), after clause (i), the following clause shall be inserted, namely:—

“(ia)        calling for information and record from any bank or any other authority or board or corporation established or constituted by or under any Central, State or Provincial Act in respect of any transaction in securities which is under investigation or inquiry by the Board;”;

(b)  after sub-section (2), the following sub-section shall be inserted, namely:—

“(2A) Without prejudice to the provisions contained in sub-section (2), the Board may take measures to undertake inspection of any book, or register, or other document or record of any listed public company or a public company (not being intermediaries referred to in section 12) which intends to get its securities listed on any recognised stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market.”;

  (c)  in sub-section (3),—

  (i)  in the opening portion, for the words, brackets, letter and figure “clause (i) of sub-section (2)”, the words, brackets, figures and letters “clause (i) or clause (ia) of sub-section (2) or sub-section (2A)” shall be substituted;

(ii)  after clause (iii), the following clauses shall be inserted at the end, namely :—

“(iv) inspection of any book, or register, or other document or record of the company referred to in sub-section (2A);

(v)  issuing commissions for the examination of witnesses or documents.”;

(d)  after sub-section (3), the following sub-section shall be inserted, namely:—

“(4) Without prejudice to the provisions contained in sub-sections (1), (2), (2A) and (3) and section 11B, the Board may, by an order, for reasons to be recorded in writing, in the interests of investors or securities market, take any of the following measures, either pending investigation or inquiry or on completion of such investigation or inquiry, namely:—

(a)  suspend the trading of any security in a recognised stock exchange;

(b)  restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities;

(c)  suspend any office-bearer of any stock exchange or self-regulatory organisation from holding such position;

(d)  impound and retain the proceeds or securities in respect of any transaction which is under investigation;

(e)  attach, after passing of an order on an application made for approval by the Judicial Magistrate of the first class having jurisdiction, for a period not exceeding one month, one or more bank account or accounts of any intermediary or any person associated with the securities market in any manner involved in violation of any of the provisions of this Act, or the rules or the regulations made thereunder :

       Provided that only the bank account or accounts or any transaction entered therein, so far as it relates to the proceeds actually involved in violation of any of the provisions of this Act, or the rules or the regulations made thereunder shall be allowed to be attached;

  (f)  direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation:

       Provided that the Board may, without prejudice to the provisions contained in sub-section (2) or sub-section (2A), take any of the measures specified in clause (d) or clause (e) or clause (f), in respect of any listed public company or a public company (not being intermediaries referred to in section 12) which intends to get its securities listed on any recognised stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market :

       Provided further that the Board shall, either before or after passing such orders, give an opportunity of hearing to such intermediaries or persons concerned.”.

Substitution of new section for section 11A.

5. For section 11A of the principal Act, the following section shall be substituted, namely:—

“11A. Board to regulate or prohibit issue of prospectus, offer document or advertisement soliciting money for issue of securities.
(1) Without prejudice to the provisions of the Companies Act, 1956 (1 of 1956), the Board may, for the protection of investors,—

(a)  specify, by regulations—

  (i)  the matters relating to issue of capital, transfer of securities and other matters incidental thereto; and

(ii)  the manner in which such matters shall be disclosed by the companies;

(b)  by general or special orders—

  (i)  prohibit any company from issuing prospectus, any offer document, or advertisement soliciting money from the public for the issue of securities;

(ii)  specify the conditions subject to which the prospectus, such offer document or advertisement, if not prohibited, may be issued.

(2) Without prejudice to the provisions of section 21 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Board may specify the requirements for listing and transfer of securities and other matters incidental thereto.”.

Insertion of new sections 11C and 11D.

6. After section 11B of the principal Act, the following sections shall be inserted, namely:—

“11C. Investigation.—(1) Where the Board has reasonable ground to believe that—

(a)  the transactions in securities are being dealt with in a manner detrimental to the investors or the securities market; or

(b)  any intermediary or any person associated with the securities market has violated any of the provisions of this Act or the rules or the regulations made or directions issued by the Board thereunder,

it may, at any time by order in writing, direct any person (hereafter in this section referred to as the Investigating Authority) specified in the order to investigate the affairs of such intermediary or persons associated with the securities market and to report thereon to the Board.

(2) Without prejudice to the provisions of sections 235 to 241 of the Companies Act, 1956 (1 of 1956), it shall be the duty of every manager, managing director, officer and other employee of the company and every intermediary referred to in section 12 or every person associated with the securities market to preserve and to produce to the Investigating Authority or any person authorised by it in this behalf, all the books, registers, other documents and record of, or relating to, the company or, as the case may be, of or relating to, the intermediary or such person, which are in their custody or power.

(3) The Investigating Authority may require any intermediary or any person associated with securities market in any manner to furnish such information to, or produce such books, or registers, or other documents, or record before him or any person authorised by it in this behalf as it may consider necessary if the furnishing of such information or the production of such books, or registers, or other documents, or record is relevant or necessary for the purposes of its investigation.

(4) The Investigating Authority may keep in its custody any books, registers, other documents and record produced under sub-section (2) or sub-section (3) for six months and thereafter shall return the same to any intermediary or any person associated with securities market by whom or on whose behalf the books, registers, other documents and record are produced:

Provided that the Investigating Authority may call for any book, register, other document and record if they are needed again:

Provided further that if the person on whose behalf the books, registers, other documents and record are produced requires certified copies of the books, registers, other documents and record produced before the Investigating Authority, it shall give certified copies of such books, registers, other documents and record to such person or on whose behalf the books, registers, other documents and record were produced.

(5) Any person, directed to make an investigation under sub-section (1), may examine on oath, any manager, managing director, officer and other employee of any intermediary or any person associated with securities market in any manner, in relation to the affairs of his business and may administer an oath accordingly and for that purpose may require any of those persons to appear before it personally.

(6) If any person fails without reasonable cause or refuses—

(a)  to produce to the Investigating Authority or any person authorised by it in this behalf any book, register, other document and record which is his duty under sub-section (2) or sub-section (3) to produce; or

(b)  to furnish any information which is his duty under sub-section (3) to furnish; or

(c)  to appear before the Investigating Authority personally when required to do so under sub-section (5) or to answer any question which is put to him by the Investigating Authority in pursuance of that sub-section; or

(d)  to sign the notes of any examination referred to in sub-section (7),

he shall be punishable with imprisonment for a term which may extend to one year, or with fine, which may extend to one crore rupees, or with both, and also with a further fine which may extend to five lakh rupees for every day after the first during which the failure or refusal continues.

(7) Notes of any examination under sub-section (5) shall be taken down in writing and shall be read over to, or by, and signed by, the person examined, and may thereafter be used in evidence against him.

(8) Where in the course of investigation, the Investigating Authority has reasonable ground to believe that the books, registers, other documents and record of, or relating to, any intermediary or any person associated with securities market in any manner, may be destroyed, mutilated, altered, falsified or secreted, the Investigating Authority may make an application to the Judicial Magistrate of the first class having jurisdiction for an order for the seizure of such books, registers, other documents and record.

(9) After considering the application and hearing the Investigating Authority, if necessary, the Magistrate may, by order, authorise the Investigating Authority—

(a)  to enter, with such assistance, as may be required, the place or places where such books, registers, other documents and record are kept;

(b)  to search that place or those places in the manner specified in the order; and

(c)  to seize books, registers, other documents and record, it considers necessary for the purposes of the investigation:

Provided that the Magistrate shall not authorise seizure of books, registers, other documents and record, of any listed public company or a public company (not being the intermediaries specified under section 12) which intends to get its securities listed on any recognised stock exchange unless such company indulges in insider trading or market manipulation.

(10) The Investigating Authority shall keep in its custody the books, registers, other documents and record seized under this section for such period not later than the conclusion of the investigation as it considers necessary and thereafter shall return the same to the company or the other body corporate, or, as the case may be, to the managing director or the manager or any other person, from whose custody or power they were seized and inform the Magistrate of such return:

Provided that the Investigating Authority may, before returning such books, registers, other documents and record as aforesaid, place identification marks on them or any part thereof.

(11) Save as otherwise provided in this section, every search or seizure made under this section shall be carried out in accordance with the provisions of the Code Criminal Procedure, 1973 (2 of 1974) relating to searches or seizures made under that Code.

11D. Cease and desist proceedings.—If the Board finds, after causing an inquiry to be made, that any person has violated, or is likely to violate, any provisions of this Act, or any rules or regulations made thereunder, it may pass an order requiring such person to cease and desist from committing or causing such violation :

Provided that the Board shall not pass such order in respect of any listed public company or a public company (other than the intermediaries specified under section 12) which intends to get its securities listed on any recognised stock exchange unless the Board has reasonable grounds to believe that such company has indulged in insider trading or market manipulation.”.

Insertion of new Chapter VA.

7. After Chapter V of the principal Act, the following Chapter shall be inserted, namely:—

“Chapter VA

Prohibition of Manipulative and Deceptive Devices,
Insider Trading and Substantial Acquisition of
Securities or Control

12A. Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control.—No person shall directly or indirectly—

(a)  use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognised stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder;

(b)  employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognized stock exchange;

  (c)  engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognized stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder;

(d)  engage in insider trading;

  (e)  deal in securities while in possession of material or non-public information or communicate such material or non-public information to any other person, in a manner which is in contravention of the provisions of this Act or the rules or the regulations made thereunder;

  (f)  acquire control of any company or securities more than the percentage of equity share capital of a company whose securities are listed or proposed to be listed on a recognized stock exchange in contravention of the regulations made under this Act.”.

Amendment of section 14.

8. In section 14 of the principal Act, in sub-section (1), clause (aa) shall be omitted.

Amendment of section 15A.

9. In section 15A of the principal Act,—

  (i)  in clause (a), for the words “a penalty not exceeding one lakh and fifty thousand rupees for each such failure”, the words “a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less” shall be substituted;

(ii)  in clause (b), for the words “a penalty not exceeding five thousand rupees for every day during which such failure continues”, the words “a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less” shall be substituted;

(iii)  in clause (c), for the words “a penalty not exceeding ten thousand rupees for every day during which the failure continues”, the words “a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less” shall be substituted.

Amendment of section 15B.

10. In section 15B of the principal Act, for the words “a penalty not exceeding five lakh rupees for every such failure”, the words “a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less” shall be substituted.

Substitution of new section for section 15C.

11. For section 15C of the principal Act, the following section shall be substituted, namely :—

“15C. Penalty for failure to redress investors’ grievances.—If any listed company or any person who is registered as an intermediary, after having been called upon by the Board in writing, to redress the grievances of investors, fails to redress such grievances within the time specified by the Board, such company or intermediary shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.”.

Amendment of section 15D.

12. In section 15D of the principal Act,—

  (i)  in clause (a), for the words “a penalty not exceeding ten thousand rupees for each day during which he carries on any such collective investment scheme including mutual funds, or ten lakh rupees, whichever is higher”, the words “a penalty of one lakh rupees for each day during which he sponsors or carries on any such collective investment scheme including mutual funds, or one crore rupees, whichever is less” shall be substituted;

(ii)  in clause (b), for the words “a penalty not exceeding ten thousand rupees for each day during which such failure continues or ten lakh rupees, whichever is higher”, the words “a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less” shall be substituted;

(iii)  in clause (c), for the words “a penalty not exceeding five thousand rupees for each day during which such failure continues or five lakh rupees, whichever is higher”, the words “a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less” shall be substituted;

(iv)  in clause (d), for the words “a penalty not exceeding one thousand rupees for each day during which such failure continues”, the words “a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less” shall be substituted;

(v)  in clause (e), for the words “a penalty not exceeding one thousand rupees for each day during which such failure continues”, the words “a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less” shall be substituted;

(vi)  in clause (f), for the words “a penalty not exceeding five lakh rupees for each such failure”, the words “a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less” shall be substituted.

Amendment of section 15E.

13. In section 15E of the principal Act, for the words “a penalty not exceeding five lakh rupees for each such failure”, the words “a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less” shall be substituted.

Amendment of section 15F.

14. In section 15F of the principal Act,—

  (i)  in clause (b), for the words “a penalty not exceeding five thousand rupees for each day during which such failure continues”, the words “a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less” shall be substituted;

(ii)  in clause (c), for the words “a penalty not exceeding five thousand rupees”, the words “a penalty of one lakh rupees” shall be substituted.

Amendment of section 15G.

15. In section 15G of the principal Act, for the words “not exceeding five lakh rupees”, the words “twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher” shall be substituted.

Amendment of section 15H.

16. In section 15H,—

(a)  after clause (ii), the following clauses shall be inserted, namely:—

“(iii)       make a public offer by sending letter of offer to the shareholders of the concerned company; or

(iv)  make payment of consideration to the shareholders who sold their shares pursuant to letter of offer,”;

(b)  for the words “not exceeding five lakh rupees”, the words “twenty-five crore rupees or three times the amount of profits made out of such failure, whichever is higher” shall be substituted.

Insertion of new sections 15HA and 15HB.

17. After section 15H of the principal Act, the following sections shall be inserted, namely:—

“15HA. Penalty for fraudulent and unfair trade practices.—If any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty of twenty-five crore rupees or three times the amount of profits made out of such practices, whichever is higher.

15HB. Penalty for contravention where no separate penalty has been provided.—Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a penalty which may extend to one crore rupees.”.

Amendment of section 15-I.

18. In section 15-I of the principal Act, in sub-section (1), for the word, figures and letter “and 15H”, the figures, letters and word “15H, 15HA and 15HB” shall be substituted.

Insertion of new section 15JA.

19. After section 15J of the principal Act, the following section shall be inserted, namely:—

“15JA. Crediting sums realised by way of penalties to Consolidated Fund of India.—All sums realised by way of penalties under this Act shall be credited to the Consolidated Fund of India.”.

Substitution of new sections for sections 15L and 15M.

20. For sections 15L and 15M of the principal Act, the following sections shall be substituted, namely:—

“15L. Composition of Securities Appellate Tribunal.—A Securities Appellate Tribunal shall consist of a Presiding Officer and two other members, to be appointed, by notification, by the Central Government :

Provided that the Securities Appellate Tribunal, consisting of one person only, established before the commencement of the Securities and Exchange Board of India (Amendment) Act, 2002, shall continue to exercise the jurisdiction, powers and authority conferred on it by or under this Act or any other law for the time being in force till two other Members are appointed under this section.

15M. Qualification for appointment as Presiding Officer or Member of Securities Appellate Tribunal.—(1) A person shall not be qualified for appointment as the Presiding Officer of a Securities Appellate Tribunal unless he is a sitting or retired Judge of the Supreme Court or a sitting or retired Chief Justice of a High Court :

Provided that the Presiding Officer of the Securities Appellate Tribunal shall be appointed by the Central Government in consultation with the Chief Justice of India or his nominee.

(2) A person shall not be qualified for appointment as member of a Securities Appellate Tribunal unless he is a person of ability, integrity and standing who has shown capacity in dealing with problems relating to securities market and has qualification and experience of corporate law, securities laws, finance, economics or accountancy :

Provided that a member of the Board or any person holding a post at senior management level equivalent to Executive Director in the Board shall not be appointed as Presiding Officer or Member of a Securities Appellate Tribunal during his service or tenure as such with the Board or within two years from the date on which he ceases to hold office as such in the Board.”.

Substitution of new section for section 15N.

21. For section 15N of the principal Act, the following section shall be substituted, namely :—

“15N. Tenure of office of Presiding Officer and other Members of Securities Appellate Tribunal.—The Presiding Officer and every other Member of a Securities Appellate Tribunal shall hold office for a term of five years from the date on which he enters upon his office and shall be eligible for re-appointment :

Provided that no person shall hold office as the Presiding Officer of the Securities Appellate Tribunal after he has attained the age of sixty-eight years :

Provided further that no person shall hold office as a Member of the Securities Appellate Tribunal after he has attained the age of sixty-two years.”.

Amendment of section 15-O.

22. In section 15-O of the principal Act,—

(a)  for the words “Presiding Officer of a Securities Appellate Tribunal”, the words “Presiding Officer and other Members of a Securities Appellate Tribunal” shall be substituted;

(b)  in the proviso, for the words “said Presiding Officers”, the words “Presiding Officer and other Members of a Securities Appellate Tribunal” shall be substituted.

Amendment of section 15P.

23. In section 15P of the principal Act, for the words “office of the Presiding Officer”, the words “the office of the Presiding Officer or any other Member,” shall be substituted.

Amendment of section 15Q.

24. In section 15Q of the principal Act,—

(a)  in sub-section (1),—

  (i)  for the words “Presiding Officer of a Securities Appellate Tribunal”, the words “the Presiding Officer or any other Member of a Securities Appellate Tribunal” shall be substituted;

(ii)  in the proviso, for the words “the said Presiding Officer”, the words “the Presiding Officer or any other Member” shall be substituted;

(b)  in sub-section (2), for the words “Presiding Officer” at both the places where they occur, the words “Presiding Officer or any other Member” shall be substituted;

  (c)  in sub-section (3), for the words “aforesaid Presiding Officer”, the words “the Presiding Officer or any other Member” shall be substituted.

Amendment of section 15R.

25. In section 15R of the principal Act, for the words “Presiding Officer”, the words “Presiding Officer or a Member” shall be substituted.

Substitution of new section for section 15X.

26. For section 15X of the principal Act, the following section shall be substituted, namely :—

“15X. Presiding Officer, Members and staff of Securities Appellate Tribunals to be public servants.—The Presiding Officer, Members and other officers and employees of a Securities Appellate Tribunal shall be deemed to be public servants within the meaning of section 21 of the Indian Penal Code (45 of 1860).”.

Substitution of new section for section 15Z.

27. For section 15Z of the principal Act, the following section shall be substituted, namely :—

“15Z. Appeal to Supreme Court.—Any person aggrieved by any decision or order of the Securities Appellate Tribunal may file an appeal to the Supreme Court within sixty days from the date of communication of the decision or order of the Securities Appellate Tribunal to him on any question of law arising out of such order :

Provided that the Supreme Court may, if it is satisfied that the applicant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.”.

Amendment of section 24.

28. In section 24 of the principal Act,—

(a)  in sub-section (1), for the words “one year, or with fine, or with both” the words “ten years, or with fine, which may extend to twenty-five crore rupees or with both” shall be substituted;

(b)  in sub-section (2), for the words “three years or with fine which shall not be less than two thousand rupees but which may extend to ten thousand rupees or with both”, the words “ten years or with fine, which may extend to twenty-five crore rupees or with both” shall be substituted.

Insertion of new sections 24A and 24B.

29. After section 24 of the principal Act, the following sections shall be inserted, namely :—

“24A. Composition of certain offences.—Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), any offence punishable under this Act, not being an offence punishable with imprisonment only, or with imprisonment and also with fine, may either before or after the institution of any proceeding, be compounded by a Securities Appellate Tribunal or a court before which such proceedings are pending.

24B. Power to grant immunity.—(1) The Central Government may, on recommendation by the Board, if the Central Government is satisfied, that any person, who is alleged to have violated any of the provisions of this Act or the rules or the regulations made thereunder, has made a full and true disclosure in respect of the alleged violation, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act, or the rules or the regulations made thereunder or also from the imposition of any penalty under this Act with respect to the alleged violation :

Provided that no such immunity shall be granted by the Central Government in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of application for grant of such immunity:

Provided further that recommendation of the Board under this sub-section shall not be binding upon the Central Government.

(2) An immunity granted to a person under sub-section (1) may, at any time, be withdrawn by the Central Government, if it is satisfied that such person had, in the course of the proceedings, not complied with the condition on which the immunity was granted or had given false evidence, and thereupon such person may be tried for the offence with respect to which the immunity was granted or for any other offence of which he appears to have been guilty in connection with the contravention and shall also become liable to the imposition of any penalty under this Act to which such person would have been liable, had not such immunity been granted.”.

Amendment of section 26.

30. In section 26 of the principal Act, in sub-section (2), for the words “a Metropolitan Magistrate or a Judicial Magistrate of the first class”, the words “a Court of Session” shall be substituted.

Amendment of section 29.

31. In section 29 of the principal Act, in sub-section (2),—

  (i)  in clause (db), for the words “Presiding Officers”, the words “Presiding Officers, Members” shall be substituted;

(ii)  in clause (dc), for the words “Presiding Officers”, the words “Presiding Officers, or other Members” shall be substituted.

Repeal and saving.

32. (1) The Securities and Exchange Board of India (Amendment) Ordinance, 2002 (Ord. 6 of 2002) is hereby repealed.

(2) Notwithstanding the repeal of the Securities and Exchange Board of India (Amendment) Ordinance, 2002 (Ord. 6 of 2002), anything done or any action taken under the principal Act as amended by the said Ordinance, shall be deemed to have been done or taken under the principal Act, as amended by this Act.

AMENDMENTS TO SEBI (DIP) GUIDELINES, 2000

Chapter IV-Promoters Contribution and Lock-in Requirements

1. The existing Clause 4.16.1 shall be substituted by the following:

"4.16.1 Inter-se Transfer of Locked- in Securities

a.      Shares held by the person other than the promoters, prior to Initial Public Offering(IPO), which are locked in as per Clause 4.14 of these Guidelines, may be transferred to any other person holding shares which are locked in as per clause 4.14 of these Guidelines subject to continuation of lock-in in the hands of transferees for the remaining period and compliance of Securities and Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulations, 1997, as applicable.

b) Shares held by promoter(s) which are locked in as per the relevant provisions of this chapter, may be transferred to and amongst promoter/promoter group or to a new promoter or persons in control of the company, subject to continuation of lock-in in the hands of transferees for the remaining period and compliance of Securities and Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulations, 1997, as applicable.’

 

Chapter VI – Contents of Offer Document

1. In Clause 6.1, a new sub-clause 6.1.2 shall be inserted as following:

"6.1.2 The draft offer document and final offer document shall be approved by the Board of Directors of the issuer company and signed by all the Directors (including the Managing Director), Chief Executive Officer and Chief Financial Officer of the issuer company . They shall also certify that all the disclosures made in the offer document are true and correct. "

2 The existing Clause 6.13.1 shall be substituted by the following:

"6.13.1 Following information shall be disclosed for all issues irrespective of the issue price.

a.      Earnings per share i.e. EPS pre-issue for the last three years (as adjusted for changes in capital);

    1. P/E pre-issue
    2. average return on net worth in the last three years
    3. minimum return on increased net worth required to maintain pre-issue EPS;
    4. Net Asset Value per share based on last balance sheet;
    5. Net Asset Value per share after issue and comparison thereof with the issue price.

g. An illustrative format of disclosure in respect of basis for issue price is given in Schedule XV.

h. Comparison of all the accounting ratios of the issuer company as mentioned above with the industry average and with the accounting ratios of the peer group ( i.e companies of comparable size in the same industry.( Indicate the source from which industry average and accounting ratios of the peer group has been taken)

Provided that the projected earnings shall not be used as a justification for the issue price in the offer document.

Provided further that the accounting ratios disclosed in the offer documents in support of basis of the issue price shall be calculated after giving effect to the consequent increase in capital on account of compulsory conversions outstanding, as well as on the assumption that the options outstanding, if any, to subscribe for additional capital will be exercised."

3. The existing Clause 6.27(i) shall be substituted by the followings:

"6.27(i) Following information shall be disclosed for all issues irrespective of the issue price.

a.      Earnings per share i.e. EPS pre-issue for the last three years (as adjusted for changes in capital);

    1. P/E pre-issue
    2. average return on net worth in the last three years
    3. minimum return on increased net worth required to maintain pre-issue EPS;
    4. Net Asset Value per share based on last balance sheet;
    5. Net Asset Value per share after issue and comparison thereof with the issue price.
    6. Comparison of all the accounting ratios of the issuer company as mentioned above with the industry average and with the accounting ratios of the peer group ( i.e companies of comparable size in the same industry.( Indicate the source from which industry average and accounting ratios of the peer group has been taken)

Provided that the projected earnings shall not be used as a justification for the issue price in the offer document.

Provided further that the accounting ratios disclosed in the offer documents in support of basis of the issue price shall be calculated after giving effect to the consequent increase in capital on account of compulsory conversions outstanding, as well as on the assumption that the options outstanding, if any, to subscribe for additional capital will be exercised."

 

Chapter XIII – Guidelines for Preferential Issues

1. The existing clause 13.3.2 shall be substituted by the following:

‘13.3.2 These locked in shares/instruments may be transferred to and amongst promoter/promoter group or to a new promoter(s) or person(s) in control of the company, subject to continuation of lock-in in the hands of transferee(s) for the remaining period and compliance of Securities and Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulations, 1997, as applicable.’

 

 

Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003

Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003

Notification No. S.O. 816(E), dated 17-7-2003

In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations, namely:—

CHAPTER I

PRELIMINARY

Short title and commencement.

1.(1) These regulations may be called the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 2003.

(2) They shall come into force on the date of their publication in the Official Gazette.

Definitions.

2. (1) In these regulations, unless the context otherwise requires,—

(a) “Act” means the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(b) “dealing in securities” includes an act of buying, selling or subscribing pursuant to any issue of any security or agreeing to buy, sell or subscribe to any issue of any security or otherwise transacting in any way in any security by any person as principal, agent or intermediary referred to in section 12 of the Act.

(c) “fraud” includes any act, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any other person with his connivance or by his agent while dealing in securities in order to induce another person or his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss, and shall also include-

(1) a knowing misrepresentation of the truth or concealment of material fact in order that another person may act to his detriment;

(2) a suggestion as to a fact which is not true by one who does not believe it to be true;

(3) an active concealment of a fact by a person having knowledge or belief of the fact;

(4) a promise made without any intention of performing it;

(5) a representation made in a reckless and careless manner whether it be true or false;

(6) any such act or omission as any other law specifically declares to be fraudulent,

(7) deceptive behaviour by a person depriving another of informed consent or full participation,

(8) a false statement made without reasonable ground for believing it to be true.

(9) the Act of an issuer of securities giving out misinformation that affects the market price of the security, resulting in investors being effectively misled eventhough they did not rely on the statement itself or anything derived from it other than the market price.

 

And "fraudulent" shall be construed accordingly;

Nothing contained in this clause shall apply to any general comments made in good faith in regard to-

 

(a) the economic policy of the Government

(b) the economic situation of the country

(c) trends in the securities market or

(d) any other matter of a like nature

whether such comments are made in public or in private.

(d) “Investigating Authority” means any officer of the Board not below the rank of Division Chief, authorized by the Board to undertake investigation under section 11C of the Act;

(e) “securities” means securities as defined in section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).

(2) Words and expressions used and not defined in these regulations, but defined in the Act or in the rules or regulations made thereunder, shall have the meanings respectively assigned to them in the Act or rules or regulations made thereunder, as the case may be.

 

CHAPTER II

PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES

RELATING TO THE SECURITIES MARKET

 

3. Prohibition of certain dealings in securities.

No person shall directly or indirectly-

(a)   buy, sell or otherwise deal in securities in a fraudulent manner;

(b)   use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made thereunder;

(c)   employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange;

(d)   engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made thereunder.

4. Prohibition of manipulative, fraudulent and unfair trade practices.

(1)   Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities.

(2)   Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:-

(a) indulging in an act which creates false or misleading appearance of trading in the securities market;

(b) dealing in a security not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss;

(c) advancing or agreeing to advance any money to any person thereby inducing any other person to offer to buy any security in any issue only with the intention of securing the minimum subscription to such issue;

(d) paying, offering or agreeing to pay or offer, directly or indirectly, to any person any money or money's worth for inducing such person for dealing in any security with the object of inflating, depressing, maintaining or causing fluctuation in the price of such security;

(e) any act or omission amounting to manipulation of the price of a security;

(f) publishing or causing to publish or reporting or causing to report by a person dealing in securities any information which is not true or which he does not believe to be true prior to or in the course of dealing in securities;

(g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security;

(h) selling, dealing or pledging of stolen or counterfeit security whether in physical or dematerialized form;

(i) an intermediary promising a certain price in respect of buying or selling of a security to a client and waiting till a discrepancy arises in the price of such security and retaining the difference in prices as profit for himself;

(j) an intermediary providing his clients with such information relating to a security as cannot be verified by the clients before their dealing in such security;

(k) an advertisement that is misleading or that contains information in a distorted manner and which may influence the decision of the investors;

(l) an intermediary reporting trading transactions to his clients entered into on their behalf in an inflated manner in order to increase his commission and brokerage;

(m) an intermediary not disclosing to his client transactions entered into on his behalf including taking an option position;

(n) circular transactions in respect of a security entered into between intermediaries in order to increase commission to provide a false appearance of trading in such security or to inflate, depress or cause fluctuations in the price of such security;

(o) encouraging the clients by an intermediary to deal in securities solely with the object of enhancing his brokerage or commission.

(p) an intermediary predating or otherwise falsifying records such as contract notes.

(q) an intermediary buying or selling securities in advance of a substantial client order or whereby a futures or option position is taken about an impending transaction in the same or related futures or options contract.

(r) planting false or misleading news which may induce sale or purchase of securities.

 

CHAPTER III

INVESTIGATION

 

Power of the Board to order investigation.

5. Where the Board, the Chairman, the member or the Executive Director (hereinafter referred to as "appointing authority") has reasonable ground to believe that –

(a) the transactions in securities are being dealt with in a manner detrimental to the investors or the securities market in violation of these regulations;

(b) any intermediary or any person associated with the securities market has violated any of the provisions of the Act or the rules or the regulations,

it may, at any time by order in writing, direct any officer not below the rank of Division Chief (hereinafter referred to as the "Investigating Authority") specified in the order to investigate the affairs of such intermediary or persons associated with the securities market or any other person and to report thereon to the Board in the manner provided in section 11C of the Act.

Powers of Investigating Authority.

6. Without prejudice to the powers conferred under the Act, the Investigating Authority shall have the following powers for the conduct of investigation, namely:-

(1) to call for information or records from any person specified in section 11(2)(i) of the Act;

(2) to undertake inspection of any book, or register, or other document or record of any listed public company or a public company (not being intermediaries referred to in section 12 of the Act) which intends to get its securities listed on any recognized stock exchange where the Investigating Authority has reasonable grounds to believe that such company has been conducting in violation of these regulations;

(3) to require any intermediary or any person associated with securities market in any manner to furnish such information to, or produce such books, or registers, or other documents, or record before him or any person authorized by him in this behalf as he may consider necessary if the furnishing of such information or the production of such books, or registers, or other documents, or record is relevant or necessary for the purposes of the investigation;

(4) to keep in his custody any books, registers, other documents and record produced under this regulation for a maximum period of one month which may be extended upto a period of six months by the Board:

Provided that the Investigating Authority may call for any book, register, other document or record if the same is needed again:

Provided further that if the person on whose behalf the books, registers, other documents and record are produced requires certified copies of the books, registers, other documents and record produced before the Investigating Authority, he shall give certified copies of such books, registers, other documents and record to such person or on whose behalf the books, registers, other documents and record were produced;

(5) to examine orally and to record the statement of the person concerned or any director, partner, member or employee of such person and to take notes of such oral examination to be used as an evidence against such person:

Provided that the said notes shall be read over to, or by, and signed by, the person so examined;

(6) to examine on oath any manager, managing director, officer or other employee of any intermediary or any person associated with securities market in any manner in relation to the affairs of his business and may administer an oath accordingly and for that purpose may require any of those persons to appear before him personally.

Power of the Investigating Authority to be exercised with prior approval.

7. The Investigating Authority may, after obtaining specific approval from the Chairman or Member also exercise all or any of the following powers, namely:-

(a) to call for information and record from any bank or any other authority or board or corporation established or constituted by or under any Central, State or Provincial Act in respect of any transaction in securities which are under investigation;

(b) to make an application to the Judicial Magistrate of the first class having jurisdiction for an order for the seizure of any books, registers, other documents and record, if in the course of investigation, the Investigating Authority has reasonable ground to believe that such books, registers, other documents and record of, or relating to, any intermediary or any person associated with securities market in any manner may be destroyed, mutilated, altered, falsified or secreted;

(c) to keep in his custody the books, registers, other documents and record seized under these regulations for such period not later than the conclusion of the investigation as he considers necessary and thereafter to return the same to the person, the company or the other body corporate, or, as the case may be, to the managing director or the manager or any other person from whose custody or power they were seized:

Provided that the Investigating Authority may, before returning such books, registers, other documents and record as aforesaid, place identification marks on them or any part thereof ;

(d) save as otherwise provided in this regulation, every search or seizure made under this regulation shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) relating to searches or seizures made under that Code.

 

Duty to co‑operate, etc.

8. (1) It shall be the duty of every person in respect of whom an investigation has been ordered under regulation 7-

(a) to produce to the Investigating Authority or any person authorized by him such books, accounts and other documents and record in his custody or control and to furnish such statements and information as the Investigation Authority or the person so authorized by him may reasonably require for the purposes of the investigation;

 

(b) to appear before the Investigation Authority personally when required to do so by him under regulation 6 or regulation 7 to answer any question which is put to him by the Investigation Authority in pursuance of the powers under the said regulations.

 

(2) Without prejudice to the provisions of sections 235 to 241 of the Companies Act, 1956 (1 of 1956), it shall be the duty of every manager, managing director, officer and other employee of the company and every intermediary referred to in section 12 of the Act or every person associated with the securities market to preserve and to produce to the Investigating Authority or any person authorized by him in this behalf, all the books, registers, other documents and record of, or relating to, the company or, as the case may be, of or relating to, the intermediary or such person, which are in their custody or power.

 

(3) Without prejudice to the generality of the provisions of sub‑regulations (1) and (2), such person shall ‑

 

(a) allow the Investigating Authority to have access to the premises occupied by such person at all reasonable times for the purpose of investigation;

 

(b) extend to the Investigating Authority reasonable facilities for examining any books, accounts and other documents in his custody or control (whether kept manually or in computer or in any other form) reasonably required for the purposes of the investigation;

 

(c) provide to such investigating Authority any such books, accounts and records which, in the opinion of the Investigating Authority, are relevant to the investigation or, as the case may be, allow him to take out computer out‑prints thereof.

 

Submission of report to the Board.

9. The Investigating Authority shall, on completion of investigation, after taking into account all relevant facts, submit a report to the appointing authority:

 

Provided that the Investigating Authority may submit an interim report pending completion of investigations if he considers necessary in the interest of investors and the securities market or as directed by the appointing authority.

 

Enforcement by the Board.

10. The Board may, after consideration of the report referred to in regulation 9, if satisfied that there is a violation of these regulations and after giving a reasonable opportunity of hearing to the persons concerned, issue such directions or take such action as mentioned in regulation 11 and regulation 12:

 

Provided that the Board may, in the interest of investors and the securities market, pending the receipt of the report of the investigating authority referred to in regulation 9, issue directions under regulation 11:

 

Provided further that the Board may, in the interest of investors and securities market, dispense with the opportunity of pre‑decisional hearing by recording reasons in writing and shall give an opportunity of post‑decisional hearing to the persons concerned as expeditiously as possible.

 

11. (1) The Board may, without prejudice to the provisions contained in sub‑sections (1), (2), (2A) and (3) of section 11 and section 11B of the Act, by an order, for reasons to be recorded in writing, in the interests of investors and securities market, issue or take any of the following actions or directions, either pending investigation or enquiry or on completion of such investigation or enquiry, namely:-

 

(a) suspend the trading of the security found to be or prima facie found to be involved in fraudulent and unfair trade practice in a recognized stock exchange;

 

(b) restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities;

 

(c) suspend any office‑bearer of any stock exchange or self regulatory organization from holding such position;

(d) impound and retain the proceeds or securities in respect of any transaction which is in violation or prima facie in violation of these regulations;

 

(e) direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of a fraudulent and unfair transaction;

 

(f) require the person concerned to call upon any of its officers, other employees or representatives to refrain from dealing in securities in any particular manner;

 

(g) prohibit the person concerned from disposing of any of the securities acquired in contravention of these regulations;

 

(h) direct the person concerned to dispose of any such securities acquired in contravention of these regulations, in such manner as the Board may deem fit, for restoring the status quo ante;

 

(2) The Board shall issue a press release in respect of any final order passed under sub‑regulation (1) in atleast two newspapers of which one shall have nationwide circulation and shall also put the order on the website of the Board.

 

Suspension or cancellation of registration.

12. (1) The Board may, without prejudice to the provisions contained in sub‑sections (1), (2), (2A) and (3) of section 11 and section 11B of the Act, by an order, for reasons to be recorded in writing, in the interests of investors and securities market take the following action against an intermediary:

 

(a) Issue a warning or censure

(b) suspend the registration of the intermediary; or

(c) cancel of the registration of the intermediary

 

Provided that no final order of suspension or cancellation of an intermediary for violation of these regulations shall be passed unless the procedure specified in the regulations applicable to such intermediary under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 is complied with.

 

Repeal and savings.

13. (1) The Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 is hereby repealed.

 

(2) Notwithstanding repeal of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, any violation of regulations 3, 4, 5 and 6 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 shall be investigated and proceeded against in accordance with the procedure laid down in these regulations.

(3) Notwithstanding repeal of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, any investigation pending, at the commencement of these regulations shall be continued and disposed of in accordance with the procedure laid down in these regulations.

 

SEBI PRIMARY MARKET ADVISORY COMMITTEE ON PREFERENTIAL ISSUES

By Shailesh Bathiya, Chartered Accountant. The Primary Market Advisory Committee of SEBI has recommended certain far-reaching amendments to the present Preferential Issues Guidelines. 1. Present preferential Issue Guidelines of SEBI are contained in Chapter XIII of SEBI (Disclosure and Investor Guidelines), 2000. Preferential Issue of shares are Issues of shares by a Company which are not through the Public Issue or the Rights Issue route. Preferential Issue of shares is done by a Company to a select group of persons through negotiations. Such issues are done under provisions of Section 81(1A) of the Companies Act which require approval of shareholders of a Company by a special Resolution. The Committee felt that in such special resolutions common shareholders are not able to participate as in many cases meetings are held at distant places. The committee has, therefore, recommended that preferential issues should be approved mandatorily by a Special Resolution passed through Postal Ballot, in case of listed Companies. This will allow all shareholders to participate in the process. However, I feel that in most cases, since promoters hold majority, even after such participation by small shareholders through postal Ballot, it will hardly serve any purpose. Besides, according to the current practices only the Result of a Postal Ballot has to be announced at a meeting of members and no discussion thereon is required so this will deprive even a discussion on the subject of Preferntial allotment An opportunity to members discuss such matters is very necessary. Indeed, some companies have so interpreted the Postal Ballot Regulations that even a meeting of the shareholders is not necessary to announce the result of a postal Ballot and mere publication of the result will suffice. This will certainly deprive shareholders of a discussion. In this connection it is important to note that the proposed amendment to section 81 through the Companies (Amendment ) Bill, 2003 presribes that no votes shall be cast by any person in favour of the special resolution for preferential allotment when shares are proposed to be offered to such person.. This provision may be of more help than the suggestion of a Postal Ballot. Here also there is a fear that since Promoter groups have many entities or companies within their fold, everytime allotment can be done to a new entity or a company. 2. Another suggestion has been made by the said Committee on Preferential Issues which are not listed by the stock exchanges. So many times it so happens that preferential issues are not listed by the stock exchanges for years due to certain non-compliances by the companies. The committee has suggested that SEBI should take-up this matter with the Department of Company Affairs to stipulate that if listing permission is not granted by the stock exchanges, such preferential issues should be treated void ab initio. That means such issues should be treated as cancelled. The committee has further suggested that SEBI should consider appointment of merchant Bankers for Preferential Allotment to ensure due diligence and avoid non-compliance of the guidelines. This is a welcome suggestion as many present preferential allotments do not comply with the Guidelines. 3. Another concern of stock exchanges is that in many cases of preferential issues actual funds are not received i.e. the funds are received through circular entries or Book entries. The committee has made a far reaching suggestion that the proposed allottees should bring in the funds in advance before the date of General meeting of members where the proposal of preferential issues is to be considered. These funds should be kept in an escrow account. In my opinion this will take away the flexibility from the genuine companies and the investors. If investors have to put in funds in advance without knowing that approval of members will come or not, than they may not be interested in locking their funds. Also presently they have an option “not to subscribe” in case the market price of the shares is below the preferential offer price. The committee also suggested that the present time limit of 90 days for making preferential allotment should be reduced to 30 days. This may be useful but will not address the problem of not receiving the funds. The solution is to track the enduse of the funds and verify current or fixed asset creation or repayment of liabilities, etc, as per stated objects through the company’s auditors or any other agency and also disclose the same to SEBI/Stock Exchanges and to the Shareholders. 4. Another suggestion of the committee is to lock in the shares issued by way of Preferential Issue for swap of shares. Under the present Guideline No.13.3.1( c), on Preferential issues, in case of swap of shares are not to be locked in. Swap of shares normally takes place when a company acquires any business or asset from any other company and , in consideration thereof, issues its shares to the shareholders of selling company in exchange of their shares in the selling company. 5. The committee has also recommended that SEBI should not allow Preferential Issues by way of Issue of shares other than cash. 6. The committee did not recommend any upper price limit for preferential issues.

SEBI paper on digital certification

28th October 2003: Securities and Exchange Board of India (SEBI) has proposed to permit electronic filing of documents by market intermediaries, electronic maintenance of records and use of digital signatures. SEBI seeks to facilitate electronic filing of reports or draft offer documents of Mutual Funds (MF) and Collective Investment Schemes (CIS) and proposes to amend the mutual fund regulation of 1996 for permitting electronic filing by the asset management companies. It has also proposed to make changes in the broker-sub-broker regulations 1992 for electronic issuance of contract notes.

 

It has been proposed that this facility shall be available to the MF and CIS only where there is an express agreement to this effect with the particular unit holder. The annual report may be sent to unit holders, who have consented to receive them electronically, by sending it to the address intimated by the unit holder for this purpose. A number of the SEBI Regulations impose reporting or filing obligations on the intermediaries and other persons. Some intermediaries are also required to issue contract notes or enter agreements with clients or other intermediaries. Presently, these requirements have to be met by physically filing the required documents with SEBI or physical issue of contract note or entering into agreement physically.

 

Section 3 of the Information Technology Act, 2000 provides for authentication of electronic records and says that a person can authenticate any electronic record by affixing his digital signature. The identity of the person affixing the digital signature is authenticated by means of a private key – public key pair that is unique to him. Rule 3 further elaborates on the manner in which information can be authenticated by means of digital signature. Section 21 provides for licensing of Certifying Authorities who will be eligible to issue Digital Signature Certificates. Section 4 of the IT Act says that any information or other matter required by any law to be in writing can be in electronic form. In case of Foreign Institutional Investors, SEBI is already allowing direct uploading of daily reports through a secure network designed by the Information Systems Division of SEBI. A virtual private network (VPN) has been created through the Internet having safety features such as encryption. A terminal specific connectivity has been set up with many custodians who upload the data in respect of each FII as required by the Regulations.

 

In the US, the Securities Exchange Commission (SEC) requires electronic filings through the EDGAR system through the Internet. It seems that almost 1,10,000 filers use it. In the UK, the Financial Services Authority (FSA) requires filing of certain kinds of information through the ELS system using the FSA website.

 

To facilitate electronic filing of documents by intermediaries the documents, which are required to be filed, may have to be classified as follows:

 

a)      Reports or draft offer documents of schemes of Mutual Funds, Collective Investment Schemes or returns in respect of portfolio investments, annual accounts etc., filed by existing intermediaries who are few in number such as Mutual Funds to whom the present arrangement of (VPNs) can be extended and which can be integrated in the database maintained by the concerned Department; and,

 

b)      Statements to be filed by persons other than intermediaries such as filing of public announcements, exemption reports and draft letters of offer under the Takeover Regulations or Buyback Regulations for filing which through the internet, a system of digital signature certification can be provided. As SEBI is required to offer comments on draft offer documents, it may also insist for filing a physical copy to obviate the need for taking a print out for the purpose of offering comments or draft offer document.

 

c)      Application forms for registration by new applicants.

 

The documents at b) and c) require filing of such documents authenticated by digital signature as provided in the IT Act and Rules.

The SEBI Stock Broker regulations and the stock exchange byelaws require a broker to issue contract notes to clients. SEBI has already clarified that the brokers are allowed to issue contract notes authenticated by means of digital signature provided he has obtained digital signature certificate from the certifying authorities appointed under the IT Act, 2000. SEBI can lay down the regulation for electronic issue or filing of documents with it by intermediaries by making provision in the relevant regulations, within the general framework of the IT Act.

Under the SEBI (Mutual Funds) Regulations, 1996 as well as SEBI (Collective Investment Scheme) Regulations, 1999 certain documents are required to be sent to the unit holders. For example Regulation 56 of the Mutual Fund Regulations requires mailing of scheme wise annual report or an abridged summary thereof to all unit holders within a specified time. Though sections 3, 4 and 5 of the Information Technology Act give legal recognition to electronic records, in the absence of amendments, it is doubtful whether these sections enable a company/ mutual fund/ CIS to electronically transmit the annual report etc., as required under the Listing Agreement or the SEBI Regulations. In UK a provision has been made to publish the document on a website, instead of sending the entire document electronically, subject to certain conditions as follows:

  • There is an express agreement to this effect between the company and that person
  • The person is notified of such publication, address of the website etc.
  • The documents should be published on the website through out a period of 21 days before the date of the meeting

Address in relation to electronic communications includes any number or address used for the purpose of such communication by means of a telecommunication system or by any other means but in an electronic form.

It would be desirable to allow MF / CIS to electronically transmit documents that they are required to physically do under the SEBI Regulations. Such transmission of documents by companies is also desirable though it would require amendment in the Companies Act. In respect of statements to be mailed to unit holders under the MF or the CIS Regulations, provision for electronic transmission of records can be made by amending the Regulations. This facility shall be available to the MF / CIS only where there is express agreement to this effect with the particular unit holder and is suggested that publication in the website as an alternative need not be provided at this stage. 

 

Sebi gives PN access only to regulated entities for ONGC issue

2nd March 2004: Sebi has told merchant bankers that they can issue participatory notes (PNs) only in case of regulated overseas entities. Several merchant bankers have been trying to put pressure on the government to relax this norm by either withdrawing or diluting it. The government has a big stake in the success of the forthcoming ONGC issue and the merchant bankers have been using this to say that such dilution of norms is required to ensure full subscription of the Rs.10000 crores sale of ONGC shares. The government today clarified that the lead managers to the ONGC public offer – Kotak Mahindra Capital Company, DSP Merrill Lynch and JM Morgan Stanley – would not be barred from issuing PNs to overseas investors. The issuer of the PN and the subscriber have to be regulated entities and that there is no change in Sebi’s policy on issuance of PNs. Participatory notes are offshore derivative instruments issued by foreign institutional investors and their sub-accounts against underlying Indian securities to overseas clients or investors. PNs enable the holders or investors to hide their identities while transacting in the market. Sebi had directed FIIs last month not to issue PNs to unregulated entities. Regulated entities include those entities regulated by a central bank like Bank of England, the Fed Reserve, US, the Monetary Authority of Singapore or the Financial Services Authority, UK, members of securities or futures exchanges or any entity incorporated in a jurisdiction that needs filing of constitutional and or other documents with a registrar of companies or comparable regulatory agency or body under the applicable companies legislation in that jurisdiction.

Investors must provide PAN and bank account numbers for investments of over Rs. 50000 on MFs

3rd March 2004: The Securities and Exchange Board of India (Sebi) has made declaration of the permanent account number (PAN) and bank account number being made mandatory for mutual fund (MF) investors to impart greater transparency as well as strengthen the ‘know your client’ guidelines for mutual funds. The Sebi circular states that application forms for total value of Rs.50000 or more must have the permanent account number and the bank account number of the applicant or applicants. It further states that if the applicant has not been allotted a PAN, he will have to mention the GIR number and the Income-tax circle/ward/district and in case both the PAN as well as the GIR number has not been allotted, the non-allotment should be clearly mentioned in the application form. The market regulator has asked mutual fund houses to reject application forms that do not have these details. The fund managers feels the new directive is unlikely to have an adverse impact on the MF inflows and only those investors who have been using MF schemes, as an instrument to convert their black money into white will stay away from investing in MF units. Top MF houses claim most of them have been requesting PAN and bank account numbers. But some investors are reluctant and make the task tedious, as they are unwilling to part with these details for reasons known to them, they added. Of course, investors can still elude the Sebi directive by stating applied for PAN in the application form.

Sebi prohibits delisting after buyback

9th April 2004: The Securities and Exchange Board of India (Sebi) proposed to prohibit those companies from delisting their shares that have concluded a buyback of securities or made a preferential allotment. Further, Sebi’s proposed amendments state that no company can delist its shares within three years of listing its shares on any stock exchange or when it has any convertible instruments still outstanding. The proposed amendments also state that it would be assumed that the promoters have aborted the delisting process when they do not accept the “discovered price” in the reverse book-building route for delisting. As a result, if the public shareholding has fallen below 10 percent at the start of the bidding, the public holding would have to be brought up to 10 percent by issuing new shares or by an offer for sale. Sebi has clarified that in the case of voluntary delisting, the shares may be delisted from all the stock exchanges where they are listed or only from the stock exchange where they are listed, provided everyone is given an exit opportunity. No separate exit opportunity is required to be provided where the shares are still traded on any exchange. For delisting, the company would have to obtain the approval of its shareholders by introducing a special resolution and within one year of passing the resolution make an application to the stock exchanges. The company has to close the process of delisting within 45 days of receiving approval from the exchanges. Sebi has said that the company's promoters will have to deposit in an escrow account 100 percent of the estimated amount of consideration calculated on the basis of the floor price indicated and the number of securities required to be acquired. Sebi has already mentioned that delisting will be through the reverse book building method. For frequently traded shares the floor price for building purposes will be at the average of the weekly high and low of the closing prices for the preceding 26 weeks and where the trading is infrequent Sebi has set out three alternatives for arriving at the floor price. Sebi has specified that the offer would have to remain open for a period of 15 days.

SEBI tightens corporate name rule

1st May 2004: The Securities and Exchange Board of India (SEBI) stated that the corporates would be allowed to change their name only after a gap of one year from the date of last name change. This move is part of the market regulator’s measures to tighten norms on changing of names by listed companies. According to Sebi, at least 50 percent of total revenues in the preceding year should come from the new activities suggested by new names. Sebi also said that the new name along with the old should be disclosed through the websites of the respective stock exchanges where the company is listed for one year from the date of the last name change. These new norms are in addition to existing rules making it necessary to disclose the turnover and income from such new activities separately.

Sebi plans rating of IPOs

5th May 2004: The Securities and Exchange Board of India (Sebi) is planning to introduce mandatory rating of initial public offerings (IPOs). This service is not available on any bourse across the world and would be the first of its kind service seen raising the image of the market. A Sebi official confirmed the move but declined to set a schedule because the service would depend on the time the domestic rating agencies, Crisil and Icra, need to devise the required mechanism. Compulsory initial public issue ratings would protect the local investors and also improve foreign investors’ image of the Indian capital market. Under the existing rules Sebi can defer an IPO but it cannot disqualify an issue. The move matches with the initiatives being taken by the market regulator for foreign companies raising funds through Indian Depository Receipts (IDRs). The market regulator is also working towards improving the infrastructure and enhancing the functioning of market intermediaries by appointing a committee to look into their software and hardware infrastructure. Sebi also plans to set up a National Securities Institute for upgradation of the skills of financial intermediaries.

SECURITIES AND EXCHANGE BOARD OF INDIA (VENTURE CAPITAL FUNDS) (AMENDMENT) REGULATIONS, 2004

S.O.No. 468 (E) - In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following Regulations to further amend the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996, namely: -

1. (i) These Regulations may be called the Securities and Exchange Board of India (Venture Capital Funds) (Amendment) Regulations, 2004.

(ii) They shall come into force on the date of their publication in the Official Gazette.

2. In the Securities and Exchange Board of India (Venture Capital Funds) Regulation, 1996: -

(i) In regulation 2, -

(a) in clause (ee), after the word, "compulsorily", the word, "or optionally", shall be inserted.

(b) in clause (m), in sub-clause (iii), the words, "in venture capital undertaking" shall be omitted.

(ii) In regulation 12, -

(a) in clause (d), -

(i) the words, "in the venture capital undertaking", shall be omitted.

(ii) in sub-clause (i), -

(1) for the figure, "75%", the figure, "66.67%", shall be substituted.

(2) the words, "of venture capital undertaking", shall be added after the words "equity linked instruments".

(iii) in sub-clause (ii),

(1) for the figure "25%", the figure "33.33%", shall be substituted."

(2) in clause (a), the words "subject to lock-in period of one year" shall be omitted.

(3) after clause (b), the following shall be inserted, namely; -

"(c) preferential allotment of equity shares of a listed company subject to lock in period of one year.

(d) the equity shares or equity linked instruments of a financially weak company or a sick industrial company whose shares are listed.

Explanation 1 - For the purpose of these regulations, a "financially weak company" means a company, which has at the end of the previous financial year accumulated losses, which has resulted in erosion of more than 50% but less than 100% of its networth as at the beginning of the previous financial year.

(e) Special Purpose Vehicles which are created by a venture capital fund for the purpose of facilitating or promoting investment in accordance with these Regulations.

Explanation - The investment conditions and restrictions stipulated in clause (d) of regulation 12 shall be achieved by the venture capital fund by the end of its life cycle."

(b) after clause (d), the following shall be added, namely; -

"(e) venture capital fund shall disclose the duration of life cycle of the fund."

(3) in regulation 24, after sub-regulation (2), the following sub-regulation, shall be inserted, namely; -

"(3) Notwithstanding anything contained in sub-regulation (2) and subject to the conditions, if any, contained in the placement memorandum or contribution agreement or subscription agreement, as the case may be, in-specie distribution of assets of the scheme, shall be made by the venture capital fund at any time, including on winding up of the scheme, as per the preference of investors, after obtaining approval of at least 75% of the investors of the scheme.

(4) In Third schedule, -

(a) clause 1, shall be omitted.

(b) in clause 2, the words, "excluding those Non-Banking Financial companies which are registered with Reserve Bank of India and have been categorized as Equipment Leasing or Hire Purchase companies", shall be inserted, after the words, "Non-banking Financial Services".

(c) in clause 3, the words, "excluding those companies which are engaged in gold financing for jewellery", shall be inserted, after the words, "gold financing".

 

Foot notes

1.       The Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996, the Principal Regulations were published in the Gazette of India on December 4, 1996 vide S.O. No.850(E).

(2) The Regulations was subsequently amended on:

(a) on January 5, 1998 by the SEBI (Venture Capital Funds) (Amendment) Regulations, 1998 vide S.O. No.19 (E).

(b) on November 17, 1999 by the SEBI (Venture Capital Funds) (Amendment) Regulations, 1999 vide S.O. No.1118 (E).

(c) on September 15, 2000 by the SEBI (Venture Capital Funds) (Amendment) Regulations, 2000 vide S.O. No.831 (E).

(d) on September 27, 2002 by the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 vide S.O. No.1045 (E).

 

SECURITIES AND EXCHANGE BOARD OF INDIA (BUY-BACK OF SECURITIES) (AMENDMENT) REGULATIONS, 2004.

S.O. No. 745(E). In exercise of powers conferred by sub-section (1) of section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) read with clause (f) of sub-section (2) of Section 77A of the Companies Act, 1956 (1 of 1956) the Board hereby makes the following regulations to amend the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 1998, namely: -

1.  (i) These regulations shall be called the Securities and Exchange Board of   India (Buy-Back of Securities) (Amendment) Regulations, 2004.

(ii) They shall come into force on the date of their publication in the Official Gazette.

2.  In the Securities and Exchange Board of India (Buy-Back of Securities) Regulations 1998,

(i) In regulation 2, in sub-regulation (1),

(a) in clause (e), for the words "specified   securities", the words “shares or other specified securities” shall be substituted.

(b) in clause (o), for the words "specified   securities", the words “shares or other specified securities” shall be substituted.

(ii) Regulation 3, shall be substituted by the following, namely-.
“Applicability

3. (1) These regulations shall be applicable to buy-back of shares or other specified securities of a company listed on a stock exchange.
    (2) Notwithstanding anything contained in sub-regulation (1), a company listed on a stock exchange shall not buy-back its shares or other specified securities so as to delist   its shares or other specified securities from the stock exchange.”

(iii)  In regulation 4,

(a)  in the heading, for the words "specified   securities", the words “shares or other specified securities” shall be substituted.

(b) in sub-regulations (1), (2) and (3), for the words "specified   securities", the words “shares or other specified securities” shall be substituted.

(iv)  In regulation 5, in sub-regulation (2), for the words "specified   securities", the words “shares or other specified securities” shall be substituted.

(v)  In regulation 5A, in sub-regulations (1) and (2), for the word "securities", wherever it appears, the words “shares or other specified securities” shall be substituted.

(vi)  In regulation 6, for the words "specified securities", the words “shares or other specified securities” shall be substituted.

(vii)  In regulation 7, for the words "specified securities" wherever they appear, the words “shares or other specified securities” shall be substituted.

(viii)   In regulation 8,

(a) in sub-regulation (1), for the words "specified securities", the words “shares or other specified securities” shall be substituted.

(b) for sub regulation (3) , the following shall be substituted, namely-

“3) The specified date shall not be later than thirty days from the date of the public announcement.”

(ix)   In regulation 9, in sub-regulations (4) and (5), for the words "specified   securities”, wherever they appear, the words “shares or other specified securities” shall be substituted.

(x)  In regulation 11, in sub-regulation (1), after the words “together with” and before the words “the amount”, the words “ninety per cent. of” Shall be inserted.

(xi)  In regulation 12,

(a) for sub-regulation (1), the following shall be substituted ,namely-

  “(1) The company shall extinguish and physically destroy the security certificates so bought back in the presence of a Registrar to issue or the Merchant Banker and the Statutory Auditor within fifteen days of the date of acceptance of the shares or other specified securities.
Provided that the company shall ensure that all the securities bought - back are extinguished within seven days of the last date of completion of buy – back.”

(b) in sub-regulation (2) for the words "specified securities", the words “shares or other specified securities” shall be substituted.

(c)  for sub-regulation (3), the following shall be substituted, namely : -

“(3) (a) The company shall, furnish a certificate to the Board certifying compliance as specified in sub-regulation (1) and
duly certified and verified  by -

(i) the registrar and whenever there is no registrar by the merchant banker;

(ii) two directors of the company one of whom shall be a managing director where there is one;

(iii) the statutory auditor of the company,

     (b) The certificate required under clause (a) shall be furnished to the Board on a monthly basis by the seventh day of the month succeeding the month in which the securities certificates are extinguished and destroyed.”

(d) for sub-regulation (4), the following shall be substituted, namely :
   “(4)The company shall furnish, the particulars of the security certificates extinguished and destroyed under sub-regulation (1), to the stock exchanges where the shares of the company are listed on a monthly basis by the seventh day of the month succeeding the  month in which the securities certificates are extinguished and destroyed .”

(xii)   In regulation 13, for the words "specified securities", the words “shares or other specified securities” shall be substituted.

(xiii)  In regulation 14, in sub-regulations (1) and (2), for the words "specified   securities", the words “shares or other specified securities” shall be substituted.

(xiv)  In regulation 15,

(a) in the opening sentence and in clauses (b) and (f) for the words "specified   securities", the words “shares or other specified securities” shall be substituted.

(b) for clause (g) , the following shall be substituted, namely-

“(g) The buy-back shall be made only on stock exchanges having nationwide trading terminals;”

(c) in clause (h) , for the words "specified   securities", the words “shares or other specified securities” shall be substituted.

(d) for clause (i) , the following shall be substituted, namely-

“(i) The company and the merchant banker shall submit  the information regarding the shares or other specified securities bought- back, to the stock exchange on a daily basis and publish the said information in a national daily on a fortnightly basis and every time when an additional five per cent of the buy -back has been completed.
Provided that where there is no buy back during a particular period the company and the merchant banker shall not be required to publish the details in a national daily.”

(xv)  In regulation 17, in the opening sentence and in sub-regulation (1), in clause (k), for the words "specified securities", the words “shares or other specified securities” shall be substituted.

(xvi)  In regulation 19, for the words "specified   securities", wherever they appear, the words “shares or other specified securities” shall be substituted.

(xvii)  In regulation 25 in sub-regulation (1), in clause (c), for the words "specified   securities", the words “shares or other specified securities” shall be substituted.

(xviii)  In Schedule I,

(a) in clause (vii), in sub-clause (b), for the words "equity shares", the words “shares or other specified securities” shall be substituted.

(b) in clause (viii), for the words "specified   securities", wherever they appear, the words “shares or other specified securities” shall be substituted.

( xix) In Schedule II,

(a)  in clause 18, for the words "equity shares", the words “shares or other specified securities” shall be substituted.
(b)  for clause 24, the following shall be substituted ,namely-

“24. The Public announcement shall be dated and signed on behalf of the Board of Directors of the company by its manager or secretary, if any, and by not less than two directors of the company one of whom shall be a managing director where there is one.”

(xx)  In Schedule III,

(a) in clause 18, for the words "equity shares", the words “shares or other specified securities” shall be substituted.

(b) in clause 23,

(i) in para (1), for the words “ whole time directors” the words “directors of the company one of whom shall be a managing director where there is one’ shall be substituted.

(ii) in para (2) for the words “ whole time directors, one of whom shall be managing director” the words “directors of the company one of whom shall be a managing director where there is one’ shall be substituted.

(c)  for clause 26 , the following shall be substituted, namely-
 
“26. The letter of offer shall be dated and signed on behalf of the Board of Directors of the company by its manager or secretary, if any, and by not less than two directors of the company one of whom shall be a managing director where there is one.”

  

[F. No. SEBI/LAD/DOP/ 12752 /2004]

Footnote:
1. Securities and Exchange Board of India (Buy-back of Securities) Regulations, 1998, the principal regulations, were published in the Gazette of India on November 14, 1998; vide G.S.R No. 975 (E).
2. It was subsequently amended -
(a) on September 21, 1999 by SEBI (Buy-Back of Securities) (Amendment) Regulations, 1999 vide S.O. 776 (E).
(b) on November 28, 2001 by SEBI (Buy-Back of Securities) (Amendment) Regulations, 2001 vide S.O. 1181(E).

CIRCULAR ISSUED BY SEBI IN RESPECT OF ISSUE AND LISTING OF PRIVATELY PLACED DEBT SECURITIES – CIRCULAR NO: SEBI/MRD/SE/AT/36/2003/30/09

Secondary Market for Corporate Debt Securities - SEBI vide their circular No SEBI/MRD/SE/AT/36/2003/30/09 dated September 30, 2003 has laid down the guidelines to be complied by listed companies making issue of debt securities on a private placement basis. Such companies are inter alia required to get their fresh issue of debt listed on the Exchange. The guidelines are as under:

Ø      The company shall make full disclosures (initial and continuing) in the manner prescribed in Schedule II of the Companies Act, 1956, SEBI (Disclosure and Investor Protection) Guidelines, 2000 and the Listing Agreement with the exchanges. However, if the privately placed debt securities are in standard denomination of Rs.10 Lakhs, such disclosures may be made only through web sites of the stock exchange where the debt securities are sought to be listed.

Ø      The debt securities shall carry a credit rating of not less than investment grade from a Credit Rating Agency registered with the Board.

Ø      The company shall appoint a debenture trustee registered with SEBI in respect of the issue of the debt securities.

Ø      The debt securities shall be issued and traded in demat form.

Ø      The company shall sign a separate listing agreement with the exchange in respect of debt securities and comply with the conditions of listing.

Ø      All trades with the exception of spot transactions, in a listed debt security, shall be executed only on the trading platform of a stock exchange.

Ø      The trading in privately placed debts shall only take place between Qualified Institutional Investors (QIBs) and High Networth Individuals (HNIs), in standard denomination of Rs.10 lakhs.

Ø      The requirement of Rule 19(2)(b) of the Securities Contract (Regulation) Rules, 1957 will not be applicable to listing of privately placed debt securities on exchanges, provided all the above requirements are complied with.

Ø      If the intermediaries registered with SEBI associate themselves with the issuance of private placement of unlisted debt securities, they will be held accountable for such issues. They will also be required to furnish periodical reports to SEBI in such format as may be decided by SEBI.

All companies are advised to take note of the above and ensure compliance. Further, the Listing fees applicable for listing of debt securities will be 25% of the fee applicable to listing of equity shares.

The Schedule of Listing Fees for debt segment is a under:

A

Initial Listing fees

Rs.5,000/-

B

Annual Listing Fee:

i)

Companies with paid-up capital upto Rs.5 crores

Rs.2,500

ii)

above Rs.5 crores and upto Rs.10 crores

Rs.3,750

iii)

above Rs.10 crores and upto Rs.20 crores

Rs.7,500

iv)

Companies, which have a paid-up capital of more than Rs.20 crores, pay additional fee of Rs.200/- for every increase of Rs.1 crore or part thereof.

 

CIRCULAR ISSUED BY SEBI IN RESPECT OF ISSUE AND LISTING OF PRIVATELY PLACED DEBT SECURITIES – CIRCULAR NO: SEBI/MRD/SE/AT/46/2003

Secondary Market for Corporate Debt Securities – The SEBI vide its circular No SEBI/MRD/SE/AT/36/2003/30/09 dated September 30, 2003 stipulated the conditions to be complied in respect of private placement of debt securities. The contents of the circular was brought to your notice vide Exchange letter No. CRD/GEN/2003/4 dated October 22, 2003.

SEBI has now vide their circular No SEBI/MRD/SE/AT/46/2003 dated December 22, 2003 issued further clarifications in the matter and the same are given below.

Applicability of the circular

i. Type of Issuer companies

a) The SEBI circular dated September 30, 2003 would be applicable to all listed companies which have any of their securities, either equity or debt, offered through an offer document, i.e., through a public issue and listed on a recognized stock exchange and also includes Public Sector Undertakings whose securities are listed on a recognized stock exchange.

b) Further, unlisted companies/statutory corporations/other entities, if they so desire, may get their privately placed debt securities listed in the stock exchanges, by complying with the relevant provisions of the said circular.

ii. Prospective and existing issues

a) The SEBI circular is applicable to all debt securities that have been and would be issued on a private placement basis on or after the date of the circular, i.e., September 30, 2003.

b) The circular would also apply to those issuer companies whose outstanding debt securities were issued prior to September 30, 2003. However, such issuer companies are required to comply with the provisions of the circular before March 31, 2004 for which transition time was provided vide press release dated November 25, 2003.

c) If, however, the issuer companies do not comply with the aforesaid conditions for listing of such securities before March 31, 2004, then such securities would remain unlisted and, would, therefore, not be permitted for trading in the Stock Exchange trading platform from April 01, 2004.

iii. Tenor of the debt instruments

The SEBI circular would not be applicable for private placement of debt securities having a maturity of less than 365 days.

Extent of disclosures and applicability of DIP Guidelines

a) As already stipulated in the circular dated September 30, 2003 the issuer companies shall make full disclosures (initial and continuing) in the manner prescribed in Schedule II of the Companies Act, 1956, Chapter VI of the SEBI (DIP) Guidelines, 2000 and the listing agreement with the stock exchanges.

b) Such disclosures may be made through the web site of the stock exchanges where the debt securities are sought to be listed if the privately placed debt securities are issued in the standard denomination of Rs. 10 lakhs.

c) The issuer companies which make frequent private placements of debt securities would be permitted to file an umbrella offer document on the lines of a "Shelf prospectus" as applicable for a public issue.

d) As regards financial disclosures, issuer companies which are not in a position, for genuine reasons, to disclose audited accounts upto a date not earlier than six months of the date of the offer document, in terms of provisions of Clause 6.18 of SEBI (DIP) Guidelines, 2000 may disclose the audited accounts for the last financial year and unaudited accounts for the subsequent quarters with a limited review by a practicing Chartered Accountant.

e) It is also being clarified that the provisions other than Chapter VI of SEBI (DIP) Guidelines, 2000 will not be applicable for privately placed debt securities.

Association of SEBI registered intermediaries, including merchant bankers

a) The appointment of intermediaries (other than debenture trustee) for private placement of debt securities is not mandatory.

b) Since engaging the services of an intermediary (other than debenture trustee) is not mandatory, the appointment of such an intermediary would be left to the discretion of the issuer Company, as it deems fit.

c) There is no prohibition on SEBI registered intermediaries to be associated with the privately placed unlisted debt securities. However, such intermediaries would be accountable for their activities. Further, they would be required to furnish periodical reports to SEBI in such format as specified by SEBI from time to time.

Vetting of offer document

There is no requirement of vetting of the offer document by SEBI.

Whether the requirement of 1% deposit with the stock exchange/s is mandatory

There is no requirement to deposit 1% of the issue size of the privately placed debt securities with the stock exchanges.

Applicability of minimum subscription clause as per DIP guidelines

This clause will not be applicable for privately placed debt securities.

Credit rating

The debt securities shall carry a credit rating from a Credit Rating Agency registered with SEBI.

Listing through a separate listing agreement

The separate Listing Agreement for listing the privately placed debt securities is being finalised. Till such time, the issuance process would be allowed and the securities may be listed on the basis of disclosures subject to the issuer company furnishing an undertaking to the Stock Exchanges stating, inter-alia, that the issuer company shall sign the Listing Agreement as soon as the same comes into force.

Denomination for issuance and market lot for trading

a) The privately placed debt securities need not necessarily be issued in denomination of Rs.10 Lakhs.

b) The securities shall be issued in Demat form.

c) However, if an investor is allotted securities of Rs.1 lakh or less, such securities may be issued in physical form at the option of the investor. It shall be disclosed by the issuer companies that such investors would not be able to trade in such securities through the stock exchange mechanism.

Trading of securities on the stock exchanges

a) The trading in the privately placed debt securities would be permitted in standard denomination of Rs. 10 lakhs in the anonymous, order driven system of the stock exchanges in a separate trading segment. The marketable lot would be Rs. 10 lakhs.

b) All class of investors would be permitted to trade subject to the said standard denomination/marketable lot.

c) The trades executed on spot basis shall be required to be reported to the stock exchange/s.

All Companies are advised to take note of the above and ensure compliance.

In order to facilitate early listing of debt securities on the Stock Exchange, Mumbai, it has been decided to waive the annual listing fee for the F.Y 2003-04, for debt instruments listed on the Exchange on or before March 31, 2004. However, the listing fee for the F.Y 2004-05 will have to be paid in advance at the time of listing. Companies are advised to make use of this offer and list all their debt securities on the Exchange.

The new schedule of listing fee applicable for privately placed debt securities is as under:

Initial Listing fee

NIL

Annual Listing Fee

 

Issue size up to Rs.5 Crores

Rs.2,500

 

Above Rs.5 Crores and up to Rs.10 Crores.

Rs.3,750

 

Above Rs.10 Crores and up to Rs.20 Crores.

Rs.7,500

 

Above Rs.10 Crores and up to Rs.20 Crores.

Additional fee of Rs.200/- for every increase of Rs.1 Crore or part thereof above Rs.20 Crores.
Subject to a maximum listing fee of Rs. 30,000/- per instrument.

 

Processing Fees

Rs.25,000/- for 10 issues

 

Cap on the annual listing fee for all privately placed debt instruments per issuer is Rs.5,00,000/- per annum.

 


In case you require any further clarifications in the matter, please contact Mr. Prateek Goyal on 22721233 Extn.8263 or at

CIRCULAR ISSUED BY SEBI IN RESPECT OF ISSUE AND LISTING OF PRIVATELY PLACED DEBT SECURITIES – CIRCULAR NO: SEBI/MRD/Corp Debt/AT/7001/2004

Secondary Market for Corporate Debt Securities - The SEBI vide its circular No SEBI/MRD/SE/AT/46/2003 dated December 22, 2003 stipulated the conditions to be complied in respect of private placement of debt securities. The contents of this notice was brought to your notice vide Exchange circular No LIST/DEBT/SMG/PG/12-2003 dated December 29, 2003. SEBI has now vide its letter No. SEBI/MRD/Corp Debt/AT/7001/2004 dated April 8, 2004 explained the operational procedures to be followed for listing of privately placed corporate debt securities and the same are given below.

A.    For securities issued on or before 30-09-2003

The appointment of debenture trustee and obtaining a credit rating is mandatory for all issues including those which were made prior to 30/9/2003. In the case of those issuers who are not able to comply with these conditions, the Stock Exchange may consider taking an undertaking from such issuers stating, interalia, that they will fulfill the requirements before 30/6/04 and list such instruments based on the said undertaking. If any issuer fails to comply with the undertaking given to the exchange, the Stock Exchange shall take punitive actions including suspension of trading in such securities.

In case an issuer has made more than one issue prior to 30/9/2003, such issuers may be given the option of submitting a single initial disclosure document, with instrument specific annexures to the same.

The requirement of disclosures under chapter VI of SEBI (DIP Guidelines), 2000 shall be deemed to have been satisfied if the following provisions of SEBI (DIP Guidelines), 2000 are complied with:

6.7       Company, Management and projects

6.14           Outstanding litigations or defaults

6.16     Disclosure on Investor Grievances and Redressal System

6.18           Financial Information

B.    For securities issued after 30/09/2003

Issuers who make frequent private placements of debt securities may be permitted to file an umbrella offer document; The issuers may follow similar procedure as being followed for shelf prospectus for public issues in terms of material changes in the disclosure document.

All Companies are advised to take note of the above and ensure compliance.


In case you require any further clarifications in the matter, please contact Ms. Nishita Shah on (022) 2272 1233/34 Extn.8233

SEBI HAS FINED JM CAPITAL MANAGEMENT AND JM MUTUAL FUND, FOR VIOLATION OF MF REGULATIONS

4th September 2004: The Securities and Exchange Board of India (Sebi) has imposed a penalty of Rs 30 lakh on JM Capital Management and Rs 20 lakh on JM Mutual Fund for violation of Sebi MF regulations. According to Sebi’s annual report for ’03-04, the order was passed under section 15D(b) and section 15E of the Sebi Act, 1992, for violation of Sebi (MF) Regulations, 1996.
Sebi said adjudication proceedings have been initiated against Alliance Capital mutual fund and the AMC for late trading.

These proceedings have been initiated for processing two applications in Alliance Income Fund Scheme at the NAV applicable for September 29, ’03, even though these applications were received after the cut-off time. The report said that during ’03-04, it completed 152 investigation cases against 106 cases in the previous year, an increase of 42%. As of March 31, ’04, there were 31 cases pending for more than one year.

According to the Sebi annual report, the investigation of these cases was expedited so as to bring down pendency of cases to below one year. During 2003-04, 78%of cases pertained to market manipulation and price rigging against 76% such cases in last year. Other cases pertained to insider trading, takeover violations and irregularities in public issues. Additionally, the Surveillance Department referred 88 cases to SEs for detailed investigations. NSE completed investigations in 82 cases and BSE in 92 cases.

The Sebi report said that measures have been taken to expedite the process of investigation and enhance the quality and effectiveness of investigation. The report said, “To ensure objectivity, two internal committees comprising division chiefs deliberate on main findings of all investigation reports, evaluate evidence available and suggest appropriate course of action. A benchmark time limit has been set at four months for completion of preliminary investigations and eight months for completion of formal investigations.”

SEBI IS RE-EVALUATING THE DELISTING NORMS

1st October 2004: The Securities and Exchange Board of India (Sebi) is reviewing the delisting guidelines it had issued in 2003. The Sebi move is prompted by the reactions of companies, which are said to be very unhappy with the price discovery system through the reverse book-building method. The senior Sebi officials, saying that they were working on the revised guidelines and the amendments would be issued within a month, confirm this. While the reverse book-building method itself may not be canceled, the regulator will bring in range of changes so that the refurbish system results in more efficient price discovery.

Subsequent to the prologue of the Sebi-mandated reverse book building system for delisting, only a handful of companies have taken this route. Among these is Hewlett-Packard, which offered an exit option to the investors of Digital GlobalSoft. But merchant bankers have said that the reverse book building method is susceptible to market manipulation in that operators pull up the price of the target scrip ahead of the record date so as to jack up the offer price which is calculated as an average of prices in the previous six months. A short time ago, making a bid to delist Vickers Systems, Eaton Corporation refused to accept the Rs 185 per share price that had been arrived at through the reverse book-building method.

Under the guidelines, the floor price is determined by calculating the average of prices in the 26 weeks prior to the date of announcement. However there is no cap and corporates feel that the final price may be manipulated by groups of investors. One of the major changes expected is that de-listing should commence if the non-promoter shareholding falls below 25%. At present there is a lot of uncertainty over this threshold level since Sebi’s Takeover Code allows up to a 90% stake for promoters.

Further the listing agreement specifies various levels at which corporates can remain listed depending upon when the company listed on the bourses. If the 25% limit is finally fixed it would resolve once and for all as to when a corporate would have to delist and this will produce uniformity on how much stakeholding a promoter should have in a company. Sebi officials, however, said that they had not yet thought of a price band within which the bidding could be done, though merchant bankers said that a price band could provide an indicative range to the investors even though the final price may not exactly fall with the range.



SEBI panel favors tightening of norms for report

15th October 2004: The Accounting Standards Committee of the Securities and Exchange Board of India (Sebi) has suggested amendments to the listing agreement with stock exchanges regarding submission of financial results. The committee has also said that the difference between the net profits figures in un-audited results and audited results should not exceed 10%. It said, “The percentage of variation between the un-audited results and the audited results, should be reduced from 20% or more to 10% or Rs 10 lakhs, whichever is higher, in case of net profit after tax.” The Accounting Standards Committee, headed by YH Malegam, had recommended various changes to clause 41 of the listing agreement, regarding the submission of financial results. It said that in case of exceptional or extraordinary items, the percentage of variation should be 10%.

The committee made it clear that the option of publishing the audited quarterly or half-yearly results within two months of the close of the quarter or the half-year, instead of un-audited quarterly or half yearly results within one month, followed by limited review, may be removed. The committee said that companies have an option to publish either stand-alone or consolidated financial results in the newspapers. However, the option once exercised, shall not be changed for the entire financial year. In case the company changes its option in any subsequent year, it shall furnish comparative figures for the previous financial year, in accordance with the option exercised. In case the company opts for publication of stand-alone financial results in any financial year, it shall, in addition, be required to publish information pertaining to its consolidated results in respect of the group’s turnover, net profit after tax and earnings per share.

Sebi works to improve Capital Market

3rd November 2004: The Securities and Exchange Board of India said it will encourage monitoring and enforcement of corporate governance standards by the private sector, including rating agencies, to attract international funds for Indian capital market. G.N. Bajpai, the Sebi chairman said at the FICCI's annual global conference on capital markets that "Looking at the enormity of the task, the public sector enforcement (capital market watchdog) will always be inadequate and we must bring in private sector regulation and enforcement mechanism into force to help monitor work." If corporate governance is made mandatory, it runs the risks of becoming a mere formality and our emphasis is to move from rule based to principal based governance practices, added Mr. Bajpai. The CG rating is gradually gaining acceptance. These ratings should capture the quality of governance practices. Referring to various risks associated with the capital market investments, the Sebi chief said maintenance of records and audit trail would help deal with operation risks.

Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty (Second Amendment) Regulations, 2004

Notification No. SO 997(E), Dated 02-09-2004, Issued by SEBI: In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following Regulations to further amend the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, namely: -

1.      These Regulations may be called the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) (Second Amendment) Regulations, 2004.

  1. They shall come into force on the date of their publication in the Official Gazette.
  2. In the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as 'the said Regulations');

(a) In regulation 15, after clause (c), the following shall be inserted, namely-

"(ca) such intermediary, being a sub broker ceases to be a sub broker consequent upon the stock broker with whom it is affiliated ceasing to be a stock broker due to declaration as defaulter or suspension or cancellation of certificate of registration of the stock broker."

(b) In regulation 16,

(i) for sub regulation (1) the following shall be substituted, namely –

"16(1) The Chairman or member may appoint an officer of the Board, not below the rank of Assistant General Manager or Assistant Legal Advisor for giving his recommendation after following the summary procedure in respect of any matter specified in regulation 15:

Provided that in respect of any matter specified under regulation 15, if a representation is received from an intermediary to dispense with the procedure laid down in regulation 16, the Chairman or the member may not appoint an officer of the Board under this sub-regulation and pass an appropriate order after considering the representation of the intermediary:

Provided further that where the Board has reasonable grounds not to accept the surrender of certificate of registration, it shall follow the procedure as laid down in regulation 16 before passing the order."

(ii) after sub regulation (5), the following sub regulation (6) shall be inserted, namely-

"(6) the Chairman or the member may pass a common order in respect of a number of intermediaries where the subject matter in question is substantially the same or similar in nature."

Sebi may get to question professionals connected to securities market

9th November 2004: The Securities and Exchange Board of India (Sebi) may get powers to cross-examine professionals associated with securities markets like chartered accountants, auditors and lawyers. Auditors certify financial statements and documents filed before Sebi by companies. Certification of false information and doctored financial statements by auditors, for submission to stock exchanges and investors, hugely affects securities markets. The market supervisory body, however, cannot call for information or take action against misconduct as special statutes like the Chartered Accountants Act and the Advocates Act govern professionals. This seriously limits Sebi's ability to investigate and establish corporate frauds and offences.

Auditors of listed companies being investigated by Sebi for frauds or malpractices often refuse to reveal information about securities transactions of their clients pleading confidentiality. Even the Institute of Chartered Accountants (ICAI) cannot extract such information on behalf of the regulator, at present. The proposal may be further enhanced so that erring professionals may be barred from practice or appearing before Sebi to represent other companies in future cases. This, however, may be opposed by the ICAI and so will have to be further discussed with the institute and the government, said a source. Sebi chairman has constituted an experts group to suggest amendments to the Sebi Act, 1992 to identify weaknesses in the existing provisions. At a recent meeting, the group discussed at length the need to enable Sebi to seek information needed to complete investigations of corporate offences. Sebi has more or less accepted the amendment, said a source.

“At present, Sebi has powers to call for information from persons associated with the securities markets. But professionals are not persons associated with the markets and so the regulator does not have the power to take action against such professionals for misconduct and unethical practices,” explained a member of the committee. The proposal will have to be forwarded by Sebi to the MoF, which will have to seek Cabinet's and Parliament's approval for implementation. Amendments to the legislations governing these professionals like Chartered Accountants Act and Advocates Act may also be required. Amendments are also being deliberated upon to incorporate in Sebi Act the recommendations of the Joint Parliamentary Committee's (JPC) report (December '02) on the stock market scam.

“Personally, I think this is a good proposal. Right now, Sebi can directly ask chartered accountants for information required for its investigations. It can also seek the information through the institute since all chartered accountants are members. But members always cite confidentiality in which case even the institute cannot force the information out of its members,” admitted an office bearer of the ICAI.

SEBI has imposed penalty on Zandu Pharma

11th November 2004: The Securities and Exchange Board of India have imposed a penalty of Rs 50,000 on Zandu Pharmaceuticals Works. The penalty was imposed since they were failed to appoint a common share agency for demat and physical shares. Sebi on its adjudication order said that the penalty has been imposed under depository participant regulations. Sebi had appointed an officer on 8th December 2003 to inquire into and adjudge the alleged contravention, it said.

Sebi unveils uniform norms for investor protection funds

16th November 2004: The Securities and Exchange Board of India (Sebi) has come out with comprehensive guidelines for investor protection funds (IPF), with a view to bringing about uniformity in the practices followed by stock exchanges (SEs). The regulator has issued guidelines with respect to the constitution, management and utilisation of IPFs.

According to the new guidelines, the management of IPFs will be administered by way of a trust created for the purpose which will consist of at least one public representative, one representative from the registered investor associations recognised by Sebi and executive director of the respective stock exchange. Crediting 1% of the listing fees received, on a quarterly basis will form the corpus of IPF. The issuer companies pay security deposits to the exchanges while coming out with initial public offerings (IPO). This deposit is paid at the rate of 1% of the total amount to be mobilised and stays with the exchange for a certain period of time. The interest earned on this deposit is to be fully credited to IPF, the Sebi guidelines said.

A certain portion of transaction charges collected from the broker-members is also to be contributed to IPF. SEs should continue the present practice of contributing to the IPF from these charges. Sebi would determine the legitimacy of the claims received from claimants, the IPF trust may adopt the arbitration mechanism at the SE level and seek the advice of the defaulters committee to sanction and ratify the payments to be made to investors.

The guidelines also suggest a lower limit of a single claim of an investor arising out of default by a member-broker of the SE. Sebi said SEs is free to fix suitable compensation limits, in consultation with the IPF trust. However, the amount of compensation available against a single claim of an investor should not be less than Rs 1 lakh in case of major SEs like The Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and Rs 50,000 in case of other SEs. SEs can review this limit upwards every three years in consultation with the IPF trust.

SEBI has imposed penalty on IL&FS Investsmart

20th November 2004: The Securities and Exchange Board of India (Sebi) has imposed a penalty of Rs two lakh on IL&FS Investsmart Ltd (IIL), for certain irregularities and violations of regulations by the broking company. IIL is a member of The Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE). As per the Sebi order dated November 18, 2004, the penalty has been slapped on account of failure by IIL to exercise due diligence in allowing exposure to clients in violation of section 15HB, granting trading terminals at places other than those specified by the market regulator, granting trading terminals to franchisees without any agreement specifying the scope/ responsibilities of franchisee in this regard.

SEBI to protect investors in Reliance case

26th November 2004: Securities and Exchange Board of India (SEBI) would take up the issue of Reliance group enities' corporate governance and disclosure practices with the stock exchanges to decide on future course of action for investor protection. The capital market watchdog was monitoring developments concerning listed companies of the Reliance group, including Reliance Energy whose six directors resigned today, said a senior SEBI official.

SEBI would get in touch with The Stock Exchange, Mumbai (BSE) and National Stock Exchange (NSE), to discuss the disclosures and governance standards followed by Reliance group entities, he said. The developments have huge implications for stakeholders including millions of shareholders of the Reliance group, he said. The regulator is yet to decide "on course of action on the recent developments", which impacted the trading of the Reliance group scrips, as SEBI chairman G N Bajpai was currently out of the country, he said.

Meanwhile, a BSE official said the bourse has not sent any communication to any Reliance group entity to seek their version on developments, including the reported differences over ownership and exodus of directors from REL board. An NSE official said that the exchange has not sent any notice to RIL since its chairman has clarified the status of ownership.

Sebi prescribes minimum disclosure in offer document

27th November 2004: Offer Document: An offer document contains very useful information about a mutual fund scheme. They are required to be given to the prospective investor by the mutual fund. The Securities and Exchange Board of India (Sebi) has prescribed minimum disclosures in the offer document and an investor, before investing in a scheme, should carefully read the same. This legal document has to be constantly updated by the fund, if not through reprinting, with sufficient additions. Though the fat offer document need not be read from beginning till end, there are some crucial things that an investor should peruse.

For starters, one must know the fund’s investment objective and its portfolio asset allocation strategy. It gives the investor information about the risk profile of the scheme and more importantly, tells you where (the securities) your money is going to be invested in and in what proportion. It also has useful information about the track record of your fund manager and his experience. Also, glance through the expense ratio of the fund and its risk factors. As a thumb rule, stay away from funds with any lock-in period and prefer an open-ended scheme that provides liquidity at all times. Last, but not the least, check the performance of schemes with a similar profile. This is in case it is a newly launched scheme. This is a good way to gauge whether it would live up to your expectations.

FIIs can invest only $500m in corporate bonds

3rd December 2004: The Securities and Exchange Board of India (Sebi) announced a $500 million cap on foreign institutional investors’ (FII’s) investments in corporate bonds. This limit is over and above the $1.75 billion overall ceiling on FII investments in the Indian debt market. Thus, foreign funds can invest up to $2.25 billion (approximately Rs 9,900 crore) in Indian debt, including government securities, treasury bills and corporate debt.

Sebi imposes penalty on Kosha Investments

4th December 2004: The Securities and Exchange Board of India (Sebi) have smack a huge monetary penalty of Rs. 18.8 crore on Kosha Investments (KIL) for failing to make an open offer to shareholders of Snowcem India (SIL) and causing loss to investors. Sebi directed KIL on January 27, 2004, to make a public offer with June 29, 1999 as the reference date.

30-days notice must for merger, bonus shares

9th December 2004: The Securities and Exchange Board of India (SEBI) said the listed companies, whose stocks are available for derivatives contracts or were part of index with derivatives, should give a 30-days notice for corporate action like merger, de-mergers, share split and bonus shares. The clause 16 of the equity listing agreement should be amended to incorporate this change, Sebi said in a communication to stock exchanges.

Before, Sebi had said that listed companies have to give an intimation 15 days in advance in case of demat scrips and 21 calendar days in case of physical scrips to the stock exchanges, about their book-closure/record date. This amendment is being introduced on the basis of suggestion by panel on derivatives and Market Risk Management that the listing agreement clause be ended for extension of notice period only for purpose of adjustment of corporate actions like mergers and bonus shares and that too only for such stocks on which derivatives are available. This decision should be implemented with immediate effect, Sebi added.



Sebi gets designated court in Delhi

10th December 2004: The Delhi High Court has set up a designated court for dealing with Securities and Exchange Board (Sebi) prosecution cases even as a proposal for setting up such a court in Mumbai is pending before the Maharashtra government. The setting up of the court would facilitate the expeditious disposal of about 300 Sebi cases which are pending in different courts in the capital. In pursuance of the direction of the Delhi High Court on December 1, 2004, the Sessions Judge, Delhi has transferred all Sebi prosecution cases to the court of additional sessions judge Asha Menon, Sebi said in a release today. The market regulator had moved a proposal for setting up a designated or special court before the Chief Justice of the Delhi High Court to facilitate expeditious disposal of the cases, it said. Sebi said a similar proposal for setting up a designated court in Mumbai is pending before the Maharashtra government.

Sebi sets March 31 deadline for bourses to corporatise

13th December 2004: The Securities and Exchange Board of India (Sebi) has set a deadline of March 31, 2005 for all stock exchanges (SEs) to convert themselves into corporatised and demutualised entities. The regulator has chalked out a time-bound programme to achieve this process and has also asked SEs to reduce the stake of their trading members (brokers) to 49% within one year of turning into corporate entities, that is, by March 31, 2006. In a letter written to SEs last week, Sebi has spelt out tough steps to be taken by the regulator in case of failure to meet this time schedule, which includes severe punishment including de-recognition.

According to sources familiar with the development, Sebi informed all the SEs, which are required to corporatise and demutualise themselves, to submit their schemes of corporatisation and demutualisation (C&D) on or before December 15, 2004. Sebi has laid out a date-wise time schedule for the SEs and has listed the onus of responsibility for each and every step to be taken. The aim behind this exercise is to complete the whole C&D process within the March 31, 2005 deadline. The C&D process of bourses was to be completed much earlier, as the Sebi appointed Kania Committee had submitted its report way back in 2003. But the process got disrupted, as there were some changes required to be made in the Securities Contract Regulation Act (SCRA). With the new government at the Centre taking charge and with the promulgation of annance in September amending SCRA, the process again gained momentum.

Two major changes were proposed in the SCRA amendments. One was the reduction of brokers’ representation on the governing board of the exchanges to 25%, as against the Kania Committee’s recommendation of 33%. This apart, the trading members’ stake in the demutualised entity is now to be reduced within a period of one year from demutualisation, as against the Kania panel’s suggestion of three years. The tentative time-schedule for completion of this process was informally discussed by the regulator with all SEs at its meeting held on November 9, 2004 at Mumbai. Sebi will make enquiries with respect to schemes submitted to it and give hearings to SEs. The hearings will take place when the regulator proposes to reject a scheme.

A K Batra resigns from Sebi board Mumbai

14th December 2004: A K Batra, a full-time member of the Securities and Exchange Board of India (Sebi), has resigned citing health reasons. His departure, which follows a one-month absence due to a medical operation, means there are now four vacancies on the nine-member Sebi board. Mr. Batra’s term was supposed to end in the middle of 2005.

Sebi tells SEs to look at listing norms of Reliance firms

14th December 2004: Market regulator Sebi asked the stock exchanges to look into the listing agreement provisions of Reliance Group companies for corporate governance and monitor the trading pattern in all listed companies of the Reliance empire. The directive was given at Sebi’s weekly scrutiny meeting under the supervision of its chairman GN Vajpayee. A Sebi official said the stock exchanges were told that if they had not taken any step, including looking into listing agreement provisions for corporate governance, they should do it immediately, considering the seriousness of the issue. The stock exchanges were also asked to chronologically analyse reports about the Reliance empire appearing in the media over the past few weeks.

Sebi gets two new directors

14th December 2004: The appointments committee of the cabinet today announced the appointment of G Anantharaman and Madhukar as whole time members of the Securities and Exchange Board of India. Anantharaman and Madhukar would hold the positions till they attain the age of 62 years or until further orders, an official release said today.

Sebi to change norms for pref issue

20th December 2004: The Securities and Exchange Board of India (Sebi) is planning to amend the norms for a preferential issue by raising the lock-in period to three years from the current one year. Sebi’s Primary Market Advisory Committee (PMAC) has received a number of suggestions from the public in this regard. It is also likely to change the norms for calculating minimum pricing of preferential allotment, introduce shares with differential voting rights and listing of such shares. The market regulator may extend the non-transferability condition to the pre-preferential issue holdings of the promoter and their relatives. This is to prevent misuse of preferential allotment by promoters.

The suggestion says: “The existing condition with respect to lock-in on shares issued to the promoter and the promoter group is made onerous with the requirement that the entire preferential allotment is to be locked in for three years without any reference to the 20% rule.” Another suggestion is regarding pricing of preferential allotment. It is proposed to involve changes in the manner in which minimum price is to be calculated. Instead of the weekly high and low of the closing prices of shares, the weighted average price of the shares based on all transactions on the exchanges is to be reckoned.

At present, the preferential allotment price is determined taking the average of the previous six months’ stock price or previous two weeks’ stock price. There are also suggestions that pricing of infrequently traded shares will be based on the provisions of Sebi (Substantial Acquisition of Shares and Takeover) Regulations, 1997.

Sebi cancels registration of 12 brokers

22nd December 2004: The Securities and Exchange Board of India (Sebi) has cancelled the registration certificate of 12 stock brokers with various stock exchanges for failing to meet regulatory norms. The stock brokers were declared as defaulters and expelled by the stock exchanges and ceased to be members of the exchanges as they failed to fulfill the pre-requisite condition of registration as stock broker, Sebi said. The brokers declared defaulters by Sebi were Anil Kumar Nanda (Uttar Pradesh Stock Exchange), Ashsih Bamba, Sonali Securities (OTC Exchange), Naval Kishore V Sharma, PV Kaimal, PT Joseph, Sukesh Bhaskaran, Thomas Mathew, Surinderpal Singh (Cochin Stock Exchange), Chandra Kanta Jain, JK Jain & Co and Praveen Ramawat (Jaipur Stock Exchange), it added.

Sebi has imposed penalty of Rs 5 lakh on Ahmedabad stock broker

24th December 2004: The Securities and Exchange Board of India (Sebi) has penalised an Ahmedabad-based stock broker to the tune of Rs 5 lakh for not furnishing relevant documents to the investigating officer who was enquiring involvement of Piyush Jhaveri, proprietor of the Parshawa Finance, into alleged price manipulation of MOH Ltd. Mr. Jhaveri is also a sub-broker with P Suryakant Shares & Stock Brokers Pvt. Ltd. Sebi ordered an enquiry and launched adjudicating proceedings against the Ahmedabad-based broker following the investigation into the alleged price manipulation of MOH Ltd.

The Sebi order said, “The investigation officer was grossly handicapped in view of the non-receipt of the required information/documents sought by the investigating authority and this hampered the progress of investigation into the alleged price manipulation in the stock of MOH Ltd. I am of the view that a penalty of Rs five lakh would be commensurate and justified.” MOH Granites Ltd came out with public issue of 67 lakh equity shares of Rs 10 each at par in August 1996. Its shares were listed on The Stock Exchange, Mumbai (BSE) and Ahmedabad Stock Exchange. The company changed its name to MOH Ltd and diversified into the information technology activity.

Mr. Jhaveri was asked to produce evidence to prove his innocent and was also asked to produce book for accounts for the same. He claimed that he had already sent the documents required by Sebi official through under certificate of posting. The Sebi investigating official denied having received any such documents and an adjudicating proceedings were launched against the ASE broker.



No plan to tax FIIs, assures FM, SEBI

13th January 2005: Finance Minister P Chidambaram said on the government had no plans to tax or cap purchases by foreign institutional investors (FII) in Indian stock markets. "Watching capital flows does not mean either curbing or capping FII inflows, nor does it mean taxing FII inflows. There is no controversy. There is no capping or taxing of FII inflows," Chidambaram told reporters on the sidelines of a water workshop. "The Governor and I have spoken to each other and our views are the same," Chidambaram added. RBI Governor Y V Reddy had created a flutter in the market on Wednesday when he suggested steps like ceiling and taxes to improve the quality and quantity of FII inflows. After Finance Minister P Chidambaram rejected the suggestion, Reddy later clarified that price-based measures such as taxes could be examined though their effectiveness is arguable and hence not desirable.

SEBI chief GN Bajpai also assured that there was no reason for changing policy norms for foreign institutional investors (FIIs) investing in stocks. "...I would like to send out a single to the market that there is no reason for change in the policy stance and that is what has been clarified by the Finance Minister and therefore the market participants should act as they were acting earlier," Bajpai said in Mumbai. Bajpai said the Finance Minister has already clarified that RBI Governor's statement had been misunderstood and "there is no change in the policy stance with reference to capping either FII inflow or raising any tax on FII inflows." "RBI Governor has also himself clarified that he is not in favour of capping FIIs, therefore why people should misunderstand (his) statement and interpret it differently," Bajpai told a private news channel.

Sebi moves to cut demat cost for small investors

13th January 2005: The Securities and Exchange Board of India (Sebi) have decided to abolish opening and custody charges for demat accounts, in a bid to reduce the transaction cost for small investors. Investors have long been demanding a lowering of the cost of operating dematerialised accounts and Sebi had set up a committee to look into the issue. Sebi chairman G N Bajpai said that the move is intended to reduce the burden for small investors who are seeking to enter the stock market and to encourage more people to go in for demat holding of shares. Though trading on bourses is in demat form, lots of investors are yet to demat their shares.

At present, depository participants charge investors, on an average, account opening and maintenance fees of Rs 1,700 per year and demat charges of Rs 53 per certificate, over and above transaction charges of 0.05% of the value of the transaction or Rs 20, whichever is higher. The Sebi committee had suggested that the depository participants should not levy account maintenance and demat charges for small investors. The panel also suggested that small investor should be defined as those who buy or sell securities worth Rs 50,000 or less on any business day. It also said that there could be a cap on maximum transactions in a financial year to qualify as a small investor. The panel also wanted small investors to be allowed to shift accounts between depository participants without any transaction charges or other incidental charges.

Sebi tightens norms on creeping acquisitions

25th January 2005: Sebi has amended the takeover regulations to tighten the creeping acquisition norms for promoters. An acquirer, as per the amendment, will have to make an open offer to raise stake beyond 55% in a company. This means that promoters will not be allowed to increase their stake in a company beyond 55% without making an open offer. Earlier, Sebi’s takeover regulations permitted creeping acquisition up to 75%. Promoters could increase their holding in a company by buying up to 5% of the company’s equity capital each year and they could take it up to 75% through this route, according to earlier regulation. Now, an acquirer will not be allowed to acquire shares or voting rights through market purchases or preferential allotment beyond the 55% limit without an open offer. “No acquirer, along with persons acting in concert (can) acquire more than 55% (from the current 75%) of the shares or voting rights in a company, unless such an acquirer makes a public announcement to acquire shares in accordance with the regulations,” the notification said.

Creeping acquisition norms to apply prospectively: Sebi

29th January 2005: The Securities and Exchange Board of India (Sebi) clarified on Friday that the new creeping acquisition norms, which cap creeping buys up to 55% holding will be effective with prospective effect and not retrospectively. The second amendment to Sebi (Substantial Acquisition of Shares and Takeover) Regulation 2004 was notified on December 30, 2004, and will be effective from that date and hence will not cover promoters’ holdings prior to that date. Sebi chairman GN Bajpai said, “There is no proposal to ask the promoters who already hold more than 75% stake in their companies to bring it down to the level of 55%. The new rules will be applicable to only those promoters who increase their holdings through creeping acquisition and cross the limit of 55%. For them, a provision of mandatory offer has been inserted.” On the issue of minimum public holding of 25%, Mr. Bajpai said, “Sebi is working on rules and regulations to ensure that all listed companies have a minimum 25% public holding as was assured in Parliament.” On the difficulties faced by investors, especially those in the retail segment, in getting a Unique Identification Number (UIN) by April 1, 2005, Mr. Bajpai said, “we will not put investors to inconvenience”, but did not elaborate if the deadline would be extended.

SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) (SECOND AMENDMENT) REGULATIONS, 2004

S.O. 5(E).In exercise of the powers conferred by Section   30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations to amend the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, namely:-

  1. (i) These regulations may be called the Securities and Exchange Board of    India (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations, 2004.

     (ii) These regulations shall come into force on the date of their publication in the Official Gazette.

2.      In the Securities and Exchange Board of India (Substantial Acquisition of      Shares and Takeovers) Regulations, 1997 -

(i)                  in regulation 2, in sub-regulation (1), 

(a) for clause (h) the following shall be substituted, namely:-

“(h) promoter”, unless otherwise provided elsewhere, means-

(i)                  any person who is directly or indirectly in control of the company; or

(ii)                any person named as promoter in any document for offer of securities to the public or existing shareholders or in the shareholding pattern disclosed  by the company under the provisions of the Listing  Agreement, whichever is later; or

(iii)               any person named as person acting in concert with the promoter in any disclosure made in terms of the Listing Agreement with the stock exchange or any other regulations or guidelines made or issued by the Board under the Act.

      and includes,

(a)    where such person is an individual,

(i)                  his  spouse , parents, brothers, sisters or children;

(ii)                any company in which twenty six per cent.(26%) or more of the equity share capital is held by him or by the persons mentioned in sub-clause (i) or any firm or Hindu Undivided Family in which he or any of the persons mentioned in sub-clause (i) is a partner or member;

(iii)               any company in which a company specified in sub-clause (ii), holds more than fifty per cent.(50%) of the equity share capital;

(iv)              any firm in which the aggregate of his holding and the holdings of the persons mentioned in sub-clause (i) is  more than fifty per cent.(50%) .

(b)   where such person is a body corporate,

(i)                  a subsidiary or holding  company of that body corporate;

(ii)                any company in which the said body corporate holds twenty six per cent.(26%) or more of the equity share capital;

(iii)               any company which holds twenty six per cent.(26%)  or more of the equity share capital of the said body corporate;

(iv)              any company in which persons acting in concert hold twenty six per cent.(26%) or more of the equity share capital and those persons acting in concert also hold twenty six per cent.(26%)  or more of the equity share capital in such  body corporate;

(v)                any other body corporate under the same management as the said body corporate within the meaning of sub-section (1B) of section 370 of the Companies Act, 1956;

Explanation I: A financial institution, scheduled commercial bank, foreign institutional investor, mutual fund and a venture capital fund shall not be deemed to be a promoter merely by virtue of its shareholding.

Explanation II: A financial institution, scheduled commercial bank, foreign institutional investor or a venture capital fund shall be deemed to be a promoter of its subsidiary and of the mutual fund sponsored by it, as applicable.

(b)  for clause (j), the following shall be substituted, namely -

 

“(j) “public shareholding” means shareholding held by persons other than promoters as defined under clause (h).”

(ii) in regulation 3,

(a) in sub-regulation (1),

(1) in clause (e), in sub-clause (iii), after the proviso,  the following Explanation shall be inserted, namely - :

Explanation: For the purpose of the exemption under sub-clause (iii) the term “promoter" means -

 

(i)                  any person who is directly or indirectly in control of the company; or

(ii)                any person named as promoter in any document for offer of securities to the public or existing shareholders or in the shareholding pattern disclosed  by the company under the provisions of the Listing  Agreement, whichever is later;

and includes,

(a) where the promoter is an individual, -

(1) a relative of the promoter within the meaning of section 6 of the Companies Act, 1956 (1 of 1956);

(2) any firm or company, directly or indirectly, controlled by the promoter or a relative of the promoter or a firm or Hindu undivided family in which the promoter or his relative is a partner or a coparcener or a combination thereof:

    Provided that, in case of a partnership firm, the share of the promoter or his relative, as the case may be, in such firm should not be less than fifty per cent.(50%)";

(b) where the promoter is a body corporate,-

             (1) a subsidiary or holding company of that body; or

  (2) any firm or company, directly or indirectly, controlled by the promoter of that body corporate or by his relative or a firm or Hindu undivided family in which the promoter or his relative is a partner or coparcener or a combination thereof:

Provided that, in case of a partnership firm, the share of such promoter or his relative, as the case may be, in such firm should not be less than fifty per cent.(50%).”


 (2)  after clause (k), the following shall be inserted, namely –

“(ka) acquisition of shares in terms of guidelines or regulations regarding delisting of securities specified or framed by the Board”.

(b) after sub-regulation (1) the following sub-regulation shall be inserted, namely:

“(1A) The benefit of availing exemption under the relevant clauses of sub-regulation (1), shall be subject to compliance with requirement specified in sub-regulation (2A) of regulation 11.”

(iii)               in regulation 7, in sub-regulation (1), after the words “fourteen per cent.” the words “or fifty four per cent. or seventy four per cent.” shall be inserted;

(iv)              in regulation 10, the following proviso shall be inserted, namely-

“Provided that no acquirer shall acquire shares or voting rights, through market purchases and preferential allotment pursuant to a resolution passed under section 81 of the Companies Act, 1956 or any other applicable law, which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise more than fifty five per cent. of the voting rights in the company;

  Provided further that if the acquirer has acquired shares or voting rights through such market purchases or preferential allotment beyond fifty five per cent. of the voting rights in the company, he shall forthwith disinvest the shares acquired in excess of fifty five per cent. and shall be liable for action under these Regulations and the Act.

Explanation : In case of acquisition through preferential allotment the limit of fifty five per cent. voting rights as provided under this regulation shall be reckoned with reference to the increased share capital pursuant to such preferential allotment.”  

(v)  in regulation 11,

        (a) in sub-regulation (1), for the figure and words “75 per cent.” the words and figure “fifty five per cent.(55%)” shall be substituted;

         (b)   for sub-regulation (2), the following shall be substituted, namely –

              “(2) An acquirer, who together with persons acting in concert with him has acquired, in accordance with the provisions of law, fifty five per cent.(55%) or more but less than seventy five per cent. (75%) of the shares or voting rights in a target company, may acquire either by himself or through persons acting in concert with him any additional share or voting right, only if he makes a public announcement to acquire shares or voting rights in accordance with these regulations:

   Provided that no acquirer shall acquire shares or voting rights, through market purchases and preferential allotment pursuant to a resolution passed under section 81 of the Companies Act, 1956 or any other applicable law, which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise more than fifty five per cent. of the voting rights in the company;

   Provided further that if the acquirer has acquired shares or voting rights through such market purchases or preferential allotment beyond fifty five per cent. of the voting rights in the company, he shall forthwith disinvest the shares acquired in excess of fifty five per cent. and shall be liable for action under these Regulations and the Act.

Explanation : In case of acquisition through preferential allotment the limit of fifty five per cent. voting rights as provided under sub - regulation (ii) shall be reckoned with reference to the increased share capital pursuant to such preferential allotment.”  

                     (c) after sub-regulation (2), the following shall be inserted,   namely -

“(2A) Unless otherwise provided in these regulations, an acquirer, who seeks to acquire any shares or voting rights whereby the public shareholding in the target company may be reduced to a level below the limit specified in the Listing Agreement with the stock exchange for the purpose of listing on continuous basis, may acquire such shares or voting rights, only in accordance with the of guidelines or regulations regarding delisting of securities specified by the Board:

    Provided that, the provisions of this sub-regulation shall not apply in case of acquisition by virtue of global arrangement which may result in indirect acquisition of shares or voting rights or control of the target company.”

 (vi).  in regulation 20, in sub-regulation (7), after the proviso, the following shall be      inserted, namely –

 “Provided further that the shares or voting rights so acquired taken together with the acquisition under the public offer and shares or voting rights, if any, held by him or by persons acting in concert with him, do not result in public shareholding in the target company being reduced to a level below the limit specified in the Listing Agreement with the stock exchange for the purpose of listing on continuous basis.”

(vii).     in regulation 21,

(a).       in sub-regulation (1), the following proviso shall be inserted, namely –

 

“Provided that where any public offer is made in pursuance of sub-regulation (2) of regulation 11, such public offer shall be for such percentage of voting capital of the target company so that the acquisition does not result in the public shareholding in such company being reduced to a level below the limit specified in the Listing Agreement with the stock exchange for the purpose of listing on continuous basis.”

(b)  after sub-regulation (1), the following sub-regulation shall be inserted, namely –

“(2) Where an acquirer acquires more than fifty five per cent. (55%) shares or voting rights in the target company through an agreement or memorandum of understanding and the public offer made under regulation 10 or sub-regulation (1) of regulation 11 to acquire minimum percentage of voting capital as specified in sub regulation (1) of regulation 21 results in public shareholding being reduced to a level below the limit specified in the Listing Agreement with the stock exchange for the purpose of listing on continuous basis, the acquirer shall acquire only such number of shares under the agreement or the memorandum of understanding so as to maintain the minimum specified public shareholding in the target company;”

(c) for sub-regulation (3), the following shall be substituted, namely –

“(3) If consequent to the public offer made in pursuance of global arrangement referred to in proviso to sub regulation (2A) of regulation 11, the public shareholding falls to a level below the limit specified in the Listing Agreement with the stock exchange for the purpose of listing on continuous basis, the acquirer shall undertake to raise the level of public shareholding to the levels specified for continuous listing specified in the Listing Agreement with the stock exchange, within a period of twelve months from the date of closure of the public offer, by

        (i)       issue of new shares by the company in compliance with the provisions of the Companies Act, 1956 and the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000; or

(ii)   disinvestment through an offer for sale in compliance with the provisions of the Companies Act, 1956 and the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000, of such number of shares held by him so as to satisfy the listing requirements; or

 (iii) sale of his holdings through the stock exchange.

 

    Provided that in case of acquisition of shares or voting rights or control in a target company where the public shareholding is below the limit specified for the purpose of listing on continuous basis in terms of the Listing Agreement with the stock exchange, the acquirer shall undertake to raise the level of public shareholding to the levels specified for continuous listing in terms of the listing conditions specified in the Listing Agreement with the stock exchange, within the period specified under the Listing Agreement.”

 

(viii). in regulation 45, in sub-regulation 6, after clause (c), the following shall be inserted, namely –

“(d) directions under section 11(4) of the Act;

  (e) cease and desist order in proceedings under section 11D of the Act;

  (f) adjudication proceedings under section 15HB of the Act.”

                                                         [F. No. SEBI/LAD/  29278 /2004]

                                                                         G.N. BAJPAI

                                                                        CHAIRMAN

Securities and   Exchange Board of India

 


Footnote:

      The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the said Regulations) were published in the Gazette of India on 20th February 1997, vide S.O. No. 124(E).

      Subsequently a Corrigendum was published in the Gazette of India, Extra- Ordinary on 6th February 1998 vide S.O. No. 106(E).

      The said Regulations were subsequently amended by –

1. SEBI (Substantial Acquisition of Shares and Takeovers)(Amendment) Regulations, 1998 published in the Official Gazette vide S.O. 930(E) dated 28th October 1998.

2. SEBI (Appeal to the Securities Appellate Tribunal) (Amendment) Regulations, 2000, published in the Official Gazette vide S.O.278(E) dated 28th March 2000.

3.   SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2000 published in the Official Gazette vide S.O. 1178 (E) dated 30th December 2000.

4.  SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2001 published in the Official Gazette vide S.O. 791 (E) dated 17th August 2001. 

      5.   SEBI (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations, 2001 published in the Official Gazette vide S.O. 875 (E) dated 12th September 2001.

6. SEBI (Substantial Acquisition of Shares and Takeovers) (Third Amendment) Regulations, 2001 published in the Official Gazette vide S.O. 1058 (E) dated 24th October 2001.

7. SEBI (Substantial Acquisition   of Shares and Takeovers) (Amendment) Regulations, 2002 published in the Official Gazette vide S.O. 127(E) dated 29th January 2002.

8. SEBI (Substantial Acquisition   of Shares and Takeovers) (Second Amendment) Regulations, 2002 published in the Official Gazette vide S.O. 954(E) dated 9th September 2002.

9. SEBI (Substantial Acquisition   of Shares and Takeovers) (Third Amendment) Regulations, 2002 published in the Official Gazette vide S.O.1328 (E) dated 18th December, 2002.

10. SEBI (Substantial Acquisition   of Shares and Takeovers) (Amendment) Regulations, 2004 published in the Official Gazette vide S.O.  982   (E) dated 30th August, 2004.

SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING ENQUIRY BY ENQUIRY OFFICER AND IMPOSING PENALTY) (THIRD AMENDMENT) REGULATIONS, 2004

S.O No. 28 (E).-.In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following Regulations to further amend the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, namely :-

1.      These Regulations may be called the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) (Third Amendment) Regulations, 2004.

2.      They shall come into force on the date of their publication in the Official Gazette.

3.      In the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, in regulation 13, in sub-regulation (1), in clause (a), in sub-clause (i), the words “warning or” appearing before the word “censure” shall be omitted.

 

G.N. BAJPAI

CHAIRMAN

SECURITIES AND EXCHANGE BOARD OF INDIA

 

F.No. SEBI\LAD\DOP\ 30057 \2004

 

________________________________________________________________

 

Foot Notes :-

1.      Securities and Exchange Board of India(Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, were notified in the Gazette of India on 27.9.2002 vide S.O. No. 1045(E).

  1. The Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 were subsequently amended –
    1. On November 27, 2003 by the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) (Amendment) Regulations, 2003 vide F. No.SEBI/LAD/DOP/22093/2003).
    2. On December 30, 2003 by the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) (Second Amendment) Regulations, 2003 vide F. No. SEBI/LAD/DOP/24418/2003.
    3. On July 13, 2004 by the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) (Amendment) Regulations, 2004 vide F. No. SEBI/LAD/DOP/ 14982/2004.
On September 2, 2004 by the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) (Second Amendment) Regulations, 2004 vide S.O.No.997(E).

SAT overrules Sebi order again

10th February 2005: The Securities Appellate Tribunal (SAT) has found loopholes in yet another Sebi order. SAT has reduced the penalty imposed on Rameshchandra Mansukhani, Chairman and Promoter of Man Industries Ltd, from Rs 4.36 crore to just Rs 1 lakh, as Sebi awarded the penalty based on the law prevailing at the time of issuing the order. The continous failure of Sebi to defend its judgements in the appellate tribunal is making a mockery of its orders. Picking holes in the Sebi order, SAT said, ‘‘there appears to be no application of mind that at the relevant time the maximum penalty was Rs 5 lakh and therefore, the penalty of Rs 4.36 crore was not permissible under law.’’ The law existed at the time of commission of the offence has to be applied and not the law as existing on the date of the order, it said.

Sebi cancels registration of 5 stockbrokers

10th February 2005: Securities and Exchange Board of India (SEBI) has passed orders dated January 31, 2005 cancelling the certificate of registrations of the following five stock brokers with immediate effect:

Sr. No.

Name of the broker

SEBI Regn. No.

Exchange

1

M/s. Arunima Investment (P) Ltd.

INB200898939

OTCEI

2

M/s. Scon Fin. Services Pvt. Ltd.

INB200566931

OTCEI

3

M/s. Richmond Securities Pvt. Ltd.

INB241076331

ICSEI

4

Manoj Bhargava

INB160182817

JSE

5

M/s Tula Finance Ltd.

INB100830634

UPSE

  The aforesaid five stock brokers were declared defaulters / expelled by the respective Stock Exchanges and ceased to be members of the Exchange, thereby failed to fulfill the pre-requisite condition of registration as stock broker with SEBI.  Their registrations have been cancelled in terms of Sub-Regulation (5) of Regulation 16 of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002.

Sebi tightens margins in cash segment

24th February 2005: Tightening the margining requirement for the cash market at a time when equity markets are booming, the Securities and Exchange Board of India (Sebi) has asked all stock exchanges (SEs) to collect the Value at Risk (VaR) margin upfront and Mark to Market (MTM) margin on the next day before the beginning of trading. These changes in the collection of margins will be effective from May 18, 2005. Sebi has, however, relaxed its norm with respect to mode and collection of margins by brokers from their clients.

The move from Sebi is seen as aligning the risk management framework across the cash and derivatives market and is expected to reduce the risk in the cash market. The tightening of risk containment measures for the cash market will put it on par with the derivatives market in terms of risk containment. The Sebi move follows detailed deliberations on the subject at the various meetings of the Sebi Advisory Committee of Derivatives and Market Risk Management. In a communication sent to all SEs on Wednesday, Sebi said, “SEs should put in place the necessary systems to ensure the operalionalisation of the comprehensive risk management framework with effect from May 18, 2005.”

You have time till Dec to get Unique ID number

25th February 2005: The Securities and Exchange Board of India (Sebi) has relaxed Market Participant and Investor Scheme (Mapin) requirements for individual investors by extending the deadline for getting the Unique Identification Number (UIN) to December 31, ’05. Sebi has also decided to set up a committee to look into the coverage of Mapin and other related matters. The constitution of the committee will be announced shortly. Mapin is a central database of market participants that the Sebi is creating to streamline the functioning of the capital market.

Sebi had earlier directed that all investors who carry out transactions in the securities market of a value of Rs 1 lakh and above would be required to obtain the UIN by March 31, ’05. This was also applicable to investors in mutual funds and collective investment schemes. According to a release, Sebi said that it has received representations from investors regarding the difficulties in meeting the time line of March 31, ’05, for getting the UIN. “In order to alleviate their difficulties, it has been decided to give some more time to them to obtain the UIN. Accordingly the ‘notified date’ has been extended to December 31, ’05,” the release said.

Sebi allows bank guarantees, FDs as cash for margin trading

5th March 2005: The Securities and Exchange Board of India (Sebi) have improvised its regulatory framework for margin trading (MT) and securities lending and borrowing system (SLBS) with immediate effect. The move is seen benefiting market players. In a major relief to market participants, Sebi has said that bank guarantees (BGs) and fixed deposits (FDs) will be treated as cash equivalent for the margin payment towards MT. In the current regime, payment of maintenance margin to avail MT facility is payable only in cash. In a circular issued on Friday Sebi asked stock exchanges (SEs) to implement this and other changes proposed in the circular with immediate effect. Sebi said, “Henceforth for the payment of margin requirements, FDs with banks and BGs issued by banks will be treated as cash equivalent.”

Sebi sets FII investment cap in corporate debt at $500 m

12th March 2005: The Securities and Exchange Board of India (Sebi) on Friday notified a separate limit for investments made by FIIs in corporate debt at $500 million. This cap will be over and above the sub-ceiling of $1.75 billion for government debt (including treasury bills) under the overall external commercial borrowing (ECB) ceiling. The move from Sebi follows a clarification issued by the finance ministry, which said the sub-ceilings for government securities (G-Sec) and for corporate debt would be separate and would not be fungible. Sebi said sub-ceilings of $1.75 billion and $500 million will be applicable for FIIs under both the 100% debt route and the general 70:30 route. The overall investment limit under the 70:30 route in G-Sec and treasury bills (T-Bills) will remain at $200 million. However, the monitoring and allocation of investment limit will be continued in the same manner, as was done prior to this clarification, Sebi said.

Earlier both government and corporate debt investments of FIIs investing 100% of their corpus in debt (100% debt FIIs) were reckoned within the limit of $1.55 billion. But now following the finance ministry clarification, Sebi has said, investments in government debt only will be reckoned within the sub ceiling of $1.55 billion. The FII investment in corporate debt shall now be, therefore, reckoned within the sub ceiling of $500 million. To conform to the sub ceiling of $500 million, there will be no further investment or rollover allowed of existing position in corporate debt by both 100% debt and general (70:30) FIIs and their sub accounts till the holdings fall within the stipulated cap of $500 million. Subsequently, the limit of $500 million shall be allocated among 100% debt and 70:30 FIIs, Sebi said in a circular.

Sebi glare on broker fee dues, Issues warning by public notice, sets March 31 deadline

15th March 2005: The Securities and Exchange Board of India (Sebi) have come down heavily on the stockbrokers who have failed to clear their registration fees dues. The market regulator has issued a warning publicly — by way of newspaper advertisements — that any broker who fails to clear his registration fee dues with penal interest before March 31, 2005, will attract initiation of summary proceedings against them under the Sebi (Procedure for Holding Enquiry by Enquiry Officer and Imposing penalty) regulations, 2002. Sebi has also said, “without prejudice to other enforcement actions, trading terminals of defaulting brokers will also be deactivated after the stipulated time limit.” In a public notice issued on Monday, Sebi said, “Several brokers have willfully defaulted in paying the registration fees despite giving several opportunities.”

A Sebi official said, “Most of the brokers from the bigger and active stock exchanges (SEs) have cleared their registration fees dues. But it is the brokers belonging to smaller SEs that have to clear their dues.” As per Sebi’s handbook of statistics on the Indian securities market for 2003-04, there were 23 SEs in the country of which most active were only two; the National Stock Exchange (NSE) and The Stock Exchange, Mumbai (BSE), which together has a broker strength of 1,643. Against this, total brokers registered with Sebi across all the SEs are 9,368. One bone of contention between the brokers and the regulator is that the turnover figure arrived at by Sebi for individual brokers stated in the statements issued by Sebi to SEs on August 25, 2004 are not up to the mark. As these figures are in dispute, brokers say the final figure of the fee, including the penal interest charged at the rate of 15%, is also on the higher side in some cases.

Sebi rules to be made simpler: Damodaran

24th March 2005: Securities market regulator Securities and Exchange Board of India (Sebi) is in favour of making its regulations simpler so that there is no cause for confusion for investors. This was stated by newly appointed chairman M Damodaran at an international seminar on Emerging Capital Markets in Mumbai on Wednesday. Delivering the inaugural address Mr. Damodaran said, “at Sebi there are a mind boggling number of regulations but one of my first and foremost tasks would be to make them simpler so that people like me can understand it in a better way.” He said, there has to be clarity, certainty and continuity in the regulations and they should play a conducive role for the regulator to achieve its goals of protecting investors’ interest as well as developing the market. In this regard he said that Sebi has already undertaken a comprehensive review of its various regulations and an internal committee is looking into the matter.

SEBI defers implementation of Clause 49 till December

25th March 2005: The Securities and Exchange Board of India (SEBI) decided to defer implementation of Clause 49 of the listing agreement for independent directors till December 31, 2005. The corporates are currently not in a state of preparedness to comply with clause 49 of listing agreement dealing with independent directors, chairman M Damodaran said. The companies would get nine months to identify the appropriate independent directors and equip them to function effectively, he said. The objective of this decision is to improve the quality of corporate governance at the board level, Damodaran added.

Review of Dematerialisation Charges

According to Circular issued by Sebi, MRD/DoP/SE/Dep/Cir-4/2005, dated January 28, 2005 for Review of Dematerialisation Charges –

  1. Investors have been representing to SEBI seeking a reduction in the charges paid by them for dematerialisation of securities. The rationalization of charge structure for dematerialisation was discussed at the Secondary Market Advisory Committee of SEBI (SMAC).
  2. After careful consideration of the recommendations of the SMAC, as a first step, it has been decided to rationalize the existing charge structure as under:

2.1.   Effective from February 1, 2005 :-

    1. No investor shall be required to pay any charge towards opening of a Beneficiary Owner (BO) Account except for statutory charges as may be applicable;
    2. No investor shall be required to pay any charge for credit of securities into his/her BO account; and
    3. No custody charge shall be levied on any investor who would be opening a BO account on or after February 1, 2005.

2.2.   With effect from April 1, 2005 the custody charges shall not be levied on any investor. However, the Depositories may levy and collect the charges towards custody from the issuers, on a per folio (ISIN position) basis as at the end of the financial year, according to the table given below:

 

Issuers to pay @ Rs.5.00 (*) per folio (ISIN position) in the respective depositories, subject to a minimum as mentioned below:

 

Nominal value of admitted

securities (Rs.)

Annual Custodial Fee payable by a Issuer to each Depository(Rs.) (*)

Upto 5 crore

  4,000

Above 5 crore and upto 10 crore

10,000

Above 10 crore and upto 20 crore

20,000

Above 20 crore

30,000

* Plus service tax as applicable

 

The issuers would be required to pay custody charges to the Depository with whom they have established connectivity based on the total number of folios (ISIN positions) as on 31st March of the previous financial year or the minimum amount, as the case may be, by 30th April of the each financial year failing which Depositories may charge penal interest subject to a maximum of 12% p.a.

 

3.      All the Stock Exchanges are advised to:-

  1. Implement the above with immediate effect by making necessary amendments to the bye-laws and Listing Agreement, as applicable;
  2. to bring the provisions of this circular to the notice of the listed companies/Issuers and also to put up the same on the website for easy access to the investors ; and
  3. communicate to SEBI the status of the implementation of the provisions of this circular and the action taken in this regard in Section II, item no. 13 of the Monthly Development Report for the month of February, 2005.

 

4.      The Depositories are advised to:-

  1. make amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision immediately, as may be applicable/necessary;
  2. bring the provisions of this circular to the notice of the DPs of the Depositories and the issuers whose securities have been admitted into the depositories and also to disseminate the same on the website; and
  3. communicate to SEBI the status of the implementation of the provisions of this circular in the Monthly Development Report for the month of February, 2005.

 

5.      This circular is being issued in exercise of the powers conferred by Section 11 (1) of Securities and Exchange Board of India Act, 1992 to protect the interest of investors in securities and to promote the development of, and to regulate, the securities market.

IPCL comes under SEBI scanner

26th April 2005: Taking note of developments relating to the status of Anil Ambani as director on the board of Reliance Group entity IPCL Ltd, Securities and Exchange Board of India has asked stock exchanges to check the company's adherance to listing agreement. The matter (directorship and related correspondence) came up for review at the weekly surveillance meeting with exchanges last evening, SEBI sources said here today. The exchanges have been asked to monitor trading in IPCL scrip and look into the company's conformity with provisions of the listing pact, they said.

Mukesh Ambani-headed IPCL had yesterday said Anil's resignation from its Board of Directors became effective from January 20 this year when the board considered it even as the younger brother said he had not heard anything from the company on his status as director on the board. The board of IPCL is meeting today to consider the financial results for 2004-05.

Anil Ambani writes to SEBI, BSE and NSE on IPCL issue

26th April 2005: In the continuing drama over his resignation from Reliance Group petrochemical company IPCL, Anil Ambani has asked market regulator SEBI and stock exchange authorities to look into the issue as well as adherence to all relevant laws. Reliance Industries Vice-Chairman and Managing Director Anil Ambani, engaged in a battle with elder brother Mukesh over the control of Reliance empire, wrote to SEBI, Bombay Stock Exchange and National Stock Exchange on Monday evening, coinciding with IPCL's public statement that the younger Ambani ceased to be a director from January 20.

RIL scrips under Sebi’s scanner

29th April 2005: Securities and Exchange Board of India (Sebi) is keeping close watch on scrips of Reliance Industries Ltd (RIL) in the light of allegations made by Anil Ambani about breach of corporate governance norms in RIL. "Sebi keeps everything under surveillance", chief economic advisor and government representative on Sebi board Ashok Lahiri told reporters here today before the beginning of board meeting. "If anything comes up in surveillance Sebi will look into the matter", Lahiri said when asked what steps the capital market watchdog is taking on the alleged breach of governance norms in RIL. Anil Ambani, RIL vice chairman and managing director has leveled charges of breach of governance practices in India's largest listed entity.

SEBI to ease secondary issue norms

13th May 2005: The recent investment boom in foreign currency convertible bonds (FCCB) and Global Depository Receipt (GDR) is leading the SEBI to simplify secondary issue norms. However, the secondary offers will be made easier based on the disclosure record of the issuing company. Currently, the Indian companies find it easier to raise money from abroad and over the past year, they have raised 3billion dollars through FCCB’s alone. The reason could be because the procedure followed by them is straightforward.

“We have been told by a large number of people that when a company is already listed, you do not have to ask the same set of questions and subject that company to the same procedure as you did the first time round. When the company comes for a follow-on offer to raise capital, we will ask fewer questions. This is a major condition, provided during the time it has been a listed entity, it has a track record of continuous disclosure,” Mr. Damodaran, SEBI Chairman stated.

Sebi may allow non-promoters to hold 10%

17th May 2005: The Securities and Exchange Board of India (Sebi) is likely to allow select companies to reduce the minimum non-promoter holding to 10%. The issue is slated for discussion at a scheduled Sebi board meeting to be held later this month. Though Sebi officials were tightlipped about the issue, sources close to the regulator said the 10% holding could be allowed only for those companies which followed governance norms as well as achieved a minimum level of liquidity and market cap. Sources said the minimum non-promoter holding in a company could be held at two levels -- 25% and 10% -- with a switching mechanism between the two.

            Earlier this year, it was notified in the official gazette of Sebi that the minimum non-promoter holding would be maintained at 25% but the listing agreement was never amended to reflect this. This confused many companies as there was no clear direction from Sebi on whether to adhere to the original norms or switch to the new norms. At present, a minimum 10% float is allowed for those companies with a minimum issue size of Rs 100 crore and Rs 1,000 crore market capitalisation.

            Sources said it had been suggested at various times that promoters should be able to switch between the two levels – 25% and 10%. This will, however, be possible after the capital markets watchdog makes some adjustments to the secondary market listing norms. The Sebi board meeting will also decide whether an open offer is justified for raising stakes beyond 55%. The gazette notification had made it mandatory for promoters with a 55% stake to go in for an open offer if they wanted to increase their stake up to 75%. Taking the creeping acquisition route was disallowed, as were other market-related routes such as preferential allotments.

 

Corporate governance is the key


 

Ø      Minimum non-promoter holding in a firm can be held at two levels — 25% and 10%

Ø      Sebi to decide whether an open offer is justified for raising stakes beyond 55%

Ø      There can be a return to the previous regime of unrestricted creeping acquisition to 75%

SEBI ties up with HCL Technologies for market surveillance solutions

17th May 2005: HCL Technologies Ltd has announced on May 17, 2005, that it has signed a multi million dollar agreement with Securities and Exchange Board of India (SEBI) for implementing a comprehensive integrated market surveillance system for monitoring the market activities across stock exchanges and market segments (including both equities and derivatives).

The project involves implementation of application software, hardware, networking and communication infrastructure. The solutions from the Company, and its partners, was chosen over those of some of the leading IT Companies on account of strong surveillance domain expertise, systems integration capabilities and proven technology delivery competencies. The application software product for surveillance being implemented has been developed by SMARTS Pty Ltd, which is a leader in the provision of real time market surveillance systems for securities markets & regulators and is currently being used in 16 exchanges and 4 regulators globally.

The solutions shall be implemented in a period of 9 months and the Company shall support the solution at SEBI for a period of 6 years thereafter. "HCL feels privileged to be chosen by SEBI for such a key project. We shall bring to bear our deep domain expertise in this space and will work closely with SEBI to ensure this become a key part of the far reaching changes that the regulator is making to ensure that financial markets become more transparent and efficient", said J Vijay (Corporate Vice President - HCL).

Sebi bans UBS Securities Asia Ltd for 1 year

18th May 2005: In a first action against those involved in May 17, 2004 market crash; Sebi on Tuesday prohibited UBS Securities Asia Ltd, a foreign institutional Investor, and its associates from issuing off-shore derivative instruments (ODIs) with underlying Indian securities for one year. UBS, its affiliates and agents are prohibited from renewing or rolling over any of the ODIs already issued against the positions held by it in the Indian securities market for one year, Sebi whole-time member G Anantharaman said in his order here on Tuesday. The capital market watchdog asked UBS to establish highest standards of Customer Due Diligence process in line with the requirements of FII Regulations of Sebi. UBS was a significant participant in the cash as well as the derivatives (F&O) segment of the Indian securities market during May 2004.

Comply with Clause 49: SEBI to India Inc

18th May 2005: Sebi, the market regulator gave an ultimatum to India Inc. today for complying with stipulation of appointing independent directors on their Board by December 31, saying there would be no relaxation or extension of the deadline for complying with Clause 49. "Sebi, as a market regulator, expects total compliance of corporate governance norms. We have given enough time for those who have to meet the requirement of Clause 49," said Sebi Chairman M Damodaran.

Clause 49 mandates that a company needs to appoint independent directors, whose number should be at least 50% of the total board members. Going a step forward, he said meeting Clause 49 norms was a "necessary condition" but not a sufficient one as there were other clauses in the corporate governance norms laid down under the Listing Agreement. "Clause 49 is the minimum standard. You might comply with that and yet not with the corporate governance," he said.

Maintaining that a company complying with corporate governance can generate higher shareholder value, Sebi chief said companies have to sustain the process of sticking to the best practices. Damodaran did not buy the argument that induction of independent directors in the board of a company may hinder the decision making process, and said "if a board is constituted properly, 80% of the job is done." "Best managed companies don't have many problems in going along with their shareholders," he said.

Sebi to ease delisting norms for small cos

19th May 2005: Market regulator Securities and Exchange Board of India (Sebi) will provide major relief to small companies within the next six months by easing norms for delisting their shares from the bourses. "There will be a simpler exit route... We are working on it. In six months time, we will come up with something," Sebi chairman M Damodaran said when asked whether the regulator was considering easing of delisting norms for small investors. "We are looking for an alternate... Reverse book-building is a difficult and costly affair," he said on the sidelines of the CII annual session here.

Small companies find it extremely difficult to delist through reverse book-building route as price discovery is not possible when their shares are not traded actively in bourses. Unless their shares are delisted, the small companies have to pay all listing charges even if they are not feasible for them. At present, a company needs to come up with a price through the reverse book-building process for buying back its shares from investors. Most of the thinly traded scrips command a price which is less than the face value. So, the company concerned has to offer a premium to buy back its remaining shares.

Order in respect of BSE (Corporatisation and Demutualisation) Scheme, 2005

21st May 2005: Order under Section 4b (6) Read With Section 4b (7) Of The Securities Contracts (Regulation) Act, 1956 In The Matter Of The BSE (Corporatisation And Demutualisation) Scheme, 2005.

S. O. 684(E). 1.0 BSE (also known as ‘The Stock Exchange, Mumbai’) is an Association of Persons and a recognised stock exchange having its principal place of business at Phiroze Jeejeebhoy Towers, Dalal Street, Fort, Mumbai 400 001. It is required to be corporatised and demutualised under the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as ‘the SC(R)A’).

1.1 BSE, vide its letter dated 9th March, 2005, submitted a Scheme for its corporatisation and demutualisation for approval to the Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) in terms of sub-section (1) of section 4B of the SC(R)A. SEBI made enquiries and obtained further information from BSE through meetings with the officials of BSE and the BSE Broker’s Forum. Vide letter dated 23rd March 2005, SEBI communicated its observations on the said Scheme to BSE and advised it to resubmit the Scheme after considering the said observations.

1.2 SEBI made further enquiries from BSE and explained its observations to BSE through meetings with its officials on 24th March and 27th March 2005. BSE, vide its letter dated 30th March 2005, submitted a revised Scheme. It was noted that while this Scheme, inter alia, provided for the succession of BSE being an Association of Persons by a company to be incorporated under the Companies Act, 1956 under the name and style of the ‘Bombay Stock Exchange Limited’ for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities as recognized stock exchange and segregation of ownership and management from the trading rights of the members, it did not provide for certain matters required for the purpose of and in connection with the corporatisation and demutualisation of BSE as observed by SEBI vide its letter dated 23rd March, 2005. The observations made by SEBI included the following:

a. Voting Rights: The voting rights of a shareholder, who is also a trading member along with that of persons acting in concert with him, may be restricted to 5%.

b. Trading Members: Only those members, who are registered with SEBI under the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 may be trading members of the demutualised stock exchange.

c. Board Composition: The Governing Board, on or after due date, may be constituted in accordance with the provisions of the Articles of Association of Bombay Stock Exchange Limited in force from time to time, provided that -

i. the representation of trading members does not exceed 1/4th of the total strength and the remaining directors are appointed in the manner as may be specified by SEBI from time to time,

ii. the Chief Executive, by whatever name called, is an ex-officio director, and

iii. SEBI shall have the right to nominate as many directors on the Governing Board, as and when deemed fit, irrespective of the size of the Governing Board.

d. Utilisation of Assets and Reserves: Bombay Stock Exchange Limited may not do anything contrary to the provisions of section 4B (3) of the SC(R)A. It may not use the assets (other than current assets) of BSE transferred to it or the proceeds from disposal of such assets or the proceeds from disposal of successive species of assets acquired from the proceeds of disposal of such assets for any purpose other than the business operations of the stock exchange.

e. Uniform Standards: Uniform standards may be followed for admitting any person as a trading member of the exchange or accepting his surrender. All trading members may have similar rights and privileges.

1.3 Therefore, vide letter dated 15th April 2005, SEBI advised BSE to submit the Scheme in conformity with the observations made by SEBI. SEBI made further enquiries and explained the observations to BSE through the meetings on 26th, 27th and 28th April 2005. BSE finally submitted a revised Scheme (hereinafter referred to as ‘the Scheme’) vide its letter dated 2nd May 2005.

2.0 Submissions of BSE on the Observations of SEBI

2.1 Voting Rights: Vide letter No. BSE/ED/084/05 dated 4th May, 2005, BSE has submitted that the restriction on voting rights should not be applicable to Public Financial Institutions as defined under section 4A of the Companies Act, or otherwise they would not be able to participate in the disinvestment as they generally have subsidiaries which are brokers. This is necessary to avoid any problems pertaining to interpretation of the term "persons acting in concert" at a later date and to facilitate the leading Public Financial Institutions to acquire a strategic stake in the equity of the exchange.

2. 2 Trading Members: A few Members are not registered with SEBI under the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992, but will nevertheless become trading members on corporatisation and demutualisation. However, in accordance with Rule 3 of the SEBI (Stock Brokers and Sub-Brokers) Rules, 1992, such Members would not be able to buy, sell or otherwise deal in securities until they are registered with SEBI. Therefore, the trading members should be a stock broker or a trading member or clearing member of any segment of the exchange.

2.3 Board Composition: BSE Scheme did not include the provisions: (i) the remaining directors are appointed in the manner as may be specified by SEBI from time to time, and (ii) SEBI shall have the right to nominate as many directors on the Governing Board, as and when deemed fit, irrespective of the size of the Governing Board. In this regard BSE has submitted that the manner of appointment of remaining directors will be provided in the Articles. The rules of BSE and other Exchanges provide for the number of SEBI nominees on Governing Board.

2.4 Utilisation of Assets and Reserves: BSE has submitted that the purport of this observation is not clear and it appears to impose restrictions on the exchange which are not required under the SC(R)A nor is otherwise justified. The Scheme does not provide for any of the matters prohibited in section 4B (3) of the SC(R)A.

2.5 Uniform Standards: BSE has accepted the observation of SEBI. However, it has suggested modified clause which appears to give perpetual preferential treatment to the existing members, as they used to have so far.

 

3.0 Consideration of the Scheme and the Submissions of BSE

The Scheme of BSE, the information submitted by it and the other submissions of BSE have been considered. It is noted that the Scheme provides for most of the matters required for and in connection with its corporatisation and demutualisation. The findings in respect of the submissions of BSE are as follows

3.1 Voting Rights: Section 4B (6) of the SC(R)A provides that SEBI may, inter alia, restrict the voting rights of the shareholders who are also stock brokers of the recognized stock exchange. SC(R)A does not provide for differential treatment amongst the shareholders who are stock brokers with respect to voting rights.

3.2 Trading Members: The members of BSE, who do not have certificate of registration from SEBI, may include the persons who are not ‘fit and proper’ to be registered under the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 read with SEBI (Criteria for Fit and Proper Person) Regulations, 2004 or whose certificate of registration has been cancelled by SEBI or those who are not interested to trade on the demutualised stock exchange. It is not desirable to have such unregistered persons as trading members in an exchange and by virtue of the same, as representatives of trading members on the Governing Board of Bombay Stock Exchange Limited. If such persons wish to be trading members, they should have SEBI registration.

However, taking into consideration the submission of BSE, such members may, within 3 months from the due date, obtain SEBI registration. Therefore, a suitable provision has been made in the Scheme.

 

3.3 Board Composition: The corporatised and demutualised stock exchange will be functioning in a dual capacity i.e. as a Self Regulatory Organization and a profit-making company. In such a case, the conflict of interest, which corporatisation and demutualisation as enshrined in the SC(R)A intends to avoid, may creep in. Therefore, demutualised stock exchange needs to be effectively regulated. Further, a Stock Exchange is a State under Article 12 of the Constitution and hence amenable to writ jurisdiction. Therefore, it is necessary for SEBI to ensure the highest standards of governance in stock exchanges. The Scheme should contain a specific reference to regulatory powers of SEBI and SEBI should, in the interest of trade and public interest, have express powers in-built in the Scheme to make or amend the rules of the Bombay Stock Exchange Limited including that of the constitution and powers of the Governing Board. Hence, the clause relating to Board composition is required to be modified to retain the powers of SEBI to appoint or nominate directors as and when deemed fit. A suitable provision has been made in the Scheme accordingly.

3.4 Utilisation of Assets and Reserves: It is the spirit of section 4B (3) of SC(R)A that the assets and reserves of the exchange should not be used for the benefit or enrichment of the trading members at any point of time and should be used only for exchange operations. This is to ensure that the assets and reserves built from the support of the public system are used only for public purpose and that the Exchange continues to operate as an exchange. Such assets and reserves should also not be used for the benefit or enrichment of any particular section, for example the shareholders / stock brokers of the exchange. It is, therefore, imperative to ensure that the existing assets and reserves transferred from the erstwhile exchange are utilised only for the operations of the exchange. The shareholders / trading members should not have option to take away the assets and reserves inherited by the demutualised exchange. The requirement of use of assets and reserves only for exchange operations would give the necessary comfort to the new investors during the process of disinvestment / initial public offer. This would bring discipline in the management. Further, such provision would ensure the functioning of the stock exchange in performing its duty as a self-regulatory organization as well as a for-profit company. Hence, it is felt that it is in the interest of trade and in the public interest that the assets and reserves (other than current assets) of BSE are used by the demutualised exchange only for exchange operations. Therefore, a suitable provision has been made in the Scheme.

3.5 Uniform Standards: Demutualisation means segregation of membership into ownership right and trading right. The members would become shareholders of the demutualised exchange and may also become trading members. The trading rights of these shareholders who are also trading members should rank pari passu with the trading rights of any other trading member. After Corporatisation and Demutualisation, there will be only one class of trading members with similar rights and privileges. Any additional privileges given to existing members who become trading members would create value to the trading rights of such members. Therefore, uniform standards should be followed in terms of capital adequacy, deposits, fees, etc while admitting any person as a trading member or accepting his surrender. Though all members must have similar rights and privileges, keeping in view the submissions of BSE and for limited purpose of facilitating the smooth transition, the Scheme is modified to allow additional privileges to the existing members with the prior approval of SEBI.

3.6 BSE has provided that upon transfer of the duties and functions of the clearing house of BSE to the clearing corporation, all the members of BSE should be admitted as clearing members of the clearing corporation, so as to enable the members to clear the trades in the same manner as is presently being done by them. It is felt that by virtue of such provision the existing trading members shall automatically become members of the clearing corporation without requiring them to qualify or comply with the prescribed requirements of the clearing corporation. The clearing corporation will have its own rules which will be approved by SEBI at the time of their recognition. The clearing members will have to separately qualify and comply with the rules of clearing corporation. Therefore, the provision has been suitably modified.

4.0 In view of the above, SEBI is satisfied that it would be in the interest of trade and also in the public interest to approve the Scheme with certain modifications as mentioned above in consonance with the object of the SC(R)A. Accordingly, the Scheme is hereby approved with the following conditions in terms of section 4 B (6) of the SC(R)A:

a. Voting Rights: On and from Due Date, no Shareholder, who is a trading member, shall have voting rights (taken together with voting rights held by him and by persons acting in concert with him) exceeding 5% of the voting rights in Bombay Stock Exchange Limited.

b. Board Composition: The Governing Board, on or after Due Date, shall be constituted in accordance with the provisions of the Articles of Association of Bombay Stock Exchange Limited in force from time to time, provided that -

(i) the representation of Trading Members does not exceed one-fourth of the total strength of the Governing Board, and the remaining directors are appointed in the manner as may be specified by SEBI from time to time, and

(ii) the Chief Executive, by whatever name called, is an ex-officio director.

Nothing contained in this condition shall preclude SEBI from nominating directors on the Governing Board as and when deemed fit.

4.1 The approved Scheme is enclosed as Annexure A.

5.0 Compliance and Monitoring

BSE and Bombay Stock Exchange Limited, as the case may be, shall ensure compliance with the Scheme within the time as specified in the Scheme and shall not do anything contrary to the provisions of Scheme and submit compliance report to SEBI in the manner as may be specified by SEBI.

6.0 SEBI reserves its rights to amend, alter or modify the Scheme in the interests of trade and public interest and in furtherance of the objectives of the corporatisation and demutualisation of the stock exchange.

7.0 The Scheme shall come into effect on the day of its publication in the Official Gazette.

F. No. SEBI/MRD/ 40967 /2005

 

M. DAMODARAN

CHAIRMAN

SECURITIES AND EXCHANGE BOARD OF INDIA

Place: Mumbai

Date : May 20th 2005

 Encl: Annexure A

 


Annexure-A

The BSE (Corporatisation and Demutualisation) Scheme, 2005

Index

S.No.

Topic

1

Title and Commencement

2

Definitions

3

Incorporation of Bombay Stock Exchange Limited

4

Governing Board of Bombay Stock Exchange Limited

5

Allotment of Shares of Bombay Stock Exchange Limited

6

Listing of Shares of Bombay Stock Exchange Limited

7

Transfer to Bombay Stock Exchange Limited

8

Trading Rights

9

Demutualisation

10

Voting Rights

11

Dissolution of BSE

12

Rules, Bye-Laws and Regulations of Bombay Stock Exchange Limited

13

Clearing Corporation of Bombay Stock Exchange Limited

14

Utilisation of Assets and Reserves

15

Compliance with the scheme

16

Power to Relax Provisions of this Scheme

THE BSE (Corporatisation and Demutualisation) Scheme, 2005

1. Title and Commencement

1.1 This Scheme shall be called The BSE (Corporatisation and Demutualisation) Scheme, 2005 (hereinafter referred to as "this Scheme").

1.2 This Scheme shall have effect on its publication under sub-section (4) of Section 4B of the Securities Contracts (Regulation) Act, 1956.

1.3 BSE shall be corporatised and demutualised in accordance with this Scheme on and from the appointed date as may be notified by the Securities and Exchange Board of India (SEBI) in respect of BSE under Section 4A of the Securities Contracts (Regulation) Act, 1956.

Provided that the activities specified in the respective clauses of this Scheme shall be implemented as per the time schedule specified in those clauses.

2. Definitions

In this Scheme, unless the context otherwise requires, -

2.1 "Bombay Stock Exchange Limited" means the company incorporated in pursuance of clause 3 of this Scheme for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities as a recognized stock exchange and to succeed BSE.

2.2 "BSE" means the stock exchange also known as "The Stock Exchange, Mumbai", an unincorporated association of persons having its principal place of business at Phiroze Jeejeebhoy Towers, Dalal Street, Fort, Mumbai, which has been recognized by the Central Government under the Securities Contracts (Regulation) Act, 1956 by and under notification No. 17/2/56-SE/EAD dated August 31, 1957, and whose name has been changed to BSE pursuant to the approval granted by SEBI by its letter No.SMD/SEAID-I/BSE/592/02, dated 10th January, 2002.

2.3 "Due Date" means the date, as may be determined by the Governing Board of BSE, which shall not be later than 3 months from the date of publication of the order under sub-section (7) of section 4B of the Securities Contracts (Regulation) Act, 1956.

2.4 "First Shareholders" means the fifty Members, selected by the Governing Board of BSE, who will subscribe to the Memorandum of Association and Articles of Association of Bombay Stock Exchange Limited for the purpose of its incorporation.

2.5 "Governing Board" means the Board of Directors of Bombay Stock Exchange Limited.

2.6 "Member" means a person who is a member of BSE as per the register of members maintained by BSE under Rule 64 of the Rules, Bye-Laws and Regulations, 1957 and does not include a Limited Trading Member of BSE.

2.7 "Record Date" means the date, prior to the Due Date, fixed by the Governing Board of BSE for determining the Members who will be entitled to shares of Bombay Stock Exchange Limited pursuant to clause 5 of this Scheme.

2.8 "Rules, Bye-Laws and Regulations, 1957" means the Rules, Bye-laws and Regulations, 1957 of BSE on the day preceding the Due Date.

2.9 "Rules, Bye-Laws and Regulations of the Derivatives Segment" means the Rules, Bye-laws and Regulations, 2000 of the Derivatives Segment of BSE on the day preceding the Due Date.

2.10 "Rules, Bye-Laws and Regulations of Bombay Stock Exchange Limited" means the Memorandum of Association, the Articles of Association and the Rules, Bye-laws and Regulations of Bombay Stock Exchange Limited including the Rules, Bye-laws and Regulations of any segment of Bombay Stock Exchange Limited.

2.11 "Shareholder" means a person who holds any equity share(s) of Bombay Stock Exchange Limited.

2.12 "Trading Member" means a stock broker or trading member or clearing member of any segment of Bombay Stock Exchange Limited and registered with SEBI as such under the SEBI (Stock Brokers and Sub-Brokers) Regulations 1992:

Provided that Bombay Stock Exchange Limited shall not have clearing members after the clearing function is transferred to a recognized clearing corporation under clause 13.1 of this Scheme.

2.13 Words and expressions used and not defined in this Scheme but defined in the Securities and Exchange Board of India Act, 1992, the Depositories Act, 1996, the Securities Contracts (Regulation) Act, 1956, the Companies Act, 1956, the rules and regulations made under these Acts, the Rules, Bye-Laws and Regulations, 1957 or the Rules, Bye-laws and Regulations of the Derivatives Segment shall have the same meanings respectively assigned to them in the above mentioned acts, rules, bye-laws and regulations.

3. Incorporation of Bombay Stock Exchange Limited

3.1 The First Shareholders shall incorporate a public company limited by shares under section 12 of the Companies Act, 1956 in the name and style of "Bombay Stock Exchange Limited".

3.2 The First Shareholders shall each subscribe to and pay for 10,000 fully paid-up equity shares of the face value of Re.1/- each for cash at par of Bombay Stock Exchange Limited.

4. Governing Board of Bombay Stock Exchange Limited

4.1 The first Governing Board shall comprise of such of the members of the Governing Board of BSE on the date of incorporation of Bombay Stock Exchange Limited as are named as first directors in the Articles of Association of Bombay Stock Exchange Limited, subject to the condition that the representatives of the Members do not exceed one-fourth of the total strength of the Governing Board.

4.2 The first Governing Board may hold office till Due Date.

4.3 The Governing Board, on or after Due Date, shall be constituted in accordance with the provisions of the Articles of Association of Bombay Stock Exchange Limited in force from time to time, provided that -

(i) the representation of Trading Members does not exceed one-fourth of the total strength of the Governing Board, and the remaining directors are appointed in the manner as may be specified by SEBI from time to time, and

(ii) the Chief Executive, by whatever name called, is an ex-officio director.

4.4 Notwithstanding anything contained in clause 4.3, SEBI may nominate directors on the Governing Board as and when deemed fit.

5. Allotment of Shares of Bombay Stock Exchange Limited

5.1 Every Member or his nominee, as the case may be, (other than the First Shareholders) as on the Record Date shall be entitled to 10,000 fully paid-up equity shares of the face value of Re.1/- each for cash at par of Bombay Stock Exchange Limited.

5.2 Every Member or his nominee, as the case may be, who has more than one membership card as on the Record Date, shall be entitled to additional 10,000 fully paid-up equity shares of face value of Re.1/- each for cash at par for every additional membership card held by him

5.3 Bombay Stock Exchange Limited shall allot the equity shares to the entitled Members or their nominees, as the case may be, by the Due Date.

Provided that the allotment to a Member suspended by BSE shall be held in abeyance till the suspension continues.

5.4 The invitation to subscribe to, and the offer, issue and allotment of equity shares of Bombay Stock Exchange Limited pursuant to this clause shall not be considered as being an invitation, offer, issue or allotment to the public.

6. Listing of Shares of Bombay Stock Exchange Limited.

Bombay Stock Exchange Limited may at any time list its securities on any recognized stock exchange.

7. Transfer to Bombay Stock Exchange Limited

Pursuant to this Scheme, on and from the Due Date,:

7.1 all assets, properties, undertakings, segments (including the Derivatives Segment), business, books, records, registers, funds, reserves, rights (including, in particular, intellectual property rights, leasehold rights, tenancy rights if any and all rights of nomination of former Members which have vested in BSE), powers, authorities, interests, privileges, exemptions, permissions, licenses, registrations and recognitions (including, in particular, the recognition of BSE as a recognized stock exchange under the Securities Contracts (Regulation) Act, 1956) of or belonging to or in the possession or control of BSE or to which BSE may be entitled, including those held by any trustees in trust for BSE or for the Members or Limited Trading Members of BSE and Trading Members and/or Clearing Members of the Derivatives Segment of BSE or for the objects and purposes of BSE, and including those vested in or held by any committee of BSE, shall stand transferred to and shall vest in and shall be in the possession or control of and shall become the entitlement of Bombay Stock Exchange Limited, and Bombay Stock Exchange Limited shall have the same right, title and interest therein or thereto as BSE and such trustees or committees had immediately prior to the Due Date.

7.2 all obligations and liabilities of BSE shall stand transferred to and shall become obligations and liabilities of Bombay Stock Exchange Limited.

7.3 Bombay Stock Exchange Limited shall, in place and stead of BSE, become a party to, and shall be bound by and entitled to, all contracts, agreements and other instruments to which BSE is a party or by which BSE is bound or to which BSE is entitled, and the same may be enforced and acted upon by or against Bombay Stock Exchange Limited accordingly.

7.4 all notices, actions, claims and proceedings (including all legal, quasi legal, revenue, disciplinary and arbitration notices, actions and proceedings and including also disciplinary, suspension, default, delisting and other notices, actions and proceedings by BSE to or against the Members or Limited Trading Members of BSE or Trading Members and/or Clearing Members of the Derivatives Segment of BSE, any companies and others) of, by or against BSE shall not abate and shall be deemed to be made, instituted or continued by or against Bombay Stock Exchange Limited in place and stead of BSE.

7.5 the employees of BSE shall become the employees of Bombay Stock Exchange Limited in place and stead of BSE on the same terms and conditions as existing immediately prior to the Due Date.

7.6 notices and circulars issued and acts done by the Governing Board of BSE shall, unless and until such notices and circulars are modified or rescinded by the Governing Board, continue to subsist in relation to Bombay Stock Exchange Limited and shall be deemed to have been issued and done by the Governing Board.

7.7 all resolutions passed and acts done by the Governing Board of BSE or general body of Members shall, unless and until modified or rescinded by Governing Board or general body of Shareholders of Bombay Stock Exchange Limited, as the case may be, continue to subsist in relation to Bombay Stock Exchange Limited and shall be deemed to have been passed and done by the Governing Board or general body of Shareholders of Bombay Stock Exchange Limited, as the case may be.

 

8. Trading Rights

8.1 A Member or a Limited Trading Member of BSE, who is registered as a stock broker on the day preceding the Due Date shall become a Trading Member of the Cash Segment of Bombay Stock Exchange Limited on the Due Date;

8.2 A Member who is not registered as a stock broker on the day preceding the Due Date shall become a Trading Member of the Cash Segment of Bombay Stock Exchange Limited on being registered as a stock broker under the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 within 3 months from the Due date.

8.3 A Trading Member and/or a Clearing Member of the Derivatives Segment of BSE on the day preceding the Due Date shall become a Trading Member and/or a Clearing Member of the Derivatives Segment of Bombay Stock Exchange Limited on the Due date.

8.4 After the Due Date, a person desirous of becoming a Trading Member of any segment of Bombay Stock Exchange Limited shall be admitted if he complies with requirements and brings in specified fees and deposits as specified in the Rules, Bye-laws and Regulations of Bombay Stock Exchange Limited.

8.5 Bombay Stock Exchange Limited shall, for the purpose of admitting any person as a Trading Member of a segment, follow uniform standards in terms of capital adequacy, deposits, fees etc. irrespective of mode of acquisition of trading right by that person:

Provided that different standards may be followed for admission of a person as a Trading Member who has acquired trading right by way of transmission;

Provided further that different standards may be followed for admission of Trading Members in different segments.

8.6 A Trading Member may surrender his membership of any segment to Bombay Stock Exchange Limited in the manner specified in the Rules, Bye-laws and Regulations of Bombay Stock Exchange Limited

8.7 Trading Members of the Cash Segment of Bombay Stock Exchange Limited and the Clearing Members of the Derivatives Segment of Bombay Stock Exchange Limited shall clear and settle trades respectively till the clearing and settlement function is transferred to a recognized clearing corporation under clause 13.1 of this Scheme.

8.8 Irrespective of the date or mode of acquisition of trading right, the Trading Members in a segment of Bombay Stock Exchange Limited shall have uniform rights and privileges.

Provided that Bombay Stock Exchange Limited may, with the prior approval of SEBI, grant additional privileges to those Trading Members who were Members on the day preceding the Due Date.

8.9 Trading Members of Bombay Stock Exchange Limited on the Due Date shall continue to have the same rights and privileges in respect of their clients and constituents and other members arising out of or under any act, omission or contract or law, notification, order, direction, etc. as had accrued to them while being Members or Limited Trading Members of BSE or Trading Members and or Clearing Member of Derivative Segment of BSE on or before the Due Date.

8.10 Trading Members of Bombay Stock Exchange Limited shall be bound by all obligations and liabilities towards their clients and constituents, SEBI, BSE and other authorities or other persons arising out of or under any act, omission or contract or law, notification, order, direction, etc. while being Members or Limited Trading Members of BSE or Trading Members and or Clearing Members of Derivative Segment of BSE on or before the Due Date

9. Demutualisation

9.1 A Trading Member may or may not be a Shareholder.

9.2 A Shareholder may or may not be a Trading Member.

10. Voting Rights

10.1 Bombay Stock Exchange Limited shall ensure that atleast 51% of its equity shares are held by public other than shareholders having trading rights in the manner and within the period prescribed in sub-section (8) of Section 4B of the Securities Contracts (Regulation) Act, 1956.

10.2 On and from the Appointed Date, Bombay Stock Exchange Limited shall ensure that public other than shareholders having trading rights continuously hold at least 51% of equity shares.

10.3 On and from Due Date, no Shareholder, who is a Trading Member, shall have voting rights (taken together with voting rights held by him and by persons acting in concert with him) exceeding 5% of the voting rights in Bombay Stock Exchange Limited.

11. Dissolution of BSE

On and from the Due Date:

(i) Bombay Stock Exchange Limited shall be entitled to, and shall, commence business and operations as the successor of BSE; and

(ii) BSE shall stand dissolved.

12. Rules, Bye-Laws and Regulations of Bombay Stock Exchange Limited

12.1 The Rules, Bye-laws and Regulations, 1957 and the Rules, Bye-laws and Regulations of the Derivatives Segment of BSE on the day preceding the Due Date shall, unless contrary to or inconsistent with or excluded by this Scheme, apply to Bombay Stock Exchange Limited on and from the Due Date.

12.2 Bombay Stock Exchange Limited shall incorporate the provisions of this Scheme appropriately in the "Rules, Bye-laws and Regulations of Bombay Stock Exchange Limited" on or before the Due Date.

12.3 The "Rules, Bye-laws and Regulations of Bombay Stock Exchange Limited" may be amended after the Due Date in accordance with the applicable laws, provided that no such amendment is inconsistent with any provision of this Scheme.

13. Clearing Corporation of Bombay Stock Exchange Limited

13.1 Bombay Stock Exchange Limited shall, within one year of the Due Date, subject to the prior approval of SEBI, transfer the duties and functions of the clearing house of Bombay Stock Exchange Limited to a clearing corporation, being a company incorporated under the Companies Act, 1956 and recognized by SEBI as a clearing corporation under the Securities Contracts (Regulation) Act, 1956.

13.2 Until the duties and functions of the clearing house are transferred as provided in clause 13.1, the clearing and settlement functions in relation to trading on Bombay Stock Exchange Limited shall be carried out by the clearing and settlement mechanism as used by BSE or in such other manner as the Governing Board may determine.

14. Utilisation of Assets and Reserves

14.1 Bombay Stock Exchange Limited shall not do anything contrary to the provisions of section 4B (3) of the Securities Contracts (Regulation) Act, 1956.

14.2 Without prejudice to the generality of the provisions in 14.1, Bombay Stock Exchange Limited shall not use the assets and reserves (other than current assets) of BSE transferred to it under clause 7.1 of this Scheme or the proceeds from disposal of such assets or the proceeds from disposal of successive species of assets acquired from the proceeds of disposal of such assets for any purpose other than the business operations of the stock exchange.

15. Compliance with the scheme

15.1 BSE and Bombay Stock Exchange Limited, as the case may be, shall ensure compliance with the provisions of this Scheme at all times and shall not do anything contrary to the provisions of this Scheme.

15.2 Without prejudice to the generality of the provisions in 15.1, BSE and Bombay Stock Exchange Limited, as the case may be, shall continuously comply with the provisions in Clauses 4.3, 8.4, 8.5, 8.6, 8.8, 10.2, 10.3, and 14.

15.3 BSE and Bombay Stock Exchange Limited, as the case may be, shall report compliance with the provisions of this Scheme in such manner as may be required by SEBI from time to time.

16. Power to Relax Provisions of this Scheme

If any difficulty arises in giving effect to the provisions of this Scheme, SEBI may, at the written request of BSE or Bombay Stock Exchange Limited, as the case may be, relax any of the provisions of this Scheme.

The BSE (Corporatisation and Demutualisation) Scheme, 2005

21st May 2005: Pursuant to the requirements of the Securities Contracts (Regulation) Act, 1956, [SC(R)A] as amended in 2004, the Stock Exchange, Mumbai (BSE) submitted its Scheme for Corporatisation and Demutualisation to the Securities and Exchange Board of India (SEBI) for approval. SEBI, after following the due process and on being satisfied that it is in the interest of the trade and also in the public interest, approved the Scheme; with certain modifications vide Order dated May 20, 2005.  

The salient features of the Scheme are as follows:–

  • A for-profit company limited by shares under Section 12 of the Companies Act, 1956, in the name and style of Bombay Stock Exchange Limited (BSE Ltd.) shall be incorporated to succeed BSE.
  • The ownership and management of BSE Ltd. shall be segregated from the trading rights of the members.
  • Initially the membership cardholders of BSE shall become shareholders of BSE Ltd. and they may also become the trading members of BSE Ltd.
  • A limited trading member (Deposit based Member) of BSE also shall become a trading member of BSE Ltd.
  • After Corporatisation and Demutualisation, there will be only one class of trading members with similar rights and privileges and uniform standards shall be followed in terms of capital adequacy, deposits, fees, etc. while admitting any person as a trading member or accepting his surrender.
  • The Governing Board of BSE Ltd. shall be so constituted that the representatives of the trading members do not exceed one-fourth of the total strength of the Governing Board.
  • BSE Ltd. shall ensure that the existing assets and reserves transferred from BSE are utilised only for the operations of the corporatised and demutualised exchange. 
  • BSE Ltd. shall ensure that atleast 51% of its equity shares are continuously held by public other than shareholders having trading rights.

The Order and the Scheme have been submitted for publication in the Official Gazette.

The full text of the order and the scheme is available on our website: www.sebi.gov.in

Mumbai

May 20, 2005

Grant of exemption for proposed acquisition of shares of ITI Limited

24th May 2005: SEBI has passed an order dated March 23, 2005 granting exemption to the acquirer viz. Union of India from making an open offer under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 in the matter of proposed acquisition of shares of ITI limited (ITI).

Ref: PR No.63/2005, dated March 29, 2005

Grant of exemption for proposed acquisition of shares of Shricon Industries Ltd.

24th May 2005: SEBI has passed an order dated March 21, 2005 granting exemption to Arani Agro Oil Industries Ltd. (acquirer) from complying with requirement of Regulation 15 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, with regard to making public announcement in the case of the proposed acquisition of equity shares of Shricon Industries Ltd. (SIL) from the public shareholders under regulations 10 and 12 subject to certain conditions.

Ref: PR No.64/2005, dated March 29, 2005

Pentamedia barred from selling more shares

28th May 2005: Pentamedia Graphics Ltd., an Indian animation studio, has been barred by the country's stock market regulator from selling additional shares until further orders after it received complaints against the company's share transfer agents.

The Securities & Exchange Board of India received complaints from a branch of the Oriental Bank of Commerce, a state-owned lender, against the agent Cameo Corporate Services Ltd. based in the southern city of Chennai, regarding the company's share certificates, the regulator said in an e-mailed statement yesterday.

“The information so far collected by SEBI has raised doubts regarding the genuineness of the share certificates in question,'' the statement said. Pentamedia “is directed not to issue any further shares or alter its share capital in any manner until further directions.” The company and its directors have been barred from issuing any further shares or alter its share capital for the time being, the statement said.

Sebi clears Rabo India’s banking foray

7th June 2005: Rabo India Securities, a 100% subsidiary of Rabo India, has received a category I merchant banking licence from the Securities and Exchange Board of India (Sebi). This will enable the Indian subsidiary of Rabobank Netherlands to offer the whole gamut of investment banking products, including open offers and IPOs. The Indian arm now offers only advisory services in M&A. Rabo is also looking to set up a $50m private equity fund for the food and agri businesses along with another equity partner.

“Our focus in India will be on investment banking which will cover the restructuring of corporates, refinancing, capital markets other than our key areas such as food, agri business and telecom,” said Sanjiv Bhasin, CEO, Rabo India Finance. The investment banking arm will be headed by Ashutosh Maheshvari.

On the new private equity fund, which will be launched in the last quarter of ‘05, Mr. Bhasin said, “We are looking at a private equity fund for investments in the food and agri space. We will look either at greenfield companies or SMEs.” According to him, NBFCs have an inherent advantage over banks in acquisition financing in the absence of restrictions.

He also added that Rabo India is not contemplating a move to convert itself into a bank. “Rabo views India as a high potential country. There is no move to convert into a bank now. There is enough potential in our present form of existence. We have not reached a stage where our growth will be impacted.”

Securities and Exchange Board of India (Sebi) proposes two-tier board for PSUs

28th June 2005: Board to have first level directors topped with a layer constituting the policy board. The Securities and Exchange Board of India is planning to propose to the finance ministry a two-tier board structure for public sector companies having large number of functional directors.

 

Bursting at its seams

 

March
1980

March
1990

March
2000

March
2004

No. of ROCs

18

19

20

20

No. of companies

5,60,00

2,02,000

5,42,000

6,75,000

No. of documents

2,82,465

10,10,640

27,12,170

33,75,700

Companies/ ROC *

3,139

10,638

27,122

33,700

Documents/ ROC

15,693

53,192

1,35,609

1,68,785

* 5 documents per company

 

This, the regulator feels, will resolve the issue of availability of independent directors and also ensure that the board is not unwieldy. The dual board structure will involve a first level of functional directors topped with a layer constituting the policy board, as is the practice in several European countries.

 

A focused internal group was working on the finer points and a proposal would be made to the ministry shortly, sources in Sebi said.

 

The dual board structure will enable companies to meet the regulatory requirement of having the requisite minimum number of independent directors while avoiding an unwieldy board.

 

The new proposal is a possible solution to the problem of getting enough number of independent directors in PSUs. According to Clause 49 of the listing agreement, at least 50 per cent of a board should consist of independent or non-executive directors.

 

In case of PSUs, Sebi had made it clear that the government nominees on the board could not be constructed as independent directors since they represented the interests of the majority shareholder.

 

Besides, the regulation also spelt out fairly stringent criteria for the selection of people who could be independent directors. All listed companies have been given time till December 2005 to comply with the regulations.

 

At present, there are PSUs with a very large number of functional directors as well as large number of government directors, apart from a whole-time chairman.

 

In such situations, the present prescription of 50 per cent independent directors means about 9-10 directors, which makes the board too unwieldy.

 

Earlier, Sebi had made its stance clear: because the board structure was unwieldy, it would not grant exemption to government companies or let them treat government directors as independent directors.

 

According to the Irani committee recommendations, one-third of the directors on the board should be independent. Even that may not really help significantly when there are numerous functional directors, which is typically the case in large companies.

 

In several European countries, companies are allowed to constitute a two-tier board structure with functional directors in the first level and policy directors in the second level. Independent directors are present in the policy board. India follows the American model with a single layer board structure.

SEBI to monitor Integrated Market Surveillance System (IMSS) by February-March

12th July 2005: Market regulator SEBI will put in place a comprehensive IMSS by February-March as part of efforts to keep a better vigil on the sudden surge or fall in share prices. "The integrated market surveillance system will be in place by February-March," SEBI chairman M Damodaran told the media. The SEBI chief was in town last evening and had a series of meeting with senior Finance Ministry officials. "Once IMSS is in place, we will have real data on the market," he said.

IMSS is expected to generate alerts that will help SEBI to identify and detect serious market violations such as market manipulations, insider trading and other types of frauds that undermine market integrity. SEBI has already signed an agreement with a consortium of HCL Technologies Ltd and Securities Markets Automated Research Training and Surveillance Pty Ltd of Australia for the implementation of IMSS.

IMSS will enable SEBI to monitor market activities across various stock exchanges and market segments including both equities and derivatives. The system envisages integration of data available from Stock Exchanges, Clearing Corporation and Depositories into a single IMSS.

The new surveillance system will help the regulator detect abnormalities in the trading patterns and market manipulations on a real-time basis and enable it immediately step into action and curb such unfair trade practices. The proposed IMSS would be implemented across exchanges and segments and would integrate the surveillance systems of BSE, NSE, CDSL, NSDL and regional stock exchanges with that of SEBI in phases.

Till now, SEBI had to go through voluminous data on all the scrips, brokers and intermediaries received from the stock exchanges when there was any abnormal movement or market misconduct by any player. As a result, SEBI probes were time consuming and were not always effective in correcting the fault. In contrast, IMSS would focus on real-time reports from exchanges pertaining to abnormalities and suspicious transactions in terms of price, volume and concentration.

Although SEBI may not unearth market manipulation in each and every abnormal or suspicious transaction reported through proposed IMSS, it can carry out intelligent data analysis in the new surveillance system. This will enable it to take up future investigations when it is necessary. Market monitoring in India is itself a cumbersome process as there are over 9,000 brokers, several thousands of scrips and hundreds of market intermediaries trading daily. IMSS is likely to focus on the big brokers, active shares and leading intermediaries who constitute about 80-85% of the trading volumes.

Securities and Exchange Board of India (Sebi) panel favours penalty for incorrect information

13th July 2005: A panel appointed by the Sebi has suggested amendments to various provisions of the Sebi Act including empowering the market regulator to call for information from professionals working for market intermediaries. The panel also suggested that Sebi should have the power to impose monetary penalty on market players for giving false information. Currently under the Sebi Act, the regulator can impose monetary penalty for failure to furnish information or delay in furnishing information.

The committee headed by Justice Kenia was set up to identify the deficiencies in the existing provisions of the Sebi Act and also to suggest new provisions that can be incorporated in the Sebi Act to make it more effective and investor friendly. The group recommended that a separate Investor Protection Fund under the Sebi Act, on the lines of the Subscriber Education and Protection Fund under PFRDA Ordinance ‘04 may be established.

This fund should be set up for the purpose of investor education and awareness and to provide compensation to the small investors affected by fraud or misrepresentations or misstatements by companies or intermediaries. It said that the fund should be administered by Sebi and the corpus of the fund could come from unclaimed dividends of mutual funds, collective investment scheme or venture capital funds. The fund could also use any unclaimed money or securities of a client lying with intermediaries.

The panel also said that the maximum age limit of members of Securities Appellate Tribunal (SAT) should be raised from 62 years to 65 years in order to avoid frequent reconstitution of the tribunal.

Securities & Exchange Board of India (Sebi) may relax disclosure norms for compliant companies

15th July 2005: Sebi chairman M Damodaran has said the Board is looking to curb the discretionary allotment of shares to qualified institutional investors (QIB) in IPOs to ensure fair play. QIBs include foreign institutional investors (FIIs), mutual funds, Indian financial institutions and insurance companies. Sebi is also looking into the issue of companies making announcements of heavy oversubscription during the period an IPO is open, which sometimes misleads the general investor.

Additionally, the regulator is planning to further simplify the procedures for follow-on offerings by listed companies. This is because many listed Indian companies are now tapping the global markets through global depository receipts (GDRs) and foreign currency convertible bonds (FCCBs). These corporates are shunning the Indian markets as they feel that raising funds from the Indian market through a public issue is cumbersome and time-consuming.

Damodaran said that Sebi may relax disclosure requirements in public issues for those companies that have a good track record on compliance. Sebi is also looking at making offer documents more user-friendly and has been soliciting views of investor associations.

Taking about the performance of companies post-listing, he said, if the pricing is done properly, investors will benefit. He pointed out that, internationally, companies price their issue in such a way that post-listing there is something left on the table for investors to gain. “If you price the issues aggressively, there are chances of the stocks not doing well after they get listed on the exchanges.” He also pointed out that people should not invest in IPOs for short-term gains.

Securities and Exchange Board of India (Sebi) inspection of merchant bankers soon

16th July 2005: For the first time ever, Sebi is expected to begin inspection of select merchant bankers this week. Though the regulator always had the powers to do so, it never had the required manpower.

But now it feels it is time it looked into the systems and functioning of some of the merchant bankers. Highly placed Sebi sources said that the regulator would select about three or four large merchant bankers and an equal number of smaller ones to go through their books.

“That way, we can compare the systems and practices of the bigger and the smaller players and compare variance between them. If the systems followed by a particular entity are very good, we can even prescribe that as a benchmark to be followed by the entire merchant banking community,” a Sebi official said.

Sebi routinely inspects the books of a large number of brokers through its own staff and chartered accountants. It also inspects stock exchanges and depositories annually, entirely on its own. However, certain categories of intermediaries, among them merchant bankers, have never been inspected.

While the official made it clear the timing of the inspection had nothing to do with the heating up of the IPO market, they were significant since the regulator had never delved into the detailed functioning of merchant bankers.

“They may know it (the inspection) is bound to happen some time, but they don’t know who’s on the list,” the official said. There are about 129 merchant bankers. Since January 2005, about 10 new issues have hit the market, with the largest being Dena Bank’s, which raised Rs 236 crore.

Securities and Exchange Board of India (SEBI) reviewing 25% public holding norm

18th July 2005: SEBI is likely to amend the guidelines on 25% public holding in all listed companies, and come up with a time frame soon for meeting the norm. "Sebi is now reviewing the guideline. A time frame will be spelt out for listed companies," said a senior Sebi official today. Though Sebi had issued a circular last fiscal on the minimum public holding that a listed company must have, there is no time frame fixed in meeting the norm. Accordingly, Sebi had restricted promoters having more than 55% stake to acquire up to 2% of company shares every year without taking its permission, instead of the previous limit of 5%.

Sebi ban to strip brokerages of extra commission

19th July 2005: Sebi plans to ban ‘hand-delivery’ of shares and make it compulsory for all FII trades to be settled through clearing corporation of bourses. When an FII buys securities, the broker purchases the stock on its own account. The FII pays the broker only after the shares are transferred to the custodian. For FIIs this is a way to avoid risk on the clearing house and possible default by the broker. While many, including the regulator, feel this is an imaginary fear since the trades are guaranteed by the clearing corporation, several FIIs take it seriously. These FIIs, as a policy, avoid settlement risks. Given the robust inflow of FII fund, it would be interesting to find out how they react to the Sebi decision.

The proposed ban will also strip some large institutional brokerages of the extra commission they earn through hand-delivery trades. Currently, there are two ways to settle trades in local exchanges. The first is through the clearing house where investors, through their broker/ custodian, settle cash and stock with the exchange directly. While settlement of transactions on the NSE is done by the National Securities Clearing Corporation (NSCCL), that of BSE is done by Bank of India (BOI) Shareholding. Both NSCCL and BoI Shareholding guarantee the settlement of trades, thus removing counter-party risk.

The other way of settling trades permitted by Sebi is ‘hand-delivery’ where investors settle on a DVP basis with local brokers. In this case, brokers often fund large clients for an average of four days. In ‘00, Sebi had moved in to curb hand-delivery system. But it later allowed FIIs and MFs to settle trades via hand-delivery, provided these are settled within two days of the payout date for settlement on the bourses.

Securities and Exchange Board of India (Sebi) asks Stock Exchanges (SEs) to check block deals

22nd July 2005: Sebi has asked SEs to clamp down on block deals that appear to be done to distort stock prices. Sebi said it has observed that large transactions in the form of block deals have been executed in certain scrips which prima-facie appears to have been negotiated in advance and hence put through the stock exchange mechanism in a synchronised manner.

In notices to the BSE and the NSE, Sebi said, “Media reports allege that these transactions have been executed with an ulterior motive to distort the fair price discovery in such scrips. Such market practices do not appear to be in conformity with the guidelines.”

The market regulator has asked SEs to inform their members and listed companies that such transactions are under regulatory purview. Sebi said action will be taken against those violating the regulatory provisions.

Sebi member sees Sensex at 16,000 before April

21st August 2005: It's not often that the market regulator turns Big Bull. That's exactly what happened at the BSE Ltd on Friday, when Securities and Exchange Board of India (Sebi) wholetime member Madhukar declared that he saw the Sensex hitting 16,000 within a year.

Clearly, the broking fraternity, present in full strength at the function to mark BSE's corporatisation, was taken aback, since the regulator obviously seemed to be more bullish than the bulls themselves.

Mr. Madhukar started off saying the Sensex would cross the 8,000-mark in a short span of time. And then came the clincher: "I see the Sensex touching 16,000 in a year.” "Sebi would provide the necessary support and direction to BSE to achieve this target", he went on.

Later, Mr. Madhukar said that the new trend opens challenges and opportunities for the investors and exchanges. The Sensex can touch 16,000 points with the good economic fundamentals and with the completion of the corporatisation process.

Clearly, the market players did not share Mr. Madhukar’s bullishness earlier in the day, since the Sensex shed 31 points after yo-yoing for the better part of the session. Far from even the 8,000 mark, the Sensex fell below the 7,800 mark by the end of the day.

While Mr. Madhukar was clearly the Bull of the day, the other wholetime member G Anantharaman turned to the sacred texts for the occasion. Reciting slokas from the Gita and Upanishads, he said BSE should be self-regulated so that the regulator can ask other bourses to follow its role model.

SEBI to tighten norms for Qualified Institutional Buyers (QIBs)

21st August 2005: Market regulator SEBI is likely to tighten norms for big investors like domestic and foreign financial institutions and mutual funds to make the investment process in public offers more transparent.

While there is no move to change the allocation pattern of retail investors and Qualified Institutional Buyers (QIBs), SEBI wants to ensure that merchant bankers do not misuse the discretionary powers of allocating shares to big investors.

Though shares issued in IPOs are allocated proportionally or on a pro-rata basis among retail investors, merchant bankers can now allocate shares to big investors classified as QIBs on a "discretion" depending on a host of factors including bid price, quantum of shares bid for and the quality of investor.

"This discretion is causing problem. If retail investors are allocated shares on a pro-rata basis, why not follow the same process for QIBs," an informed source said while hinting at changes in QIB investment norms. An internal group under SEBI is looking into various modifications in the IPO investment norms.

At present, SEBI norms allow an allocation pattern of 50% for QIBs, 15% for non-institutional buyers and 35% for retail investors. Retail investors are classified as those who invest upto Rs 50,000 in an IPO.

The discretionary nature of allotment was prescribed earlier to safeguard a company tapping the market, as SEBI wanted some screening on QIBs before they are allowed to pick up stake in an Indian company.

SEBI delists SUN F&C MF

23rd August 2005: The Securities and Exchange Board of India (SEBI) has cancelled the registration of SUN F&C Mutual Fund and has also withdrawn the approval granted to SUN F&C Asset Management (I) Pvt Ltd to act as the asset management company following their request.

SEBI Whole Time Member Madhukar, in his order, said the SUN F&C Mutual Fund, the Board of Trustees of SUN F&C Mutual Fund and the SUN F&C Asset Management cannot carry out any activity as a mutual fund, trustees or asset management company with immediate effect.

Earlier, the company had handed over the various schemes floated by it and the full responsibilities for management and administration of schemes to the Principal Mutual Fund, SEBI said in a release.

Further, the schemes which are not being handed over to Principal Mutual Fund have been closed as per the procedure.

SEBI Press Release 108 -2005 - Minimum public shareholding requirements revised

Presently listed companies are required to maintain their public shareholding at a level that was required at the time of initial listing. The minimum public shareholding requirement, therefore, varied in accordance with the provisions applicable at the time of initial listing of the company. In a  meeting of the Securities and Exchange Board of India held here today, it has been decided to revise the above provisions related to minimum public shareholding as follows:

(1)    All listed companies will be required to maintain atleast 25% shareholding with public for the purpose of continuous listing.

(2)    This will not, however,  be applicable to companies which are permitted to make an Initial Public offer (IPO) of atleast 10% to public in terms of Rule 19(2)(b) of Securities Contracts (Regulation) Rules, 1957 (SCRR). Such companies will be required to maintain atleast 10% public shareholding for the purpose of continuous listing.

(3)    The aforesaid minimum public shareholding requirement will not be applicable to Government companies, infrastructure companies and companies registered with Board for Industrial Financial Restructuring (BIFR).

(4)    Listed companies, which are not presently  complying with the minimum public holding requirement as mentioned above, will be given a period of two years, for compliance,  from the date of issuance of circular  in this regard.

(5)    Listed companies which may in future fall short of the requisite minimum level as mentioned above on account of reasons like Corporate Debt Restructuring (CDR) packages etc. will be given a period of one year , for compliance, from the date of non - compliance.

The objective is to ultimately reach a single level of minimum public shareholding requirement for listed companies, in course of time. However, no time frame has been envisaged at this stage.

Qualified Institutional Buyers (QIB) – participation in book built issues

It has been decided in respect of participation of QIBs in book built issues that following measures should, henceforth, be implemented:

  1. QIBs shall bring at least 10% margin while submitting the bids.
  2. The allotment of shares to QIBs shall be on proportionate basis.
  3. Out of the existing 50% portion available for QIBs, 5% thereof shall be specifically available for Mutual Funds registered with SEBI. However, these Mutual Funds participating in QIB category will also be eligible for allotment in the remaining portion, i.e 45%, available to QIBs.

Detailed circulars are being issued separately.

Mumbai

August 26, 2005

Securities and Exchange Board of India (Sebi) plans system for real-time monitoring

5th November 2005: The Securities and Exchange Board of India (Sebi) will soon install an integrated market surveillance system to check irregularities in stock markets by monitoring tradings throughout the day.

“As of now you only see end of the day action because we depend on any reports we get from the exchanges. If we see anything untoward on our screens then we make a phone call to clarify the matter. However, with this system intra-day action will be possible as the exchanges will keep feeding information throughout the day,” Sebi chairman M Damodaran said.

“We will still have to get the information from the exchanges but they will continuously feed it to us in the format that we want, thus making it much easier for us to take any action if anything is out of the ordinary. We will be one of the few countries to have this technology,” he added.

Mr. Damodaran was on his way to Australia, where the technology was developed and will survey SEs there to see how the system works. He stresses the need for investors to have access to trading.

SEBI okays ICICI Bank’s Follow-on Public Offer (FPO)

24th November 2005: ICICI Bank Ltd on Wednesday said it has filed Red Herring Prospectus with Securities and Exchange Board of India (SEBI) and has received its approval for a FPO of its equity shares.

Pursuant to the same, the bank is in the process of filing the Red Herring Prospectus with the Registrar of Companies, Ahmedabad, ICICI Bank informed the Bombay Stock Exchange.

The bank has decided to keep a five per cent reservation in the FPO for only those shareholders, who would be holding equity shares of the bank worth Rs one lakh as on November 25, it said.

The Bank would announce other details relating to the issue, such as the price band for the offer in due course, it added.

Securities and Exchange Board of India (Sebi) fines Ispat for holding back 'information'

7th December 2005: Sebi has imposed a Rs 1 lakh penalty on Ispat Industries for non-disclosure of price sensitive information to stock exchanges. The action has been taken against the company for a statement made by its finance director in a news channel about its financial and expansion plans, which were price sensitive.

According to the Sebi order, Anil Sureka, executive director (finance) of Ispat Industries in an interview to a news channel in September 3 said that Ispat was targeting a turnover of Rs 4000 crore during the year ‘03-04 and the capacity expansion programme of the company along with cost saving initiatives would result in savings of about Rs 1000 crore a year.

The contribution of long term contracts to sales would move up to 50% from the current 10%. The export target for the current fiscal had been pegged at Rs 1300 crore, he had said. Sebi found that the statements made by the company official had the potential of influencing the price of the scrip of Ispat materially and also alleged that the information was not furnished to the stock exchanges.

The company was required under the Sebi (Prohibition of Insider Trading) Regulations, 1992 to furnish such price sensitive information exchanges in which the stock is listed. Sebi had earlier issued a show cause notice to the managing director and passed an order of warning dated March 31 ‘04 under Section 11 and 11B of the Sebi Act and referred the matter for adjudication. Now the adjudication officer imposed the penalty on the company.

Sebi to probe IPO records of all MBs

29th December 2005: Wants to check whether multiple-application like that of Yes Bank had spread to others as well.

Market regulator Securities and Exchange Board of India has ordered a probe into the IPO records of merchant bankers (MBs) to see if there have been lapses regarding share allotments in primary issues.

Major primary offerings that hit the market in the past few months and merchant bankers involved in these issues will be under scrutiny.

Last week, Sebi ordered an inspection of the records of the two lead managers for the Yes Bank issue, Enam Financial and DSP Merrill Lynch.

Sebi feels the inspection needs to be broadbased to ascertain whether the multiple-application virus had spread to other issues as well.

Enam and DSP Merrill Lynch executives had no comments to offer, though it is understood that scrutiny of books in at least one of these two firms has already begun.

Among the other leading merchant banks, Kotak did not offer any comments. But Nimesh Kampani, chairman, JM Morgan Stanley, said, “We have not received any call from Sebi yet on this matter but we will be willing to cooperate in its investigation.”

Sebi feels the onus of ensuring that investors with multiple applications do not get allotment lies with the lead managers and registrars of issues. “The role of merchant bankers in ensuring multiple applications do not get allotments cannot be undermined. We will take action against them depending on the culpability found in our inspections,” a Sebi official said.

The regulator has already instructed depositories to increase their surveillance and be proactive in alerting the regulator in case there are any suspicious developments.

Merchant bankers, however, feel that their responsibility is only to ensure that allotments on multiple applications are not made to any one beneficiary account or to different applicants with identical first names.

These two parameters, according to them, have been complied with. They say allotments for applications having the same addressees may not always be correct.

This is because several applications come with funding, in which case an address in an application may be that of a financier who may have funded more than one client and deserves allotments accordingly.

Sebi`s New Year gift for promoters

31st December 2005: Promoters can hike stake to 75% via market buys.

Market regulator Securities and Exchange Board of India today made a slew of announcements to prepare the stock markets for “new tasks, processes and larger numbers” in the new year.

Among the changes are, permission to promoters to increase their holdings up to 75% through market purchases subject to open offers, a gradual introduction of unique identification numbers for investors and easing of disclosure requirements for secondary public offers.

The regulator said its takeover code would be amended to remove restrictions on market purchases and preferential allotments.

It has been proposed that promoters be allowed to sell their entire stake to an acquirer in case of a takeover provided the acquirer does not overstep the provisions of the listing agreement which require a minimum public holding of 25%.

Investors involved in transactions worth more than Rs 5 lakh will need to provide bio-metric identification while for others, PAN numbers will do for now. Eventually, all investors would be required to provide bio-metric identification, Sebi Chairman M Damodaran said.

In an announcement after Sebi’s 101st board meeting here today, Damodaran also permitted mutual funds to bring out gold exchange traded funds and pitched for optional rating of IPOs.

He also increased the position limit on derivatives and introduced refunds on public-issues through the Reserve Bank of India’s electronic clearing scheme (ECS).

Companies will also have the facility of single-filing of results for the Bombay Stock Exchange, the National Stock Exchange and Sebi. The regulator, however, has not allowed any extension of deadline to ensure companies strictly comply with the provisions of the listing norms.

Describing the changes as moves made to cope with the changed circumstances of the Indian market, Damodaran pointed out that the institution itself would have to be re-engineered to “attract good people” and retain them.

“We have tried to increase market efficiency as people are going abroad to raise money (due to the tedious regulations here) when they can do it here,” he explained.

One of the measures taken to ease the process of raising capital is the removal of disclosure statements by companies going in for subsequent public offers or issuance of other market-instruments to raise cash.

“Since these are known entities (through their IPOs) there is no need to repeat the entire process every time a company wants to raise Rs 200 crore,” he said.

Pointing to the increasing popularity of the primary markets among companies seeking to raise capital, the regulator has mooted the idea of setting up an “investor fund” or making alternate arrangements to sponsor independent rating of companies approaching the market for funds.

According to the outlined plan, those companies that wish to be certified by recognised agencies will have the option of doing so, without having to foot the bill for the same.

Another step aimed at easing the IPO worries of retail investors is the shifting of issue-refunds from the cheque- or DD-based model to electronic fund transfer through the RBI’s ECS.

Only investors in 15 cities in the country, where a system of interbank transfers is in place, will be benefited, while the refunds in other towns and cities will be transferred to the electronic form as and when the RBI extends its facility.

Sebi has also increased the maximum time period between two board meetings to 4 months from the current 3, though it is still mandatory for listed companies to have at least four board meetings a year.

It has also clarified that only reports pertaining to a company’s financial matters need be put up for shareholders’ approval and not necessarily all reports meant to exercise control over a firm’s affairs.

It has also clarified that sitting fees paid to executive directors are not needed to be approved by shareholders.


OTHER DECISIONS

Unique identification must. Investors transacting over Rs 5 lakh require to provide bio-metric details, others require PAN numbers

Position limits for derivatives being hiked

Optional rating of IPOs, cost to be borne by investor protection fund

No extension of Clause 49 deadline. 50 per cent independent directors on board must

Refund of payments through electronic clearing system

Go ahead for gold exchange traded funds

Govt plans new window to make ADR/GDR issuers stay at home

8 February 2005: To make companies choose the domestic equity market over the ADR/GDR route, the finance ministry and the Securities and Exchange Board of India (Sebi) are considering an alternative window in the form of regulated institutional placements. The new window for follow-on offerings will be on the lines of the ADR/GDR issue but will take place in the domestic market.

Besides, unlike the existing placement route under the preferential offer window, the proposed regulated institutional placement will not have a lock-in period. The proposal would reduce the regulatory arbitrage that prompts companies to venture abroad instead of sticking to the domestic exchanges with follow-on issues.

Under the proposed alternative mechanism, listed companies would be allowed to raise funds from the domestic market through a regulated placement to qualified institutional investors (QIBs), including banks.

But FIIs, who are not registered with Sebi, would not be eligible for participating in the issue. There would a ceiling on the number of institutional participants at 49 and a minimum of two investors for issue size up to Rs. 250 crore and five investors for issue size in excess of Rs. 250 crore in such offers.

These issues will be listed on the bourses. Approval from stock exchanges would be required in respect of the shares issued through the placement route.

Government sources said as the placement would be to a set of informed investors, the disclosures and procedural stipulations would be relatively less as compared to the public issue process.

The current rally has seen only thin basket of blue chips riding it. This has led to complaints that the Indian market is overpriced. Companies currently prefer the GDR/FCCB route mainly because of its time and cost effectiveness.

However, this is resulting in a gradual export of the domestic market, as also impacting the depth of the domestic markets. Sources said the proposed regulated placement route would not allow direct or indirect participation of promoters or persons acting in concert.

FIIs, VC funds and foreign VC funds can participate in such above placements only if they have no special arrangements in the form of shareholder agreements including board representation.

The pricing requirements shall be on par with those for GDR issues, in terms of the existing guidelines. Allotments can be made on payment of 25% of the price, in case of equity shares and convertibles (other than warrants).

In case of warrants, the payment stipulations shall be 10% on allotment of warrants, with equity shares being allotted only after payment of balance 90%.

The Securities and Exchange Board of India (Sebi) asks banks to dematerialise pledged shares

25th March 2006: SEBI has asked all banks to dematerialise shares pledged with them as collateral to prevent fraud. The equity market regulator’s advice came in the wake of detection of fraud by some listed companies, banking sources said.

Sebi has brought to the notice of the Indian Banks’ Association (IBA) that some listed entities obtained duplicate shares, dematerialised them and sold them in the secondary market when the original shares in physical form were still lying with banks pledged as collateral.

Banks seek shares and other securities from borrowers against loans disbursed as collateral, to be encashed in the event of default. The IBA, in a circular, has asked all its member banks to take necessary steps to comply with the Sebi request.

Sebi has said the banks need to convert all their equity/debt holdings into dematerialised form to avoid recurrence of fraud. But market participants feel that this move is not enough to counter fraud, as dematerialised shares do not carry a unique identification number. The lack of a unique identity for shares held in the electronic form provided room for deceit, they said.

Banking sources said the companies under scrutiny must be ones that were involved in defaults and whose loans had turned non-performing.

Loans for which promoters have pledged their shareholdings as collateral would account for about 20% of the total outstanding advances of banks, they said.

The loans to medium and large companies, outstanding at the end of March 2005, stood at Rs 2,90,186 crore. The figure has not changed much in 2005-06 as some banks, including State Bank of India, have actually witnessed a fall in lending to this segment of borrowers. The total non-food credit on March 3, 2006 amounted to Rs 13,78,436 crore.

Sebi finds more operators in IPO scam

7th April 2006: Capital markets regulator Sebi has hit pay dirt during its investigations into the role of more market operators in cornering shares reserved for retail investors in IPOs.

The Sebi probe has identified more operators and some market intermediaries involved in the misuse of the initial allotment process in public offerings dating back to ’04-05. A few more depository participants are also set to be put in the dock this time, according to officials.

The investigation launched by the regulator after January this year into the records and data of IPOs launched in ’05 and ’04 has now thrown up evidence against some market operators in manipulating allotment in the quota reserved for retail investors.

After the Yes Bank and the IDFC IPOs where a Sebi probe detected the scam, a similar story has unfolded in the case of some public issues launched in ’04, a fresh probe revealed.

The regulator is now on course to take action against few entities, who have been identified during the probe for their role in opening fictitious multiple demat and bank accounts to obtain allotment from the retail investors’ quota.

The IPOs in which there seems to be evidence of misuse include that of Suzlon Energy and NTPC, among others. There are indications of a few more IPOs, which could feature operators having gained allotment of shares through multiple demat and bank accounts.

On Tuesday, income tax officials had launched a countrywide survey on wind turbine maker Suzlon Energy and its associate and subsidiary companies to check out depreciation claims made by windmill owners. This survey is independent of the probe into IPOs.

The abuse of the IPO allotment process featured a handful of entities getting entitlement to shares reserved for retail investors in IPOs. This was done by putting in thousands of fictitious or benami applications.

Each application for the IPO was well within the cut-off figure of Rs 1 lakh for being eligible for allotment in the retail investors’ category. Once the allotment took place, these applicants with fictitious names and accounts transferred shares to their principals, who then transferred it to their financiers who had funded the investment in the IPO.

On the debut day of listing of the shares, they used to sell the shares, thus making windfall gains by cashing in on the differential between the issue price and the listing price. The Sebi probe covered several IPOs dating back to ’05, ’04 and ’03 to ascertain any misuse.

These include the offerings of Jet Airways, Sasken Communications, Suzlon Energy, Punj Lloyds, JP Hydro Power, NTPC, PVR Cinema, Shringar Cinema and a few others. On Wednesday, a parliamentary committee met up with senior Sebi officials to discuss the IPO allotment scam in New Delhi.

However, the extent of the misuse in these IPOs is not reckoned to be as high as shown in the IDFC IPO. But investigators have found more market operators involved in cornering shares apart from those like Roopalben Panchal, named in the Yes Bank and IDFC IPOs.

In the IDFC IPO alone, over 8% of the allotment in the retail segment was cornered by fictitious applicants who had opened multiple demat accounts. Roopalben Panchal alone managed to obtain an allotment of over 32 lakh shares. Others in the ring include Purushottam Budhwani, Sugandh and Manojdev Seksaria.

Sebi to get more powers: Damodaran

8th April 2006: Sebi chairman M Damodaran today said that the regulator is expected to get more powers to penalise defaulters. Delivering his keynote address at a seminar on Making Corporate Boards Work, organised by CERG Advisory, he said: "Sebi may be armed with powers to levy heavy penalties that today's penalties may look like peanuts."

In his tough, but witty, address, the Sebi chief added that despite the regulators best efforts some companies may try and exploit loopholes. "In the coming year, we may do a random check, of say 20 companies, for compliance with Clause 49 and come down heavily on 4-5 defaulters."

Even as the regulator made it clear that it can become a powerful adversary if forced to, Business Standard Editor and Publisher, T N Ninan, who was moderating the session, raised an important question: "Who will regulate the regulator?"

Damodaran replied that Sebi is learning on its part to run its business in a better way and is open to suggestions. Explaining the tough job of a regulator, he remarked that even as Sebi would continue to plug loopholes, the defaulting companies have to ultimately answer the stakeholders.

Sebi relaxes minimum shareholding norms

14th April 2006: In a significant relaxation of listing rules, the Securities and Exchange Board of India on Thursday exempted a host of companies from the minimum 25% public shareholding requirement.

Companies with market capitalisation of Rs 1,000 crore and those having 20 million shares listed have also been exempted from the norm.

Companies which issued shares in initial public offers under Rule 19 (2)(b) of the Securities Contract (Regulation) Rules 1957 (SCRR) and those intending to get listed under the rule have been excluded from the requirement of having at least 25% public shareholding.

Rule 19 (2)(b) provides that a company can get listed with just 10% holding with the public provided the minimum net offer to the public is Rs 100 crore, a minimum of 20 lakh shares are offered to the public in an IPO through book-building method and allocation to qualified institutional buyers is 60 per cent of the size of an issue.

The rule was initially applicable to technology companies and, subsequently, companies across all sectors were brought under its purview.

The rule has been resurrected through a communication to the stock exchanges by Sebi, revising the minimum public shareholding norm.

The revised norms will provide relief to several companies, including software majors Wipro and TCS.

In a communication to the stock exchanges, Sebi said companies which at the time of initial listing had offered less than 25% but not less than 10% of the total number of issued shares in terms of Rule 19 (2)(b) of Securities Contract (Regulation) Rules 1957 (SCRR), or companies desiring to list their shares by making an IPO of at least 10% in terms of Rule 19 (2)(b), will be exempted from the norms. The new guidelines on revising Clause 40A of the equity listing agreement will come into force on May 1.

The exempted companies will be required to maintain the minimum level of public shareholding at 10% of the total number of issued shares for the purpose of continuous listing.

This requirement will not be applicable to government companies as defined under the Companies Act, infrastructure companies as defined under Sebi guidelines and to companies referred to the Board for Industrial and Financial Reconstruction.

The “public shareholding” for the purpose of continuous listing will continue to comprise shares held by entities other than promoters and promoter groups and shares held by custodians against which depository receipts are issued overseas.

Companies which do not meet the minimum public shareholding norm will be allowed a transparent mechanism to achieve compliance.

The mechanism for increasing the public shareholding to the minimum level would provide for various modes of issuing shares in the domestic market and a reasonable time period, as approved by the stock exchanges, Sebi said.

The market regulator has also revised the reporting format for shareholding patterns. Shareholding patterns will now be indicated under three categories — shares held by promoters and promoter groups, shares held by the public, and shares held by custodians and against which depository receipts have been issued.

Details such as the number of shareholders, the number and percentage of shares held and the number of shares held in the dematerialised form will have to be given for all the three categories.

SEBI barred 24 key operators, including Indiabulls and Karvy Stock Broking, from operating in the stock market

28th April 2006: Sebi, in an order issued, has barred 24 operators from the market for indulging in the IPO scam.

The market regulator has also asked 12 depository participants not to open fresh demat accounts.

The order also barred Karvy Stock Broking from being a registrar for IPOs and Indiabulls from participating in the market.

HDFC Bank, Centurion Bank and IDBI Bank have been ordered not to open fresh demat accounts.

The order has also barred 85 financiers from the market.

G Anantharaman, whole time member of SEBI, vide an order dated April 27, 2006 has issued ex-parte ad interim order in the matter of Initial Public Offerings.

"In the recent past, while examining off-market transactions in the IPOs of Yes Bank (YBL) and Infrastructure Development Finance Company (IDFC), it came to the notice of SEBI that certain entities had cornered IPO shares reserved for retail applicants by making applications in the retail category through the medium of thousands of beneficiary accounts in the name of fictitious/benami entities with each of the application being of small value so as to be eligible for allotment under retail category.

"After the allotment, these fictitious/ benami allottees transferred these shares to their principals, who in turn, transferred the shares to their financiers. Most of these shares were sold immediately on listing.

"SEBI conducted investigations in respect of all the IPOs during the period from January 2003 to December 2005. The findings of investigations so far, prima facie, reveal violations of serious nature by the key operators, their financiers, concerned DPs and the depositories including violation of the provisions of SEBI Act, 1992 and Depositories Act, 1996 and the rules and regulations made thereunder. SEBI has issued directions against the concerned entities."

Sebi: Only proprietary trades banned

28th April 2006: The Securities and Exchange Board of India (Sebi) has clarified that the ban on the three broking firms, Indiabulls, Anagram and Karvy is applicable only to own account (proprietary) trading by them. Clients of these brokerages, who have demat (trading) accounts with them will be free to trade as usual.

Sebi okays 20 VCFs to invest in realty sector

3rd May 2006: The Reserve Bank of India (RBI) has asked the banks to reduce their exposure to the real estate sector venture capital funds.

Real estate VCs attract funding from three sources — domestic institutional investors and banks, which account for 50-60% of the funds raised; corporate houses and high networth individuals, which account for 20-30% of the investment; and NRIs and PIOs who chip in with another 20%.

Given the current realty boom across the country, there’s not been much of problem in building a fund corpus, which after deployment, promises attractive returns to its investors. The Securities and Exchange Board of India (Sebi) has approved the proposals of close to 20 VCFs to invest in real estate in India.

Many of these VCFs are in the process of channelling a substantial amount from both local and global investors into realty acquisition and development. They started moving in since April ’04, when the government allowed VCFs to invest in realty and after FDI was allowed in the sector this year.

Venture funds promoted by ICICI, HDFC, Kotak, and Pantaloon and foreign funds with NRI components such as Solitaire Investments have already built up a portfolio of commercial realty that have established tenants.

Securities and Exchange Board of India (Sebi) issues norms for QIP

9th May 2006: Sebi to make the Indian markets more competitive and efficient, has decided to introduce an additional mode for listed companies to raise funds from the domestic market in the form of Qualified Institutions Placement (QIP).

Key features of the move include:

Issuer: A company, whose equity shares are listed on a stock exchange having nation-wide trading terminals and which complies with the prescribed requirements of minimum public shareholding of the listing agreement, will be eligible to raise funds in the domestic market by placing securities with Qualified Institutional Buyers (QIBs).

Securities: Securities that can be issued through QIP are equity shares or any securities other than warrants, which are convertible into or exchangeable with equity shares (hereinafter referred to as "specified securities").

A security, which is convertible into or exchangeable with equity shares at a later date, may be converted or exchanged into equity shares at any time after allotment of security but not later than sixty months from the date of allotment. The specified securities shall be made fully paid up at the time of allotment.

Investors / Allottees: The specified securities can be issued only to Qualified Institutional Buyers (QIBs). Such QIBs shall not be promoters or related to promoters of the issuer, either directly or indirectly. Each placement of the specified securities issued through QIP shall be on private placement basis.

A minimum of 10% of the securities in each placement shall be allotted to mutual funds. For each placement, there shall be at least two allottees for an issue of size up to Rs 250 crore, and at least five allottees for an issue size in excess of Rs 250 crore.

Further, no single allottee shall be allotted in excess of 50% of the issue size. Investors shall not be allowed to withdraw their bids / applications after closure of the issue.

Issue Size: The aggregate funds that can be raised through QIPs in one financial year shall not exceed five times the net worth of the issuer at the end of its previous financial year.

Placement Document: Issuer shall prepare a placement document containing all the relevant and material disclosures. There will be no pre-issue filing of the placement document with Sebi. The placement document will be placed on the websites of the stock exchanges and the issuer with appropriate disclaimer to the effect that the placement is meant only for QIBs on private placement basis and is not an offer to the public.

Pricing: The floor price of the specified securities shall be determined on a basis similar to that for GDR/FCCB issue, and shall be subject to adjustment in case of corporate actions such as stock splits, rights issue, bonus issue etc.

Other procedural requirements: The resolution approving QIP, passed under sub-section (1A) of Section 81 of the Companies Act, 1956 or any other applicable provision, will remain valid for a period of twelve months from the date of passing of the resolution. There shall be a gap of at least six months between each placement in case of multiple placements of specified securities pursuant to authority of the same shareholders’ resolution.

Involvement of Merchant Banker: QIP shall be managed by a Sebi-registered merchant banker who shall exercise due diligence and furnish a due diligence certificate to stock exchanges stating that the issue complies with all the relevant requirements. The merchant banker shall file a copy of the placement document and post issue details with Sebi within thirty days of the allotment for record purpose.

Sebi: existing system for IPOs to continue

17th May 2006: Market regulator Sebi said on Tuesday that it has no plans to revise the existing system for Initial Public Offerings (IPOs), under which quotas are provided for various class of investors. "SEBI has no plans to do away with the existing systems for Initial Public Offerings," it said in a formal statement here.