Role of SEBI in Monitoring Capital Market

Role of SEBI in monitoring Indian Capital Market

01/25/13 1

 ICDR Regulations
Merchant Brokers and
Registrar
 SEBI Takeover Regulations Bankers Sub-Brokers
 Insider Trading Regulations
Registrar
 Buy Back Regulations Brokers and
Merchant and Share
Sub-
 Delisting Regulations Bankers Transfer
Brokers
Regulations Agent
 FUTP Regulations Regulations
Regulations

01/25/13 2

SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009

ICDR Regulations

01/25/13 3

AN OVERVIEW

SEBI (ICDR) Regulations deals with Issue of Specified Securities by a new
Issuer or a Listed Issuer.

Specified Securities :

01/25/13 4

STRUCTURE OF ICDR REGULATIONS

SEBI (ICDR) Regulations,
2009

Preferential
Public Issues Bonus Issue IDR Issues
Issue

Issues by
Right Issues QIP
SMEs

General Obligations of
Issuer and Merchant
Banker in Public Issue /
Right Issue

Schedules

01/25/13 5

WHAT ICDR DOES NOT REGULATE

• Public Issue of Debt Securities
(Regulated by SEBI (Issue and Listing of Debt Securities) Regulations, 2008)

• Issue of ADRs / GDRs
(Regulated by RBI FCCBs and Ordinary Shares [Through Depository Receipt Mechanism] Scheme, 1993 )

• Issue of FCCBs
(Regulated by RBI FCCBs and Ordinary Shares [Through Depository Receipt Mechanism] Scheme, 1993 )

• Issue of shares pursuant to ESOPs
(Regulated by SEBI (Employee Stock Option Plan and Employee Stock Purchase Scheme) Guidelines, 1999)

01/25/13 6

WHAT IS INITIAL PUBLIC OFFER?

“Initial Public Offer” means an
offer of specified securities by an
unlisted issuer to the public
for subscription and
includes an offer for sale
of specified securities to the public
by any existing holders
of such securities in an unlisted issuer;

01/25/13 8

KEY TERMS OF ISSUE

01/25/13 9

IMPORTANT DEFINITIONS

“Anchor Investor" - A QIB who makes an application for a value of 10 crore rupees or more
in a IPO made through the book building process

Application Supported by Blocked Amount (ASBA)” - An application for subscribing to a
public issue or rights issue, along with an authorisation to Self Certified Syndicate Bank to
block the application money in a bank account.

“Book Building” - A process undertaken to elicit demand and to determine at what price to
offer an IPO based on demand from institutional investors.

“Green Shoe Option” - An option of allotting equity shares in excess of the equity shares
offered in the public issue as a post-listing price stabilizing mechanism

"Red Herring Prospectus" - A prospectus which does not have details of either price or
number of shares being offered or the amount of issue.

“Retail Individual Investor” - Investor who applies or bids for specified securities for a
value of maximum One Lakh Rupees.

01/25/13 10

PUBLIC ISSUES FRAMEWORK

Public Issue Framework
under SEBI (ICDR)
Regulations

Eligibility Type & Promoters’ Allocation
Pricing
Requirements Procedure Contribution of Issue
& Lock-in
Book Build
Fixed Issue Issue Period
Issue

01/25/13 11

ELIGIBILITY REQUIREMENTS
Primary Eligibility Requirements

01/25/13 12

ALTERNATE ELIGIBILITY REQUIREMENTS
Alternate Eligibility Requirements:

‘Project’ has 15% participation from
public financial institutions/scheduled
Issue through Book-Building Process commercial banks of which 10%
with minimum 50% net offer to QIBs OR
comes from appraisers and min. 10%
net offer to QIBs

AND

10 Crores minimum post issue face 2 years of compulsory market making
value capital OR post issue

01/25/13 13

OTHER PRE-REQUISITES

• Prospective allottees to be not less than 1000.

• Compulsory IPO Grading by credit rating agency registered with SEBI before filling
RHP with ROC

• No outstanding convertible securities or other right which would entitle the existing
promoters or shareholders any option to receive equity shares after public offer.

• Firm arrangements of finance, through verifiable means, for 75% of the stated
means of finance excluding the amount to be raised through the public issue to be
made.

• Partly paid up shares to be made fully paid or forfeited in the manner specified,
before the public offering.

01/25/13 14

MINIMUM LISTING REQUIREMENTS

01/25/13 15

MINIMUM LISTING REQUIREMENT -BSE
New Companies (IPO) Direct Listing

Small Cap Companies Large Cap Companies

Minimum issue size of Rs. 3 Minimum issue size of Rs. 10 No minimum issue size
crore crore requirement

Market capitalization of not less Market capitalization of not less Minimum Market Capitalization
than Rs. 5 crore than Rs. 25 crore of the listed capital shall be at
least two times of the Paid Up
Capital.
Minimum post-issue paid-up Minimum post-issue paid-up A minimum issued and paid up
capital of Rs. 3 crore capital of Rs. 3 Crores equity capital of Rs. 3 crore .

Minimum income/turnover of Minimum Net Worth shall be
Rs. 3 crore in preceding 3 Rs. 20 crore.
Years
Profit Making Track Record for
last 3 years

01/25/13 16

MINIMUM LISTING REQUIREMENT -BSE
Small Cap Companies Large Cap Companies

Compulsory due diligence by CA or A dividend paying track
Merchant Banker. No Requirement of record of atleast 10% for at
Due Diligence if FIs or SCB has least the last 3 consecutive
appraised the project in 12 months years

Minimum No. of Public Shareholders Minimum 25% public
after the Issue shall be 1000. shareholding with not more
than 0.5% shareholding with
any single shareholding.

At least two years listing
record with any of the
Regional Stock Exchanges.

Demat trading with CDSL and
NSDL.

01/25/13 17

MINIMUM LISTING REQUIREMENT -NSE

Minimum paid-up capital of Rs. 10 crore Minimum paid-up capital of Rs. 10 crore and
Minimum Market capitalization of Rs. 25
However, if Market Capitalization > Rs. 100 crore
Crore, then Minimum Post-issue paid-up OR
capital is Rs. 5 Crore. Minimum paid-up capital of Rs. 25 crore
OR
Minimum Market capitalization of Rs. 50
Minimum Market capitalization of Rs. 25 crore
crore OR
Minimum Net worth of Rs. 50 Crores in
preceding 3 years.

Minimum 3 years of track record of Issuer Minimum 3 years of track record of Issuer
Company or its promoter company. Company or its promoter company.

01/25/13 18

MINIMUM LISTING REQUIREMENT -NSE


Other criteria Dividend payment record in atleast 2 out of the
last 3 FY
OR
Distributable profits in atleast 2 out of the last 3
FY
OR
Minimum Net worth of Rs. 50 Crores

Other Criteria

01/25/13 19

TYPE & PROCEDURE

01/25/13 20

A COMPARATIVE ANALYSIS

Fixed Price Issue Book-Building Issue

Pre-determination of price / price band, Determination of price on the basis of bids
which is made known to the investors received from the investors. Investors are
made known only an indicative floor price /
price range.

Demand for the securities offered is Demand for the securities offered can be
known only after the closure of the issue. known everyday as the book is built.

Underwriting is not compulsory in case of Underwriting is compulsory in case of
Fixed Price Issue Book-Built Issue

01/25/13 21

PRICING

• Free Pricing – Price to be determined by Issuer in consultation with Lead Merchant
Banker

• Differential Pricing
– Retail Individual Investor my be offered shares at less price than that of other
categories
– Anchor investors can not be offered shares at less price than any that of other
categories
– In case of Composite issue, the price of public issue and right issue can be
different.
– In case of alternate method of book building, shares may be issued to employees
at lower price.

(the differential pricing shall not be more than 10% of the floor price)

01/25/13 23

PROMOTERS’ CONTRIBUTION

Certain specified securities are ineligible for minimum promoters’ contribution
01/25/13 26

SECURITIES INELIGIBLE FOR MINIMUM PROMOTERS’
CONTRIBUTION

• Securities acquired during the preceding 3 years for consideration other than cash.
• Specified securities acquired during the preceding 1 year at a price below Issue price,

However, if promoters pay the difference, or acquired pursuant to merger etc., then
such securities are eligible.

• Securities allotted to promoters acquired during the preceding 1 year at a price below
Issue price against funds brought in by them in case of conversion of partnership firm
into company.
• Securities pledged with any creditor.

01/25/13 27

LOCK-IN OF PROMOTERS’ CONTRIBUTION

01/25/13 28

ALLOCATION OF ISSUE – BOOK BUILDING ROUTE

Issue Size

Promoters’ Offer through offer
Contribution document
Min. 20% of
Net offer to
Issue Size Reservation
public
Min. 25% of Issue Size

Non-institutional Retail individual
QIB
investor investor
Max. 50% of NOP Min. 15% of NOP Min. 35% of NOP

Anchor
Mutual Funds
Investor
Min. 5% of NOP Max. 30% of QIB

01/25/13 29

ALLOCATION OF ISSUE – FIXED PRICE ISSUE

Issue Size

Promoters’ Offer through offer document
Contribution

Min. 20% of
Net offer to
Issue Size Reservation
public
Min. 25% of Issue Size

Retail Individual
Other investors
Investors
Min. 50% of NOP Max. 50% of NOP

01/25/13 30

ISSUE PERIOD

Activity Fixed Price Book-build
Issue Issue
Minimum day 3 3

Maximum days 10 7

Maximum number of days issue to be kept N.A. 10
open in case of revision in price band

01/25/13 31

RIGHT ISSUE

Right Issue (Where the aggregate value of securities offered is 50 lacs or more)
• Meaning – Issue of shares by a company to its existing shareholders
• Free Pricing
• Issue of Letter of Offer
• Open for subscription for a minimum 15 days and for maximum 30 days

Key Considerations
• Rights Issue vs. Further Public offering
• Extent of Capital Expansion and its impact on EPS
• Increase in Promoters’ shareholding and applicability of SEBI Takeover Code.
• Reservation of rights for convertible instruments.

01/25/13 33

ELIGIBILITY CRITERIA FOR RIGHTS ISSUE

• No Outstanding convertible instrument

• Appointment of Merchant Banker

• Clearance of Letter of Offer from Stock Exchange

• Appointment of Registrar to the Issue

• Agreement with Depository

• No Partly Paid up shares

• Application to Recognized Stock Exchange

• Appointment of Designated Stock Exchange

01/25/13 34

ELIGIBILITY CRITERIA FOR RIGHTS ISSUE
• Restrictions:

– The following persons are not debarred from accessing the capital market by SEBI

• Issuer Company

• Promoters

• Promoter Group

• Directors

• Persons in control of the Issuer

• Companies in which the above persons are promoter/director

– Issuer company has not defaulted in repayment of convertible debt instruments and is
not in the list of willful defaulters published by RBI.
• Firm arrangements of finance through verifiable means towards stated 75% of the stated
means of finance, excluding the amount to be raised through Right Issue.
35
01/25/13

PRICING OF RIGHTS ISSUE
• Pricing of Rights issue is not regulated by SEBI (ICDR) Regulations.
• Generally, price for Rights issue shall be lower than the Market Price, however the gap
between the Market Price and Issue Price is determined on the basis of certain criteria.
• Key Criteria:
– Price Trend of the issuer’s shares during the past 1 year and affect of corporate
announcements on price to remove impact of extra-ordinary price movement.
– Price Maintainable in the long-run

– State of Capital Market – Stable, Volatile, Bullish, Bearish.

– P/E Ratio

– Feasibility of Proposed Plans

– Dividend Policy

– Resource Position of the Company
01/25/13 36

WHAT IS PREFERENTIAL ISSUE

Preferential issue
means
issuance of equity shares to the
promoters, promoter group or
selected group of persons or
any investor(s) on private
placement basis.
Does not include an offer of specified securities made through a public issue, rights issue, bonus
issue, ESOS, ESPS or QIP or an issue of sweat equity shares or depository receipts issued in a
country outside India or foreign securities.

01/25/13 38

APPLICABILITY

The provisions shall not apply where the preferential issue of equity shares is
made:
a)pursuant to conversion of loan or option attached to convertible debt
instruments in terms of sections 81 (3)(4) of the Companies Act, 1956;
b)pursuant to a scheme approved by a High Court
c)in terms of the rehabilitation scheme approved by the BIFR under SICA

01/25/13 39

RELEVANT DATE

01/25/13 40

CONDITIONS FOR PREFERENTIAL ISSUE

01/25/13 41

PRICING OF THE ISSUE

If shares are listed for a period of 6 months or more as on Relevant Date:

•Average of weekly high / low closing prices of shares quoted in SE during 6
months preceding the relevant date

OR

weeks preceding the relevant date

Which ever is higher

01/25/13 42

PRICING OF THE ISSUE

If shares are listed for a period of less than 6 months as on Relevant Date:

•Price at which shares are issued in IPO or value per share arrived in scheme
of arrangement, if any
OR
•Average of weekly high / low closing prices of shares quoted in SE during
the period share have been listed preceding the relevant date

OR
weeks preceding the relevant date

Which ever is higher

01/25/13 43

LOCK-IN OF SPECIFIED SECURITIES

Specified securities Time period of Lock In

Securities allotted to promoter group and the equity shares Three years
allotted pursuant to exercise of options attached to warrants
issued on preferential basis to promoter or promoter group

Equity shares allotted in excess of the 20% of paid up capital One year

Securities allotted to persons other than promoter group and the One year
equity shares allotted pursuant to exercise of options attached to
warrants issued on preferential basis to such persons

Shares allotted pursuant to CDR scheme One year

01/25/13 44

QUALIFIED INSTITUTIONAL PLACEMENT (QIP)

QIP means allotment of
eligible securities by a listed
issuer to Qualified
Institutional Buyers on
private placement basis in
terms of these regulations.

01/25/13 46

QUALIFIED INSTITUTIONAL BUYERS

i. a mutual fund, venture capital fund and foreign venture capital investor
ii. a foreign institutional investor and sub-account
iii. a public financial institution
iv. a scheduled commercial bank;
v. a multilateral and bilateral development financial institution;
vi. a state industrial development corporation;
vii. an insurance company registered with the IRDA
viii.a provident fund with minimum corpus of Rs. 25 crore;
ix. a pension fund with minimum corpus of Rs. 25 crore;
x. National Investment Fund set up by resolution no. F. No. 2/3/2005-DDII dated
November 23, 2005 of the Government of India published in the Gazette of India;
xi. insurance funds set up and managed by army, navy or air force of the Union of India.

01/25/13 47

RELEVANT DATE

01/25/13 48

ELIGIBILITY CONDITIONS

• Eligible Securities: “Eligible Securities” include equity shares, non-convertible debt
instruments along with warrants and convertible securities other than warrants.

• Eligibility Criteria’s:
• Special Resolution
• Appointment of Merchant Banker
• Minimum Public Shareholding to be maintained
• The equity shares of the same class have been listed on a recognized stock
exchange having nation wide trading terminal for a period of at least one year
before QIP.

01/25/13 49

OTHER KEY CONDITIONS

• Restriction on Allotment:

Issue Size

Mutual Fund Other QIBs

Max 50% to single
Min. 10%
QIB

If not Subscribed

QIB belonging to the same group or who are under same control shall be
deemed to be a single allottee.
01/25/13 50

OTHER KEY CONDITIONS

• Minimum Number of Allottees:

Issue Size Number of Allottees
Less than INR 250 Crores 2
More than INR 250 Crores 5

• Tenure of convertible instruments issued through QIP is 60 Months.

• Aggregate of proposed QIP and all previous QIP in one FY shall not exceed 5 times
of Networth of the Issuer of the previous financial year

• Eligible securities issued through QIP shall not be transferrable for one year except on
a recognized Stock Exchange.

01/25/13 51

BONUS ISSUE
Eligibility Criteria’s
•Authorisation in AOA.
•Not default in the payment of interest or principal in respect of fixed deposits or debt Securities.
•Not defaulted in respect of the payment of statutory dues of the employees such as contribution to
provident fund, gratuity and bonus.
•Partly paid shares, if any, are made fully paid up.
•Reservation of bonus shares in favour of the holders of outstanding convertible debt instruments in
proportion to the convertible part thereof.

Source of Bonus Issue
•Bonus issue shall be made out of free reserves built out of the genuine profits or securities premium
collected in cash only.
•Bonus Issue shall not be made out of reserves created by revaluation of fixed assets.
•Bonus Share shall not be issued in lieu of dividend.

01/25/13 53


“Main Board” means a recognized stock exchange having nationwide trading
terminals, other than SME exchange;

“Nominated Investor” means a QIB or PE Fund who enters into an agreement with
the merchant banker to subscribe to the issue in case of under-subscription or to
receive or deliver the specified securities in the market-making process;

“SME exchange” means a trading platform of a recognised stock exchange having
nationwide trading terminals permitted by the Board to list the specified securities
issued and includes a stock exchange granted recognition for this purpose but does
not include the Main Board;

01/25/13 55

ISSUE AND LISTING OF SHARES BY SMEs

01/25/13 56

ISSUE AND LISTING OF SHARES BY SMES

• No need to filing DRHP with SEBI before filing it with ROC or DSE

• SEBI will not give observations on offer document

• 100% underwriting of issue is mandatory.

• Minimum 15% underwriting obligation of Merchant Banker

• Nominated Investors can also underwrite the issue

• Minimum Application Value = Rs. 1 Lac

• Minimum Number of Allottee = 50

• Compulsory Market Making for minimum 3 years

• Promoters’ holding is not eligible for being offered to market maker

01/25/13 57

POWERS OF THE BOARD

01/25/13 59

AMENDMENTS IN ICDR

01/25/13 61

AMENDMENTS IN ICDR

01/25/13 62

AMENDMENTS IN ICDR

01/25/13 63

New SEBI Takeover Regulations
(Yet to be notified)

01/25/13 64

NEED OF SEBI TAKEOVER REGULATIONS

01/25/13 65

SALIENT FEATURES
AND
Impact

01/25/13 66

KEY DEFINITIONS

01/25/13 67

ACQUIRER

Who

Directly Or Indirectly

Acquires Or Agrees to Acquire

Shares Or Voting Rights Or Control

In

Target Company

Either

Himself Or Through PACs Or With PACs
01/25/13
As Per TRAC Report 68

CONTROL
Control

Includes

Right to

Appoint majority of Control the Control of Policy
directors management decision

Exercisable

Individually Or with PAC

Directly Or Indirectly

By virtue of

Management Shareholders Voting
Shareholding
Rights Agreement Agreement
01/25/13 69
As per SEBI Press Release dated July 28, 2011

CHANGE IN CONTROL

01/25/13 70
As Per TRAC Report

FREQUENTLY TRADED SHARES

01/25/13 As Per TRAC Report 71

IDENTIFIED DATE

Specified Date Identified Date

A date not later than the A date falling on the
30th day from the date of 10th business day prior
the PA to tendering period

As Per TRAC Report
01/25/13 72

SHARES

• The scope of definition has been Broadened;

• Inclusion of Depository Receipts within the ambit of term
shares.

• Holder of the depository receipts is treated at par with the
one who acquired the Equity Shares carrying voting
rights.

As Per TRAC Report
01/25/13 73

INITIAL THRESHOLD
AND
CREEPING ACQUISITION

01/25/13 74

INCREASE IN THRESHOLD

INITIAL THRESHOLD
Malaysia Hong Kong Australia U.K.
33% 30% 20% 30%

01/25/13 As per SEBI Press Release dated July 28, 2011 75

IMPACT

•A welcome step and aligns more closely with global practices in other countries;

•Beneficial for the Private Equity Players and Investors;

•No Transitional Provision for the promoters holding less than 25%;

•Hostile takeover threat to the listed companies with lower promoter shareholding.;

•Negative Control - Any large investor can acquire some shares from the market to
keep his holding upto 25% which is sufficient to block any Special Resolution and keep
a check on the management;

01/25/13 76

CREEPING ACQUISITION

01/25/13 As Per TRAC Report 77

IMPACT

• It will help the promoters in the consolidation of holdings;

• Flexibility to acquire 10% shares or voting rights within 2 days without
triggering the Open Offer requirement.

01/25/13 78

PROMOTER HOLDING IN LISTED COMPANIES

Total Promoter Companies With Promoter Holding
Holding (%) Between

Market Cap No. of Mean Median 0-15% 15-20% 20-25% 25-30%
Range (Rs. Compani
Mn) es

0-500 2,477 45.50% 46.40% 274 87 97 138
(61.1%) (11.1%) (3.5%) (3.9%) (5.6%)

500-2,000 649 52.60% 54.90% 34 19 12 19
(16.0%) (5.2%) (2.90%) (1.8%) (2.9%)

2,000-5,000 312 54.30% 55.00% 10 8 1 10
(7.7%) (3.2%) (2.6%) (0.3%) (3.2%)

5,000-10,000 157 52.20% 54.50% 5 1 3 8
(3.9%) (3.2%) (0.6%) (1.9%) (5.1%)

10,000 and 459 55.20% 54.30% 15 5 11 16
above (11.3%) (3.3%) (1.1%) (2.4%) (3.5%)

Overall 4,054 48.90% 50.50% 340 120 124 191
(100%) (8.4%) (3.0%) (3.1%) (4.7%)

01/25/13 Source: TRAC Report 79

OPEN OFFER
AND
ITS RELATED CONCEPTS

80
01/25/13

INCREASE IN OFFER SIZE

As per SEBI Press Release dated July 28, 2011 81
01/25/13

OFFER SIZE ANALYSIS

Offer size (% of total equity
capital of Target Company)

FY Total <=20% >20%
2006-07 89 77 12
2007-08 118 100 18
2008-09 113 95 18
2009-10 75 65 10
Total 395 337 58
% of Cases 100% 85.32% 14.68%

Source: TRAC Report

82
01/25/13

FREEDOM TO COMPLETE ACQUISITION UNDER SPA

Existing Regulations Proposed Regulations

Not allowed Allowed

Until the completion of offer •After a period of 21 days from the date
formalities. of PA and
•Subject to acquirer depositing 100%
consideration payable under the Open
Offer in Escrow Account.

This provision will allow the acquire to have the representation in
the Target Company even before the completion of open offer and
to exercise the control over it.

01/25/13

ACQUISITION FROM OTHER COMPETING ACQUIRER

Simplified Rules-An ease for Competitive Bidder for control change

Keeping in view the increasing trend of competitive biddings in India this may
be taken as an imperative step as compelling two warring groups to continue
in a company may not be in the interest of the company and smooth passage
to one of the competitive bidders is desirable.

01/25/13

NON COMPETE FEES

More beneficial for the shareholders as they will be entitled to get the
same price as have been received by the promoters/sellers from the
acquirer.

01/25/13

IMPACT

Shareholder Promoter

Investor Investor + Management+
Control

Thus, Payment of Non compete fees or control premium should be allowed.

86
01/25/13

REDUCTION IN TIME LINE

The timeline for
completion of the open offer
has been reduced from
95 calendar days
To
57 Business Days

01/25/13

EXEMPTIONS

88
01/25/13

NEW EXEMPTIONS INTRODUCED

Increase in shareholding pursuant to Buy Back

89
01/25/13 As Per TRAC Report

NEW EXEMPTIONS INTRODUCED

Increase in shareholding pursuant to CDR
Scheme
• Approval of the scheme by shareholders by way of
Special Resolution passed by Postal Ballot; and
• No Change in control.

01/25/13

NEW TAKEOVER REGULATIONS-A WIN WIN SITUTAION

• Beneficial for Private Equity Players and Investors.
• More protection for the small shareholders.
• Simplification in the provisions.
• More transparency and removal of ambiguity.
• At par with Global Practices prevalent for M&As.

91
01/25/13

COMPARISON OF NEW AND OLD TAKEOVER
REGULATIONS

Criteria Old Regulations New Regulations

Press Release dated July 28, 2011

Initial Threshold 15% 25%

Offer Size 20% 26%

Non-Compete Fees Upto 25% of the Offer Price Not allowed

Acquisition from the other No provision Available without attracting
competing acquirer Open Offer obligations

Recommendation on offer by Optional Mandatory
Board of Target Company

Voluntary Offers No specific conditions Introduced subject to certain
conditions.

01/25/13 92

SEBI (Prohibition of Insider Trading) Regulations, 1992

Insider Trading Regulations

93
01/25/13

WHAT IS INSIDER TRADING?

It is dealing in the securities
by a Insider,
who has the knowledge of
material “inside” information
which is not known
to the general public

94
01/25/13

HOW BAD IT IS ???

 Used to make profit at the expense of other Investors;
 Leads to loss of confidence of investor in stock market;
 The process corrupts the ‘Level Playing Field’;
It is easier to identify the beneficiaries of insider dealing. But the
extent of losses occurred is impossible to calculate.

95
01/25/13

INSIDER

IS
IS WHO
WHO WAS
WAS

OR
OR

CONNECTED WITH THE COMPANY
CONNECTED WITH THE COMPANY

OR
OR

DEEMED TO HAVE BEEN CONNECTED
DEEMED TO HAVE BEEN CONNECTED

AND
AND

WHO IS REASONABLY EXPECTED TO HAVE
WHO IS REASONABLY EXPECTED TO HAVE

ACCESS
ACCESS OR
OR HAS RECEIVED
HAS RECEIVED OR
OR HAS HAD ACCESS
HAS HAD ACCESS

TO
TO

UNPUBLISHED PRICE SENSITIVE INFORMATION
UNPUBLISHED PRICE SENSITIVE INFORMATION 96
01/25/13

Whether the Auditor and Chartered
Accountant (CA) also come within the
ambit of term “Insider”?

Yes

97
01/25/13

PRICE SENSITIVE INFORMATION

ANY INFORMATION
ANY INFORMATION

WHICH RELATES
WHICH RELATES

DIRECTLY
DIRECTLY OR
OR INDIRECTLY
INDIRECTLY

TO A COMPANY
TO A COMPANY
AND
AND
WHICH IF PUBLISHED
WHICH IF PUBLISHED

LIKELY TO MATERIALLY AFFECT THE PRICE OF
LIKELY TO MATERIALLY AFFECT THE PRICE OF
SECURITIES OF THE COMPANY
SECURITIES OF THE COMPANY
98
01/25/13

DEEMED PRICE SENSITIVE INFORMATION

 Periodical Financial Results of the company;
 Intended declaration of dividends;
 Issue of securities or buy-back of securities;
 Expansion Plans / New projects;
 Amalgamation, mergers or takeovers;
 Disposal of undertaking;
 Changes in policies of the company.

99
01/25/13

DISCLOSURE REQUIREMENT

1. On the acquisition of >5% shares and Whenever there is a change of 2% in
shareholding after the acquisition of 5%.
2. On becoming the director or officer and whenever there is a change in holding in
excess of Rs.5 Lakh in value or 25,000 shares or 1% of total shareholding or voting
rights.

Recent Development
On becoming the promoter or part of promoter group and whenever there is a
change in holding in excess of Rs.5 Lakh in value or 25,000 shares or 1% of total
shareholding or voting rights.

100
01/25/13

SCHEDULES – MODEL CODE OF CONDUCT

SCHEDULE I

MODEL CODE OF CONDUCT
FOR PREVENTION OF INSIDER TRADING

PART A - FOR LISTED COMPANIES
PART B – FOR OTHER ENTITIES

SCHEDULE II
CODE OF CORPORATE DISCLOSURE PRACTICES
FOR
PREVENTION OF INSIDER TRADING

101
01/25/13

IMPORTANT TERMS
 Trading Window

Company shall specify a trading period, to be called "Trading Window", for trading in the
company’s securities.

The trading window shall be closed during the time the Price Sensitive information is un-
published and shall opened after 24 hours the PSI is made public.

 Restricted/Grey List

To restrict trading in certain securities and designate such list as restricted / grey list.

Any security which is purchased or sold by the organisation/firm on behalf of its clients /
schemes of mutual funds, etc. shall be put on the restricted / grey list.

 Chinese Wall

Chinese Wall policy demarcates “inside areas” from "public areas". The employees in the inside
area shall not communicate any PSI to anyone in public area.

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NEED TO KNOW

 PSI should be disclosed only to those within the company who need the
information to discharge their duty.

 Limited access to confidential information

 Files containing confidential information shall be kept secure.

 Computer files must have adequate security of login and pass word etc.

 All D/O/E of the Co and their dependants as defined by the company who
intend to deal in the securities beyond a limit should pre-clear the
transactions.

103
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AMENDMENTS IN INSIDER TRADING REGULATIONS

104
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SEBI (Buy Back of Securities) Regulations, 1998

Buy Back of Securities

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BUY BACK..

The repurchase of

outstanding shares (repurchase)

by a company in order to

reduce the number of shares on the

market.

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REASON FOR BUY BACK

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“Associate” includes a person, -
i. who directly or indirectly by himself or in combination with relatives, exercises
control over the company or,
ii.whose employee , officer or director is also a director, officer or employee of
another company;

“Tender Offer” means an offer by a company to buy back its shares or other
specified securities through a letter of offer from the holders of the shares or other
specified securities of the company.

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GOVERNING PROVISIONS

• Section 77A, 77AA, 77B of Companies Act, 1956;

• SEBI (Buy Back of Securities) Regulations, 1998 (For Listed Companies)

• Private Limited Company and Unlisted Public Limited Company (Buy-Back of

Securities) Rules, 1999

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BUY BACK AT A GLANCE

• Authorization in AOA;
• Board Resolution - In case the fund utilization in buy back is ≤10%total
paid up equity capital and free reserves;
• Special Resolution - In case the fund utilization in buy back is >10% and
≤25% of the paid up capital (equity plus preference shares) and free
reserves;
• Debt equity ratio should not be more than the 2:1 after such buy-back;

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BUY BACK AT A GLANCE

• Filing of Declaration of Solvency with the Registrar and SEBI.

• All the shares or other specified securities for buy-back are fully paid-up;

• Buy-back shall be completed within twelve months from the date of

passing the SR or BR.

• Minimum time of 365 days between two Buy Back offers

• Extinguish and physically destroy the securities bought-back within 7 days

of the last date of completion of buy-back.

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SOURCES OF FUNDS

Section 77A (1) of Companies Act, 1956 states that:

A company may purchase its own shares or other specified securities out of—

OR OR

Provided that no buy-back of any kind of shares or other specified securities shall be
made out of the proceeds of an earlier issue of the same kind of shares or same kind
of other specified securities.

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RESTRICTIONS IN BUY-BACK

• Buy-back of shares shall not be done for delisting of securities from the stock
exchange.

• Buy-back shall not be done from any person through
• Negotiated Deals
• Spot Transactions
• Private Arrangements

• No insider trading in securities on the basis of unpublished information relating to buy-
back of securities.

• No further issue of same kind of shares or other specified securities within a period of 6
moths except by way of bonus issue or in the discharge of subsisting obligations

113
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METHODS OF BUY-BACK

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PROCESS OF BUY-BACK – TENDER OFFER/ODD -LOT

Verification and
Decision for Buy- Payment to
Extinguishment Acceptance / Opening of
back Securities
of Certificates Rejection of Special Account
holders
securities
Board Resolution
and Public Notice, if Closure of offer for
applicable Buy-back

Special Resolution, COMPANY Opening of offer for
if applicable Buy-back

Appointment of Opening of Escrow
Merchant Banker Account

SEBI Clearance
Filing of Draft
& Filing of Final
Letter of Offer Dispatch of LOO
Public LOO with SEBI
Specified Date and Declaration and Advt. in
Announcement & STX and In-
of Solvency with Newspaper
principal
SEBI and STX
Approval

115
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PROCESS OF BUY-BACK – OPEN MARKET
PURCHASE THROUGH STOCK EXCHANGE METHOD

Decision for Buy- Extinguishment of Payment of
back Certificates Consideration

Board Resolution Verification and
and Public Notice, if Acceptance /
applicable Rejection of
securities

Special Resolution, COMPANY
if applicable Fortnightly public
notice of shares
bought-back or on
Appointment of
5% buy-back
Merchant Banker

Filing of copy of Buy Back to be BB only through
Daily disclosure
Public made only on order matching
Public to STX about
Announcement SE having mechanism
Announcement shares bought
with SEBI and nationwide except “all or
back
STX terminal none”

116
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PROCESS OF BUY-BACK – OPEN MARKET
PURCHASE THROUGH BOOK-BUILDING METHOD

Decision for Buy-
Extinguishment Payment to
back
of Certificates Securities holders

Board Resolution Verification and
and Public Notice, if Acceptance /
applicable Rejection of
securities
Special Resolution, COMPANY
Opening of Special
if applicable
Account

Appointment of Determination of
Merchant Banker Price

Filing of copy of
Public Public
Opening of Escrow Opening of offer Closure of offer for
Announcement Announcement
Account with SEBI and for Buy-back Buy-back
STX

117
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AMENDMENTS IN BUY BACK

118
01/25/13

SEBI (Delisting of Equity Shares) Regulations, 2009

Delisting of Securities

119
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WHAT IS DELISTING

120
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DELISTING

“Delisting” is totally the reverse of listing.

To delist means permanent removal of securities of a
listed company from a stock exchange. As a
consequence of delisting, the securities of that
company would no longer be tradeable at that stock
exchange.

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SALIENT FEATURES

 Public shareholders have been defined as the holders of
equity shares other than the

a) Promoters and

b) holders of depository receipts issued overseas against
underlying shares.
 Not be applicable to sick companies

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SALIENT FEATURES

• The companies cannot delist their securities from the Exchanges

pursuant to buyback and preferential allotment.

• No shareholders approval, in case the company continues to remain

listed at any of the exchanges having Nationwide trading terminal i.e.

BSE and/ or NSE or any other Exchange specified in this behalf.

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SALIENT FEATURES

• The concept of Specified Date has been introduced, which shall not be
later than 30 working days from the date of the Public Announcement.
• The Special Resolution passed for the delisting giving exit option to the
shareholders will be valid for a period of 1 year within which the final
application will be required to be made to the exchange for delisting.
• Special Resolution by way of Postal Ballot

124
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SALIENT FEATURES

• Successful Exit Offer : Under the Regulations, to get delisted, post offer,
the Promoter holding should reach the higher of the following:
– 90% of total issued shares of that class; or

– (pre offer promoter holding +50% of the Offer Size), otherwise the offer
shall be deemed to have failed.

Promoters’ option of not accepting the Offer Price

Promoters/ PAC not allowed to participation in bidding:

125
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TYPES OF DELISTING

126
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HOW TO DELIST

127
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SEBI (Stock Brokers/Sub Brokers) Regulation,1992

Stock Brokers/Sub Brokers Regulation

128
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INTENT

The Stock brokers plays an eminent role in the development of a capital market of any

country and likewise stringent and effective regulation of these market intermediaries

becomes essential. The so called Capital Market Regulator and watchdog SEBI plays

an effective role in regulating these Market Intermediaries and ensuring the

development of a healthy market.

129
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COVERAGE – SEBI Regulations

Through Stock
Exchanges

130
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REGISTRATION

The Registration of Stock Brokers involve two way process:

Registration with Stock Exchanges

Registration with SEBI

131
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ELIGIBILITY

132
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Other Requirements

At the time of registration, Brokers are required to identify :

133
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VALIDITY OF REGISTRATION

Registration of Stock Brokers

is on Permanent Basis

until Surrendered or Suspended

for regulatory actions

134
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COMPLIANCES

Brokers are required to comply the rules and regulations of the following:

• Stock Exchanges

• SEBI

The compliances of both the authorities can be broadly divided into two parts:

135
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REGULAR COMPLIANCES

SEBI through Stock Exchanges regulates the activities of Stock
Brokers to ensure Capital Market integrity and protection of the
interest of the Investors

SEBI GOVERNS:
 Day to trading related compliances
 Dealing with clients like KYC, Contract Notes, proper authorisation, disclosures,
maintenance of funds & securities.
 Compliance with respect to terminals and employee’s on the terminals.
 Maintenance of books & accounts and documents

136
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REGULAR COMPLIANCES

 Maintenance of margin requirements
 Ensuring proper trading (Prevention of fraudulent and unfair transactions)
 No dealings with unregistered entities
 To comply with the advertisement guidelines
 Adherence to Prevention of Money Laundering Guidelines

RECENT Step of SEBI towards Investor Protection and transparency in Capital Markets :
SEBI vide circular dated 2nd August 2011 has directed that the details of the transactions done on
each trading day shall be sent by the Stock Exchanges to the investors, by the end of each trading
day, through SMS and E-mail alerts

137
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EVENT BASED COMPLIANCES

Event based compliances are as follows:
 Change in status and constitution

 Change in Directors

RECENT CIRCULAR ISSUED BY SEBI:

SEBI vide circular dated 03.06.2011 has relaxed the procedural statutory requirements and
simplified the restructuring of stock brokers as under:
•The requirement of prior approval of SEBI in case of change in status and constitution has been
done away with.
•Now the stock brokers would only be required to obtain prior approval of Stock Exchanges and
SEBI prior approval will only be required in case of Change in Control.

138
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INSPECTIONS AND AUDITS

• To ensure the proper working by Stock Brokers SEBI as well as Stock
Exchanges from time to time conducts Inspections and Audits of dealing of
stock brokers.
• Also to ensure self governance, SEBI has mandated for all stock brokers, an
half yearly voluntary audits of their business vide circular dated 22nd August,
2008 by independent CA’s, CS’s & ICWA’s.

139
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LIABILITIES

140
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SEBI (Prohibition of Fraudulent and Unfair Trade Practices
Relating To Securities Market) Regulations, 2003

FUTP Regulations

141
01/25/13

INTENT

Stock Exchanges provides trading platform to a enormous number of buyers and

sellers who come to trade their shares at a fair price and volume discovery, based

on the market forces of demand and supply. However, there can be situations

where a mechanism can be designed to manipulate the stock market transactions in

order to obtain gains through fraudulent and manipulative manner. Thus, stringent

and effective regulations becomes necessary to be formed by the Capital Market

Regulator to protect the interest of the investors.

142
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MANNER OF DEALING

143
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ROLE OF SEBI

In case of any violation in the provisions of the regulations, Stock

Exchanges intimate the same to SEBI and the capital market

regulator thereof conducts investigation to protect the interest of

investors and securities market.

144
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LIABILITIES

The board may impose the following penalties in case of any violations:

acquired in violation of
the regulations
145
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SEBI (Merchant Bankers) Regulations, 1992

Merchant Bankers Regulations

146
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WHO IS A MERCHANT BANKER

Who is
Who is

Engaged in OR Acting as

Manager, consultant
Manager, consultant
Issue Management
Issue Management and advisor
and advisor

Either by making
Either by making Or rendering
arrangement for
arrangement for
Corporate advisory
Corporate advisory
Selling, Buying or
Selling, Buying or service in relation to such
service in relation to such
Subscribing to Securities
Subscribing to Securities issue management
issue management

147
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ELIGIBILITY CRITERIA’S

• A body corporate other than a NBFC
• Adequate Infrastructure
• Should have minimum two experienced employees
• Conform to the Capital Adequacy Requirement
• His partner, director or principal officer should not be involved in any litigation
connected with the Securities Market.
• Should be a fit and proper person

148
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CAPITAL ADEQUACY REQUIREMENT

149
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CATEGORIES OF MERCHANT BANKER

Earlier Now

Category 1 – To carry on the business of Issue Category 1 – To carry on the business of Issue
Management, to act as advisor, consultant, Management, to act as advisor, consultant,
manager, underwriter, portfolio manager. manager, underwriter, portfolio manager.

Category 2 – To act as adviser, consultant, co-
manager, underwriter,
portfolio manager

Category 3 – To act as underwriter, adviser,
consultant to an issue.

Category 4 – To act as consultant or advisors to
an issue.

150
01/25/13

FEES FOR REGISTRATION

151
01/25/13

AMENDMENTS
Date Amendments

7 Sept 2006 • Inserted definitions
• Change in Capital Adequacy requirements. Earlier requirements were given
for different categories
• Added conditions for registration as Merchant Banker
• Period of validity of certificate for 3 years

28 May 2007 Revised fees for filing draft offer document

31 March 2008 Revised fees for filing draft offer document

13 April 2010 • Merchant Banker may ensure market making in accordance with Chapter XA
of SEBI (ICDR) Regulations
• Merchant Banker shall underwrite 15% of issue size
• To submit complete particulars of acquisition made in pursuance of
underwriting or market making to the Board on quarterly basis

16 August 2011 Due diligence records to be maintained by merchant bankers in issue
management, takeover, buyback and delisting
152
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SEBI (Registrars To An Issue And Share Transfer Agents)
Regulations, 1993

Registrar and Transfer Agent

153
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REGISTRAR TO AN ISSUE

REGISTRAR TO AN ISSUE

Appointed

To carry on following activities:

a. Basis of allotment
of securities
Collecting Keeping proper b. Finalising
persons entitled
applications from record of applications to allotment;
investors in respect and monies received c. Processing
or paid allotment letters,
of an issue
and other
documents

154
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SHARE TRANSFER AGENT

SHARE TRANSFER AGENT

Person Division of body
On behalf of body corporate corporate

Maintains Performing similar activities
records of holders of if
securities and deals with Holders of its
transfer and redemption of securities ≥ 1 Lakh

its securities;

155
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CATEGORIES

156
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CAPITAL ADEQUACY REQUIREMENT
Capital
Adequacy
requirement
≥ Net worth

NET WORTH

The Registrar to an Issue or a Share Transfer Agent, who was granted a Registration certificate,
prior to the commencement of the second amendment in 2011, shall raise its networth to the said
minimum within a period of three years

157
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VALIDITY OF CERTIFICATE

Certificate of initial
Registration granted
SHALL BE VALID FOR
5 YEARS
from the date of its issue

158
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FEES

Particulars Category I Category II

Application of registration Rs. 10,000 Rs. 10,000

At the time of grant of certificate of initial Rs. 4,00,000 Rs. 1,33,300
registration.
OR OR

A registrar to an issue and share transfer Rs. 1,50,000 Rs. 50,000
agent who has been granted a certificate
of permanent registration, to keep its
registration in force.

159
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AMENDMENTS
Date Amendments

17 Sept 1997 Registrar to an Issue not to act as such for an associate

5 Jan 1998 Criteria of fit and proper person

7 Sept 2006 • Inserted new definitions
• Added conditions for registration as Registrar and STA

5 July 2011 Initial registration shall be valid for 5 years
Grant of certificate of permanent registration
Revision of fees

16 August 2011 Networth requirement for Category I and Category II increased to Rs.
50,00,000 and Rs. 25,00,000 respectively.
Registrar and STA shall raise its networth within 3 years from such
commencement

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THANK YOU

Pavan Kumar Vijay
Managing Director
Corporate Professionals Capital Private Limited
SEBI Registered Merchant Banker
Regn. No.: INM000011435
D-28, South Extension -I,
New Delhi-110 049
Ph: +91.11.40622200; FAX: +91.11.40622201

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Role of SEBI in Monitoring Capital Market

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