basic concept & regulatory framework

7/30/2019 Basic Concept & Regulatory Framework

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2010 BSE Institute Limited

Introduction to Stock

Markets


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Markets


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Stock Markets Regulatory

Framework

Self Regulatory Bodies SCRA 1956 & SCR Rules 1957

Activities supervised by MoF

Perception that rights & Interests of Investorswere ignored.


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S E B I

SEBI act passed in April 4,1992.

Functions

To protect the interest of investors To promote the development of & regulate

the securities market.


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Role of SEBI

Regulate the Business in SEs Register & Regulate intermediaries, collective

investment schemes (incl. MFs)

Promote & regulate SROs

Prohibit unfair & fraudulent trade practices

Promote investor education & Training

Prohibit Insider trading


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Role of SEBI. contd

Regulate substantial acquisition of shares &take over of companies

Inspection/Audit of intermediaries & SROs

Any other function as provided under the

SCRA 1956, as delegated by the govt.


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Measures initiated by SEBI

Capital Adequacy norms for Brokers Intra day trading limits

Gross Exposure limits

Margins Surveillance systems at SEs

Circuit Filters

Inspection of Stock Exchanges


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..contd

Client Broker relationship KYC

Registration of Sub brokers & brokers

Increasing trading hours Introduction of Derivatives Trading

Rolling Settlements

Dematerialistaion


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SEBI Decisions

October 2007 banned P notes 40 % of theFII business went to Singapore

Aug 2009 Entry load banned in Mutual funds

In 2011 8 lakh Mutual fund folios have been

closed down due to no service from

distributors


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Stock Exchanges first level regulator

To promote develop & maintain a well regulatedmarket for dealing in securities

To safe guard interest of members & investing publichaving dealings on SE

Promote industrial development through efficient

resource mobilization by way of investment incorporate securities

Establish & promote honourable & just practices insecurities transactions.


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Demat Accounts Verification

Whether shares are trasnferred to clientaccount or kept in pool account

Shares pledged by brokers for their own

funding

All account opening documents are taken by

member brokers or not

Signing of DIS slip book in brokers office


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Margin Compliance

Whether margins in Future and optionssegment is collected by brokers or not

Shortfall allowed and upto what extent

Maximum allowed upto 10 %

From 1st september 2011, margin collection

has become very strict


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Debit To clients

Allowing debits and then charging interest onthe debit portion

This is not allowed except for Margin Funding

Trades


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Classification of Shares

Shares are classified by the stock exchange toprovide guidelines

Group A

Group B1 and B2

Group T

Group Z


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Filing of Reports

Filing of Net Worth Certificate Filing of annual compliance report

Solving any grievance filed by the client


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Capital Adequacy norms

Due Diligence at the time of membership only Net Worth Criteria acts as a measure.


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Other Regulatory Bodies

Indian Financial system governed by variousregulatory bodies

RBI

AMFI

IRDA

PFRDA

FMC

FSDC


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RBI

Reserve Bank of India Apex body for regulation of Banking Sector

GTB merged with OBC by RBI for protection of

depositors

CAR of 9 % compulsory

RBI allowed merger of Bank of Rajasthan with

ICICI bank


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AMFI

AMFI Association of Mutual Funds of India Advisory body for mutual funds

Represents MF industry before the

Government

Recently it has strongly lobbied to get back

entry load for Mutual funds back


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IRDA

IRDA Insurance Regulatory DevelopmentAuthority

Controls the Insurance sector

ULIP issue taken up by IRDA

ULIP now has 5 year lock in as compared to 3

year lock in

Commission reduced from 30 % to 5 %

Investor benefited as fair practices came


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FDSC

FSDC Financial Stability DevelopmentCouncil

Chairman is Finance Minister Himself

It solves the Inter-Regulatory Tussle between

the various bodies

Recently SEBI and IRDA had tussel


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FMC

Forward Market Commission Regulates Commodities exchanges in India

Investigates events like price rigging etc

Banned future contract in sugar, wheat, now

guar gum


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Guar Gum manipulation (7/5/2012)

FMC has blamed Ruchi Soya and Bitul Oils Both companies have made profit of Rs. 1291

crores

The price per quintal was Rs. 8000 before one

year

It reached Rs. 80,000 per qunital

31 entities have been identified as beneficiary


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USA and UK Model

USA has SEC Securities ExchangeCommission

UK has FSA Financial Service Authority

Both have single regulatory model


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Thank You

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