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Securities Law and Reg- Nitesh Bhati, Fac
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Structure of Financial Market
FinancialMarket
CapitalMarket
PrimaryMarket
SecondaryMarket
MoneyMarket
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ForexMarket
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Financial Intermediaries
Merchant Banker
Banker to Issues
Registrars
Transfer Agents
Depositories
Stock Exchanges
Clearing House / Clearing Corporations Stock Brokers
Portfolio Mangers
Mutual Funds
Custodians
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Financial Securities
Securities is defined under SCRA, 1956. Includes
Stock
Equity shares
Preference Shares
Debenture
Warrants
Derivatives
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Financial Market Regulators
Ministry of finance (MOF)
Ministry of Corporate Affairs (MCA)Registrar of Company (R
Securitas and Exchange Board of India (SEBI)
Reserve Bank of India (RBI)
Insurance Regulatory and Development Authority
Pension fund Regulatory and Development Authority
Forward market Commissionforward and future commodity
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Securities Market -Regulatory Frame6
MCACompanies Act, 1956 / Companies Act, 2013
SEBI
Securities Contracts (Regulations) Act 1956
SEBI Act, 1992
Depositories Act, 1996
RBI
Reserve Bank of India Act, 1934
Foreign Exchange Management Act,1999
SEs
Stock Exchange(s) - Listing approval
Listing Agreement
OthersSector specific regulatoryBanking, insurance, telecom, media, etc
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Companies Act, 20137
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The Companies Act, 2013
The Companies Act, 2013 has been notified in the Official GaAugust, 2013.
Power of Central Government to notify different date for impdifferent provision of the act - Section 1(3)
First Commencement Notification on 12th September, 2013
Till now 283 sections, out of 470 sections, are implemented
Other provisions of Companies Act, 1956 is still in force.
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Memorandum of Association
Name
Registered Office
Object
Liabilities
Share capital
Nomine Name for One Person Company
(Sec. 4 and Schedule ITable A to E)
Corporate and Allied Laws
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Articles of Association
AOA contains regulations for management of the company
(Sec. 4 and Schedule ITable F to J)
Corporate and Allied Laws
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Corporate Veil
Meaning
Salomon Vs Salomon and Co.
Lifting of Corporate Veil
Corporate veil is used for Fraud or improper conduct
Company has abused its corporate personality for unjust a
purpose
Company is formed for tax evasion
Corporate and Allied Laws
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Types of Company
Members: 7 to unlimited
Public Company
Members: 2 to 200
Private Company
Member: Only 1
One Person Company
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Issue of securities - 23
Public company
Public offer through prospectus
Private placement
Right issue or bonus issue
Private company
Private placement
Right issue or bonus issue
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Private PlacementSec 42
Private Placement through issue of a private placement offe
Initiation to subscribe shall not made to more than fifty perQIB, employee under ESOPs) in a financial year.
No public advertisements
No cash payment
Offer to selected group of person whose name are reccompany prior to the invitation to subscribed
Such person shall receive the offer by name
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Public Offer
Issue of securities to public through prospectus
Public Offer includes
Initial Public Offer
Further Public Offer
Corporate and Allied Laws
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Listing
Incorporationof company
PrivatePlacement /Right Issue
Initial PublicOffer (IPO)
Listing on StockExchange
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Companies ActSnap Short
Incorporation of company
Board of Directors
Management and Administration
Accounts of Company, Audit and Dividend distribution
Compromises, Arrangements and Amalgamations
Registration of Charge
Corporate GovernanceIndependent Directors Corporate Social Responsibilities
Liquidation
Winding up
E filing and dissemination on MCA-21
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SEBI Act, 199222
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Preamble of SEBI Act, 1992
To protect theinterests of
investors insecurities,
To promote thedevelopmentof securitiesmarket, and
To regulate thesecuritiesmarket
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Power and Function of SEBISec
11 (1) Subject to the provisions of this Act, it shduty of the Board to protect the interests of insecurities and to promote the development oregulate the securities market, by such measuthinks fit.
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Power and Function of SEBISec
Regulate the business in stock exchanges
Register and regulate the working of stockbrokers, sub-share transfer agents, bankers to an issue, trustees of truregistrars to an issue, merchant bankers, underwriters, pmanagers, investment advisers and others associated wsecurities market.
SEBIs powers also extend to registering and regulating of depositories and depository participants, custodiansforeign institutional investors, credit rating agencies, anmay be specified by SEBI.
Register and regulate the working of venture capital fucollective investment schemes including mutual funds
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Power and Function of SEBISec
Promote and regulate SROs
Prohibit fraudulent and unfair trade practices relating to the smarket.
Promote investors education and training of intermediaries inmarket.
Prohibit insider trading in securities
Regulate substantial acquisition of shares and takeover of co Require disclosure of information, to undertake inspection, to
inquiries and audits of stock exchanges, mutual funds, other associated with the securities market, intermediaries and SROsecurities market. The requirement of disclosure of informationany bank or any other authority or board or corporation
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Power and Function of SEBISec
Calling for information from or furnishing information to other within India or abroad having functions similar to SEBI in matteprevention or detection of violations in respect of securities la
Perform such functions and to exercise such powers under theContracts (Regulation) Act, 1956 as may be delegated to it bGovernment
Levy fees or other charges pursuant to implementation of this
Conduct research for the above purposes
Calling from or furnishing to such agencies specified by the Binformation as may be considered necessary for discharge o
Performing such other functions as may be prescribed
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Regulation / Guidelines /CiPolicyMaking
Registration / Recognition
Inspection / inquiries
Surveillance
Investigations,
processing of complaints
Promoting Investor Educationand training
Executivefunction
Suspend Trading
Prohibit any person to trad
Penalties and Adjudication
Attachment
Enforcementpowers
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SEBIs Powers as civil court Sec
SEBI shall have the same powers as are vested in a civil court Code of Civil Procedure in respect of certain matters, such a
the inspection of books and registers
summoning and enforcing the attendance of persons, and
examining them on oath.
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SEBIs power on Issuance of secuSection 11A
SEBI empowers to make specify regulations with respect to
matters relating to issue of capital, transfer of securities and othe
matters
the manner in which such matters are required to be disclosed b
Companies.
SEBI is vested with the power to regulate or prohibit issue of poffer document or advertisement which solicits money for issu
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Summary - Role of SEBI (Para No
Section 11(1)Basic function Section 11(2)Function includes making regulation, administratio
enforcement
Section 11(3)Powers as a civil court
Section 11(4)Power to take action, in interest of investors, eitheinvestigation or on completion of investigation
Section 11(5)Disgorgement power
Section 11 APower to regulate and prohibit issue of offer docuof shares and transfer of securities
Section 11AA- Collective Investment scheme
Section 11BDirection to intermediaries registered with SEBI
Section 11 CInvestigationSearch and Seizer
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Penalties and AdjudicationSec
Section 15A: Penalty for failure to furnish information, return e
Section 15B: Penalty for failure by any person to enter into agclients
Section 15C: Penalty for failure to redress investors grievance
Section 15D: Penalty for certain defaults in case of mutual fun
Section 15E: Penalty for failure to observe rules and regulation
management company (AMC)
Section 15F prescribes the penalty payable by a stock brokerunder the SEBI Act
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Penalties and AdjudicationSec
Section 15G: Penalty for insider trading
Section 15H: Penalty for non-disclosure of acquisition of sharetakeovers
Section 15HA: Penalty for fraudulent and unfair trade practic
Section 15HB: Penalty for Contravention where no separate pbeen provided
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Appellate Authorities
SEBI
SAT
SupremCourt
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Securities Appellate Tribunal (SA
SAT is not bound by the procedure laid down by the Code of Civ
SAT shall be guided by the principles if natural justice
SAT has powers to regulate their own procedures.
Any proceeding before the SAT shall be deemed to be a judiciawithin the meaning of provisions as given under the Indian Penal
SAT has same powers as are vested in a civil court under the codprocedure while trying a suit in respect of the following matters, n
Summoning and enforcing the attendance of any person and examoath;
Requiring the discovery and production of documents;
Receiving evidence on affidavits;
Issuing commissions for the examination of witnesses or documents;
Reviewing its decisions;
Dismissing an application for default or deciding its ex-parte;
Setting aside any order of dismissal of any application for default or by it ex-parte.
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Registration of IntermediariesS
Certificate of registration require fo stockbroker, sub-broker, sagent, banker to an issue, trustee of trust deed, registrar to amerchant banker, underwriter, portfolio manager, investmensuch other intermediary who may be associated with the sec
SEBI may however by order, suspend or cancel a certificate oas under the provisions in the regulations after giving the persa reasonable opportunity of presenting his/her case.
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Prohibition of Manipulative and DecDevices, Insider Trading, takeover
Section 12A prescribes that no person shall directly or indirectly Prohibition of Fraudulent and Unfair Trade Practices (FUTP)
a. Use or employ, in connection with the issue, purchase or sale of awhich are either listed or proposed to be listed on a recognised stocany manipulative or deceptive device or contrivance in contraventprovisions of this Act or any rules made thereunder;
b. Employ any device, scheme or artifice to defraud in connection wdealing in securities which are listed or proposed to be listed on a re
exchange;
c. Engage in any act, practice, course of business which operates oas fraud or deceit upon any person, in connection with the issue, dewhich are listed or proposed to be listed on a recognised stock exchcontravention of the provisions of this act;
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Prohibition of Manipulative and DecDevices, Insider Trading, takeover
Insider Trading Regulation
d. Engage in any insider trading activity;
e. Deal in securities while in possession of material or non-public info
communicate such material or non-public information to any other
manner which is in contravention of the provisions of this Act or rules
made hereunder
Substantial Acquisition and Takeover Regulation (SAST)
f. Acquire control of any company or securities more than the perce
equity share capital of a company whose securities are listed or pro
listed on a recognised stock exchange in contravention of the regu
under this Act.
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Securities Contract (Regulation)1956
The Securities Contracts (Regulation) Act, 1956 is a legislation to preundesirable transactions in securities by regulating the business of seand trading. In pursuance of its objects, the act covers a variety of isome are listed below:
1. Granting recognition to stock exchanges
2. Corporatization and demutualization of stock exchanges
3. The power of the Central Government / SEBI to call for periodical stock ex-changes
4. The power of SEBI to make or amend bye-laws of recognized stoc5. The power of the Central Government (exercisable by SEBI also) tgoverning body of a recognized stock exchange
6. The power to suspend business of recognized stock exchanges
7. The power to prohibit undesirable speculation
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Securities Contract (Regulation)1956.
Call for Periodical Returns from members (Brokers)
Power of SEBI and Central Govt. to make inquiry
Contract and Option in SecuritiesContract by member (Broprincipal
Penalties and procedures
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Securities Contracts (Regulation1957
Rules are made for the purpose of implementing the objects of the SCRA Formalities to be completed including submission of application for reco
exchange
Qualification norms for membership of a recognized stock exchange
Mode of entering into contracts between members of a recognized stock exc
Obligation of the governing body to take disciplinary action against a membthe SEBI
Audit of accounts of members
Maintaining and preserving books of accounts by every recognized stockevery member
Submission of the annual report and periodical returns by every recognized sto
Requirements with respect to listing of securities on a recognized stock exchan
Requirements with respect to the listing of units or any other instrument of a CoScheme on a recognized stock exchange
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Securities Contracts (Regulation1957
Eligibility criteria for membership of a recognized stock excha
Contract between members
Audit of accounts of members
Book of accounts of broker to be maintain for 5 years
Contract note/books, counterfoil of transaction to be mainta
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Public Shareholding in IPO : SCR19(2)(b)
Issue
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Compliance44
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Compliance
Certification / Verification / confirmation
Due Diligence
Audit
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Compliance
Compliance means conforming
by
registered intermediaries, and
issuer companies
To rules and regulations, notifications, guidelines and instructions
SEBI,
stock exchanges,
depositories,
the Board of Directors (BoD) of the Company, and
other competent authorities.
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Appointment of Compliance Of
Appointed under SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992,
SEBI (Intermediaries) Regulations, 2008
Independent Reporting to
Mandatory reporting: Periodic submission of reports as per prregulations
Critical Reporting: Compliance Officer must immediately anindependently report, any non-compliance observed, to SEB
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Responsibilities of Cos to Stakeho
External Stakeholders include Central Government, SEBI, Stocand other regulatory authorities like Registrar of Companies, Rof India, Income Tax, investors, issuers and other intermediarie
Internal Stakeholders include the Board of Directors, Officers employees.
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SEBI (Certification of Associated in Securities Markets) Regulation
The SEBI, delegates the following powers and functions to Naof Securities Markets:
(a) The functions of NISM in respect of certification for associated pe
securities market shall include putting in place and implementing th
process, procedure and policies.
(b) NISM in consultation with SEBI may lay down standards which ma
all or any portion of such standards shall be applicable to all or any
associated persons working or associated with all or any class of inte
securities market; (ii) specify that no associated person in any such cqualified to be employed or engaged or continued to be employed
an intermediary unless he is in compliance with such standards of ex
continuing professional education requirements and such other qua
NISM in consultation with the SEBI may specify.
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Manner of Obtaining NISM Certi
Principal Passing the relevant certificate examination, as may be specified
Successfully completing a related 2 day CPE Program5
Delivering at least four sessions in specific 2 day CPE program, asspecified by NISM.
Other than Principal (other than Principal who has attainted 50 year10 year experience)
Passing the relevant certificate examination, as may be specified
Successfully completing a related 2 day CPE Program
Other
Passing the relevant certificate examination, as may be specified
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Validity and CPE
Certification valid for 3 years
Continuing Processional Education (CPE) for re validating for
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SEBI (Prohibition of Insider TraRegulations, 1992 / 2015
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K D fi iti
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Key Definition
Insider : Any person who is or was a Connected Person or a be Connected Person and who is reasonably expected to hunpublished price sensitive information in respect of securitiecompany or who has received or has had access to such unprice sensitive information.
Connected Person : Director, KMP, Same management or grIntermediaries involves such as Merchant Banker, Broker, banetc.
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Key Definition
Price sensitive information is any information which relates directto a company and which if published, is likely to materially affecsecurities of that company. The following are deemed to be pricinformation:
Periodic financial results of the company.
Intended declaration of dividends (both interim and final).
Issue of securities or buy back of securities.
Any major expansion plans or execution of new projects.Amalgamation, mergers or takeovers.
Disposal of the whole or substantial part of the undertaking.
Any significant changes in policies, plans or operations of the
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P hibiti D li C
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Prohibition on Dealing, Communor Counseling
Prohibition of Insider trading Regulations, prohibits a connected or deemed to be connected person from dea
of company listed on any stock exchange, on his own behalfof any other person when in possession of unpublished price information, and
from communicating, counseling or procuring, directly or indunpublished price sensitive information to any person who whpossession of such unpublished price sensitive information sha
securities.
However, the above restrictions do not apply to any communicain the ordinary course of business or under any law.
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Di l d I t l P d
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Disclosures and Internal ProceduPrevention of Insider trading
All listed companies and organisations associated with securincluding the intermediaries as mentioned in section 12 of theAMC and trustee of the MFs, SROs, stock ex-changes, public institutions and the professional firms such as auditors, accoulaw firms etc, shall frame a code of internal procedures and
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Code of Conduct for Prevention of In57
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Code of Conduct for Prevention of InTrading
As per the SEBI Act, an organisation / firm needs to appoint aofficer who is responsible for
setting forth policies and procedures
monitoring adherence to the rules for the preservation of Price S
Information,
pre-clearing of all designated employees and their dependents
monitoring of trades and the implementation of the code of con
overall supervision of the partners / proprietors.
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Prevention of Insider trading
Preservation of Price Sensitive Information and Need to Kno Chinese Wall
Pre-clearance of Trades
Reporting Requirement for Transactions in Securities
Restricted /Grey List
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Prevention of Insider trading
Other Restrictions
Directors/designated employees/partners shall execute order wafter ap-proval of pre-clearance is given.
Directors/designated employees/partners shall hold their investmminimum period of 30 days in order to be considered as being hinvestment purposes.
Where the securities are sold off before the holding period due topersonal emergency, the Compliance officer shall waive off thamake a record in writing with the valid reason.
Analysts, if any, employed with the organisation/firm while prepareports of a client company shall disclose their shareholdings /intcompany(s) to the Compliance Officer. Analysts who prepare reof a listed company shall not trade in securities of that companyfrom preparation of such report.
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SEBI (Prohibition of Fraudulent and UTrade Practices) Regulations, 2003
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Fraud Reg 2(1)(c)62
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FraudReg. 2(1)(c)
Regulation 2(1) (c) defines fraud as inclusive of any act, expromission or concealment committed to induce another persoto deal in securities. There may or may not be wrongful gain oof any loss. However, that is inconsequential in determining ifbeen committed. Some of the instances cited are as follows:
a) A wilful misrepresentation of the truth or concealment of materiathat an-other person may act, to his detriment
b) A suggestion as to a fact which is not true, by one who does not btrue
c) An active concealment of a fact by a person having knowledge fact
d) A promise made without any intention of performing it
e) A representation, whether true or false, made in a reckless and ca
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Prohibition of Certain Dealing in Sec63
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Prohibition of Certain Dealing in Sec
Chapter II of the regulations prohibits certain dealings in securities cselling or issuance of securities. The regulations prohibit a person to, indirectly:
buy, sell or deal in securities in a fraudulent manner;
use or employ in connection with issue, purchase or sale of any securitproposed to be listed, any manipulative or deceptive device or contrivacontravention of the provisions of SEBI Act or rules or regulations made th
employ any device, scheme or artifice to defraud in connection with dof any security listed or proposed to be listed;
engage in any act, practice, course of business which would operate deceit in connection with any dealing in or issue of securities, which are to be listed.
indulge in a fraudulent or an unfair trade practices in securities.
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Prohibition of Manipulative, FrauduleUnfair Trade Practices
Dealing in securities shall be deemed to be a fraudulent or an unfair trade practic
and may include all or any of the following: a) indulging in an act which creates false or misleading appearance of trading
market;
b) dealing in a security not intended to effect transfer of beneficial ownership boperate only as a device to inflate, depress or cause fluctuations in the price owrongful gain or avoidance of loss;
c) advancing or agreeing to advance any money to any person thereby inducperson to offer to buy any security in any issue only with the intention of securisubscription to such issue;
d) paying, offering or agreeing to pay or offer, directly or indirectly, to any persmoneys worth for inducing such person for dealing in any security with the objdepressing, maintaining or causing fluctuation in the price of such se-curity;
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 personsecurities any information which is not true or which he does not believe to be tthe course of dealing in securities;
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Prohibition of Manipulative, Frauand Unfair Trade Practices
g) entering into a transaction in securities without intention of performing it or without intenti
ownership of such security;
h) selling, dealing or pledging of stolen or counterfeit security whether in physical or de-mat
i) an intermediary promising a certain price in respect of buying or selling of a security to a cdiscrepancy arises in the price of such security and retaining the difference in prices as prof
j) an intermediary providing his clients with such information relating to a security as can-noclients before their dealing in such security;
k) an advertisement that is misleading or that contains information in a distorted manner aninfluence the decision of the investors;
l) an intermediary reporting trading transactions to his clients entered into on their behalf in order to increase his commission and brokerage;
m) an intermediary not disclosing to his client transactions entered into on his behalf in-cludposition;
n) circular transactions in respect of a security entered into between intermediaries in or-decommission to provide a false appearance of trading in such security or to inflate, depress in the price of such security;
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Prohibition of Manipulative, Frauand Unfair Trade Practices
o) encouraging the clients by an intermediary to deal in securities solely w
enhancing his brokerage or commission;
p) an intermediary predating or otherwise falsifying records such as contr
q) an intermediary buying or selling securities in advance of a substantialwhereby a futures or option position is taken about an impending transacor related futures or options contract;
r) planting false or misleading news which may induce sale or purchase o
s) misselling of units of a mutual fund scheme. Mis-selling means sale of unfund scheme by any person, directly or indirectly by making false or misle
or concealing or omitting material facts of a scheme or concealing the afactors of the scheme or not taking reasonable care to ensure suitability the buyer.
t) illegal mobilization of funds by sponsoring or causing to be sponsored ocausing to be carried on any collective investment scheme by any perso
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Investigation - Regulation 8(1)67
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Investigation Regulation 8(1),
It shall be the duty of every person who is under investigation:
a) To produce books, accounts and documents that may bethe Investigating Authority and also to furnish statements andthat is sought.
b) To appear before the Investigating Authority personally whdo so and to answer questions posed by the authority
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SEBIs power to take actions In68
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SEBI s power to take actions InFinal
SEBI may without prejudice to the provisions contained in sub-se(2A) and (3) of section 11 and section 11B of the SEBI Act, by an interests of the investors and the securities market issue or take afollowing actions or directions either pending investigation or encompletion of the investigation or enquiry namely
(a) Restrain persons from accessing the securities market,
(b) Impound and retain the proceeds or securities in respect
transaction which is in violation or prima facie in violation of tregulations,
(c) Direct an intermediary or any person associated with the market in any manner not to dispose of or alienate an asset fa fraudulent and unfair trans-action.
68
SEBI action against an intermedi69
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SEBI action against an intermedi
Suspend the registration of the intermediary;
Cancel the registration of the intermediary.
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SEBI (Intermediaries) Regulati2008
70
General Obligations of Intermed71
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General Obligations of Intermed
The SEBI (Intermediaries) Regulations, 2008 prescribes that anshall provide SEBI with a certificate of its compliance officer oApril every year, certifying the compli-ance by the intermediaobligations, responsibilities and the fulfilment of the eligi-bilitycontinuous basis under these regulations and the relevant regintermediary also needs to display the copy of the certificateoffices including the branch offices.
Appointment of Compliance Officer
Inspection and Disciplinary Proceed72
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p p y
Obligation of the intermediary on Inspection
It shall be the duty of every director, proprietor, partner, trustee, officer, eagent of an intermediary which is being inspected, to produce to the inspsuch books, accounts, records including telephone records and electrondocuments in his custody or control and furnish to the inspecting authoritstatements and information relating to its activities within such time as theauthority may require.
2. The intermediary shall allow the inspecting authority to have reasonablpremises occupied by such intermediary or by any other person on its beextend reasonable facility for examining any books, records including te
and electronic records and documents in the possession of the intermedother person and also provide copies of documents or other material whof the inspecting authority are relevant for the purposes of the inspection
Appointment of Auditor : SEBI may also appoint a qualified auditor to inspaccount of the affairs of an in-termediary. The SEBI may also appoint a qdirect a qualified valuer to be ap-pointed by the intermediary, if so consi
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Action in case of Default74
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(i) Suspension of certificate of registration for a specified perio
(ii) Cancellation of certificate of registration;
(iii) Prohibiting the noticee to take up any new assignment orlaunch a new scheme for the period specified in the order;
(iv) Debarring a principal officer of the noticee from being emassociated with any registered intermediary or other registerethe period specified in the order;
Directions75
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SEBI may, in the interest of the securities market, in the interest of the investors
purpose of securing the proper management of any intermediary, issue, necincluding but not limited to the following -
a) directing the intermediary or other persons associated with securities many money or securities collected from the investors under any scheme oor without interest;
b) directing the intermediary or other persons associated with securities mcess the capital market or not to deal in securities for a particular period ciate with any intermediary or with any capital market related activity;
c) directing the recognized stock exchange concerned not to permit tradties or units issued by a mutual fund or collective investment scheme;
d) directing the recognized stock exchange concerned to suspend tradior units issued by a mutual fund or collective investment scheme;
e) any other direction which SEBI may deem fit and proper in the circumscase.
Code of Conduct76
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High Standards of Service
Conflict of Interest
Compliance and Corporate Governance
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Prevention of Money LaundeAct, 2002
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Prevention of Money Laundering78
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2002
Effective
July 1, 2005
Objective
prevent money laundering
to provide for confiscation of property derived froinvolved in, money- laundering, and
for matter connected therewith or incidental thereAuthority
Directorate of Enforcement in the DepartmenRevenue, Ministry of Finance
Corporate and Allied Laws
Offence of Money laundering -79
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Whosoever
directly or indirectly attempts to indulge,
knowingly assists,
knowingly is a party, or
is actually involved
in any process or activity connected with the proceeds of crime includin
its concealment,
possession,
acquisition, or
use
and projecting or claiming it as untainted property
shall be guilty of offence of money - laundering
Corporate and Allied Laws
Punishment for moneylaunder80
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Sec. 4
Rigorous imprisonment for a term which shall not be less th
but which may extent to seven years (ten years in case of ofunder para 2 of Part A of the Schedule), and
shall also liable to fine
Corporate and Allied Laws
Enforcement Powers under PMLA81
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Attachment of property
Survey
Search and Seizure/freeze records & property
Search of Person
Arrest a Person
summon and record the statements of persons
Corporate and Allied Laws
Action under Act82
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Order of Confiscation
Passed by Adjudicating Authority
Effect: all the right and title of property shall best absolutely in Ce
Government free from all encumbrances
Order under Sec. 4
Passed by Special Court (Session Courts which are designated a
Act)
Effect: imprisonment and fine
Corporate and Allied Laws
Burden of proofSec. 2483
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In any proceeding relating to proceeds of crime under this A
In case of a person charged with the offence of money-launderi
section 3, the Authority or Court shall, unless the contrary is prove
such proceeds of crime are involved in money laundering, and
In the case of any other person, the Authority or Court may presu
proceeds of crime are involved in money-laudering
Corporate and Allied Laws
Provision for protection - 6284
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Any authority or officer exercising power under this Act or any
thereunder, for search or arrest of any person,
without reason record in writing
Shall for every such offence be liable for conviction for impristwo years or fine upto fifty thousand rupees or both.
Corporate and Allied Laws
Obligation of Bank/FI/Intermedia85
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Reporting Entities (Sec 2(wa)): means
Banking company,
Financial institution,
Intermediaries, or
A person carrying on a designated business or profession
Every reporting entity shall (Sec 12):
Maintain a record of all transactions,
Furnish to director information relating to such transaction, whether attemthe nature and value of which may be prescribed
Verify the identity of its clients
Identify the beneficial owner, if any, of such of its client
Maintain record of documents evidencing identity of its client and benefias account files and business correspondence relatingto its clients
Corporate and Allied Laws
Obligation of Bank/FI/Intermedia86
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Maintain a record of all transactions which include:
All cash transactions of the value of more than Rs. 10 lakh or in foreign currency.
All series of cash transactions integrally connected to each ohave been valued below Rs. 10 lakh or its equivalent in foreigwhere such series of transactions take place within one calenand the aggregate value of such transaction exceeds Rs. 10
All suspicious transaction whether or not made in cash. For th
suspicious transactions apart from transactions integrally contransactions remotely connected or related shall also be co
The records have to be maintained for a period of 10 years fromcessation of the transactions
Corporate and Allied Laws
Power to impose fine87
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Director, under the Act, may
Make inquiry with regard to the obligation of reporting authority
May direct to get its records audited by an accountant from a p
by Govt.
Director finds that a reporting entity or its designated directoror any of its employee has failed to comply with obligations, h
Issue a warning
Direct to comply with specific instruction
Direct to send reports at such interval as may be prescribed
By order impose a monetary penalty on reporting entity, its desig
or any of its employee not be less than 10,000 but may extend to
Corporate and Allied Laws
Protection to Reporting Authority88
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No civil or criminal proceeding against reporting entity, its dir
employee for furnishing information
Corporate and Allied Laws
Highlights of SEBI Circular on Anti-MoLaundering
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Laundering
Obligation to establish policies and procedures - Senior Manage
Policies and Procedures Coverage
Written Anti-Money Laundering Procedures
(a) Policy for acceptance of clients
(b) Procedure for identifying the clients
(c) Transaction monitoring and reporting especially Suspicious Transa(STR)
Client Due Diligence
Client Identification Procedure (CIP) - Know your Client (KYC) po
Record Keeping
Monitoring of Transactions
Client Due Diligence90
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Obtaining sufficient information in order to identify persons who beneficially owsecurities account.
Verify the customers identity using reliable, independent source documents, dformation;
Identify beneficial ownership and control, i.e. determine which individual(s) ultcontrol(s) the customer and/or the person on whose behalf a transaction is be
Verify the identity of the beneficial owner of the customer and/or the person otransaction is being conducted, corroborating the information provided in rela
Conduct ongoing due diligence and scrutiny, i.e. perform ongoing scrutiny of and account throughout the course of the business relationship
knowledge of the customer, its business and risk profile, taking into account, wthe customers source of funds;
Understand the ownership and control structure of the client; and
Periodically update all documents, data or information
Suspicious Transaction MonitorinReporting
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Reporting
Suspicious Transaction Monitoring & Reporting
Clients whose identity verification seems difficult or clients that appear not
Asset management services for clients where the source of the funds is notkeeping with clients apparent standing /business activity;
Clients based in high risk jurisdictions;
Substantial increases in business without apparent cause;
Clients transferring large sums of money to or from overseas locations with payment in cash;
Attempted transfer of investment proceeds to apparently unrelated third p
Reporting to Financial Intelligence Unit-India
Cash Transactions Reports should be submitted to FIU-IND by 15th of the su
The Suspicious Transaction Report (STR) shall be submitted within 7 days ofconclusion that any transaction, is of suspicious nature.
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Thank You
Nitesh Bhati, Faculty, NISM