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Role and Functions of Capital Market, Securities and Exchange Board of India (SEBI)

PPB Unit-05

Stock exchange: Approved by SEBI –Provides sale and purchase of securities (equities, debt and derivates) on behalf of investors. –Provides clearing facilities for getting of payments and securities delivery. Clearing houses guarantee all payments and deliveries.

Equity and Debt Raisers: –Companies wishing to raise equity and debt through stock exchange have to approach  SEBI for permission and get them listed on a stock exchange.  –

Investment Bankers (merchant Bankers)(licensed by SEBI): –Undertake activities like the issue of stocks, funds raising and management. –Provide advisory services and counseling on mergers and acquisitions etc.

Foreign Institutional Investors (FIIs) : –an investor or fund that is from or registered in a country outside of the one in which it is currently investing. – Authorized by the SEBI to invest in the Indian equity and debt market through stock exchanges. • •Depositories: –Hold securities in demat form, maintaining accounts of depository participants who, in turn, maintain sub accounts of their customers.  –Transfer securities from the buyers to sellers accounts in electronic form. •

Registrars: –Maintain register of shares and debenture holders and process share and debenture allocation, when issues are subscribed. –Registrars too need regulator’s approval to do business.

Capital Market

•Capital market is a market for long term debt and equity shares. •It can be further divided into the primary and secondary market.:

1.Primary Market: Securities are offered to the public for subscription, for the purpose of raising capital or fund.

1.Secondary Market: Market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Secondary market  comprises equity markets and debt markets. ●

Stock Exchanges in India: There are 22 recognized stock exchanges in India. •

Demutualization of Stock Exchanges:  Exchange has all  functions clearly segregated, i.e. the ownership, management and trading  are in separate hands. •Brokers: Approved by SEBI. Operate on the stock exchange. – Intermediaries between buyers & sellers of securities. –They build up order book, carry out price discovery and responsible for contracts being honored. –The services are subject to brokerage.

Sub Broker is affiliated to a member and is a person who is registered with SEBI.

Financial Products

Various kinds of  shares are:Equity Shares: The holders of equity shares are members(owners) of company and have voting rights.

Rights Issue/Right Shares: New securities to existing shareholders at a ratio to share already held.

Bonus Shares: Share issued free of  cost by capitalization of accumulated reserves. – –

Preference Share/Preferred Stock: No voting right. Fixed dividend. Preference in dividend payment and in liquidation, their claims rank above the equity shareholders. – –

Cumulative Preference Shares: Dividend accumulates if it remains unpaid. – –

Cumulative Convertible Preference Shares: Dividend accumulates if it remain unpaid and after a specified date these shares will be converted into equity shares. – –

Participating Preference Share: Participate in profits, after a specified fixed dividend.

Government Securities (G-Secs):  Sovereign coupon bearing instruments issued by RBI on behalf of GOI. •

Debentures: Issued by corporate bearing a fixed ROI and redemption on a particular date. Normally secured. •

Bonds: A Bond is a negotiable certificate evidencing indebtedness(unsecured) •

Coupon Bonds: Issuer pay interest at predetermined rate (known as coupon). •

Zero Coupon Bonds:  Issued at discount and repaid at a face value is called a Zero coupon bonds. •

Convertible Bonds: Option to convert the bond into equity at a fixed conversion price.

Regulatory Requirements for Corporate Debt Securities by SEBI

•The issue of debt securities having a maturity period of more than 365 days must comply with the conditions prescribed by SEBI. •The debt securities shall carry a credit rating from a credit rating agency registered with SEBI. • •

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

The End



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