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SEBI Amendments for Dec 2015 Attempt
Research Analyst
SEBI issued a consultation paper in 2013 on research analyst which became SEBI (Research Analyst) Regulation 2014.
Here Research Analyst means any person who:-
- Prepares and publishes the consent of research report.
- Providing Research Report.
- Making Buy/SELL/Hold Recommendation
- Giving Price Target
Conditions
- Any person working as research analyst cannot work unless he has obtained the approval of sebi in this regard.
- The certificate of registration shall be valid for 5 years.
- Any person before the commencement of the act, if working as research analyst can continue to do so if he has obtained approval from SEBI in the 6 months from the date of start of regulation.
- Investment advisers, credit rating agencies, portfolio managers, asset management companies & fund managers of Alternative Investment Funds or Venture Capital Funds are exempt from these regulations.
- A professional qualification or post-graduate degree or post-graduate diploma in finance, accountancy, business management, commerce, economics, capital market, financial servicesor markets.
- A research report should not be kept internally but should be published for the benefit of the investors.
- The research analyst should maintain the following records – (1). Research Report duly signed and dated. (2) Research Recommendation Provided (3) Reason for research recommendation.
- A research analyst who is an individual or partnership firm shall have net tangible assets ofvalue not less than Rs 1 lakh.
- A research analyst who is body corporate or limited liability partnership firm shall have a networth of not less than Rs 25 lakh.
- There are some restrictions on dealing in securities recommended – 30 days before and 5 days after the publication of research reports.
Foreign Portfolio Investor
The FII regulation has been repealed and a new concept has been introduced which is known as Foreign Portfolio Investor.
SEBI has notified it by the name of SEBI (Foreign Portfolio Investor) Regulation 2014. These are FIIs and plan to make investment in equity and debt and therefore known as Foreign Portfolio Investor.
The DP or depository participant makes investment on behalf of FPI are known as Designated Depository Participant.
Conditions
- The foreign portfolio investor should not be a resident of india.
- The applicant should belong to the country whose securities market regulator is a signatory of IOSCO MMOU.
- The applicant should be legally permitted to make investment in the country outside the country of its incorporation.
- The applicant has sufficient experience, good track record, is professionally competent, financiallysound and has a generally good reputation of fairness and integrity.
- The applicant is authorized by its Memorandum of Association and Articles of Association orequivalent documents or the agreement to invest on its own behalf or on behalf of its clients.
- The grant of certificate to the applicant is in the interest of the development of the securitiesmarket.
Categories
There are different categories of FPI who plan to make investment – Government Companies.
Another category include following
Mutual Funds, Investment Trust, Insurance, Reinsurance, Banks, Asset Management Companies, University funds, pension funds etc.
Investor Protection
In case of Deposits
- Section 73 of Companies Act 2013 states that
no company shall invite any public deposits
without issuing an advertisement in accordance with
Companies (Acceptance of Deposit) Rules 2014.
Section 74 (3) If the company fails to repay the deposit amount or any part of it or interest thereon within the specified time as given by tribunal then the
Company with the payment of deposit shall pay a fine of Rs.1 crore which can be further extended to Rs.10 crore
Every officer in default is punishable with imprisonment which may extend to 07 years or with fine not less than 25 lacs can extend to Rs. 2 crore or both.
The depositors can apply in Tribunal for the order directing the company to pay the sum due including loss and damages.
Section 34: Where a prospectus,
issued,
circulated or distributed,
includes any statement which is untrue or
misleading or where any inclusion or omission of
any matter is likely to be misleading,
Every person who authorizes the issue of such prospectus shall be liable for punishment under Section 447.
What is Section 447?
Section 447: any person, who is found to be guilty of fraud,
shall be punishable with imprisonment for
A term which shall not be less than 06 months which can be extended to 10 years
Shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to 03 times the amount involved in the fraud.
Provided that where the fraud in question involves public interest & the terms of the imprisonment shall not be less than 03 years.
Non-payment of Dividend
Section 123: It requires a company who has declared a dividend for
Any financial year to deposit the amount of
Such dividend (including interim dividend) in a scheduled bank in
A separate account within 5 days from the date of declaration of such dividend.
Section 124: If the dividend has been declared by
A company which has not been paidor claimed within 30 days
From the date of such declaration.
The company shall within 7 days after 30 days
Transfer the total amount of dividend which remains unpaid or
Unclaimed to a special account to be opened by a company
In any scheduled bank to be called as unpaid dividend account.
This section also provide for penalty for not complying with the above requirement and the same by way of interest @ 12% per annum and the interest accruing on the amount of unpaid/unclaimed dividend not transferred to the unpaid dividend account.
Further, if a company fails to comply with any of the requirements, the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty- five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than one 01 lac rupees but which may extend to 05 lakh rupees.
Section 125: This section provides for establishment of Investors’ Education and Protection Fund by the Central Government. Various types of unpaid/unclaimed amounts of application money/matured deposits/matured debenture etc. are to be credited to the said fundit will be utilized for promotion of investors’ awareness and protection of investors’ interests.
Insider Trading
Insider Trading is:
Buying, selling or dealing in securities communicating, counselingpledgingor procuring directly or indirectly any price sensitive information of a listed company or proposed to be listed company
- By a director,
- Key managerial person
- Officer,
- A designated employee of the firm or
- By any other person such as internal auditor, statutory auditor, agent or
- Any other connected person who has knowledge of material ‘insider’ information not available to general public.
Trading Window
The trading window apart from company officials restrict the immediate relatives to not to trade when the price sensitive information is being discussed in the company.
Connected Person
The “connected person” would mean any person currently or during past specified period associated in any capacity with the company including through frequent communication with its officers, or on the basis of contractual, fiduciary or employment relationship, or as a director etc.
Public Issue of Securities
Note - The closing price shall be replaced by Volume Weighted Average Price under Preferential Issue and Qualified Institutional Placement Program.
SEBI (Listing of Specified Securities on Institutional Trading Platform) Regulations, 2013
SEBI notified a new set of regulations called the SEBI (Listing of Specified Securities on Institutional Trading Platform) Regulations, 2013 (ITP Regulations)
Amended the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 to
Insert a new “Chapter XC - Listing and Issue of Capital by Small and Medium Enterprises on Institutional Trading Platform without Initial Public Offering”.
Key highlights of the Regulations
Under these Regulations,
A separate institutional trading platform is available in an SME exchange for listing and trading of specified securities of SMEs for informed investors.
Such listing may be availed of without going through a public offering process.
Chapter XB of the ICDR Regulations provides for issuance of specified securities by SMEs on SME exchange.
It means that the SME can get listed on the Stock Exchange (BSE SME Exchange) without IPO. Therefore, amendment has been made by Introducing chapter XC without bringing IPO.
Eligibility Criteria
The name of promoter, Group Company or director should not appear on the willful defaulters list of Reserve Bank of India maintained by CIBIL.
There should be no winding up petition against the company admitted by a competentcourt.
The company, group companies or subsidiaries have not been referred to BIFR (Board for Industrial and Financial Reconstruction) within aperiod of 5 years prior to the date of application for listing;
No regulatory action has been taken against the company, its promoter or directors, by theSEBI, RBI, IRDA, MCA within a period of 5 years prior to the date of application for listing;
The incorporation of the company should be atleast one year old and not more than 10years.
The revenues of the company have not exceeded Rs.100 crore in any previous financial years.
The paid up capital of the company has not exceeded Rs.25 crore in any of theprevious financial years.
The company has atleast one full year's audited financial statements, for the immediatelypreceding financial year at the time of making the listing application.
In addition to above , the company should have received minimum prescribed investmentin terms of the specified regulation from any one of the following entities such as
- Alternative Investment Fund/ VCF/ other category of investors approvedby SEBI
- Angel Investor,
- Registered Merchant Banker,
- A QIB,
- A specializedInternational Multilateral Agency or a Public Financial Institution,
- Receipt of finance from a scheduled bank for its project financing or working capital and aperiod of three years has been elapsed from the date of such financing and the funds soreceived have been fully utilized.
Note: BIFR was set up in Jan 1987, a part of MoF & an agency of GOI and its objective is to determine the sickness of industrial units and revive those which are viable and shut down which are not viable.
Restriction on Further Issue of Securities
Listing of specified securities on the ITP cannot be accompanied by any issue of securities tothe public in any manner.
Procedure for Listing
Submission of Information Memorandum (IM) as per the prescribed format.
The Information Memorandum should be sent on the Recognised Stock Exchange website 21 days from date of filing.
The Recognised Stock Exchange shall grant approval for listing.
The approval from Recognised Stock Exchange shall be the deemed waiver by SEBIfor listing without publicoffering.
Post Issue Conditions for Fund Raising
No other securities of the company shall be listed other than the Specified Securities.
No IPO shall be made by the company for listing on ITP.
The company may raise capital through private placement or rights issue subject to the guidelines mentioned in the notification.
Minimum Promoter Shareholding and Lock-In
At least 20 % of the post listed capital shall be held by the promoters at the time of listing which shall be locked-in for a period of three years from date of listing.
Exit from Institutional Trading Platform
1. A company whose specified securities are listed on institutional trading platform may exit fromthat platform, if:
Its 90% of total votes and the majority of non-promoter votes(votes by investors) have been cast in favor ofsuch proposal.
The recognized stock exchange approves such exit.
2. A company whose securities are listed on institutional trading platform shall exit the platformwithin a period of 18 months upon happening of following event of:
Its specified securities have been listed on this platform for a period of ten years;
The company has paid up capital of more than 25 crore rupees;
The company has revenue of more than 300 crore rupees as per the last auditedfinancial statement; and
The company has market capitalization of more than 500 crore rupees.
3. A company be delisted and permanently removed from the trading platform on account of noncomplianceswith various clauses as below:
failure to file periodic filing with stock exchange for more than one year; or
failure to comply with corporate governance norms for more than one year; or
Non- compliance of the condition of listing as may be specified by the recognized stockexchange.
In case of a company delisted and permanently removed under the above mentioned noncompliances,
No company promoted by the promoters and directors of such delisted companyshall be permitted to be listed on ITP for a period of five years from the date of such delisting.Further this provision shall not apply to a company promoted by the independent directors of suchdelisted company.
Indian Depository receipt
Rule 13 of the Companies (Registration of Foreign Companies) Rules, 2014
These rules are applicable to those companies incorporated outside India, whether they have or have not, or will or will not establish any place of business in India.
Procedure for Making an Issue of IDR
The issuing company shall obtain the necessary approvals or exemptions from appropriate authorities from the country of its incorporation under the relevant laws relatingto issue of capital and IDRs.
An application shall be made to SEBI (along with draft prospectus) at least90 days prior to the opening date of the IDRs issue, in such form , along with such fee andfurnishing such information as may be specified by the Securities and Exchange Board of India from time to time.
However, the issuing company shall also file with SEBI, through a Merchant Banker, a due diligencereport along with the application under clause (b) in the form specified by SEBI.
SEBI may, within a period of 30 days of receipt of an applicationcan call forsuch further information, and explanations, as it may deem necessary, for disposal of suchapplication and shall dispose the application within a period of 30 days of receipt of furtherinformation or explanation.
However, if within a period of 60 days from the date of submission of application or draftprospectus, SEBI specifies any changes to be made in the draft prospectus, the prospectus shallnot be filed with SEBI or Registrar of Companies unless such changes have been incorporatedtherein.
The issuing company shall on approval being granted by the Securities and Exchange Board ofIndia to an application pay to the Securities and Exchange Board of India an issuefee as may be prescribed from time to time by the Securities and Exchange Board of India.
The issuing company shall file a prospectus, certified by two authorized signatories of theissuing company, one of whom shall be a whole-time director and other the Chief Financial Officer,stating the particulars of the resolution of the Board by which it was approved with SEBI andRegistrar of Companies, New Delhi before such issue.
However, at the time of filing of said prospectus with the ROC, New Delhi, acopy of approval granted by SEBI and the statement of fees paid by the Issuing Company to SEBIshall also be attached.
The prospectus to be filed with SEBI and the Registrar of Companies, New Delhi shall containthe particulars as per guidelines and shall be signed by all the whole-time directors ofthe issuing company, and the Chief Financial Officer.
The issuing company shall appoint an overseas custodian bank, a Domestic Depository and aMerchant Banker& Underwriters for the purpose of issue of IDRs & its underwriting.
The issuing company shall obtain in-principle listing permission from one or more stockexchanges having nationwide trading terminals in India.
Conditions of Issue of Prospectus and Application
Sub-rule 5 deals with conditions required to be fulfilled for issue of prospectus which is as under:
No application form for the securities of the issuing company shall be issued unless the form isaccompanied by a memorandum containing the salient features of prospectus in the specifiedform.
An application form can be issued without the memorandum if it isissued in connection with an invitation to enter into an underwriting agreement with respect tothe IDRs.
The provisions of the Act shall apply for all liabilities for mis-statements in prospectus orpunishment for fraudulently inducing persons to invest money in IDRs.
The person(s) responsible for issue of the prospectus shall not incur any liability by reason ofany non-compliance with or contravention of any provision of this rule, if-
as regards any matter not disclosed, he proves that he had no knowledge thereof; or
the contravention arose in respect of such matters which in the opinion of the CentralGovernment or SEBI were not material.
Procedure for Transfer and Redemption
Sub-rule 6 narrates the procedure for transfer and redemption of IDRs.
A holder of IDRs may transfer the IDRs, may ask the Domestic Depository to redeem them orany person may seek reissuance of IDRs by conversion of underlying equity shares, subject to theprovisions of the Foreign Exchange Management Act, 1999, the SEBI Act, 1992, or the rules,regulations or guidelines issued under these Acts, or any other law for the time being in force.
In case of redemption, Domestic Depository shall request the Overseas Custodian Bank to getthe corresponding underlying equity shares released in favor of the holder of IDRs for being solddirectly on behalf of holder of IDRs, or being transferred in the books of Issuing company in thename of holder of IDRs and a copy of such request shall be sent to the issuing company forinformation.
AnIDR holdermay, at any time, nominate a person to whom his IDRs shall vest in the eventof his death and Form FC-5 may be used for this purpose.
Repatriation
Sub-rule 7 provides for repatriation of issue proceeds of IDRS.
The repatriation of the proceeds of issue of IDRs shall be subject to laws as applicable relating to export of foreign exchange.
The number of underlying equity shares offered in a financial year through IDR offerings shallnot exceed 25% of the post issue number of equity shares of the company.