OVERVIEW OF CAPITAL MARKET

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1 Contents About the author I-5 Preface to second edition I-7 Chapter-heads I-9 1 OVERVIEW OF CAPITAL MARKET 1.1 Introduction Financial System in India Financial Markets Role of securities markets on economic growth Profile of Securities Market Market Regulation Governing Capital Markets in India Securities Market reforms and regulatory measures to promote investor confidence Features of Developed Capital Market : The International Organization of Securities Commissions (IOSCO) Overview of Depository System in India Conclusions 23 REVIEW QUESTIONS 23 DISTINGUISH BETWEEN 23 DESCRIPTIVE QUESTIONS 23 2 CAPITAL MARKET INSTRUMENTS 2.1 Introduction Classification of Instruments Practical Questions Conclusions 40 REVIEW QUESTIONS 41 DISTINGUISH BETWEEN 41 I-11

2 CONTENTS I-12 SHORT NOTES 41 DESCRIPTIVE QUESTIONS 42 3 CREDIT RATING AND IPO GRADING 3.1 Introduction The Concept and Overview Evolution of Credit Rating Purposes Uses of Credit Rating Functions of Credit Rating Agencies Limitations The Rating Methodology The Rating Process Credit Rating Agencies : A Brief Profile The Regulatory Framework Guidelines for Credit Rating Agencies Initial Public Offering (IPO) Grading Internal audit of credit rating agencies Conclusions 71 REVIEW QUESTIONS 72 DESCRIPTIVE QUESTIONS 72 4 SECURITIES MARKET INTERMEDIARIES 4.1 Introduction Primary Market and Secondary Market Intermediaries: Role and Functions Merchant Bankers Stock Brokers Sub-Brokers Syndicate members Underwriters Bankers to the Issue Registrar to the issue Portfolio Managers Debenture Trustees Depository Depository Participant (DP) Custodians Credit Rating Agencies 87

3 I-13 CONTENTS 4.16 Venture Capitalists Investment Adviser Conclusions 88 REVIEW QUESTIONS 88 DISTINGUISH BETWEEN 88 SHORT NOTES 89 DESCRIPTIVE QUESTIONS 89 5 MARKET INFRASTRUCTURE INSTITUTIONS - STOCK EXCHANGE TRADING MECHANISM 5.1 Introduction Stock Exchange Trading Mechanism Market Making Short Selling and Securities Lending & Borrowing Rolling Settlement Cycles Bombay Stock Exchange Limited (BSE) National Stock Exchange of India Ltd. (NSEIL) SME Exchange Algorithmic Trading (a) Institutional Trading Platform (ITP) (b) Dedicated Debt Segment on Stock Exchanges Stock Market Indices Practical Questions Conclusions 128 REVIEW QUESTIONS 128 DISTINGUISH BETWEEN 128 SHORT NOTES 129 DESCRIPTIVE QUESTIONS DEBT MARKET 6.1 Introduction The Concept and Features of Debt Market Features of Debt Instruments Market Segments Debt Instruments Terms in Debt Market Participants in the Debt Markets 136

4 CONTENTS I Regulatory framework : SEBI (ICDR) Regulations, SEBI (Issue and Listing of Debt Securities) Regulations, Securitized Debt Instruments Dedicated Debt Segment on Stock Exchanges Compliances under SEBI (Listing Obligations and Disclosure Requirements) Regulations, SEBI (Issue and Listing of Debt Securities by Municipalities) Regulations, Conclusions 157 REVIEW QUESTIONS 157 SHORT NOTES 157 DESCRIPTIVE QUESTIONS MONEY MARKETS 7.1 Introduction The concept Objectives General features and functions Distinction between Capital Market and Money Market Money Markets Reforms Structure of Money Markets in India Distinction between Organized and Unorganized Money Market Shortcomings of Indian Money Market Intermediaries/Participants of Money Markets Money market Instruments in India Primary Dealers (PDs) Money Market Mutual Funds (MMMFs) Factoring Bill Rediscounting Government Securities Practical Questions Conclusions 195 REVIEW QUESTIONS 196 DISTINGUISH BETWEEN 196 SHORT NOTES 196 DESCRIPTIVE QUESTIONS 196

5 I-15 CONTENTS 8 MUTUAL FUNDS 8.1 Introduction Mutual Funds An Overview in Mutual Funds Industry Advantages of Mutual Funds Risk Factors Associated with Mutual Funds Mutual Funds Investors Types of Mutual Funds Schemes Constituents of Mutual Funds Shortcomings in Operation of Mutual Funds Indian Mutual Fund Industry Regulatory Framework: SEBI (Mutual Funds) Regulations, Infrastructure Debt Fund Schemes (IDFSs) Gold Exchange Traded Funds Scheme Information Document (SID) and Statement of Additional Information (SAI) and Key Information Memorandum (KIM) Compliances under SEBI (Listing Obligations and Disclosure Requirements) Regulations, Practical Questions Conclusions 235 REVIEW QUESTIONS 235 DISTINGUISH BETWEEN 235 SHORT NOTES 236 DESCRIPTIVE QUESTIONS ALTERNATIVE INVESTMENT FUND 9.1 Introduction Alternative Investment Funds (AIFs) SEBI (Alternative Investment Funds) Regulations, SEBI (Venture Capital Funds) Regulations, SEBI (Foreign Venture Capital Investors) Regulations, Overseas Investment by Alternative Investment Funds (AIFs) Conclusions 253 REVIEW QUESTIONS 253 SHORT NOTES 253 DESCRIPTIVE QUESTIONS 253

6 CONTENTS I COLLECTIVE INVESTMENT SCHEME 10.1 Introduction Collective Investment Scheme (CIS) SEBI (Collective Investment Schemes) Regulations, Conclusions 263 REVIEW QUESTIONS 263 SHORT NOTES 263 DESCRIPTIVE QUESTIONS RESOURCE MOBILIZATION IN INTERNATIONAL CAPITAL MARKET 11.1 Introduction Depository Receipts (DRs) and Related Concepts in International Capital Markets Procedure for issuance of GDR/FCCBs Depository Receipts Scheme, Conclusions 287 REVIEW QUESTIONS 288 SHORT NOTES 288 DESCRIPTIVE QUESTIONS INDIAN DEPOSITORY RECEIPTS 12.1 Introduction Indian Depository Receipts (IDRs) Intermediaries and participants involved in issuance of IDR Benefits Indian Depository Receipts: Legal Framework Compliances under SEBI (Listing Obligations and Disclosure Requirements) Regulations, Company Secretary as Compliance Officer Conclusions 301 REVIEW QUESTIONS 302 SHORT NOTES 302 DESCRIPTIVE QUESTIONS 302

7 I-17 CONTENTS 13 REGULATORY FRAMEWORK GOVERNING STOCK EXCHANGE 13.1 Introduction The Securities Contracts (Regulation) Act, Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, Securities Contracts (Regulation) Rules, Duties and Obligations of the Recognized Stock Exchange(s) [As per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015] Conclusions 326 REVIEW QUESTIONS 327 SHORT NOTES 327 DESCRIPTIVE QUESTIONS SECURITIES AND EXCHANGE BOARD OF INDIA 14.1 Introduction The SEBI Act, Securities Appellate Tribunal (Procedure) Rules, SEBI (Settlement of Administrative and Civil Proceedings) Regulations, Conclusions 352 REVIEW QUESTIONS 352 SHORT NOTES 352 DESCRIPTIVE QUESTIONS DEPOSITORIES 15.1 Introduction The concept Key features of the depository system in india Functions of depository system Benefits Depository in India Depository participant (DP) Registrar and transfer agent (R&T agents) Custodians Dematerialization process 360

8 CONTENTS I Rematerialisation process Depositories Act, SEBI (Depositories and Participants) Regulations, Basic services demat account (BSDA) Conclusions 384 REVIEW QUESTIONS 384 DISTINGUISH BETWEEN 384 SHORT NOTES 384 DESCRIPTIVE QUESTIONS LISTING AND DELISTING OF SECURITIES 16.1 Introduction Listing of securities at the stock exchanges Compliances under SEBI (Listing Obligation and Disclosure Requirements) Regulations, Corporate Governance Delisting of equity shares Conclusions 418 REVIEW QUESTIONS 419 SHORT NOTES 419 DESCRIPTIVE QUESTIONS ISSUE OF SECURITIES 17.1 Introduction The concept of primary markets Characteristics Different kinds of issues of securities SEBI (ICDR) Regulations, Public issue mechanism Green Shoe Option: A Price Stabilization Mechanism in Public Issues Conditions and Manner of Providing Exit Opportunity to Dissenting Shareholders as per SEBI (Issue of Capital and Disclosure Requirements) Regulations, Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, Practical Questions Conclusions 506

9 I-19 CONTENTS REVIEW QUESTIONS 506 DISTINGUISH BETWEEN 506 SHORT NOTES 507 DESCRIPTIVE QUESTIONS REGULATORY FRAMEWORK RELATING TO SECURITIES MARKET INTERMEDIARIES 18.1 Introduction Primary market intermediaries Secondary market intermediaries Obligations of intermediaries under Prevention of Money Laundering Act, Conclusions 567 REVIEW QUESTIONS 567 DESCRIPTIVE QUESTIONS INSIDER TRADING AN OVERVIEW 19.1 Introduction The Companies Act, Insider trading SEBI (Prohibition of Insider Trading) Regulations, Duties of Compliance Officer under PIT Regulation, Conclusions 580 REVIEW QUESTIONS 580 DISTINGUISH BETWEEN 580 DESCRIPTIVE QUESTIONS TAKEOVER CODE - AN OVERVIEW 20.1 Introduction SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, Conclusions 597 REVIEW QUESTIONS 598 DESCRIPTIVE QUESTIONS 598

10 CONTENTS I INVESTORS PROTECTION 21.1 Introduction The Concept of Investors Protection The Mode of Investors Protection Importance of Investors Protection Key Areas Where Investors Protection Needed Rights and Responsibilities of Investors Whom to Approach for Complaint Against Stock Brokers/Depository Participants Types of grievances and dealing authority Regulatory Framework for investors protection in India Legislations for investor protection in India Investor education and protection fund Investor grievance redressal mechanism at SEBI Financial education in India SEBI (Informal Guidance) Scheme, Conclusions 617 REVIEW QUESTIONS 617 SHORT NOTES 617 DESCRIPTIVE QUESTIONS OTHER SEBI REGULATIONS 22.1 Introduction SEBI (Foreign Portfolio Investors) Regulations, SEBI (Issue and Listing of Non-convertible Redeemable Preference Shares) Regulations, SEBI (Real Estate Investment Trusts) Regulations, SEBI (Infrastructure Investment Trusts) Regulations, Conclusions 629 REVIEW QUESTIONS 629 DESCRIPTIVE QUESTIONS 629 EXAMINATION PAPER DECEMBER 2014 (SUGGESTED ANSWER) 631 EXAMINATION PAPER JUNE 2015 (SUGGESTED ANSWER) 636 EXAMINATION PAPER DECEMBER 2015 (SUGGESTED ANSWER) 639 EXAMINATION PAPER JUNE 2016 (SUGGESTED ANSWER) 642

5. Enumerate the various penalties which can be imposed under SEBI Act, 1992 for various

5. Enumerate the various penalties which can be imposed under SEBI Act, 1992 for various SL&C Page 1 STUDY I - GENESIS AND DEVELOPMENT OF REGULATORY FRAMEWORK 1. Briefly discuss the evolution, growth and functions of financial system in India. 2. Explain the role of securities market in economic