Contents About the author I-5 Preface to second edition I-7 Chapter-heads I-9 1 OVERVIEW OF CAPITAL MARKET 1.1 Introduction 1 1.2 Financial System in India 2 1.3 Financial Markets 4 1.4 Role of securities markets on economic growth 8 1.5 Profile of Securities Market 10 1.6 Market Regulation Governing Capital Markets in India 12 1.7 Securities Market reforms and regulatory measures to promote investor confidence 14 1.8 Features of Developed Capital Market : The International Organization of Securities Commissions (IOSCO) 19 1.9 Overview of Depository System in India 21 1.10 Conclusions 23 REVIEW QUESTIONS 23 DISTINGUISH BETWEEN 23 DESCRIPTIVE QUESTIONS 23 2 CAPITAL MARKET INSTRUMENTS 2.1 Introduction 25 2.2 Classification of Instruments 26 2.3 Practical Questions 36 2.4 Conclusions 40 REVIEW QUESTIONS 41 DISTINGUISH BETWEEN 41 I-11
CONTENTS I-12 SHORT NOTES 41 DESCRIPTIVE QUESTIONS 42 3 CREDIT RATING AND IPO GRADING 3.1 Introduction 43 3.2 The Concept and Overview 43 3.3 Evolution of Credit Rating 44 3.4 Purposes 45 3.5 Uses of Credit Rating 46 3.6 Functions of Credit Rating Agencies 47 3.7 Limitations 47 3.8 The Rating Methodology 48 3.9 The Rating Process 49 3.10 Credit Rating Agencies : A Brief Profile 50 3.11 The Regulatory Framework 56 3.12 Guidelines for Credit Rating Agencies 65 3.13 Initial Public Offering (IPO) Grading 66 3.14 Internal audit of credit rating agencies 71 3.15 Conclusions 71 REVIEW QUESTIONS 72 DESCRIPTIVE QUESTIONS 72 4 SECURITIES MARKET INTERMEDIARIES 4.1 Introduction 73 4.2 Primary Market and Secondary Market Intermediaries: Role and Functions 74 4.3 Merchant Bankers 74 4.4 Stock Brokers 78 4.5 Sub-Brokers 79 4.6 Syndicate members 80 4.7 Underwriters 80 4.8 Bankers to the Issue 82 4.9 Registrar to the issue 82 4.10 Portfolio Managers 84 4.11 Debenture Trustees 84 4.12 Depository 85 4.13 Depository Participant (DP) 86 4.14 Custodians 86 4.15 Credit Rating Agencies 87
I-13 CONTENTS 4.16 Venture Capitalists 87 4.17 Investment Adviser 88 4.18 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 90 5.2 Stock Exchange Trading Mechanism 90 5.3 Market Making 97 5.4 Short Selling and Securities Lending & Borrowing 99 5.5 Rolling Settlement Cycles 102 5.6 Bombay Stock Exchange Limited (BSE) 103 5.7 National Stock Exchange of India Ltd. (NSEIL) 109 5.8 SME Exchange 119 5.9 Algorithmic Trading 121 5.10(a) Institutional Trading Platform (ITP) 122 5.10(b) Dedicated Debt Segment on Stock Exchanges 122 5.11 Stock Market Indices 122 5.12 Practical Questions 125 5.13 Conclusions 128 REVIEW QUESTIONS 128 DISTINGUISH BETWEEN 128 SHORT NOTES 129 DESCRIPTIVE QUESTIONS 129 6 DEBT MARKET 6.1 Introduction 131 6.2 The Concept and Features of Debt Market 131 6.3 Features of Debt Instruments 132 6.4 Market Segments 133 6.5 Debt Instruments 134 6.6 Terms in Debt Market 135 6.7 Participants in the Debt Markets 136
CONTENTS I-14 6.8 Regulatory framework : SEBI (ICDR) Regulations, 2009 138 6.9 SEBI (Issue and Listing of Debt Securities) Regulations, 2008 140 6.10 Securitized Debt Instruments 146 6.11 Dedicated Debt Segment on Stock Exchanges 146 6.12 Compliances under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 147 6.13 SEBI (Issue and Listing of Debt Securities by Municipalities) Regulations, 2015 153 6.14 Conclusions 157 REVIEW QUESTIONS 157 SHORT NOTES 157 DESCRIPTIVE QUESTIONS 158 7 MONEY MARKETS 7.1 Introduction 159 7.2 The concept 160 7.3 Objectives 160 7.4 General features and functions 160 7.5 Distinction between Capital Market and Money Market 161 7.6 Money Markets Reforms 162 7.7 Structure of Money Markets in India 163 7.8 Distinction between Organized and Unorganized Money Market 164 7.9 Shortcomings of Indian Money Market 164 7.10 Intermediaries/Participants of Money Markets 165 7.11 Money market Instruments in India 166 7.12 Primary Dealers (PDs) 178 7.13 Money Market Mutual Funds (MMMFs) 182 7.14 Factoring 183 7.15 Bill Rediscounting 185 7.16 Government Securities 186 7.17 Practical Questions 187 7.18 Conclusions 195 REVIEW QUESTIONS 196 DISTINGUISH BETWEEN 196 SHORT NOTES 196 DESCRIPTIVE QUESTIONS 196
I-15 CONTENTS 8 MUTUAL FUNDS 8.1 Introduction 198 8.2 Mutual Funds 198 8.3 An Overview in Mutual Funds Industry 201 8.4 Advantages of Mutual Funds 204 8.5 Risk Factors Associated with Mutual Funds 205 8.6 Mutual Funds Investors 205 8.7 Types of Mutual Funds Schemes 206 8.8 Constituents of Mutual Funds 208 8.9 Shortcomings in Operation of Mutual Funds 209 8.10 Indian Mutual Fund Industry 209 8.11 Regulatory Framework: SEBI (Mutual Funds) Regulations, 1996 210 8.12 Infrastructure Debt Fund Schemes (IDFSs) 223 8.13 Gold Exchange Traded Funds 227 8.14 Scheme Information Document (SID) and Statement of Additional Information (SAI) and Key Information Memorandum (KIM) 227 8.15 Compliances under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 228 8.16 Practical Questions 229 8.17 Conclusions 235 REVIEW QUESTIONS 235 DISTINGUISH BETWEEN 235 SHORT NOTES 236 DESCRIPTIVE QUESTIONS 236 9 ALTERNATIVE INVESTMENT FUND 9.1 Introduction 238 9.2 Alternative Investment Funds (AIFs) 238 9.3 SEBI (Alternative Investment Funds) Regulations, 2012 240 9.4 SEBI (Venture Capital Funds) Regulations, 1996 247 9.5 SEBI (Foreign Venture Capital Investors) Regulations, 2000 251 9.6 Overseas Investment by Alternative Investment Funds (AIFs) 252 9.7 Conclusions 253 REVIEW QUESTIONS 253 SHORT NOTES 253 DESCRIPTIVE QUESTIONS 253
CONTENTS I-16 10 COLLECTIVE INVESTMENT SCHEME 10.1 Introduction 255 10.2 Collective Investment Scheme (CIS) 255 10.3 SEBI (Collective Investment Schemes) Regulations, 1999 256 10.4 Conclusions 263 REVIEW QUESTIONS 263 SHORT NOTES 263 DESCRIPTIVE QUESTIONS 263 11 RESOURCE MOBILIZATION IN INTERNATIONAL CAPITAL MARKET 11.1 Introduction 264 11.2 Depository Receipts (DRs) and Related Concepts in International Capital Markets 264 11.3 Procedure for issuance of GDR/FCCBs 281 11.4 Depository Receipts Scheme, 2014 285 11.5 Conclusions 287 REVIEW QUESTIONS 288 SHORT NOTES 288 DESCRIPTIVE QUESTIONS 288 12 INDIAN DEPOSITORY RECEIPTS 12.1 Introduction 290 12.2 Indian Depository Receipts (IDRs) 290 12.3 Intermediaries and participants involved in issuance of IDR 291 12.4 Benefits 292 12.5 Indian Depository Receipts: Legal Framework 292 12.6 Compliances under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 298 12.7 Company Secretary as Compliance Officer 301 12.8 Conclusions 301 REVIEW QUESTIONS 302 SHORT NOTES 302 DESCRIPTIVE QUESTIONS 302
I-17 CONTENTS 13 REGULATORY FRAMEWORK GOVERNING STOCK EXCHANGE 13.1 Introduction 303 13.2 The Securities Contracts (Regulation) Act, 1956 304 13.3 Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 314 13.4 Securities Contracts (Regulation) Rules, 1957 319 13.5 Duties and Obligations of the Recognized Stock Exchange(s) [As per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015] 325 13.6 Conclusions 326 REVIEW QUESTIONS 327 SHORT NOTES 327 DESCRIPTIVE QUESTIONS 327 14 SECURITIES AND EXCHANGE BOARD OF INDIA 14.1 Introduction 328 14.2 The SEBI Act, 1992 328 14.3 Securities Appellate Tribunal (Procedure) Rules, 2000 346 14.4 SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 347 14.5 Conclusions 352 REVIEW QUESTIONS 352 SHORT NOTES 352 DESCRIPTIVE QUESTIONS 352 15 DEPOSITORIES 15.1 Introduction 354 15.2 The concept 354 15.3 Key features of the depository system in india 355 15.4 Functions of depository system 356 15.5 Benefits 357 15.6 Depository in India 358 15.7 Depository participant (DP) 359 15.8 Registrar and transfer agent (R&T agents) 359 15.9 Custodians 359 15.10 Dematerialization process 360
CONTENTS I-18 15.11 Rematerialisation process 361 15.12 Depositories Act, 1996 364 15.13 SEBI (Depositories and Participants) Regulations, 1996 372 15.14 Basic services demat account (BSDA) 383 15.15 Conclusions 384 REVIEW QUESTIONS 384 DISTINGUISH BETWEEN 384 SHORT NOTES 384 DESCRIPTIVE QUESTIONS 385 16 LISTING AND DELISTING OF SECURITIES 16.1 Introduction 387 16.2 Listing of securities at the stock exchanges 387 16.3 Compliances under SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 391 16.4 Corporate Governance 396 16.5 Delisting of equity shares 407 16.6 Conclusions 418 REVIEW QUESTIONS 419 SHORT NOTES 419 DESCRIPTIVE QUESTIONS 419 17 ISSUE OF SECURITIES 17.1 Introduction 421 17.2 The concept of primary markets 422 17.3 Characteristics 422 17.4 Different kinds of issues of securities 423 17.5 SEBI (ICDR) Regulations, 2009 426 17.6 Public issue mechanism 452 17.7 Green Shoe Option: A Price Stabilization Mechanism in Public Issues 477 17.8 Conditions and Manner of Providing Exit Opportunity to Dissenting Shareholders as per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 484 17.9 Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 486 17.10 Practical Questions 491 17.11 Conclusions 506
I-19 CONTENTS REVIEW QUESTIONS 506 DISTINGUISH BETWEEN 506 SHORT NOTES 507 DESCRIPTIVE QUESTIONS 507 18 REGULATORY FRAMEWORK RELATING TO SECURITIES MARKET INTERMEDIARIES 18.1 Introduction 509 18.2 Primary market intermediaries 510 18.3 Secondary market intermediaries 540 18.4 Obligations of intermediaries under Prevention of Money Laundering Act, 2002 565 18.5 Conclusions 567 REVIEW QUESTIONS 567 DESCRIPTIVE QUESTIONS 567 19 INSIDER TRADING AN OVERVIEW 19.1 Introduction 569 19.2 The Companies Act, 2013 571 19.3 Insider trading 571 19.4 SEBI (Prohibition of Insider Trading) Regulations, 2015 572 19.5 Duties of Compliance Officer under PIT Regulation, 2015 579 19.6 Conclusions 580 REVIEW QUESTIONS 580 DISTINGUISH BETWEEN 580 DESCRIPTIVE QUESTIONS 580 20 TAKEOVER CODE - AN OVERVIEW 20.1 Introduction 581 20.2 SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 582 20.3 Conclusions 597 REVIEW QUESTIONS 598 DESCRIPTIVE QUESTIONS 598
CONTENTS I-20 21 INVESTORS PROTECTION 21.1 Introduction 599 21.2 The Concept of Investors Protection 600 21.3 The Mode of Investors Protection 600 21.4 Importance of Investors Protection 601 21.5 Key Areas Where Investors Protection Needed 601 21.6 Rights and Responsibilities of Investors 602 21.7 Whom to Approach for Complaint Against Stock Brokers/Depository Participants 603 21.8 Types of grievances and dealing authority 604 21.9 Regulatory Framework for investors protection in India 604 21.10 Legislations for investor protection in India 605 21.11 Investor education and protection fund 608 21.12 Investor grievance redressal mechanism at SEBI 609 21.13 Financial education in India 613 21.14 SEBI (Informal Guidance) Scheme, 2003 615 21.15 Conclusions 617 REVIEW QUESTIONS 617 SHORT NOTES 617 DESCRIPTIVE QUESTIONS 617 22 OTHER SEBI REGULATIONS 22.1 Introduction 619 22.2 SEBI (Foreign Portfolio Investors) Regulations, 2014 619 22.3 SEBI (Issue and Listing of Non-convertible Redeemable Preference Shares) Regulations, 2013 623 22.4 SEBI (Real Estate Investment Trusts) Regulations, 2014 625 22.5 SEBI (Infrastructure Investment Trusts) Regulations, 2014 627 22.6 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