Recent Developments inIndian Stock Exchanges

Insider Trading:

1. Insider trading had become an extremely sensitive and controversial subject in the The stock market in India.
2. Any person in power, whether an officer or a director, who had access to information about the company’s private matters such as expansion programs, policy changes, amalgamations, joint contracts, collaboration, or any information about its financial results was abusing his position to give an advantage to relatives, friends, or known persons by leaking information that led to fraud and price rigging in securities.
3. SEBI has established standards for dealing with potentially sensitive material. Price projections, changes in investment plans, knowledge of mergers and acquisitions, and contract information must all be kept confidential. Each organization must identify its employees and executives who have access to such sensitive information. Controls will be implemented for the management of sensitive information.
4. SEBI’s Insider Trading Regulations of 1992 barred insider trading as unfair to investors. Persons possessing price sensitive knowledge due to links with a corporation take advantage of the circumstance to ‘peg up’ or ‘down’ the prices of shares to their benefit.
5. The Depository Act of 1996 allows for dematerialization and electronic transmission of securities, lowering settlement risks and infrastructure bottlenecks. The dematerialized securities will not have identifying or distinguishing numbers.
6. The National Securities Depository Ltd. was established in November 1996. Trading of new Initial (NSDC) public offerings was to be dematerialized upon listing. Multiple depository systems are encouraged, which is unique to the Indian capital market.
7. Hence, there are two Depository Services. The other depository system has also been registered. It’s named Central Depository Service Ltd. (CDSL). However, debt instruments cannot be transferred via endorsement delivery.
8. Dematerialization of securities is a big step toward upgrading and modernizing the market, as well as increasing investor protection by eliminating poor deliveries and forging of shares and accelerating share transfers. The withdrawal of tangible securities was anticipated to have long-term advantages for the market.
9. Utility of a Depository System:
10. India needs a repository system to replace physical certificates.
11. A depository system offers the following advantages:
12. Paperless:
13. It avoids dangers since this approach does not need physical certifications. There are no issues with defective delivery or false certifications.
14. Electronic forms allow for quick transfer of securities.
15. A depository assigns both a customer and a depository identity number to each demat account. As a result, each member has their own distinct individuality. He also has a trading account, which allows him to verify his identity and make fast transfers.
16. Electronic transfers of securities do not need stamp duty due to their lack of physical transfer. It is transferred via a passbook, similar to a bank.
17. Expenses: The DP charges an annual fee to maintain member accounts, which reduces paperwork and transaction costs associated with frequent securities transfers.
18. Eliminates problems:
19. Investors formerly had to sell shares in odd lots, but the depository system allows for the sale of even a single share.
20. A depository’s nomination feature enables for easy transfer of shares after a participant’s death.
21. When an investor changes their address with DP, it is electronically registered with all firms where they own stocks, avoiding the need for additional correspondence.
22. communication Elimination: DP handles securities transmission by eliminating communication with corporations.
23. Automatic Credit: Shares are automatically credited to demat accounts after bonuses, splits, consolidations, and mergers.
24. To convert shares into dematerialized form, investors must complete up a Demat Request Form (DRF) and submit it with physical certificates to the DP. DRF must be completed for each ISIN number. The investor must return certificates for dematerialization to the DP (depository participant). Depository participant notifies Depository of the request via the system.
25. He then presents the certificates to the registrar. The Registrar confirms the dematerialization request from the depository. After dematerializing certificates, the Registrar changes accounts and notifies the Depository of the completion of dematerializations. Depository changes its accounts and notifies depository participants. The depository participant modifies the account and tells the investor.
26. To get physical securities, investors must submit out the Remat Request Form (RRF) and request their DP to re-materialize their account balances. He must submit a request for rematerialization.
27. The DP then notifies the depository of the request via the system. The Depository confirms the registrar’s request for rematerialization. The registrar refreshes accounts and produces certificates. The depository refreshes accounts and downloads information to the depository participant. The registrar sends certificates to the investor.
28. SEBI has implemented procedures to prevent intermediaries from violating regulations, particularly with price manipulation. All exchanges have surveillance units that collaborate with SEBI. SEBI has required exchanges to give information on a daily basis in their settlement and monitoring reports. SEBI has also developed a database for trading on the National and Bombay stock exchanges.
29. If price manipulation is uncovered, the auction profits may be confiscated or blocked, preventing the manipulator from using them. SEBI has deployed ‘Stock Watch’, an advanced software for market monitoring tailored to indicate movements from historical patterns via follow-ups by analysts and professional investigators to dissuade trading and price manipulation.
30. The Stock Broker and Sub-brokers Regulation Act was enacted in 1992. Brokers have to register with both SEBI and the stock exchange. Any broker who violated the law would face penalties. Capital adequacy criteria were established, with 3% for individual brokers and 6% for corporate brokers.
31. Brokers have been disciplined for investor protection by implementing a system of holding accounts for customers and brokers’ personal accounts, as well as disclosing transaction price and brokerage separately in the contract note.
32. The audit of brokers’ records has been made obligatory, as has the submission of auditors’ reports with SEBI. SEBI has also expanded requirements to include sub-brokers. Sub-brokers must register by entering into an agreement with the stock brokers with whom they desire affiliation.
33. Sub-brokers may only do business with the stock broker with whom they are registered. If someone wishes to do business with more than one stock broker, he must register individually with each of them.
34. Option and Derivatives:
35. Options are classed as either call or put options. The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) have introduced derivatives. They will provide derivatives for three tenures: one in the first instance and one for each of the following three months.
36. So, in July, Nifty call and put options may be acquired for the end of July, August, or September. The contract would expire on the final day of its term. To enter into an options contract, you must pay a premium.
37. Buyer’s losses are restricted to the amount of premium paid, but his winnings are infinite. The seller’s gains are restricted to the premiums collected, whereas losses are infinite.
38. SEBI established these derivatives to increase investor trust in the market and decrease risk. Options trading will initially be restricted to 14 equities. The option will not allow a person to prolong the settlement of a sale or purchase, but it will allow them to place bets on stock markets.
39. SEBI oversees mutual funds to provide portfolio transparency and uniformity of accounting standards. SEBI requires that Mutual Funds have a trustee business that is distinct from the asset management company, and that the securities of the different schemes be held by an independent custodian.
40. All mutual funds should be controlled by the SEBI. SEBI now regulates all UTI plans launched after 1994. SEBI established methods for valuation criteria, asset value, and pricing for mutual funds. SEBI’s principal objective in controlling Mutual Fund schemes was to safeguard investors from fraudulent transactions.
41. To increase transparency in operations, SEBI mandated mutual fund investors to provide their permanent account number (PAN) for investments more than Rs. 50000. If neither the PAN nor the GIR number has been assigned, the fact of non-allotment must be indicated in the application form. Mutual funds were not allowed to accept applications without these data.
42. All mutual funds were also instructed to secure a unique client code from the Bombay Stock Exchange or the National Stock Exchange for each of their current schemes and programs.
43. Following the collapse of Global Trust Bank (GTB), SEBI requested that all mutual funds provide facts about their interests in bank fixed deposits. SEBI specifically requested that foreign direct investments surpass 25% of a scheme’s overall portfolio.
44. To avoid mutual fund schemes from becoming portfolio management schemes, each mutual fund scheme and each plan inside the schemes must have at least 20 participants, with no one investor accounting for more than 25% of the scheme/plan’s corpus. In the event of non-compliance, the schemes/plans shall be terminated and investor funds redeemed at the appropriate Net Asset Value.
45. SEBI has introduced a new format for Mutual Funds to report information such as investment objective, asset allocation pattern, risk profile, plans and options, fund manager, trustee company, performance, expenses, tax treatment for investors/unit holders, and daily net asset value (NAV).
46. Regulation of Foreign Institutional Investors (FIIs): FIIs hold significant money. Because of their trading volumes, FIIs may maintain control over the stock market. SEBI has to maintain these FIIs under its jurisdiction to safeguard investors. Consequently, all FIIs had to be registered with SEBI.
47. FIIs with a capital of 100 crores might register as depositories, and their processes were to be reviewed by an independent body. FIIs are also permitted to invest in debt securities, however the investment in equity and debt securities must be in the proportion of 70:30. SEBI regulates FIIs such as pension funds, mutual funds, asset management companies, investment trusts, and charitable institutions.
48. Share buybacks are a common practice in Indian corporations. SEBI allowed it in 1998, after the Central Government’s Companies (Amendment) Ordinance. A share buyback is a way in which a firm may acquire its own shares using free reserves, a securities premium account, or the proceeds of other specified securities, such as preferred shares.
49. However, it cannot be derived from a previous equity share issuance. Shares may be bought back proportionally from current owners, via open market transactions, or through firm workers if securities are provided under a stock option or sweat equity.
50. It is a technique for restructuring a company’s share capital and raising the value of its stock. It may also result in increased control of the firm by the management and promoters via the utilization of surplus cash available to the company.
51. Buy back its shares under SEBI laws only when the following requirements are met:
52. A company’s Articles of Association permit share buybacks.
53. The general body passes a special resolution authorizing share repurchases. The resolution should include an attached document outlining all important facts such as the necessity for buyback, the amount to be invested, the kind of securities intended for repurchase, and the time restriction for completion of the buyback.
54. The debt equity ratio after buyback shall not exceed 2:1 of secured and unsecured debt, unless the Central Government grants prior approval.
55. The company’s other designated securities (listed and unlisted) are completely paid up and in compliance with SEBI laws.
56. According to the company’s most recent balance statement, the share repurchase represents less than 25% of its paid-up capital and free reserves.
57. The repurchase should be completed within twelve months of the special resolution being passed.
58. The shares/other specified securities will be extinguished within seven days of the company’s buy-back operation being completed.
59. For the next twenty-four months, the corporation will not be able to issue the same sort of shares/securities that were purchased back. The issuance of bonus shares under stock-option schemes, as well as the conversion of preference shares/debentures into equity issues, are exceptions to this rule.
60. A firm must also submit a statement of solvency certified by an affidavit in a stipulated form with the Registrar of Companies within 30 days following the completion of the buyback. This was revised in October 2001 to allow firms to purchase back shares. The amendments are:
61. There can only be one buyback in 365 days.
62. Companies may buy back less than 10% of their shares with the consent of the Board of Directors.
63. If a firm offers less than 10% stock, shareholder approval is not required.