Post on 17-Jul-2020
1
Free of Cost ISBN : 978-93-5034-835-2
Solved Solved Solved SolvedScannerScannerScannerScanner Appendix
CS Executive Programme Module - IIDecember - 2013
Paper - 6 : Capital Markets and Securities Laws
Chapter - 2 : Capital Market Instruments
2013 - Dec [3] (a)
The given statement is correct. The reason can be understood by understanding these
points:
(a) “STRIP” is the acronym for Separate Trading of Registered Interest and Principal
of Securities.
(b) STRIPS let investors hold and trade the individual interest and principal
components of eligible Treasury notes and bonds as separate securities.
(c) STRIPS are popular with investors who want to receive a known payment on a
specific future date.
(d) STRIPS are called “zero-coupon” securities. The only time an investor receives a
payment from STRIPS is at maturity.
(e) STRIPS are not issued or sold directly to investors. STRIPS can be purchased and
held only through financial institutions and government securities brokers and
dealers.
(f) When a Treasury fixed principal note or bond or a Treasury Inflation-Protected
Security (TIPS) is stripped through the commercial book-entry system each
interest payment and the principal payment becomes a separate zero-coupon
security. Each component has its own identifying number and can be held or
traded separately.
For example, a Treasury note with 10 years remaining to maturity consists of a
single principal payment, due at maturity, and 20 interest payments, one every six
months over a 10 year duration. When this note is converted to STRIPS form, each
of the 20 interest payments and the principal payment becomes a separate
security.
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 2
Chapter - 3 : Credit Rating and IPO Grading
2013 - Dec [1] (b)
(I) Meaning of IPO Grading: IPO Grading means “ an independent assessment of
fundamentals of an IPO which is being brought by an unlisted company”. It is a
service aimed at facilitating the assessment of equity shares offered to public.
The grade assigned to any individuals issue represents assessment of the
‘fundamentals’ of that issue in relation of the universe of other listed equity
securities in India. Such grading is assigned on a five-point scale with a higher
score indicating stronger fundamentals.
An unlisted company making an IPO has to obtain grading for such an IPO from
one or more credit rating agencies.
(II) Disclosure of IPO grade: As per SEBI(ICDR) Regulations 2009, it is mandatory
to disclose all the IPO grades along with the rationale discretion furnished by the
credit rating agency(ies) for each of the grades obtained, in the prospectus,
abridges prospectus, issue advertisements and all other places where the issuer
company is advertising for IPO.
So, it is clear that the issuer company i.e. Priyanka Ltd. has to disclose all the
3 grades obtained from 3 different rating agencies. So,it has to disclose all the
grades i.e.
• IPO - 3
• IPO - 4 and
• IPO - 5.
Chapter - 4 : Securities Market Intermediaries
2013 - Dec [2] (a)
(I) Meaning of Registrar to the issue: It means the person appointed to carry on:
(a) Collecting application from investor
(b) Keeping proper record of application and money received
(c) Finalising the list of person entitled to allotment
(d) Processing and despatchment of allotment letters
(II) Functions of Registrar to Issue;
(a) Pre-issue Work of Registrar:
(i) Finalisation of bankers to issue, list of branches, controlling and collecting
branches.
(ii) Design of application form, bank schedule, pre-printed stationery.
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 3
(iii) Preparing and issuing instructions for collecting and controlling
branches.
(iv) Arranging dispatch of application schedule for listing of applications to
collecting and controlling branches.
(v) Placing of orders for and procuring pre-printed stationery.
(b) Issue Works of Registrar:
(i) Collection of daily figure from bankers to the issue.
(ii) Dispatch of applications, final certificate to the controlling branches.
(iii) Informing stock exchange/SEBI and providing necessary certificate to
lead manager on closure of issue.
(iv) Scrutiny of application received from bankers to issue.
(v) Reconciliation of number of applications, securities applied for and
money received with final certificate received from bank.
(vi) Identify and reject applications having technical faults.
(vii) Preparing statement for deciding basis of allotment by the company.
(viii) Finalizing basis of allotment after approval of the stock exchange.
Chapter - 5 : Market Infrastructure Institutions - Stock Exchange Trading Mechanism
2013 - Dec [1] (a)
The given question is based upon preferential issue, which is regulated by SEBI (ICDR)
Regulations,2009. The relevant answers are as:
(I) Pricing of the Issue: As per data given it is clear that the equity shares of the
Aishwarya Ltd. (i.e. the Company ) is listed for 26 weeks or more. So the price
of shares warrants on preferential issue shall not be less than the higher of the
following:
(a) The average of the weekly high and low of the closing prices of the related
shares quoted on the stock exchanges during the twenty-six weeks
preceding the relevant date i.e. ` 354.
(b) The average of the weekly high and low of the closing prices of the related
shares quoted on the stock exchange during the two weeks preceding the
relevant date i.e. ` 350.
So, the price of warrants shall not be less than ` 354 per share warrant.
(II) Upfront Payment on Warrants: The promoters are liable to pay at least 25%
of the price of Share Warrant i.e. ` 88.5 per share warrant. This amount should
be paid on the date of the allotment of share warrant.
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 4
2013 - Dec [2] (c)
(I) Meaning of SME Exchange: It means a trading platform of a recognized stock
exchange having nationwide trading terminals permitted by SEBI to list the
specified securities issued in accordance with SEBI(ICDR) Regulation. It also
includes a stock exchange granted recognition for this purpose but does not
include the ‘Main Board’.
Here ‘Main Board’ means a recognized stock exchange having nationwide
trading terminals, other than SME exchange.
(II) Example: BSE and NSE have started their SME listing platforms in India.
(III) Role of Company Secretary: The roles of CS are as:
(a) All listed SMEs on SME platform are required to appoint the Company
Secretary of the Issuer as Compliance Officer who will be responsible for
monitoring the share transfer process and report to the Issuer board in each
meeting.
(b) The ‘Compliance Officer’ will directly liaise with the authorities such as SEBI,
Stock Exchange, ROC etc., and investors with respect to implementation of
various clause, rules, regulations and other directives of such authorities and
investors service and complaints related matter.
(c) Further “Registrar and Transfer Agent” of a listed SMEs are required to
produce a certificate from a practicing company secretary that all the
transfers have been completed within the stipulated time and certification
regarding compliance of conditions of Corporate Governance.
2013 - Dec [2A] (Or) (i) (b)
(b) (I) Book Closure: Book closure is the period for closure of the Register of
Members and Transfer Books of the company, to take a record of the
shareholder to determine their entitlement to dividends or to bonus or rights
share or any other rights pertaining to shares. In accordance with Section 154
of the Companies Act, 1956 a company may close the register of members for
a maximum of 45 days in a year and not for 30 days at any one time.
(II) Record Date: Record date is the date on which the records of a company are
closed for the purpose of determining the stock holders to whom dividends,
proxies, rights, etc. are to be sent.
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 5
Chapter - 6 : Debt Market
2013 - Dec [1] (c)
(I) Listing of Debt Securities: The issuer company should consider following points:
(1) Debt securities issued by a company on private placement basis on a
recognized stock exchange subject to the following conditions:
C In compliance with the provisions of the Companies Act, Rules prescribed
there under and other applicable laws.
C Credit rating has been obtained from one or more registered credit rating
agencies.
C Dematerialized form
C Disclosures provided in SEBI(Issue and Listing of Debt Securities)
Regulations, 2008 have been complied with.
(2) The company shall comply with conditions of listing specified in the listing
agreement with the stock exchange where its debt securities are listed.
(3) The issuer shall make disclosures as specified in Schedule I of these
regulations accompanied by the latest Annual Report of the issuer.
(II) Simplified Debt Listing Agreement: SEBI, in continuing with rationalization of
disclosure norms for listing of debt issuances, has put in place a simplified “ Listing
Agreement” for debt securities. The disclosure in the draft listing agreement are
based on the principle that if an issuer has equity already listed such issuer is
required to make only minimal incremental disclosure specific to its debt issuance.
Issuers who have only its debt securities listed and not equity, reasonably
elaborate disclosures are prescribed.
The ‘Debt Listing Agreement’ has 2 parts as
Part A (Clause 2) Part B (Clause 13)
Part A of the Debt Listing Agreement
applicable to the Issue of Debt Securities
where equity shares of the issuers are
listed.
Part B of the Debt Listing Agreement
applicable to the Issue of Debt Securities
where equity shares of the Issuer are not
listed on the Exchange.
Chapter - 7 : Money Market
2013 - Dec [3] (b)
Following steps are involved in “Factoring Process”:
(i) The seller interacts with the funding specialist or broker and explains the funding
needs.
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 6
(ii) The broker prepares a preliminary client profile form and submits to the
appropriate funder for consideration.
(iii) Once both parties agree that factoring is possible, the broker puts the seller in
direct contact with the funder to ask/ answer any additional questions and to
negotiate a customized factoring agreement, which will meet the needs of all
concerned.
(iv) At this point, the seller may be asked to remit a fee with formal application to
cover legal research costs, which will be incurred during the course of “due
diligence”. Here “Due Diligence” means a process by which the buyer’s credit
worthiness is evaluated through background checks, using national database
services.
(v) During the next several days, the funder completes the “Due Diligence” process
on the seller, further verifies invoices and acknowledges any liens, UCC filings,
judgments or other recorded encumbrances on the seller’s accounts receivables.
(vi) The seller is advised with the facility and is asked to advise the buyers of the
‘Factor’ by letter and submit an acknowledged copy of the same to the ‘Factor’
for records.
(vii) A detailed sanction letter is given to the seller and acceptance on the same
taken, with the required stationeries. The sanction letter must contain following
terms:
(a) All facilities covered under the sanction.
(b) The period for which the sanction is valid.
(c) When the facility comes into effect.
(d) Who the authorized signatories are for signing invoices for factoring.
(e) The limits.
(f) The seller has to advise the buyer of the factoring agreement.
(g) Copy of such advice acknowledged by the buyer should be submitted to the
factor.
(viii) The discounting rates, charges fixed.
(ix) In case of discounts given by the seller to the buyer, which value will be financed
by the factor (Since the factored amount shall not ever exceed the amount
actually payable by buyer).
(x) Usually within 7 to 10 days of the initial contact with the factor, agreements are
signed, customers are notified , UCC forms filed and the first advance is
forwarded to the company. This advance can vary between 70-80% of the face
value of the invoices being factored.
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 7
(xi) The seller performs services or delivers products, thus creating an invoice.
(xii) The seller sends or faxes a copy of the invoice directly to the factor.
(xiii) The funder verifies the invoice and the advance is sent to the seller as per the
agreement.
(xiv) The buyer pays the factor. The factor then returns any remaining reserve, minus
the fee, which has been predetermined in the negotiated agreement.
Chapter - 8 : Mutual Funds
2013 - Dec [2A] (Or) (i) (a)
Instruments may be classified on their features into two parts i.e. pure instruments &
Hybrid instruments. Before distinguishing, it is necessary to have their basic meaning
as follows:
(a) Pure – Instruments: When instruments are issued with their basic features, then
these are called pure instruments. So, the basic features remain intact or there is
no mixing of features of other securities;
e.g. of pure instruments include
- Equity shares
- Preference shares
- Non – convertible debentures etc.
(b) Hybrid Instruments: When instruments are issued, after combining the features
of one or more pure instruments, so that the new instruments offer combined
benefits to the investor, then it is called, hybrid instruments;
e.g. of hybrid instruments includes
- Convertible preference shares;
- Partly convertible debentures;
- Fully convertible debenture.
Difference between pure & hybrid instruments
Basis of
Difference
Pure Instruments Hybrid Instruments
1. Features of
Instruments
These instruments carry
their own basic features.
These instruments carry the
combined features of Debt
instruments as well as equity
instruments.
2. Benefits These are not more
beneficial, in comparison
to Hybrid instruments.
These instruments offer the
investors, the benefits of both debt &
equity instruments.
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 8
3. Example (a) Equity shares
(b) Preference shares.
(a) Convertible preference shares
(b) Fully convertible debentures.
2013 - Dec [2A] (Or) (i) (c)(c)
Basis of Difference Leverage Funds Hedge Funds
1. Meaning Leverage funds are alsoknown as borrowedfunds.
Hedge funds are notborrowed funds; they areused for speculative trading.
2. Increase in portfolio Leverage funds increasethe size of portfolio.
Hedge funds doesn’tincreases the portfolio sizeand value.
3. Risk factor Leverage funds are lessrisky.
Hedge funds are morerisky.
4. TradingLeverage funds tend toindulge in speculativet rad i ng and r i s kyinvestments.
Hedge funds employ theirfunds for speculativetrading, i.e. for buyingshares, whose price arelikely to rise and for sellingshares whose prices arelikely to fall.
2013 - Dec [2A] (Or) (ii) (a)A hybrid of debt and equity financing that is typically used to finance the expansion ofexisting companies. Mezzanine financing is basically debt capital that gives the lenderthe rights to convert to an ownership or equity interest in the company if the loan is notpaid back in time and in full. It is generally subordinated to debt provided by seniorlenders such as banks and venture capital companies. Since mezzanine financing is usually provided to the borrower very quickly with little duediligence on the part of the lender and little or no collateral on the part of the borrower,this type of financing is aggressively priced with the lender seeking a return in the20-30% range.
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 9
2013 - Dec [3] (c)
(i) General: Asian Mutual Fund (AMF) has violated the requirement of regulation
25 (7) of the SEBI (Mutual Fund) Regulation 1996. Due to violation SEBI has
started penal action against the AMF.
If the AMF is aggrieved with order of SEBI, it can prefer an appeal under section
15T of SEBI Act – 1992, by following Securities Appellate Tribunal (Procedure)
Rules, 2000, within 45 days from the receipt of SEBI order. But in a similar
instances of default by a mutual fund named Shriram Mutual Fund & others
(2003), where Supreme Court has held that, the penalty imposed by Adjudicating
Officer (AO) in case of default is valid, if penalty is imposed by consider Sec. 15J
of SEBI Act.
So, there are very thin chances available to company for succeeding in appeal
against the order imposing penalty by Adjudicating Officer.
(ii) Case – Law : The brief case is given as follow:
(a) In a case – law named “SEBI Vs Shriram Mutual Funds & Others (2003/SC)”,
the Shriram Mutual Fund (SMF) conducted business through brokers
associated with its sponsor in excess of limits specified (MF) Regulations –
1998.
(b) The AO imposed a penalty of ` 2 Lakh on SMF and SMF appealed against
the order as per Sec. 15T of SEBI, before SAT. SAT quashed / cancelled the
order of AO imposing penalty on the ground excess business was not
intentionally.
(c) Aggrieved with order of SAT, SEBI filled an appeal before Supreme Court
(SC). The SC Concluded the penalty of ` 2,00,000 as imposed by AO as
valid, on the ground that “guilty – mind” is not necessary for contravention of
provisions of Civil Act/ Rules.
(iii) Conclusion: After Considering the legal Provisions of Section 15T, 15J & 15Z
of SEBI Act,1992, along with the above case, AMF will not plead the
unintentional violation of regulation 25(7)(a) of SEBI (MF) Regulations 1996 and
it will be advisable to AMF to pay the penalty, as imposed by Adjudication
Officer.
2013 - Dec [4] (a)
(I) Meaning: “Infrastructure Debt Fund” means a mutual fund scheme that
invests primarily i.e. minimum 90% of scheme assets in the debt securities or
securitized debt instrument of infrastructure companies or infrastructure capital
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 10
companies or infrastructure projects or special purpose vehicles which are
created for the purpose of facilitating or promoting investment in infrastructure,
and other permissible assets in accordance with these regulations or bank loans
in respect of completed and revenue generating projects of infrastructure
companies or projects or special purpose vehicles.
(II) Eligibility criteria for launching “Infrastructure Debt Fund Scheme”:
(1) An existing mutual fund may launch an infrastructure debt fund schemes, if
it has adequate number of key personnel having adequate experience in
infrastructure sector.
(2) A certificate of registration may be granted to an applicant proposing to
launch only infrastructure debt fund schemes, if the sponsor or parent
company of the sponsor:
(a) Has been carrying on activities or business in infrastructure financing
sector for a period of not less than 5 years;
(b) Fulfils the eligibility criteria as given in SEBI (Mutual Fund)
Regulation,1996.
Chapter - 9 : Alternative Investment Fund
2013 - Dec [2A] (Or) (ii) (b)
(I) Meaning: Social Venture Funds means those funds which will invest primarily
in securities or units of social ventures and which satisfy social performance
norms laid by the fund and whose investors may agree to receive restricted or
muted returns.
(II) Features:
(a) Primary investment of corpus in the securities or units of social ventures.
(b) The investors who give money to ‘Social Venture Funds’ are not much
interested in return or they are happy with limited return.
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 11
2013 - Dec [4] (b)
SEBI has classified Alternative Investment Fund (AIF) into 3 broad categories, as
follows:
Category Details
Category I Funds that invest in start-up or early stage ventures or social
ventures or Small Medium Enterprises (SMEs) or infrastructure or
other sectors which the government or regulators consider as
socially or economically desirable which include VCF, SME Funds,
Social Venture Funds (SVFs), Infra Funds as such other AIFs as
may be specified in the AIF Regulations.
Category II Funds that do not fall in Category I and III AIF and those do not
undertake leverage or borrowing other than to meet the permitted
day to day operational requirement including Private Equity Funds
or Debt Funds.
Category III Funds that may employ diverse or complex trading strategies and
may employ leverage including through investment in listed or
unlisted derivatives, for e.g. Hedge Funds.
Chapter - 10 : Collective Investment Schemes
2013 - Dec [2] (b)
Collective Investment Management Company should not:
(i) undertake any activity other than that of managing the scheme.
(ii) act as a trustee of any scheme.
(iii) launch any scheme for the purpose of investing in securities.
(iv) invest in any scheme floated by it.
However, it has been provided that a CIMC may invest in its own scheme, if it makes
a disclosure of its intention to invest in the offer document of the scheme, and it does
not charge any fees on its investment in that scheme.
Chapter - 11 : Resource Mobilisation in International Capital Market
2013 - Dec [4] (c)
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 12
The Statement “Roadshows are infact, a conference by the issuer company with the
potential or future or prospective investors” is absolutely correct. The concept of
“Roadshow” is used in case of “Euro issue”, which is explained as
(i) Meaning of Road show: It is a pre – issue key action which ensure thesuccessful launching of Euro – Issue. It can be defined as a meeting organizedat different parts of world between the lead manager, issuer company andprospective investors.
(ii) Details & contents of Road show: Since road-show is a ‘informationpresentation meeting’ so the following details are presented;(a) Historical background i.e. date of incorporation, promoters, first directors etc.(b) Organizational structure i.e. centralized or decentralized;(c) Main object as given in object clause of Memorandum of Association;(d) Business line and product type;(e) Market position of company at domestic & international level;(f) Past years performance (if any);(g) Future plans & strategies, the company wants to achieve;(h) Challenges the company can face in future;(i) Financial results & operating performance;(j) Valuation of shares.
Chapter - 14 : Securities and Exchange Board of India
2013 - Dec [6A] (Or) (i)
Powers of Securities Appellate Tribunal The Securities Appellate Tribunals shall have, for the purposes of discharging theirfunctions under this Act, the same powers as are vested in a Civil Court under the Codeof Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely;(a) summoning and enforcing the attendance of any person and examining him on
oath;(b) requiring the discovery and production of documents;(c) receiving evidence on affidavits;(d) issuing commissions for the examination of witnesses or documents;(e) reviewing its decisions;(f) dismissing an application for default or deciding it ex-parte;(g) setting aside any order or dismissal of any applicable for default or any order
passed by it ex-parte;(h) any other matter which may be prescribed.Every proceeding before the Securities Appellate Tribunal shall be deemed to bejudicial proceeding within the meaning of Sections 193 and 228, and for the purposesof Section 196 of the Indian Penal Code and the Securities Appellate Tribunal shall be
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 13
deemed to be Civil Court for all purposes of Section 195 Chapter XXVI of the Code ofCriminal Procedure,1973.
Chapter - 15 : Depositories
2013 - Dec [6A] (Or) (ii)
(i) Applicability of Concurrent Audit: It applies to all Depository Participants
(DPs) associated with NSDL, w.e.f. 1st August, 2006. All DPs are required to get
the process of demat account opening, control & verification of delivery
instruction slips (DIS), to be audited by a firm of practicing Chartered
Accountants or Company Secretaries.
(i) Scope of Audit: The concurrent Auditor should conduct the audit in respect of
all accounts opened, DIS issued, during the day, by the next working day.
However in case of large volume of transactions concurrent audit should be
completed within a week.
(iii) Reporting: The concurrent audit report should be submitted to NSDL, on a
quarterly basis, in a hard copy form. The report must clearly indicate any
deviation and/ or non-compliance, in the specified area of scope of audit.
Chapter - 16 : Listing and Delisting of Securities
2013 - Dec [6] (c)
The provision relating to “Continuous Listing Requirement” is given in Rule 19
and 19A of Securities Contracts (Regulations) Rules, 1957. These Rules are
explained as:
Rule 19A (1) stipulates that every listed other than public sector company shall maintain
public shareholding at least 25%.
However, any listed company which has public shareholding below 25%, shall increase
its public shareholding to at 25% within a period of 3 years from the date of
commencement of amendment to the said rules in 2010, in the manner specified by
SEBI.
Explanation: For the purpose of this sub-rule, a company whose securities has been
listed pursuant to an offer and allotment made to public in terms of sub-clause (ii) of
clause (b) of sub-rule (2) of rule 19, shall maintain minimum 25% public shareholding
from the date on which the public shareholding in the company reached the level of
25% in terms of said sub-clause.
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 14
Sub-rule (2) provides that where the public shareholding in a listed company falls below
25% at any time, such company shall bring the public shareholding to 25% within a
maximum period of twelve months from the date of such fall in the manner specified by
SEBI.
According to Sub-rule 3, every listed public sector company shall maintain public
shareholding of atleast 10%. However, a listed public sector company –
(a) Which has public shareholding below 10%, on the date of commencement of the
Securities Contracts (Regulation) (Second Amendment) Rules, 2010 shall increase
its public shareholding to atleast 10%. In the manner specified by SEBI, within a
period of three years from the date of such commencement.
(b) Whose public shareholding reduces below ten percent, after the date of
commencement of the Securities Contracts (Regulation) (Second Amendment)
Rules, 2010 shall increase its public shareholding to atleast ten percent, in the
manner specified by the Securities and Exchange Board of India, within a period
of twelve months from the date of such reduction.
Chapter - 17 : Issue of Securities
2013 - Dec [5] (a),(c),(d),(e)
(a) The Statement that “ Book building process of determining price of a public issue
is preferred in case of initial public offer(IPO) while fixed price process is used for
further public offer(FPO)” is correct. Book building is basically a “price discovery
method”, where the issuer just gives a range of price and the final price is
determined as per response of investors, before allotment. It is most suitable for
IPO by an unlisted company, because in that case the issuer company will not be
in position to fix the issue price in advance or it fix issue price then it will be risky.
Simply, “Book Building” gives the issuer company to assess the price at which the
company will be able to successfully brought IPO.
Fixed price process refers an issue process where securities are offered or allotted
at a fix price, which is known to investors in advance. Here is no concept of price
range. An existing listed company can fix the issue price of FPO, by considering
market price of its similar listed securities, among other factors.
(c) The statement that “The option to participate in ESOP/ESPS scheme is not open
for all employees of the company” is correct. The reason is obvious if we check
the “Eligibility to participate” as given in SEBI (Employee Stock Option Scheme and
Employee Stock Purchase Scheme) Guidelines, 1999. As per this Guideline,
“Eligibility to participate” is as:
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 15
(i) An employee eligible to participate in ESPS should be:
(a) A permanent employee of the company working in India or out of India;
or
(b) A director of the company, whether a whole time director or not;
(c) An employee as defined in sub-clauses (a) or (b) of a subsidiary, in India
or out of India, or of a holding company of the company.
(ii) The employee shall neither be a promoter or belongs to the promoter group.
(iii) A director who either by himself or through his relatives or through anybody
corporate, directly or indirectly holds more than 10% of the outstanding equity
shares of the company can not participate, as he is not able to participate in
the scheme.
Now it is clear that all employees are not eligible to participate in ESOP/ ESPS.
(d) The Statement i.e. “A Company can’t offer shares at different prices to different
sets of people in a particular public issue” is not correct. As per SEBI (ICDR)
Regulations 2009, an issuer company can offer specified securities at different
prices, subject to following conditions:
(a) Lower pricing for Retail Individual Investors: Retail individual investors or
retail individual shareholders or employees entitled for reservation making an
application for a value of not more than ` 2,00,000, can be offered special
securities at a price lower than the price at which net offer is made to other
categories of application.
However, such differences shall not be more than 10% of the price at which
specified securities are offered to other categories of applicants.
(b) No lower pricing for Anchor Investors: In case of book built issue, the price
of the specified securities offered to an anchor investors should not be lower
than the price offered to other applicants.
If the issuer opts for alternate method of book building, the issuer can offer
specified securities to its employees at a price, lower than floor price and the
difference between such price and floor price shall not be more than 10%.
(c) Different price in case of Composite Issue: In case of composite issue, the
price of the specified securities offered in the public issue can be different from
the price offered in right issue and justification for such price difference should
be given in the offer document.
(e) SEBI (ICDR) Regulations, 2009 defines “Qualified Institutional Buyers”.
Accordingly, “Qualified Institutional Buyers” shall mean the following:
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 16
(a) Public Financial Institutions within the meaning of Section 4A of Companies
Act;
(b) Scheduled Commercial Banks;
(c) Mutual Funds;
(d) Foreign Intuitions Investors;
(e) Multilateral and Bilateral Development Financial Institutions;
(f) State Industrial Development Financial Corporations;
(g) Insurance Companies;
(h) Provident Funds with minimum corpus of ` 25 Crores;
(i) Pension Funds with minimum corpus of ` 25 Crores; and
(j) National Investment Fund;
(k) Insurance Funds set up and managed by Army, Navy or Air Force; and
(l) Insurance Funds set up and managed by the Department of Posts.
So it is obvious that only selected institutional buyers are covered here, so it
will be wrong to say that “Every institutional buyer is a qualified institutional
buyer”.
2013 - Dec [6A] (Or) (iii), (iv)
(iii) A company raise fund from the primary market through following methods:
(a) Public Issue:- When an issue/offer of securities is made to new investors
for becoming part of shareholder’s family of the issuer it is called a public
issue. Public issue can be further classified into initial public offer (IPO) and
further public offer (FPO). The significant features of each type of public
issue are illustrated below:
(i) Initial public offer (IPO): When an unlisted company makes either a
fresh issue of securities or offers its existing securities for sale or both
for the first time to the public, it is called an IPO. This paves way for
listing and trading of the issuer’s securities in the Stock Exchange.
(ii) Further public offer (FPO) or Follow on offer: When an already
listed company makes either a fresh issue of securities to the public or
an offer for sale to the public, it is called a FPO.
(b) Right issue (RI): When an issue of securities to its existing shareholders
as on a record date, within any consideration from them, it is called a bonus
issue. The shares are issued out of the Company’s free reserve or share
premium account in a particular ratio to the number of securities held on a
record date.
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 17
(c) Bonus issue: When an issuer makes an issue of securities to its existing
shareholder as on a record date, without any consideration from them, it is
called a bonus issue. The shares are issued out of the Company’s free
reserve or share premium account in a particular ratio to the number of
securities held on a record date.
(d) Private placement:- When an issuer makes an issue of securities to a
select group of persons not exceeding 49, and which is neither a right issue
nor a public issue, it is called a Private placement. Private placement of
shares or convertible securities by listed issuer can be of two types:
(i) Preferential allotment: When a listed issuer issues shares or
convertible securities, to a select group of persons in terms of
provisions of Chapter VII of SEBI (ICDR) Regulations, it is called a
preferential allotment. The issuer is required to comply with various
provisions which inter alia include pricing, disclosers in the notice, lock
in etc.
(ii) Qualified institutions placement (QIP): When a listed issuer issues
equity shares of securities convertible into equity shares to Qualified
Institutions Buyers only in terms of provisions of Chapter VIII of SEBI
(ICDR) Regulations, it is called a QIP.
(iv) “Draft Offer Document” means the offer document in draft stage. The draft offer
documents are filed with SEBI, atleast 30 days prior to the filing of the Offer
Document with ROC/ Stock Exchanges. SEBI may specify changes, if any, in the
Draft Offer Document and the issuer or the Lead Merchant Banker shall carry out
such changes in the draft offer document before filing the offer document with
ROC/ Stock Exchanges.
The Draft Offer Document is available on the SEBI website for public comments
for a period of 21 days from the filing of the Draft Offer Document with SEBI.
Chapter - 18 : Regulatory Framework Relating to Securities Market Intermediaries
2013 - Dec [6A] (Or) (v)
Internal Audit of Portfolio Manager
(a) Every Portfolio manager is required to appoint a Practicing Company Secretary or
a Practicing Chartered Accountant for conducting the internal audit. The Portfolio
Manager is required to report the compliance of the aforesaid requirements to SEBI
while submitting the half yearly report.
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 18
(b) The report is to be submitted twice a year, as on 31st of March and 30th of
September. The report should reach SEBI which thirty days of the period to which
it relates.
(c) No Precise period has been prescribed for the PCS to submit his report to the
Board of the Company. However, it would be advisable for the PCS to give the
audit report to the Portfolio Manager sufficiently well in advance to enable the
Company to report the compliance of the same to SEBI.
(d) The scope of the internal audit would comprise the checking of compliance of SEBI
(Portfolio Manager) Regulation 1993 and circulars notifications or guidelines issued
by SEBI and internal procedures followed by the Portfolio Manager.
Chapter - 19 : Insider Trading - An Overview
2013 - Dec [6] (a)
The given question is based on Regulations 2(ha) of SEBI (Insider Trading)
Regulations, 1992, which defines the term “ Price Sensitive Information”. Now the
answers will be as:
Informations Price Sensitive or Not
(I) The CEO of a company met with an
accident and had been hospitalized.
No
(II) Intended declaration of rights issue in
near future.
Yes
(III) RBI has increased the repo rate by
25 basis points.
No
(IV) The company is going to have
another plant at Rudrapur,
Uttrakhand.
Yes, because it is expressly included into
definition i.e. any major expansion plans
or executions of new projects.
(V) The Chairman of the company has
submitted his resignation to the Board
under protest for selling a particular
brand to another company.
Yes
Chapter - 20 : Takeover Code - An Overview
2013 - Dec [6] (d)
Disclosures
In SEBI Takeover Regulations 2011, the obligation to give the disclosures on the
acquisition of certain limits is only on the acquirer and not on the Target Company.
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 19
Further as against the Open Offer obligations where the individual shareholding is also
to be considered, the disclosure shall be of the aggregated shareholding and voting
rights of the acquirer or promoter of the target company or every person acting in
concert with him.
Regul
ations
No.
Triggering Point TO and by
whom
Time Period
EVENT BASED DISCLOSURES
29(1) Acquisition of 5% or more
shares or voting rights
To the Target
Company and
Stock Exchange
by the Acquirer
Within 2 working
days of:
(a) Receipt of
intimation of
allotment of
shares; or
(b) The
acquisition of
shares or
voting rights
29(2) Acquirer already holding 5% or
more shares or voting rights,
on acquisition/ disposal of 2%
or more shares or voting rights.
To the Target
Company and
Stock Exchange
by the Acquirer /
Seller
Within 2 working
days of such
acquisition
CONTINUAL DISCLOSURES
30(1) Any person holding 25% or
more shares or voting rights
Target Company
& Stock
Exchange by
such person
Within 7 working
days from the end
of end financial
year
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 20
30(2) Promoters / Person having
control over the Target
Company
Target Company
& Stock
Exchange by
Promoter
Within 7 working
days from the end
of each financial
year.
DISCLOSURE OF PLEDGED/ENCUMBERED SHARES
31(1) On the encumbrance of shares
by the promoter or person
acting Concert with him
Target Company
& Stock
Exchange by the
Promoter
Within 7 working
days from the date
of creation of
encumbrance
32(2) On the invocation of or release
of such encumbrance by the
Promoter
Target Company
& Stock
Exchange by the
Promoter
Within 7 working
days from the date
invocation of
encumbrance.
Chapter - 21 : Investor Protection
2013 - Dec [5] (b)
The given statement that is “Investor Education and Protection Fund (IEPF) is set up
only for educating investors” is not fully correct. The reason is, IEPF is set up for
promotion of investors’ awareness and protection of the interests of investors including
educating investors.
The various activities undertaken by IEPF includes:
(i) Educating and creating awareness among investors through voluntary
associations or organizations.
(ii) Educating investors through Media, Panel discussion on DD, Telecast of TV
Video spots on DD & private channels.
(iii) Organizing seminars and workshops through association registered under IEPF.
(iv) Financing research projects pertaining to investors education, awareness.
(v) Coordinating with institutions engaged in investors education, awareness etc.
2013 - Dec [6] (b)
(I) Meaning: SCORES is a coined word for “ SEBI Complaints Redress System”.
SCORES is a web based centralized grievance redress system of SEBI, which
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 21
can be accessed by login on http://scores. gov.in. It enables the investors to
lodge and follow up their complaints and track the status of redressal of such
complaints online from the above website from anywhere. This enables the
market intermediaries and listed companies to receive the complaints online from
investors, redress such complaints and redress such complaints and report
redressal online. All the activities starting from lodging a complaint till its closure
by SEBI would be online in an automated environment and the complainant can
view the status of his complaint online.
Any investor, who is not familiar with SCORES or does not have access to
SCORES, can lodge complaints in physical form at any of the offices of SEBI.
Such complaints would be also scanned and also uploaded in SCORES for
processing.
(II) Features of SCORES: Following are the salient features of SCORES:
(a) SCORES is web enabled and provides online access 24×7.
(b) Complaints and reminders thereon can be lodged online at the above
website at anytime from anywhere.
(c) An email is generated instantaneously acknowledging the receipt of
complaint and allotting an unique complaint registration number to the
complainant for future reference and tracking.
(d) The complaint is forwarded online to the concerned entity for its redressal.
(e) The concerned entity uploads an Action Taken Report (ATR) on the
complaint.
(f) SEBI peruses the ATR and closes the complaint if it is satisfied that
complaint has been redressed adequately.
(g) The concerned investors can view the status of the complaint online from
the above website by logging in the unique complaint registration number.
(h) The concerned entity and the concerned investors can seek and provide
clarification on his complaint online to each other.
(i) Every complaint has an audit trail and
(j) All the complaints are saved in a central database which generates relevant
MIS reports to enable SEBI to take appropriate policy decisions and or
remedial actions, if any.
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 22
Shuchita Prakashan (P) Ltd.25/19, L.I.C. Colony, Tagore Town,
Allahabad - 211002
Visit us : www.shuchita.com
�
FOR NOTES
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 23
FOR NOTES
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 24
FOR NOTES
Solved ScannerSolved ScannerSolved ScannerSolved Scanner Appendix CS Executive Programme Module - II Paper - 6 25