An overview of Capital Markets - NLU Jodhpur

Sumit Agrawal

Assistant Legal Advisor, Legal Affairs Department

Securities and Exchange Board of India (SEBI)

@National Law University Jodhpur– March 24th, 2015

Indian Securities Law: An overview

STATUTORY DISCLAIMER

The views expressed, discussions generated, any

opinion expressed, or any analysis provided are personal

and for academic purposes alone.

Views do not necessarily state the views of SEBI or its

Officer(s).

This material is not intended to provide legal advice.

1

Overview

Organs of the State and Role of the Regulators

Theme of a Securities Regulator

Principle Statutes – Indian Securities Law

Regulatory framework – Enforcement & Processes by SEBI

Appellate Mechanism in Securities Laws

Current Issues in Capital Market

Recruitment Avenues in Securities Market

General Readings & Books for Capital Market Lawyers

Slide 2

Constitutional Debate

Sectoral v/s Subject Matter Debate



3 Organs of the State:

Legislature - To enact the law.

Executive - To investigate the breach of law and implement / administer the

law.

Judiciary – To interpret the law and to declare what the law is.

Statutory Regulators –

Quasi-Legislative ;

Quasi-Executive ; and

Quasi-Judicial

(Exception to ―Separation of Powers‖ - With Statutory Checks and Balances -

Clariant International Ltd. vs. SEBI AIR 2004 SC 4236)

Slide 4

SEBI

Issuer

Investor

Intermediary

RBI

Banks

NBFCs

TRAI

Licensed service providers

IRDA

Insurer

Intermediary

Insurance agents

Loss assessors and surveyors etc.

FMC

Commodities Exchanges

CCI (Subject matter regulation)

Anti-competitive Agreements

Abuse of dominant position

Combinations

SECTORAL REGULATORS V/S. SUBJECT-MATTER REGULATORS

5

IMPORTANT REGULATORS IN THE COUNTRY

SEBI & RBI - A Snapshot

SEBI RBI

STOCK

EXCHANGES

CLEARING

CORPORATIONS DEPOSITORIES

MUTUAL

FUNDSBANKS

BROKER

DEALERS

MERCHANT

BANKERS

DEPOSITORY

PARTICIPANTS

REGISTRAR &

TRANSFER

AGENTS

PRIMARY

DEALERS

Financial Sector & Ministries

GOVERNMENT OF INDIA

SEBI

MINISTRY OF

FINANCE MINISTRY OF

CORPORATE

AFFAIRS

MINISTRY OF

COMMERCE &

INDUSTRY

RBI

FIPB

DEPARTMENT

OF ECONOMIC

AFFAIRS

DEPARTMENT OF

INDUSTRIAL

POLICY &

PROMOTION

REGISTRAR

OF

COMPANIES


Characteristics

Caveat Emptor & Caveat Venditor

Sunlight – Best Disinfectant


CHARACTERISTICS OF A REGULATOR

Statutorily established and empowered

Strong legal backing (Federal in Nature)

Independence from the Executive

Process of Appointment & Removal of Regulatory Boards / Chairperson

Financial & Operational Autonomy of Institution

Accountability to Judicial Body or Parliament

9


Caveat Emptor (the buyer takes on the risk regarding the quality or

condition of the thing purchased. Consumer is entitled to a refund, an

exchange or a credit for goods that are defective)

Caveat Venditor (unless a seller explicitly disclaims liability for

something it will be held liable for any defective goods)

Technology in market products, Trading, Clearing and Settlement

Houses

DISCLOSURE DRIVEN REGULATORS

Publicity is justly commended as a remedy for social and industrial

diseases. Sunlight is said to be the best of disinfectants; electric light

the most efficient policeman. ~ US Supreme Court Justice Louis

Brandeis

10

•Central Acts

•Rules Framed By Central Govt

•Regulations framed by SEBI

•Circulars, Guidelines, Schemes, clarifications, press releases and bye-laws of

SROs etc.

Principle statutes – Indian Securities Law

Indian Securities Law

SEBI Act, 1992

Securities Contracts (Regulation) Act, 1956

Depositories Act, 1996

Delegated powers under the Companies Act, 2013

(Section 24 & Section 458)

Rules by Central Govt. and Regulations by SEBI

Circulars, clarifications, press releases and bye-laws of

self regulatory organizations

Slide 12


SEBI Act, 1992

Incorporates SEBI and vests it with executive, quasi-

legislative and quasi-judicial powers & functions

Primary authority for regulating the Indian securities markets

Power to register and regulate working of stock exchanges

and other intermediaries involved in the securities markets

Power to protect interests of investors through ensuring

prompt disclosures, preventing market manipulation, unfair

trade practices, insider trading, etc.

Power to conduct inquiries and investigations, debar from

capital market, levy penalties and prosecute

Power to do search and seize, attach properties and make

recoveries

Slide 13


Securities Contracts (Regulation) Act, 1956

How a special contract in securities is to be governed?

What are different kinds of securities?

Regulates contracts relating to trading in securities

Requires companies to comply with listing agreement

Gives the government (now majorly SEBI) regulatory jurisdiction and

supervisory control over stock exchanges

SEBI to supersede the governing body of any recognized stock

exchange and to suspend its business.

Slide 14

Depositories Act, 1996

Regulation of Depositories in securities by SEBI

Securities held and transferred in dematerialized (electronic) form

Clearing and settlement processes on stock exchanges simplified and

speedier

Greater convenience to investors and brokers – speed, „bad

deliveries‟, no dealing with and storing heaps of paper, theft and

forgery

Lower costs (no stamp duty) in securities trading

Slide 15


Companies Act, 2013 (Section 24 & Section 458)

The primary statute dealing with Indian company law

Regulates the issue, allotment and transfer of securities,

and aspects relating to company management

Also specifies standards of disclosure to be made in public

issues of capital

SEBI to deal with various aspects under Company law

relating to listed companies or those companies which

intend to get their securities listed

issue and transfer of securities;

non-payment of dividend; and

Forward dealing and insider trading

Slide 16


Central Govt. has framed detailed rules covering a widerange:

TOTAL of 13 Rules as on March 2015 :-

1. Securities Contracts (Regulation) Rules, 1957

2. SEBI (Annual Report) Rules, 1994

3. SEBI (Form of Annual Statement of Accounts and Records)Rules, 1994

4. SEBI (Procedure For Holding Inquiry And ImposingPenalties By Adjudicating Officer) Rules, 1995

5. SEBI (Terms and Conditions of Service of Chairman AndMembers) Rules, 1992

6. SAT (Procedure) Rules, 2000

7. SAT (Recruitment) Rules, 2001

Slide 17

Rules – Indian Securities Law

8. SAT (Salaries And Allowances And Other Conditions Of Service

Of The Officers And Employees) Rules, 1997

9. SAT (Salaries, Allowances And Other Terms And Conditions Of

Presiding Officer And Other Members) Rules, 2003

10. Securities Contracts (Regulation) (Appeal To Securities

Appellate Tribunal) Rules, 2000

11. Securities Contracts (Regulation) (Procedure For Holding Inquiry

And Imposing Penalties By Adjudicating Officer) Rules, 2005

12. Depositories (Appeal To Securities Appellate Tribunal) Rules,

2000

13. Depositories (Procedure For Holding Inquiry And Imposing

Penalties By Adjudicating Officer) Rules, 2005

Slide 18

Rules – Indian Securities Law Contd..

SEBI has framed detailed regulations covering a wide range:

TOTAL of 43 Regulations as on March 2015, such as:-

Regulations dealing with Registration of Market Intermediaries.

Intermediaries Regulations, 2008

SECC Regulations, 2012

Regulations dealing with Funds like CIS, MF, AIFs, FIIs.

Regulations prohibiting/regulating Market Conduct

Insider Trading, 1992

PFUTP, 2003

Takeover Code, 2011

Regulations dealing with Capital (issuances, buy-back etc)

ICDR Regulations

Buy Back Regulations

ILDS Regulations

Slide 19

Regulations – Indian Securities Law

1. SEBI (Alternative Investment Fund) Regulations, 2012.

2. SEBI (Bankers to an Issue) Regulations, 1994.

3. SEBI (Buy-Back of Securities) Regulations, 1998.

4. SEBI (Central Database of Market Participants) Regulations, 2003.

5. SEBI (Certification of Associated Persons in the Securities Markets)

Regulations, 2007.

6. SEBI (Collective Investment Schemes) Regulations, 1999.

7. SEBI (Credit Rating Agencies) Regulations, 1999.

8. SEBI (Custodian of Securities) Regulations, 1996.

9. SEBI (Debenture Trustees) Regulations, 1993.

10. SEBI (Delisting of Equity Shares) Regulations, 2009.

Slide 20

Regulations – Indian Securities Law Contd…

11. SEBI (Depositories and Participants) Regulations, 1996.

12. SEBI (Employee Service) Regulations, 2001.

13. SEBI (Foreign Venture Capital Investors) Regulations, 2000.

14. SEBI (Infrastructure Investment Trusts) Regulations, 2014.

15. SEBI (Intermediaries) Regulations, 2008.

16. SEBI (Investment Advisers) Regulations, 2013.

17. SEBI (Investor Protection and Education Fund) Regulations, 2009.

18. SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

19. SEBI (Issue and Listing of Non-Convertible Redeemable Preference

Shares) Regulations, 2013.

20. SEBI (Issue of Capital and Disclosure Requirements) Regulations,

2009.

Slide 21


21. SEBI (Issue of Sweat Equity) Regulations, 2002.

22. SEBI (Merchant Bankers) Regulations, 1992.

23. SEBI (Mutual Funds) Regulations, 1996.

24. SEBI (Ombudsman) Regulations, 2003.

25. SEBI (Portfolio Manager) Regulations, 1993.

26. SEBI (Procedure for Board Meetings) Regulations, 2001.

27. SEBI (Procedure for Search and Seizure) Regulations, 2013.

28. SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to

Securities Market) Regulations, 2003.

29. SEBI (Prohibition of Insider Trading) Regulations, 2015.

30. SEBI (Public offer and Listing of Securitized Debt Instruments)

Regulations, 2008.

Slide 22


31. SEBI (Real Estate Investment Trusts) Regulations, 2014.

32. SEBI (Registrars to an Issue and Share Transfer Agents)

Regulations, 1993.

33. SEBI (Regulatory Fee on Stock Exchanges) Regulations, 2006.

34. SEBI (Research Analysts) Regulations, 2014.

35. SEBI (Self Regulatory Organizations) Regulations, 2004.

36. SEBI (Settlement of Administrative and Civil Proceedings)

Regulations, 2013.

37. SEBI (Share Based Employee Benefits) Regulations, 2014.

38. SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992.

39. SEBI (Substantial Acquisition of Shares and Takeover) Regulations,

2011.

40. SEBI (Underwriters) Regulations, 1996.

Slide 23


41. SEBI {KYC (Know Your Client) Registration Agency} Regulations,

2011.

42. SEBI (Foreign Portfolio Investors) Regulations, 2014.

43. Securities Contracts (Regulation) (Stock Exchanges and Clearing

Corporations) Regulations, 2012.

Slide 24


Draft Regulations (In-the Pipeline)

SEBI (Listing Obligations and Disclosure Requirements)

Regulations, 2015

SEBI (Issue and Listing of Debt Securities by Municipality)

Regulations, 2015

Discussion / Concept Paper available at SEBI Website

Slide 25

Regulatory framework – Kinds of

Enforcement And Processes by SEBI

Enforcement Actions:

Directions by the Board [Such as under Section 11, 11B, 11D]

(Disgorgement –a new feature explicit under 2014 amendment) - [ShaileshS. Jhaveri v. SEBI, SAT Order dated October 4, 2012]

Enquiry (Suspension/cancellation of certificate of registration)

Adjudication (Monetary penalties)

Prosecution (fine, jail term or both)

An Alternate Enforcement Action:

Consent / Compounding

27

Regulatory framework – Kinds of Enforcement And

Processes by SEBI

•Securities Appellate Tribunal (SAT)

•Supreme Court

•High Court


SEBI ORDER (Sec 11/11B/11D/12)

ADJUDICATION ORDER (Ch VIA)

SECURITIES APPELLATE TRIBUNAL (Sec 15T)

SUPREME COURT (Sec15Z)


Review of AO by

SEBI [Sec. 15 I (3)]

•Tribunalisation and Scope of SAT or proposed FSAT

•Merger of FMC with SEBI

•Capital Markets in International Financial Service Centre at GIFT City

•Commercial Courts Bill, 2015

Current Issues in Capital Markets

Tribunalisation and Scope of SAT or proposed FSAT

Whether Tribunals could replace high courts in their appellate

jurisdiction when it comes to addressing substantial issues of law.

Supreme Court in Madras Bar Association v. Union of India ( Sept. 2014)

National Tax Tribunal Act declared unconstitutional –

While the Court reiterated that Parliament has the power to enact legislation vesting

adjudicatory functions — thereby maintaining that the passing of the NTT Act or any

such similar legislation — is not per se violative of the Constitution, it took

exception to the manner in which the Tribunal was proposed to be constituted.

―Substantial‖ questions of law can only be addressed by the judiciary and had

reservations about who could appear before the NTT and the constitution of the

Bench.

IN VIEW OF THIS JUDGEMENT:-

FSLRC Report and creation of FSAT?

Scope of Current SAT?

Slide 31

Budget Speech by Hon'ble Finance Minister (2015-16)

On Merger of FMC and SEBI

“ 57. I also propose to merge the Forwards Markets Commission with

SEBI to strengthen regulation of commodity forward markets and

reduce wild speculation. Enabling legislation, amending the

Government Securities Act and the RBI Act is proposed in the Finance

Bill, 2015. ”

Capital Markets in International Financial Service Centre at GIFT City

“ 87. While India produces some of the finest financial minds, including

in international finance, they have few avenues in India to fully exhibit

and exploit their strength to the country’s advantage. GIFT in Gujarat

was envisaged as International Finance Centre that would actually

become as good an International Finance Centre as Singapore or

Dubai, which, incidentally, are largely manned by Indians. The proposal

has languished for years. I am glad to announce that the first phase of

GIFT will soon become a reality. Appropriate regulations will be issued

in March. ”Slide 32

Budget Speech by Hon'ble Finance Minister (2015-16)

On Commercial Courts Bill, 2015

“ 88. For the quick resolution of commercial disputes, the Government

proposes to set up exclusive commercial divisions in various courts in

India based on the recommendations of the 253rd Report of the Law

Commission. The Government proposes to introduce a Bill in the

parliament after consulting stakeholders in this regard. ”

Slide 33

Commercial Courts Bill, 2015

Law Commission of India, Report Number 253 (January

2015) - Commercial Division and Commercial Appellate

Division of High Courts and Commercial Courts Bill, 2015

Is this at variance with FSLRC Report?

Proposed Section 16 - An appeal or a writ petition filed in a

High Court against the orders of the following tribunals:

(a) Competition Appellate Tribunal; (b) Debt Recovery

Appellate Tribunal; (c) Intellectual Property Appellate

Board; (d) Company Law Board or National Company

Law Tribunal; (e) Securities Appellate Tribunal; (f)

Telecom Disputes Settlement and Appellate Tribunal

Slide 34

http://lawcommissionofindia.nic.in/reports/Report_No.253_Commercial_Division_and_Commercial_Appellate_Division_of_High_Courts_and__Commercial_Courts_Bill._2015.pdf

Recruitment Avenues for Corporate Lawyers

Recruitment Avenues in General

Opportunities in Securities Market

Most Common Interview Questions

Recruitment Avenues in General

Corporate Law Firms such as Amarchand, AZB, Luthra, Khaitan, JSA,

Trilegal etc.

Legal Departments of Corporate Houses such as Tata group, Reliance ,

Infosys, Wipro etc. [Nifty /Sensex Companies]

Banks and Financial Institutions such as IDFC, ICICI, Nomura, HDFC

etc.

Unlisted Companies like Google, Amazon, Flipkart etc.

Publishing Houses Like Taxmann, Lexis Nexis, Thomson Reuters etc.

BPOs, KPOs and LPOs for research oriented

Media Houses and Journalism – CNBC, Economic Times, Wall Street

Journal, NDTV Profit etc.

Regulators – SEBI, RBI, CCI, IRDA, TRAI etc.

Public Sector Undertakings - ONGC, SAIL etc.

Litigation and SolicitorsSlide 36

Stock Exchanges, Depositories, Clearing Corporations

Foreign Institutional Investors and Private Equity Firms

Analyst – Forecast Analyst, Financial Analyst, Mkt. Research

Analyst, Technical Analyst

Researchers – Research and Analytics

Advisors and Consultants – Mutual Fund Advisors, Financial

Consultants etc.

Investment Manager, Portfolio Manager, Marketing Specialist,

Finance Manager etc.

Legal Consultant, Merchant Bankers, Registrars etc.

Technical or IT related jobs – Software Developer, Data Mining

etc.Slide 37

Opportunities in Securities Market

Recruitment at SEBI

Either through a National Level Entrance Test OR Campus

Recruitment – SEBI (Employees' Service) Regulations, 2001

Permanent or Contractual

Cost To Company (CTC) For Grade-A Officer in SEBI - Approx. 12

Lacs p.a. Pay Grade Allowance

Dearness Allowance

House Allowance (for Mumbai)

Special Allowance

Family Allowance

Local Allowance

P.F.B.C.

House cleaning (Domestic Help)

Petrol Allowance @ 150 ltr per month

Telephone reimbursement

Financial Dailies

Subsidized Lunch and Sodexho Coupons

House Furnishing, Book Grant, Health Check-up, Eye Refraction, Briefcase

etc. etc. 38

Departments in SEBI

39

1. Market Intermediaries Regulation and Supervision Department

(MIRSD)

2. Market Regulation Department (MRD)

3. Corporation Finance Department (CFD)

4. Investment Management Department (IMD)

5. Integrated Market Surveillance Department (ISD)

6. Investigations Department (IVD)

7. Enforcement Department (EFD)

8. Legal Affairs Department (LAD)

9. Enquiries and Adjudication Department (EAD)

10. Office of Investor Assistance and Education (OIAE)

11. Department of Economic and Policy Analysis (DEPA)

12. General Services Department (GSD)

13. Human Resource Division (HRD)

14. Office of the Chairman (OCH)

15. Office of International Affairs (OIA)

Organization Structure (SEBI)

HEAD OFFICE, MUMBAI

NORTHERN REGIONAL OFFICE, NEW DELHI

CHANDIGARH

LUCKNOW

SRINAGAR

DEHRADUN

SHIMLA

SOUTHERN REGIONAL OFFICE, CHENNAI

BENGALURU

HYDERABAD

COCHIN

EASTERN REGIONAL OFFICE, KOLKATA

GUWAHATI

BHUBANESWAR

PATNA

RANCHI

WESTERN REGIONAL OFFICE, AHMEDABAD

JAIPUR

INDORE

Raipur

PANAJI

REGIONAL

OFFICES

LOCAL

OFFICES

CHAIRMAN & WTMs

EXECUTIVE DIRECTORS

CHIEF GENERAL MANAGERS

GENERAL MANAGERS DEPUTY GENERAL MANAGERS

ASSISTANT GENERAL MANAGERS

SECRETARIAL STAFF

Organizational Hierarchy in SEBI

MANAGERS

ASSISTANT MANAGERS

Wide exposure – steep learning curve

42

Exposure to entire Financial Sector, Regulatory Regime, Govt.policies, international arena

Interaction with Corporate Chiefs Industry-wide early on in thecareer - Networking

Cutting edge issues – across functions

High level of responsibility

Immense contribution to policy formulation/regulation

Deputation to other/foreign Regulators

Most Common Interview Questions

Mix of Psychological and Subject related questions – Interview Panel

1. Can you tell us a little about yourself?

2. Why do you want to work with a regulator and not a law firm?

3. Tell us some burning issue in capital market, which you think

regulator is grappling with?

4. Which newspaper or magazine do you read?

5. Which is the latest regulation or Supreme Court Judgment in the

industry, which is talk of the town?

6. Where do you see yourself in five years?

7. What do you like the most and least about working in this industry?

8. What do you consider to be your weaknesses?

9. Why should we hire you?

10. What is your salary expectation?

11. Do you have any questions for us?

Slide 43

•Newspaper Columns, Balwgs

•Government Websites, Press Releases, FAQs

•Google Alerts

•TV Channel Programmes & Discussions

•Books in Securities & Corporate Lawyer‟s Library

General Readings for Corporate Lawyers

General Readings for Corporate Lawyers

SEBI Annual Reports – New Laws and Important Rulings of the Year

Basic Reading - Various Modules of NISM, NCFM, BSE

Blawgs like India Corporate Law

Newswire of Law Firms and Audit Firms, like:

Amarchand – Insight ; Khaitan & Co. – Ergo ; etc.

Key terms like “SEBI” “Ministry of Finance” on Google Alerts for collated news and

monitoring the web for updated information.

Certain Newspaper Columns like:

Livemint – In the Money

Business Standard - Without Contempt

CNBC TV18's 'The Firm' - Fri:10.30 pm/Sat:11.30 am/Sun:9:30am, 11.00pm

SEBI Press Releases and FAQs on SEBI Websites

www.sebi.gov.in/

http://investor.sebi.gov.in/

Slide 45

http://www.sebi.gov.in/

















Books in Securities & Corporate Lawyer’s Library

A Ramaiya’s Guide to Companies Act 2013, 18th Edition,

LexisNexis Butterworths

Shishir Jose Vayttaden on SEBI's Takeover Regulations,

LexisNexis Butterworths

Sumit Agrawal & Robin Baby’s Commentary on SEBI Act, 1992,

Taxmann Publications

Kaushik Laik on Unfair Trade Practices in Securities

Market, Taxmann Publications

Anil Choudhary & Rajneesh Deka, Securities Regulation - Primary

Market Offerings in India,, CCH

Sandeep Parekh on Fraud, Manipulation and Insider Trading in the

Indian Securities Market, CCH

Slide 46

Work-Life Balance

My mission in life is not merely to survive,

but to thrive; and to do so with some

passion, some compassion, some humor,

and some style. ~ Maya Angelou

Slide 47

Thank You

in.linkedin.com/in/sumitatsebi

[email protected]

+91-9987729337

Slide 48

mailto:[email protected]

An overview of Capital Markets - NLU Jodhpur

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