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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.


(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.


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.


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.


(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.


(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.


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.


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


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.


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)


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


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.


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:


(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:


(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.


(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.


(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.


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


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


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.


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Allahabad - 211002

Visit us : www.shuchita.com

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