Transcript Slide 1
Investor Protection
and Empowerment
ACG Cross Training Seminar
May 29, 2012
Disclaimer
SEBI, as a matter of policy, disclaims
responsibility for any private publication or
statement by any of its employees. The
views expressed herein are those of the
presenter / author and do not necessarily
reflect the views of SEBI.
Functions of Securities Market
Channelizing savings into financing for real
sector.
To raise capital for new investment
An alternative to bank finance (CM Model –
Issuer – investor structure vis-à-vis – saver –
borrower model)
Means for transferring risk and diversifying risk
exposure
Efficient Securities Market contributes to
economic growth.
Evolution of Indian Capital Markets
Long History – stock trading first started in
1830s
BSE established in 1875 – oldest exchange in
Asia
Ahmedabad SE formed in 1894, Calcutta SE
formed in 1908, Madras SE in 1920
Bombay Securities Contracts (Control) Act,
1925
Capital Issues (Control) Act, 1947
Legal Framework
Companies Act, 1956
Securities Contracts (Regulation) Act, 1956
Securities Contracts (Regulation) Rule, 1957
Establishment of SEBI by Government ordinance in
1988
SEBI Act 1992 – Creation of SEBI as statutory
independent & quasi-judicial regulatory body
Depositories Act 1996
SEBI & it’s mandate
Established by Government ordinance in 1988
Given statutory status on February 21, 1992
Preamble to SEBI Act, 1992
“An Act to provide for the establishment of a Board to
protect the interests of investors in securities and to
promote the development of, and to regulate the
securities market and for matters connected therewith or
incidental thereto”
Regulatory Framework
From control of capital to freedom to issue capital
Merit to disclosure
Giving market greater role in shaping resource
allocation
Single & Independent Regulator.
Regulation of product, market, institution /
intermediary
Competitive neutrality
Regulation & Development
Quasi Judicial powers
Accountability
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Types of Instruments
Equity Shares – buy and sale of shares on stock exchange or
on spot basis off-market. Transactions either as trader or
investor.
Debt securities – Govt securities, Corporate Bonds and
Debentures
Derivatives - are contracts which derive their value from the
spot price of a given “underlying”. which can include anything
like currencies, commodities, securities, index of the prices of
securities, debt instruments, interest rates etc.
Futures - legally binding agreement to buy or sell the
underlying at a future date
Options - gives the buyer/holder of the contract the right
(but not the obligation) to buy/sell the underlying at a
predetermined price within or at end of a specified period.
Product Traded In Secondary Market
Equity
Debt
Govt. Securities (non-repo)
Derivatives
Index Futures & Options
Stock Futures & Options
Exchange Traded Currency Futures
Exchange Traded Interest Rate Futures
Mutual Funds / ETFs
Derivatives on Foreign Equity Indices
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Indian Securities Markets
Secondary Market
NSE occupies 5th position in terms of notional turnover (US$ 455 Billion) and 2rd
position in terms of total volume (91.39 million) among derivatives exchanges
globally (based on February 2012 trading data).
India stands 1st in Stock Futures, 13th in Index Futures, 5th in Stock Options and
4th in Index Options in World Derivatives Market (in terms of turnover)
Details
No. of Listed Companies (as on
Feb 29, 2012)
NSE
BSE
1644
5122
Market Capitalization (` crore) (as
on Feb 29, 2012)
62,33,250
63,56,697
Turnover (Cash) (Apr 11 – Feb12)
((` crore)
25,38,411
6,04,780
Turnover (F&O) (Apr 11 – Feb 12)
(` crore)
2,83,70,501
5,79,758
Indian Securities Market
Market Participants
Merchant Bankers
200
Stock Exchanges
21
Brokers
10263
Sub Brokers
77626
Mutual Funds
Foreign Institutional Investors
Venture Capital Funds
Depositories
49
1781
208
2
Depository Participants
850
Portfolio Managers
249
As on Feb 29, 2012
Mandate of SEBI
To protect interests of investors
To promote development of
securities market
To regulate securities
market
Regulatory process
Pro active as well as reactive approach
Extensive consultation with market participants &
other regulators
Clarification of policies through Informal Guidance
Scheme
Posting of all rules, regulations, circulars and data on
the SEBI web site
Dissemination of orders passed by SEBI, Securities
Appellate Tribunal and the Supreme Court, through
the SEBI web-site
Regulation of Intermediaries
Licensing standard
Certification of associated person
Prudential regulation
Internal controls and risk management
Business conduct Rules
Market conduct Rules
Procedure for dealing with failure of market
intermediary
Regulation of Market
Efficiency and credibility of the markets
Integrity of trading.
Transparency of trading
Proper management of large exposure, default risk
and market disruption.
Risk Management
Clearing and settlement – fair, effective and efficient.
To detect and deter manipulation and unfair trade
practices.
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Regulatory Norms
To ensure that investors get clear, accurate
information for their investment in financial products
(information asymmetry)
Safeguarding & Maintenance of functioning of
competitive framework.
Protect investors from hidden fees, abusive terms &
deceptive practices.
Regulatory Norms
Financial Literacy
Suitability and appropriateness
Investors responsible for risks & rewards
Prevention of potential systemic risks.
Regulatory Norms
Effective Surveillance to ensure:
transparency, fairness and integrity in the markets
true and fair price discovery
prompt detection of market manipulation and other market
abuses
Prompt investigation and timely action
Suitable policy intervention
Regulatory Norms
Monitoring / Surveillance
Price volume movements
Position / exposure / concentration monitoring
Corporate developments
Filings under Insider Trading & Takeover Regulations
Rumour Verification
Stock Watch System
Online monitoring through alerts
Offline monitoring through day-end and periodic reports
Regulatory Norms
Continuous Disclosure of all material news
Corporate Governance
Accounts
- Salient feature of B/S, P&L
- Quarterly Interim Financial Reports
- Consolidated Financial Statements, Cash flow Statement,
Related party transaction
Minimum level of shareholding
Disclosure of shareholding / ownership
Utilization of Issue proceeds
Responding to market rumours
Disclosure of Bulk / Block deals
Regulatory Norms
Accounting Standards close to International Standards.
Corporate Governance Guidelines made mandatory for listed
companies
Issue of Capital and Disclosure Requirements (ICDR)
Regulations, replaced the previous Disclosure and Investor
Protection (DIP) guidelines .
Automated Screen based Trading from 1994
Moved from physical securities to dematerialisation in 1998 99.9% securities traded in demat form
Regulatory Norms
Account period settlement to Rolling settlements in 2000
Introduction of derivatives trading in 2000 – now we have the
largest single stock futures market in the world
Adequate risk containment measures in place - Real time VaR
based margining and strict exposure monitoring mechanism
Efficient clearing and settlement mechanism
Circuit filter for individual scrips and market wide index based
circuit breaker
Enhanced Surveillance Standards - Integrated Market
Surveillance System (IMSS)
International Scenario
Protection at Trading Member Level
Bankruptcy of a Major Global Financial
Broker MF Global
Moving towards Client Level Protection
Indian Risk Management Scenario
Order has to be entered in specific client code which is mapped
to unique identification (Permanent Account Number – PAN)
Margins- upfront client level portfolio based initial margins and
mark to market collected before start of next days trading
Volatility parameters revised multiple times a day
Online and real time monitoring of positions and margins.
Minimum Liquid Networth to be maintained at any point of
time
Automatic deactivation of trading terminals
Client level details & segregation at CC level being considered
Regulatory Measures
Protection incase of Public Issue of Securities
Issue of Capital and Disclosure Requirements (ICDR)
Regulations
-
Eligibility Norms for Issuer
-
Pricing Norms
Disclosure Requirements (IPO/FPO)
Regulatory Measures
Protecting Investors Funds and Securities
Client’s money in a separate account
Restriction on use of funds from client’s account
Restriction on use of constituent beneficiary account
Provide statement of accounts for funds and securities to
all the clients
Periodic reconciliation and settling of running accounts
Penalty for violation of norms
Regulatory Measures
Protecting Investors Interest
Disclosure of Proprietary trading / funding
Maintenance of separate codes for each client and proprietary
trades
Timely issue of Contract Notes by brokers – exchange also sends
to select clients on random basis
Facility of sms alerts
Trade Verification facility on exchange website
Facility to freeze demat account
Regulatory Measures
Administrative mechanism of Capital Cushions
Protection in case of a Default-
Settlement Guarantee Fund
Investor Protection Fund
Investor
Complaint
Resolution
through
Conciliation and Arbitration Mechanisms
Regulatory Measures
Processing of Investor Complaints in SEBI
Complaints Redress System (SCORES)
Centralized database of all complaints.
Online movement of complaints to the concerned
intermediaries
Online upload of Action Taken Reports (ATRs) by
the concerned entities
Online viewing by investors of action on the
complaints and its current status.
Regulatory Measures
Investor Protection and Education Fund created for
the following purpose
Educational activities including seminars, training,
research and publications.
Awareness programmes
Aiding investors’ associations recognized by the
Board to undertake legal proceedings
Investor Education and Awareness Programs
Toll free help line
Present Status
India continues to be high growth economy in
a world beset with recession
Large domestic market and strong internal
demand
Securities market infrastructure and practices
among the best in the world
High global interest in investing in India
ROAD AHEAD
Needs to be addressed
Financial literacy
Financial inclusion
Reaching out to the retail investor
Broadening and deepening the markets
Better quality of intermediation
THANK YOU
Shashi Kumar
DGM, SEBI