This Report is in conformity with the format as per the Securities and Exchange Board of India (Annual Report) Rules, 1994, notified in Official Gazette on April 7, 1994.
1 3 MEMBERS OF THE BOARD (As on March 31, 2010)
C B BHAVE CHAIRMAN
Members appointed under Section 4(1)(d) of the SEBI Act, 1992 (15 of 1992)
M S SAHOO WHOLE TIME MEMBER
K M ABRAHAM WHOLE TIME MEMBER
PRASHANT SARAN WHOLE TIME MEMBER
G MOHAN GOPAL Director National Judicial Academy Bhopal
T V MOHANDAS PAI Director Infosys Technologies Limited Bangalore
Members nominated under Section 4(1)(b) of the SEBI Act, 1992 (15 of 1992)
R BANDYOPADHYAY Secretary Ministry of Corporate Affairs Government of India
K P KRISHNAN Joint Secretary Ministry of Finance Department of Economic Affairs Government of India
Member nominated under Section 4(1)(c) of the SEBI Act, 1992 (15 of 1992)
USHA THORAT Deputy Governor Reserve Bank of India
5 MEMBERS OF THE SEBI BOARD (As on March 31, 2010)
C B BHAVE Chairman
M S SAHOO K M ABRAHAM PRASHANT SARAN G MOHAN GOPAL Whole Time Whole Time Whole Time Director Member Member Member National Judicial Academy Bhopal
T V MOHANDAS PAI R BANDYOPADHYAY K P KRISHNAN USHA THORAT Director Secretary Joint Secretary Deputy Governor Infosys Technologies Ministry of Corporate Ministry of Finance Reserve Bank of India Limited Affairs Department of Economic Bangalore Government of India Affairs 7 Government of India CHAIRMAN, WHOLE TIME MEMBERS AND EXECUTIVE DIRECTORS
Left to Right : Sitting : Dr. K.M. Abraham, Whole Time Member, Shri C.B. Bhave, Chairman, Shri M.S. Sahoo, Whole Time Member, Shri Prashant Saran, Whole Time Member.
Standing : Dr. K.N. Vaidyanathan, Executive Director, Shri Ananta Barua, Executive Director, Dr. Pradnya Saravade, Executive Director, Smt. Usha Narayanan, Executive Director, Shri J. Ranganayakulu, Executive Director, Shri J.N. Gupta, Executive Director, Shri P.K. Nagpal, Executive Director.
9 CONTENTS
Page No. List of Tables ...... vi List of Charts ...... x List of Boxes ...... xi List of Abbreviations ...... xii
PART ONE: POLICIES AND PROGRAMMES 1. GENERAL MACRO-ECONOMIC ENVIRONMENT ...... 1 2. REVIEW OF POLICIES AND PROGRAMMES ...... 6 I. Primary Securities Market ...... 7
II. Secondary Securities Market ...... 12
III. Corporate Debt Market ...... 21
IV. Mutual Funds...... 21
V. Portfolio Managers ...... 26
VI. Foreign Institutional Investors ...... 27
VII. Takeovers ...... 28
VIII. Delisting ...... 29
IX. Investor Assistance and Education ...... 29
X. Retrospect and Prospects ...... 36
PART TWO: REVIEW OF TRENDS AND OPERATIONS
1. PRIMARY SECURITIES MARKET ...... 38
I. Resource Mobilisation ...... 38
II. Sector-wise Resource Mobilisation ...... 40
III. Size-wise Resource Mobilisation ...... 41
IV. Industry-wise Resource Mobilisation ...... 43
2. SECONDARY SECURITIES MARKET ...... 44
I. Equity Market in India ...... 44
II. Performance of Sectoral Indices ...... 46
III. Turnover in the Indian Stock Market ...... 49
i CONTENTS
Page No. IV. Market Capitalisation ...... 50 V. Stock Market Indicators ...... 51 VI. Volatility in Stock Markets ...... 54 VII. Trading Frequency ...... 56 VIII. Activities of Stock Exchanges ...... 59 IX. Dematerialisation ...... 60 X. Derivatives Market in India...... 62
3. TRENDS IN THE BOND MARKET ...... 73 I. Corporate Bond Market ...... 73 II. Wholesale Debt Market ...... 75
4. MUTUAL FUNDS ...... 76
5. FOREIGN INSTITUTIONAL INVESTMENT ...... 81
PART THREE: REGULATION OF SECURITIES MARKET
1. INTERMEDIARIES ...... 86 I. Streamlining the Registration Process of Intermediaries ...... 86 II. Registered Intermediaries other than Stock Brokers and Sub-brokers ...... 86 III. Registration of Stock Brokers ...... 86 IV. Registration of Sub-brokers ...... 90 V. Recognition of Stock Exchanges ...... 90 VI. Registration of Foreign Institutional Investors and Custodians of Securities ... 92 VII. Registration of Collective Investment Schemes ...... 93 VIII. Registration of Mutual Funds ...... 93 IX. Registration of Venture Capital Funds ...... 93 X. Fees and Other Charges ...... 94
2. CORPORATE RESTRUCTURING ...... 95 I. Substantial Acquisition of Shares and Takeovers ...... 95 II. Buyback ...... 95
ii CONTENTS
Page No. 3. SUPERVISION ...... 96
I. Inspection of Market Intermediaries ...... 96
II. Inspection of Stock Exchanges ...... 97
III. Follow-up Inspection Reports...... 98
4. SURVEILLANCE ...... 98
I. Mechanism of Market Surveillance ...... 98
II. Surveillance Actions ...... 99
III. Surveillance Measures ...... 99
IV. Significant Market Movements during 2009-10 ...... 99
V. Integrated Market Surveillance System ...... 100
VI. Data Warehousing and Business Intelligence System ...... 100
VII. Implementation of Wadhwa Committee Report ...... 100
VIII. Enforcement ...... 101
5. INVESTIGATION ...... 111
I. Process of Investigation ...... 112
II. Trends in Investigation Cases ...... 112
III. Regulatory Action ...... 115
6. ENFORCEMENT OF REGULATIONS ...... 116
I. Enquiry and Adjudication ...... 116
II. Market Intermediaries ...... 119
III. Regulatory Actions against Mutual Funds ...... 120
IV. Regulatory Actions under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ...... 121
V. Regulatory Actions against FIIs ...... 121
VI. Regulatory Actions against Stock Brokers and Sub-brokers ...... 123
7. PROSECUTION ...... 123
I. Trends in Prosecution ...... 123
iii CONTENTS
Page No. II. Nature of Prosecution ...... 127
III. Disposal of Prosecution Cases ...... 127
IV. Litigations, Appeals, Consent and Compounding ...... 128
8. RESEARCH ACTIVITIES...... 130
PART FOUR: REGULATORY CHANGES
1. REGULATORY DEVELOPMENTS ...... 132
I. New Regulations ...... 132
II. Amendments to Existing Rules/Regulations ...... 134
III. Other Notifications ...... 140
2. SIGNIFICANT COURT PRONOUNCEMENTS ...... 141
I. Supreme Court...... 141
II. High Courts ...... 144
III. Securities Appellate Tribunal ...... 145
IV. Proposed Amendments ...... 151
PART FIVE: ORGANISATIONAL MATTERS
1. SEBI BOARD ...... 153
2. AUDIT COMMITTEE ...... 153
3. HUMAN RESOURCES ...... 153
I. Staff Strength, Recruitment and Deputation ...... 154
II. Training and Development ...... 154
III. Internship...... 155
IV. Promotions ...... 155
V. Enhancement of Staff Pay, Allowance and Benefits ...... 155
VI. Disciplinary Matters ...... 155
4. NATIONAL INSTITUTE OF SECURITIES MARKETS ...... 156
I. Certification of Associated Persons in the Securities Markets ...... 156
iv CONTENTS
Page No. II. Financial Literacy and Investor Education ...... 156
III. Corporate Governance ...... 156
IV. Executive Education ...... 156
V. Securities Market Education ...... 157
VI. Research Studies ...... 157
5. VIGILANCE ...... 157
6. PROMOTION OF OFFICIAL LANGUAGE...... 157
7. INFORMATION TECHNOLOGY ...... 158
8. INTERNATIONAL CO-OPERATION ...... 158
I. SEBI Association with G20 /FSB work and other Multi-lateral Agencies ...... 158
II. Association with IOSCO ...... 159
III. MoU Agreements signed during 2009-10 ...... 160
IV. MMoU and MoU Requests ...... 160
V. Technical Assistance ...... 161
VI. SEBI’s Participation in the International Training Programmes ...... 161
VII. Visits by Foreign Delegations/Dignitaries to SEBI ...... 161
VIII. Study Visits for Overseas Regualtors Organised by SEBI ...... 161
9. PARLIAMENTARY QUESTIONS ...... 161
10. RIGHT TO INFORMATION ACT ...... 162
CHRONOLOGY OF MAJOR POLICY INITIATIVES BY SEBI ...... 165
v LIST OF TABLES
Table No. Name Page No.
1.1 National Income (at 2004-05 prices) ...... 2 1.2 GDP (at Factor Cost) by Economic Activity (at 2004-05 prices) ...... 3 1.3 Gross Domestic Savings and Investment ...... 4 1.4 Status of Investor Grievances Received and Redressed ...... 30 1.5 Type-wise Status of Grievances Awaiting Redressal ...... 31 2.1 Resource Mobilisation through Public and Rights Issues ...... 39 2.2 Resource Mobilisation through Qualified Institutions’ Placement ...... 40 2.3 Sector-wise Resource Mobilisation ...... 40 2.4 Size-wise Resource Mobilisation ...... 41 2.5 Mega Issues in 2009-10 ...... 42 2.6 Industry-wise Resource Mobilisation ...... 43 2.7 Major Indicators of Indian Stock Markets ...... 45 2.8 Major Stock Indices and their Returns ...... 48 2.9 Sectoral Stock Indices and their Returns ...... 48 2.10 Exchange-wise Cash Segment Turnover ...... 49 2.11 Turnover at BSE and NSE: Cash Segment ...... 50 2.12 City-wise Turnover of Top 10 Cities in Cash Segment during 2009-10 ...... 51 2.13 Market Capitalisation at BSE ...... 52 2.14 Market Capitalisation at NSE ...... 53 2.15 Selected Ratios relating to Stock Market ...... 53 2.16 Price-Earnings Ratio ...... 55 2.17 Price to Book-Value Ratio ...... 55 2.18 Average Daily Volatility of Benchmark Indices ...... 56 2.19 Trends in Daily Volatility of International Stock Market Indices during 2009-10 ...... 57 2.20 Trading Frequency of Listed Stocks ...... 58 2.21 Share of Brokers, Securities and Participants in Cash Market Turnover ...... 59 2.22 Trading Statistics of Stock Exchanges ...... 60 2.23 Turnover of Subsidiaries of Stock Exchanges ...... 61 2.24 Depository Statistics: Equity Shares ...... 61 2.25 Depository Statistics: Debenture/Bonds and Commercial Paper ...... 62 2.26 Cities according to Number of DP Locations: Geographical Spread ...... 62 2.27 Trends in Turnover and Open Interest in Equity Derivatives ...... 64 2.28 Product-wise Derivatives Turnover at NSE and BSE ...... 65
vi LIST OF TABLES
Table No. Name Page No.
2.29 Trends in Index Futures at NSE and BSE ...... 66 2.30 Trends in Single Stock Futures at NSE and BSE ...... 66 2.31 Trends in Index Options at NSE and BSE ...... 67 2.32 Trends in Stock Options at NSE and BSE ...... 67 2.33 Shares of Various Classes of Members in Derivatives Turnover at NSE and BSE ...... 68 2.34 Trends in Currency Futures Segment ...... 69 2.35 Share of Top 10 Members in Currency Derivatives Segment of NSE, BSE and MCX-SX ...... 69 2.36 Trends in Turnover and Open Interest in Interest Rate Derivatives (10 Year Notional Coupon Bearing GoI Security Futures) at NSE...... 73 2.37 Secondary Market: Corporate Bond Trades ...... 73 2.38 Settlement of Corporate Bond Trades ...... 74 2.39 Private Placement of Corporate Bonds reported to NSE and BSE ...... 74 2.40 Business Growth on the Wholesale Debt Market Segment of NSE ...... 75 2.41 Instrument-wise Share of Securities Traded in Wholesale Debt Market Segment of NSE ...... 75 2.42 Share of Participants in Turnover of Wholesale Debt Market Segment of NSE 76 2.43 Mobilisation of Resources by Mutual Funds ...... 77 2.44 Sector-wise Resource Mobilisation by Mutual Funds during 2009-10 ...... 77 2.45 Scheme-wise Resource Mobilisation and Assets under Management by Mutual Funds as on March 31, 2010 ...... 78 2.46 Number of Schemes by Investment Objectives ...... 79 2.47 Trends in Transactions on Stock Exchanges by Mutual Funds ...... 80 2.48 Unit Holding Pattern of All Mutual Funds as on March 31, 2010 ...... 81 2.49 Unit Holding Pattern of Private and Public Sector Mutual Funds as on March 31, 2010 ...... 81 2.50 Investment by Foreign Institutional Investors ...... 82 2.51 Investment by Mutual Funds and Foreign Institutional Investors ...... 83 2.52 Notional Value of Open Interest of Foreign Institutional Investors in Derivatives during 2009-10 ...... 85 3.1 Registered Intermediaries other than Stock Brokers and Sub-brokers ...... 87 3.1a Intermediaries other than Stock Brokers and Sub-brokers in the Process of Registration ...... 87 3.2 Registered Stock Brokers ...... 87
vii LIST OF TABLES
Table No. Name Page No.
3.2a Stock Broker and Sub-broker Applications in the Process of Registration as on March 31, 2010 ...... 87 3.3 Classification of Stock Brokers in Cash Segment on the Basis of Ownership ... 88 3.4 Number of Registered Members in Equity Derivatives Segment during 2009-10 ...... 90 3.5 Number of Members Registered in Currency Derivatives Segment during 2009-10 ...... 90 3.6 Registered Sub-Brokers ...... 91 3.7 Stock Exchanges with Permanent Recognition...... 91 3.8 Renewal of Recognition Granted to Stock Exchanges during 2009-10 ...... 92 3.9 Number of Registered FIIs, Sub-accounts and Custodians ...... 93 3.9a Status of Registration of FII, Sub-accounts and Custodians during 2009-10 ..... 93 3.10 Mutual Funds Registered with SEBI ...... 93 3.11 Registered Venture Capital Funds ...... 94 3.12 Fees and other Charges ...... 94 3.13 Status of Draft Letters of Offers for Open Offers Filed under Regulation 18(1) of SEBI (SAST) Regulations, 1997 and Takeover Panel Applications during 2009-10 ...... 95 3.14 Open Offers and Exemptions from Open Offers ...... 95 3.15 Buyback Cases during 2009-10 ...... 96 3.16 Inspection of Stock Brokers/Sub-brokers ...... 97 3.16a Inspection by Stock Exchanges/Clearing Corporation ...... 97 3.17 Inspection of other Market Intermediaries ...... 97 3.18 Number of Surveillance Actions during 2009-10 ...... 99 3.19 Investigations by SEBI ...... 112 3.20 Nature of Investigations Taken Up and Completed ...... 114 3.21 Type of Regulatory Actions Taken...... 115 3.22 Enquiry and Adjudication during 2009-10 ...... 116 3.23a Age-wise Analysis of Enforcement Actions-u/s 11, 11B and 11D of SEBI Act (As on March 31, 2010) ...... 117 3.23b Age-wise Analysis of Enforcement Actions - Enquiry Proceedings (As on March 31, 2010) ...... 117 3.23c Age-wise Analysis of Enforcement Actions - Adjudication Proceedings (As on March 31, 2010) ...... 118
viii LIST OF TABLES
Table No. Name Page No.
3.23d Age-wise Analysis of Enforcement Actions - Prosecution Proceedings (As on March 31, 2010) ...... 119 3.23e Age-wise Analysis of Enforcement Actions-Summary Proceedings under SEBI Act (As on March 31, 2010) ...... 120 3.24 Enquiry and Adjudication Proceedings Initiated against Stock Brokers/ Sub-brokers during 2009-10 ...... 120 3.25 Enquiry and Adjudication Proceedings Initiated against other Intermediaries during 2009-10 ...... 120 3.26 Prosecutions Launched ...... 124 3.27 Region-wise Data on Prosecution Cases as on March 31, 2010 ...... 124 3.28 Nature of Prosecutions Launched as on March 31, 2010 ...... 127 3.29 Number of Prosecution Cases decided by the Courts as on March 31, 2010 .... 127 3.30 Court Cases where SEBI was a Party during 2009-10 ...... 128 3.31 Appeals before the Securities Appellate Tribunal during 2009-10 ...... 128 3.31a Disposals of Appeals by Securities Appellate Tribunal ...... 129 3.32 Appeals under Section 15Z of the SEBI Act against the Orders of Securities Appellate Tribunal during 2009-10 ...... 130 3.33 Consent Applications filed with SEBI during 2009-10 ...... 130 3.34 Compounding Applications filed by the Accused in Criminal Courts during 2009-10 ...... 130 3.35 Receipt and Disposal of Applications under Consent and Compounding Process during 2009-10 ...... 131 4.1 Revision of Fees ...... 136 5.1 Board Meetings during 2009-10 ...... 153 5.2 Promotion of SEBI Officials during 2009-10 ...... 155 5.3 Parliamentary Queries Received/Raised ...... 161 5.4 Break-up of Parliamentary Queries Received and Replied by SEBI during 2009-10 ...... 162 5.5 Queries/Points Raised by Various Committees and Replied by SEBI during 2009-10 ...... 162 5.6 Status of Application under RTI Act during 2009-10 ...... 163 5.7 Number of Issues Raised/Replied in RTI Queries ...... 163
ix LIST OF CHARTS
Chart No. Name Page No.
1.1 Share of Components of GDP (at Factor Cost) ...... 3
1.2 Share of Types of Savings in Financial Savings of the Household Sector ... 5
2.1 Share of Broad Categories of Issues in Resource Mobilisation ...... 39
2.2 Sector-wise Resource Mobilisation ...... 41
2.3 Movement of Benchmark Stock Market Indices (2009-10) ...... 44
2.4 Year-on-Year Returns: International Indices (2009-10) ...... 46
2.5 Movement of Sectoral Indices of BSE (2009-10) ...... 47
2.6 Movement of Sectoral Indices of NSE (2009-10) ...... 47
2.7 P/E Ratio of International Stock Market Indices ...... 54
2.8 Annualised Volatility of International Stock Market Indices (2009-10) ...... 58
2.9 Derivatives Turnover vis-à-vis Cash Market Turnover (2009-10) ...... 63
2.10 Product-wise Share in Derivative Turnover at NSE and BSE ...... 65
2.11 Trends in Foreign Institutional Investment ...... 83
2.12 Net Institutional Investment and Monthly Average Sensex and Nifty Values ...... 84
3.1 Ownership Pattern of Stock Brokers (As on March 31, 2010) ...... 89
3.2 Percentage Share of Stock Brokers (By Ownership) (As on March 31, 2010) ...... 89
3.3 Investigation Cases ...... 113
3.4 Nature of Investigation Cases Taken Up (2009-10) ...... 114
3.5 Nature of Investigation Cases Completed (2009-10) ...... 115
3.6 Type of Regulatory Actions Taken ...... 116
x LIST OF BOXES
Box No. Name Page No.
1.1 Salient Features of Pure Auction Method in Public Offerings ...... 7
1.2 Introduction of Concept of ‘Anchor Investors’ in Public Offerings ...... 8
1.3 Convergence of Indian Accounting Standards with IFRS ...... 12
1.4 10-Year Notional Coupon-bearing Government of India (GoI) Security Futures 18
1.5 No Entry Load for Mutual Fund Investments ...... 23
2.1 Currency Options ...... 70
2.2 Comparative Study of Futures on USD: INR versus OTC Currency Forward Market ...... 71
3.1 IPO Irregularities and Reallocation of Disgorged Amount...... 109
3.2 Consent and Compounding Scheme of SEBI ...... 129
This Report can also be accessed on internet – http://www.sebi.gov.in
Conventions used in this Report Rs. : Rupees Lakh : Hundred thousand Crore : Ten million Million : Ten lakh Billion : Thousand million/hundred crore NA : Not Available
Differences in total are due to rounding off and sometimes they may not exactly addupto hundred percent. Source of Tables, Charts and Boxes where not mentioned, is SEBI.
xi ABBREVIATIONS
AGM Annual General Body Meeting AMC Asset Management Company AMFI Association of Mutual Funds in India AML Anti-Money Laundering AP Authorised Persons APEC Asia Pacific Economic Co-operation APRC Asia Pacific Regional Committee ASBA Application Supported by Blocked Amount ATR Action Taken Report AUC Assets Under Custody AUM Assets Under Management BO Beneficiary Owner bps Basis Points BTST Buy Today Sell Tomorrow CBSE Central Board of Secondary Education CDD Customer Due Diligence CDR Corporate Debt Restructuring CDSC Contingent Deferred Sales Charge CDSL Central Depository Services (India) Limited CEO Chief Executive Officer CFO Chief Financial Officer CFT Combating Financing of Terrorism CFTC Commodities Futures Trading Commission CIC Central Information Commission CIS Collective Investment Scheme CISA Certified Information System Auditor CISM Certified Information Security Manager CLB Company Law Board CM Clearing Members CRA Credit Rating Agency CRR Cash Reserve Ratio CSO Central Statistical Organisation DFSA Dubai Financial Services Authority DIP Disclosure and Investor Protection DPs Depository Participants DTC Direct Tax Code
xii ABBREVIATIONS
DvP Delivery Vs Payment DWBIS Data Warehousing and Business Intelligent System ECNs Electronic Contract Notes EGM Extraordinary General Meeting ELSS Equity Linked Saving Scheme EMC Emerging Markets Committee ESOS Employee Stock Option Scheme ESPS Employee Share Purchase Scheme ETF Exchange Traded Fund FoF Fund of Funds F & O Futures and Options FAQs Frequently Asked Questions FATF Financial Action Task Force FCD Fully Convertible Debenture FCFS First Come First Served FEMA Foreign Exchange Management Act FFMS Financial Markets Service of Russian Federation FII Foreign Institutional Investment FIIs Foreign Institutional Investors FIMMDA Fixed Income Money Market and Derivatives Association of India FIU-IND Financial Intelligence Unit - India FMCG Fast Moving Consumer Goods FPOs Follow-on Public Offerings FRBM Fiscal Responsibility and Budget Management Act FSC Financial Services Commission FSF Financial Stability Forum FVCI Foreign Venture Capital Investor GDCF Gross Domestic Capital Formation GDP Gross Domestic Product GDS Gross Domestic Savings GETF Gold Exchange Traded Fund GNI Gross National Income GNP Gross National Product GoI Government of India IA Investors' Associations IAD Investor Awareness Division
xiii ABBREVIATIONS
ICAI Institute of Chartered Accountants of India ICCL Indian Clearing Corporation Ltd. ICDM Indian Corporate Debt Market ICDR Issue of Capital and Disclosure Requirements IDR Indian Depository Receipt IFIE International Forum for Investor Education IFRS International Financial Reporting Standards IMF International Monetary Fund IMSS Integrated Market Surveillance System INR Indian Rupee IOSCO International Organisation of Securities Commissions IPEF Investor Protection and Education Fund IPO Initial Public Offer IRDA Insurance Regulatory and Development Authority ISD Integrated Surveillance System IT Information Technology ITF Implementation Task Force JPY Japanese Yen KYC Know Your Client LAF Liquidity Adjustment Facility MCX-SX MCX Stock Exchange MFs Mutual Funds MIMPS Manner of Increasing and Maintaining Public Shareholding in Stock Exchanges MMoU Multilateral Memorandum of Understanding MoF Ministry of Finance MoU Memorandum of Understanding MSS Market Stabilisation Scheme MWPL Market Wide Position Limits NASDAQ National Association of Securities Dealers Automated Quotations NAV Net Asset Value NBFC Non-Banking Financial Company NCAER National Council of Applied Economic Research NCD Non Convertible Debenture NDP Net Domestic Product NFO New Fund Offer NGO Non-Government Organisations
xiv ABBREVIATIONS
NIC National Informatics Centre NISM National Institute of Securities Markets NNI Net National Income NNP Net National Product NOC No Objection Certificate NRIs Non-Resident Indians NSCCL National Securities Clearing Corporation Ltd. NSDL National Securities Depository Limited ODI Offshore Derivatives Instrument OECD Organisation for Economic Co-operation and Development OIAE Office of Investor Assistance and Education OMO Open Market Operations OSD Officer on Special Duty OTC Over the Counter P/B ratio Price to Book-Value Ratio P/E ratio Price-Earnings Ratio PA Public Announcement PAC Person-Acting-in-Concert PAN Permanent Account Number PCD Partly Convertible Debenture PFUTP Prevention of Fraudulent and Unfair Trade Practices PMLA Prevention of Money Laundering Act PNs/P-Notes Participatory Notes PoA Power of Attorney PSU Public Sector Undertaking QIB Qualified Institutional Buyer QIP Qualified Institutional Placement RBI Reserve Bank of India RII Retail Individual Investors RoC Registrar of Companies RSEs Regional Stock Exchanges RTA Registrar to an Issue and Share Transfer Agent RTGS Real Time Gross Settlement RTI Right to Information SAARC South Asian Association for Regional Cooperation SAI Statement of Additional Information
xv ABBREVIATIONS
SAT Securities Appellate Tribunal SC(R)A Securities Contracts (Regulation) Act SC(R)R Securities Contracts (Regulation) Rules SCB Scheduled Commercial Bank SCM Self Clearing Member SCODA SEBI Committee on Disclosures & Accounting Standards SCORES SEBI Complaints Redress System SCSB Self Certified Syndicate Banks SEBON Securities Board of Nepal SEC Securities and Exchange Commission SID Scheme Information Document SLB Securities Lending and Borrowing SMAC Secondary Market Advisory Committee SRO Self Regulatory Organisation SS&SHA Share Subscription and Shareholder Agreement STP Straight Through Processing T-Bills Treasury Bills TC Technical Committee TM Trading Member TRAC Takeover Regulations Advisory Committee UPSI Unpublished Price Sensitive Information USD United States Dollar UTI MF UTI Mutual Fund VaR Value at Risk VCF Venture Capital Fund WDM Wholesale Debt Market WPI Wholesale Price Index
xvi PART ONE: POLICIES AND PROGRAMMESPart One: Policies and Programmes
The Annual Report of the Securities and strengthen the existing regulatory framework, Exchange Board of India (SEBI) for 2009-10 policies and programmes, introduced new articulates the policies and programmes of guidelines and regulations to promote orderly SEBI and its working and operations during growth of securities market while ensuring the financial year as per the format prescribed transparency, efficiency, fairness, safety and by the Securities and Exchange Board of integrity. India (Annual Report) Rules, 1994. During the year, SEBI continued to pursue its three 1. GENERAL MACRO-ECONOMIC statutory objectives, namely: (a) protection ENVIRONMENT of the interests of investors in securities, (b) promotion of the development of the Indian economy remained one of the securities market and (c) regulation of the fastest growing economies in the world, as securities market. it managed to come out of the slowdown, post global financial crisis, during 2009-10. SEBI pursues these objectives in a According to revised estimates of Central transparent manner in consultation with Statistical Organisation (CSO), real GDP grew the regulated entities. Advisory Committees at 7.4 percent in 2009-10 in comparison to 6.7 have been constituted in all major areas of percent in 2008-09 (Table 1.1). The services work. Consultation on major policy issues is sector continued to be the main driver of carried out by putting discussion papers in growth in India, albeit at a moderate rate, public domain and seeking comments from with a growth of 8.3 percent in 2009-10 public. All its decision/orders are placed on compared to 9.3 percent in 2008-09. Growth its website. The agenda papers of the Board in the industrial sector was at 10.4 percent, are put on the website. where manufacturing activities recorded a In line with the stated objectives, this growth of 10.8 percent in 2009-10 compared Report provides the manner in which SEBI to 3.2 percent in 2008-09 (Table 1.2). The discharged its responsibilities and exercised agricultural sector registered a subdued its powers during the year in furtherance of growth of 0.2 percent in 2009-10 compared to the objectives enshrined in (a) the Securities a growth of 1.6 percent in 2008-09. The share and Exchange Board of India Act, 1992, (b) of ‘agriculture and allied activities’ in overall the Securities Contracts (Regulation) Act, GDP declined from 15.7 percent in 2008-09 1956 (c) the Depositories Act, 1996 and (d) to 14.6 percent in 2009-10 (Chart 1.1). The the relevant provisions of the Companies share of services sector rose from 64.4 percent Act, 1956. The Report also provides a review to 64.9 percent while the share of industry of the developments in the Indian securities remained stable around 20.0 percent. During market during 2009-10, in the context of the first three years of the Eleventh Plan changing dynamics of securities market period (2007-12), India’s real GDP grew at 7.8 regulations. percent per annum (average) equaling that of the Tenth Plan period (2002-07). Against the backdrop of increasing integration of global financial markets, Factors that contributed towards the SEBI channelised its efforts to bring out acceleration in manufacturing activities regulations to withstand the domestic and were strong domestic demand, improved global developments. SEBI, in its attempt to investment climate and turnaround in exports
1 Annual Report 2009-10
Table 1.1: National Income (at 2004-05 prices) (Rs.crore)
2007-08 2008-09 2009-10 Item (Quick (Revised Estimates) Estimates) 1 2 3 4
A. Estimates at Aggregate Level 1. National Product 1.1 Gross National Income (GNI) at factor cost 38,76,386 41,38,174 44,39,702 (9.6) (6.8) (7.3) 1.2 Net National Income (NNI) at factor cost 34,49,970 36,72,192 39,29,853 (9.5) (6.4) (7.0) 2. Domestic Product 2.1 Gross Domestic Product (GDP) at factor cost 38,93,457 41,54,973 44,64,081 (9.2) (6.7) (7.4) 2.2 Net Domestic Product (NDP) at factor cost 34,67,041 36,88,991 39,54,861 (9.1) (6.4) (7.2) B. Estimates at Per Capita Level 1. Population (million) 1,138 1,154 1,170 (1.4) (1.4) (1.4) 2. Per Capita NNI at factor cost (Rs.) 30,316 31,821 33,588 (8.0) (5.0) (5.6) 3. Per Capita GDP at factor cost (Rs.) 34,213 36,005 38,155 (7.7) (5.2) (6.0) Note: Figures in the parentheses are percentage change over the previous year. Source: Central Statistical Organisation. due to gradual global recovery following the rate. However, community, social and financial meltdown. A rise in growth rate personal services and financing, insurance, for capital goods indicated momentum in real estate and business services witnessed industrial activity. Automobiles, machinery deceleration in growth rate during 2009-10. and equipment other than transport As per the CSO data on India’s savings equipment, rubber and plastic products, and investments, India’s Gross Domestic wool and silk textiles and chemicals and Savings (GDS) as proportion of GDP at chemical products registered acceleration market prices decreased from 36.4 percent in 2009-10. Consumer goods sector saw an in 2007-08 to 32.5 percent in 2008-09 on uptick in growth rate due to strong demand account of weakness in saving performance observed in the durables segment. Also, by the public sector and to a marginal growth in intermediate goods, basic goods extent by private corporate sector. Public and infrastructure sector gathered strength. sector savings decreased from 5.1 percent During 2009-10, services sector in 2007-08 to 1.4 percent in 2008-09 and continued to remain the largest contributor private corporate sector savings declined to GDP. In terms of growth during 2009- marginally from 8.7 percent in 2007-08 to 8.4 10, construction, trade, hotel, transport and percent in 2008-09. Savings of household communication recorded improved growth sector remained stable at 22.6 percent in
2 Part One: Policies and Programmes
Table 1.2: GDP (at Factor Cost) by Economic Activity (at 2004-05 prices) (Rs.crore)
2007-08 2008-09 2009-10 Percentage (Quick (Revised Change over Industry Estimates) Estimates) Previous Year 2008-09 2009-10
1 2 3 4 5 6 1. Agriculture, Forestry & Fishing 6,40,315 6,50,461 6,51,901 1.6 0.2 2. Mining and Quarrying 97,201 98,745 109,182 1.6 10.6 3. Manufacturing 6,29,446 6,49,635 7,19,975 3.2 10.8 4. Electricity, Gas and Water Supply 78,776 81,866 87,199 3.9 6.5 Industry (2+3+4) 8,05,423 8,30,246 9,16,356 3.1 10.4 5. Construction 3,14,298 3,32,782 3,54,541 5.9 6.5 6. Trade, Hotels, Transport and 10,08,603 10,84,764 11,85,190 7.6 9.3 Communication 7. Financing, Insurance, Real Estate and 6,37,223 7,01,338 7,69,390 10.1 9.7 Business Services 8. Community, Social and Personal Services 4,87,595 5,55,382 5,86,703 13.9 5.6 Services (5+6+7+8) 24,47,719 26,74,266 28,95,824 9.3 8.3 GDP at Factor Cost 38,93,457 41,54,973 44,64,081 6.7 7.4 Note: Construction as per RBI classification comes under services sector. Source: Central Statistical Organisation.
3 Annual Report 2009-10
2008-09. The Gross Domestic Capital Government declined from 3.0 percent in Formation (overall investment) at 34.9 2006-07 to minus 3.1 percent in 2008-09. There percent of GDP in 2008-09, exceeded GDS by is a visible shift in the pattern of household 2.4 percentage points reflecting net inflow of financial savings moving from claims on foreign savings. Government to deposits because of better returns from various types of term deposits ‘Deposits’ continued to remain a offered by banks and financial institutions. major component of financial assets of the households. The share of deposits in total During 2008-09, other major components financial savings increased to 58.5 percent in of financial savings were contractual savings 2008-09 from 52.2 percent in 2007-08 (Chart at 29.6 percent (insurance at 20.1 percent 1.2). On the contrary, households’ claims on and provident and pension funds at 9.5
Table 1.3: Gross Domestic Savings and Investment
Amount in Rupees crore Percent of GDP at current market prices Item 2005-06 2006-07 2007-08@ 2008-09* 2005-06 2006-07 2007-08@ 2008-09* 1 2 3 4 5 6 7 8 9
1. Household Sector Savings 8,58,705 9,80,195 11,20,221 12,61,332 23.17 22.88 22.64 22.63 a) Financial Assets 4,21,319 4,69,051 5,52,725 5,81,428 11.36 10.95 11.17 10.43 b) Physical Assets 4,37,486 5,11,144 5,67,496 6,79,904 11.80 11.93 11.47 12..20 2. Private Corporate 2,77,493 3,42,130 4,31,588 4,70,256 7.49 7.99 8.72 8.44 Sector Savings 3. Public Sector Savings 89,845 152,463 2,49,660 79,997 2.42 2.56 5.05 1.44 4. Gross Domestic Savings 12,26,044 14,74,788 18,01,469 18,11,585 33.08 34.43 36.41 32.50 (GDS) 5. Net Capital Inflow (+)/ 44,604 45,524 64,430 1,32,743 1.20 1.06 1.30 2.38 Outflow (-) 6. Gross Domestic 12,70,648 15,20,312 18,65,899 19,44,328 34.28 35.49 37.71 34.88 Capital Formation (GDCF) 7. Final Consumption 25,62,100 29,22,391 33,40,702 38,79,958 69.13 68.22 67.52 69.60 Expenditure a) Private Final 21,58,349 24,77,209 28,25,356 32,26,826 58.23 57.82 57.10 57.89 Consumption Expenditure b) Government Final 4,03,751 4,45,182 5,15,346 6,53,132 10.89 10.39 10.42 11.72 Consumption Expenditure
Memo Items Savings Investment -44,064 -45,524 -64,430 -1,32,743 -1.20 -1.06 -1.30 -2.38 Balance (4-6) Public Sector Balance# -2,03,343 -2,07,315 -1,92,517 -4,44,244 -5.49 -4.84 -3.89 -7.97 Private Sector Balance# 1,99,451 1,89,751 1,88,318 3,43,307 5.38 4.43 3.81 6.16 a) Private Corporate Sector -2,21,768 -2,79,300 -3,64,407 -2,38,121 -5.98 -6.52 -6.36 -4.27 b) Household Sector 4,21,219 4,69,051 5,52,725 5,81,428 11.36 10.95 11.17 10.43 Investment in Shares and 30,735 58,598 89,134 19,349 0.86 1.40 1.90 0.40 Debenture @ : Provisional Estimates. * : Quick Estimates. # : Investment figures are not adjusted for errors and omissions. Source: Central Statistical Organisation, Reserve Bank of India.
4 Part One: Policies and Programmes
percent), followed by currency at 12.5 percent. recent months, there was a significant revival Investment in shares and debentures by in credit demand since November 2009. Non- the households as a proportion of financial food credit started picking up from the later savings decreased significantly from 12.4 half of 2009-10 reaching a year-on-year peak percent in 2007-08 to 2.6 percent in 2008-09. of 16.9 percent in March 2010 as corporates Further investment in shares and debentures faced increasing demand following a recovery by the households as proportion of GDP (at in manufacturing and consumer durables. market prices) declined from 1.9 percent to According to disaggregated provisional data 0.4 percent during the same period. released by the Reserve Bank of India (RBI), the year-on-year growth in bank credit to Bank credit during 2009-10 witnessed industry declined alongwith real estate, while moderate flow as the economy experienced credit to agriculture and housing witnessed a challenging environment following global an uptick. financial crisis. Credit was struggling to pick up in the first half of 2009-10 as corporates Liquidity condition remained easy in order to fund their expansion plans for the larger part of 2009-10 as banks resorted to non-bank sources for alternatives, faced lower credit demand as the working notably primary capital market, to take capital needs of corporates went down. The advantage of the pent up investor appetite surplus liquidity in the domestic markets, and internal accruals. There was also a partly induced by unwinding of the Market moderation in demand for credit from oil Stabilisation Scheme (MSS) balances, marketing companies as global crude oil prevailed during almost the entire financial prices witnessed a fall following a contraction year 2009-10. The key drivers of liquidity in global demand post financial crisis. As during the first half of 2009-10 were open the economic recovery became increasingly market operations (OMO) to manage the more broad-based, with industrial output Government borrowing programme coupled exhibiting particularly strong acceleration in with MSS unwinding. The situation was
5 Annual Report 2009-10
further accentuated following a lower forex year government securities hardened and demand from oil marketing companies as reached a peak of over eight percent during global crude oil prices declined. Flushed with March 2010. funds, banks increasingly parked money with Inflation on an year-on-year basis, RBI through reverse repo window and also measured by variation in the Wholesale Price increased their exposure to mutual funds for Index (WPI), was 9.9 percent at the end of better returns. As easy liquidity was fuelling March 2010 compared to 1.2 percent at the inflationary expectations during second half, end of March 2009. On an average basis, RBI increased cash reserve ratio (CRR) by 75 the inflation rate was 3.7 percent in 2009-10 basis points in February 2010 and increased compared to 8.4 percent in the previous year. repo and reverse repo rates by 25 basis points Prices of manufactured products (weight: 63.8 in March 2010 to anchor the same. percent in WPI) rose by 7.1 percent compared Stock prices in India recovered during to 2.3 percent a year ago. Following the 2009-10 in keeping with the recovery in global hardening of international crude oil prices in financial markets. Stock prices witnessed an the last six months of the financial year 2009- upsurge, particularly in the month of October 10, fuel group recorded a rise of 12.7 percent 2009, when global stock markets were at a in 2009-10 as against a fall of six percent peak. Stock market recovery was witnessed in the previous year. The rise in overall with the BSE Sensex closing above the 14,000 prices was mainly attributed to food articles mark on May 18, 2009 post announcement of registering a rise of 16.7 percent in 2009-10 election results. Thereafter, it witnessed a brief following a poor monsoon. correction to close at 13,400 on July 13, 2009 India’s import bill decreased during before embarking on an upward trajectory. It 2009-10 both on account of crude oil as well as recorded its highest close at 17,701 on January non-oil imports. As a result, trade deficit too 06, 2010. BSE Sensex recorded an increase of narrowed during 2009-10. Bulk of trade deficit 80.5 percent and Nifty 73.8 percent in end- was financed through net receipts under March 2010 over end-March 2009. invisibles, particularly through remittances from the Indian migrant workers abroad. Rates in the money market hovered India’s foreign exchange reserves increased by around the lower bound of Liquidity USD 25 billion to USD 277 billion during 2009- Adjustment Facility (LAF) corridor for a 10. The inflow of funds from foreign direct better part of 2009-10 due to the surplus investment recorded an increase and external liquidity sloshing around the system. In commercial borrowings recorded a fall. The contrast to the low interest rates that prevailed Rupee appreciated vis-à-vis US dollar during in money markets, the yield on government the better part of 2009-10. bonds hardened in the first half of 2009- 10 reflecting the concerns of stimulus led large fiscal deficit and the rising inflationary 2. REVIEW OF POLICIES AND expectations. Following the aggressive stance PROGRAMMES by RBI to anchor inflationary expectations in SEBI initiated a number of policies the later half, interest rates crept up across the and programmes during 2009-10 which term structure in the government securities are presented in this Section under nine markets. The secondary market yield on 10- major heads viz., primary securities market,
6 Part One: Policies and Programmes
secondary securities market, corporate when compared to 2008-09. Equity capital debt market, mutual funds, portfolio was raised to the tune of Rs.55,055 crore managers, foreign institutional investors, through 73 issues during 2009-10, higher than takeovers, delisting and investor assistance Rs.14,720 crore mobilised through 46 issues and education. The section concludes with during 2008-09. The ongoing reforms in the ‘retrospect and prospects’. primary market further helped in maintaining the investors’ confidence. An analysis on I. Primary Securities Market number of issues made, amount mobilised, An efficient primary market is critical for size and composition of issues and industry- resource mobilisation by corporates to meet wise resource mobilised is presented in Part their growth and expansion plans. Indian Two of this report. Following were the major primary market witnessed renewed activity in policy initiatives taken by SEBI relating to the terms of resource mobilisation and number of primary market during 2009-10: issues during 2009-10, building it further from its relatively subdued pace in 2008-09. In view i. Introduction of Pure Auction Method in of the recovery witnessed in equity markets Public Offerings post global financial crisis, companies entered In order to enable better price discovery the primary market and investors’ response and to maximise the amount which could be to public issues was encouraging in 2009-10 raised by an issuer, SEBI introduced the pure
Box 1.1: Salient Features of Pure Auction Method in Public Offerings
a. The issuer mentions the floor price in the red g. The issuer may decide whether a bidder be herring prospectus or in the alternative, it allowed to revise the bid upwards or downwards announces the floor price at least one working in terms of price and/or quantity. day before opening of the bid in all the h. The issuer may decide whether a bidder be newspapers in which the pre-issue advertisement allowed single or multiple bids. was released. Benefits of the method: b. Qualified institutional buyers bid at any price a. Higher price realisation for the issuer and above the floor price. consequently higher issue proceeds. c. The bidder who bids at the highest price is b. Investors, who are able to analyse an issue in allotted the number of securities that he has bid more detail, and understand the management, for and then the bidder who has bid at the second the business model and the business parameters highest price and so on, until all the specified in a better fashion, bid more accurately and at securities on offer are exhausted. a higher price for the issue. This means that potential investors are more likely to do a detailed d. Allotment is made on price priority basis for research before deciding to invest in the issue and qualified institutional buyers. therefore, the issue potentially gets subscription e. Allotment to retail individual investors, non- from more informed investors. institutional investors and employees of the issuer c. Issue may be able to attract higher quality of are made proportionately at the floor price. investors vis-à-vis’ the traditional proportionate f. The issuer may place a cap either in terms of allotment since the investors know that they may number of specified securities or percentage of be able to get a higher allotment based on their issued capital of the issuer that may be allotted to bid price rather than everyone getting allotment a single bidder. based on the number of securities applied for.
7 Annual Report 2009-10
auction method in further public offerings by issuer is made proportionately at the floor listed entities. In this method the QIB bidders price. are free to bid at any price above the floor price. The bidder who bids at the highest ii. Introduction of Concept of ‘Anchor price is allotted the number of securities Investors’ in Public Offerings that he has bid for and then the bidder who In order to ensure certain minimum has bid at the second highest price and so levels of subscription from qualified on, until all the specified securities on offer institutional buyers (QIBs) even in a relatively are exhausted. Allotment is made on price bearish market, SEBI introduced the concept priority basis and at differential prices. of ‘Anchor Investors’ in public offering. Such Allotment to retail individual investors, non- investors are expected to offer stability to institutional investors and employees of the the issue by subscribing to the issue before
Box 1.2: Introduction of Concept of ‘Anchor Investors’ in Public Offerings
SEBI has introduced the concept of ‘Anchor Investors’ brings in the additional amount. However, if the in public offering. Salient features of this concept are price fixed as a result of book building is lower as under: than the price at which the allocation is made to Anchor Investor, the excess amount shall not be a. An Anchor Investor makes an application of a refunded to the Anchor Investor and the Anchor value of at least Rs.10 crore in the public issue. Investor shall take allotment at the price at which b. Allocation to Anchor Investors is subject to a allocation was made to it. minimum number of two such investors for i. The number of shares allocated to Anchor allocation of upto Rs.250 crore and five such Investors and the price at which the allocation is investors for allocation of more than Rs.250 crore. made, is made available in public domain by the c. Upto thirty percent of the portion available for merchant banker before opening of the issue. allocation to qualified institutional buyers is j. There is a lock-in of 30 days on the shares allotted available to anchor investor(s) for allocation/ to the Anchor Investor from the date of allotment allotment (‘anchor investor portion’). in the public issue. d. One-third of the anchor investor portion is k. Neither the merchant bankers nor any person reserved for domestic mutual funds. related to the promoter/promoter group/merchant e. The bidding for Anchor Investors opens one day bankers in the concerned public issue can apply before the issue opening date. under Anchor Investor category. The parameters f. Anchor Investors pays a margin of at least 25 for selection of Anchor Investor shall be clearly percent on application with the balance to be paid identified by the merchant banker and shall within two days of the date of closure of the issue. be available as part of records of the merchant banker for inspection by the Board. g. Allocation to Anchor Investors is completed on the day of bidding by Anchor Investors. l. The applications made by qualified institutional buyers under the Anchor Investor category and h. If the price fixed as a result of book building is under the Non Anchor Investor category may not higher than the price at which the allocation is be considered as multiple applications. made to Anchor Investor, the Anchor Investor
8 Part One: Policies and Programmes
the bid is open to other categories of the a) Rationalisation of Disclosure Require- investors. ments: The disclosure requirements for further public issues and rights iii. Rationalisation of Regulatory Frame- issues by listed companies were almost work for Issuance of Indian Depository as rigorous as those for initial public Receipts (IDRs) offerings. Considering that much of In order to facilitate issuance of IDRs the information about listed entities are and to bring in necessary liquidity in trading already in public domain and investors of IDRs, the regulatory framework has been trade day to day on the basis of such suitably modified to enable participation of available information, it was considered FIIs and Mutual Funds in IDRs. SEBI has necessary to rationalise disclosure norms also notified a simplified “Model Listing for further public issues and rights Agreement for IDRs” of issuer companies issues by listed entities so that the time from the countries whose securities market taken for putting together the disclosure regulators are signatories to the Multilateral documents as well the number of pages Memorandum of Understanding of IOSCO. is reduced which can result in overall The provisions of this model Listing time and cost saving for companies. It is Agreement are aligned with the listing expected that the quantity of disclosures requirements of the issuers’ home countries in the letter of offer for a rights issue so as to avoid additional regulatory burden will come down by about 25 percent on or cost for the issuer company. Further, in account of the rationalisation. order to align the disclosure requirements b) Smoothening the Payment/Refund pertaining to issuance of IDRs with the Process in Issues: In its continuing Companies (Issue of Indian Depository endeavour to make the existing public Receipts) Rules, 2004, amendments relating issue process more efficient, SEBI had to disclosure of financial information in the introduced application supported by offer document in respect of the accounting blocked amount (ASBA) (ASBA Phase I) standard to be adhered to and the format as a supplementary facility to retail of disclosures and extent of applicability individual investors for applying in of SEBI (Issue of Capital and Disclosure public issues. In order to enable more Requirements) Regulations 2009 to issuances investors to make use of the ASBA of IDRs have been carried out. process in public issues, ASBA facility has now been extended to all investors other iv. Making Issue Process More Efficient than qualified institutional buyers. This is For issuers, capital market access should expected to further improve the efficiency be easy, cost effective and time efficient. This of the issue process. Additionally, to is all the more necessary when issuers are encourage ASBA, there was a need competing in the markets across the globe. In to have a uniform incentive structure order to make our markets competitive, SEBI and level playing field between the has been constantly reviewing various rules respective intermediaries, i.e. syndicate and procedures to make issue process simpler, members for non-ASBA and self certified at the same time safer and cost effective. Some syndicate banks (SCSBs) for ASBA. of the major initiatives in this area include: Therefore, SEBI directed merchant
9 Annual Report 2009-10
bankers to ensure that both ASBA and the application form as well as captured non-ASBA applications should be treated in depository’s database asking for the at par while paying commission to the correct particulars and if no response concerned intermediaries for the work is received, the unclaimed shares are undertaken by them. credited to a demat suspense account with one of the depository participants, v. Strengthening the Regulatory opened by the issuer for this purpose. Framework Governing Public Offerings In order to have a greater enforceability b) The issuer maintains details of of the regulatory framework relating to issue shareholding of each individual allottee of capital by companies and to streamline the whose shares are credited to such disclosures while also taking into account suspense account. changes in market design, the erstwhile SEBI c) As and when the allottee approaches the Disclosure and Investor Protection Guidelines issuer, the issuer credits the shares lying (DIP Guidelines) governing public offerings in the suspense account to the demat were replaced by the SEBI (Issue of Capital account of the allottee to the extent of and Disclosure Requirements) Regulations, the allottee’s entitlement after proper 2009 (ICDR Regulations). There were certain verification of the identity of the allottee. changes made in the ICDR Regulations d) The voting rights on such shares remain vis-à-vis the provisions contained in DIP frosen till the rightful owner claims the Guidelines, on account of: (a) removal of shares. Further, any corporate benefits redundant provisions of DIP Guidelines, (b) in terms of securities accruing on such modifications on account of change in market shares viz. bonus shares, split etc., are design and (c) bringing more clarity to the also credited to such demat suspense existing provisions of DIP Guidelines. account. vi. Uniform Procedure for Dealing with e) The issuer discloses the details of such Unclaimed Shares unclaimed shares in its Annual Report. It was brought to the notice of SEBI that there is a large quantum of shares issued vii. Listing of Securities Issued through pursuant to the public issues, which remains IPO on at least One Stock Exchange unclaimed i.e. which could not be allotted with Nationwide Trading Terminals to the rightful shareholder despite the best efforts of the registrar to an issue or the In order to provide greater liquidity issuing company and that there is no uniform in securities of companies after the IPO, it practice for dealing with such shares. In view was mandated that an unlisted company of this, SEBI decided to provide a uniform making an IPO shall list the securities being procedure for dealing with unclaimed shares. issued through the IPO on at least one Accordingly, a new Clause 5A has been stock exchange having nationwide trading inserted in the equity listing agreement, as terminals. per which, in respect of shares issued but remain unclaimed in the escrow account, the viii. Prohibition on Issuance of Shares with issuer follows the following procedure: Superior Rights a) The registrar to an issue sends at least In order to curb misuse especially by three reminders at the address given in promoter/promoter group to increase their
10 Part One: Policies and Programmes
control and voting rights in the company iv. Companies whether listed by way of issuing shares with superior or unlisted, whose net voting rights to themselves which could worth exceeds Rs.1,000 have adversely affected the rights of other crore. shareholders, clause 28A was inserted in the Phase April 1, Companies, whether listed equity Listing Agreement to prohibit listed II 2013 or unlisted, whose net worth companies from issuing shares with superior exceeds Rs.500 crore but does rights as to voting or dividend vis-à-vis the not exceed Rs.1,000 crore. rights on equity shares that are already listed. Phase April 1, Listed companies which have III 2014 a net worth of Rs.500 crore or ix. Disclosure of Details of the Allottees in less.
the Qualified Institutional Placements IFRSs would not a. Unlisted companies (QIP) and Shareholding Pattern of be applicable for which have a net worth Issuer Companies of Rs.500 crore or less In order to make information regarding and whose shares or other securities are not details of those allottees in QIP who have listed on stock exchanges been allotted more than five percent of the outside India. securities offered in the QIP as well as on the b. SMEs shareholding pattern of issuers before and after the QIP available to the general public, The roadmap for convergence with SEBI directed stock exchanges to make this IFRS in respect of insurance companies, information available on their websites along banking companies and non-banking finance with the final placement document. companies is as follows: x. Adoption of International Financial Category of Company Applicable Date Reporting Standards (IFRS) 1. Insurance Companies April 1, 2012 After detailed deliberations on the 2. Banking Companies various implementation challenges, especially (i) All scheduled commercial April 1, 2013 those related to legal and accounting banks and those urban framework, transitional issues, and sector co-operative banks (“UCBs”) specific concerns, the following roadmap for which have a net worth in convergence with IFRS has been finalised by excess of Rs.300 crore the Core Group: (ii) UCBs which have a net worth April 1, 2014 in excess of Rs.200 crore but Phase Date Applicable to not exceeding Rs.300 crore Phase I April 1, i. Companies which are (iii) UCBs which have a net worth IFRS not 2011 part of NSE – Nifty 50 not exceeding Rs.200 applicable, may ii. Companies which are part crore and Regional Rural adopt of BSE – Sensex 30 banks (RRBs) voluntarily. 3. Non-Banking Financial iii. Companies whose shares Companies (“NBFCs”) or other securities are listed on stock exchanges (i) All NBFCs which are part of April 1, 2013 outside India NSE-Nifty 50, BSE-Sensex 30,
11 Annual Report 2009-10
and have a net worth in acquire. In order to address these concerns, excess of Rs.1,000 crore SEBI decided that with effect from May 1, (ii) All listed NBFCs and those April 1, 2014 2010, the margin collected shall be uniform unlisted NBFCs which do not across all categories of investors. fall in the above category and which have a net worth in II. Secondary Securities Market excess of Rs.500 crore Secondary market witnessed revival (iii) Unlisted NBFCs which have IFRS not a net worth of Rs.500 crore applicable, may following sharp fall in the previous year in or less adopt the wake of global financial crisis that had voluntarily. plunged global equity markets. Investors regained confidence and the Indian market xi. Introduction of Uniform Margin rallied post announcement of general election Payment for all Categories of Investors results during May 2009. Following were the in Public Issues major policy initiatives taken by SEBI relating Retail individual investors and non- to the secondary market during 2009-10: institutional investors were required to pay i. Trading Hours on Stock Exchanges: entire application money upfront while With a view to align Indian markets applying in public issues while qualified with those of the international markets institutional buyers (QIBs) could apply by to facilitate assimilation of any economic paying only 10 percent of the application information that may flow in from other money as margin on their application. This global markets, SEBI, vide circular dated resulted in a non-level playing field for retail October 23, 2009, decided to permit individual investors and non-institutional the stock exchanges to set their trading investors vis-à-vis the QIBs. It also resulted hours (in the cash and derivatives in an inflated demand in public issues since segments) subject to the condition that the lower margin enjoyed by QIBs led them • The trading hours are between 9 am and to put in larger bids than they intended to 5 pm, and
Box 1.3: Convergence of Indian Accounting Standards with IFRS
The International Financial Reporting Standards Group is supported by two sub-groups. The first (“IFRS”) issued by the International Accounting sub-group headed by Shri Y.H. Malegam, Chairman, Standards Board (“IASB”) are increasingly being National Advisory Committee on Accounting recognised as the global financial reporting standards. Standards is identifying changes required in various Convergence with IFRS has gained worldwide laws, regulations and Indian Accounting Standards momentum in recent years. India being an important for convergence with IFRS and has prepared a emerging global economy, the Ministry of Corporate clear roadmap for achieving the same. The second Affairs (“MCA”) has committed to convergence of sub-group of CFOs under the chairmanship of Shri Indian Accounting Standards with IFRS from April Mohandas Pai, Director, Infosys and Member, SEBI 1, 2011. Board, is interacting with various stakeholders in order to understand their concerns on the issue of The MCA, which is spearheading the plan of convergence with IFRSs, identifying problem areas convergence in India, has set up a High Powered Core and ascertaining the preparedness of the stakeholders Group comprising various stakeholders, including for such convergence. SEBI, for convergence with IFRS by 2011. The Core
12 Part One: Policies and Programmes
• The exchange has in place risk which are traded in the compulsory management system and infrastructure dematerialised mode was done away with commensurate to the trading hours. and accordingly, short deliveries, if any, of the NSE and BSE have fixed their trading shares traded on cum-basis shall be directly hours in the equity and equity derivatives closed out. In case of such direct close-out, the segment from 9:00 am-3:30 pm as compared mark-up price would be 10 percent. to the earlier 9:55 am-3:30 pm. iv. Comprehensive Risk Management ii. PAN Requirement for Transfer of Framework for the Cash Market Shares in Physical Form It was observed that in some instances For securities market transactions and such as buy transactions, the margins levied off-market/private transactions involving exceeded the amount needed to cover the transfer of shares in physical form of listed maximum possible risk, thereby leading companies, it was made mandatory for the to a scenario where the buyer ended up transferee(s) to furnish copy of PAN card to paying more margins than his actual pay-in the company/registrar to an issue and share obligation. Therefore, it was clarified that in transfer agent (RTA) for registration of such case of a buy transaction in cash market, VaR transfer of shares. margins, Extreme loss margins and mark to market losses together shall not exceed In case of transmission/transposition of the purchase value of the transaction. In physical shares it was made mandatory for sale transactions, the existing practice will the transferees(s) to furnish a copy of PAN continue. card in the following cases: • Deletion of name of the deceased v. Disclosure of Investor Complaints and shareholder(s), where the shares are Arbitration Details on Stock Exchange held in the name of two or more Website shareholders. Based on the feedback received from • Transmission of shares to the legal investors and their associations to bring in heir(s), where deceased shareholder was more transparency in the grievance redressal the sole holder of shares. available in the stock exchanges, it was • Transposition of shares – when there is decided that stock exchanges shall henceforth a change in the order of names in which disclose the details of complaints lodged by physical shares are held jointly in the clients/investors against trading members and names of two or more shareholders. companies listed in the exchange, on their Transferees shall include all surviving website. The aforesaid disclosure shall also holders, legal heir(s) and all existing include details pertaining to arbitration and shareholders respectively in the above penal action against the trading members. instances. vi. Disclosure of Investor Complaints and iii. Abolition of No-delivery Period for all Arbitration Details on Depositories Types of Corporate Actions Based on the feedback received from ‘No-delivery period’ for all types of investors and investor associations to corporate actions in respect of the securities improve transparency in the ‘grievance
13 Annual Report 2009-10
redressal mechanism’, it was decided that to approach the broker through the APs. As the depositories shall henceforth disclose the an agent of the stock broker, AP may provide details of complaints lodged by beneficiary administrative assistance in procurement owners (BO’s)/investors against depository of documents and settlement. No funds or participants (DPs) on their website. The securities of clients shall go to the account of aforesaid disclosure shall also include details the AP. The clients shall be registered with pertaining to arbitration and penal action stock broker and the funds and securities of against the DPs. the clients shall be settled directly between the stock broker and clients. All documents vii. Securities Lending and Borrowing like contract notes, statement of funds and (SLB) Framework securities would be issued to the clients by stock broker directly. Thus, while the Based on the feedback received from the investors would be able to invest or trade in market participants, the tenure of contracts the stock markets through the APs, the stock in Securities Lending and Borrowing was brokers themselves would continue to be increased upto a maximum period of 12 responsible for the funds and securities of the months from a contract period of 30 days. investors and thus protecting their interests. Further, the Approved Intermediary (Clearing Corporation/Clearing House) has been ix. Transparency in Dealing between provided with the flexibility to decide the a Client and Stock Broker and tenure. Also the provision of early recall/ Strengthening of Know Your Client repayment of shares for the lender/borrower (KYC) Norms has been introduced. SEBI received representation from viii. Market Access through Authorised several Investors’ Associations regarding the Persons problems faced by the investors because of the complex registration documents that are With a view to enable the investors to signed by the investors for trading in the access the stock markets, SEBI, vide circular securities market. There were also sometimes dated November 6, 2009, introduced the complaints from investors against the stock concept of Authorised Persons (AP). AP brokers alleging misuse of their funds and appointed by a stock broker can access the securities, non receipt of electronic contract trading platform of a stock exchange as an notes (ECNs), unauthorised trading in their agent of a stock broker. A stock broker may accounts, etc. It was observed that a majority appoint one or more APs after obtaining prior of the complaints were arising mainly due approval of the stock exchange concerned for to certain authorisations taken by the stock each such person. The approval as well as the brokers from the clients, e.g., running account appointment shall be for specific segment of authorisation and authorisation to the stock the exchange. brokers to create email ID on behalf of the clients. The presence of AP in small towns/ remote areas will provide greater accessibility Therefore, with a view to instill greater to the investors to trade in stock markets. transparency and discipline in the dealings The investors from these areas will be able between the clients and the stock brokers,
14 Part One: Policies and Programmes
SEBI, vide circular dated 3rd December, 2009, e) The client shall indicate in the KYC form, issued the following guidelines: the stock exchange as well as the market segment where it intends to trade so a) Unless specifically agreed to by a client, as to avoid complaints of unauthorised the settlement of funds/securities shall trading by the brokers in its account. be done within 24 hours of the pay out. However, a client may specifically x. In-person Verification of Clients authorise the stock broker to maintain a running account. In such cases the SEBI in the year 2008 had mandated the authorisation shall be renewed at least “in-person verification” of the clients. It was once a year and shall be dated. The advised that “in person verification” shall be client may revoke such authorisation carried out by the staff of the stock brokers at any time. The stock broker shall in case of trading account and by the staff compulsorily settle the running account of the depository participant (DP) in case of on monthly/quarterly basis as desired by beneficial owner (BO) account. the clients and send them a statement of SEBI received suggestions from the account to that effect. market participants regarding repeated b) The stock broker shall not create email verification of the same clients by both DP IDs for the clients desirous of receiving and stock broker which in most cases are ECNs. The client desirous of receiving either the same entity or holding/subsidiary ECNs shall create/provide his own email company of the other. ID to the stock broker. Accordingly, SEBI, vide circular dated c) The stock broker shall disclose its policy January 18, 2010, clarified that the “in person and procedure with regard to applicable verification” done for opening BO account brokerage rate, refusal of order for by a DP will hold good for opening trading penny stocks, setting up client’s exposure account by a stock broker and vice versa, if limits, deregistering a client, imposition the stock broker and DP is the same entity of penalty/delayed payment charges, to or if one of them is the holding or subsidiary avoid complaints from the investors, etc. company of the other. The guidelines would d) The stock broker shall clearly distinguish enable the intermediaries to avoid duplication between mandatory and non-mandatory of efforts without compromising the exercise clauses in the registration documents. of due diligence on their part. Any authorisation sought in non- xi. Enhanced Supervision of Members mandatory part by the stock broker shall be a separate document and shall As part of its continuous pursuit for have specific consent of the client. The improving the functioning of the stock clauses in non-mandatory part shall brokers and maintaining the integrity of the not be in contravention of any of the market, SEBI issued a master circular dated clauses in the mandatory documents. March 17, 2010 updating the earlier circulars All the documents in both mandatory concerning the oversight of members. This and non-mandatory part shall be printed circular mandates the stock exchanges/ in a minimum font size of 11 for easy clearing corporations to inspect all active readability for the investors. members in various segments every year.
15 Annual Report 2009-10
The circular also updates and brings out engaged with the various activities of RTA. the common irregularities observed by SEBI This will ensure that only certified persons during its inspection of stock brokers and are employed by the registrar to an issue or accordingly, the stock exchanges/clearing share transfer agent and thus, they will be corporations have been advised to ensure better equipped to carry out the operations that their members avoid these violations/ effectively. deficiencies. b) Certification of Approved Users Further, the stock brokers are required and Sales Personnel of the Trading to carry out internal audit by practicing chartered accountants/cost accountants/ Members of the Currency Derivatives company secretaries on a half yearly basis. Segment: According to the circular mandating the half- SEBI vide notification dated May 13, yearly internal audit, the internal auditor shall 2009 mandated the requirement of Series-I: submit the audit report to the member, who CD Certification for all the approved users shall place it before its Board of Directors/ and sales personnel of the trading members Proprietor/Partners and shall forward the of the currency derivatives segment. This same along with para-wise comments will ensure that only certified persons are to the respective stock exchange/clearing employed by the trading members and thus, corporation within three months from the end they will be better equipped to carry out the of the half year period. The stock exchanges dealing and sales operations skillfully and are required to intimate SEBI the details of effectively. action taken by them, within six months from the end of the half year period c) Certification of Approved Users With a view to update with the latest and Sales Personnel of the Trading developments and improve the quality of Members in Interest Rate Futures: audit further, National Institute of Securities SEBI has been taking steps to enhance Markets (NISM), with the support from SEBI, the competency level of the employees of the stock exchanges and depositories, organised stock brokers, which would enable them to workshops for training the internal auditors. discharge their responsibilities effectively in These workshops received a good response the interest of investors. In this regard, SEBI from the broking as well as the auditors’ assigned the job of creating a certification community. module for the approved users and sales personnel of the trading members in interest xii. Enhancing the Competency Level of the rate futures to NISM. Employees of the Intermediaries xiii. Credit Rating Agencies a) Certification of Person Engaged or Employed by RTA: SEBI has taken various measures to strengthen the functioning of credit rating SEBI vide notification dated September agencies (CRAs). 4, 2009 mandated the requirement of obtaining the certification specified by a) Vide circular dated 6th January, 2010, NISM by the employees engaged or to be SEBI has mandated a half yearly internal
16 Part One: Policies and Programmes
audit for credit rating agencies to be lot sizes with many of the lot sizes conducted by Chartered Accountants, expressed as odd numbers. This Company Secretaries or Cost and created confusion among the market Management Accountants who are participants. in practice and who do not have any Accordingly, vide circular dated January conflict of interest with the CRA. The 8, 2010, the lot size of the derivative audit shall cover all aspects of CRA contracts on individual securities has operations and procedures, including been standardised so that only eight investor grievance redressal mechanism, fixed lot sizes continue to exist in the compliance with the requirements market. stipulated in the SEBI Act and Regulations made thereunder and c) Expiry Date for Equity Derivative guidelines issued by SEBI from time to Contracts: With a view to permit time. market participants to have varying hedging tenures, SEBI vide circular b) SEBI (Credit Rating Agencies), dated November 13, 2009 allowed Regulations, 1999 have been amended so stock exchanges the flexibility to set that any change in status or constitution any day of the month as expiry date in CRAs resulting in their change of for equity derivative contracts. The control, change in managing director/ equity derivative contracts trading on whole time director etc. would require NSE would continue to expire on last prior approval of SEBI. Thursday of the month, while BSE has chosen to let its equity derivative xiv. Policy Initiatives for Derivatives contracts expire on the Thursday falling a) Exchange Traded Currency Derivatives: two weeks prior to the last Thursday of Exchange-Traded Currency Futures on the expiry month. USD-INR pair started trading on NSE, BSE and MCX-SX on August 29, 2008, d) Revised Eligibility Criteria for October 1, 2008 and October 7, 2008 Inclusion of Stocks in the Equity respectively. Derivatives Segment: SEBI on April 20, 2009 revised the eligibility criteria In consultation with RBI, vide circular for inclusion and exclusion of stocks dated January 19, 2010, eligible stock in the equity derivatives segment. As exchanges have been permitted to per the new criteria, the stock’s median introduce currency futures on three quarter-sigma order size, over the last established currency pairs: Euro-INR, six months, shall not be less than Rs. Pound Sterling-INR and Japanese Yen- five lakh instead of Rs. one lakh and INR. Trading of futures on these new the market wide position limit in the currency pairs started at NSE and MCX- stock shall not be less than Rs.100 crore SX on February 01, 2010. instead of Rs.50 crore. Further, in terms b) Standardised lot Size for Derivative of the revised criteria for exclusion of Contracts: It was observed that periodic stocks in the equity derivatives segment, alignment of contract size of equity the stock’s median quarter-sigma order derivatives resulted in numerous size, over the last six months, shall be
17 Annual Report 2009-10
less than Rs. two lakh instead of Rs. one allow the stock exchanges to introduce lakh and the market wide position limit options with tenure of upto five years. shall be less than Rs.60 crore instead g) Physical Settlement on Derivatives: of Rs.45 crore. Based on the revised SEBI decided, in principle, to allow the eligibility criteria, upto March 31, 2010, stock exchanges to introduce physical 53 stocks were excluded and 11 stocks settlement of equity derivatives. were included in the equity derivatives segment of NSE, while 17 stocks were h) Exchange Traded Interest Rate Futures: excluded and 15 stocks were included in Pursuant to the issue of SEBI circular the equity derivatives segment of BSE. dated August 28, 2009 regarding introduction of exchange traded 10-Year e) Derivatives on Volatility Index: SEBI Notional coupon bearing GoI security decided, in principle, to allow the stock futures with physical settlement, trading exchanges to introduce derivatives on in the 10-Year Notional coupon bearing Volatility Indexes which have a suitable GoI security futures started on NSE on track record. August 31, 2009. Further, based on feedback received f) Options Contracts with Longer Life/ from exchanges, SEBI permitted exchanges Tenure: SEBI decided, in principle, to to set any period of time during the delivery
Box 1.4: 10-Year Notional Coupon-bearing Government of India (GoI) Security Futures
The RBI-SEBI Standing Technical Committee quarterly contracts for entire year, expiring in submitted its Report on Interest Rate Futures on March, June, September and December. June 17, 2009 detailing the product design, margins, 5. The ‘delivery month’ is the last month of the position limits and risk management measures for 10- expiring contract, i.e., March, June, September Year Notional Coupon-bearing Government of India and December and last delivery day is the (GoI) Security Futures. Trading in the 10-Year Notional last business day of the delivery month. The coupon bearing GoI security futures started on NSE Exchanges have also been allowed to set any on August 31, 2009. The salient features of the product period of time during the delivery month as are as below: the delivery period for the deliverable grade Product Features: securities. 1. Underlying is the 10-year notional coupon-bearing 6. Exchanges to select their own basket of securities GoI security with notional coupon of seven from the eligible ‘deliverable grade securities’. The percent. deliverable grade securities are the GoI securities 2. The trading hours are from 9 am to 5 pm on all maturing at least 7.5 years but not more than 15 working days from Monday to Friday and the years from the first day of the delivery month, contract size is Rs. two lakh. with a minimum total outstanding stock of 3. The quotation is similar to the quoted price of Rs.10,000 crore. the GoI security. The day count convention for interest payments is on the basis of a 360-day 7. The ‘conversion factor’ for deliverable grade year, consisting of 12 months of 30 days each and security is equal to the price of the deliverable half yearly coupon payment. security (per rupee of the principal), on the first day (calendar day) of the delivery month, to yield 4. The maximum maturity of the contract is for 12 seven percent with semiannual compounding. months. The ‘Contract Cycle’ consists of four fixed
18 Part One: Policies and Programmes
Box 1.4: 10-Year Notional Coupon-bearing Government of India (GoI) Security Futures (contd.)
8. ‘Invoice price’ of the respective deliverable grade 3. Calendar Spread Margin: Calendar spread margin security is the futures settlement price times a is Rs.2,000 per month of spread. conversion factor plus accrued interest. Position Limits: 9. Last trading day is the seventh business day prior 1. Client Level: The gross open positions of the client to the last business day of the delivery month. across all contracts shall not exceed six percent of 10. The daily settlement price (DSP) is the closing the total open interest or Rs.300 crore whichever price of the 10-year Notional Coupon-bearing is higher. The exchange will disseminate alerts GoI security futures contract on the trading day. whenever the gross open position of the client (Closing price = Weighted Average price of the exceeds three percent of the total open interest at futures for last half an hour). In the absence of last the end of the previous day’s trade. half an hour trading, the theoretical price would 2. Trading Member level: The gross open positions be considered as the DSP. of the trading member across all contracts shall not exceed 15 percent of the total open interest or Margin System: Rs.1,000 crore whichever is higher. 1. Initial Margin: Initial Margin is subject to a 3. Clearing Member level: No separate position limit minimum of 2.3 percent of the value of the futures is prescribed at the level of clearing member. contract on the first day of trading in 10-Year notional coupon-bearing GoI Security Futures 4. FIIs: The total gross long (bought) position in cash and 1.6 percent of the value of the futures contract and Interest Rate Futures markets taken together thereafter. shall not exceed their individual permissible limit for investment in government securities 2. Extreme Loss Margin: Extreme loss margin of and the total gross short (sold) position, for the 0.3 percent of value of gross open positions of purpose of hedging only, should not exceed their the futures contracts to be deducted from liquid long position in the government securities and in assets of the clearing member. Interest Rate Futures, at any point in time. month as the delivery period for the 2. Shri Kishore Chaukar, Managing deliverable grade securities. Director, Tata Industries 3. Mr. Uday Kotak, Managing Director, xv. Committee for Review of Ownership Kotak Mahindra Bank and Governance of Market Infrastructure Institutions (MIIs) 4. Prof. G. Sethu, National Institute of Securities Market A Committee, under the Chairmanship of Dr. Bimal Jalan (former Governor of 5. Dr. K. M. Abraham, Whole Time Reserve Bank of India), has been constituted Member, SEBI to look into the ownership and governance 6. Shri J.N. Gupta, Executive Director, SEBI norms for stock exchanges, clearing (Member Secretary). corporations and depositories (collectively The terms of reference of the committee termed as MIIs). The other members of the are to review and make recommendations on Committee are: the following issues: 1. Dr. K P Krishnan, Joint Secretary, a) Ownership structure of stock exchanges Ministry of Finance, Govt. of India and clearing corporations,
19 Annual Report 2009-10
b) Board composition of stock exchanges stock exchanges that have no trading for a and clearing corporations, period of six months or more shall resume c) Listing and governance of stock trading only after ensuring that adequate exchanges and clearing corporations, and effective trading systems, clearing and settlement systems, monitoring and d) Balance between regulatory and business surveillance mechanisms, risk management functions of stock exchanges and systems are in place and have also complied clearing corporations, in the context of with all other regulatory requirements their ‘for profit’ status stipulated by SEBI from time to time. Further, e) Relationship between stock exchanges the stock exchanges shall resume trading only and clearing corporations, after obtaining prior approval from SEBI. f) Relationship between stock exchanges and technology providers, and xvii. Limitation Period for Filing of g) Competition policy for stock exchanges Arbitration Reference and clearing corporations. a) In terms of the bye-laws of the Stock The Committee may also make Exchange the limitation period for recommendations on other relevant issues referring complaint/claim//difference/ inter-alia as it finds necessary. dispute is six months. The Committee held its first meeting b) Based on the feedback received on March 15, 2010. During the meeting, from the market participants and the Committee inter alia decided to form recommendation of Secondary Market a sub-committee to have a consultative Advisory Committee (SMAC), SEBI process (through questionnaire) with MIIs, vide its circular dated December 2, market participants and users on the issue 2009 mandated that the limitation of ownership and governance of MIIs and period of six months shall be computed include depositories under the scope of from the end of the quarter during the committee since they form part of the which the disputed transaction(s) were Financial Market Infrastructure institutions. executed. In addition to the above, while xvi. Prior Approval for Re-commencement computing the said limitation period of Trading on the Stock Exchanges the time taken in settlement of claims, With the completion of corporatisation complaints, differences, disputes through and demutualisation of stock exchanges, some the Investors Grievances Redressal of the stock exchanges on which there was Committee mechanism of the Exchange no trading over the past several years, have will be excluded. Further a period of generated renewed trading interest and are one month from the date of receipt of in the process of resuming trading for their complaint by the broker or the actual revival. It was felt that the regulatory changes time taken by the broker to resolve the introduced by SEBI in the interim may not complaint whichever ends earlier, will have been complied by the exchanges. also be excluded.
In light of the above, SEBI vide circular c) Further, it was noted that in certain dated October 7, 2009 has stipulated that the cases the arbitration application were
20 Part One: Policies and Programmes
rejected on the ground of exceeding the SEBI (Issue and Listing of Debt Securities) limitation period without going into the Regulations, 2008. reasons thereof, which were not in the interest of the investors. In view of the iii. Clearing and Settlement of Corporate above, it was decided that: Bonds Settlement of bond trades was earlier • The stock exchange can extend the being done only on bilateral basis between limitation period by a further period of the counterparties. With a view to remove three months. However, this is subject counterparty risks from the settlement to stock exchange obtaining sufficient process, SEBI has evolved a clearing and documentary proof in this regard and settlement mechanism for corporate bond recording the reasons for the same in trades through the clearing corporations writing. which are subsidiaries of NSE and BSE. To facilitate clearing and settlement through the III. Corporate Debt Market two clearing corporations, real time gross i. Simplified Listing Agreement for Debt settlement system (RTGS) connectivity was Securities given to the two clearing corporations, viz. National Securities Clearing Corporation Ltd. In May 2009, SEBI issued a simplified (NSCCL) and Indian Clearing Corporation listing agreement for debt securities. The Ltd. (ICCL) by RBI in June and October 2009 Agreement has two parts – Part A for issuers respectively. with listed equity and Part B for issuers who have no listed equity. For issuers with listed In October 2009, SEBI made it equity, minimal incremental disclosures mandatory for all trades in corporate bonds specific to the debt issue prescribed in Part-A between mutual funds, FIIs/sub-accounts, of the agreement need to be complied with. venture capital funds, foreign venture For issuers whose equity is not listed and capital investors, portfolio mangers, and RBI who seek listing of their debt securities, regulated entities as specified by RBI to be detailed disclosure norms are prescribed in cleared and settled through NSCCL or ICCL, Part-B of the Agreement. effective from December 1, 2009. RBI issued a similar circular to all its regulated entities. ii. Applicability of Debt Securities Insurance Regulatory and Development Regulations Authority (IRDA) also issued similar circular In June 2009, SEBI clarified that the issue to IRDA regulated entities. Now, clearing and of debt securities, convertible, either partially settlement takes place on DvP-1 basis usually or fully or optionally into listed or unlisted on T+1 day and in case of failure by one party equity, are guided by the disclosure norms to pay, the funds/securities are returned to the in terms of the SEBI (Issue of Capital and counterparty. Disclosure Requirements) Regulations 2009. It was also clarified that the issue and listing IV. Mutual Funds of non-convertible debt securities, whether Mutual funds after witnessing issued to the public or privately placed shall redemption pressures during later half of be in accordance with the provisions of the 2008-09 post global credit crisis witnessed
21 Annual Report 2009-10
renewal of investors’ interest in terms of market conditions. During 2009-10, the mobilisation of resources through new fund discretionary mark ups/downs were returned offerings as well as existing schemes. SEBI has to their levels specified in 2000/2002. Further, taken the following initiatives to improve the it was decided that, the Chief Executive functioning of mutual funds: Officer (whatever his designation may be) of the Asset Management Company shall give i. Guidelines for Investment by Mutual prior approval to the use of discretionary Funds in IDRs mark up or down limit. It was clarified that mutual funds can invest in IDRs [Indian Depository Receipts b) Valuation of Debt and Money Market as defined in the Companies (Issue of Instruments Indian Depository Receipts) Rules, 2004] To ensure that the value of money subject to compliance with the SEBI (Mutual market and debt securities in the portfolio Funds) Regulations, 1996 and guidelines of mutual fund schemes reflects the current issued thereunder, specifically investment market scenario, the provisions regarding restrictions as specified in the Seventh valuation of certain securities were modified, Schedule of the Regulations. as under: ii. Money Market Instruments Brought • Valuation of money market and debt under the Investment Limits securities with residual maturity of upto The Mutual Funds (Second Amendment) 91 days: Regulations, 2009 prescribed that no mutual All money market and debt securities, fund schemes can invest more than 30 percent including floating rate securities, with of their assets in money market instruments residual maturity of upto 91 days shall of an issuer. However, such limit shall not be be valued at the weighted average applicable for investments in Government price at which they are traded on the securities, treasury bills and collateralised particular valuation day. When such borrowing and lending obligations. securities are not traded on a particular valuation day, they shall be valued on iii. Valuation amortisation basis. The floating rate securities with floor and caps on coupon a) Valuation of Debt Securities by Mutual rate and residual maturity of upto 91 Funds days shall be valued on amortisation Debt securities are valued by Mutual basis taking the coupon rate as floor. Funds in terms of spread indicated by specified rating agencies. Mutual Funds have • Valuation of money market and debt been given discretionary mark up or down securities with residual maturity of over detailed in guidelines issued in the years 2000 91 days: and 2002. These varied from -25 bps to +100 All money market and debt securities, bps (basis points). These discretionary mark including floating rate securities, with ups were increased considerably in 2008 to residual maturity of over 91 days accommodate for the great variation in the shall be valued at weighted average values of securities on account of volatile price at which they are traded on the
22 Part One: Policies and Programmes
particular valuation day. When such the upfront commission to distributors securities are not traded on a particular will be paid by the investor directly to valuation day, they shall be valued at the distributor, based on his assessment benchmark yield/matrix of spread over of various factors including the service risk free benchmark yield obtained rendered by the distributor. from agency(ies) entrusted for the said c) Of the exit load or contingent deferred purpose by Association of Mutual Funds sales charge (CDSC) charged to the in India. investor, a maximum of one percent of the redemption proceeds shall be iv. Mutual Funds - Empowering Investors maintained in a separate account through Transparency in Payment of which can be used by the AMC to pay Commission and Load Structure commissions to the distributor and to In order to empower the investors in take care of other marketing and selling deciding the commission paid to distributors expenses. Any balance shall be credited in accordance with the level of service to the scheme immediately. received, to bring about more transparency in payment of commissions and to incentivise d) The distributors shall disclose all long term investment, it was decided that: the commissions (in the form of trail commission or any other mode) payable a) There shall be no entry load for all to them for the different competing mutual fund schemes. schemes of various mutual funds from b) The scheme application forms shall carry amongst which the scheme is being a suitable disclosure to the effect that recommended to the investor.
Box 1.5: No Entry Load for Mutual Fund Investments
Mutual funds are an avenue for investors who would generally passed on to distributors by AMC. Investor, like to diversify their risks and avail of the services of in effect, did not have any say in the commission that professional fund managers. Retail investments are was paid to the distributor from entry load. pooled into a MF scheme with defined investment This gave rise to a situation of potential conflict objective and deployed into securities investments. For of interest. The distributor being likely to choose investment services provided by asset management schemes which would give him better sales incentives companies (AMC), two types of expenses were rather than schemes which would be best suited to charged to investors, upfront expenses popularly the customer. As repeated investments by investor called ‘sales load’ (or entry load) and annual scheme would entitle distributor to more commissions, he expenses. Besides, a few schemes also charge an exit was likely to encourage investors to sell existing load. mutual fund investments and buy new mutual fund Many mutual fund investors avail the services of a units. This churning was neither to the advantage of distributor who also acts as financial adviser. The investor nor to the mutual fund industry. The Report adviser is expected to assist investors in choosing on ‘Reform of Mutual Funds in India’ (2004) by schemes that suit their respective risk return appetite Cadogan Financial, UK has highlighted that power besides assisting him in making an application. of distributors transforms the basis of competition Till 2009, the schemes charged an entry load as a as majority of consumers(investors) rely heavily on percentage of amount invested. This entry load was their advisers and as a consequence, the real customer deducted from the total amount invested and was for the product provider – the asset management
23 Annual Report 2009-10
Box 1.5: No Entry Load for Mutual Fund Investments (contd.) company - tends to be the adviser, rather than the quality and caused mis-selling of products. This consumer(investor). reform measure in Australia envisages advisers having their own "product neutral" charges. As distribution agents play twin roles, that of an advisor to investor and point of sale for the AMC In India, no entry load on investments made directly products, the potential conflict of interest between a by the investors (not routed through any distributor), distributor providing financial advice to the investors was mandated on December 31, 2008. Subsequently, and his role as an agent of the AMCs has seized in cases of all mutual fund investments, it was felt the attention of various jurisdictions besides India. that to empower the investor in deciding commissions In UK, according to ‘Retail Distribution Review’ paid to the distributors and also ensure transparency (2008), a report by Financial Services Authority (FSA) in commissions being paid, the amount of payment asserts that there needs to be a distinction between should be decided by investor depending on level of ‘advice’ and ‘sales’. Accordingly, advisers need to be service received, not by AMC (as was in form of entry independent in their remuneration that is determined load). Hence, it has been decided that from August 1, without product provider influence. FSA has set out 2009 there shall be no entry load for all MF schemes. reduction of commissions paid by product provider in Upfront commission to distributors is to be paid by stages with year 2013 as final time line for complete the investor to the distributor directly depending on detachment of advisor remuneration from product quality of service rendered. It is expected that this providers’ remuneration. In Australia, Future of would segregate the streams of payment for the two Financial Advice reforms have been undertaken to roles of distributor, a point of sale for the AMC and an tackle conflicts of interest that had threatened advice adviser to the investor.
v. Exit Load - Parity among All Classes of Information System Auditor (CISA)/Certified Unit Holders Information Security Manager (CISM) It was observed that the mutual funds qualified or equivalent auditor. The systems were making distinction among the unit audit shall be comprehensive encompassing holders by charging differential exit loads audit of systems and processes. based on the amount of subscription. In Accordingly, the AMCs were advised order to have parity among all classes of unit to conduct systems audit of mutual funds holders, it was decided that no distinction once in two years and to place the systems among unit holders shall be made based on audit report and compliance status before the amount of subscription while charging the Trustees of the mutual fund. The systems exit loads. Further, it was decided that the audit report/findings alongwith trustee parity among all classes of unit holders in comments shall be communicated to SEBI. terms of charging exit load shall be made applicable at the portfolio level. vii. Facilitating Transactions in Mutual Fund Schemes through the Stock vi. Systems Audit of Mutual Funds Exchange Infrastructure Considering the importance of systems The need for enhancing the reach of audit in the technology driven asset mutual fund schemes to more towns and cities management activity, it was decided that was widely felt. To address this issue, units of mutual funds shall have a systems audit mutual fund schemes were permitted to be conducted by an independent Certified transacted through registered stock brokers of
24 Part One: Policies and Programmes
recognised stock exchanges. The convenience his distributor and/or go direct, without of stock exchange mechanism would also be compelling that investor to obtain an NoC available now to mutual fund investors. from the existing distributor. viii. Transactions through Some Mutual x. Standard Warning in Advertisements Fund Distributors and Compliance by Mutual Funds with the SEBI Circular on Anti Money In order to improve the manner in which Laundering (AML) the standard warning message is conveyed to As all documentation related to the the investors, it was decided that: investor, including Know Your Client, Power a) The standard warning in audio-visual of Attorney (PoA) in respect of transactions/ advertisement shall be displayed as requests made through some mutual fund “Mutual Fund investments are subject distributors was not available with the AMC/ to market risks, read all scheme related RTA of the AMC, it was reiterated that the documents carefully”. requirements as mentioned in the master b) No addition or deletion of words shall be circular ISD/AML/CIR-1/2008 dated December made in the standard warning. 19, 2008 issued by SEBI is applicable to the mutual funds/AMCs and hence maintaining It was emphasised that both the visual all the documentation pertaining to the and the voice over of the standard warning unitholders/investor is the responsibility of the will be run for at least five seconds. AMC. Pending completion of documentation, Mutual Funds are required to exercise great xi. Additional Mode of Payment through care and be satisfied of investor bonafides Applications Supported by Blocked before authorising any transaction, including Amount (ASBA) in Mutual Funds and redemption, on such accounts/folios. The Reduction in New Fund offer (NFO) trustees were instructed to confirm to SEBI of Period the steps taken to address the above. a) In its continuous endeavor to make the public issue process efficient, SEBI ix. Association of Mutual Funds in India has introduced ASBA facility to NFOs (AMFI) Guidelines for Change of of mutual funds which investors have Mutual Fund Distributor been enjoying for subscription to public Unwarranted hardship was caused issue of equity capital of companies. It to investors in mutual fund schemes who shall co-exist with the current process, wished to switch from an existing mutual wherein cheques/demand drafts are fund distributor to either another mutual used as a mode of payment. The banks fund distributor or opt to deal direct, which are in SEBI’s list shall extend the since some AMCs insisted on the investor same facility in case of NFOs of mutual procuring a ‘No Objection Certificate’ (NOC) fund schemes to all eligible investors in from the existing distributor for this switch mutual fund units. Mutual funds shall over. Therefore, the AMCs were advised to ensure that adequate arrangements are ensure compliance with the instruction of made by RTA for the implementation of the investor informing his desire to change ASBA.
25 Annual Report 2009-10
b) It was decided that the present limit xiii. Role of Mutual Funds in Corporate of maximum NFO period of 30 days Governance of Public Listed in case of open ended schemes and 45 Companies days of close ended scheme be reduced With a view to improving corporate to 15 days (except ELSS schemes). governance, it was decided that AMCs shall Mutual funds/AMCs shall use the NFO disclose their general policies and procedures proceeds only on or after the closure for exercising the voting rights in respect of of the NFO period. The mutual fund shares held by them on the website of the shall allot units/refund of money and respective AMC as well as in the annual dispatch statements of accounts within report distributed to the unit holders. five business days from the closure of the NFO and all the schemes (except Further, henceforth the AMCs are also ELSS) shall be available for ongoing required to disclose on the website of the repurchase/sale/trading within five respective AMC as well as in the annual business days of allotment. report distributed to the unit holders, the actual exercise of their proxy votes in the AGMs/EGMs of the investee companies. xii. Non-availability of Unit Premium Reserve for Dividend Distribution xiv. Fund of Funds Scheme Since, it was observed that some mutual AMCs were entering into revenue funds were using unit premium reserve for sharing arrangements with offshore funds distribution of dividend, SEBI clarified that: in respect of investments made on behalf of a) When units of an open-ended scheme are Fund of Funds schemes which created conflict sold, and sale price is higher than face of interest. value of the unit, part of sale proceeds It was decided that henceforth AMCs that represents unrealised gains shall shall not enter into any revenue sharing be credited to a separate account (unit arrangement with the underlying funds in premium reserve) and shall be treated at any manner and shall not receive any revenue par with unit capital and the same shall by whatever means/head from the underlying not be utilised for the determination of fund. Any commission or brokerage received distributable surplus. from the underlying fund shall be credited b) When units of an open-ended scheme into concerned scheme’s account. are sold, and sale price is less than face value of the unit, the difference V. Portfolio Managers between the sale price and face value shall be debited to distributable reserves i. Non-Pooling of Securities in Clients’ and the dividend can be declared only Accounts when distributable reserves become In August 2008, the SEBI (Portfolio positive after adjusting the amount Managers) Regulations, 1993 were amended debited to reserves as per para 2(a) (ix) to ensure that each client’s listed securities of Eleventh Schedule of SEBI (Mutual and funds are kept separately. To ensure Funds) Regulations. compliance with this requirement, portfolio
26 Part One: Policies and Programmes
managers were advised that clients’ securities client-wise accounts with the bank accounts held in a pool account as on May 11, 2009 on daily basis. shall be frozen with respect to any further transactions. While fresh purchases on behalf VI. Foreign Institutional Investors (FIIs) of such clients were not permitted, selling and i. Allocation of Debt Investment Limits transfer of securities from such accounts was allowed. SEBI has been following various allocation methodologies over a period of Subsequently, the portfolio managers time for allotment of debt investment limits were advised that they may discontinue the to FIIs and Sub-accounts. For some time, services to clients who were not co-operating allocation was done on a quota basis. At for opening separate client accounts, after present, debt limit allocation is done on a serving at least three notices, and return the periodical basis as and when sufficient limits securities/funds to the client and maintain are available for allotment. records of the same. Based on the allocations and the utilisation of the allocated debt limits by the ii. Handling of Funds of Portfolio entities, a status of utilisation is drawn. If Management Clients sufficient limits are available for allocation, The SEBI (Portfolio Managers) the same are again put up for allocation Regulations, 1993 mandate the segregation through prevalent allocation procedures. of clients’ funds and portfolio of securities. The allocation of the limits and its utilisation In June 2009, it was clarified that portfolio status is drawn from respective custodians of managers may keep the funds of all clients the entities. in a separate bank account maintained by A combination of two methods viz. open the portfolio manager subject to conditions bidding and first come first served (FCFS) is such as: (a) clear segregation of each client’s used for allocation of debt limits. However fund through back office records, (b) non use during 2009-10 in corporate debt category all of funds of one client for another client, (c) the allocation was through FCFS only. maintaining accounts with separate client- wise data for their funds and providing Details of debt limits allocated to FIIs statement to clients for such accounts at least and sub-account though these two processes on monthly basis; and (d) reconciliation of in this financial year are:
Date of Allocation Debt Type of Allocation Maximum Limit Minimum Limit process Category Process (Rs.cr.) (Rs.cr.) May 15, 2009 Government debt Bidding 1000 250 May 19, 2009 Government debt FCFS 249 0 September 08, 2009 Government Debt Bidding 800 250 September 09, 2009 Government Debt FCFS 249 0 December 17, 2009 Government Debt Bidding 300 50 December 17, 2009 Government Debt FCFS 50 0
27 Annual Report 2009-10
During the year, an amount of amendments, as deemed fit. The Committee Rs.1,01,76,900 was received as bidding fees, is called the “Takeover Regulations Advisory which has been remitted to the Consolidated Committee (TRAC)” and comprises the Fund of India. following members: 1. Mr. C. Achuthan, former Presiding VII. Takeovers Officer of the Securities Appellate i. Interpretative Circular to Clarify Tribunal – Chairman of TRAC the Applicability of Provisions of 2. Mr. Kumar Desai, Advocate Regulations 11 (2) 3. Mr. Somasekhar Sundaresan, Advocate. To facilitate consolidation of holdings, Partner, J. Sagar Associates SEBI had amended regulation 11 (2) of the 4. Mr. Kaushik Chatterjee, Group CFO, Tata SEBI (Substantial Acquisition of Shares Steel and Takeovers) Regulations, 1997 (SAST 5. Mr. Y. M. Deosthalee, CFO, Larsen & Regulations) on October 30, 2008 so as to Toubro Limited allow a creeping acquisition of up to five percent to persons holding 55 percent or 6. Mr. Raj Balakrishnan, Managing Director, more but less than 75 percent of the shares or DSP Merrill Lynch Limited voting rights in a company. 7. Mr. Sourav Malik, Executive Director, Kotak Investment Banking However, SEBI received representations from market participants/listed companies 8. Mr. A K Narayan, President, Tamil Nadu seeking clarity on interpretation of the Investors’ Association aforesaid provision, particularly regarding 9. Prof. N. Venkiteswaran, IIM, Bangalore the applicable time-frame under the said 10. Ms. Usha Narayanan, Executive Director, provision. The same was, accordingly, Corporation Finance Department, SEBI clarified by SEBI, vide an interpretative 11. Mr. J. Ranganayakulu, Executive circular dated August 6, 2009. The said Director, Legal Affairs Department, SEBI circular, inter-alia, provided that an acquirer holding 55 percent to 75 percent of the shares 12. Ms. Neelam Bhardwaj, General Manager, or voting rights in a company may further Corporation Finance Department - acquire upto a maximum of five percent Division of Corporate Restructuring, in such company, in one or more tranches, SEBI – Member Secretary of TRAC. without any restriction on the time-frame The committee has since been meeting within which the same can be acquired. regularly and has held eight meetings till ii. Takeover Regulations Advisory date. The TRAC has also sought public Committee comments/suggestions on the existing SAST Regulations and the same are under its SEBI constituted a 12 member expert consideration. Committee on September 4, 2009 under the Chairmanship of Mr. C. Achuthan, The committee is expected to submit its former Presiding Officer of the Securities report to SEBI soon. The said report may pave Appellate Tribunal, to examine the Takeover way for the next level of reforms in the Indian Regulations and to suggest suitable Takeover Code.
28 Part One: Policies and Programmes
VIII. Delisting reverse book building method etc. Further the company can go for delisting only if the i. Delisting of Equity Shares total post offer shareholding of the promoter SEBI (Delisting of Equity Shares) (along with Persons acting in concert) is Regulation, 2009 (i.e. the Regulations) has higher of ; been notified on June 10, 2009 which has • 90 percent of the total issued shares of come in place of SEBI (Delisting of Securities) that class Guidelines, 2003. The regulations provide the Or framework for a listed company to delist its • The aggregate percentage of pre-offer securities either voluntarily or compulsorily. promoter shareholding (along with The framework envisages that delisting shall persons acting in concert) and 50 percent happen in a transparent and time bound of offer size. process prescribed in the regulations and the same has been monitored/administered by the c) Other Provisions: respective stock exchanges. No documents/ Regulations also provide (i) timelines report required to file with SEBI. for delisting proceedings, (ii) disclosures Main features of SEBI (Delisting of in Public Announcement and letter of offer Equity Share) Regulation, 2009 are: (iii) special provisions to facilitate delisting of small companies. (iv) a gap of five years a) Compulsory Delisting: for re-listing. (v) prohibition on delisting in Stock exchanges can compulsorily delist certain circumstances viz. unless a period of the companies for non-fulfilling of listing three years has lapsed from date of listing, if conditions, after following the due procedure there are outstanding convertible instruments, laid down in the regulations. The procedure if public holding is reducing below the involves stock exchanges issuing public minimum public holding requirement, notice before delisting, inviting objections pursuant to buyback or preferential from public, appoint an independent valuer allotment. selected from its panel of expert valuers, for determination of fair value, making efforts to d) Delisting Offers in terms of Delisting trace the promoters so that the promoter can Regulations, 2009: acquire shares of public shareholders at fair As per the information received from price, and passing delisting order etc. the stock exchanges (i.e. BSE and NSE) five voluntary delisting offers have been made in b) Voluntary Delisting: terms of the Regulations. The listed company is allowed to go for voluntary delisting of its shares from IX. Investor Assistance and Education the stock exchanges after following the procedure which involves inter-alia, taking i. Redressal of Investors’ Grievances prior approval from the Board of directors of SEBI has in place a comprehensive the company, prior approval from the public mechanism to facilitate redressal of grievances shareholders of the company through special against intermediaries registered by it and resolution, making a public announcement for against companies whose securities are delisting, discovering the exit price through listed or proposed to be listed on stock
29 Annual Report 2009-10
exchanges. The Office of Investor Assistance companies and are continuously monitored. and Education (OIAE) acts as the single The company is required to respond in window interface, interacting with investors prescribed standard format in the form of seeking assistance of SEBI. Action Taken Report (ATR). Upon the receipt of ATR the status of grievances is updated. Investors can submit their grievances in Where the response of the company is any form i.e. plain paper, post card, via e-mail insufficient/inadequate, follow up action is etc., at the Head Office at Mumbai or at any initiated. of the Regional Offices at Delhi, Chennai, Kolkata and Ahmedabad. Besides, grievances Grievances pertaining to brokers and can also be filed in standardised forms that depository participants are taken up with are available at all its offices. Investors also concerned stock exchange and depository for have the option to electronically file their redressal and monitored through periodic grievances through the SEBI website (www. report obtained from the stock exchanges sebi.gov.in). All complaints received by SEBI and depositories. Grievances pertaining to (excluding those which refers/pertain to other intermediaries are taken up with them investigation) are individually acknowledged directly for redressal. with unique number, which facilitates During 2009-10, SEBI received 32,335 tracking. grievances from investors and resolved 42,742 Dedicated investor helpline telephone grievances as compared to 57,580 grievances numbers are available for investors seeking received and 75,989 grievances resolved in general guidance pertaining to securities 2008-09. As on March 31, 2010 there were markets and to provide assistance in filing 1,60,593 grievances pending resolution as grievances. Dedicated personnel manning compared to 1,71,000 unresolved grievances the helpline also guide the investors in filing as on March 31, 2009. These include 1,22,713 up the grievance submission forms as well as complaints where appropriate regulatory in determining the appropriate authority for actions have been initiated. their first recourse. Guidance is also provided Types of investors’ grievances received to approach the appropriate authority if their and redressed, as on March 31, 2010, are grievance is outside the purview of SEBI. given in the Table 1.4 and type-wise status of The grievances lodged by investors grievances awaiting redressal is provided in are taken up with the respective listed Table 1.5.
Table 1.4: Status of Investor Grievances Received and Redressed
Grievances Received Grievances Redressed Pending Grievances Year Cumulative Year-wise Cumulative Year-wise Cumulative Action Pending Initiated* 2007-08 54,933 26,16,980 31,676 24,27,571 1,33,354 56,055 2008-09 57,580 26,74,560 75,989 25,03,560 1,21,887 49,113 2009-10 32,335 27,06,895 42,742 25,46,302 1,22,713 37,880 * Action has been initiated u/s 11B, 15C or prosecution launched.
30 Part One: Policies and Programmes
Table 1.5: Type-wise Status of Grievances Awaiting Redresssal
Pending Pending Pending Type Particulars as on as on as on March 31, March 31, March 31, 2008 2009 2010 1 2 3 4 5 I to V Complaint against listed companies 61,648 38,498 37,755 VI Non Reciept of Investment & Returns thereon (CIS) 1,09,076 1,09,121 1,09.373 VII Mutual Funds, Venture Capital Funds, Foreign Venture 1,766 1,669 1,974 Capital Funds, Portfolio Managers, FIIs, Custodians etc. VIII Brokers, Sub-brokers, Merchant Bankers, Debenture 15,119 18,602 9,879 Trustees, Registrar and Transfer Agents, Bankers to Issue, Underwriters, Credit Rating Agencies, Depository Participants, etc. IX Stock Exchanges, Clearing and Settlement Organisations, 264 258 293 Depositories etc. X Derivative Exchanges and related organisations etc. 24 24 2 XI Corporate Governance, Restructuring, Substantial 1,512 2,828 1,317 Acquisition and Takeovers, Buyback, Delisting, Compliance with Listing Conditions etc.
Total no. of Grievances Awaiting Redressal 1,89,409 1,71,000 1,60,593* * Includes 1,22,713 grievances where action has been initiated u/s 11B, 15C or prosecution launched. ii. Regulatory Action against Companies Sl. No. Name of the Company and its Directors for Non-redressal of 6. Akar Laminators Ltd Investor Complaints 7. Dharnendra Industries Ltd a) Top 100 companies in terms of number 8. Indu Nissan Oxo Chemical Industries Ltd of unresolved grievances were identified 9. Kanel Oil & Export Industries Ltd and were vigorously followed up for 10. Nexus Software Ltd resolving grievances. Adjudication 11. Indo American Optics Ltd proceedings under section 15C of SEBI 12.. Jayant Vitamins Ltd Act were initiated against the following 13. Pankaj Agro Protinex Ltd 13 companies which failed to redress b) Out of the above proceedings, in the investor complaints, after having following three cases, the adjudication been called upon by SEBI to redress the proceedings are completed and penalty same. has been levied for non-redressal of Sl. No. Name of the Company investor grievances: 1. ICES Software Ltd. SI. Penalty 2. Enkay Texofood Industries Ltd. No. Name of the Company Amount (in Rs.) 3. Motorol Enterprise Ltd. 1. Enkay Texofood Industries Ltd. 30,00,000 4. Steelco Gujrat Ltd. 2. Steelco Gujrat Ltd. 5,00,000 5. Gujarat Investment Castings Ltd. 3. Pankaj Agro Protinex Ltd. 2,00,000
31 Annual Report 2009-10
c) In addition to the above adjudication Sl. No. Name of the Company proceedings, notice has also been issued 27. Jayant Vitamins Ltd to the following 33 companies and its 28. Kanel Oil & Export Industries Ltd 150 directors under section 11(4)(b) of 29. Motorol Enterprise Ltd the SEBI Act, 1992, why they shall not be debarred from accessing securities 30. Pankaj Agro Protinex Ltd market till they resolve investor 31. Pioneer Embroideries Ltd grievances, for their failure to redress 32. Steelco Gujrat Ltd the investor grievances and respond to 33. Topline Shoes Ltd SEBI’s notices to redress complaints:
Sl. No. Name of the Company iii. SCORES (SEBI Complaints Redress 1. AEC Enterprises Limited System) 2. Bhuvan Tripura Industries Limited SEBI is in the process of upgrading the 3. Binaca Synthetic Resins Ltd investor grievance redressal mechanism. The 4. Chicago Software Industries Limited upgraded mechanism would be a web-based, centralised grievance redress system for SEBI. 5. D R Industries Ltd The software for the new system is being 6. Dharnendra Overseas Ltd developed by the National Informatics Centre 7. Goodearth Synthetics Ltd (NIC), Ministry of Information Technology, 8. Hindustan Industrial Chemicals Ltd New Delhi.
9. Indo American Credit Corporation Ltd The salient features of the new system 10. Ishwar Medical Service Ltd are: 11. Kolar Information Technologies Ltd a) Centralised complaints tracking system 12.. Nexus Software Ltd for entire SEBI. 13. Panjwani Packaging Ltd b) Grievance pertaining to any of the 14. Prakash Fortan Softech Ltd Regional Offices of SEBI can be lodged 15. Rane Computers Consultancy Ltd from anywhere. 16. Solid Carbide Tools Ltd c) All complaints and Action Taken Report 17. Toheal Pharmachem Ltd to be in electronic mode 18. Vatsa Corporations Ltd d) Action taken and the current status of 19. Aashi Industries Ltd the complaint can be accessible to the 20. Akar Laminators Ltd investors, online. 21. Dharnendra Industries Ltd e) Facility for online updation of Action 22. Enkay Texofood Industries Ltd Taken Reports. 23. Gujarat Investment Castings Ltd 24. ICES Software Ltd iv. Issuance of No Objection Certificate 25. Indo American Optics Ltd Companies raising capital through public issue of securities are required to 26. Indu Nissan Oxo Chemical Industries Ltd deposit one percent of the issue amount
32 Part One: Policies and Programmes
with the designated stock exchange, which were not a director of any suspended is released by the stock exchange only after companies. SEBI issues a No Objection Certificate (NOC). One of the criteria for issuance of NOC to the • To begin with BSE and NSE shall companies is the satisfactory redressal of all identify the suspended companies investor grievances received by SEBI against which are active by filing return with the company. Register of Companies and issue notices to them for non-redressal of investor In 2009-10, 76 NOCs were issued to grievances and non-compliance of listing applicant companies. In 34 Cases, NOCs agreement. were not issued as the applications were incomplete or due to unsatisfactory record of • BSE and NSE shall submit a report to grievance redressal on their part. SEBI in respect of each such suspended company and their Directors and v. Investor Grievances against Suspended Compliance Officers which fails to Companies redress the complaints for appropriate It was observed that several companies regulatory actions by SEBI. who fail to redress investor grievances and compiling with listing agreement with stock vi. Securities and Exchange Board of India exchanges and letters addressed to them (Investor Protection and Education are returned undelivered, are not taking Fund) Regulations, 2009 any remedial measures despite trading in their shares have been suspended by the The Regulations governing the stock exchanges. It was also observed that administration of the Investor Protection some of these companies were active in and Education Fund (IPEF), were notified on their business and filing their return with May 19, 2009. These Regulations inter alia Registrar of Companies to avoid declaring provide for amounts that can be credited to them as vanishing companies and subsequent the fund, its utilisation and also an Advisory regulatory actions. Committee for recommending utilisation As recommended by a sub-committee of the fund. During the year 2009-10, the constituted in this regard, following course of Advisory Committee met thrice and provided actions are taken: inputs and suggestions which are under various stages of implementation. • BSE and NSE display on their respective websites the names of the companies vii. Investor Awareness Division (IAD) suspended as on date and the names A separate division namely, the of directors with their DIN/PAN, Investor Awareness Division (IAD), compliance officers and promoters was created to rejuvenate and to bring of such companies on the date of focused attention on the activities of the suspension. Board pertaining to investor education • SEBI would insist on a declaration from and awareness. IAD also handles work the directors of the companies who pertaining to financial literacy initiatives of are coming for public issues that they the Board.
33 Annual Report 2009-10
viii. Investor Assistance providing investors the wherewithal to SEBI provides assistance/guidance to make informed choice, stock exchanges investors by replying to their queries received and depositories are disclosing in through the following modes: their website the details of complaints lodged by clients/investors against a) Telephone (Investor Helpline 91-22- trading members, companies listed in the 26449188/26449199/40459188/40459199 at exchange and depository participants. Head office and through board lines at The aforesaid disclosure also includes the Regional Offices. details pertaining to arbitration and b) E-mail ([email protected]) penal action against the trading c) Investors visiting SEBI Offices members and depository participants. d) Letters b) Client Registration Procedure: With e) Grievance form in the SEBI Website. a view to instill greater transparency Assistance so rendered to investors and discipline in the dealings between was augmented by providing replies to the the clients and the stock brokers, SEBI commonly sought queries by investors on has prescribed requirements related the website as FAQs. Further, SEBI is in the to dealings between a client and process of launching a toll free helpline to stock broker. Some of the prescribed answer the queries of investors. requirements are client registration procedure, minimum font size of the ix. Investors’ Associations agreement, mandatory documents, Informed investment decisions by specific consent from clients for non- investors have been the key thrust of the mandatory documents, periodic investor protection initiatives of the Board. settlement of running accounts, display Towards educating investors and to spread of all the documents executed by a awareness, SEBI continues it association with client, client’s position, margin and Investor’s Associations (IA) who play a role in other related information, statement this regard by conducting investor education of accounts on the web-site owned by workshops. Educative material developed by broker, etc. SEBI was distributed in these workshops. At c) Sending Clients Trade Details the end of March 2010, there were 22 IAs that by Exchanges: To pre-empt the were recognised by SEBI. unauthorised trading by some brokers The feedback/suggestions from the IA in their client’s account, NSE, BSE are used as inputs for policy decisions of the and MCX-SX have started sending Board. Some of the measures pursuant to the daily client’s trade details directly to feedback and suggestions received from the a few randomly selected clients for IA include: their verification and reporting of any unauthorised trade or discrepancies in a) Disclosure of Complaints details at trade. Stock Exchanges’ and Depositories’ Websites: To ensure transparency in d) Disseminating Regulatory Orders and grievance redressal and to improve the Arbitration Awards by Exchanges: To general functioning of the market by ensure transparency and to improve
34 Part One: Policies and Programmes
the general functioning of the market 18 schools have implemented the program in by providing investors the wherewithal their schools and more schools are expected to make informed choice, all stock to implement in the coming years. exchanges were advised to post all SEBI has also taken up with Central their regulatory orders and arbitration Board of Secondary Education (CBSE) to awards issued against listed companies introduce financial literacy in school syllabus and clearing/trading members on their as an essential life skill at school level. websites. e) Guidelines Obtaining Power of b) Association with Non-Government Attorney (PoA): To prevent unfair Organisations (NGOs) practice of insisting PoA from all clients SEBI explored the possibility of and misuse of PoA obtained by some associating with NGOs and other entities, brokers and depository participants, having experience in the field of financial SEBI has issued a set of guidelines to literacy. SEBI has partnered with Meljol, be followed by brokers and depository an NGO having experience in the field participants for obtaining PoA only if it of promoting child rights and financial is required by clients. education in schools. The pilot program f) Waiver of arbitration fee: BSE to cover 14,550 students in 281 schools has waived the fees for arbitration through 196 trained teachers in Akola proceedings for claims up to Rs.10 lakh and Thane districts of Maharashtra, has for clients as being followed by NSE. commenced. This program covers schools g) Investor Grievance Redressal in rural and tribal areas of Maharashtra, Committees at Regional Centres: NSE having high concentration of children from has set up Investor Grievance Redressal underprivileged communities. Committees at all its regional centres at c) SEBI is launching its financial literacy par with BSE. drive targeting the following groups; x. Financial Literacy • School children a) School Programs • College students SEBI initiated financial literacy program • Middle Income Group for school students jointly with NISM in • Executives 2008-09 and positioned it as an important life • Housewives/Housing Societies skill at the school level targeting 8th and 9th • Retirement Planning standard students. • Self Help Group(s) In 2009-10 this initiative was taken further in which 72 teachers from 36 schools The program aims at imparting were trained through 2 workshops. Study understanding of financial concepts to the material in the form of kits were distributed. targeted groups. Under the guidance of About 1600 such kits were distributed. the Advisory Committee for the IPEF, the Participant teachers were given the training material for the aforesaid target group is kits free of cost and were also presented a under preparation and the programs will be certificate of participation. During the year, conducted by Resource Persons empanelled
35 Annual Report 2009-10
for the purpose. Empanelment of Resource registering price rise. Besides FIIs, mutual Person for the western region has already funds and retail investors increased their commenced. These empanelled Resource positions in the secondary market. Due to Persons would also supplement the investor strong global and domestic macro-economic education programs that are conducted fundamentals, overall market sentiment was through IAs recognised by SEBI, stock buoyant throughout the major part of the year. exchanges, depositories and trade bodies Derivatives market in India witnessed like AMFI, Association of National Exchange buoyant activity during 2009-10. In equity Members etc. derivatives segment, there were five indices and 190 stocks as underlying on which X. Retrospect and Prospects derivates contracts were traded as on March i. Retrospect 31, 2010. Turnover in equity derivatives segment of NSE increased by 60.4 percent to Indian economy, after witnessing a Rs.1,76,63,665 crore during 2009-10 over the slowdown during 2008-09 due to global previous fiscal. Currency futures market saw financial crisis recovered at a moderated pace introduction of contracts on new currency of 7.4 percent. The increase in manufacturing pairs namely, Euro-Indian Rupee (INR), and industrial activity pulled up the overall Pound Sterling-INR and Japanese Yen- growth rate amidst improved global business INR apart from the existing US Dollar-INR environment. ones from February 1, 2010. Turnover in The securities market recovered with the currency futures segment of NSE was the BSE Sensex closing above the 14,000 Rs.17,82,608 crore during 2009-10 against mark on May 18, 2009 post announcement of Rs.1,62,563 crore during 2008-09 (Aug. 2008 - election results. Thereafter, it witnessed a brief Mar. 20009). Turnover in currency futures at correction to close at 13,400 on July 13, 2009 MCS-SX stood at Rs.19,44,654 during 2009-10 before embarking on an upward trajectory. It against Rs.1,48,826 crore during 2008-09 (Oct. recorded its highest close at 17,711 on March 2008 - Mar. 2009). 30, 2010. Nifty recorded its highest close at The primary market witnessed improved 5,303 on the same day. BSE Sensex increased activity during 2009-10. The number of (year-on-year) by 80.5 percent and Nifty by companies which accessed the primary 73.8 percent in end-March 2010 over end- market was 76 in 2009-10 compared to March 2009. Turnover in the cash segment of 47 in 2008-09. Amount mobilised was NSE increased by 50.4 percent to Rs.41,38,023 Rs.57,555 crore during 2009-10, as against crore and in BSE it was up by 25.3 percent Rs.16,220 crore mobilised during 2008-09. to Rs.13,78,809 crore, reflecting increased The number of Initial Public Offerings (IPOs) activity in Indian markets. Reflecting the price increased to 39 in 2009-10 from 21 in 2008- appreciation, market capitalisation (of BSE) 09 and the number of rights issue increased to GDP ratio and the traded value (of BSE to 29 from 25 during the same period. and NSE together) to GDP ratio increased to Resource mobilisation through the Qualified 100 percent and 89.5 percent, respectively in Institutions’ Placement Mode (QIP) gained 2009-10 from 55.4 percent and 69.1 percent a prominence during 2009-10 as 62 issues raised year ago. The recovery in securities market Rs.42,729 crore compared to 2 issues raising was broad-based with a majority of the sectors Rs.189 crore duing 2008-09.
36 Part One: Policies and Programmes
There was a net inflow of resources to friendly and to mitigate risks associated with mutual funds during 2009-10. With private the system. sector mutual funds contributing a major part As part of its efforts to make the market of the mobilisation, there was a net inflow more efficient, transparent, cost effective and of resources to all mutual funds at Rs.83,080 safe, the measures like ‘in person verification crore in 2009-10 compared to a net outflow of of clients’, regulation of credit rating agencies, resources of Rs.28,296 crore in 2008-09. The introduction of several exchange traded exposure of mutual funds to debt securities derivatives, standardising the contracts increased vis-à-vis equity. The FIIs continued size, revision of trading hours, etc have to invest in Indian market. The number of been initiated by SEBI. In its endeavour SEBI registered FIIs went up to 1,713 by end for development of corporate debt market, March 2010 from 1,635 a year ago. Their net number of initiatives have been introduced purchase in equities was USD 23,248 million and some more measures are in the offing in in 2009-10 against a net sales of USD 10,324 coming years. million in the previous year. A series of measures have been ii. Prospects introduced for mutual funds for empowering the investors so that the mutual fund industry The Indian Securities market remained can become more resilient and achieve stable during 2009-10, as the global markets sustainable growth. too witnessed improved stability with indication of prospects of firm recovery. Investor assistance and investor However, fiscal concerns remain strong as education are the prime objectives of SEBI as sovereign risks continue to be a cause of a regulator. As part of the investor education concern in some European countries. SEBI initiatives, SEBI has launched many initiatives would continue with its efforts to deepen during the past one year through organising and widen the Indian market and take seminars, workshops, investors’ meet etc. appropriate regulatory measures to make This would help in achieving financial them resilient enough to withstand volatility. inclusion for the investors in the country. It has introduced financial literacy programmes SEBI has been pursuing to its objectives in schools curriculum in collaboration with of investor protection, investor education, NISM. In years to come, it proposes to and market developments. During the year, launch many such programmes for investor it has initiated a series of policy initiatives in education and financial literacy. primary market to make the market investor friendly and to mitigate risks. Among the In the coming years, SEBI would others, the measures include introduction of continue its efforts, with a clear objective the concept of anchor investor, introducing of investor protection through investor pure auction in the FPO process, extension education and market development. The of ASBA mechanism and strengthening of broad direction in which SEBI plans to move the regulatory framework governing public will be guided by twin beacons i.e., reduction offerings. It would continue to work towards of transaction costs and cutting down the time making the issue process transparent, investor taken in completing the transactions.
37 AnnualPART Report TWO: 2009-10 REVIEW OF TRENDS AND OPERATIONS
Indian securities markets witnessed plans by corporates and poor investor sharp turnaround in 2009-10. Where as response had led to a sharp fall in the number the markets were in downswing in 2008- of issues and amounts raised through the 09 in consonance with the downward primary market. spiral in global equity markets triggered by international financial crisis, beginning I. Resource Mobilisation of the financial year 2009-10 witnessed During 2009-10, 76 issues accessed the upward swing in the market. Fresh primary market and raised Rs.57,555 crore upward movement was triggered following through public (47) and rights issues (29) as unambiguous results in the union elections against 47 issues which raised Rs.16,220 crore and a period of stability across the market in 2008-09 through public (22) and rights got initiated. The upward swing following issues (25) (Table 2.1). Due to better financial the election results was so sudden and strong environment, there were 39 IPOs during that Indian stock exchanges were shut down 2009-10 as against 21 during 2008-09. The temporarily due to operation of circuit filters. amount raised through IPOs during 2009-10 In global arena, concerns for deepening was significantly higher at Rs.24,696 crore as of recession pervaded in the developed compared to Rs.2,083 crore during 2008-09. economies got replaced with concerns for a The share of public issues in the total resource double dip. However, as the year progressed, mobilisation increased to 85.6 percent during the picture at global markets became better. 2009-10 from 22.1 percent in 2008-09 whereas share of rights issues declined from 77.9 Foreign Institutional Investors (FIIs) percent in 2008-09 to 14.5 percent in 2009-10 made a record net purchase in the Indian (Chart 2.1). equity market in 2009-10, of Rs.1,42,658 crore surpassing the previous high of 2007- Chart 2.1 represents the relative share 08 inflows (Rs.66,179 crore). This reflects of the three modes of resource mobilisation confidence in Indian economy and the same namely, IPOs, FPOs, and rights issues. It is was also highlighted in Economic Survey observed that the share of IPOs has ranged 2009-10. Large FII inflows in the country led from 12.8 percent to 85.1 percent; FPOs from to strengthening of Rupee against US Dollar. zero percent to 80.9 percent and rights issues from 4.3 percent to 77.9 percent. There was a substantial improvement in the resource mobilisation by corporates There were three public issues of non- in the primary market in 2009-10 compared convertible debentures (NCDs) amounting to the previous year. Similarly, mobilisation to Rs.2,500 crore in 2009-10 as compared to a of resources by mutual funds exceeded single issue of Rs.1500 crore in 2008-09 which redemptions resulting in substantial inflows. shows better appetite among investors for NCDs in 2009-10 as compared to previous 1. PRIMARY SECURITIES MARKET year. The primary market segment witnessed In order to make Indian markets more positive trend during 2009-10. Earlier, in 2008- competitive and efficient and to facilitate 09, the volatility in stock markets, slowdown quicker resource mobilisation by companies in economic growth, slackening of expansion from institutional investors, an additional
38 Part Two: Review of Trends and Operations
Table 2.1.: Resource Mobilisation through Public and Rights Issues
2008-09 2009-10 Percentage Share in Particulars Total Amount No. Amount No. Amount 2008-09 2009-10 (Rs.crore) (Rs.crore) 1 2 3 4 5 6 7 1. Public Issues (i)+(ii) 22 3,583 47 49,236 22.09 85.55 (i) Public Issues (Equity/PCD/FCD) 21 2,083 44 46,736 22.09 85.55 of which IPOs 21 2,083 39 24,696 12.84 42.91 FPOs 0 0 5 20,041 0.00 34.82 (ii) Public Issues (Bond/NCD) 1 1,500 3 2,500 9.25 4.34 2. Rights Issues 25 12,637 29 8,319 77.91 14.45 3. Total (1+2) 47 16,220 76 57,555 100.00 100.00 Memo Item Offer for Sale* 3 48 9 11,756 0.30 20.43 * All offers for sale are initial public offers, hence are already counted under IPOs.
mode for listed companies to raise funds from through QIP are equity shares or any domestic market in the form of Qualified securities other than warrants, which are Institutional Placement (QIP) was introduced convertible into or exchangeable with equity in May 2006. Securities which can be issued shares.
39 Annual Report 2009-10
QIP as a mode of resource mobilisation II. Sector-wise Resource Mobilisation picked up pace during 2007-08 raising Rs.25,525 crore from the market. However, it Sector-wise classification reveals that declined in 2008-09 to Rs.189 crore reflecting 70 private sector and six public sector issues the general subdued trend in primary mobilised resources through primary market markets. Similarly, number of companies during 2009-10 as compared to 47 private accessing QIP route also declined from 36 in sector issues in 2008-09. These companies 2007-08 to two in 2008-09. raised Rs.57,555 crore though 76 issues in 2009-10 as compared to Rs.16,220 crore In contrast to the previous financial year, 2009-10 proved to be a better year for QIP through 47 issues in 2008-09 (Table 2.3). issues. In 2009-10, Indian companies raised The share of private sector in total resource Rs.42,729 crore by way of 62 QIP issues which mobilisation declined from 100 percent in is the highest amount raised under QIP route 2008-09 to 45.9 percent in 2009-10 (Chart 2.2). in last three years (Table 2.2). The analysis of last eight years since 2002-03 reveals that 2008-09 was the only financial The reason for decline in resource year wherein the public sector companies mobilisation through QIP route in did not participate in resource mobilisation 2008-09 was delay of expansion plans and conservation of cash by Indian companies to through primary market. counter uncertainty in the global markets.
Table 2.2: Resource Mobilisation through Qualified Institutions’ Placement
2007-08 2008-09 2009-10 Particulars No. Amount No. Amount No. Amount (Rs.crore) (Rs.crore) (Rs.crore) 1 2 3 4 5 6 7 Total 36 25,525 2 189 62 42,729
of which Companies listed at BSE 36 25,525 1 75 62 42,729 Companies listed at NSE 34 24,679 2 189 61 42,484
Table 2.3: Sector-wise Resource Mobilisation
Percentage Share 2008-09 2009-10 Sector in the Total Amount No. Amount No. Amount 2008-09 2009-10 (Rs.crore) (Rs.crore) 1 2 3 4 5 6 7 Private 47 16,220 70 26,438 100.00 45.94 Public 0 0 6 31,117 0.00 54.06 Total 47 16,220 76 57,555 100.00 100.00
40 Part Two: Review of Trends and Operations
III. Size-wise Resource Mobilisation The average size of the issue more than About 87.7 percent of resource doubled in 2009-10 to Rs.757 crore from mobilisation was through public issues of Rs.345 crore in 2008-09. Not only the average issue-size above Rs.500 crore during 2009-10 size of issues improved substantially in 2009- compared to 78.1 percent during the previous 10, but also the fact that issues under Rs.100 financial year (Table 2.4). Also, the number of crore constituted just 2.2 percent of total issues under category of issues having size of resources mobilisation shows that bigger Rs.500 crore or above increased to 21 in 2009- issues were clearly the flavour of the market. 10 from six in 2008-09. There were 30 mega issues in 2009-10
Table 2.4: Size-wise Resource Mobilisation Percentage Share 2008-09 2009-10 Issue Size in the Total Amount No. Amount No. Amount 2008-09 2009-10 (Rs.crore) (Rs.crore) 1 2 3 4 5 6 7 < Rs.5 crore 1 3 1 2 0.02 0.00 ≥ Rs.5 crore & 41 Annual Report 2009-10 as compared to nine mega issues in 2008-09 Rs.54,039 crore which amounts to 93.9 percent (Table 2.5). These 30 mega issues mobilised of Rs.57,555 crore total resource mobilisation during the year. Table 2.5: Mega Issues in 2009-10* Type of Type of Date of Offer Size Percentage Name of the Entity Issue Instrument Opening (Rs.crore) Share in of Issue Total Amount 1 2 3 4 5 6 Shriram Transport Finance Limited Public NCD 27-Jul-09 1,000.00 1.85 Adani Power Limited IPO Equity 28-Jul-09 3,016.52 5.58 NHPC Limited IPO Equity 7-Aug-09 6,038.55 11.17 L&T Finance Limited Public NCD 18-Aug-09 1,000.00 1.85 Oil India Limited IPO Equity 7-Sep-09 2,777.25 5.14 Pipavav Shipyard Limited IPO Equity 16-Sep-09 498.67 0.92 The Tinplate Company of India Rights Rights & 17-Sep-09 374.32 0.69 Limited FCDs Television Eighteen India Limited Rights Equity 29-Sep-09 504.06 0.93 Wire and Wireless India Limited Rights Equity 29-Sep-09 449.86 0.83 Fortis Health Care Limited Rights Equity 30-Sep-09 997.12 1.85 India Bulls Power Limited IPO Equity 12-Oct-09 1,529.10 2.83 Den Networks Limited IPO Equity 28-Oct-09 364.46 0.67 Cox And Kings (India) Limited IPO Equity 18-Nov-09 610.39 1.13 D.B. Corp. Ltd. IPO Equity 11-Dec-09 384.22 0.71 JSW Energy Limited IPO Equity 7-Dec-09 2,700.00 5.00 Godrej Properties Limited IPO Equity 9-Dec-09 468.85 0.87 Jubilant Foodworks Limited IPO Equity 18-Jan-10 328.72 0.61 DB Realty Limited IPO Equity 29-Jan-10 1,500.00 2.78 Religare Enterprises Limited Rights Equity 1-Feb-10 1,814.31 3.36 NTPC Limited FPO Equity 3-Feb-10 8,478.75 15.69 Hathway Cable & Datacom Limited IPO Equity 9-Feb-10 666.00 1.23 L&T Finance Limited Public NCD 9-Feb-10 500.00 0.93 REC Limited FPO Equity 19-Feb-10 3,529.94 6.53 United Bank of India IPO Equity 23-Feb-10 324.97 0.60 NMDC Ltd FPO Equity 10-Mar-10 9,967.30 18.44 IBN18 Broadcast Ltd Rights Equity 10-Mar-10 509.53 0.94 IL&FS Transporation Networks Ltd IPO Equity 11-Mar-10 700.00 1.30 Shree Ganesh Jewellery House Ltd IPO Equity 19-Mar-10 371.01 0.69 Videocon Industries Ltd Rights Equity 29-Mar-10 1,156.33 2.14 Adani Enterprises Ltd Rights Equity 31-Mar-10 1,478.52 2.74 TOTAL (Mega Issues) 54,038.75 100.00 * An issue of Rs.300 crore and above is referred to as Mega Issue. 42 Part Two: Review of Trends and Operations The largest mega issue during 2009-10 IV. Industry-wise Resource was of a Public Sector Undertaking (PSU), Mobilisation namely, NMDC Limited (Rs.9,967.3 crore) Industry-wise classification reveals that which was followed by again PSUs, namely, Power sector accounted for 43.9 percent of NTPC Ltd (Rs.8,478.8 crore) and NHPC total resource mobilisation in the primary Ltd (Rs.6,038.6 crore). This was part of market (Table 2.6) as number of power Government of India’s disinvestment plan sector companies, namely, Adani Power, under which Government offloaded part of its Indiabulls Power, NTPC, NHPC etc, accessed stake in NMDC and NTPC through FPOs and the primary market. The power sector was in NHPC through IPO. The combined size of followed by Banks/FIs with 5.5 percent, these three issues constituted almost half (45.3 Cement and Construction with 4.8 percent percent) of the total resources mobilised by all and Entertainment sector with 4.3 percent. companies in 2009-10 through mega issues. In terms of number of issues, Entertainment Table 2.6: Industry-wise Resource Mobilisation 2008-09 2009-10 Percentage Percentage Industry No. Amount Share in No. Amount Share in (Rs.crore) the Total (Rs.crore) the Total Amount Amount 1 2 3 4 5 6 7 Banks/Fls 0 0 0.00 6 3,138 5.45 Cement & Construction 3 80 0.49 8 2,780 4.83 Chemical 4 218 1.34 1 36 0.06 Electronics 0 0 0.00 1 1,156 2.01 Engineering 0 0 0.00 1 50 0.09 Entertainment 2 1,156 7.13 9 2,461 4.28 Finance 3 1,966 12.12 2 1,826 3.17 Food Processing 0 0 0.00 2 443 0.77 Healthcare 3 144 0.89 2 1,002 1.74 Information Technology 1 42 0.26 4 315 0.55 Paper & Pulp 0 0 0.00 1 35 0.06 Plastic 0 0 0.00 1 39 0.07 Power 2 958 5.91 6 25,293 43.95 Printing 0 0 0.00 0 0 0.00 Telecom 2 100 0.62 0 0 0.00 Textile 5 710 4.38 3 237 0.41 Miscellaneous 22 10,845 66.86 29 18,742 32.56 Total 47 16,220* 100.00 76 57,555* 100.00 * Figures for 2009-10 include three NCDs worth Rs.2,500 crore; all other issues were equity issues. Similarly, there was one NCD worth Rs 1,500 in 2008-09; all other issues were equity issues. 43 Annual Report 2009-10 sector led the pack with nine issues during 2009 (Chart 2.3). The BSE Sensex increased 2009-10 as compared to Textile sector seeing 7819 points to close at two year high level at the highest number of five issues during 17528 on March 31, 2010 from 9709 on March 2008-09. 31, 2009. The S&P CNX Nifty also increased 2228 points to close at 5249 points at the end of March 2010 over 3021 at the end of March 2. SECONDARY SECURITIES 2009 mainly driven by higher growth rate, MARKET positive sentiments in market, better global I. Equity Market in India environment, and FII inflows. Equity markets witnessed significant Indian markets had recorded substantial uptrend during 2009-10 as compared to decline and volatility in 2008-09. However, downward and volatile trend in 2008-09. the environment improved in 2009-10 and However, at times, the domestic markets got better with every subsequent quarter. In reflected the uncertainties in international tandem with the increase in stock prices in financial market during the financial year 2009-10, there was a significant increase in under review. turnover and market capitalisation across the board (Table 2.7). Markets were characterised by some bouts of volatility during the year, but it In the cash segment, the turnover at rewarded investors by giving five year best BSE and NSE increased by 25.4 percent and return in 2009-10. The BSE Sensex and S&P 50.4 percent respectively during 2009-10 CNX Nifty appreciated by 80.5 percent and as compared to decline witnessed at BSE 73.8 percent, respectively, over March 31, and NSE by 30.3 percent and 22.5 percent, 44 Part Two: Review of Trends and Operations Table 2.7: Major Indicators of Indian Stock Markets Percentage Variation over Item 2008-09 2009-10 the Previous Year 2008-09 2009-10 1 2 3 4 5 A. Indices BSE Sensex Year-end 9709 17528 -37.94 80.53 Average 12366 15585 -25.37 26.03 S&P CNX Nifty Year-end 3021 5249 -36.20 73.76 Average 3731 4658 -23.81 24.84 S&P CNX 500 Year-end 2295 4313 -40.02 87.95 Average 2951 3810 -27.97 29.10 B. Annualised Volatility *(percent) BSE Sensex 43.58 29.16 — — S&P CNX Nifty 41.54 29.41 — — C. Total Turnover (Rs.crore) Cash Segment (All-India) 38,52,079 55,16,833 -24.91 43.22 of which BSE 11,00,074 13,78,809 -30.32 25.34 NSE 27,52,023 4,13,82,023 -22.50 50.36 Derivatives Segment 1,10,22,243 1,76,63,889 -17.33 60.26 of which BSE 11,775 234 -95.14 -98.01 NSE 1,10,10,468 1,76,63,665 -15.89 60.43 D. Market Capitalisation (Rs.crore) @ BSE 30,86,075 61,65,619 -39.94 99.79 NSE 28,96,194 60,09,173 -40.38 107.49 E. P/E Ratio @ BSE Sensex 13.65 21.32 -32.12 56.19 S&P CNX Nifty 14.3 22.33 -30.68 56.15 S&P CNX 500 13.13 19.41 -26.48 47.83 * Annualised volatility is calculated by multiplying the standard deviation of the logarithmic returns with the square root of the number of trading days for the period. @ As on March 31 of the respective year. Source: Various Stock Exchanges. respectively during 2008-09. Derivatives turnaround. This was unlike the situation turnover showed substantial decline at BSE witnessed in 2008-09 when the global equity by 98.1 percent while that at NSE gained by markets were dominated by the financial 60.4 percent over the previous year. turmoil and the signs of severe recession inflicted by the deteriorating financial markets. In 2009-10, global equity markets improved significantly and some markets During 2009-10, all the equity markets especially emerging markets showed sharp witnessed uptrend, however, in different 45 Annual Report 2009-10 magnitude. The upward trend was the The BSE Small-cap index recorded an highest for BUX index of Hungary (118.9 increase of 161.7 percent in 2009-10. Among percent) followed by Argentina IBG (112.7 the sectoral indices, highest increase was percent) and Russian CRTX index (104.8 recorded by BSE Metal index (210.2 percent), percent). However, the Indian benchmark BSE Consumer Durables (159.7 percent) and indices namely BSE Sensex and S&P CNX BSE Auto index (150.6 percent) (Table 2.8 Nifty gave year on year return of 80.5 percent and 2.9). While the metal index reflected the and 73.8 percent respectively in 2009-10. strengthening of metal prices, the general upward trend in the economy and industrial II. Performance of Sectoral Indices production got reflected in increase in the capital goods and auto indices. There was an across the board increase in broad-based and sectoral indices in 2009- The movement of sectoral indices at 10. Among the broad-based indices of shares NSE is depicted in Chart 2.6. During 2009-10, listed on BSE, BSE 100, BSE 200 and BSE the highest increase was witnessed in CNX 500 recorded an increase of 88 percent, 93 IT (152.6 percent), followed by CNX Bank percent and 97 percent respectively over the (128.9 percent) and CNX Petrochemicals previous year (Chart 2.5). Similarly, among (114.7 percent). Of the other indices at NSE, the indices of shares listed on NSE, the S&P the highest increase was witnessed in CNX CNX 500, CNX Nifty Junior and CNX Mid- Nifty Junior (148.2 percent), followed by Nifty cap increased by 88 percent, 148 percent and Midcap 50 (131.2 percent), and CNX Midcap 126 percent respectively in 2009-10 (Table 2.8). (126.1 percent). 46 Part Two: Review of Trends and Operations 47 Annual Report 2009-10 Table 2.8: Major Stock Indices and their Returns Year/ BSE Percent- BSE Percent- S&P Percent- CNX Percent- S&P Percent- Month Sensex age 100 age CNX age Mid-cap age CNX age Variation Variation Nifty Variation Variation 500 Variation 1 2 3 4 5 6 7 8 9 10 11 2006-07 13072 15.89 6587 11.57 3822 12.31 4850 1.32 3145 8.09 2007-08 15644 19.68 8233 24.99 4735 23.89 6241 28.68 3826 21.65 2008-09 9709 -37.94 4943 -39.96 3021 -36.20 3408 -45.40 2295 -40.02 2009-10 17528 80.53 9300 88.14 5249 73.75 7705 126.12 4313 87.94 Apr-09 11403 17.45 5804 17.42 3474 14.99 3861 13.30 2663 16.03 May-09 14625 28.26 7620 31.29 4449 28.07 5354 38.66 3580 34.43 Jun-09 14494 -0.90 7572 -0.63 4291 -3.55 5427 1.38 3470 -3.08 Jul-09 15670 8.11 8177 7.99 4636 8.05 5950 9.64 3764 8.48 Aug-09 15667 -0.02 8226 0.60 4662 0.55 6118 2.82 3840 2.02 Sep-09 17127 9.32 8930 8.56 5084 9.05 6713 9.73 4119 7.25 Oct-09 15896 -7.19 8333 -6.69 4712 -7.32 6580 -1.99 3853 -6.45 Nov-09 16926 6.48 8915 6.98 5033 6.81 7149 8.65 4145 7.59 Dec-09 17465 3.18 9230 3.53 5201 3.35 7419 3.77 4329 4.43 Jan-10 16358 -6.34 8708 -5.66 4882 -6.13 7202 -2.92 4156 -4.00 Feb-10 16429 0.43 8759 0.59 4922 0.82 7167 -0.48 4128 -0.69 Mar-10 17528 6.69 9300 6.18 5249 6.64 7705 7.50 4313 4.50 Note: Indices relate to closing values as on the last trading day of the respective year/month. Source: BSE, NSE. Table 2.9: Sectoral Stock Indices and their Returns Year/ CNX Percent- CNX Percent- CNX Percent- BSE Oil Percent- BSE Percent- Month IT age Bank age PSE age and Gas age FMCG age Variation Variation Variation Variation Variation 1 2 3 4 5 6 7 8 9 10 11 2006-07 4353 48.92 4662 31.79 2554 47.97 4919 61.07 2211 110.07 2007-08 5181 19.02 5309 13.88 2484 -2.74 6419 30.49 1739 -21.35 2008-09 2319 -55.25 4133 -22.15 2454 -1.22 7053 9.88 2036 17.08 2009-10 5856 152.55 9460 128.87 3766 53.5 10159 44.04 2831 39.05 Apr-09 2771 19.50 5131 24.14 2690 9.61 8133 15.31 2095 2.90 May-09 3206 15.71 7416 44.53 3784 40.70 10419 28.12 2097 0.10 Jun-09 3498 9.09 7339 -1.04 3428 -9.41 9390 -9.88 2263 7.92 Jul-09 4330 23.80 7545 2.80 3686 7.52 9480 0.96 2738 20.99 Aug-09 4618 6.66 7432 -1.50 3728 1.13 9775 3.11 2554 -6.72 Sep-09 5122 10.91 8812 18.58 3791 1.69 10476 7.17 2576 0.86 Oct-09 5049 -1.43 8439 -4.24 3566 -5.92 9434 -9.94 2809 9.05 Nov-09 5364 6.25 9047 7.21 3873 8.61 10283 8.99 2872 2.24 Dec-09 5818 8.47 9030 -0.19 4104 5.96 10471 1.83 2792 -2.79 Jan-10 5594 -3.85 8652 -4.19 4000 -2.53 9939 -5.08 2725 -2.40 Feb-10 5767 3.08 8723 0.82 3907 -2.32 9596 -3.45 2662 -2.31 Mar-10 5856 1.55 9460 8.45 3766 -3.61 10159 5.87 2831 6.35 Note: Indices relate to closing values as on the last trading day of the respective year/month. Source: BSE, NSE. 48 Part Two: Review of Trends and Operations III. Turnover in the Indian Stock Market to the total. Apart from NSE and BSE, the In tandem with the upward trend in only two stock exchanges which recorded equity prices, there was an increase in the turnover during 2009-10 were Calcutta Stock trading volumes in stock exchanges in 2009- Exchange Ltd. and UPSE. There was hardly 10. During 2009-10, turnover of all stock any transaction on other stock exchanges. exchanges in the cash segment increased Month-wise, BSE and NSE together recorded by 43.3 percent to Rs.55,18,470 crore from the highest turnover in June 2009 followed by Rs.38,52,579 crore in 2008-09 (Table 2.10). BSE July 2009 and May 2009 (Table 2.11). and NSE together contributed 99.9 percent of City-wise distribution of turnover of the turnover, of which NSE accounted for 74.9 cash segments at NSE and BSE indicates the percent in the total turnover in cash market all-India spread of the stock markets (Table whereas BSE accounted for 24.9 percent 2.12). As in the earlier years, Mumbai/Thane Table 2.10: Exchange-wise Cash Segment Turnover (Rs.crore) Stock Exchange 2008-09 2009-10 Percentage Share (2009-10) 1 2 3 4 Recognised Stock Exchanges Ahmedabad Nil Nil Nil BSE 11,00,074 13,78,809 24.99 Bangalore Nil Nil Nil Bhubaneswar Nil Nil Nil Cochin Nil Nil Nil Coimbatore Nil Nil Nil Delhi Nil Nil Nil Gauhati Nil Nil Nil ISE Nil Nil Nil Jaipur Nil Nil Nil Calcutta 393 1612 0.03 Ludhiana Nil Nil Nil Madras Nil Nil Nil MPSE Nil Nil Nil NSE 27,52,023 41,38,023 74.98 OTCEI Nil Nil Nil Pune Nil Nil Nil UPSE 89 25 0.00 Vadodara Nil Nil Nil Total 38,52,579 55,18,470 100.00 Source: Various Stock Exchanges. 49 Annual Report 2009-10 Table 2.11: Turnover at BSE and NSE: Cash Segment (Rs.crore) BSE NSE Total Year/Month Turnover Percentage Turnover Percentage Turnover Variation* Variation* 1 2 3 4 5 6 2005-06 8,16,074 57.33 15,69,558 37.67 23,85,632 2006-07 9,56,185 17.17 19,45,285 23.94 29,01,471 2007-08 15,78,857 65.12 35,51,037 82.55 51,29,894 2008-09 11,00,075 -30.32 27,52,023 -22.50 38,52,098 2009-10 13,78,809 25.34 41,38,023 50.36 55,16,833 Apr-09 88,943 27.45 2,66,697 31.51 3,55,639 May-09 1,28,542 44.52 3,82,561 43.44 5,11,103 Jun-09 1,59,195 23.85 4,82,414 26.10 6,41,608 Jul-09 1,38,986 -12.69 4,26,143 -11.66 5,65,129 Aug-09 1,22,319 -11.99 3,64,969 -14.36 4,87,288 Sep-09 1,24,220 1.55 3,65,063 0.03 4,89,283 Oct-09 1,14,007 -8.22 3,62,969 -0.57 4,76,976 Nov-09 1,05,142 -7.78 3,24,477 -10.60 4,29,619 Dec-09 98,082 -6.71 2,92,900 -9.73 3,90,983 Jan-10 1,17,084 19.37 3,38,443 15.55 4,55,527 Feb-10 82,510 -29.53 2,45,143 -27.57 3,27,653 Mar-10 99,779 20.93 2,86,246 16.77 3,86,024 * Over previous period. Source: BSE, NSE. accounted for the largest share in the turnover IV. Market Capitalisation of BSE (72.9 percent) and NSE (54.5 percent). The market capitalisation of BSE At NSE, Delhi/Ghaziabad accounted for 14.9 increased by 99.8 percent to Rs.61,65,619 percent of the turnover followed by Kolkata/ crore in 2009-10 from Rs.30,86,075 crore in Howrah at 8.3 percent and Ahmedabad at 6.9 2008-09 (Table 2.13). The upward trend in percent. The top five cities accounted for 86.5 the stock markets resulted in similar trend percent of turnover at NSE during 2009-10 in market capitalisation of many indices in compared to 62.4 percent in 2008-09. At BSE, 2009-10. Among the indices of BSE, increase Mumbai/Thane was followed by Ahmedabad in market capitalisation was the highest (5.1 percent) and Delhi/New Delhi (4.6 for Bankex (136.9 percent), BSE PSU (82.6 percent) in largest share in the turnover of percent) and BSE Teck (80.3 percent) over BSE. The share of top five cities in BSE was the previous year (Table 2.13). However, in 86.6 percent as against 24.2 percent in 2008-09. terms of absolute value, among these three 50 Part Two: Review of Trends and Operations Table 2.12: City-wise Turnover of Top 10 Cities in Cash Segment during 2009-10 BSE NSE Percentage Percentage City Turnover Share in City Turnover Share in (Rs.crore) All-India (Rs.crore) All-India Turnover Turnover 1 2 3 4 5 6 Mumbai/Thane 10,05,228 72.91 Mumbai/Thane 22,55,944 54.52 (7,95,079) (20.64) (15,37,142) (39.90) Ahmedabad 69,316 5.03 Delhi/Ghaziabad 6,15,731 14.88 (52,447) (1.36) (4,12,082) (10.70) Delhi/New Delhi 63,345 4.59 Kolkata/Howrah 3,41,892 8.26 (31,478) (0.82) (2,54,199) (6.60) Rajkot 44,163 3.10 Ahmedabad 2,87,884 6.96 (41,557) (1.08) (1,45,149) (3.77) Jaipur 12,865 0.93 Hyderabad/Secunderabad/ 76,230 1.84 (9,499) (0.25) Kukatpally (47,680) (1.24) Vadodara 11,909 0.86 Ghaziabad/Noida/ 71,360 1.73 (NA) (NA) Sahibabad (49,596) (1.29) Jodhpur 10,253 0.74 Chennai 69,272 1.67 (NA) (NA) (54,280) (1.41) Kolkata 9,333 0.68 Cochin/Ernakulam/Parur/ 59,790 1.45 (8,845) (0.23) Kalamaserry/Alwaye (20,881) (0.54) Noida 8,784 0.64 Rajkot 56,650 1.37 (7,387) (0.19) (35,115) (0.91) Pune 7,677 0.56 Bangalore 26,549 0.64 (7,575) (0.20) (NA) (NA) Note: Figures in the parentheses pertain to 2008-09. Source: BSE, NSE. indices, BSE PSU led the pack with market followed by CNX Bank (41.6 percent) and capitalisation of Rs.17,33,662 crore followed CNX IT (13.3 percent). by BSE Teck at Rs.7,40,817 crore and BSE Bankex at Rs.5,54,127 crore . V. Stock Market Indicators At NSE, market capitalisation increased The market capitalisation to GDP ratio by 107.5 percent to Rs.60,09,173 crore from is an important parameter for evaluation of Rs.28,96,194 crore at the end of March 2009 stock markets. The liquidity of the market (Table 2.14). can be measured by the traded value to GDP ratio, i.e., value of the shares traded to GDP At NSE, among sectoral indices, increase at current market prices. Excluding 2008-09, in market capitalisation was the highest since 2003-04, there has been a considerable for CNX Pharma (101.1 percent). This was improvement in the market capitalisation to 51 Annual Report 2009-10 Table 2.13: Market Capitalisation at BSE (Rs.crore) Year/ All Percen- BSE Percen- BSE- Percen- BANKEX Percen- BSE PSU Percen- Month Listed tage Sensex tage TECK tage tage tage Companies Variation Variation Variation Variation Variation 1 2 3 4 5 6 7 8 9 10 11 2005-06 30,22,190 77.94 14,24,112 96.28 4,68,278 65.81 2,19,894 42.74 7,48,614 44.98 2006-07 35,45,041 17.30 17,11,241 20.16 7,17,127 53.14 2,57,026 16.89 7,22,517 -3.49 2007-08 51,38,014 44.94 22,23,701 29.95 6,81,431 -4.98 3,77,020 46.69 11,53,034 59.59 2008-09 30,86,075 -39.94 15,07,742 -32.20 4,10,923 -39.70 2,33,895 -37.96 9,49,211 -17.68 2009-10 61,65,619 99.79 26,17,900 73.63 7,40,817 80.28 5,54,127 136.91 17,33,66,2 82.64 Apr-09 35,86,978 16.23 17,49,781 16.05 4,86,969 18.51 2,91,794 24.75 10,63,26,2 12.02 May-09 48,65,045 35.63 22,23,427 27.07 5,75,626 18.21 4,23,308 45.07 15,29,39,7 43.84 Jun-09 47,49,934 -2.37 21,73,722 -2.24 5,86,524 1.89 4,19,443 -0.91 14,37,775 -5.99 Jul-09 51,39,942 8.21 23,66,735 8.88 6,64,172 13.24 4,31,931 2.98 15,18,191 5.59 Aug-09 52,85,657 2.83 23,82,064 0.65 6,92,954 4.33 4,26,119 -1.35 15,21,219 0.20 Sep-09 57,08,337 8.00 25,85,666 8.55 7,43,821 7.34 5,06,276 18.81 16,59,968 9.12 Oct-09 53,75,920 -5.82 24,10,886 -6.76 6,47,931 -12.89 4,90,375 -3.14 15,65,140 -5.71 Nov-09 57,95,209 7.80 25,50,770 5.80 6,80,833 5.08 5,25,448 7.15 17,02,865 8.80 Dec-09 60,81,308 4.94 26,49,482 3.87 7,35,137 7.98 5,25,662 0.04 17,75,970 4.29 Jan-10 59,25,725 -2.56 24,89,139 -6.05 7,09,110 -3.54 5,09,564 -3.06 17,65,199 -0.61 Feb-10 59,04,929 -0.35 24,73,985 -0.61 7,09,555 0.06 5,14,026 0.88 17,16,821 -2.74 Mar-10 61,65,619 4.41 26,17,900 5.82 7,40,817 4.41 5,54,127 7.80 17,33,662 0.98 Source: BSE. GDP ratio. The BSE market capitalisation to increased to 89.5 percent in 2009-10 from 69.1 GDP ratio had improved from 43.4 percent percent in 2008-09. In the derivative segment in 2003-04 to 100.0 percent in last financial also, the turnover to GDP ratio increased from year. Similarly, at NSE also the ratio has 197.7 percent in 2008-09 to 286.6 percent in increased from 40.5 percent to 97.5 percent 2009-10. over the same period (Table 2.15). Moreover, The valuation of the shares might be uptrend in the stock market in 2009-10 led to gauged from the price-earning ratio. The substantial increase in market capitalisation AS 30 index of Australia and NASDAQ to GDP ratios of BSE and NSE. It increased to Composite of the U.S. had the highest P/E almost double of its value from the previous ratio in 2009-10. Among the indices of year figures at both the exchanges. emerging markets analysed, SHCOMP index The turnover to GDP ratio was the of China and TWSE index of Taiwan had highest in 2009-10 under derivatives segment. higher P/E ratio in 2009-10 than that of Indian The all-India cash turnover to GDP ratio benchmark indices (Chart 2.7). 52 Part Two: Review of Trends and Operations Table 2.14: Market Capitalisation at NSE All Percen- S&P Percen- CNX Percen- CNX Percen- CNX Percen- S&P Percen- Year/ listed tage CNX tage Mid tage IT tage Bank tage CNX tage Month Com- Varia- Nifty Varia- Cap Varia- Varia- Varia- Pharma Varia- panies tion tion tion tion tion tion 1 2 3 4 5 6 7 8 9 10 11 12 13 2005-06 28,13,201 77.42 15,90,155 67.09 3,38,927 128.98 3,48,096 53.22 2,00,503 46.44 1,47,124 57.98 2006-07 33,67,350 19.70 19,09,448 20.08 3,41,869 0.87 4,20,814 20.89 2,29,084 14.25 1,46,394 -0.50 2007-08 48,58,122 44.27 28,48,773 49.19 4,62,665 35.33 3,22,637 -23.33 3,50,535 53.02 1,41,314 -3.47 2008-09 28,96,194 -40.38 18,92,629 -33.56 2,73,627 -40.86 2,01,810 -37.45 2,24,132 -36.06 1,09,604 -22.44 2009-10 60,09,173 107.49 15,25,162 -19.42 317,619 16.08 2,28,558 13.25 3,17,351 41.59 2,20,330 101.02 Apr-09 33,75,025 16.53 21,78,436 15.10 3,10,089 13.33 2,41,164 19.50 2,78,240 24.14 1,22,723 11.97 May-09 45,64,572 35.25 27,89,789 28.06 4,30,068 38.69 2,79,108 15.73 4,02,210 44.56 1,38,377 12.75 Jun-09 44,32,596 -2.89 11,64,138 -58.27 4,36,038 1.39 3,04,564 9.12 3,98,204 -1.00 1,41,176 2.02 Jul-09 48,16,459 8.66 12,60,547 8.28 4,80,036 10.09 3,77,738 24.03 4,09,362 2.80 1,53,404 8.66 Aug-09 49,75,800 3.31 12,77,107 1.31 5,06,016 5.41 4,03,065 6.71 4,03,271 -1.49 1,56,245 1.85 Sep-09 53,53,880 7.60 13,96,214 9.33 5,57,592 10.19 4,47,057 10.91 4,78,285 18.60 1,77,979 13.91 Oct-09 50,24,830 -6.15 13,22,328 -5.29 5,82,128 4.40 4,42,871 -0.94 4,61,666 -3.47 1,77,838 -0.08 Nov-09 54,30,088 8.07 14,62,989 10.64 6,35,930 9.24 4,70,908 6.33 4,95,434 7.31 1,93,249 8.67 Dec-09 56,99,637 4.96 15,14,579 3.53 6,62,951 4.25 5,10,892 8.49 4,94,701 -0.15 2,03,710 5.41 Jan-10 57,82,965 1.46 14,25,638 -5.87 6,43,030 -3.00 4,91,363 -3.82 4,78,508 -3.27 1,95,422 -4.07 Feb-10 57,55,305 -0.48 14,28,908 0.23 2,91,021 -54.74 2,25,035 -54.20 2,92,483 -38.88 2,01,975 3.35 Mar-10 60,09,173 4.41 15,25,162 6.74 3,17,619 9.14 2,28,558 1.57 3,17,351 8.50 2,20,330 9.09 Note: NSE index calculation methodology shifted from capital weighted to free float capital weighting method w.e.f. June 26, 2009. Source: NSE. Table 2.15: Selected Ratios relating to Stock Market (Percent) Year BSE Market NSE Market Total Turnover to GDP Ratio Capitalisation to Capitalisation to GDP Ratio GDP Ratio Cash Segment Derivatives Segment (BSE + NSE) (BSE+NSE) 1 2 3 4 5 2003-04 43.44 40.53 58.71 77.64 2004-05 54.32 50.71 53.40 82.12 2005-06 84.41 78.57 66.76 134.74 2006-07 85.51 81.22 70.02 178.86 2007-08 109.47 103.51 109.32 284.06 2008-09 55.36 51.95 69.10 197.73 2009-10 100.02 97.49 89.50 286.56 Sources: Central Statistical Organisation and Various Stock Exchanges. 53 Annual Report 2009-10 At the end of March 2010, the P/E ratio the benchmark indices, BSE Sensex and S&P of BSE Sensex and S&P CNX Nifty were CNX Nifty at 3.9 and 3.7, respectively (Table 21.3 and 22.3 respectively as compared to 2.17). 13.7 and 14.3 respectively as on March 31, 2009 (Table 2.16). The P/E ratio of Indian VI. Volatility in Stock Markets indices witnessed significant increase in May Average daily volatility of a stock or 2009 after the results of Union Government index is measured by calculating the standard elections were declared and steadily increased deviation of logarithmic returns during a thereafter. However, towards the last quarter, certain period. In 2009-10, the stock markets there was marginal decline in the valuations around the world displayed lesser volatility of majority of broad based and sectoral as compared to 2008-09. Month-wise, average indices. daily volatility in the Indian benchmark Price to book value ratio is the ratio of indices was the highest in May 2009 (Table market value of equity to the book value of 2.18). The lowest volatility in the benchmark equity. There was an increase in the P/B ratio indices was noticed during March 2010. of indices in 2009-10 compared to 2008-09. The annualised volatility of BSE Sensex The P/B ratio was the highest for the CNX IT decreased from 43.6 percent in 2008-09 to 29.2 index at 7.2, followed by BSE 100 at 4.1, and percent in 2009-10. Similar trend was also 54 Part Two: Review of Trends and Operations Table 2.16: Price-Earnings Ratio Year/ BSE BSE S&P CNX CNX IT CNX CNX Month* Sensex 100 CNX Nifty Mid Cap Bank PSE 1 2 3 4 5 6 7 8 2005-06 20.92 20.08 20.26 23.09 46.47 15.31 13.66 2006-07 20.33 17.64 18.40 15.58 32.35 14.15 10.61 2007-08 20.11 19.95 20.63 14.75 17.94 16.16 13.47 2008-09 13.65 15.30 14.30 9.77 11.49 7.69 18.13 2009-10 21.32 21.08 22.33 15.03 23.53 17.72 15.28 Apr-09 15.94 17.77 16.53 11.09 13.45 9.29 19.80 May-09 19.87 23.51 20.82 15.52 15.22 12.93 23.59 Jun-09 19.02 21.02 19.97 13.48 16.60 12.80 18.39 Jul-09 20.35 21.82 20.68 13.82 19.37 12.15 18.43 Aug-09 20.45 21.85 20.94 14.50 20.23 11.96 18.82 Sep-09 22.19 23.28 22.90 15.98 22.44 14.19 19.13 Oct-09 20.21 21.22 20.45 14.11 21.19 13.28 14.66 Nov-09 21.53 21.48 22.37 15.54 22.43 14.16 15.96 Dec-09 22.36 22.39 23.17 16.14 24.34 14.14 16.92 Jan-10 20.32 20.96 21.00 14.01 22.67 13.58 15.58 Feb-10 20.15 20.68 20.92 14.00 23.17 16.33 15.85 Mar-10 21.32 21.08 22.33 15.03 23.53 17.72 15.28 * As on last trading date of the respective year/month. Source: BSE, NSE. Table 2.17: Price to Book-Value Ratio Year/ BSE BSE S&P CNX CNX IT CNX CNX Month* Sensex 100 CNX Nifty Mid Cap Bank PSE 1 2 3 4 5 6 7 8 2005-06 5.13 4.37 5.15 4.39 11.96 2.58 3.12 2006-07 5.07 4.43 4.87 3.06 11.68 2.24 2.70 2007-08 5.18 4.98 5.09 2.97 6.17 2.88 3.08 2008-09 2.66 2.46 2.50 1.32 3.54 1.20 2.24 2009-10 3.90 4.02 3.70 2.72 7.21 2.54 3.08 Apr-09 3.02 2.82 2.87 1.50 4.24 1.50 2.45 May-09 3.67 3.66 3.63 2.06 4.38 2.13 3.46 Jun-09 3.50 3.50 3.56 2.05 4.78 2.07 3.13 Jul-09 3.78 3.76 3.73 2.13 5.83 1.90 3.37 Aug-09 3.80 3.79 3.66 2.10 6.13 1.87 3.40 Sep-09 4.13 4.08 3.76 2.31 6.70 2.22 3.12 Oct-09 3.82 3.79 3.53 2.34 6.65 2.14 2.93 Nov-09 4.05 4.08 3.56 2.54 7.05 2.30 3.17 Dec-09 4.20 4.25 3.65 2.65 7.56 2.30 3.36 Jan-10 3.71 3.90 3.43 2.56 7.27 2.22 3.27 Feb-10 3.68 3.87 3.46 2.52 7.10 2.34 3.20 Mar-10 3.90 4.02 3.70 2.72 7.21 2.54 3.08 * As on last trading date of the respective year/month. Source: BSE, NSE. 55 Annual Report 2009-10 Table 2.18: Average Daily Volatility of Benchmark Indices (Percent) 2009-10 BSE Sensex S&P CNX Nifty BSE 100 BSE Small Cap BSE 500 1 2 3 4 5 6 Apr-09 2.12 2.18 2.16 2.68 2.16 May-09 4.20 4.15 3.96 3.04 3.79 Jun-09 1.75 1.92 1.89 2.45 1.95 Jul-09 2.21 2.22 2.21 2.29 2.18 Aug-09 1.78 1.78 1.78 1.68 1.73 Sep-09 0.90 0.92 0.88 0.99 0.86 Oct-09 1.08 1.08 1.10 1.42 1.12 Nov-09 1.57 1.58 1.57 1.68 1.55 Dec-09 1.01 1.05 0.98 0.85 0.93 Jan-10 0.98 1.03 1.10 1.64 1.14 Feb-10 1.15 1.18 1.16 1.31 1.14 Mar-10 0.68 0.70 0.67 0.82 0.65 Note: Volatility is measured in terms of standard deviation and is computed from the logarithmic returns based on closing values of indices as on the last date of the month. Source: BSE, NSE. observed for S&P CNX Nifty, which recorded VII. Trading Frequency annualised volatility of 29.4 percent in 2009-10 Liquidity in stock markets is measured compared to 41.5 percent in the previous year. by the trading frequency of listed stocks at BSE and NSE. The number of securities listed An international comparison of volatility at the end of March 2010 was 8,072 at BSE. in stock returns indicates that volatility At NSE, the number of securities listed was was lesser in 2009-10 in both emerging and 1,359 as on March 31, 2010. Trading frequency developed markets (Table 2.19 and Chart improved at both the stock exchanges in 2009- 2.8) as compared to that in 2008-09. During 10 over the previous financial year. During 2009-10, volatility was high in majority of the 2009-10, the number of securities traded markets in the month of April 2009 and May in BSE was 3,371 as compared to 3,246 in 2009 as compared to other months in the year. 2008-09 (Table 2.20). Similarly, the number of As per Bloomberg data, Indian markets were securities traded in NSE was higher at 1,401 the third most volatile in the world. Among in 2009-10 compared to 1,301 in 2008-09. The the developed markets, the annualised percentage share of securities traded at BSE volatility was high in Hong Kong (27.3 above 100 days marginally increased from percent) followed by Germany DAX (22.8 87.2 percent in 2008-09 to 88.6 percent in percent) and Europe DJ Stoxx (22.6 percent). 2009-10. At NSE, this percentage decreased Among the emerging markets, annualised from 97.8 percent in 2008-09 to 92.9 percent volatility was higher for Russia (46.1 percent), in 2009-10. The percentage share of securities Hungary (31.9 percent) followed by Indian traded for less than 10 days was 4.1 percent at indices. BSE and 0.9 percent at NSE in 2009-10. 56 Part Two: Review of Trends and Operations Table 2.19: Trends in Daily Volatility of International Stock Market Indices during 2009-10 (Percent) Country Index Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Annua- lised Volati- lity 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 DEVELOPED MARKETS USA DJIA 1.71 1.54 1.14 1.24 0.89 0.75 1.19 0.88 0.65 0.92 1.02 0.41 17.02 USA Nasdaq 2.02 1.70 1.38 1.32 1.13 0.95 1.35 1.03 0.75 1.16 1.03 0.59 19.81 UK FTSE 100 1.78 1.24 1.25 1.20 0.93 0.89 1.26 1.25 0.98 0.87 0.98 0.57 17.98 Europe DJ Stoxx 2.05 1.46 1.69 1.56 1.33 1.04 1.59 1.44 1.04 1.15 1.47 0.82 22.58 France CAC 1.97 1.46 1.61 1.50 1.22 1.02 1.51 1.45 0.98 1.13 1.45 0.78 21.80 Germany DAX 2.08 1.60 1.77 1.64 1.39 1.16 1.61 1.39 0.98 1.13 1.11 0.71 22.77 Australia AS30 1.41 1.42 1.41 1.17 1.12 0.98 1.20 1.28 0.69 0.86 1.13 0.51 17.87 Japan NKY 1.95 1.84 1.39 1.34 1.41 1.36 1.17 1.22 1.30 1.23 1.40 0.83 22.21 Hong Kong HIS 2.77 2.15 1.95 1.74 1.78 1.52 1.46 1.79 1.00 1.23 1.51 1.05 27.33 Singapore STI 1.95 2.48 1.46 1.32 1.51 0.88 0.91 0.93 0.57 0.97 0.95 0.69 21.23 EMERGING MARKETS Taiwan TWSE 2.01 2.22 1.78 1.21 1.26 1.04 1.01 1.09 0.71 1.30 1.38 0.83 22.37 Russia CRTX 3.29 3.08 4.52 3.74 3.04 2.15 3.08 2.82 1.95 2.43 1.94 1.19 46.02 Malaysia KLCI 1.13 0.92 0.92 0.75 0.63 0.49 0.53 0.40 0.38 0.53 0.52 0.65 11.06 South Korea KOSPI 1.95 2.48 1.46 1.32 1.51 0.88 0.91 0.93 0.57 0.97 0.95 0.69 21.23 Thailand SET 1.15 1.92 1.94 1.53 1.32 1.03 1.81 1.62 1.10 0.80 0.86 1.05 22.36 China SHCOMP 1.69 1.33 1.13 1.75 2.91 1.79 1.49 1.77 1.41 1.40 0.99 1.07 26.62 S. Africa JALSH 1.86 1.63 1.40 1.36 1.22 0.96 1.05 0.92 0.68 0.77 1.08 0.68 18.73 Brazil IBOV 1.82 2.39 1.83 1.42 1.26 0.98 2.31 1.40 1.07 1.13 1.61 0.82 24.95 Colombia IGBC 0.84 1.30 0.76 1.07 0.59 1.13 0.99 0.94 0.54 0.74 0.76 0.53 14.05 Hungary BUX 2.41 2.59 2.48 2.00 2.51 1.85 1.72 2.10 1.30 1.51 1.80 1.33 31.85 Egypt HERMES 1.86 2.24 2.07 2.16 1.65 0.99 1.28 2.22 1.89 0.99 1.26 1.33 27.61 Indonesia JCI 2.02 1.95 2.01 1.45 1.48 1.06 1.15 1.05 1.05 0.93 1.08 1.01 22.51 Argentina IBG 2.36 2.22 2.21 1.84 1.34 1.41 2.09 1.51 0.93 1.36 1.63 0.67 27.05 Chile IPSA 0.92 1.46 1.28 0.67 0.77 0.60 0.82 0.93 0.69 0.65 0.94 0.66 14.58 Mexico MEXBOL 2.25 1.82 1.59 1.38 1.18 1.07 1.41 1.22 0.81 1.03 0.89 0.42 21.10 India BSE 2.12 4.20 1.75 2.21 1.78 0.90 1.08 1.57 1.01 0.98 1.15 0.68 29.16 Sensex India S&P CNX 2.18 4.15 1.92 2.22 1.78 0.92 1.08 1.58 1.05 1.03 1.18 0.70 29.41 Nifty Source: Bloomberg Financial Services. 57 Annual Report 2009-10 Table 2.20: Trading Frequency of Listed Stocks 2008-09 2009-10 Trading Frequency BSE NSE BSE NSE (Range of No. of Percentage No. of Percentage No. of Percentage No. of Percentage Days) Shares of Shares of Shares of Shares of Traded Total Traded Total Traded Total Traded Total 1 2 3 4 5 6 7 8 9 Above 100 2,831 87.22 1,273 97.85 2,986 88.58 1301 92.86 91-100 29 0.89 5 0.38 22 0.65 15 1.07 81-90 32 0.99 4 0.31 26 0.77 3 0.21 71-80 21 0.65 0 0.00 24 0.71 9 0.64 61-70 24 0.74 1 0.08 27 0.80 2 0.14 51-60 25 0.77 2 0.15 21 0.62 23 1.64 41-50 33 1.02 4 0.31 30 0.89 6 0.43 31-40 34 1.05 4 0.31 29 0.86 6 0.43 21-30 32 0.99 2 0.15 28 0.83 9 0.64 11-20 38 1.17 3 0.23 39 1.16 14 1.00 1-10 147 4.53 3 0.23 139 4.12 13 0.93 Total 3,246 100.00 1,301 100.00 3,371 100.00 1,401 100.00 Source: BSE, NSE. 58 Part Two: Review of Trends and Operations Share of top 10 brokers in annual cash VIII. Activities of Stock Exchanges market turnover in 2009-10 at NSE and Over the years, NSE and BSE have BSE was 23.5 and 22.5 percent respectively. emerged as the nation-wide stock exchanges Share of top 10 securities in annual cash of the country contributing more than 99 market turnover in 2009-10 at NSE and BSE percent of the total turnover. Apart from NSE was 26.2 and 22.9 percent respectively. At and BSE, only Calcutta Stock Exchange Ltd. NSE, contribution in annual cash market and UPSE reported some transactions (Table turnover in 2009-10 reveals that proprietary 2.22). trades, domestic institutions (excluding mutual funds), FIIs, and Mutual Funds The number of shares traded and contributed 26.4 percent, 2.9 percent, 13.2 delivered increased at BSE, NSE, and Calcutta percent and 3.9 percent respectively whereas Stock Exchange Ltd. The value of shares others (including individuals, partnership delivered also increased at these stock firms, HUFs, Trusts, NRIs, etc) contributed exchanges. Of the total shares traded, NSE’s 53.5 percent. Similar at BSE annual cash share was 65.9 percent, followed by BSE market turnover data for 2009-10 shows that which constituted 33.9 percent of the total proprietary trades, domestic institutions shares traded. NSE had a share of 74.6 (excluding mutual funds), FIIs, and Mutual percent in the total value of shares delivered Funds contributed 22.9 percent, 1.5 percent, followed by BSE with 25.4 percent share. 6.3 percent and 2.4 percent respectively Majority of the other stock exchanges whereas others (including individuals, were inactive and their operations were partnership firms, HUFs, Trusts, NRIs, etc) confined to their subsidiaries, which, contributed 67.1 percent (Table 2.21). have taken membership of BSE and NSE. Table 2.21: Share of Brokers, Securities and Participants in Cash Market Turnover Percentage Share S. No. Particulars NSE BSE 1. Share of Top 10 Brokers in annual cash market 23.48 22.52 turnover in 2009-10 2. Share of Top 10 Scrips/securities in annual cash market 26.15 22.87 turnover in 2009-10 3. Share of participants in annual cash market turnover in 2009-10 (i) Proprietary trades 26.39 22.89 (ii) Domestic Institutions (excluding MFs) 2.92 1.48 (iii) FIIs 13.21 6.23 (iv) MFs 3.99 2.39 (v) Others* 53.48 67.01 Total of (i) to (v) 100.00 100.00 * Others include individuals, partnership firms, HUFs, public and private companies/bodies corporate/Society, Statutory bodies, NRIs, Overseas Corporate Bodies, FDI/FCVF and PMS. 59 Annual Report 2009-10 Table 2.22: Trading Statistics of Stock Exchanges Shares Traded Shares Delivered Value of Shares Delivered Stock (Lakh) (Lakh) (Rs.crore) Exchange 2008-09 2009-10 2008-09 2009-10 2008-09 2009-10 1 2 3 4 5 6 7 Recognised Stock Exchanges Ahmedabad Nil Nil Nil Nil Nil Nil BSE 7,39,600 11,36,513 1,96,330 3,63,578 2,30,332 3,11,364 (34.26) (33.99) (39.28) (43.39) (27.38) (25.34) Bangalore Nil Nil Nil Nil Nil Nil Bhubaneswar Nil Nil Nil Nil Nil Nil Calcutta 235 551 219 404 372 788 (0.01) (0.02) (0.04) (0.05) (0.04) (0.06) Cochin Nil Nil Nil Nil Nil Nil Coimbatore Nil Nil Nil Nil Nil Nil Delhi Nil Nil Nil Nil Nil Nil Gauhati Nil Nil Nil Nil Nil Nil ISE Nil Nil Nil Nil Nil Nil Jaipur Nil Nil Nil Nil Nil Nil Ludhiana Nil Nil Nil Nil Nil Nil Madras Nil Nil Nil Nil Nil Nil MPSE Nil Nil Nil Nil Nil Nil NSE 14,18,928 22,05,878 3,03,299 4,73,952 6,10,498 9,16,460 (65.73) (65.99) (60.68) (56.56) (72.57) (74.59) OTCEI Nil Nil Nil Nil Nil Nil Pune Nil Nil Nil Nil Nil Nil UPSE 23 5.34 0.29 0.03 0.17 0.04 (0) (0) (0) (0) (0) (0) Vadodara Nil Nil Nil Nil Nil Nil Total 21,58,786 33,42,947 4,99,848 8,37,934 8,41,202 12,28,612 Note: Figures in parentheses indicate percentage to total. Source: Various Stock Exchanges. The turnover of many of the subsidiaries Limited (CDSL). The depositories have increased in 2009-10 over the previous set up nation-wide network with proper financial year. Turnover of subsidiaries during infrastructure to handle the securities 2009-10 was Rs.2,54,435 crore compared to deposited or settled in dematerialised mode Rs.1,71,721 crore in 2008-09. This indicated an in the Indian stock markets. increase of 48.2 percent (Table 2.23). The number of companies signed up IX. Dematerialisation for dematerialisation in NSDL rose from 7,801 in 2008-09 to 8,124 in 2009-10 (Table There are two depositories in India 2.24). Similarly, at CDSL, the number of viz., National Securities Depository Limited companies signed up increased from 6,213 (NSDL) and Central Depository Services in 2008-09 to 6,805 in 2009-10. The number 60 Part Two: Review of Trends and Operations Table 2.23: Turnover of Subsidiaries of Stock Exchanges Stock No. of Name of the Subsidiary Turnover of Subsidiary Percentage Exchange Subsi- (Rs.crore) Variation diary/ies 2008-09 2009-10 1 2 3 4 5 6 Recognised Stock Exchanges Ahmedabad 1 ASE Capital Markets Ltd. 20,932 28,547 36.38 Bangalore 1 BgSE Financials Ltd. 15,965 22,796 42.79 Bhubaneswar 1 Bhubaneswar Shares and Securities Ltd. Nil Nil Nil Cochin 1 Cochin Stock Brokers Ltd. 6,276 6,827 8.78 Delhi 1 DSE Financial Services Ltd. 2,862 3,344 16.84 ISE 1 ISE Securities and Services Ltd. 35,196 45,726 29.92 Jaipur 1 JSEL Securities Ltd. 8,009 9,934 24.04 Ludhiana 1 LSE Securities Ltd. 52,373 1,01,863 94.50 Madras 1 MSE Financial Services Ltd. 1,303 1,253 -3.84 MPSE 1 MPSE Securities Ltd. 3,818 3,966 3.88 OTCEI 1 OTCEI Securities Ltd. 1,627 1,678 3.13 Pune 1 PSE Securities Ltd. NA 3,134 NA UPSE 1 UPSE Securities Ltd. 2,242 3,082 37.47 Vadodara 1 VSE Stock Services Ltd. 21,118 22,285 5.53 Total 1,71,721 2,54,435 48.17 Source: Various Stock Exchanges. of dematerialised shares in NSDL went up by 10.1 percent from 7,08,200 lakh in 2008- by 24.4 percent from 28,28,700 lakh in 2008- 09 to 7,79,500 lakh in 2009-10. In both the 09 to 35,11,378 lakh in 2009-10. In CDSL, depositories, there was a substantial increase the number of shares dematerialised rose in the value of shares settled in dematerialised Table 2.24: Depository Statistics: Equity Shares NSDL CDSL Particulars 2008-09 2009-10 2008-09 2009-10 1 2 3 4 5 Companies Signed up (Numbers) 7,801 8,124 6,213 6,805 Companies Available for Demat (Numbers) 7,801 8,124 6,213 6,805 Demat Quantity of Shares (lakh) 28,28,700 35,11,378 7,08,200 7,79,500 No. of Shares Settled in Demat (lakh) 5,43,543 8,68,089 2,06,147 4,62,545 Value of Shares Settled in Demat (Rs.crore) 10,88,895 14,97,880 2,23,989 4,29,869 Market Capitalisation of Companies in 31,10,345 61,84,326 31,43,729 62,19,652 Demat (Rs.crore) Source: NSDL, CDSL. 61 Annual Report 2009-10 mode. While in NSDL, the total value of Table 2.26: Cities according to Number of demat settled shares increased by 37.6 DP Locations: Geographical percent from Rs.10,88,895 crore in 2008-09 Spread to Rs.14,97,880 crore in 2009-10, the same in NSDL CDSL case of CDSL increased by 91.9 percent from No. of DP Locations 2008-09 2009-10 2008-09 2009-10 Rs.2,23,989 crore in 2008-09 to Rs.4,29,869 crore in 2009-10. 1 2 3 4 5 1-10 815 1,095 716 951 Apart from the shares, dematerialisation 11-20 66 67 39 45 facility is also offered for other instruments 21-50 42 62 42 48 like commercial paper and bonds. The total dematerialised value of the commercial 51-100 14 17 6 9 paper increased at both NSDL and CDSL > 100 9 14 12 14 (Table 2.25). At NSDL, dematerialised value Total 946 1,255 815 1,067 of commercial paper rose from Rs.48,922 Note: The number of DP locations at CDSL, includes crore in 2008-09 to Rs.76,927 crore in 2009- locations that have back office connected centres of the DPs. 10. However, the dematerialised value of Source: NSDL, CDSL. commercial paper at CDSL declined from Rs.1,139 crore in 2008-09 to Rs.884 crore in 2009-10. Dematerialised value of debentures/ at 1,067 cities in 2009-10 as compared to 815 bonds increased both at NSDL and CDSL in cities in 2008-09. 2009-10. X. Derivatives Market in India The geographical coverage of depository participants (DPs) of NSDL and CDSL also A. Trends in Equity Derivative Market widened in 2009-10. The DPs of NSDL Exchange traded derivatives form were available at 1,255 cities in 2009-10 as an important segment of Indian stock compared to 946 cities in 2008-09 (Table 2.26). markets. The derivatives markets have grown Similarly, in case of CDSL, DPs were available substantially over the years in India. Trading Table 2.25: Depository Statistics: Debentures/Bonds and Commercial Paper Debentures/Bonds Commercial Papers Particulars 2008-09 2009-10 2008-09 2009-10 NSDL CDSL NSDL CDSL NSDL CDSL NSDL CDSL 1 2 3 4 5 6 7 8 10 No. of Issuers 481 277 532 309 118 25 173 23 No. of Active 6,613 4,432 6,604 4,578 506 110 765 100 Instruments Demat Value 5,85,427 21,671 7,16,728 31,382 48,922 1,139 76,927 884 (Rs.crore) Source: NSDL, CDSL 62 Part Two: Review of Trends and Operations in derivatives is dominated by NSE, which increased by 59.1 percent to Rs.72,097 crore has a share of more than 99 percent of the from Rs.45,311 crore in 2008-09. total turnover. Over the years, derivatives The total number of contracts traded market has generated turnover substantially in the derivative segment of NSE rose higher than that of the equity segment. marginally by 3.4 percent to 67,92,93,922 During 2009-10, turnover of derivatives in 2009-10 from 65,73,90,497 in 2008-09, market was 4.6 times of the cash turnover on whereas, at BSE, the number of contracts all-India equity exchanges (Chart 2.9). traded declined substantially from 4,96,502 The turnover in the derivatives segment in 2008-09 to 9,026 in 2009-10. The value at NSE recorded a mixed trend during 2009- of the contracts traded in the derivative 10 (Table 2.27). The highest turnover was segment of NSE increased by 60.4 percent recorded in November 2009 (Rs.16,61,816 to Rs.1,76,63,665 crore in 2009-10 from crore) followed by July 2009 (Rs.15,73,509 Rs.1,10,10,468 crore in 2008-09, whereas the crore) and February 2010 (Rs.15,69,877 crore). turnover at the derivatives segment of BSE Growth in the derivatives turnover at NSE declined to Rs.234 crore in 2009-10 from was the highest in June 2009 when turnover Rs.11,775 crore in 2008-09. The open interest rose by 24.8 percent, followed November 2009 in the derivative segment increased by 69.8 (10.1 percent) and April 2009 (9.9 percent). percent to Rs.97,978 crore at the end of 2009- The average daily turnover at NSE in 2009-10 10 from Rs.57,705 crore at the end of 2008-09. 63 Annual Report 2009-10 Table 2.27: Trends in Turnover and Open Interest in Equity Derivatives Number of Contracts Turnover Open Interest at the End of the Year/Month (Rs.crore) No. of Contracts Notional Turnover Year/Month (Rs.crore) NSE BSE NSE BSE NSE BSE NSE BSE 1 2 3 4 5 6 7 8 9 2005-06 15,76,19,271 203 48,24,250 9 10,28,003 0 38,469 0 2006-07 21,68,83,573 17,81,220 73,56,271 59,007 17,91,387 408 38,710 13 2007-08 42,50,13,200 74,53,371 1,30,90,478 2,42,309 22,82,671 3,175 48,900 74 2008-09 65,73,90,497 4,96,502 1,10,10,482 11,775 32,27,759 22 57,705 0 2009-10 67,92,93,922 9,026 1,76,63,665 234 34,89,790 0 97,978 0 Apr-09 5,62,10,317 113 11,43,363 1.85 27,53,069 8 57,076 0.17 May-09 4,82,85,515 393 12,27,253 7.95 23,05,330 1 64,823 0.02 Jun-09 5,24,08,197 3 15,31,981 0.14 25,27,295 1 58,987 0.02 Jul-09 6,68,27,086 4 15,73,509 0.09 24,67,693 0 62,474 0.00 Aug-09 5,96,70,387 1 14,73,646 0.02 29,55,633 1 75,134 0.03 Sep-09 5,25,01,332 1 13,88,378 0.03 32,39,338 1 88,791 0.02 Oct-09 5,57,09,794 0 15,10,418 0.00 33,36,784 0 83,327 0.00 Nov-09 6,27,65,075 1 16,61,816 0.03 33,90,368 0 91,419 0.00 Dec-09 5,54,24,003 147 15,24,982 3.83 27,56,002 25 77,760 0.61 Jan-10 5,31,01,821 7935 14,90,297 209.71 35,65,510 0 93,194 0.00 Feb-10 6,04,29,963 399 15,69,877 9.67 33,40,490 0 88,141 0.00 Mar-10 5,59,60,432 29 15,68,148 0.75 34,89,790 0 97,978 0.00 Open Interest is calculated as at the end of the respective year/month. Source: BSE, NSE. A clear-cut change was seen in the percent) and Index Futures (22.3 percent). The product composition and turnover in the share of single stock options improved from derivatives market in India (Table 2.28). 2.1 percent in 2008-09 to 2.9 percent in 2009- Futures in general and single stock futures, 10 (Chart 2.10). in particular, used to dominate derivatives Product-wise share in the open interest product in India with over 86 percent share shows that the notional value of outstanding in total derivatives turnover every year. contracts was the highest for Index Options However, the picture has been changing (Rs.47,808 crore) followed by single Stock in last couple of years in favour of Index Futures (Rs.32,053 crore), Index Futures Options. During 2009-10, the largest share (Rs.14,979 crore), and Stock Options (Rs.3,137 in the total derivatives turnover has been crore). The tables 2.29 to 2.32 show the contributed by Index options with 45.5 product-wise trends in the derivative market percent share in it whereas the share of in India during the recent years. index options in the total turnover in 2008-09 was 33.9 percent. In 2009-10, Index options The transactions undertaken by trading- were followed by Single Stock Futures (29.4 cum-clearing members constituted 57.2 64 Part Two: Review of Trends and Operations Table 2.28: Product-wise Derivatives Turnover at NSE and BSE (Percent) Year/Month Index Futures Index Options Single Stock Single Stock Total Options Futures 1 2 3 4 5 6 2005-06 31.38 7.02 3.74 57.87 100 2006-07 34.52 10.77 2.63 52.08 100 2007-08 29.19 10.41 2.74 57.66 100 2008-09 32.42 33.89 2.08 31.60 100 2009-10 22.27 45.45 2.86 29.41 100 Apr-09 26.39 39.69 2.75 31.17 100 May-09 25.86 35.08 2.54 36.52 100 Jun-09 22.65 35.62 3.25 38.49 100 Jul-09 24.34 44.57 2.46 28.64 100 Aug-09 24.86 44.70 2.46 27.98 100 Sep-09 21.78 43.87 3.08 31.27 100 Oct-09 21.82 44.33 3.00 30.84 100 Nov-09 21.88 49.13 2.63 26.37 100 Dec-09 21.61 49.62 2.81 25.96 100 Jan-10 20.06 46.69 3.45 29.80 100 Feb-10 20.82 53.97 2.63 22.58 100 Mar-10 17.11 53.77 3.28 25.85 100 Source: BSE, NSE. 65 Annual Report 2009-10 Table 2.29: Trends in Index Futures at NSE and BSE Open Interest at the End of Year/ Number of Contracts Turnover the Year/Month Month (Rs.crore) No. of Contracts Notional Turnover (Rs.crore) NSE BSE NSE BSE NSE BSE NSE BSE 1 2 3 4 5 6 7 8 9 2006-07 8,14,87,424 16,38,779 25,39,575 55,491 6,50,893 402 12,453 13.00 2007-08 15,65,98,579 71,57,078 38,20,667 2,34,660 6,70,209 3,138 15,484 73.44 2008-09 21,04,28,103 4,95,830 35,70,111 11,757 8,28,369 22 12,060 0.31 2009-10 17,83,06,889 3,744 39,34,389 96 5,81,510 0 14,979 0.00 Apr-09 1,86,62,382 113 3,01,764 1.9 8,02,994 25 13,532 0.43 May-09 1,66,17,516 39 3,17,415 0.7 6,10,963 8 13,335 0.17 Jun-09 1,62,07,959 1 3,46,934 0.0 4,94,438 1 10,294 0.02 Jul-09 1,82,71,805 4 3,82,924 0.1 5,22,157 1 11,938 0.02 Aug-09 1,68,92,217 1 3,66,312 0.0 5,67,883 0 12,945 0.00 Sep-09 1,30,32,242 1 3,02,425 0.0 5,81,318 1 14,394 0.03 Oct-09 1,36,15,447 0 3,29,610 0.0 6,43,593 1 14,804 0.02 Nov-09 1,51,78,552 0 3,63,523 0.0 5,84,375 0 14,724 0.00 Dec-09 1,33,37,833 27 3,29,496 0.7 5,20,508 0 13,175 0.00 Jan-10 1,20,56,359 3,130 2,98,849 82.1 7,11,723 25 16,867 0.61 Feb-10 1,38,91,843 399 3,26,871 9.7 5,55,095 0 13,485 0.00 Mar-10 1,05,42,734 29 2,68,266 0.7 5,81,510 0 14,979 0.00 Source: BSE, NSE. Table 2.30: Trends in Single Stock Futures at NSE and BSE Open Interest at the End of Year/ Number of Number of Turnover the Year/Month Month Stocks Contracts (Rs.crore) No. of Contracts Notional Turnover (Rs.crore) NSE BSE NSE BSE NSE BSE NSE BSE NSE BSE 1 2 3 4 5 6 7 8 9 10 11 2005-06 116 76 8,09,05,493 12 27,91,721 0.48 6,25,926 0 24,670 0 2006-07 155 89 10,49,55,401 1,42,433 38,30,972 3,516 7,39,380 6 18,513 0.14 2007-08 228 3 20,35,87,952 2,95,117 75,48,563 7,609 10,86,267 37 21,143 0.97 2008-09 250 3 22,15,77,980 299 34,79,642 9 5,11,334 0 15,722 0 2009-10 190 0 14,55,91,240 6 51,95,247 0 9,90,917 0 32,053 0 Apr-09 234 0 98,58,642 0 3,56,383 0 4,66,755 0 17,036 0 May-09 233 1 95,28,178 2 4,48,155 0 4,48,935 0 22,907 0 Jun-09 233 1 1,11,27,649 2 5,89,657 0 7,93,175 0 21,468 0 Jul-09 183 0 1,55,00,535 0 4,50,632 0 7,72,633 0 22,878 0 Aug-09 180 0 1,31,13,118 0 4,12,363 0 8,47,450 0 25,603 0 Sep-09 180 0 1,31,57,621 0 4,34,119 0 8,72,616 0 28,470 0 Oct-09 179 0 1,40,44,526 0 4,65,829 0 9,33,703 0 26,845 0 Nov-09 179 1 1,32,60,546 1 4,38,220 0 9,07,402 0 28,489 0 Dec-09 179 1 1,13,07,332 0 3,95,954 0 8,69,188 0 28,787 0 Jan-10 179 1 1,25,46,679 1 4,44,134 0 9,32,444 0 28,938 0 Feb-10 190 0 1,07,25,789 0 3,54,485 0 9,14,821 0 28,012 0 Mar-10 190 0 1,14,20,625 0 4,05,316 0 9,90,917 0 32,053 0 66 Part Two: Review of Trends and Operations Table 2.31: Trends in Index Options at NSE and BSE Open Interest at the End of Year/ Number of Contracts Turnover the Year/Month Month (Rs.crore) Number of Notional Turnover Contracts (Rs.crore) NSE BSE NSE BSE NSE BSE NSE BSE 1 2 3 4 5 6 7 8 9 2005-06 1,29,35,116 100 3,38,469 3.2 1,28,688 0 4,379 0 2006-07 2,51,57,438 2 7,91,913 0.06 3,81,910 0 7,297 0 2007-08 5,53,66,038 1,161 13,62,111 39 4,91,593 0 11,636 0 2008-09 21,20,88,444 373 37,31,502 9 18,09,483 0 27,402 0 2009-10 34,13,79,523 5,276 80,27,964 138 18,19,841 0 47,808 0 Apr-09 2,68,81,970 0 4,53,788 0 14,51,237 0 25,357 0 May-09 2,14,95,541 352 4,30,515 7 12,14,579 0 27,100 0 Jun-09 2,41,89,642 0 5,45,643 0 11,47,201 0 24,698 0 Jul-09 3,17,86,743 0 7,01,247 0 11,13,135 0 25,874 0 Aug-09 2,85,35,857 0 6,58,757 0 14,48,202 0 33,830 0 Sep-09 2,50,74,041 0 6,09,076 0 17,08,203 0 43,420 0 Oct-09 2,66,71,252 0 6,69,591 0 16,85,089 0 39,721 0 Nov-09 3,29,65,274 0 8,16,408 0 18,09,087 0 45,530 0 Dec-09 2,95,25,940 120 7,56,677 3 13,25,294 0 34,470 0 Jan-10 2,70,84,605 4,804 6,95,860 128 18,37,471 0 44,897 0 Feb-10 3,45,88,704 0 8,47,236 0 17,97,659 0 44,370 0 Mar-10 3,25,79,954 0 8,43,167 0 18,19,841 0 47,808 0 Source: BSE, NSE. Table 2.32: Trends in Stock Options at NSE and BSE Open Interest at the End of Year/ Number of Number of Turnover the Year/Month Month Stocks Contracts (Rs.crore) No. of Contracts Notional Turnover (Rs.crore) NSE BSE NSE BSE NSE BSE NSE BSE NSE BSE 1 2 3 4 5 6 7 8 9 10 11 2005-06 116 76 52,40,776 2 1,80,270 0.1 27,108 0 1,024 0 2006-07 155 89 52,83,310 6 1,93,811 0.19 19,204 0 447 0 2007-08 228 0 94,60,631 15 3,59,137 0.3 34,602 0 636 0 2008-09 250 0 1,32,95,970 0 2,29,227 0 78,573 0 2,521 0 2009-10 190 0 1,40,16,270 0 5,06,065 0 97,522 0 3,137 0 Apr-09 234 0 8,07,323 0 31,427 0 32,083 0 1,152 0 May-09 233 0 6,44,280 0 31,168 0 30,853 0 1,480 0 Jun-09 233 0 8,82,947 0 49,746 0 92,481 0 2,527 0 Jul-09 183 0 12,68,003 0 38,706 0 59,768 0 1,784 0 Aug-09 180 0 11,29,195 0 36,214 0 92,098 0 2,756 0 Sep-09 180 0 12,37,428 0 42,758 0 77,201 0 2,508 0 Oct-09 179 0 13,78,569 0 45,387 0 74,399 0 1,957 0 Nov-09 179 0 13,60,703 0 43,666 0 89,504 0 2,677 0 Dec-09 179 0 12,52,898 0 42,855 0 41,012 0 1,328 0 Jan-10 179 0 14,14,178 0 51,454 0 83,872 0 2,492 0 Feb-10 190 0 12,23,627 0 41,285 0 72,915 0 2,274 0 Mar-10 190 0 14,17,119 0 51,398 0 97,522 0 3,137 0 Source: BSE, NSE. 67 Annual Report 2009-10 percent of the total turnover of the F&O crore) followed by NSE (Rs.17,82,609 crore) segment in 2009-10. The percentage share in and BSE (Rs.0.04 crore) (Table 2.34). the traded value by trading-cum-self clearing members and trading members was 28.9 At NSE, the share of top ten members percent and 13.9 percent, respectively (Table in volumes of currency derivatives segment 2.33). increased to 72.1 percent at the end of March 2010 from 56.8 percent at the end of March B. Trend in Currency Derivatives 2009. Their share in open interest of currency Market derivatives segment was 35.3 percent at the end of March 2010 as compared to 34.3 Currency futures trading commenced in percent at the end of March 2009. The share India on August 29, 2008 at NSE. Later, MCX- of top ten members in volumes and open SX and BSE were also granted permission interest at MCX-SX were 60.5 percent and on October 7, 2008 and October 1, 2008 35.9 percent, respectively at the end of March respectively to start trading in currency 2010. In BSE, the share of top ten members derivatives. During 2009-10, total turnover in volume and open interest fell to zero after was the highest at MCX-SX (Rs.19,44,654 being 100 percent in May 2009 (Table 2.35). Table 2.33: Shares of Various Classes of Members in Derivative Turnover at NSE and BSE Turnover (Rs.crore) Percentage Share Trading Trading Trading Total Trading Trading Trading Month Members cum cum Self Members cum cum Self Clearing Clearing Clearing Clearing Members Members Members Members 1 2 3 4 5 6 7 8 2005-06 24,94,557 49,80,025 21,73,918 96,48,501 25.85 51.61 22.53 2006-07 30,60,253 79,52,147 38,18,532 1,48,30,932 20.63 53.62 25.75 2007-08 45,50,533 1,53,60,489 67,56,714 2,66,67,736 17.06 57.60 25.34 2008-09 33,99,848 1,24,60,554 61,84,083 2,20,44,486 15.42 56.52 28.05 2009-10 48,99,892 2,02,12,013 1,02,15,902 3,53,27,807 13.87 57.21 28.92 Apr-09 3,11,617 13,07,989 6,67,123 22,86,729 13.63 57.20 29.17 May-09 3,35,173 14,25,574 6,93,773 24,54,521 13.66 58.08 28.27 Jun-09 4,25,716 17,84,780 8,53,465 30,63,961 13.89 58.25 27.85 Jul-09 4,14,784 18,59,383 8,72,851 31,47,018 13.18 59.08 27.74 Aug-09 4,11,775 17,15,255 8,20,262 29,47,292 13.97 58.20 27.83 Sep-09 3,97,284 16,17,988 7,61,484 27,76,756 14.31 58.27 27.42 Oct-09 4,47,173 17,28,626 8,45,035 30,20,835 14.80 57.22 27.97 Nov-09 4,76,271 18,63,460 9,83,901 33,23,632 14.33 56.07 29.60 Dec-09 4,31,298 17,16,852 9,01,823 30,49,972 14.14 56.29 29.57 Jan-10 3,88,140 17,02,573 8,90,310 29,81,023 13.02 57.11 29.87 Feb-10 4,29,623 17,55,387 9,54,763 31,39,772 13.68 55.91 30.41 Mar-10 4,31,038 17,34,147 9,71,111 31,36,296 13.74 55.29 30.96 Source: BSE, NSE. 68 Part Two: Review of Trends and Operations Table 2.34: Trends in the Currency Futures Segment MCX-SX NSE BSE Month/ No. of Turnover Open No. of Turnover Open No. of Turnover Open Year Contracts (Rs.crore) interest Contracts (Rs.crore) interest Contracts (Rs.crore) interest at Traded at the end Traded at the end Traded the end of of Month of Month Month 1 2 3 4 5 6 7 8 9 10 2008-09 2,98,47,569 1,48,826 990 3,27,38,566 1,62,563 1,313 1,82,469 869 0 2009-10 40,81,66,278 19,44,654 1,951 37,86,06,983 17,82,609 1,964 8 0.04 0 Apr-09 75,47,128 37,858 532 78,51,502 39,386 1,039 2 0.01 0 May-09 1,20,53,551 58,469 987 1,36,82,468 66,431 1,504 6 0.03 0 Jun-09 1,41,98,087 67,985 931 1,57,24,507 75,363 1,285 0 0 0 Jul-09 1,81,88,940 88,290 1,665 1,98,88,011 96,523 1,531 0 0 0 Aug-09 1,86,48,790 90,292 2,363 1,86,72,623 90,396 1,933 0 0 0 Sep-09 2,26,36,371 1,09,666 1,992 2,22,51,896 1,07,789 1,739 0 0 0 Oct-09 3,28,49,655 1,53,630 2,235 3,22,67,958 1,50,843 2,109 0 0 0 Nov-09 3,46,66,197 1,61,641 2,340 3,37,94,926 1,57,554 2,297 0 0 0 Dec-09 4,25,13,360 1,98,498 1,985 4,10,04,341 1,91,415 1,896 0 0 0 Jan-10 6,35,91,431 2,92,345 2,758 6,02,23,714 2,76,742 2,852 0 0 0 Feb-10 6,47,73,311 3,22,635 2,531 5,21,12,185 2,46,875 2,976 0 0 0 Mar-10 7,64,99,457 3,63,345 1,951 6,11,32,852 2,83,292 1,964 0 0 0 Source: NSE, BSE, MCX-SX. Table 2.35: Share of Top 10 members in Currency Derivatives Segment of NSE, BSE and MCX-SX (Percent) Share of top 10 members in percentage Year/Month NSE BSE MCX-SX Open Volume Open Volume Open Volume Interest Interest Interest 1 2 3 4 5 6 7 2008-09 36.59 50.62 99.80 99.79 53.77 59.75 2009-10 36.52 69.38 100.00 100.00 35.87 53.19 Apr-09 39.23 57.53 100.00 100.00 43.57 68.32 May-09 41.41 57.34 100.00 100.00 60.51 70.28 Jun-09 44.53 60.20 0.00 0.00 56.20 67.19 Jul-09 40.68 62.72 0.00 0.00 55.50 62.35 Aug-09 45.26 65.48 0.00 0.00 51.17 54.12 Sep-09 42.91 69.37 0.00 0.00 48.69 55.19 Oct-09 42.09 74.92 0.00 0.00 50.77 53.27 Nov-09 42.79 74.47 0.00 0.00 47.46 54.03 Dec-09 43.43 77.14 0.00 0.00 45.95 63.02 Jan-10 39.64 77.49 0.00 0.00 41.46 63.30 Feb-10 40.92 69.40 0.00 0.00 46.17 60.10 Mar-10 35.28 72.04 0.00 0.00 35.87 60.53 Source: NSE, BSE, MCX-SX. 69 Annual Report 2009-10 Box 2.1: Currency Options Currency options trading began in the 1970s in the exchange options were introduced in 1982. The venue of the listed futures and options markets of Securities and Exchange Commission (SEC) has Chicago, Philadelphia, and London. Trading was jurisdiction over options on foreign currencies traded concentrated in currency options on only a handful on national securities exchanges, while the Commodity of major exchange rates. A structural change occurred Futures Trading Commission (CFTC) regulates options in the 1990s, when the bulk of trading in currency on foreign currency futures and options on foreign options migrated “upstairs” to bank dealing rooms, currencies traded on exchanges that are not securities to the detriment of the organised exchanges. Once exchanges. installed in the domain of the inter bank foreign Exchange-traded currency options, like exchange- exchange market, option trading exploded in volume. traded futures, utilise standardised contracts Further, currency options began to key off of the full with respect to the amount of the underlying gamut of exchange rates. currency, the exercise price, and the expiration date. A currency option is similar to a stock or an index Transactions are cleared through the clearinghouses option except that the underlying asset is a currency of the exchanges on which they are traded, and the rather than a stock or an index. In a currency clearinghouses guarantee each party against default option, the buyer of option gets the right but not the of the other. In general, the option buyer who has obligation to buy (call option) or sell (put option) a no further financial obligation after he has paid the predetermined amount of currency against the other premium is not required to make margin payments. at a predetermined exchange rate on or before a On the contrary, the option writer who takes all the predetermined date in future. The buyer of an option financial risk is required to put up initial margin and is called ‘holder’ whereas the seller of an option to make additional (maintenance) margin payments if is called ‘writer’. The holder enjoys asymmetrical the market price moves adversely to his/her position. payoff unlike a symmetrical payoff in case of a futures It is difficult to be precise about overall size of contract. currency options market because the majority of The market for currency options is the deepest in trading in currency options is done over the counter terms of trading volumes and most liquid of all types and never gets reported. However, some rough of options markets in the world. One reason for this estimates are reported in a survey done by the Bank is that the currency options are attractive investments for International Settlements (BIS) every three years. for speculators since they require a limited investment As per latest triennial survey available, BIS survey and do not have any risk other than losing the 2007, the average daily turnover of currency options premium paid up front. This limited downside and more than doubled from USD 87 billion in 1998 to unlimited upside makes currency options as popular USD 212 billion in 2007. Thus, there is significant trading instruments. increase in the use of currency options among traders. Currency options are predominantly traded over the As per previous triennial BIS surveys, the average counter (OTC) and are subjected to lesser regulations daily turnover of currency options in 2001 and 2004 as compared to exchange traded products. However, were USD 60 billion and 117 billion respectively which Chicago Mercantile Exchange, the International shows decline in traded volumes at the start of new Securities Exchange, and Philadelphia Stock Exchange millennium but they have picked up speed after dot which have permitted exchange traded currency com burst. options. Outside USA, currency options are traded on The RBI-SEBI Standing Technical Committee centres including Singapore, Amsterdam, Paris and is working on the operational framework for Brussels. introduction of exchange traded currency options on In the United States, exchange-traded foreign USD-INR currency pair. 70 Part Two: Review of Trends and Operations Box 2.2: Comparative Study of Futures on USD: INR versus OTC Currency Forward Market Background: May’09 75.10 25.74 34.31 Currency futures trading (USD/INR pair), in India June’09 76.21 29.92 39.26 started on August 29, 2008 on the National Stock Exchange (NSE), followed by trading on MCX Stock July’09 65.35 38.08 58.27 Exchange (MCX-SX) and thereafter on Bombay August’09 62.62 37.32 59.60 Stock Exchange (BSE). Trading in currency futures, September’09 62.22 44.89 72.15 however, mainly takes place on NSE and MCX-SX. A comparison of the two markets i.e. Exchange traded October’09* 80.99 65.12 80.40 futures and the OTC currency forward market in Source: RBI, NSE, MCX-SX (BSE has no trading in currency USD:INR has been carried out based on the following derivative products) parameters: *Data for OTC market available till Oct’09 (i) Turnover in USD: INR futures vis-à-vis OTC Bid Ask spread in Exchange traded USD: INR currency forward market. market vis-à-vis OTC currency forward market: (ii) Bid-Ask spread in exchange traded USD:INR The bid ask spread gives an indication of the cost and market vis-à-vis OTC currency forward market. ease with which a contract can be traded. A narrow (iii) Difference in the futures and forward rates for (tight) bid ask means that the costs of entering and USD: INR for same duration contracts. exiting a trade are low. Consequently, a liquid market requires the bid ask spread to be narrow. Turnover in USD: INR futures vis-à-vis It can be observed from the Table below that around OTC forward market: 95 percent of the trading at NSE and 99 percent of It can be seen from the Table below that the exchange trading at MCX-SX in USD: INR futures takes place at traded Indian currency futures market has grown a narrow spread of less than or equal to half a paisa as considerably since trading started in August 2008. The against only 7 paise for OTC currency forward market. turnover in USD:INR futures as a percentage of OTC currency forward turnover has increased from 7.2 Comparison of the best bid ask quotes (for percent in November, 2008 to 80.4 percent in October, September 2009) between OTC currency forward 2009. and USD: INR futures for near month contract at NSE and MCX-SX Share of Turnover in USD:INR futures to the OTC currency forward turnover Spread Cumulative Cumulative Cumulative Interval Forward NSE MCX-SX Month Forward Exchange Exchange (INR) USD: INR USD: INR turnover (NSE + (NSE + futures futures INR/Other MCX-SX) MCX-SX) currency turnover turnover as 0.0025 0.58 62.98 88.58 ($ billion) ($ billion) percentage of <= 0.005 6.53 94.74 98.97 OTC forward <= 0.01 49.25 99.92 99.93 turnover <= 0.02 99.54 99.98 100 November’08 87.77 6.30 7.19 <= 0.03 100 99.98 100 December’08 89.60 9.38 10.50 <= 0.04 100 99.99 100 <= 0.05 100 99.99 100 January’09 65.66 9.89 15.09 <= 0.1 100 100 100 February’09 61.29 12.92 21.10 Source: NSE and MCX-SX March’09 92.04 19.40 21.13 For OTC Market: Reuters April’09 73.24 15.40 21.07 For currency futures: NSE trade data and MCX-SX trade data 71 Annual Report 2009-10 Box 2.2: Comparative Study of Futures on USD: INR versus OTC Currency Forward Market (contd.) Difference in the futures and forward rates on ever since the inception of the currency futures USD: INR for same duration contracts: trading. The Graph below plots the difference between one (b) Almost all the trading in Exchange traded USD: month futures and forward rates on USD: INR, for the INR futures market takes place at a spread of same duration contracts. It can be seen that the rates in less than or equal to half a paisa, whereas the the two markets are getting gradually aligned. comparable figure for the currency forward Based on the above comparison between the Exchange market is around 7 paise. traded USD: INR futures and OTC currency forward (c) While the USD: INR futures and the forward rates market, the following can be concluded: diverged at the beginning of trading in the futures (a) The turnover in USD: INR futures, both in market; the rates have gradually converged which absolute terms, as well as a percentage of OTC reflects disappearance of arbitrage opportunities currency forward turnover, has been increasing between the two markets. C. Trends in Interest Rates Derivatives The trends in turnover and open interest in Trading in 10 Year Notional coupon Interest Rate Derivatives (10 Year Notional bearing Government of India (GoI) security coupon bearing GoI security Futures) at NSE Futures started at NSE on August 31, 2009. is depicted in Table 2.36. 72 Part Two: Review of Trends and Operations Table 2.36: Trends in Turnover and Open Interest in Interest Rate Derivatives (10 Year Notional coupon bearing GoI security Futures) at NSE Year/Month Total Open Interest at the end of the year/month No. of contracts Turnover (Rs.crore) No. of Contracts Notional Turnover (Rs.crore) 1 2 3 4 5 2009-10 1,60,894 2,975 758 14 Aug-09 14,559 267 1,893 35 Sep-09 79,648 1,473 4,952 92 Oct-09 21,198 394 6,128 114 Nov-09 18,134 337 6,600 124 Dec-09 11,687 215 2,305 42 Jan-10 6,443 119 2,576 48 Feb-10 3,124 57 3,547 65 Mar-10 6,101 111 758 14 3. TRENDS IN THE BOND MARKET 10 increased by 68.5 percent in comparison to 2008-09. In comparison to increase in I. Corporate Bond Market number of trades, increase in the volume of trades during 2009-10 is very significant. The trend in corporate bond markets, This increase is mainly attributed to increase viz., OTC trades and trades reported on the in volume of trades reported at FIMMDA exchanges is shown in Table 2.37. The number by 218.5 percent followed by NSE at 206.9 of trades in corporate bonds during 2009- percent and BSE at 42.9 percent. Table 2.37: Secondary Market: Corporate Bond Trades Month/Year BSE NSE FIMMDA No. of Amount No. of Amount No. of Amount Trades (Rs.crore) Trades (Rs.crore) Trades (Rs.crore) 1 2 3 4 5 6 7 2008-09 8,327 37,320 4,902 49,505 9,501 61,535 2009-10 7,408 53,323 12,522 1,51,920 18,300 1,95,955 Apr-09 545 2,721 1,306 17,112 1,025 11,692 May-09 660 2,832 1,077 10,688 933 7,072 Jun-09 639 3,047 776 8,637 961 7,066 Jul-09 669 4,615 1,220 12,549 1,247 10,343 Aug-09 665 4,573 841 13,187 1,041 7,120 Sep-09 765 6,113 1,099 12,365 1,059 8,470 Oct-09 852 6,896 1,512 12,101 1,289 10,477 Nov-09 728 5,818 1,246 15,548 1,091 10,050 Dec-09 386 3,234 855 6,810 1,717 20,546 Jan-10 542 4,696 1,050 15,354 2,472 32,569 Feb-10 416 4,097 740 9,747 2,111 25,925 Mar-10 541 4,681 800 17,820 3,354 44,624 Source: NSE, BSE and FIMMDA. 73 Annual Report 2009-10 With effect from December 1, 2009, it The value of corporate bond trades settled has been made mandatory for all trades in through the clearing corporations has gone corporate bonds between mutual funds, FIIs/ up from Rs.17,704 crore in December 2009 to sub-accounts, venture capital funds, foreign Rs.47,216 crore in March 2010 (Table 2.38). venture capital investors, portfolio mangers, The issuers have raised Rs.2,12,635 crore and RBI regulated entities as specified by in private placement during 2009-10 which RBI to be cleared and settled through the is 22.7 percent higher from Rs.1,73,281 crore exchange clearing corporations, NSCCL or in 2008-09 (Table 2.39). Although the year ICCL. IRDA has also issued similar directions. has seen a number of public issues, private Table 2.38: Settlement of Corporate Bond Trades NSE BSE Total Month Total No. of Settled Value Total No. of Settled Value Total No. of Total Settled Trades Settled (Rs.crore) Trades Settled (Rs.crore) Trades Settled Value (Rs.crore) 1 2 3 4 5 6 7 Dec-09 1,438 17,300.51 55 403.57 1,493 17,704.08 Jan-10 2,230 31,396.86 85 1,244.06 2,315 32,640.92 Feb-10 2,063 26,977.29 112 949.93 2,175 27,927.22 Mar-10 3,191 44,331.21 212 2,884.91 3,403 47,216.12 Source: NSE, BSE. Table 2.39: Private Placement of Corporate Bonds reported to NSE and BSE (Rs.crore) Listed only on NSE Listed only on BSE Listed Both on Total Month NSE and BSE No. of Amount No. of Amount No. of Amount No. of Amount Issues (Rs.crore) Issues (Rs.crore) Issues (Rs.crore) Issues (Rs.crore) 1 2 3 4 5 6 7 8 9 2007-08 580 90,718 120 11,711 44 16,056 744 1,18,485 2008-09 699 1,24,810 285 17,045 57 31,426 1,041 1,73,281 2009-10 647 1,43,286 597 49,739 34 19,610 1,278 2,12,635 Apr-09 25 12,526 31 1,634 2 400 58 14,560 May-09 44 11,096 17 997 4 1,586 65 13,679 Jun-09 37 8,898 35 3,019 5 6,131 77 18,048 Jul-09 46 8,099 52 3,659 2 1,020 100 12,778 Aug-09 55 12,518 38 3,436 3 4,600 96 20,555 Sep-09 56 10,589 23 2,161 5 1,701 84 14,451 Oct-09 60 11,030 24 1,435 3 1,100 87 13,565 Nov-09 66 8,918 104 6,725 0 0 170 15,644 Dec-09 51 10,018 56 4,531 4 1,190 111 15,739 Jan-10 91 18,332 46 3,935 2 556 139 22,823 Feb-10 38 13,165 100 12,265 2 520 140 25,950 Mar-10 78 18,095 71 5,941 2 807 151 24,844 Source: NSE, BSE. 74 Part Two: Review of Trends and Operations placements have also remained as one of the net traded value started increasing towards preferred modes of raising debt funds. The the start of second quarter and in the third rise in funds mobilised could also be possibly quarter. The highest turnover was recorded attributed to issuers preferring the domestic in November 2009 (Rs.64,999 crore) followed debt markets as a primary source of corporate by September 2009 (Rs.58,674 crore) and debt. January 2010 (Rs.57,036 crore). Number of trades was the highest for July 2009 followed II. Wholesale Debt Market by November 2009. During 2009-10, turnover in the Instrument-wise break up of the Wholesale Debt Market (WDM) segment securities traded at the WDM segment of increased to Rs.5,63,816 crore from Rs.3,35,950 NSE indicates the dominance of Government crore in 2008-09. The net traded value and securities though the share of the G-sec in average daily traded value increased by the traded value decreased to 58.2 percent in 67.8 percent and 66.3 percent, respectively 2009-10 from 69.8 percent in 2008-09 (Table during the same period (Table 2.40). Also, the 2.41). The share of Treasury bills marginally number of trades increased by 49.3 percent to declined from 16.9 percent in 2008-09 to 16.5 24,069 in 2009-10 from 16,129 in 2008-09. The Table 2.41: Instrument-wise Share of Securities Traded in the Table 2.40: Business Growth on the Wholesale Debt Market Wholesale Debt Market Segment of NSE Segment of NSE (Percent) Month/ Govt. Treasury PSU / Others Month/ No. Net Traded Average Daily Year Dated Bills Institutio- Year of Value Traded Value Securities nal Trades (Rs.crore) (Rs.crore) Bonds 1 2 3 4 1 2 3 4 5 2005-06 61,891 4,75,523 1,755 2005-06 72.67 22.13 2.56 2.64 2006-07 19,575 2,19,106 899 2006-07 70.00 23.71 2.01 4.28 2007-08 16,179 2,82,317 1,129 2007-08 68.84 23.40 3.27 4.49 2008-09 16,129 335,950 1,419 2008-09 69.74 16.91 8.92 4.43 2009-10 24,069 563,816 2,359 2009-10 58.15 16.49 15.40 9.96 Apr-09 2,408 45,653 2,853 Apr-09 55.16 15.27 20.18 9.38 May-09 2,089 40,266 2,013 May-09 61.56 15.30 15.67 7.47 Jun-09 1,948 44,568 2,026 Jun-09 65.02 17.61 11.85 5.52 Jul-09 2,582 51,222 2,227 Jul-09 65.61 11.37 15.22 7.79 Aug-09 1,583 38,232 1,912 Aug-09 52.54 15.64 19.62 12.20 Sep-09 2,301 58,674 3,088 Sep-09 65.36 13.79 13.39 7.45 Oct-09 1,875 43,731 2,302 Oct-09 54.46 19.79 14.23 11.52 Nov-09 2,564 64,999 3,250 Nov-09 64.70 11.50 12.22 11.59 Dec-09 1,735 37,567 1,789 Dec-09 65.04 16.83 12.13 5.99 Jan-10 1,957 57,036 2,852 Jan-10 55.00 18.42 12.27 14.31 Feb-10 1,455 34,800 1,832 Feb-10 51.90 20.09 18.17 9.84 Mar-10 1,572 47,068 2,353 Mar-10 36.35 25.79 23.00 14.86 Source: NSE, BSE. Source: NSE. 75 Annual Report 2009-10 percent in 2009-10. The percentage share of 4. MUTUAL FUNDS ‘others’ which include mainly corporate debt Mutual funds play an important role securities, increased from 4.4 percent in 2008- in mobilising the household savings for 09 to 9.9 percent in 2009-10. The share of PSU/ deployment in capital markets. The gross institutional bonds also rose from 8.9 percent mobilisation of resources by all mutual in 2008-09 to 15.4 percent in 2009-10. funds during 2009-10 was at Rs.1,00,19,022 Trading members dominated the WDM crore compared to Rs.54,26,353 crore during segment with a share of 49.3 percent in total the previous year indicating an increase turnover in 2009-10 as compared to 44.7 of 84.7 percent over the previous year percent in 2008-09 (Table 2.42). While the (Table 2.43). Redemption also rose by 82.2 share of Indian banks marginally increased percent to Rs.99,35,942 crore in 2009-10 from to 19.9 percent in 2009-10 from 18.1 percent in Rs.54,54,650 crore in 2008-09. All mutual 2008-09, that of financial institutions, mutual funds, put together, recorded a net inflow funds, primary dealers and foreign banks of Rs.83,080 crore in 2009-10 as compared to declined over the previous year. an outflow of Rs.28,296 crore in 2008-09. The Table 2.42: Share of Participants in Turnover of Wholesale Debt Market Segment of NSE (Percent) Month Trading Fls/MFs / Primary Indian Banks Foreign Members Corporates Dealers Banks 1 2 3 4 5 6 2005-06 32.01 3.92 21.89 28.07 14.11 2006-07 30.88 2.69 19.82 26.03 20.57 2007-08 38.15 2.34 8.64 23.78 27.09 2008-09 44.65 3.40 6.58 18.11 27.26 2009-10 49.23 2.63 4.63 19.84 23.67 Apr-09 51.19 2.98 6.08 17.05 22.70 May-09 47.44 3.12 4.77 19.01 25.66 Jun-09 44.66 2.96 5.30 18.60 28.48 Jul-09 42.67 2.51 5.46 24.86 24.50 Aug-09 48.24 2.50 4.89 22.51 21.86 Sep-09 40.63 2.79 4.20 27.01 25.37 Oct-09 54.55 2.46 4.01 16.01 22.97 Nov-09 48.59 2.80 5.20 20.89 22.52 Dec-09 54.62 3.58 5.34 22.51 13.95 Jan-10 55.42 1.41 1.93 15.66 25.58 Feb-10 48.52 2.28 3.49 20.89 24.82 Mar-10 56.57 2.37 5.21 12.18 23.67 Source: NSE 76 Part Two: Review of Trends and Operations Table 2.43: Mobilisation of Resources by against a net outflow of Rs.34,018 crore Mutual Funds in 2008-09 (Table 2.44). UTI mutual fund (Rs.crore) recorded a net inflow of Rs.15,653 crore Period Gross Redemp- Net Assets compared to net outflow of Rs.3,659 crore in mobili- tion Inflow at the sation End of 2008-09. Net inflows were recorded by public Period sector mutual funds in 2009-10 amounting to 1 2 3 4 5 Rs.12,499 crore compared to Rs.9,380 crore 1999-00 61,241 42,271 18,970 1,07,946 in the previous year. While all the open- 2000-01 92,957 83,829 9,128 90,587 ended and interval schemes of mutual funds 2001-02 1,64,523 1,57,348 7,175 1,00,594 recorded positive net inflows, the close-ended schemes witnessed net outflows during the 2002-03 3,14,706 3,10,510 4,196 1,09,299 financial year. 2003-04 5,90,190 5,43,381 46,808 1,39,616 2004-05 8,39,708 8,37,508 2,200 1,49,600 Gross mobilisation of resources under 2005-06 10,98,149 10,45,370 52,779 2,31,862 open-ended schemes during 2009-10 was 2006-07 19,38,493 18,44,508 93,985 3,26,292 Rs.99,76,363 crore, of which, about 76.8 2007-08 44,64,376 43,10,575 1,53,802 5,05,152 percent was raised by the private sector mutual funds followed by public sector funds 2008-09 54,26,353 54,54,650 -28,296 4,17,300 (14.4 percent) and UTI MF (8.8 percent). 2009-10 1,00,19,022 99,35,942 83,080 6,13,978 Similarly, gross resources mobilised under close-ended schemes stood at Rs.25,551 crore assets under management by all mutual funds in 2009-10, of which private sector accounted increased by 47.2 percent to Rs.6,13,978 crore for 88.6 percent followed by public sector at the end of March 2010 from Rs.4,17,300 funds (5.8 percent) and UTI MF (5.6 percent). crore at the end of March 2009. Scheme-wise pattern reveals the Unlike the previous year, private domination of income/debt oriented schemes sector mutual funds dominated resource in total resource mobilisation during 2009-10 mobilisation efforts during 2009-10. In fact (Table 2.45). During 2009-10, there was net the net inflow was the highest from private outflow from balanced schemes and Fund sector mutual funds at Rs.54,928 crore as Table 2.44: Sector-wise Resource Mobilisation by Mutual Funds during 2009-10 (Rs.crore) Particulars Private Sector MFs Public Sector MFs UTI MF Grand Open- Close- Interval Total Open- Close- Interval Total Open- Close- Interval Total Total ended ended ended ended ended ended 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Mobilisation 76,63,186 22,646 12,651 76,98,483 14,36,638 1,477 573 14,38,688 8,76,539 1,428 3,884 8,81,851 1,00,19,023 of Funds (41,62,268) (87,304) (43,178) (42,92,750) (6,88,652) (17,790) (4,030) (7,10,472) (4,10,509) (5,913) (6,708) (4,23,131) (54,26,353) Repurchases/ 75,85,914 54,643 29,99 76,43,555 14,21,798 4,142 249 14,26,189 8,62,024 2,898 1,276 8,66,198 99,35,942 Redemption (41,45,912) (1,17,332) (63,524) (43,26,768) (6,78,200) (18,854) (4,037) (7,01,092) (4,09,189) (9,012) (8,588) (4,26,790) (54,54,650) Amount Net Inflow/ 77,272 -31,997 9,653 54,928 14,840 -2,665 324 12,499 14,515 -1,470 2,608 15,653 83,080 Outflow of (16,356) (-30,028) (-20,346) (-34,018) (10,451) (-1,064) (-7) (9,380) (1,320) (-3,099) (-1,880) (-3,659) (-28,296) Funds Note: Figures in the parentheses pertain to 2008-09. 77 Annual Report 2009-10 of Funds investing overseas. Under income/ less compared to that in the last year. The debt oriented schemes, Gilt funds and Money net amount mobilised by growth/equity Market funds recorded net outflows. Even oriented schemes was Rs.2,149 crore in 2009- though growth/equity oriented schemes 10 as compared to Rs.4,024 crore mobilised recorded net inflows, it was substantially in the previous financial year. Net resources Table 2.45: Scheme-wise Resource Mobilisation and Assets under Management by Mutual Funds as on March 31, 2010 Number of Gross Funds Repurchase/ Net Inflow/ Cumulative Percentage Schemes Mobilised Redemption Outflow of Assets Under Variation Schemes (Rs.crore) (Rs.crore) Funds Management over March (Rs.crore) as on March 31, 2009 31, 2010 (Rs.crore) 1 2 3 4 5 6 7 A. Income/ Debt Oriented Schemes i Liquid/Money 56 70,44,818 70,56,891 -12,074 78,094 -13.80 Market ii Gilt 35 3,974 7,271 -3,297 3,395 -47.06 iii Debt (other than 367 28,95,901 27,99,323 96,578 3,11,715 57.96 assured returns) Sub total (i+ii+iii) 458 99,44,693 98,63,485 81,208 3,93,204 33.58 (599) (53,83,367) (54,15,528) (-32,161) (2,94,349) (-5.96) B. Growth/Equity Oriented Schemes i ELSS 48 3,600 2,047 1,554 24,066 93.64 ii Others 307 61,114 60,519 595 1,74,055 81.66 Sub total (i+ii) 355 64,714 62,566 2,149 1,98,121 83.03 (340) (32,805) (28,781) (4,024) (1,08,244) (-37.34) C. Balanced Schemes i Balanced schemes 33 4,693 5,386 -693 17,246 62.25 (35) (2,695) (2,634) (61) (10,629) (-34.72) D. Exchange Traded Fund i Gold ETF 7 997 194 803 1,590 116.06 ii Other ETFs 14 2,538 2,558 -20 957 44.94 Sub total (i+ii) 21 3,535 2,752 783 2,547 82.43 (17) (5,719) (6718) (-998) (1,396) (-55.40) E. Fund of Funds Investing Overseas i Fund of Funds 15 1,387 1,754 -367 2,862 6.74 investing overseas (10) (1,767) (989) (778) (2,681) (-) TOTAL (A+B+C+D+E) 882 1,00,19,023 99,35,943 83,080 6,13,979 47.13 (1,001) (54,26,353) (54,54,650) (-28,296) (4,17,300) (-17.39) Notes: Figures in parentheses relate to 2008-09. * Net Assets of Rs.1,521.19 crore pertaining to Fund of Funds schemes are not included in the above data. 78 Part Two: Review of Trends and Operations mobilised by exchange traded funds (ETFs) there were 21 Exchange Traded Funds, of were positive during 2009-10. Moreover, Gold which 7 were Gold ETFs. Also, there were 15 ETFs recorded multifold growth by growing schemes operating as Fund of Funds which from Rs.84 crore in 2008-09 to Rs.803 crore in also invested in overseas securities. There 2009-10. Fund of Funds which invest overseas were 641 open-ended schemes and 202 close- also witnessed a net outflow of Rs.367 crore ended schemes as on March 31, 2010. The as compared to a net inflow of Rs.778 crore number of open-ended schemes exceeded in 2008-09. that of close-ended schemes among all the schemes types. There were 882 mutual fund schemes as on March 31, 2010, of which, 458 were The assets under management (AUM) of income/debt oriented schemes, 355 were all the mutual funds increased to Rs.6,13,979 growth/equity oriented schemes and 33 were crore at the end of March 31, 2010 from balanced schemes (Table 2.46). In addition, Rs.4,17,300 crore a year ago. Assets managed Table 2.46: Number of Schemes by Investment Objectives Schemes Open-ended Close-ended Interval Total 1 2 3 4 5 A. Income/Debt Oriented Schemes i Liquid/Money Market 56 0 0 56 ii Gilt 35 0 0 35 iii Debt (other than ass.re) 182 148 37 367 iv Debt (assured return) 0 0 0 0 (i+ii+iii+iv) Sub total 273 148 37 458 (253) (280) (66) (599) B. Growth/Equity Oriented Schemes i ELSS 36 12 0 48 ii Others 267 38 2 307 (i+ii) Sub total 303 50 2 355 (279) (59) (2) (340) C. Balanced Schemes i Balanced Schemes 29 4 0 33 (30) (5) (0) (35) D. Exchange Traded Fund i Gold ETF 7 0 0 7 ii Other ETFs 14 0 0 14 (i+ii) Sub total 21 0 0 21 (17) (0) (0) (17) E. Fund of Funds Investing Overseas i Fund of Funds investing overseas 15 0 0 15 (10) (0) (0) (10) TOTAL (A+B+C+D+E) 641 202 39 882 (589) (344) (68) (1,001) Note: Figures in parentheses relate to 2008-09. 79 Annual Report 2009-10 by most categories of mutual funds increased funds in debt and equity was Rs.1,70,076 in 2009-10. The AUM was the highest for crore compared to Rs.88,787 crore in 2008-09, income/debt oriented schemes at Rs.3,93,204 registering an increase of 91.5 percent (Table crore while the AUM under growth/equity 2.47). Mutual Funds were net sellers in equity oriented scheme was Rs.1,98,121 crore. In segment with Rs.10,512 crore, whereas, their terms of growth in AUM, Gold ETFs (116.1 net investments in the debt segment rose by percent) achieved the highest increase Rs.1,80,588 crore during the same period. The followed by ELSS schemes (93.7 percent) combined net investment was positive for all during the year. months in 2009-10 except March 2010. The mutual funds were one of the Table 2.48 shows unit holding pattern major investors in the debt segment of the of all mutual funds as on March 31, 2010. Indian securities market. During 2009-10, Individual investors accounted for 97.1 the combined net investments by the mutual percent of the total number of investors’ Table 2.47: Trends in Transactions on Stock Exchanges by Mutual Funds (Rs.crore) Equity Debt Total Year / Net Net Net Month Gross Gross Pur- Gross Gross Pur- Gross Gross Pur- Purchase Sales chase/ Purchase Sales chase/ Purchase Sales chase/ Sales Sales Sales 1 2 3 4 5 6 7 8 9 10 2004-05 45,045 44,597 448 62,186 45,199 16,987 1,07,232 89,796 17,435 2005-06 1,00,436 86,134 14,302 1,09,805 73,004 36,801 2,10,241 1,59,137 51,103 2006-07 1,35,948 1,26,886 9,062 1,53,733 1,01,190 52,543 2,89,681 2,28,075 61,606 2007-08 2,17,578 2,01,274 16,306 2,98,605 2,24,816 73,790 5,16,183 4,26,090 90,095 2008-09 1,44,069 1,37,085 6,984 3,27,744 2,45,942 81,803 4,71,815 3,83,026 88,787 2009-10 1,95,662 2,06,173 -10,512 6,24,314 4,43,728 1,80,588 8,19,976 6,49,901 1,70,076 Apr-09 12,138 12,099 39 45,992 19,570 26,423 58,130 31,669 26,461 May-09 18,957 16,666 2,291 26,941 16,573 10,368 45,898 33,238 12,659 Jun-09 22,215 21,376 839 39,445 28,706 10,740 61,660 50,082 11,579 Jul-09 22,560 20,734 1,826 55,193 26,230 28,963 77,752 46,964 30,789 Aug-09 17,452 16,881 570 37,958 28,907 9,052 55,410 45,788 9,622 Sep-09 15,852 18,187 -2,335 42,557 34,100 8,458 58,409 52,286 6,123 Oct-09 16,252 21,446 -5,194 75,124 40,816 34,308 91,376 62,263 29,114 Nov-09 14,752 15,447 -696 53,145 37,047 16,099 67,897 52,494 15,403 Dec-09 14,194 15,956 -1,762 54,343 52,122 2,221 68,538 68,078 459 Jan-10 16,562 17,873 -1,311 76,147 44,814 31,334 92,709 62,687 30,022 Feb-10 11,672 12,369 -697 44,868 32,895 11,974 56,540 45,264 11,277 Mar-10 13,057 17,139 -4,082 72,600 81,949 -9,349 85,657 99,089 -13,432 80 Part Two: Review of Trends and Operations accounts and contributed 39.8 percent to total of the net assets in public sector mutual net assets. funds, their share in private sector mutual funds was 39.7 percent as on March 31, 2010. Corporates and institutions which formed only 0.9 percent of the total number of investors accounts in the mutual fund Table 2.49: Unit Holding Pattern of Private industry, contributed a sizeable 54.8 percent and Public Sector Mutual Funds of the total net assets in the mutual funds as on March 31, 2010 industry. NRIs and FIIs constituted a very Category Percentage Percentage small percentage of investors’ accounts (1.9 to Total to Total percent) and contributed 5.5 percent to net Investors Net Assets assets. Accounts 1 2 3 Table 2.48: Unit Holding Pattern of All Private Sector Mutual Funds Mutual Funds as on March 31, Individuals 96.24 39.74 2010 NRIs 2.52 5.13 Category Percentage Percentage FIIs 0.00 1.29 to Total to Total Corporates/ 1.24 53.84 Investors Net Assets Institutions/Others Accounts Total 100.00 100.00 1 2 3 Public Sector Mutual Individuals 97.07 39.77 Funds (including UTI MF) (96.75) (37.03) Individuals 98.65 39.90 NRIs 1.98 4.45 (2.04) (5.44) NRIs 0.95 2.00 FIIs 0.00 1.03 FIIs 0.00 0.10 (0.00) (1.19) Corporates/ 0.40 58.00 Corporates/ 0.95 54.75 Institutions/Others Institutions/Others (1.21) (56.34) Total 100.00 100.00 Total 100.00 100.00 Note: Figures in parentheses pertain to 2008-09. 5. FOREIGN INSTITUTIONAL The unit holding pattern of public and INVESTMENT private sector mutual funds as on March 31, Foreign Institutional Investors play an 2010 shows the dominance of private sector important role in Indian securities markets. mutual funds in the number of investor Since 1992-93, when FIIs were allowed accounts as well as share in net assets (Table entry into Indian financial markets, foreign 2.49). The private sector mutual funds had institutional investment has increased over 65.4 percent of the total investors account the years except in 1998-99 and 2008-09. In compared to 34.6 percent in public sector tandem with the boom in stock markets and mutual funds. The private sector mutual sound global scenario, investments by FIIs funds managed 77.9 percent of the net into India were quite high in last few years, assets as against 22.1 percent of net assets particularly since 2003-04. FIIs made a record managed by public sector mutual funds. investment in the Indian equity market in While individual investors held 39.9 percent 2009, surpassing the 2007 inflows. 81 Annual Report 2009-10 The gross purchases of debt and at the end of March 2009, increased to USD equity by FIIs increased by 37.7 percent to 89.3 billion at the end of March 2010 (Chart Rs.8,46,438 crore in 2009-10 from Rs.6,14,579 2.11). crore in 2008-09 (Table 2.50). The combined During 2009-10, there was a net inflow gross sales by FIIs increased by 6.6 percent in the equity segment by FIIs amounting Rs.7,03,780 crore from Rs.6,60,389 crore to Rs.1,10,220 crore (Table 2.51). The debt during the same period in previous year. The segment also witnessed a positive net inflow total net inflow of FII was Rs.1,42,658 crore as of Rs.32,438 crore. Thus, FII poured a net against an outflow of FII was Rs.45,811 crore Rs.1,42,658 crore in Indian markets. in 2008-09. This was the highest net inflow for any financial year so far. Month-wise, the net FII inflow was the highest in equity segment in May Cumulative investment by FIIs at 2009 (Rs.20,017 crore) followed by March acquisition cost, which was USD 59.1 billion 2010 (Rs.19,928 crore) and September 2009 Table 2.50: Investment by Foreign Institutional lnvestors Gross Gross Sales Net Net Cumulative Year Purchase (Rs.crore) Investment Investment Net (Rs.crore) (Rs.crore) (USD mn.) Investment (USD mn.) 1 2 3 4 5 6 1992-93 18 4 13 4 4 1993-94 5,593 467 5,127 1,634 1,638 1994-95 7,631 2,835 4,796 1,528 3,167 1995-96 9,694 2,752 6,942 2,036 5,202 1996-97 15,554 6,980 8,575 2,432 7,635 1997-98 18,695 12,737 5,958 1,650 9,285 1998-99 16,116 17,699 -1,584 -386 8,899 1999-00 56,857 46,735 10,122 2,474 11,373 2000-01 74,051 64,118 9,933 2,160 13,532 2001-02 50,071 41,308 8,763 1,839 15,372 2002-03 47,062 44,372 2,689 566 15,937 2003-04 1,44,855 99,091 45,764 10,005 25,943 2004-05 2,16,951 1,71,071 45,880 10,352 36,294 2005-06 3,46,976 3,05,509 41,467 9,363 45,657 2006-07 5,20,506 4,89,665 30,841 6,821 52,478 2007-08 9,48,018 8,81,839 66,179 16,442 68,919 2008-09 6,14,576 6,60,386 -45,811 -9,837 59,082 2009-10 8,46,438 7,03,780 1,42,658 30,253 89,335 Note: Data for columns 5 and 6 has been revised from 2003-04 onwards. 82 Part Two: Review of Trends and Operations Table 2.51: Investments by Mutual Funds and Foreign Institutional lnvestors (Rs.crore) Net Investment by Mutual Funds Net Investment by Flls Year / Month Equity Debt Total Equity Debt Total 1 2 3 4 5 6 7 2003-04 1,308 22,701 24,009 39,960 5,805 45,765 2004-05 448 16,987 17,435 44,123 1,759 45,881 2005-06 14,303 36,801 51,104 48,801 -7,334 41,467 2006-07 9,062 52,543 61,607 25,236 5,605 30,840 2007-08 16,306 73,790 90,065 53,404 12,775 66,179 2008-09 6,984 81,803 88,787 -47,706 1895 -45,811 2009-10 -10,512 1,80,588 1,70,076 1,10,220 32,438 1,42,658 Apr-09 39 26,423 26,461 6,508 2,490 8,998 May-09 2,291 10,368 12,659 20,117 -2,711 17,406 Jun-09 839 10,740 11,579 3,830 1,068 4,898 Jul-09 1,826 28,963 30,789 11,066 2,115 13,181 Aug-09 570 9,052 9,622 4,903 -379 4,524 Sep-09 -2,335 8,458 6,123 18,344 2,228 20,572 Oct-09 -5,194 34,308 29,114 9,077 6,896 15,973 Nov-09 -696 16,099 15,403 5,497 684 6,181 Dec-09 -1,762 2,221 459 10,233 -1,522 8,711 Jan-10 -1,311 31,334 30,022 -500 8,913 8,413 Feb-10 -697 11,974 11,277 1,217 3,146 4,363 Mar-10 -4,082 -9,349 -13,432 19,928 9,510 29,438 83 Annual Report 2009-10 (Rs.18,344 crore). In the equity segment, FII Rs.3,88,310 crore as on March 31, 2010 as investment was negative in only one month, compared to Rs.2,45,653 crore as on March 31, i.e., January, 2010. In the debt segment, inflow 2009. Open interest position of FIIs in index was the highest in March 2010 (Rs.9,510 crore) options was the highest at Rs.7,03,745 crore followed by January 2010 (Rs.8,913 crore) and by end-March 2010, followed by Stock futures October 2009 (Rs.6,896 crore) (Chart 2.12). (Rs.5,32,266 crore), Index futures (Rs.2,28,279 crore) and Stock options (Rs.13,323 crore) The FIIs were permitted to trade in (Table 2.52). the derivatives market in February 2002. The cumulative FIIs Net investment was 84 Part Two: Review of Trends and Operations Table 2.52: Notional Value of Open Interest of Foreign Institutional lnvestors in Derivatives during 2009-10 (Rs.crore) Items Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 1 2 3 4 5 6 7 8 9 10 11 12 13 Index 2,09,490 2,57,875 2,83,978 5,55,926 2,31,718 2,87,914 2,44,344 2,82,484 3,07,088 2,63,337 2,87,997 2,28,279 Futures Index 4,89,855 6,17,615 5,33,080 15,80,668 4,62,123 5,73,072 6,45,480 6,70,606 8,18,639 5,72,192 7,00,073 7,03,745 Options Stock 278,471 3,63,040 4,51,010 11,08,580 4,01,505 4,44,969 5,13,028 4,78,800 5,34,202 5,16,824 4,93,515 5,32,266 Futures Stock 19,641 17,238 12,347 48,155 17,795 25,226 11,850 18,270 13,012 8,399 14,911 13,323 Options Total 9,97,457 12,55,768 12,80,414 32,93,328 11,13,141 13,31,180 14,14,703 14,50,161 16,72,941 13,60,752 14,96,496 14,77,613 Change in 1,25,050 2,58,311 24,646 20,12,915 -21,80,188 2,18,039 83,522 35,458 2,22,780 -3,12,188 1,35,744 -18,884 open position Change 14.33 25.90 2.00 157.20 -66.20 19.60 6.30 2.50 15.40 -18.70 10.00 -1.30 Cumulative 2,54,651 2,72,057 2,76,955 2,90,137 2,94,660 3,15,233 3,31,205 3,37,386 3,46,097 3,54,510 3,58,873 3,88,310 FII Net Investment Change in 8,998 17,406 4,898 13,182 4,523 20,573 15,973 6,181 8,711 8,413 4,363 29,438 FII Investment Change 3.66 6.80 1.80 4.76 1.56 6.98 5.07 1.87 2.58 2.43 1.23 8.20 85 AnnualPART Report THREE: 2009-10 REGULATION OF SECURITIES MARKET This part of the Report delineates the functions of SEBI as specified in Section 11 of the SEBI Act, 1992. 1. INTERMEDIARIES II. Registered Intermediaries other than Stock Brokers and Sub- I. Streamlining the Registration brokers Process of Intermediaries During 2009-10, a mixed trend was The entire procedure of registration observed in the number of intermediaries and renewal has been streamlined and registered. During the year, the highest has been made more transparent during increase in absolute terms was observed in 2009-10. The status report on registration/ case of merchant bankers (27) and depository renewal of applications of intermediaries participants (DPs) of CDSL (27) followed by is put on SEBI website on a monthly DPs of NSDL (13). A decline was witnessed basis giving a clear position whether the in the number of bankers to an issue and application is pending with SEBI or with underwriters during 2009-10. However, the the intermediary. If it is pending with decline in registered exclusive underwriters SEBI, the date of receipt of letter from the was probably due to allowing other registered intermediary is also mentioned against the intermediaries like merchant bankers, stock status of application, clearly indicating that brokers etc. also to act as underwriter. The how long the application is pending with details are provided in Table 3.1. SEBI. If it is pending with intermediary, it is mentioned that information is awaited from Some of the intermediaries’ applications the applicant. By and large, replies are being for registration were in the process, the details sent to the intermediaries within 30 days. of which are provided in Table 3.1a. It has also been mentioned on the website that in case their application has remained III. Registration of Stock Brokers unattended, the applicant should not hesitate During 2009-10, 312 new stock in writing to the concerned Division Chief brokers were registered with SEBI in cash (DC) or Executive Director(ED). Respective segment (Table 3.2). There were 160 cases e-mail IDs of concerned DC and ED have also of cancellation/surrender of brokership as been given. compared to 140 in 2008-09. Applications in the process of registration are given in Table While processing registration/renewal 3.2a. The total number of registered stock applications where quasi-judicial actions have brokers as on March 31, 2010, increased to been initiated by SEBI against the applicant, 8,804 from 8,652 in 2008-09 (Table 3.3). SEBI has started seeking details of corrective measures taken by the applicant. All the The number of registered brokers was applicants now inform in detail the steps highest in National Stock Exchange Ltd. taken by them to prevent such violations (NSE) (1,310) followed by Bombay Stock in the future. This step taken by SEBI will Exchange Ltd. (BSE) (1,003), Inter-Connected improve the compliance culture among the Stock Exchange Ltd. (ISE) (943) and Calcutta intermediaries. Stock Exchange Ltd. (908). The number of 86 Part Three: Regulation of Securities Market Table 3.1: Registered Intermediaries other than Stock Brokers and Sub-Brokers (Number) Number as on March 31 Absolute Percentage Type of Intermediary 2009 2010 Variation Variation 1 2 3 4 5 Registrar to an Issue and Share Transfer Agent 71 74 3 4.23 Bankers to an Issue 51 48 -3 -5.88 Debenture Trustee 30 30 0 0.00 Merchant Banker 137 164 27 19.71 Portfolio Manager 232 243 11 4.53 Underwriter 17 4 -13 -76.47 DPs – NSDL 256 269 13 5.08 DPs – CDSL 462 489 27 5.84 Credit Rating Agency 5 5 0 0.00 Table 3.1a: Intermediaries other than Stock Brokers and Sub-Brokers in the Process of Registration (Number) Type of Intermediary Pending as on March 31, 2010 1 2 Merchant Banker 11 Bankers to an Issue 2 Depository Participants 29 Registrar to an Issue and Share Transfer Agents 1 Credit Rating Agency 2 Table 3.2: Registered Stock Brokers (Number) Details 2008-09 2009-10 1 2 3 Registered Stock Brokers as on March 31 of the previous year 8,517 8,652 Addition during the Year 275 312 Reconciliation/Cancellation/Surrender of Memberships 140 160 Registered Stock Brokers as on March 31 8,652 8,804 Table 3.2a: Stock Broker and Sub-Broker Applications in the Process of Registration as on March 31, 2010 (Number) Category of Application Number of Applications under Process 1 2 Registration – Brokers Cash Segment 58 Registration – Brokers Derivatives Segment 28 Registration – Brokers Currency Derivatives Segment 113 Sub-broker 3,358 87 Annual Report 2009-10 Table 3.3: Classification of Stock Brokers in Cash Segment on the Basis of Ownership* Proprietorship Partnership Corporate ** Total Sl. Stock 2009 2010 2009 2010 2009 2010 2009 2010 No. Exchange Nos. Percent Nos. Percent Nos. Percent Nos. Percent Nos. Percent Nos. Percent Nos. Nos. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 1. Ahmedabad 143 44 139 42.25 21 6.46 19 5.78 161 49.54 171 51.98 325 329 2. Bangalore 128 49.81 129 49.43 3 1.17 3 1.15 126 49.03 129 49.43 257 261 3. BSE 148 15.04 147 14.66 31 3.15 30 2.99 805 81.81 826 82.35 984 1,003 4. Bhubaneswar 194 91.08 195 91.12 0 0.00 0 0.00 19 8.92 19 8.88 213 214 5. Calcutta 682 73.65 667 73.46 44 4.75 44 4.85 200 21.60 197 21.70 926908 6. Cochin 346 79.54 350 79.91 10 2.30 9 2.05 79 18.16 79 18.04 435 438 7. Coimbatore 87 64.44 87 64.44 0 0.00 0 0.00 48 35.56 48 35.56 135 135 8. Delhi 130 34.67 169 37.14 32 8.53 32 7.03 213 56.80 254 55.82 375 455 9. Gauhati 99 96.12 94 95.92 1 0.97 1 1.02 3 2.91 3 3.06 103 98 10. ISE 570 60.25 569 60.34 29 3.07 29 3.08 347 36.68 345 36.59 946 943 11. Jaipur 464 95.08 460 95.04 6 1.23 6 1.24 18 3.69 18 3.72 488 484 12. Ludhiana 212 70.43 209 69.67 2 0.66 2 0.67 87 28.90 89 29.67 301 300 13. MPSE 139 79.89 153 79.69 1 0.57 1 0.52 34 19.54 38 19.79 174 192 14. Madras 96 52.46 104 53.89 14 7.65 14 7.25 73 39.89 75 38.86 183 193 15. NSE 61 4.91 68 5.19 57 4.59 67 5.11 1,125 90.51 1,175 89.69 1,243 1,310 16. OTCEI 149 20.90 148 21.02 19 2.66 18 2.56 545 76.44 538 76.42 713 704 17. Pune 126 67.02 125 67.20 7 3.72 7 3.76 55 29.26 54 29.03 188 186 18. UPSE 269 76.64 259 76.40 5 1.42 5 1.47 77 21.94 75 22.12 351 339 19. Vadodara 245 78.53 245 78.53 3 0.96 3 0.96 64 20.51 64 20.51 312 312 Total 4,288 49.56 4,317 49.03 285 3.29 290 3.29 4,079 47.15 4,197 47.67 8,652 8,804 * As on March 31 of the respective year. ** The categories of Financial Institutions and Composite Corporate are clubbed within the category of corporate broker. Note: Percent is to the total number of brokers in the respective exchanges corporate brokers were also highest in NSE Stock brokers in ‘partnership’ category were (1,175) followed by BSE (826) and Over The highest in NSE (67), followed by Calcutta Counter Exchange of India (OTCEI) (538). Stock Exchange Ltd. (44). Bhubaneswar Stock Corporate brokers constitute 89.7 percent of Exchange Ltd. did not have any brokers in the the total stock brokers at NSE whereas at BSE ‘partnership’ category. and OTCEI the corporate brokers constituted Details regarding classification of brokers 82.4 percent and 76.4 percent, respectively. in cash segment as proprietary, partnership, Number of corporate brokers as a percentage corporate, institution, composite corporate on of total brokers was more than 50 percent in the basis of ownership are provided in Table five out of 19 recognised exchanges. Highest 3.3, Chart 3.1 and Chart 3.2. number of stock brokers in ‘proprietorship’ category was in Calcutta Stock Exchange Ltd. In equity derivative segment, 105 trading (667), followed by ISE (569). NSE had the members (TM), 11 clearing members (CM) lowest number of brokers in proprietorship and 46 self clearing members (SCM) were category (68) which was 4.9 percent of the given registration at NSE during 2009-10. In total stock brokers registered with NSE. case of BSE, the corresponding figures were 88 Part Three: Regulation of Securities Market 89 Annual Report 2009-10 16, eight and two respectively. Recently, an Table 3.5: Number of Members Registered arrangement between Madras Stock Exchange in Currency Derivatives Segment (MSE) and NSE to share trading platform during 2009-10 of NSE has been approved in-principle by (Number) SEBI and there were four trading members Type of Member NSE BSE MCX-SX registered at MSE at the end of March 2010. 1 2 3 4 The details regarding the same are provided Trading Member 628 160 658 in Tables 3.4. Clearing Member 148 33 91 Total 776 193 749 In the currency derivatives segment, total number of registered members with NSE, BSE and MCX-SX were 776, 193 and 749 The stock exchanges are granted respectively at the end of 2009-10. Details of recognition by SEBI under Section 4 of members in the currency derivative segment the Securities Contracts (Regulation) Act, are provided in Table 3.5. 1956. Presently, there are 21 recognised stock exchanges, including United Stock Exchange of India Limited which was granted IV. Registration of Sub-brokers recognition on March 22, 2010 for a period of There was an increase in the number of one year. Out of which, eight stock exchanges sub-brokers registered with a net addition of have permanent recognition (Table 3.7). 12,907 sub-brokers in 2009-10, an increase of During the year, renewal of recognition was 20.7 percent. The total number of registered granted to 11 Stock Exchanges (Table 3.8). sub-brokers at the recognised stock exchanges Renewal has not been granted to at the end of 2009-10, increased to 75,378 Coimbatore Stock Exchange Ltd. (CSX) as it against 62,471 in the previous year (Table 3.6). failed to make an application for renewal of During 2009-10, 16,425 new sub-brokers got recognition which expired on September 17, registered with SEBI and 3,518 sub-brokers 2006. The matter is under litigation before the surrendered their certificates. BSE and NSE Hon’ble High Court of Judicature at Madras. accounted for 98.6 percent of the total sub- Pursuant to SEBI circular dated December brokers in 2009-10 as compared to 98.0 29, 2008 on ‘Guidelines for exit option for percent a year ago. regional stock exchanges’, CSX has expressed V. Recognition of Stock Exchanges its desire to surrender its recognition. Table 3.4: Number of Registered Members in Equity Derivatives Segment during 2009-10 (Number) NSE BSE MSE Type of Member Registration Registration Registration Registration Registration Registration during at the end of during at the end of during at the end of 2009-10 March 2010 2009-10 March 2010 2009-10 March 2010 1 2 3 4 5 6 7 Trading Member 105 1,209 16 461 4 4 Clearing Member 11 249 8 120 0 0 Self Clearing Member 46 370 2 20 0 0 Total 162 1,828 26 601 4 4 90 Part Three: Regulation of Securities Market Table 3.6: Registered Sub-brokers Sub-brokers as on March 31 Sl. Stock Exchange 2009 2010 No. Number Percentage of Total* Number Percentage of Total* 1 2 3 4 5 6 1. Ahmedabad 96 0.15 95 0.13 2. Bangalore 158 0.25 158 0.21 3. BSE 30,059 48.12 33,710 44.72 4. Bhubaneswar 17 0.03 17 0.02 5. Calcutta 84 0.13 81 0.11 6. Cochin 43 0.07 41 0.05 7. Coimbatore 19 0.03 20 0.03 8. Delhi 261 0.42 255 0.34 9. Gauhati 4 0.01 4 0.01 10. ISE 3 0.00 2 0.00 11. Jaipur 33 0.05 32 0.04 12. Ludhiana 36 0.06 36 0.05 13. MPSE 5 0.01 5 0.01 14. Madras 110 0.18 109 0.14 15. NSE 31,328 50.15 40,600 53.86 16. OTCEI 19 0.03 17 0.02 17. Pune 156 0.25 156 0.21 18. UPSE 3 0.00 3 0.00 19. Vadodara 37 0.06 37 0.05 Total 62,471 100.00 75,378 100.00 * Percentage to total sub-brokers in the recognised stock exchanges. SEBI, vide order dated July 6, 2007, Court, vide order dated July 10, 2009, has has withdrawn the recognition granted to permitted SKSE to withdraw the appeal with Saurashtra Kutch Stock Exchange Limited the liberty to file an application before the (SKSE). In the matter of withdrawal of SEBI for renewal of recognition and the same recognition of SKSE, Hon’ble Supreme shall be considered and disposed of by SEBI Table 3.7: Stock Exchanges with Permanent Recognition Sr. No. Exchanges Recognition 1 2 3 1 Ahmedabad Stock Exchange Ltd. Permanent 2 Bangalore Stock Exchange Ltd. Permanent 3 Bombay Stock Exchange Ltd. Permanent 4 Calcutta Stock Exchange Ltd. Permanent 5 Delhi Stock Exchange Ltd. Permanent 6 Madhya Pradesh Stock Exchange Ltd. Permanent 7 Madras Stock Exchange Ltd. Permanent 8 National Stock Exchange of India Ltd. Permanent 91 Annual Report 2009-10 on merits. In this regard, SEBI has made an Ltd. (MPSEL) to duly comply with the application before Hon’ble Supreme Court observations of SEBI and payment of dues to for clarification of the said order dated July Investor Protection Fund (IPF) and Investor 10, 2009. Service Fund (ISF). OTCEI was granted time upto October 16, 2009 to comply with the requirements VI. Registration of Foreign Institu- of Securities Contracts (Regulation) tional Investors and Custodians of (Manner of Increasing and Maintaining Securities Public Shareholding in Stock Exchanges) There was an increase in the number Regulations, 2006 (MIMPS Regulations). of Foreign Institutional Investors (FIIs) Further, in view of the request of OTCEI, registered with SEBI. As on March 31, 2010, extension has been granted to them to comply there were 1,713 FIIs registered as compared with MIMPS Regulation by July 22, 2010. to 1,635 a year ago, showing an increase of 4.8 While granting renewal of recognition percent during the year. There were 5,378 sub to MCX-SX, extension of time was granted accounts registered with SEBI as on March to them to comply with the requirements 31, 2010 as compared to 5,015 as on March of Securities Contracts (Regulation) 31, 2009, an increase of 7.2 percent (Table (Manner of Increasing and Maintaining 3.9). The number of custodians registered Public Shareholding in Stock Exchanges) with SEBI under the SEBI (Custodian of Regulations, 2006 (MIMPS Regulations) up to Securities) Regulations, 1996 was 17, as on September 15, 2010. March 31, 2010, as compared to 16 a year ago. Status of registration of FIIs, sub-accounts SEBI vide order dated April 9, 2009 and custodians during 2009-10 is provided in directed Madhya Pradesh Stock Exchange Table 3.9 a. Table 3.8: Renewal of Recognition Granted to Stock Exchanges during 2009-10 Sr. Date of Exchanges Period No. Notification 1 2 3 4 1. Ludhiana Stock Exchange Ltd. April 24, 2009 April 28, 2009 to April 27, 2010 2. Gauhati Stock Exchange Ltd. April 24, 2009 May 1, 2009 to April 30, 2010 3. Uttar Pradesh Stock Exchange Association Ltd. May 19, 2009 June 3, 2009 to June 2, 2010 4. Bhubaneswar Stock Exchange Ltd. June 5, 2009 June 5, 2009 to June 4, 2010 5. OTC Exchange of India August 20, 2009 August 23, 2009 to August 22, 2010 6. MCX Stock Exchange Ltd August 31, 2009 September 16, 2009 to September 15, 2010 7. Pune Stock Exchange Ltd. September 1, 2009 September 2, 2009 to September 1, 2010 8. Cochin Stock Exchange Ltd. November 6, 2009 November 8, 2009 to November 7, 2010 9. Interconnected Stock Exchange of India Ltd. November 16, 2009 November 18, 2009 to November 17, 2010 10. Vadodara Stock Exchange Ltd. December 29, 2009 January 4, 2010 to January 3, 2011 11. Jaipur Stock Exchange Ltd. January 10, 2010 January 9, 2010 to January 8, 2011 92 Part Three: Regulation of Securities Market Table 3.9: Number of Registered FIIs, Sub- were registered with SEBI, of which 43 were accounts and Custodians in the private sector and four (including UTI) (Number) were in the public sector. During 2009-10, March 31, March 31, registration was given to Axis Mutual Fund, Particulars 2009 2010 Peerless Mutual Fund, Motilal Oswal Mutual 1 2 3 Fund and IDBI Mutual Fund whereas the Number of FIIs 1,635 1,713 Certificate of Registration granted to IL&FS Number of sub-accounts 5,015 5,378 Mutual Fund was cancelled (Table 3.10). Number of Custodians 16 17 VII. Registration of Collective Invest- Table 3.10: Mutual Funds Registered with ment Schemes SEBI As on March 31, 2010, there were only (Number) one collective investment schemes (CIS), viz., Sector 31-Mar-09 31-Mar-10 M/s. Gift Collective Investment Management 1 2 3 Company Ltd. registered with SEBI. M/s. Gift Public Sector 4 4 Collective Investment Management Company (Including UTI) Private Sector 40 43 Ltd. was registered during 2008-09. Total 44 47 M/s. MPS Greenery Developers Ltd. was granted provisional registration as Collective Investment Management Company under IX. Registration of Venture Capital the SEBI (Collective Investment Schemes) Funds Regulation, 1999 with effect from August 21, There were 158 domestic and 143 foreign 2009. venture capital funds registered with SEBI as VIII. Registration of Mutual Funds on March 31, 2010 as compared to 131 and As on March 31, 2010, 47 mutual funds 128 funds respectively registered with SEBI Table 3.9 a: Status of Registration of FII, Sub-accounts and Custodians during 2009-10 (Number) FII Sub Account Custodian Particulars Fresh Fresh Fresh Regi- Renewal Total Regi- Renewal Total Regi- Renewal Total stration stration stration 1 2 3 4 5 6 7 8 9 10 I. Application Received for 206 342 548 962 1,238 2,200 3 13 16 Fresh registration/renewal a. Applications registered/renewed 173 272 445 872 1,019 1,891 2 13 15 b. Applications Pending 27 70 97 77 219 296 1 0 1 c. Application rejected/returned* 6 0 6 13 0 13 * Some of the applications that were returned due to various reasons may have been resubmitted and would have got subsequently registered or rejected. 93 Annual Report 2009-10 as on March 31, 2009 (Table 3.11). X. Fees and Other Charges Details of the amount of fees and other Table 3.11: Registered Venture Capital Funds charges (un-audited) collected by SEBI from (Number) different market intermediaries on both VCFs March 31, 2009 March 31, 2010 recurring and non-recurring basis is provided 1 2 3 in Table 3.12. VCF 131 158 During 2009-10, the total amount of fees FVCI 128 143 and other charges received was Rs.178.3 crore Table 3.12: Fees and other Charges (Rs.crore) 2008-09 2009-10 Recu- Non-re- Total Recu- Non-re- Total Particulars rring curring Fees rring curring Fees fees fees Received fees fees Received # ## (Audited) # ## (Un- audited) 1 2 3 4 5 6 7 Offer Documents and prospectuses filed 0.00 8.20 8.20 0.00 22.11 22.11 Merchant Bankers 2.25 1.71 3.96 2.85 2.55 5.40 Underwriters 0.05 0.11 0.16 0.05 0.01 0.06 Portfolio Managers 2.55 5.75 8.30 1.70 4.80 6.50 Registrars to an Issue and Share Transfer Agents 0.12 0.01 0.13 0.44 0.14 0.58 Bankers to an Issue 0.05 0.20 0.25 1.65 0.61 2.26 Debenture Trustees 0.15 0.13 0.28 0.75 0.34 1.09 Takeover fees 0.00 11.07 11.07 0.00 8.82 8.82 Mutual Funds 2.10 27.90 30.00 2.07 5.62 7.69 Stock Brokers and Sub-Brokers 34.84 0.00 34.84 35.94 0.00 35.94 Foreign Institutional Investors 20.38 0.00 20.38 13.44 0.00 13.44 Sub Account - Foreign Institutional Investors 14.60 0.00 14.60 12.02 0.00 12.02 Depositories 0.20 0.00 0.20 0.20 0.00 0.20 Depository Participants 0.07 1.35 1.42 0.16 1.89 2.05 Venture Capital Funds 0.00 1.72 1.72 0.00 1.88 1.88 Custodian of Securities 9.67 0.05 9.72 8.24 0.47 8.71 Approved Intermediaries under Securities Lending Scheme 0.04 0.00 0.04 0.04 0.00 0.04 Credit Rating Agencies 0.40 0.03 0.43 0.00 0.01 0.01 Listing Fees Contribution from Stock Exchanges 4.19 0.00 4.19 4.87 0.00 4.87 Foreign Venture Capital 0.00 3.92 3.92 0.00 1.32 1.32 Derivatives Members registration 36.27 0.00 36.27 37.10 0.00 37.10 Informal Guidance Scheme 0.00 0.08 0.08 0.00 0.07 0.07 Regulatory Fees 4.17 0.00 4.17 6.17 0.00 6.17 Total 132.10 62.23 194.33 127.69 50.64 178.33 # Recurring fees: Fees which is received on annual/3-yearly/5-yearly basis (includes Renewal Fee/Service Fee/annual fee/Listing Fees from exchanges/Regulatory Fees from stock exchanges). ## Non-recurring fees: Fees which is received on one time basis. Includes fee for Offer Documents Filed/Registration Fee/ Application Fee/Takeover Fees/Informal Guidance Scheme/FII Registration and FII Sub-accounts Registration. 94 Part Three: Regulation of Securities Market (unaudited) as against Rs.194.3 crore in 2008- Regulation 4 of Takeover Regulations 09 (audited). The non recurring fee was 28.4 deals with applications for seeking exemption percent in 2009-10 as compared to 32.0 percent from open offer obligations provided in in 2008-09. The largest amount of Rs.37.1 Chapter III of Takeover Regulations (referred crore which was fully recurring in nature as Takeover Panel Applications). A total of 44 was collected from derivatives members’ applications for seeking exemption were with registration, followed by Rs.35.9 crore from SEBI as on March 31, 2010, out of which, in 18 registration of stock brokers and sub-brokers cases exemption from open offer obligations which was also recurring in nature. was granted, nine applications were returned/ withdrawn and two applications were 2. CORPORATE RESTRUCTURING rejected. During the financial year 2009-10, a total I. Substantial Acquisition of Shares of 76 offers were launched for fulfilling open and Takeovers offer obligations and in 18 Takeover Panel As on March 31, 2009, total 14 draft Applications, SEBI granted exemption from letters of offer were with SEBI, for issue of open offer obligations (Table 3.14). observations. During the financial year 2009- 10, 87 draft letters of offer were filed with Table 3.14: Open Offers and Exemption from SEBI and observations were issued on 85 draft Open Offers letters of offer and 16 draft letters of offers (Number) were with SEBI for issuance of observations Exemptions Period Open offers from open as on March 31, 2010 (Table 3.13). offers Table 3.13: Status of Draft Letter of Offers 1 2 3 for Open Offers filed under 2007-08 115 6 Regulation 18(1) of SEBI (SAST) 2008-09 113 15 Regulations, 1997 and Takeover 2009-10 76 18 Panel Applications during 2009-10 II. Buyback Status Number The total of 25 buyback offers were 1 2 received during 2009-10 indicating a decrease Draft letters of offer for open Offers Pending draft letters of offer Cases as on 14 of 45 percent over 46 buyback offers received March 31, 2009 during 2008-09. Out of the 22 cases filed Draft letters of offer received during 2009-10 87 during the year for buy back through open Total 101 offer, 13 cases opened and closed, six cases Observations issued by SEBI during 2009-10 85 opened but did not close whereas three cases Draft letters of offer in process as on 16 did not open. Further, there were three cases March 31, 2010 of buyback through tender offer out of which Takeover Panel Applications one opened and closed and two did not open Applications as on March 31, 2009 9 (Table 3.15). Applications received during 2009-10 35 Total Applications 44 The total of 14 buyback offers opened Applications disposed during 2009-10 29 and closed during 2009-10 as compared 15 Applications in process as on March 31, 2010 15 offers during 2008-09. The total buyback offer 95 Annual Report 2009-10 Table 3.15: Buyback Cases during 2009-10 Buy-back Size Actual Amount utilised for Buy-back Cases No. of Cases (Rs.crore) Buy-back of Securities (Rs.crore) 1 2 3 4 Buy-back through Open Market Cases Received, Opened and Closed 13 703.13 243 Cases Received, Opened but not Closed 6 82.82 NA Cases Received but not Opened 3 140.81 NA Buy-back through Tender Offer Cases Received, Opened and Closed 1 39.90 39.90 Cases Received but not Opened 2 53.44 NA NA : Not Available size during 2009-10 was Rs.1,020 crore as improve quality of inspection reports and compared to buyback offer size of Rs.5,411.55 follow up action. In the year 2009-10, actions crore in 2008-09 reflecting a decrease of 81.2 were initiated on the basis of inspections percent. It is also observed from the buyback carried out during the year as well as in case offers which are opened and closed during of inspections done in the earlier years. 2009-10 that there was an average utilisation The findings of the inspections were of 38 percent of offer size in terms of amount. communicated to the intermediaries and During 2009-10, one tender offer was fully discussed with them wherever necessary, to subscribed and funds were totally utilised. ascertain their views and action was initiated in accordance with the seriousness of the 3. SUPERVISION violation. Further, intermediaries were also Effective supervision through on-site and specifically advised about the areas where off-site inspections, enquiry against violations improvement/corrective steps were required. of rules and regulations, enforcement They are now required to report to SEBI and prosecutions are essential features of about the corrective steps taken by them effective enforcement of regulation. SEBI and also place the same before their board/ conducts inspections either directly or partners/proprietor, as the case may be. These through organisations like stock exchanges, steps taken by SEBI will improve the level of depositories etc. Inspections on a periodic compliance among the intermediaries. basis were conducted to verify the compliance levels of intermediaries. Specific/limited i. Inspection of Stock Brokers/Sub- purpose inspections were conducted on the brokers basis of complaints, references, surveillance During 2009-10, total number of reports, specific concerns, etc. Stock inspections including stock brokers and sub- exchanges and depositories were also directed brokers were 36 as compared to 38 during by SEBI to carry out periodic/specific purpose last year. It includes 34 inspections of stock inspections of their members/participants. brokers and two inspections of sub-brokers I. Inspection of Market Intermediaries (Table 3.16). SEBI has taken a number of steps during In addition, SEBI also directed that the year, to expedite inspection process and the stock exchanges/clearing corporations 96 Part Three: Regulation of Securities Market Table 3.16: Inspection of Stock Brokers/Sub- By and large all the active stock brokers/ brokers clearing members of the three major stock (Numbers) exchanges (NSE, BSE and MCX-SX) have Particulars 2008-09 2009-10 submitted the internal audit report for 1 2 3 the half year ended March 31, 2009 and Inspections Completed – 34 34 September 30, 2009, to the stock exchanges. Stock Brokers The major findings pointed out in the Inspections Completed – 4 2 internal audit reports were discussed by Sub-brokers SEBI with the stock exchanges. Based on Total 38 36 the findings and experience gained, stock exchanges also revised the guidelines for shall inspect all active members in various internal audit in consultation with SEBI. segments every year. Accordingly, the Workshops for the training of the inspection carried out by the stock exchanges auditors were organised by SEBI in for the year 2009-10 is as under: coordination with NISM and stock exchanges Table 3.16a: Inspection by Stock Exchanges/ to improve the quality of internal audit. Clearing Corporation ii. Inspection of Other Intermediaries Inspection Across Exchange Market Segments During 2009-10, regular inspections were 1 2 completed for 18 depository participants, BSE 550 nine registrars to an issue and share transfer agents, four debenture trustees and two NSE 1,232 merchant bankers (Table 3.17). MCX-SX 52 Table 3.17: Inspection of other Market Intermediaries Further, SEBI vide circular dated August (Numbers) 22, 2008, advised the stock exchanges to direct Particulars 2008-09 2009-10 their stock brokers/clearing members to carry 1 2 3 out complete internal audit on a half yearly basis by independent auditors. The focus of Registrar to Issue and 5 9 Share Transfer Agent the internal audit is to assess the efficacy of Bankers to an Issue 0 0 the internal controls and soundness of the Debenture Trustee 0 4 risk monitoring system of the trading/clearing Merchant Banker 0 2 member. Underwriter 0 0 Internal auditors are required to submit Depository Participant 26 * 18 their audit reports to the entity. The entity Credit Rating Agency 2 0 would place the report before its Board of Total 33 33 Directors/Proprietors/Partners and shall * Reclarified and figure revised. forward the same along with para-wise comments to the respective stock exchange II. Inspection of Stock Exchanges within three months of the end of the half During inspection of stock exchanges, year period. a review of the market operations, 97 Annual Report 2009-10 organisational structure and administrative 7) Jaipur Stock Exchange Limited control of the stock exchange is made to 8) Gauhati Stock Exchange Limited ascertain whether:- 9) Madhya Pradesh Stock Exchange a) It provides fair, equitable and Limited transparent and growing market to the investors, Further, an inspection of Delhi Stock Exchange Limited was conducted with b) Its organisation, system and practices are respect to their application for permission for in accordance with the SC(R)Act, 1956 re-commencement of trading operations. and the Rules framed there under, c) It has implemented the directions, III. Follow-up of Inspection Reports guidelines and instructions issued by Pursuant to inspection, the stock SEBI/Government of India from time to exchanges and depositories submitted time, and periodic compliance report to SEBI duly d) It has complied with the conditions, approved by their respective Governing if any, imposed on it at the time of Boards. These compliance reports were renewal/grant of its recognition under analysed and all unimplemented observations Section 4 of the SC(R) Act, 1956. were followed up for compliance. During the year 2009-10, based on the 4. SURVEILLANCE turnover and other issues such as compliance with the inspection observations, listing I. Mechanism of Market Surveillance norms, etc., inspection of equity segment of An effective surveillance mechanism the following stock exchanges was carried is one of the prime requirements for well out:- functioning securities market. The stock 1) National Stock Exchange exchanges are the first-level regulators and are charged with the primary responsibility 2) Vadodara Stock Exchange of safe-guarding the integrity of the market In addition, during the financial year and ensuring that the market is performing 2009-10, while considering the renewal in accordance with the stipulated norms of recognition of stock exchanges, special and practices. The Integrated Surveillance purpose inspection of the following stock Department of SEBI is in charge of exchanges was undertaken for ascertaining overall market surveillance and scope of the compliance levels:- its activities includes monitoring market movements and detecting potential breach 1) Ludhiana Stock Exchange Limited of Regulations, analysing the trading in 2) Bhubaneshwar Stock Exchange Limited securities and initiation of appropriate 3) OTC Exchange of India action wherever warranted. To enhance the efficacy of the surveillance function, 4) Interconnected Stock Exchange of India SEBI has put in place a comprehensive Limited Integrated Market Surveillance System 5) Cochin Stock Exchange Limited (IMSS) which generates alerts arising out 6) MCX Stock Exchange Limited of unusual market movements. SEBI also 98 Part Three: Regulation of Securities Market keeps a continuous vigil on the activities of ii. As a surveillance measure, SEBI made an the stock exchanges to promote an effective SMS alert mandatory for all depository surveillance mechanism and Integrated accounts operated through Power Surveillance Department also carries out of Attorney (PoA) except in case of inspection of surveillance department of accounts held by non-individuals, Non- major stock exchanges. residential Indians and foreign nationals. II. Surveillance Actions iii. SEBI advised exchanges to issue circulars on facility of BTST (Buy Today Sell During the year 2009-10, NSE initiated Tomorrow) advising members not preliminary examination and investigation to encourage investors by issuing in a total 257 cases and BSE initiated advertisements highlighting such facility. examination and investigation in 1,331 cases. iv. In order to protect the interest of Further, as surveillance measure, during investors, exchanges were advised to the year, NSE shifted 644 scrips to Trade-for- send letters/emails daily to investors Trade segment and BSE shifted 2,198 scrips on random basis indicating their stock to Trade-for-Trade segment. NSE imposed a market transactions. price band (two percent, five percent and 10 percent) in 1,542 instances and BSE in 3,214 v. SEBI issued a caution to investors on instances. Further, NSE and BSE verified 73 investment advice offered by websites, and 59 rumors respectively (Table 3.18). advertisements, SMS, emails, astrology etc. and investors were advised to take Table 3.18: Number of Surveillance Actions well informed investment decisions. during 2009-10 Nature of Action NSE BSE IV. Significant Market Movements 1 2 3 during 2009-10 Scrips Shifted to Trade for 644 2,198 Trade Segment (190) (1,078) The top market movements in terms of No. of instances in which Price Bands 1,542 3,214 percentage change are given below: were Imposed (942) (2,047) (2 percent, 5 percent and 10 percent) i. On May 18, 2009, the Sensex rose by 2110.8 points (from previous day’s Preliminary Investigations Taken Up 257 1,331 (165) (961) closing of 12173.4) and Nifty rose by Rumours verification 73 59 651.5 points (from previous day’s closing (118) (134) of 3671.7). Sensex and Nifty closed at Note: Figures in the parentheses pertain to 2008-09. 14,284.2 (+17.3 percent) and 4323.2 (+17.7 percent) respectively. III. Surveillance Measures ii. On May 4, 2009, the Sensex rose by 731.5 i. During the year, various surveillance points (from previous day’s closing of measures were discussed with exchanges 11403.3) and Nifty rose by 180.1 points and exchanges were advised on issues (from previous day’s closing of 3474.0). such as criteria for inclusion/exclusion of Sensex and Nifty closed at 12134.8 scrips in F&O segment, shifting of scrips (+6.4 percent) and 3654.0 (+5.2 percent) to Trade to Trade segment. respectively. 99 Annual Report 2009-10 V. Integrated Market Surveillance and research functions of SEBI. The System proposed system is required to support During the year, the integrated market multidimensional historical data, have the surveillance system (IMSS) continued to capability for pattern recognition to quickly provide assistance to SEBI in monitoring identify abnormal situations/transactions, the market and in discharging its regulatory and provide an analytic environment that functions effectively. The system is being used accelerates investigations and research for detecting aberrations, analysing them functions. and identifying the cases for investigation SEBI, therefore, decided to implement a and for taking further action, wherever Data Warehousing and Business Intelligence warranted. The purpose of this exercise is System (DWBIS). The DWBIS system will be to promote market integrity and to ensure having the following components: orderly conduct of the market. IMSS is also • Data warehousing, data mining and being used for monitoring the activities of predictive forecasting capabilities, market participants as well as issuing suitable • Scenario development, research, and instructions to stock exchanges and market what-if analysis platform and participants. Wherever required, findings enabled by IMSS are shared with stock • Sophisticated drill down reporting and exchanges for appropriate action ensuring charting tool. that stock exchanges continue to act as the The system envisages integration of first level regulator for proactively detecting data available from stock exchanges (cash and examining abnormal trading pattern. and derivatives segments) and depositories To accommodate growing volumes of into a single integrated data warehouse. The transactions in the securities market and DWBIS is expected to generate reports that currency markets, IT infrastructure of IMSS will better serve SEBI to identify, detect and was upgraded during the year in order to investigate aberrations and market abuses enhance capacity and ensure further scaling that undermine market integrity. of operations. SEBI initiated the process for implementing the proposed DWBIS by VI. Data Warehousing and Business appointing a high level technical committee Intelligence System comprising eminent technical experts to study During the last couple of years, the the technical matrix of SEBI’s requirements Indian securities market has witnessed a and frame a set of parameters. After following phenomenal growth in terms of size and the process of global competitive bidding, depth which is reflected in stupendous the vendor to implement DWBIS system was increase in number of daily transactions. selected. Phase I of the DWBIS system is It was felt that the existing Integrated scheduled for completion in November 2010. Market Surveillance System which helped in enhancing efficacy of the surveillance VII. Implementation of Wadhwa functioning needed to be complemented Committee Report with an additional system that would SEBI had investigated certain provide a quantum leap to the investigation irregularities in the transactions in the 100 Part Three: Regulation of Securities Market shares issued through 21 IPOs (Initial facie trading ahead of orders placed Public Offerings) during the period from by M/s. Passport India Investment 2003 to 2005, before their listing on the (Mauritius) Limited, a sub-account of stock exchanges. SEBI upon completion of M/s. Passport Capital LLC. It was prima investigations directed certain persons, not facie observed that Mr. Dipak Patel, to buy, sell or deal in the securities market, Portfolio Manager of M/s. Passport India including in IPOs, directly or indirectly, till Investment (Mauritius) Limited was further directions and initiated proceedings passing on trade related information against these persons in accordance with to the client, which appeared to be SEBI Act and Regulations to disgorge illegal in violation of provisions of SEBI gains and take appropriate action including (Prohibition of Fraudulent and Unfair penalties. Proceedings against such persons Trade Practices relating to Securities are at various stages. Market) Regulations, 2003. This activity A committee was set up by SEBI under continued from January 2007 till January the Chairmanship of Justice K.P. Wadhwa, 2009. In view of the above, SEBI passed former Judge of the Supreme Court of India an interim order dated May 28, 2009 (Wadhwa Committee), to advise/recommend with following directions: the procedure of identification of persons • Mr. Dipak Patel, Portfolio Manager who have been deprived in these 21 IPOs of M/s. Passport India Investment and the manner in which reallocation of (Mauritius) Ltd. not to buy, sell or shares to such persons should take place. deal in any securities, directly or The Wadhwa committee submitted its indirectly till further directions in report giving recommendations on the said this regard. Mr. Dipak Patel not to issues and also recommended appointment be associated with any FII or sub- of an administrator for overseeing and account or any registered entity of managing reallocation work. In pursuance, SEBI till further orders. SEBI appointed Shri Vijay Ranjan, Retd. • Mr. Kanaiyalal Baldev Patel, Mr. Chief Commissioner (Income Tax), as the Anandkumar Baldevbhai Patel, M/s. Administrator to undertake the task of Bhoomi Industries were directed not disbursement of the recovered amounts to to buy, sell or deal in any securities, the identified persons. In pursuance of the directly or indirectly till further recommendations of the committee, the directions in this regard. They were disbursement of reallocation amount to directed to deposit profits amounting identified persons is under progress. to Rs.1,12,68,660 with the National Stock Exchange of India Ltd (NSE) VIII. Enforcement within 15 days from the date of issue i) Orders of the order. a) Interim Order against Mr. Dipak Patel • M/s. Passport Capital LLC and its (Portfolio Manager of M/s. Passport Sub-account M/s. Passport India India Investment (Mauritius) Limited) Investment (Mauritius) Ltd. to and connected entities conduct an internal enquiry into the SEBI found that a client named Mr. above matter and initiate appropriate Kanaiyalal Baldevbhai Patel was prima actions against their employee. 101 Annual Report 2009-10 b) Interim Order in the matter of M/s. (“HSM”). The information received by GHCL Ltd. SEBI indicated that the said entities A complaint was received by SEBI had executed synchronised deals in wherein it was alleged that M/s. five scrips namely M/s. Cals Refineries GHCL Ltd. were reporting false Limited (“Cals”), M/s. Confidence shareholding details of the promoters Petroleum India Limited (“Confidence”), in their quarterly filing with the Stock M/s. Bang Overseas Limited (“Bang”), Exchanges. The said filing is required M/s. Shree Precoated Steels Limited under clause 35 of the Listing Agreement (now known as M/s. Ajmera Realty with each NSE and BSE. and Infra India Limited) (“SPSL”) and M/s. Temptation Foods Limited On examination, SEBI found that M/s. (“TFL”). The acts of connected clients GHCL had filed false shareholding of were prima facie in violation of SEBI the promoters repeatedly over the four (Prohibition of Fraudulent and Unfair quarters of 2008, thereby misleading Trade Practices relating to Securities the investors about commitment of the Market) Regulations, 2003. promoters towards the company. SEBI observed that atleast five of the In view of the above, SEBI passed an connected clients appear to be related to ad-interim order dated April 20, 2009 Mr. Shirish Maniar, who was implicated directing M/s. GHCL Ltd., its promoter by CBI along with Mr. Ketan Parekh in entities, Chairman, Managing Director the M/s. Madhavpura Mercantile Co- and the Company Secretary of M/s. operative Bank case. Mr. Ketan Parekh GHCL Ltd. not to buy, sell or deal in the along with the companies belonging to securities market until further orders. him is already debarred by SEBI from Further, SEBI directed M/s. GHCL dealing in securities market. Ltd. to reconcile and file the correct shareholding details with the stock In view of the above, SEBI vide interim exchanges. order dated June 4, 2009, restrained 26 persons/entities from accessing the c) Interim Order in case of entities securities market and further prohibited connected to Mr. Ketan Parekh them from buying, selling or dealing in securities market, directly or indirectly, SEBI, in the course of its routine market till further orders. surveillance, received information regarding the execution of synchronised deals in certain scrips by entities d) Interim Order in case of M/s. RTS namely, M/s. Maruti Securities Limited Power Corporation Limited (“MSL”), M/s. Kundan Leasing and SEBI received complaints from the Finance Private Limited (“KLFPL”), brokers wherein it was mentioned that M/s. Chandra Financial Services Private the brokers suspected that trading Limited (“CFSPL”), M/s. Jay Investrade carried out in the scrip of M/s. RTS Private Limited (“JIPL”) and M/s. HSM Power Corporation Limited (RTS) was Financial Services Private Limited fraudulent in nature. Upon investigation, 102 Part Three: Regulation of Securities Market SEBI found out that Mr. Konde, Mr. e) Interim Order in case of M/s. Alka Jadhav, Mr. Waje, Ms. Hetal Patel and Securities Ltd. Mr. Rajesh Patel prima facie colluded to During the course of preliminary misuse the stock exchange mechanism examination during the period November to profitably exit from their positions 2008 to March 2009, SEBI observed that in the scrip RTS on February 11, 2009. the promoters of M/s. Alka Securities They had orchestrated a plan to default Ltd. used the off-market route to transfer in the pay-in obligation of the buy shares of the company to 42 entities clients who provided an exit to the seller, (1st level entities) and these entities have thereby defrauding the stock brokers. either dealt the said shares in market It was observed that buyers and sellers or transferred to 317 entities (2nd level had dealings with common financiers entities) who in turn had dealt in the such as M/s. OM Associates and M/s. said shares at BSE. The trading activity Bhavani Trading Co, for routing funds by the promoter/company connected between them. It is also pertinent to entities prima-facie suggests circular note that Mr. Konde and Ms. Hetal trading activity with an intention of Patel traded through a different set of creating the volume so as to give the stock brokers on February 11, 2009, market a false impression about the as against their regular stock brokers liquidity of the scrip. Further, the and selected well capitalised stock company, its promoters and directors, brokers who could absorb the impact of prima facie, appeared to have failed their default. Thus, the conduct of Mr. to provide mandatory disclosures for Konde, Mr. Jadhav, Mr. Waje, Ms. Hetal change in their shareholdings on various Patel, Mr. Rajesh Patel and Mr. Chetan occasions whereas the shareholding Shah was prima facie in violation of disclosures made to BSE were incorrect Regulation 4(2) (a) and 4(2) (g) of SEBI and apparently false. This activity (Prohibition of Fraudulent and Unfair continued in the period after March 2009. Trade Practices Relating to Securities Market) Regulations, 2003. In view of the above, SEBI passed an interim order dated July 28, 2009 with In view of the above, SEBI passed following directions:- an interim order dated June 5, 2009 prohibiting Mr. Mukesh G Konde, Mr. • The promoters of M/s. Alka Ashok Narayan Waje, Mr. Nitesh Ashok Securities Limited viz. Ms. Alka Jadhav, Ms. Hetal Patel, Mr. Rajesh Patel, M Pandey, Mr. Ravi Pandey, Mr. Mr. Chetan Shah, M/s. Om Associates Mahesh Natvarlal Kothari, Ms. and M/s. Bhavani Trading Company from Anjuben Kothari, Mr. Brijesh Kothari, accessing the securities market and from Ms. Dimple Kothari, Mr. Mahendra buying, selling or dealing in securities Pandey and Mayuresh Esatate Agent market, directly or indirectly, till further were restrained from accessing orders and directing BSE to withhold the the securities market and further payout of February 11, 2009 of Ms. Hetal prohibited from buying, selling, Patel and Mr. Chetan Shah in a separate dealing in securities in any manner escrow account, till further orders. whatsoever, till further orders. 103 Annual Report 2009-10 • The stock brokers, M/s. Alka Subsequent to hearing granted to the Securities Limited and M/s. entities in the matter, an order was Mahesh Kothari Shares and Stock issued with the following directions: Brokers Limited were prohibited • Mr. Hemant Patel and Mr. from buying, selling or dealing in Praveen Mohnot were restrained any securities on their respective from buying, selling or dealing proprietary/own account, and in the securities market in any also not to take fresh clients with manner whatsoever, or accessing immediate effect till further orders. the securities market, directly or • M/s. Alka Securities Limited not to indirectly and holding position of issue any equity shares or any other Director in the Board of Directors of instrument convertible into equity any listed company for a period of shares, in any manner, and not to five years. alter its capital structure in any • Mr. N. Ravichandran was restrained manner, till further directions in this from buying, selling or dealing regard. in the securities market in any manner whatsoever, or accessing • All the entities involved not to the securities market, directly or buy, sell or deal in the securities of indirectly and holding position of M/s. Alka Securities Limited in any Director in the Board of Directors of manner, till further directions in this any listed company for a period of regard. two years. f) Order in the matter of M/s. KLG Capital • Mrs. Priyanka Singhvi and Mrs. Services Ltd. Anita Ravichandran were restrained Investigation was conducted in the from buying, selling or dealing scrip of M/s. KLG Capital Services in the securities market in any Ltd, wherein it was observed that manner whatsoever, or accessing Mr. Hemant R. Patel, Mr. Praveen the securities market, directly or Mohnot and Mr. N. Ravichandran, indirectly for a period of five years. who are executives of M/s. SKIL • Further, these entities were ordered Infrastructure Limited (SKIL), and their to disgorge an amount of Rs.5.5 relatives, namely, Ms. Priyanka Singhvi, crore. daughter of Mr. Praveen Mahnot, and Ms. Anita Ravichandran, wife of g) Order in the matter of public issue of Mr. N. Ravichandran, communicated M/s. Pyramid Saimira Theatre Ltd. unpublished price sensitive information An investigation into the allotment (UPSI) and/or dealt in the shares of M/s. of 4,22,200 shares reserved for the KLG during February 22-27, 2008 while employees (employee category) by M/s. in possession of UPSI. Therefore, these Pyramid Saimira Theatre Ltd. (PSTL) entities violated various provisions of in its initial public offer in December SEBI Act, 1992 and the SEBI (Prohibition 2006 revealed that PSTL allotted 98.5 of Insider Trading) Regulations, 1992. percent of shares under the employee 104 Part Three: Regulation of Securities Market category to seven persons who were not to stake sale, mergers, acquisitions its employees. In collusion with PSTL, or any significant news or events these seven persons donned the cloak from the people who have access to of ‘employee’ on the eve of the public insider information and promised to issue for four to six months, applied reward the person who parted with for shares in the employee category such insider information by sharing and received the allotment, sold the profits with them. Such a solicitation shares soon after listing and made an of insider information was observed to unlawful gain of Rs.2,31,94,612. But be in violation of SEBI (Prohibition of for the artifice employed by PSTL and Insider Trading) Regulations, 1992. SEBI the seven persons, there would have passed a cease and desist order dated been a shortfall in subscription in the November 18, 2009 directing Dr. Krishna employee category, which would have to cease and desist from issuing or gone to other categories having over continuing to issue online offer soliciting subscription. This artifice employed by unpublished price sensitive information, PSTL is prohibited under regulation 3(b) communicating directly or indirectly and (c) of the PFUTP Regulations. any inside information received, trading directly or indirectly on the basis SEBI passed an order dated June 25, of inside information received and 2009, restraining five entities from recommending or counseling trading dealing in securities in any manner in scrips for which inside information whatsoever or accessing the securities is received. Investors are also cautioned market, directly or indirectly, for a not to avail of the online offers made by period of three years. Further, these Dr. Krishna in this regard, or any similar entities were ordered to disgorge an proposals contained in advertisements, amount of Rs.1.2 crore. in print or electronic media. In this same matter, SEBI passed an order dated November 10, 2009 against i) Order in the matter of M/s. Kwality PSTL, restraining PSTL from dealing in Dairy India Limited securities in any manner whatsoever or In view of the increase in the price of accessing the securities market, directly the shares of M/s. Kwality Dairy India or indirectly, for a period of seven years. Limited an examination was carried out PSTL has also been directed to include by SEBI to look into the dealing of the the order in the agenda of their next shares of the company. It was observed annual general body meeting. that certain entities were carrying out a cycle of off-market transfer and market h) Cease and desist order against Dr. transaction i.e. purchase through market, Nalamothu Venkata Krishna which was repeated a number of times SEBI had noticed an online offer made among them. Thus, by trading in a by Dr. Nalamothu Venkata Krishna circular and synchronised manner these in his blog “stockmarketguide.in” entities had generated fictitious trades soliciting unpublished price sensitive and given a false misleading impression insider information like those relating of large volumes of trading in the scrip. 105 Annual Report 2009-10 In view of the above, SEBI passed k) Interim Order in matter of M/s. Bank of an interim order dated December 1, Rajasthan Ltd. 2009 inter-alia directing entities Mr. SEBI received a reference from the Bhupendra Singh Rathore, Ms. Leela Reserve Bank of India (RBI) regarding Surana R., M/s Mahasagar Securities, annual financial inspection of the M/s. and Mr. Rajesh Kumar Vyas not to Bank of Rajasthan Limited (BoR). SEBI buy, sell or deal in the securities in any investigation followed the trail of funds manner till further directions in this provided in the RBI reference and regard and the sub-broker M/s. Surana examined the movement of shares, Capital Market not to buy, sell or deal whether on-market or off-market, for all in the securities of M/s. Kwality Dairy named entities, including those prima India Limited in any manner till further facie found to be connected to the M/s. directions in this regard. Further, sub- Tayal group or other front entities. broker was directed not to buy, sell or During the examination it is prima facie deal in the securities in its own account established that the entities had acted in in any manner till further directions in concert with the promoters of BoR with this regard. the common objective of substantially j) Interim Order in case of M/s. S J acquiring shares/voting rights in Corporation Ltd. BoR indirectly for the promoters for SEBI carried out examination in the scrip the purposes of camouflaging their of M/s. S. J. Corporation Ltd (SJCL) for acquisition. the period March 18, 2008 to October 1, With a view to protect the interest of 2009 based on a BSE report. Examination investors and securities market from revealed as follows: such acts, SEBI passed an interim • From January 28, 2009 the price ex-parte order dated March 8, 2010 of the scrip started to move up restraining 100 entities/persons from significantly, however, prior to that accessing the securities market and there were hardly any trades. further prohibiting them from buying, • A few promoter related entities selling or dealing in securities in any contributed greater than 49 percent manner whatsoever, with immediate to the rise in price and most of the effect, till further directions. trades were of one share each. l) Order in matter of M/s. Jaybharat In view of the above, SEBI passed an Textiles interim order dated February 5, 2010, directing 16 entities including Mr. In the matter of M/s. Jaybharat Textile Savjibhai D. Patel and Ms. Usha S. Patel, and Real Estate Ltd (JTREL) and M/s. the promoters of M/s. S. J. Corporation KSL and Industries Ltd (KSLIL) SEBI Ltd., to restrain from buying, selling had passed an ex-parte interim order or dealing in the shares of M/s. S. J. dated September 7, 2007 against certain Corporation Ltd., either directly or entities who are apparently connected indirectly, in any manner, till further to the promoters of JTREL and KSLIL, directions in this regard. directing them not to buy, sell or deal 106 Part Three: Regulation of Securities Market in shares of JTREL and KSLIL directly entities from buying, selling or dealing or indirectly, in any manner, till further in shares directly or indirectly in any directions in this regard and pending manner whatsoever, till further orders. investigations. Further a team of SEBI officials had visited M/s. Mondkar ii) Consent orders: Computers Pvt., the Registrar (RTA) Many proceedings are settled through of JTREL and collected information consent orders as per the SEBI circular and records on shareholding of the dated April 20, 2007. Some of the major above entities since September 2006. It consent orders passed during the year was noticed from the data that a large are: block of shares was held mostly in the physical form by 19 entities listed under a) M/s. Pyramid Saimira Theatre Ltd. public shareholding in the category of (PSTL) ‘Individuals’ holding nominal share SEBI had conducted investigations capital in excess of Rs. one lakh’, into the alleged irregularities in the constituting 27.8 percent of the share allotment of employee quota shares in capital of the company. the Initial Public Offer (IPO) of M/s. Pyramid Saimira Theatre Ltd (PSTL) Investigations have revealed that these The investigations prima facie revealed certain shareholders shown under the that Mr. Sanjay Jhabak and Mr. Dheeraj public holding category of JTREL were Jain cornered the employee quota shares actually linked to the promoters of the of PSTL in collusion with the company company. Considering the combined and some other persons in the IPO and shareholding of such entities with that made an unjust profit of Rs.53,69,028 of the promoters as publicly declared, it and Rs.54,75,079 by selling the shares prima facie appears that the promoters, immediately on listing. The above directly or indirectly, control as much persons preferred consent proceedings as 97 percent of the share capital of and paid Rs.80, 53,542 and Rs.82, 12,619 the company since September 2006. respectively as consent terms. Therefore, the acts of company and entities under the control of promoters b) M/s. Nissan Copper Limited are prima facie in violation of Listing Agreement, Regulation 3 and 4 of SEBI SEBI conducted investigation into (Prohibition of Fraudulent and Unfair dealings on the first date of listing of Trade Practices) Regulation 2003 and shares of M/s. Nissan Copper Limited Regulation 7, 8, 10 and 11 of SEBI (NCL) upon noticing abnormal price rise (Substantial Acquisition of Shares and in the shares of NCL. The investigations Takeover) Regulations, 1997 prima facie found that the certain entities had allegedly arranged for the In view of the above, SEBI passed an subscription in the QIB portion of the order dated March 12, 2010 restraining IPO of NCL. They had agreed that the company, JTREL from accessing the upon listing of the shares of NCL, these securities market and further prohibiting entities would provide an assured exit the company, its promoters and 24 other for the QIB at a predetermined price by 107 Annual Report 2009-10 entering into structured transactions. Mr. Sheelu Lalwani for Rs.5.2 crore, Mr. SEBI passed an ad interim ex-parte Dharmesh K Katakia for Rs. one crore, order dated January 17, 2007, inter alia, Mr. Dharmesh Bhupendra M for Rs.1.1 directing NSE and BSE to withhold crore. the profits/gains of these entities in a separate escrow account. Some of the iii. Prevention of Money Laundering entities applied for consent in the above Money Laundering is globally matter. recognised as one of the largest threats posed Consent order was passed in respect of to the financial system of a country. The fight the M/s. Parklight Securities Ltd., Mr. against terrorist financing is another such Rupesh B Brambhatt, Mrs. Sonal U. emerging threat with grave consequences Vora, Mrs. Sonali D. Vora, Mr. Uday H. for both the political and economic standing Vora, Mr. Dhiren H. Vora, Mr. Rajesh B. of a jurisdiction. Rapid developments and Brambhatt, M/s. Safal Realty Pvt. Ltd., greater integration of the financial markets M/s. Parklight Investment Ltd. and M/s. together with improvements in technology H. Nyalchand Financial Services Ltd for and communication channels continue to an amount of Rs.17.68 crore. Consent pose serious challenges to the authorities, order was also passed in respect of M/s. and institutions dealing with anti money Forney Funds Advisors Pvt. Ltd. and laundering and combating financing of Mr. R. K. Goyal, director of M/s. Forney terrorism (AML and CFT). Funds Advisors Pvt. Ltd. for an amount The Prevention of Money Laundering of Rs.1.5 crore. Act , 2002 (PMLA) and Rules framed there under brought into force with effect from July c) IPO irregularities: 01, 2005 has been a significant step towards SEBI conducted investigations into the India joining the global war against money dealings in various IPOs during the laundering and financing of terrorism. period 2003-05 and found that certain SEBI in the current year continued its entities (key operators) acted in concert focused efforts to bolster the regulatory with financiers and through medium of framework and minimise the risk emanating thousands of fictitious/benami demat from money laundering and terrorist accounts cornered shares meant for financing. In pursuance of these efforts, retail investors. Thereafter, key operators SEBI issued three circulars containing key transferred shares to financiers, on or obligations required to be fulfilled by before the day of listing, who ultimately securities market intermediaries on areas sold them in the market after listing and relating to AML and CFT. made huge ill-gotten gains. In the first circular issued in the month Some of the entities applied for consent of September 2009, directions were provided and consent order was passed in to intermediaries that they were permitted to respect of Mr. Gautam N Jhaveri and take counter measures against clients from Mr. Javeri Gautambhai for Rs.2.7 crore, high risk countries or countries that do not Mr. Manoj Sekseria for Rs.2.2 crore, or insufficiently apply Financial Action Task Mr. Jitendra Lalwani for Rs.9.6 crore, Force (FATF) standards. Following this, SEBI 108 Part Three: Regulation of Securities Market Box 3.1: IPO Irregularities and Reallocation of Disgorged Amount SEBI had investigated allotments made in Initial Public 27, 2006 against 129 entities. SEBI identified 24 key Offers (IPOs) during the period 2003-05. Investigation operators and 89 financiers who cornered shares in revealed that certain entities (key operators) and their various IPOs and made unlawful gains of around Rs financiers had cornered shares reserved for retail 89 crore. Appropriate enforcement proceedings were applicants in these IPOs by making applications in initiated against them. Subsequently post investigation the retail category through thousands of benami IPO and following due course of law, a total of 104 orders applicants. They also used benami demat accounts have been passed (including 13 adjudication orders). opened through various Depository Participants (DPs) In respect 38 entities proceedings are pending at to receive shares pursuant to allotment. Subsequent various stages. Status of proceedings against entities to the receipt of IPO allotment, these benami allottees named in ad interim ex parte order as on 31st March had transferred shares to their key operators as per 2010 is appended below in the table. understanding between them. These key operators Hon’ble SAT while upholding orders of SEBI in turn transferred the shares to their financiers who simultaneously settled following legal issues in an had originally made funds available for executing the appeal filed by Himani Patel against SEBI’s order(s). game-plan. The financiers in turn sold most of these shares on the first day of listing. The entire operations • Power of Disgorgement: Hon’ble SAT while in these IPOs was planned, financed and executed by upholding the SEBI Order of disgorgement held these key operators and financiers, with the help of that “It is thus clear that a person who has unjustly benami applicants and certain DPs. The gains made enriched himself by his unlawful conduct should be by these financiers were treated as unlawful gains as required to disgorge the illegal gains made by him. their actions were found to be in violations of SEBI We have already held that the conduct of the appellant (Prohibition of Fraudulent and Unfair Trade Practices in cornering large number of shares in the retail Relating to Securities Markets) Regulations, 2003, SEBI category of Suzlon IPO was fraudulent and that by (Depositories and Participants) Regulations, 1996 and her wrongful conduct she had unjustly enriched herself provisions of SEBI Disclosure and Investor Protection to the extent of Rs.33,52,636/-. The whole time Guidelines, 2000, and their actions had resulted in member was justified in requiring the appellant to denying allocation of shares meant for retail applicants disgorge the aforesaid amount. No fault can thus to genuine retail applicants who had made only one be found with any part of the order passed by the application each. whole time member.” SEBI had passed two ad interim ex parte order cum • Illegality of Multiple Applications: “…..Retail show cause notices on January 12, 2006 and April individual investor is defined in the SEBI (Disclosure Status of proceedings as on 31st March 2010 Nature of No of Consent Orders Adjudication Orders 11 B Orders Pending 11B Actions entities entities Passed Passed Passed and Adjudication Involved Proceedings No. Settlement No. Penalty No. Disgorgement No. Unfair Amount Amount + Interest Gains (Rs. Lakh) (Rs. Lakh) Amount Amount (Rs. Lakh) (Rs. Lakh) Financiers 89 49 2,481 7 427 13 617 27 3,939 Key Operators 24 12 1,030 4 190 5 234 7 1,738 Depository Participants 14 8 20 0 0 2 0 4 0 Depositories 2 2 0 2 0 Total 129* 69 3,532 13 617 22 851 38 5,677 * This figure does not include Adjudication Orders 109 Annual Report 2009-10 Box 3.1: IPO Irregularities and Reallocation of Disgorged Amount (contd.) and Investor Protection) Guidelines, 2000 to mean an III. Basis for re-allocation amongst deprived investor who applies or bids for securities of or for a applicants: The totally unsuccessful applicants value of not more than Rs. one lakh. A reading of this shall be reallocated money value as computed definition makes it clear that it is inherent that a above from recovered unjust gains, till they each person who wants to apply as a retail investor receive the gains associated with minimum shares must not exceed the limit and if one were to allotted to the lowest category in the IPO. apply in different names, it is obvious that he The Wadhwa committee had recommended is trying to manipulate the provisions of the appointment of an administrator for overseeing guidelines and corner shares more than what he and managing the reallocation work. In pursuance may otherwise be entitled to.”. SEBI appointed an administrator to undertake the • Authority To Pass Multiple Orders: In disposal task of disbursement of the recovered amounts of various enforcement actions initiated against to the identified persons. In pursuance of the the wrong doers in IPO irregularities, SEBI issued recommendations of the committee 1,357,848 unique orders against a few of them simultaneously investors were identified as unsuccessful applicants imposing monetary penalties on them, directing in one or more of the 21 IPOs listed out in the Justice them to disgorge unlawful gains made by Wadhwa Committee report. them and debarring them from participating in securities market for appropriate periods of time. The disbursement of reallocation amount to all In the matter of Himani Patel, Hon’ble SAT upheld eligible investors numbering approximately 12.75 lakh these multiple orders/directions passed by SEBI. investors from the amount disgorged in the matter of IPO irregularities commenced on April 12, 2010. Reallocation of Disgorged Amount Among the deprived investors, there were 83,112 A Committee was set up by SEBI under the investors who were eligible for reallocation amount Chairmanship of Justice D. P. Wadhwa, former Judge of Rs.20/- or less. Keeping in view the administrative of the Supreme Court of India (Wadhwa Committee) costs involved, no disbursement was made to such to advise/recommend the procedure of identification investors who were eligible for reallocation amount of persons who have been deprived on account of IPO of Rs.20/- or less. irregularities and the manner in which reallocation of About 8.0 lakh investors were eligible for a shares to such persons should take place. The Wadhwa reallocation amount of more than Rs.20/- but less committee submitted its report and the report was than Rs.300/- each. SEBI is making reallocation for the placed in public domain through SEBI website on full eligible amount to all such investors amounting December 29, 2009. to a total of Rs.9.0 crore. This covers 59 percent of all The Wadhwa committee while concluding that the identified investors who are eligible for receiving reallocation in terms of shares will not be practical some reallocation. enunciated three principles in its report for The remaining 4.8 lakh investors each of who are identification of deprived persons, amount and the eligible for a reallocation amount of more than method of reallocation, as under: Rs.300/- are being paid in the first instance, a sum of I. Quantification of the amount of unjust Rs.300/- each amounting to Rs.14.3 crore. enrichment: The gains associated with the The first sets of reallocation cheques were handed number of shares allotted to applicants who had over by Shri Pranab Mukherjee, Hon’ble Finance illegally cornered shares in the IPOs shall be Minister of India at a function held on SEBI treated as unjust allotments/enrichment. Foundation Day at New Delhi in the presence of Shri II. Identification of “deprived” applicants: The Salman Khursheed, Minister of State (Independent totally unsuccessful applicants shall have a call Charge), Ministry of Corporate Affairs. on the reallocation. These applicants will be considered for the amount which is the difference This is the first step in reallocation process and as of closing price of shares on the first day of further disgorgement amount is realised further listing/trading at NSE and the IPO issue price. reallocation will be made. 110 Part Three: Regulation of Securities Market issued a circular in October 2009 directing all provided for enhancing their compliance with intermediaries to ensure that at the time of the legislative requirements. Officers of SEBI account opening and subsequently thereafter, also participated in seminars and workshops the name of their client is checked against organised jointly by stock exchanges (NSE the list put out by the UN Security Council and BSE) and the depositories (NSDL and take action as prescribed. In addition, and CDSL) for enhancing the compliance it also describes the procedure that is to be standards by stock brokers and depository followed for the freezing of financial assets participants. Of note, is a workshop of a client suspected of financing terrorism. conducted jointly by the Australian FIU and In February 2010, SEBI had issued a master FIU-IND that was attended by SEBI and circular consolidating the requirements and intermediaries of the securities market where obligations pertaining to the area of AML and efforts were made to identify typologies that CFT. The master circular replaced the master would help regulators and intermediaries circular SEBI had issued in the preceding to better identify and capture situations of financial year. In the same manner as the money laundering and terrorist financing. preceding circular, the current master circular contains specific provisions to give effect 5. INVESTIGATION to the relevant 49 recommendations of the Timely completion of Investigation cases FATF and incorporated the various changes and effective, proportionate and dissuasive in law reflected through the issuance of action in case of violations of established other SEBI circulars as well as amendments securities laws is important for protection of to the PMLA Act, and Rules thereunder. investors’ interest, ensuring fair, transparent Thus, the master circular serves as a single and orderly functioning of the market. It is reference point, containing legislative and also vital for improving the confidence in the regulatory obligations to be fulfilled by integrity of the securities market. Importance market intermediaries. of effective and credible use of investigation In addition, SEBI has also appointed a has also been underscored by IOSCO in its nodal officer under the Unlawful Activities “Principles for the Enforcement of Securities Prevention Act, to act as a facilitator of the Regulation”. Central Government in carrying out the Keeping the above objectives and procedure for freezing the financial assets of Principles of Securities Regulations in view, any client suspected of financing terrorism in SEBI initiates investigation to examine alleged the securities market. or suspected violations of laws and obligations SEBI has consistently in coordination relating to securities market. The possible with the Financial Intelligence Unit-India violations may include price manipulation, (FIU-IND) organised and participated creation of artificial market, insider trading, in meetings with the stock exchanges, capital issue related irregularities, takeover depositories and depository participants, related violations, manipulation of financial stock brokers and mutual funds, registrars results, non-compliance of disclosure and transfer agents etc wherein further requirements and any other misconduct in guidance to different intermediaries was the securities markets. 111 Annual Report 2009-10 I. Process of Investigation Table 3.19: Investigations by SEBI The steps involved during investigation (Numbers) process include an analysis of market data Cases Taken up Cases Year (order and trade log, transaction statements for Investigation Completed etc.), static data (KYC documents, bank 1 2 3 records, financial results, events around major 1992-93 2 2 corporate developments, call detail records 1993-94 3 3 etc.) and if required interviewing of entities. 1994-95 2 2 The purpose of such investigation is to gather 1995-96 60 18 evidence and to identify persons/entities 1996-97 122 55 behind irregularities and violations so that 1997-98 53 46 appropriate and suitable regulatory action 1998-99 55 60 can be taken, wherever required. Outcome 1999-00 56 57 of investigation in the form of enforcement 2000-01 68 46 action is a clear signal to the market players 2001-02 111 29 to comply with the law and expected 2002-03 125 106 standards of conduct in the market. 2003-04 121 152 II. Trends in Investigation Cases 2004-05 130 179 2005-06 159 81 Since 1992-93, SEBI has undertaken 2006-07 120 102 1,359 investigation cases. In 1,264 cases 2007-08 25 169 investigations have been completed. Apart 2008-09 76 83 * from enforcement action, an important 2009-10 (P) 71 74 attendant benefits resulting from such Total 1,359 1,264 investigations is contribution to the policy changes with a view to further strengthen P: Provisional the regulatory and enforcement environment. * In the SEBI Annual Report 2008-09, number of cases During 2009-10, 71 new cases were taken up completed was shown as 116(P). This figure included for investigation and 74 cases were completed 33 cases where investigation reports were submitted and circulated for discussion but yet to be approved (Table 3.19 and Chart 3.3). by the competent authority. As per the revised policy, Recent experience and trends in the type investigation is treated as completed only on formal of investigation cases undertaken by SEBI approval of the same by the competent authority. Since indicate that technology and newer methods these 33 investigation reports were approved during 2009- 10, the figure for the current year reflects the same. are being used by violators of securities laws to conduct their business in the market. In the cases that are referred to Investigation as the institutional client desk or brokers/ Department, significant increase in the traders handling such institutional orders, number of cases with alleged front running a proper investigation into these cases has been observed over the last two years. should help to put in place or strengthen 13 cases of front running were referred to the existing systems and procedures, so that Investigation Department in the years 2008- the possibility of such institutions becoming 09 and 2009-10. As front running involves sources for leakage of trading information is leakage of information from sources such reduced, in the future. 112 Part Three: Regulation of Securities Market In 2009-10, in a couple of cases of market was linked to bogus entities, SEBI passed manipulation, use of a large number of ad interim ex-parte order prohibiting the front entities/widely distributed network of company from raising any further capital in persons/entities was found to be perpetrating any manner, directly or indirectly, whatsoever unfair and fraudulent trade practices in the till further orders. A formal investigation was market. In view of the urgency to protect also ordered in the matter. genuine investors from such manipulations, SEBI invoked powers under the SEBI Act i. Nature of Investigation Cases Taken Up and issued necessary directions to prevent During the year 2009-10, about 62 damage to the integrity of the market. These percent of the cases taken up for investigation cases also highlight the importance of an pertain to market manipulation and price effective Customer Due Diligence (CDD) rigging, as against about 68 percent of such regime, a thorough “In-Person” verification cases in the previous year. Other cases process and continuous monitoring of pertain to insider trading, takeover violations, transactions by the registered intermediaries. irregularities in capital issues, and other irregularities. Since, several investigation In one case of inter regulatory cases involve multiple allegations of cooperation, on receipt of information violations, strict classification under specific about possible manipulation in the books of category becomes difficult. Such cases are accounts of a company, where purchase/sale classified on the basis of main charge/ amounting to hundreds of crore of rupees violations. 113 Annual Report 2009-10 ii. Nature of Investigation Cases Completed to capital issue related manipulation, insider During 2009-10, about 62 percent of trading, takeovers etc. the cases completed pertain to market The details of investigation cases taken manipulation and price rigging as compared up and completed are provided in Table 3.20, to 75 percent in the previous year. Other cases Chart 3.4 and Chart 3.5. in which investigation was completed pertain Table 3.20: Nature of Investigations Taken up and Completed (Number) Investigations Taken up Investigations Completed Particulars 2008-09 2009-10 2008-09 2009-10 1 2 3 4 5 Market Manipulation and Price Rigging 52 44 62 46 Capital “Issue” related Manipulation 2 2 1 7 Insider Trading 14 10 12 10 Takeovers 3 2 1 5 Miscellaneous* 5 13 7 6 Total 76 71 83 ** 74 * Miscellaneous cases include investigations pertaining to GDR conversions, trading pattern in the market after public issue, illegal carry forwards, non-disclosures under SEBI Regulations, Fit and Proper Regulations, etc. ** In the SEBI Annual Report 2008-09, number of cases completed was shown as 116(P). This figure included 33 cases where investigation reports were submitted and circulated for discussion but yet to be approved by the competent authority. As per the revised policy, investigation is treated as completed only on formal approval of the same by the competent authority. Since these 33 investigation reports were approved during 2009-10, the figure for the current year reflects the same. 114 Part Three: Regulation of Securities Market III. Regulatory Action directions during 2008-09, SEBI issued 691 After completion of investigation, such directions during 2009-10. A detail break further penal action is initiated as per the up of all regulatory actions is given in Table recommendations made in the investigation 3.21 and Chart 3.6. reports and as approved by the competent authority. Action is decided based on the principles of objectivity, consistency, Table 3.21: Type of Regulatory Actions materiality and quality of evidence available, Taken Number of Entities after thorough analysis and appreciation of Particulars facts. The action included issuing warning 2008-09** 2009-10# letters, initiating enquiry proceedings 1 2 3 for registered intermediaries, initiating Suspension 46 48 adjudication proceedings for levy of monetary Warning issued 179 37 penalties, passing directions under Section Prohibitive directions 11 of SEBI Act and initiating prosecution issued under Section 11 and referring matter to other regulatory of SEBI Act * 230 691 agencies. As a matter of policy, SEBI has Deficiency Observations continued to lay greater emphasis on issuance issued/Administrative warning 6 156 of prohibitive directions under Section 11 of the SEBI Act, 1992. These directions have Total 461 *** 932 *** the strong and salutary effect of deterrence * Against intermediaries and non-intermediaries as well as an effective tool to deal with ** All Regulatory Actions including Investigation cases emergent situations requiring a timely and *** Other than consent orders faster response. Thus as against 230 such # Regulatory actions following investigations only 115 Annual Report 2009-10 6. ENFORCEMENT OF There are five enforcement mechanisms REGULATIONS that SEBI uses in case of any violation(s) Effective enforcement in the form of pertaining to the laws regulating the effective follow ups and disciplinary actions securities market. Age-wise analysis of makes a regulatory system effective. enforcement actions details viz. actions u/s 11, 11B and 11D of SEBI Act, Enquiry I. Enquiry and Adjudication Proceedings, Adjudication Proceedings, Prosecution Proceedings and Summary During 2009-10, 908 orders were passed/ Proceedings as on March 31, 2010 are reports submitted; of which, 119 pertained to provided in Tables 3.23a to table 3.23e. enquiries and 799 pertained to adjudications. Hearings were conducted for 955 cases, and a. Section 11/11B Proceedings 1,017 show-cause notices were issued to different entities (Table 3.22). Under section 11/11B of SEBI Act, 1992, SEBI may issue directions or prohibitive Table 3.22: Enquiry and Adjudication during orders such as debarment from accessing the 2009-10 securities market or not to deal in securities. Adjudi- Particulars Enquiry Total cation In the year 2009-10, 493 cases under 1 2 3 4 section 11/11B has been disposed by SEBI. In Orders Passed/ 119 799 908 the same financial year, 376 fresh cases under Report Submitted the captioned provisions of law were initiated Hearing Conducted 955 by SEBI. Show Cause Notices Issued 1,017 116 Part Three: Regulation of Securities Market Table 3.23a: Age-wise Analysis of Enforcement Actions - u/s 11, 11B and 11D of SEBI Act (As on March 31, 2010) No. Number of Actions Disposed of Aggre- Pen- Year Actions 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- gate ding Initi- 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Dis- Cases ated posal 1995-96 0 1996-97 3 3 3 0 1997-98 85 6 15 9 34 1 14 4 83 2 1998-99 51 9 9 26 7 51 0 1999-00 83 13 12 10 20 19 1 5 80 3 2000-01 461 269 18 45 49 28 1 2 2 15 0 429 32 2001-02 441 390 32 12 1 3 2 0 440 1 2002-03 321 58 74 30 21 8 21 30 24 266 55 2003-04 713 30 135 45 94 197 47 52 600 113 2004-05 522 2 38 39 168 105 85 437 85 2005-06 196 1 12 31 65 69 178 18 2006-07 402 34 67 65 119 285 117 2007-08 374 58 75 61 194 180 2008-09 75 8 44 52 23 2009-10 376 30 30 346 Total 4,103 6 3 28 299 427 215 192 196 107 189 561 412 493 3,128 975 Table 3.23b: Age-wise Analysis of Enforcement Actions - Enquiry Proceedings (As on March 31, 2010) No. Number of Actions Disposed of Aggre- Pen- Year Actions 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- gate ding Initi- 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Dis- Cases ated posal 1995-96 8 8 8 0 1996-97 20 1 12 7 20 0 1997-98 66 3 48 7 5 1 2 66 0 1998-99 335 48 116 12 154 2 3 335 0 1999-00 69 27 1 18 19 1 1 67 2 2000-01 267 6 33 204 6 9 2 1 5 266 1 2001-02 204 35 83 49 16 11 4 6 204 0 2002-03 371 141 56 27 27 60 20 16 4 351 20 2003-04 476 21 71 115 82 83 28 48 448 28 2004-05 190 3 17 3 57 70 30 180 10 2005-06 80 9 31 19 8 67 13 2006-07 122 4 8 28 22 62 60 2007-08 89 3 11 8 22 67 2008-09 20 4 4 16 2009-10 23 1 1 22 Total 2,340 9 15 103 150 24 87 603 134 127 172 164 216 172 125 2,101 239 117 Annual Report 2009-10 b. Enquiry Proceedings Officer for conducting inquiry and imposing SEBI may suspend or cancel the monetary penalties. certificate of registration of an intermediary In the financial year 2009-10, there was through Enquiry Regulations on the a disposal of 764 cases under adjudication recommendation of the Enquiry Officer/ proceedings. 644 fresh cases were initiated for Designated Authority appointed for that adjudication in the same year. purpose. It may also issue warning to e. Prosecution an intermediary if it considers that the violations committed by the intermediary Section 24 of the SEBI Act, 1992 does not warrant suspension or cancellation empowers SEBI to launch prosecution of registration. against any person for contravention of any provision of the SEBI Act, 1992 or any rules or In the financial year 2009-10, 125 cases regulations made thereunder before a court of were disposed after the due completion criminal jurisdiction. of the enquiry proceedings. 23 fresh cases In the year 2009-10, 22 prosecution cases were initiated during the same period where filed by SEBI were disposed by courts and 30 enquiry proceedings are being followed. fresh cases were initiated. c. Adjudication Proceedings f. Summary Proceedings Under Chapter VIA of the SEBI Act, Chapter VA of the SEBI (Intermediaries) 1992, SEBI may appoint an Adjudicating Regulations, 2008 provides the power to Table 3.23c: Age-wise Analysis of Enforcement Actions - Adjudication Proceedings (As on March 31, 2010) No. Number of Actions Disposed of Aggre- Pen- Year Actions 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- gate ding Initi- 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Dis- Cases ated posal 1995-96 2 1 1 2 0 1996-97 5 1 2 1 1 5 0 1997-98 16 3 2 1 1 7 2 16 0 1998-99 33 2 7 1 1 1 8 2 1 2 25 8 1999-00 32 9 7 3 2 4 2 2 3 32 0 2000-01 77 4 17 1 6 8 5 4 5 23 73 4 2001-02 64 16 14 4 14 2 6 5 61 3 2002-03 150 10 11 62 19 15 8 6 3 134 16 2003-04 577 52 344 55 66 8 27 9 561 16 2004-05 418 8 137 126 45 28 17 21 382 36 2005-06 283 27 47 22 66 23 185 98 2006-07 578 34 82 102 120 338 240 2007-08 1,215 4 20 152 373 549 666 2008-09 546 70 101 171 375 2009-10 644 114 114 530 Total 4,640 1 6 9 16 43 29 85 581 242 218 181 473 764 2,648 1,992 118 Part Three: Regulation of Securities Market Table 3.23d: Age-wise Analysis of Enforcement Actions - Prosecution Proceedings (As on March 31, 2010) No. Number of Actions Disposed of Aggre- Pen- Year Actions 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- gate ding Initi- 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Dis- Cases ated posal 1995-96 9 1 1 2 7 1996-97 6 1 1 2 4 1997- 98 8 1 1 1 3 5 1998-99 11 1 1 2 9 1999-00 25 1 1 2 23 2000-01 28 1 1 2 26 2001-02 95 3 4 4 1 12 83 2002-03 229 1 5 17 6 5 34 195 2003-04 480 1 5 29 29 5 13 82 398 2004-05 86 1 13 6 2 22 64 2005-06 30 3 2 1 6 24 2006-07 23 0 23 2007-08 40 1 1 39 2008-09 29 0 29 2009-10 30 0 30 Total 1,129 0 0 0 0 1 2 2 2 2 6 6 43 65 19 22 170 959 conduct summary proceedings in certain As regards registrars to an issue and specific cases. share transfer agents, enquiry proceedings were initiated against one entity and In the financial year 2009-10, 1913 cases adjudication proceedings were initiated of summary proceedings were disposed of. It against another. Further, warning/deficiency/ may be noted that no summary proceedings advisory letters were issued to three other were initiated during this period of time. entities. II. Market Intermediaries In respect of depository participants, adjudication proceedings were initiated Enquiry proceedings were initiated against four entities and warning/deficiency/ against 18 stock brokers in 2009-10 as against advisory letters were issued to 10 entities. 17 stock brokers in the previous year (Table 3.24). Adjudication proceedings were initiated Warning/deficiency/advisory letter was against 130 stock brokers in 2009-10 as against issued to one credit rating agency and 106 stock brokers in 2008-09. 19 warnings three merchant bankers and adjudication were issued to stock brokers and 98 consent proceedings were initiated against one orders were passed. debenture trustee and one merchant banker each (Table 3.25). 119 Annual Report 2009-10 Table 3.23e: Age-wise Analysis of Enforcement Actions – Summary Proceedings under SEBI Act (As on March 31, 2010) No. Number of Actions Disposed of Aggre- Pen- Year Actions 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- gate ding Initi- 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Dis- Cases ated posal 1995-96 1996-97 0 0 1997-98 0 0 1998-99 0 0 1999-00 0 0 2000-01 0 0 2001-02 0 0 2002-03 0 0 2003-04 0 0 0 2004-05 0 0 2005-06 2,296 0 230 79 11 1,820 2,140 156 2006-07 1 1 1 0 2007-08 1 1 1 0 2008-09 91 91 91 0 2009-10 0 0 0 0 Total 2,389 0 0 0 0 0 0 0 0 0 230 79 11 1,913 2,233 156 Table 3.24: Enquiry and Adjudication Table 3.25: Enquiry and Adjudication Proceedings Initiated against Proceedings Initiated against other Stock Brokers/Sub-brokers Intermediaries during 2009-10 during 2009-10 (Number) (Number) Warning/ Adjudi- En- Intermediaries deficiency/ Particulars 2008-09 2009-10 cation quiry advice 1 2 3 1 2 3 4 Enquiry Proceedings initiated – 17 18 Stock Brokers Registrar and Share 1 1 3 Transfer Agent Summary Proceedings Initiated – 0 93 Stock Brokers/Sub- brokers Depository Participant 4 0 10 Enquiry Proceedings initiated – 3 0 Credit Rating Agencies 0 0 1 Sub-brokers Merchant Banker 1 0 3 Adjudication Proceedings initiated 106 130 Debenture Trustee 1 0 0 Warning – Pursuant to Chairman/ 33 19 Members Orders III. Regulatory Actions against Mutual Suspensions 28 46 Funds Cancellation of Registration 52 Censure 75 i. Warning and Deficiency Letters Consent Orders 208 98 During 2009-10, 17 warning letters were Deficiency Letter 01 issued to 15 mutual funds considering the 120 Part Three: Regulation of Securities Market magnitude and seriousness of violations of four show-cause notices were issued for SEBI regulations/guidelines. Of the total, violation of advertisement code and one for one warning was issued for violating the changing the fundamental attributes without advertising code. following the procedure under SEBI (Mutual Eighteen deficiency letters were issued to Funds) Regulations, 1996. seventeen mutual funds. Of these, seventeen v. SEBI Orders deficiency letters were issued to seventeen mutual funds based on the inspection report During the period, four mutual funds for the period July 01, 2007 to June 30, 2009 were directed by SEBI to abide strictly by to strengthen their systems and improve the stipulations on advertisements by mutual compliance standards. funds, issued by SEBI, both in letter and spirit. ii. Payment of Penal Interest SEBI has made it mandatory that mutual IV. Regulatory Actions under SEBI funds must pay interest at the rate of 15 (Substantial Acquisition of Shares percent per annum for delays in the dispatch and Takeovers) Regulations, 1997 of repurchase/redemption proceeds to the During 2009-10, 20 cases were referred unit holders. The mutual funds are required for adjudication under Section 15 of the to report these cases of delays to SEBI on a SEBI Act, 1992 for alleged violation of the bi-monthly basis. During 2009-10, mutual provisions of SEBI (Substantial Acquisition funds paid Rs.8,47,116.7 to 1,722 investors for of Shares and Takeovers) Regulations, 1997 delay in dispatch as against Rs.22.6 lakh paid and a sum of Rs.63,80,000 was received as to 1,142 investors in 2008-09. monetary penalty. SEBI had made it mandatory that, in the event of failure of dispatch of dividend, V. Regulatory Actions against FIIs the AMC(s) shall be liable to pay interest at During 2009-10, one adjudication the rate of 15 percent per annum to the unit proceeding was initiated against one Foreign holders. The mutual funds are required to Institutional Investor. Directions were issued report these cases of delays to SEBI on a bi- under Section 11(1), 11(4) and 11(B) of SEBI monthly basis. During 2009-10, mutual funds Act, 1992 against Barclays Bank PLC and paid Rs.28,703.4 to 84 investors for delay in Societe Generale: dispatch. a. Barclays Bank PLC iii. Adjudication Proceedings Based on the Offshore Derivative Two adjudication proceedings were Instruments (ODI) Reports submitted during completed during the period. No penalty the period January 2006 and January 2008 was imposed in both the cases, however, in by Barclays Bank PLC, it was observed one case the AMC had applied for consent that it had issued ODIs to UBS AG, with and paid Rs.1,25,000 towards the terms of the Reliance Communications Limited (‘RCom’) consent. as the underlying. When SEBI sought further iv. Show Cause Notices information, Barclays submitted that upon During 2009-10, five show-cause notices review, the counterparty of the transactions were issued to five mutual funds. Of these, was not UBS AG as earlier reported by it but 121 Annual Report 2009-10 was Hythe Securities Limited (‘Hythe’), an applicable. Given that Barclays had provided entirely new entity which did not form part incorrect reporting Barclays has been non of any of the submissions previously made compliant with the provisions of the FII by Barclays to SEBI. From the information regulations Accordingly, SEBI directed vide submitted by Barclays, it was observed order dated December 09, 2009 Barclays Bank, that the ODIs which were issued by it to Plc under Sections 11(1), 11(4) and 11B of Hythe Securities Limited (originally stated the Securities and Exchange Board of India to be issued to UBS AG) were onward Act, 1992, not to issue/subscribe or otherwise issued to another entity Pluri Emerging transact in any fresh/new Offshore Derivative Companies PCC Cell E Emerging Markets Instrument till such time as Barclays satisfies Growth Fund. However, from the ODI SEBI that it has put adequate systems, monthly reports submitted by Barclays, it processes and controls in place to ensure true was observed that that was no mention of and correct reporting of its ODI transactions any back to back issuance of the ODI to any to SEBI. Barclays shall furnish a certificate other entity. Barclays stated that the error in from an auditor of international standing to the reporting had occurred due to manual this end. compilation of the ODI reports in December 2006 and error in data entry level and that b. Societe Generale after improvements in its systems for ODI From the reports submitted by Societe reporting in 2008 and 2009, the errors in Generale, during the period January 2006 reporting continued to be carried forward in and January 2008, it was observed that the new system. Barclays had not only failed Societe Generale had issued certain ODIs/ to provide true, fair and complete details of PNs to Hythe Securities Limited (‘Hythe’), the ODI activity undertaken by it but also with Reliance Communications Limited as prima facie violated the provisions of FII the underlying. While providing details of Regulations by furnishing false and incorrect all the ODIs/PNs entered into with Hythe, information to SEBI. Full and fair disclosure Societe Generale acknowledged that there forms the cornerstone of FII regulation by had been errors in its reporting to SEBI of SEBI. As the source of funds available with transactions with Hythe. Subsequently, it an FII comes from Offshore, by its very was also observed that those ODIs/PNs had nature SEBI has no direct access to verifying been onward issued, and that Hythe is not the nature of the funds. In other words, SEBI the end beneficiary. Societe Generale failed places almost absolute faith and unqualified to adhere to ‘know your client’ norms as it reliance on the ability of an FII to carry out had little or no relevant knowledge of the the basic regulatory and prudential oversight. ultimate beneficiary of the ODIs issued by it. SEBI as a regulator requires fair, true Societe Generale failed to provide true, fair and correct information for assessing and and complete details of the ODIs/P-Notes monitoring FII activity in the securities activity undertaken by it and also prima facie market. When a registration is granted to violated the provisions of FII Regulations by an FII, SEBI presupposes that the FII has the furnishing false and incorrect information to capacity to exercise the necessary oversight SEBI. Vide an order under section 11(1), 11(4) and ensure the integrity and accuracy of the and 11B of the Securities and Exchange Board data it provides to SEBI under the regulations of India Act, 1992, dated January 16, 2010, SEBI 122 Part Three: Regulation of Securities Market directed Societe Generale, a registered FII, not their accounts. SEBI had passed an interim to issue, subscribe or otherwise transact in any order dated February 20, 2009 under Sections new ODIs or P-Notes in India till such time it 11(1), 11(4) and 11 B of the SEBI Act, 1992 provides a true and correct reporting of its ODI prohibiting M/s. Pinnacle Shares Registry and P-Notes transactions to SEBI Furthermore, Private Limited from entering into any fresh given the aforesaid prima facie violations, agreements with client companies in its Societe Generale was also required to show operations as registrar to an issue and share cause as to why appropriate proceedings transfer agent till further orders. including cancellation of its certificate of Subsequently, SEBI passed an order registration as a Foreign Institutional Investor dated October 14, 2009 under Regulation 28 should not be initiated. (2) of the SEBI (Intermediaries) Regulations, 2008 canceling the certificate of Registration VI. Regulatory Actions against Stock granted by SEBI to M/s. Pinnacle Shares Brokers and Sub-brokers Registry Private Limited [PSRPL] as Registrar to an Issue and a Share Transfer Agent, with a. Illegal trading outside stock exchanges: effect from February 28, 2010. Based on a complaint regarding alleged illegal trading being carried out by a sub c. SEBI order in the matter of M/s. broker Shri Bhadresh Sanghvi (Trade Name: Sterling Holiday Resorts (India) Arihant Investment), SEBI advised the Limited Exchanges - BSE and NSE, to carry out an SEBI passed an order dated November inspection. Their inspection revealed that the 10, 2009 under Section 11 B of the SEBI sub-broker was involved in illegal trading. In Act, 1992, read with Section 19 of the order to prevent further harm to the investors Depositories Act, 1996, against M/s. Sterling and the securities market, SEBI restrained, Holiday Resorts (India) Limited for failing to vide order dated December 21, 2009, the sub- dematerialise 2,99,800 shares of M/s. Gujarat broker from buying, selling or dealing in the Industrial Investment Corporation Limited. securities market in any manner whatsoever M/s. Sterling Holiday Resorts (India) Limited or accessing the securities market, directly or was directed to dematerialise the 2,99,800 indirectly, either for himself or for his clients shares of the company standing in the till further instructions. SEBI also ordered name of M/s. Gujarat Industrial Investment inspection of the books and records of the Corporation Limited, immediately, but not sub-broker. later than fifteen days from the date of receipt of the order. b. SEBI order in the matter of M/s. Pinnacle Share Registry Private Limited 7. PROSECUTION SEBI had conducted an inspection of the share transfer records of M/s. Parsoli I. Trends in Prosecution Corporation Ltd and its Registrar and Share Transfer agent viz. M/s. Pinnacle Shares i. Number of Prosecutions Launched Registry Private Limited based on complaints 30 prosecution cases launched during received from investors on alleged fraudulent 2009-10 as compared to 29 in 2008-09 (Table transfer and dematerialisation of shares from 3.26). Till 2009-10, region-wise, the highest 123 Annual Report 2009-10 number of prosecutions were launched in iii. Important Court Pronouncements in Head Office/Western Region (595) followed Prosecution Matters by the Northern Region (345) (Table 3.27). a. SEBI vs. M/s. Endowment Forest (I) Ltd. ii. Higher Court Proceedings and others (CC No. 54 of 2009) During 2009-10, 66 applications/petitions SEBI launched prosecution against were filed in the Higher Courts viz., Sessions Endowment Forest (I) Ltd. and its directors Courts, High Courts and Supreme Court. alleging violation of Section 12 (1B) of SEBI During the period 26 cases were disposed and Act read with Regulations 5(1), 68(1), 73 (1) a total of 92 cases are pending. and 74, of the SEBI (Collective Investment Scheme) Regulation, 1999, for failure of the Table 3.26: Prosecutions Launched entity to obtain registration for its various CIS No. of cases No. of persons/ schemes or in the alternative to wind up the in which entities against schemes and repay an amount of more than Year prosecution whom prosecu- has been tion has been Rs.10.7 lakh collected from the investors. launched launched The Court of Additional Sessions Judge, 1 2 3 Delhi held that that the accused company Up to and 9 67 neither got registered its CIS nor wound including 1995-96 1996-1997 6 46 up the same nor repaid the money to its 1997-1998 8 63 investors as per the provisions of CIS 1998-1999 11 92 Regulations and became punishable u/s 24 1999-2000 25 154 of SEBI Act. The Court convicted Mrs. Savita 2000-2001 28 128 Kansal (accused no. 4) and Mr. Davinder 2001-2002 95 512 Pal (accused no. 7) for the aforesaid offence 2002-2003 229 864 2003-2004 480 2406 and sentenced the accused no. 4 and 7 for 2004-2005 86 432 rigorous imprisonment for six months and 2005-2006 30 101 with a fine of Rs.50,000/- each, in default of 2006-2007 23 152 payment of which the accused shall undergo 2007-2008 40 185 simple imprisonment for two months each. 2008-2009 29 114 During the pendency of the trial Mr. Virendra 2009-2010 30 109 Kumar Kansal (accused no. 2), Mr. J C Kansal Total 1,129 5,425 (accused no. 3) and Mr. Jagdish Chander (accused no. 6) had expired and Mr. B K Table 3.27: Region-wise Data on Prosecution Cases as on March 31, 2010 Bhat (accused no. 5), Mr. Prabhakar Pillathu (accused no. 8) and Mr. G M Bhat (accused Number Percentage Region of Cases of Total no. 9) were declared proclaimed offenders. 1 2 3 Head Office/ b. SEBI vs. M/s. JBR Forestry Ltd. and Western Region 595 52.70 others (CC No. 1194 of 2003) Northern Region 345 30.56 SEBI launched prosecution against M/s. Southern Region 97 8.59 JBR Forestry Ltd. and its directors alleging Eastern Region 92 8.15 violation of Section 12 (1B) of SEBI Act read Total 1,129 100.00 with Regulations 5(1), 68(1), 73 (1) and 74, 124 Part Three: Regulation of Securities Market of the SEBI (Collective Investment Scheme) (accused no. 3), Mr. S.S. Thakur (accused Regulation, 1999, for failure of the entity to no. 5) and Mr. Roop Lal (accused no. 6) with obtain registration for its various CIS schemes rigorous imprisonment for one year each or in the alternative to wind up the schemes and also with a fine of Rs.1,00,000 each. and repay an amount of more than Rs.1.1 In default of payment of fine the accused lakh collected from the investors. shall undergo simple imprisonment for six months each. The court has further ordered Ms. Renu Sharma (accused No. 2), that out of the amount of fine realised a sum Mr. Pradeep Kumar (accused No. 3) and of Rs.20,000 be paid to SEBI after expiry Mr. Manoj Kumar (accused No. 4) pleaded of period of revision/appeal, towards the guilty before the Court of Additional Sessions expenses incurred by it. During the pendency Judge, Delhi. After hearing the arguments on of the trial the Mr. K C Kaundal (accused no. sentence the Court sentenced the accused nos. 4) and Mr. H.C. Mahajan (accused no. 7) were 2, 3 and 4 to a pay fine of Rs.10,000/- each, in declared proclaimed offenders. default of which the accused were sentenced to simple imprisonment for three month each. d. SEBI vs. M/s. Ankur Forest and Project The court has also recorded the statement of Development India Ltd. and others (CC accused that if any investor approaches SEBI No. 33 of 2009) for repayment, the accused are liable to fulfil the assurance given to the investors. The Ms. SEBI launched prosecution against Ravinder Kaur (accused no.5) was declared as M/s. Ankur Forest and Project Development proclaimed offender. India Ltd. and its directors alleging violation of Section 12 (1B) of SEBI Act read with c. SEBI vs. M/s. Rimijhim Agro Forest Ltd. Regulations 5(1), 68(1), 73 (1) and 74, of and others (CC No. 56 of 2009) the SEBI (Collective Investment Scheme) SEBI launched prosecution against M/s. Regulation, 1999, for failure of the entity to Rimjhim Agro Forest Ltd. and its directors obtain registration for its various CIS schemes alleging violation of Section 12 (1B) of SEBI or in the alternative to wind up the schemes Act read with Regulations 5(1), 68(1), 73 (1) and repay the money collected from the and 74, of the SEBI (Collective Investment investors. Scheme) Regulation, 1999, for failure of the The Court of Additional Sessions Judge, entity to obtain registration for its various CIS Delhi held that the accused company neither schemes or in the alternative to wind up the got registered its CIS nor wound up the schemes and repay an amount of more than same nor repaid the money to its investors Rs.1.1 lakh collected from the investors. as per the provisions of CIS Regulations and The Court of Additional Sessions Judge became punishable u/s 24 of SEBI Act. The held that the accused company neither got Court convicted Mr. Tasneem Saini (accused registered its CIS nor wound up the same and no. 2), Mr. Rajbit Singh (accused no. 3), Mr. not even repaid the money to its investors as Jagit Singh (accused no. 4) and Mr. Mohan per the provisions of CIS Regulations and Lal Saini (accused no. 6) and sentenced them became punishable u/s 24 of SEBI Act. The with rigorous imprisonment for one year Court convicted and sentenced the Mr. P.S. each and with a fine of Rs.5,00,000. In case of Choudhry (accused no. 2), Mr. D.S. Thakur default of payment of fine the accused shall 125 Annual Report 2009-10 undergo simple imprisonment for six months. M/s. N.R.Plantations (India) Limited and its The court has further ordered that out of the directors for an offence u/s 24 (1) of SEBI Act amount of fine realised, a sum of Rs.20,000 read with the CIS Regulations. Mr. Vishnu be paid to SEBI after expiry of period Prakash Bajpai was arrayed as an accused in of revision/appeal, towards the expenses the complaint alleging that he was a person incurred by it. Mr. Heman Sharma (accused in charge and responsible for the affairs no. 5) was declared as proclaimed offender. of the company during commission of the offence. The captioned application was filed e. SEBI vs. M/s. Startek Plantation and by Mr. Vishnu Prakash Bajpai in the High Forest Ltd. and others (CC No. 34 of Court of Delhi, seeking quashing of the 2009) complaint against him stating that he was not SEBI launched prosecution against a director or a person in charge of the affairs M/s. Startek Plantation and Forest Ltd. and of the company. The petitioner relied on the its directors alleging violation of Section 12 Memorandum and Articles of Association of (1B) of SEBI Act read with Regulations 5(1), the company, Form-32 and the statement in 68(1), 73 (1) and 74, of the SEBI (Collective lieu of prospect in support of his contentions. Investment Scheme) Regulation, 1999, for SEBI relied on the letters written by the failure of the entity to obtain registration for company showing the petitioner as a director. its various CIS schemes or in the alternative The Hon’ble High Court has held that to wind up the schemes and repay the money the jurisdiction to quash a complaint cannot collected from the investors. be exercised when the pleadings in the The Court of Additional Sessions Judge, complaint prima facie reveal commission of Delhi held that the accused company neither an offence and the complaint is not frivolous got registered its CIS nor wound up the or fictitious. The Court further held that same and not even repaid the money to even if it is proved that the petitioner was its investors as per the provisions of CIS not a director of the company, he can still Regulations and became punishable u/s 24 of be liable if it is proved that he was in charge SEBI Act. The Court convicted the Mr. V.K. of the affairs of the company. The Court Sharma (accused no. 2) for the offence and has also observed that the violations of CIS sentenced to undergo rigorous imprisonment Regulations pleaded in the complaint are for one year and with a fine of Rs.5,00,000/-. continuing in nature and the documents In default of payment of fine the accused shall relied on by the petitioner does not prove that he was neither a director nor was responsible undergo simple imprisonment for six months. for the affairs of the company for the entire The court has further ordered that out of the period during which the offence continued. amount of fine realised a sum of Rs.20,000/- Accordingly, the petition was dismissed. be paid to SEBI after expiry of period of revision, appeal, towards the expenses g. M/s Rhodanthe Agro Limited Vs SEBI incurred by it. Mr. M.K. Siddiqui (accused no. – Criminal Revision Case 842/2005 3) had expired during pendency of the case. SEBI has filed a criminal complaint f. Mr. Vishnu Prakash Bajpai Vs SEBI against M/s. Rhodanthe Agro Limited and (Crl.M.C.1182/2009) others alleging violation of 12(1B) of SEBI SEBI had launched prosecution against Act, 1992 and Regulation 5(1) read with 126 Part Three: Regulation of Securities Market Regulation 68(1), 68(2) 73 and 74 of the SEBI Table 3.28: Nature of Prosecutions Launched (Collective Investment Schemes) Regulations, as on March 31, 2010 1999 before the XIII Metropolitan Magistrate, Nature of Prosecution Number of Saidapet, Chennai. The application filed Launched Cases by the accused, seeking discharge on the 1 2 ground of limitation, was dismissed by the Securities and Exchange Board of 934 Magistrate, vide order dated March 18, 2005 India Act, 1992 (SEBI Act) holding that the amount mobilised from the SEBI Act & Securities Contracts 91 investors are not yet refunded and the offence (Regulation) Act, 1956 (SCRA) is continuing one. SEBI Act, SCRA & Companies Act 1 The aforesaid order of the Magistrate SEBI Act & Companies Act 1 was challenged in the present Criminal SEBI Act & Indian Penal Code 5 Revision Application before the Hon’ble Companies Act, 1956 70 High Court of Madras. The Hon’ble High Securities Contracts (Regulation) 5 Court vide order dated September 18, 2009, Act, 1956 dismissed the application, observing, inter Depositories Act, 1996 14 alia, that “the revision petitioners have Indian Penal Code 8 to repay the collected amount from the investors, but, still they have not repaid Total 1,129 the same, so it is continuing offence. If the obligation continues and it is not discharged, III. Disposal of Prosecution Cases the default constitutes a continuing offence”. A. 170 cases were decided by the Courts till The court has also held that the non 2009-10, out of which, 79 cases resulted compliance of Regulations 73 and 74 for in convictions and 54 cases were fully winding up the company is continuing compounded (Table 3.29). in nature and as such the offences is also continuing in nature. Further, Section 24 of the SEBI Act is amended with effect Table 3.29: Number of Prosecution Cases from October 29, 2002 and the offence decided by the Courts as on under section 24 became punishable with March 31, 2010 Type of Decision by Non- imprisonment for a term which may extend CIS Total to ten years or with fine which may extend to the Courts CIS twenty five crore rupees or with both. Hence 1 2 3 4 Convictions 72 7 79 the complaint is not barred by limitation. Compounded (fully)* 6 48 54 II. Nature of Prosecution Abated 0 4 4 Table 3.28 represents the nature of Dismissed 11 19 30 Withdrawn 2 1 3 prosecutions launched under various sections of different Acts. Prosecutions are launched Total 91 79 170 ** by SEBI under the SEBI Act, 1992, Companies * In addition, in 13 (4 in CIS & 9 in non-CIS) cases, the offence has been partly compounded i.e. compounded Act, 1956, Depositories Act, 1996, SC(R) Act, against some of the accused and the cases against others 1956 and the Indian Penal Code. As on March continue. 31, 2010, 1,129 cases were launched under the ** In 33 (32 CIS & 1 non-CIS) prosecution cases, all accused SEBI Act, 1992. were declared as proclaimed offenders. 127 Annual Report 2009-10 B. Disposal of Prosecution Cases in case of (SAT), whereas 155 appeals were dismissed Collective Investment Schemes (CIS) (Table 3.31). Against the orders of SAT, Since the start of launch of prosecution 29 appeals were filed by SEBI, whereas against erring CIS entities, criminal 75 appeals were filed against SEBI in the prosecution cases have been launched by Supreme Court during 2009-10 under section SEBI against 552 CIS entities. Since then, 15Z of the SEBI Act (Table 3.32). Disposals court judgments have been obtained in a of Appeals by SAT since 1998 are given in total of 91 CIS entities. Table 3.32a. During 2009-10, 680 consent applications were received and 357 were IV. Litigations, Appeals, Consent and disposed off, whereas 333 applications were Compounding rejected (Table 3.33). Further, during 2009-10, During 2009-10, 136 cases were filed in 22 compounding applications were filed, two different courts and 100 cases were admitted/ were fully compounded and two were partly allowed/withdrawn, 550 such cases are compounded, whereas 12 applications were pending, where SEBI was a party (Table rejected (Table 3.34). 3.30). During the year, 361 appeals were Table 3.31: Appeals before the Securities filed before Securities Appellate Tribunal Appellate Tribunal during 2009-10 (Number) Table 3.30: Court Cases where SEBI was a Number of Status of Appeals Party during 2009-10 Appeals Cases Cases 1 2 Pending Admitted/ Appeals Filed 361 Cases Subject Matter as on Allowed/ Filed Appeals Dismissed 155 March 31, With- 2010 drawn Appeals Remanded 56 1 2 3 4 Appeals Allowed 36 Stock Brokers Registration 13 23 15 Appeals Modified 33 Fees Cases Appeals Withdrawn 14 Collective Investment 2 33 5 Appeals Disposed as Infructuous 8 Schemes Appeals Pending 80 Consumer Forum Cases 28 111 15 General Services 8 8 10 As on March 31, 2010, SEBI has Department received 2,092 applications for consent and Investigations, Enforcement 2 20 1 compounding. Out of this, 904 applications and Surveillance Department were approved by SEBI settling various Primary Market Department 9 39 9 kinds of enforcement actions. In addition Secondary Market 19 143 11 to these 904 applications, 535 applications Department were rejected and 218 applications were Takeovers 17 30 16 treated as withdrawn/infructuous. An Depositories and Participants 1 2 0 amount of Rs.1,17,82,56,710 was collected as Mutual Funds 5 6 1 settlement/legal/administrative/disgorgement OIAE 6 56 0 charges. Month-wise details of applications Civil/Criminal Courts 18 61 15 received and disposed under the consent and Policy 8 18 2 compounding scheme up to March 31, 2010 Total 136 550 100 are provided in Table 3.35. 128 Part Three: Regulation of Securities Market Box 3.2: Consent and Compounding Scheme of SEBI SEBI settles the pending enforcement actions such as the case may be, if the matter is pending before them, prosecution, adjudication, section 11 B proceedings, for appropriate orders. In case of compounding, the etc. through the consent process in accordance with approved compounding terms are submitted before its circular dated April 20, 2007. The process broadly the Court for its consideration. followed is as under: Till March 31, 2010, SEBI has approved 904 On receipt of an application from the concerned entity applications settling various kinds of enforcement for settlement, an internal Committee of Division actions. These include 68 consent applications Chiefs after meeting the applicant examines if the where after the consent terms were placed before terms offered by it are appropriate for settlement. The the Securities Appellate Tribunal and the Supreme Internal Committee (IC) comprise of one Chief General Court, consent orders were passed by the Securities Manager not dealing with any of the Enforcement Appellate Tribunal and the Supreme Court Actions, one Officer not below the rank of Deputy respectively. The number (904) also includes 63 General Manager each from the concerned Operational compounding applications where the compounding Department and from Legal/Enforcement Department. orders were passed by the respective criminal courts. The terms finally offered by the applicant are placed SEBI has also rejected 535 applications and declined before the High Powered Advisory Committee to pass consent orders for various reasons including (HPAC) which is headed by a former Judge of a High the reason that the terms of settlement proposed Court, an Ex-Chairman of Public Sector Bank and by the applicants were not found adequate. Apart a Chartered Accountant as members, to ascertain if from an amount of Rs.27,26,18,007 collected towards the terms are fair and reasonable. The HPAC, after disgorgement, a sum of Rs.89,15,78,253 was collected taking into account facts and circumstances of the towards settlement charges and Rs.1,40,60,450 was case and the factors specified in the Circular, makes its collected towards legal and administrative charges. recommendations accepting, declining or suggesting The amount received towards settlement charges is modifications in the terms offered by the applicant. remitted to the Consolidated Fund of India and the A panel of two Whole Time Members considers the amount received towards disgorgement is retained in recommendations of the HPAC and takes a decision separate account for distribution to the unsuccessful whether to settle the enforcement action on the said investors in IPO irregularities as recommended by terms or decline the settlement. On compliance of Justice Wadhwa Committee. Besides the amount, the terms of settlement, as approved by the panel, the settlement in 120 cases includes debarment from a consent order is passed by SEBI, if the matter is dealing in securities market/suspension of certificate pending before it. The agreed consent terms are placed of registration for different periods. before the Securities Appellate Tribunal or Courts, as Table 3.31a: Disposals of Appeals by Securities Appellate Tribunal (Number) Appeals 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 No. of Appeals Dismissed 1 2 7 20 15 16 29 46 139 40 81 86 No. of Appeals Modified 0 0 1 7 NA 10 58 101 16 27 1 19 No. of Appeals Withdrawn 0 0 0 3 2 1 8 NA NA NA 17 19 No. of Appeals Allowed 1 2 6 8 23 13 19 72 71 32 39 30 Total 2 4 14 38 40 40 114 219 226 99 138 154 NA : Not Available. 129 Annual Report 2009-10 Table 3.32: Appeals under Section 15Z of 2. Liquidity Problem in Income and Money the SEBI Act against the Orders Market Mutual Funds in India during of Securities Appellate Tribunal October-November 2008 during 2009-10 3. Analysis of Penetration of Corporate (Number) Bonds in India Cases Cases Cases dis- 4. Status of Database for the Capital Market Subject Matter filed pending missed/ 5. Shareholding Pattern of the Listed allowed Companies 1 2 3 4 Appeals filed by SEBI 29 81 8 6. Regulatory Impact Analysis of SWDR. Appeals filed against SEBI 75 82 99 7. Lessons Learnt from the Observed Total 104 163 107 Research on Corporate Governance (CG): A Case Study Table 3.33: Consent Applications filed with 8. Financial Literacy: Challenges Ahead SEBI during 2009-10 Further notes were prepared on various No. of Consent No. of App- Number of Consent contemporary issues like Regulatory impact Application lications Appli- Terms analysis of Differential Voting Rights, impact Received Disposed cations (in Rs.) of Rejected of Direct Tax Code (DTC) on securities 1 2 3 4 markets etc. A new initiative of monthly 680 359 68,56,50,968/-* 333 lectures by eminent subject experts in the * Amount received towards disgorgement, settlement and area of Financial Economics were invited to legal expenses. address SEBI staff. Publication of SEBI Annual Report, SEBI Table 3.34: Compounding Applications Bulletin and Handbook of Statistics on the filed by the Accused in Criminal Indian Securities Market were carried out. Courts during 2009-10 Preparation of regular reviews, policy notes No. of No. of Compo- and country profiles etc were also executed Compo- Applications unding No. of during the year. SEBI is conducting an All unding Compounded Charges Appli- India Investor Survey and task has been Appli- received cations Fully Partly assigned to National Council of Applied cations Compo- Compo- by SEBI* Rejected filed unded unded (in Rs.) Economic Research (NCAER). Further, 22 2 2 4,91,250/- 13 History of Indian Securities Markets dating * Amount received including disgorgement and legal back to 18th century is under progress. expense. Periodic reports are also generated by SEBI for internal and external uses including weekly and monthly reports for the Ministry 8. RESEARCH ACTIVITIES of Finance. In addition it provides and verifies SEBI took several research initiatives data for various publications viz. Handbook during 2009-10. These include papers viz. of Statistics on Indian Economy, Economic Survey: Government of India, Economic 1. Impact of Grading on Initial Public Survey Government of Maharashtra, by Offerings different Government agencies. 130 Part Three: Regulation of Securities Market Table 3.35: Receipt and Disposal of applications under Consent and Compounding Process during 2009-10 No. of No. of Applications Settlement/ Legal/Admn. Disgor- Total Month/Year Applications Settled by Compounding Charges gement Amount received passing Charges (Rs.) (Rs.) (Rs.) (Rs.) orders 1 2 3 4 5 6 7 2007-08 698 101 2,69,07,850 40,00,950 0 3,09,08,800 2008-09 692 440 37,29,30,786 54,90,000 8,27,84,906 46,12,05,692 2009-10 Apr - 09 46 48 18,92,17,052 6,45,000 2,27,345 19,00,89,397 May - 09 40 28 67,70,302 3,90,000 5,26,975 76,87,277 Jun - 09 64 39 1,35,14,962 9,65,000 2,36,49,980 3,81,29,942 Jul - 09 52 23 47,51,000 6,55,000 0 54,06,000 Aug - 09 63 26 2,28,64,868 3,30,000 0 2,31,94,868 Sep - 09 55 40 1,57,74,062 2,00,000 7,45,312 1,67,19,374 Oct - 09 46 37 1,03,50,000 1,17,500 0 1,04,67,500 Nov - 09 54 13 71,75,797 85,000/- 18,65,019 91,25,816 Dec - 09 75 33 5,87,41,502 1,00,000 14,00,50,375 19,88,91,877 Jan - 10 91 31 14,19,78,871 6,82,000 1,18,21,528 15,44,82,399 Feb - 10 59 28 1,37,20,629 0 1,09,46,567 2,46,67,196 Mar - 10 57 17 68,80,572 4,00,000 0 72,80,572 Total 2009-10 702 363 49,17,39,617 45,69,500 18,98,33,101 68,61,42,218 Aggregate Total 2,092 904 * 89,15,78,253 1,40,60,450 27,26,18,007 1,17,82,56,710 * In addition, 535 applications were rejected and 218 applications were withdrawn/infructuous. 131 Annual Report PART2009-10 FOUR: REGULATORY CHANGES SEBI has been taking various measures • one third of the amount to be in the interest of investors in securities market distributed pro-rata among the and for the development of the securities shareholders who have accepted the market. It framed few regulations and offer amended/modified various regulations during d) security deposits, if any, held by stock this year. The Central Government also exchanges in respect of public issues amended the Securities Contracts (Regulation) and rights issues, in the event of de- Rules, 1957 to lay down rules for delisting of recognition of such stock exchanges; Equity Shares. The details of such regulatory developments are as under: e) amounts in the Investor Protection Fund and Investor Services Fund of a stock 1. REGULATORY DEVELOPMENTS exchange, in the event of de-recognition of such stock exchange; I. New Regulations f) interest or other income received out of i. The Securities and Exchange Board any investments made from the fund; of India (Investor Protection and Education Fund) Regulations, 2009 g) such other amount as SEBI may specify in the interest of investors. SEBI (Investor Protection and Education Fund) Regulations, 2009 were notified on May The regulations provide that the fund 19, 2009 to establish a Fund to be called the shall be utilised for the purpose of protection Investor Protection and Education fund. of investors and promotion of investor In terms of the regulation the following education and awareness including the amounts may be credited to the fund: following: a) contribution as may be made by SEBI to a) educational activities including seminars, the fund; training, research and publications, aimed at investors; b) grants and donations given to the fund by the Central Government, b) awareness programmes including State Government or any other entity through media - print, electronic, aimed approved by SEBI for this purpose; at investors; c) the entire amount to the merchant c) funding investor education and banker, in the event of forfeiture for awareness activities of investors’ non fulfillment of any of the obligations associations recognised by SEBI; under the regulations, for distribution in d) aiding investors’ associations recognised the following manner, after deduction of by SEBI to undertake legal proceedings expenses, if any, of the merchant banker in the interest of investors in securities and the registrars to the offer, - that are listed or proposed to be listed; • one third of the amount to the target e) refund of the security deposits which are company; held by stock exchanges and transferred • one third of the amount to the to the fund consequent to de-recognition Investor Protection and Education of the stock exchange as mentioned in Fund established by SEBI; clause (d) of regulation 4, in case the 132 Part Four: Regulatory Changes concerned companies apply to SEBI and Regulations) were notified on August 26, fulfill the conditions for release of the 2009. The regulations have been made deposit; primarily by conversion of the SEBI (Disclosure and Investor Protection) f) expenses on travel of members of the Guidelines, 2000 which has been rescinded committee, who are not officials of SEBI, by the regulations. and special invitees to the meetings of the committee, in connection with the ICDR Regulations have made certain work of the committee; changes in the erstwhile DIP Guidelines by removing the redundant provisions, g) salary, allowances and other expenses of modifying certain provisions on account of office of ombudsman; and changes necessitated due to market design h) such other purposes as may be specified and bringing more clarity to the provisions of by SEBI. the rescinded guidelines. Some of the significant changes made ii. The Securities and Exchange Board through the regulations are: of India (Delisting of Equity Shares) Regulations, 2009 a) Exemption from eligibility norms for making an IPO available to banking SEBI (Delisting of Equity Shares) companies, corresponding new banks Regulations, 2009 were notified on June and infrastructure companies has been 10, 2009. These regulations rescinded the removed. SEBI (Delisting of Securities) Guidelines, b) Issuer not to make public issue or rights 2003 which had laid down mechanism for issue of specified securities if: delisting of equity shares of a company. The regulations lays down procedure for • the issuer, any of its promoters, voluntary as well as compulsory delisting of promoter group or directors or equity shares of a company. persons in control of the issuer are debarred from accessing the capital Further, special provisions have been market by SEBI; made in the regulations for delisting of • if any of the promoters, directors shares of small companies (companies having or persons in control of the issuer paid up capital upto one crore rupee, or a was or also is a promoter, director company having upto three hundred public or person in control of any other shareholders and where the paid up value of company which is debarred from shares held by such public is not more than accessing the capital market under one crore rupees) and delisting by operation any order or directions made by of law. The regulations also provide for listing SEBI. of delisted equity shares. c) Offer for sale by listed companies has iii. The Securities and Exchange Board of been provided for. India (Issue of Capital and Disclosure d) Firm allotment in public issues has been Requirements) Regulations, 2009 removed. SEBI (Issue of Capital and Disclosure e) Allotment/refund period in public issues Requirements) Regulations, 2009 (ICDR has been fixed as 15 days. 133 Annual Report 2009-10 f) Disclosure of price or price band is not c) the securities of the company have required to be disclosed in the draft remained infrequently traded during the prospectus. preceding three years; g) Transfer of surplus money in Green Shoe d) the company or any of its promoters or Option (GSO) Bank Account to the IPEF. any of its directors has been convicted h) Issue period for all types of issuers has for failure to comply with any of the been made 10 days. provisions of the Act or the Securities and Exchange Board of India Act, 1992 i) Pledge of shares by promoters has to be or the Depositories Act, 1996 (22 of disclosed in the offer document. 1996) or rules, regulations, agreements j) The balance upfront payment made made there under, as the case may be against the unexercised warrants shall be and awarded a penalty of not less than forfeited. rupees one crore or imprisonment of not less than three years; The ICDR Regulations also amended SEBI (Debenture Trustee) Regulations, 1993, e) the addresses of the company or any of SEBI (Merchant Bankers) Regulations, 1992, its promoter or any of its directors, are SEBI (Registrars to an Issue and Share not known or false addresses have been Transfer Agents) Regulations, 1993 to provide furnished or the company has changed for the matters relating to the regulation its registered office in contravention of of the intermediaries governed by these the provisions of the Companies Act, regulations, which were contained in the 1956 (1 of 1956); or erstwhile DIP Guidelines. f) shareholding of the company held by the public has come below the minimum II. Amendments to Existing Rules/ level applicable to the company as per Regulations the listing agreement under the Act and i. Amendment to the Securities Contracts the company has failed to raise public (Regulation) Rules, 1957 holding to the required level within the time specified by the recognised stock The Central Government amended the Securities Contracts (Regulation) Rules, 1957 exchange. on June 19, 2009 by inserting a new rule 21 Conditions for voluntary delisting: which lays down ground for compulsory delisting and conditions for voluntary a) the securities of the company have been delisting. listed for a minimum period of three Grounds for compulsory delisting: years on the recognised stock exchange; a) the company has incurred losses during b) the delisting of such securities has been the preceding three consecutive years approved by the two-third of public and it has negative networth; shareholders; and b) trading in the securities of the company c) the company, promoter and/or the has remained suspended for a period of director of the company purchase more than six months; the outstanding securities from those 134 Part Four: Regulatory Changes holders who wish to sell them at a iii. Amendment to certain Regulations price determined in accordance with SEBI (Payment of Fees) (Amendment) regulations made by “Securities and Regulations, 2009 Exchange Board of India” under the Act. SEBI (Payment of Fees) (Amendment) Regulations, 2009 were notified on June 29, The amended rule provides that in 2009 to amend the following regulations to case of compulsory delisting by the stock revise the fees levied under those regulations: exchange; company, promoter and director of a) SEBI (Custodian of Securities) the company shall provide exit opportunity Regulations, 1996 to the shareholders of the company. Further, a company compulsorily delisted by a stock b) SEBI (Foreign Institutional Investor) exchange shall be delisted from all the stock Regulations, 1995 exchanges where it was listed. c) SEBI (Foreign Venture Capital Investors) Regulations, 2000 The amended rule further provides d) SEBI (Mutual Funds) Regulations, 1996 that there is no requirement of providing exit opportunity to the shareholders of the e) SEBI (Stock Brokers and Sub-Brokers) company in case of a voluntary delisting from Regulations,1992 regional stock exchanges, if the company The revised fee structure has been continues to be listed on BSE or NSE. provided in Table 4.1. ii. Amendment to certain Regulations by iv. Amendment to the SEBI (Inter- SEBI (Facilitation of Issuance of Indian mediaries) Regulations, 2008 Depository Receipts) Regulations, 2009 SEBI (Intermediaries) Regulations, 2008 were amended on July 14, 2009 to provide for In order to facilitate the issuance of completion of summary proceedings initiated Indian Depository Receipts (IDR), SEBI has under erstwhile SEBI (Procedure for Holding notified the SEBI (Facilitation of Issuance of Enquiry by Enquiry Officer and Imposing Indian Depository Receipts) (Amendment) Penalty) Regulations, 2002 (since repealed) Regulations, 2009 on June 19, 2009. These in accordance with the summary procedure regulations have made amendments to the prescribed in the newly inserted Chapter following regulations: VA of the SEBI (Intermediaries) Regulations, a) SEBI (Custodian of Securities) 2008. Regulations, 1996, to provide for enabling the Custodian to undertake the v. Amendment to the SEBI (Substantial activity of domestic depository for IDRs. Acquisition of Shares and Takeovers) Regulations, 1997 b) SEBI (Depository Participants) SEBI (Substantial Acquisition of Shares Regulations, 1996, to make IDR eligible and Takeovers) Regulations 1997, were as security which can be dematerialised. amended on November 6, 2009, to clarify that:- c) SEBI (Foreign Institutional Investor) a) ADRs/GDRs holders shall have to Regulations, 1995, to allow FIIs to invest comply with regulations 10, 11 and 12 as in IDRs also. and when such holders become entitled 135 Annual Report 2009-10 Table 4.1: Revision of Fees Sr. No. Intermediary/Market participants Fees earlier payable Revised fees 1 2 3 4 1 Brokers All Sale and purchase transactions Rs.20/- per Rs.1 crore of turnover. Rs.10/- per Rs.1 crore of turnover. in securities other than Debt Securities. All sale and purchase transactions Rs.5/- per Rs.1 crore of turnover. Rs.2.50/- per Rs.1 crore of turnover. in Debt Securities. 2 Derivative Segment (including Derivatives – Currency Segment) Trading Member Rs.20/- per Rs.1 crore of turnover. Rs.10/- per Rs.1 crore of turnover. 3 Mutual Funds Filing Fee for offer document 0.005 percent of the amount raised 0.002 percent of the amount raised in the new fund offer, subject to a in the new fund offer, subject to a minimum of rupees one lakh and minimum of rupees one lakh and a maximum of rupees fifty lakh. a maximum of rupees fifty lakh. 4 Foreign Institutional Investors Registration Fee (3 Years) US$10,000 US$5,000 5 Sub-account of Foreign Institutional Investors Registration Fee (3 Years) US$2,000 US$1,000 6 Foreign Venture Capital Application Fee US$5,000 US$2,500 Registration Fee (One Time) US$20,000 US$10,000 7 Custodian of Securities Annual Fee Rs.10,00,000 or 0.0005 percent of Rs.10,00,000 or 0.00025 percent of assets under custody of Custodian assets under custody of Custodian of Securities whichever is higher. of Securities whichever is higher. The change in fee structure would be effective from July 1, 2009. to exercise voting rights on the shares acquisition shareholding of the acquirer underlying these ADRs/GDRs, in any does not exceed 55 percent. manner whatsoever or exchange such d) Second proviso to regulation 11(2), was ADRs/GDRs into underlying shares amended to provide that acquirer can carrying voting rights. acquire additional five percent shares b) Regulation 14 was amended to provide without making a public announcement for timings for public announcement in under the said proviso, irrespective of case of acquisition of shares underlying acquisition made under regulation 10 or ADR/GDR or acquisition of voting rights regulation 11(1). on such shares. vi. Amendment to the SEBI (Mutual c) Regulation 11(1) was amended to Funds) Regulations, 1996 clarify that acquirer can acquire 1. SEBI (Mutual Funds) Regulations, 1996 additional five percent shares in any were amended on April 8, 2009 to:- financial year, without making a public a) make listing of close ended schemes announcement, provided that post mandatory. 136 Part Four: Regulatory Changes b) remove the provision available for crore rupees. repurchase and re-issue of units c) For issuers making Fast Track of close-ended scheme and to Issue, whose public shareholding provide that the units shall not be is less than 15 percent of its issued repurchased before maturity. equity capital, eligibility regarding c) provide for listing fees as a the annualised trading turnover permissible expenses as part of the of issuers equity shares has been recurring expenses chargeable to changed and it has to be calculated scheme. as at least two percent of the weighted average number of equity d) close-ended debt schemes may shares available as free float during be allowed to invest in securities six months immediately preceding of initial or residual maturities the reference date. not exceeding the maturity of the scheme. d) For issuers making Fast Track Issue, eligibility regarding compliance 2. SEBI (Mutual Funds) Regulations, with equity listing agreement has 1996, were further amended on June 5, been changed to provide that 2009 to allow a mutual fund scheme to if the issuer has not complied invest only upto 30 percent of its net with the provision of the equity assets in money market instruments listing agreement relating to of an issuer. This limit of 30 percent composition of board of directors, is not applicable for investments in for any quarter during the last Government Securities, Treasury Bills three years immediately preceding and Collateralised Borrowing and the reference date, but is compliant Lending Obligations. with such provisions at the time vii. Amendment to the SEBI (Issue of of filing of offer document with Capital and Disclosure Requirements) the Registrar of Companies or Regulations, 2009 designated stock exchanges and adequate disclosures are made 1. SEBI (Issue of Capital and Disclosure in the offer document about such Requirements) Regulations, 2009 were non-compliances during the three amended on December 11, 2009. Some years immediately preceding the of the important changes made by this reference date, it shall be deemed amendment are: as compliance with equity listing a) Insurance funds set up and agreement for this purpose. managed by army, navy or air force e) Issuer has been enabled to offer of the Union of India has been specified securities at differential accorded the status of the Qualified price to its employees entitled for Institutional Buyer. reservation who make application b) Market capitalisation eligibility for for specified securities of value not making Fast Track Issues has been more than one lakh rupees. reduced to five thousand crore rupees from earlier 10 thousand f) Aggregate of reservation for 137 Annual Report 2009-10 employees shall be made upto five been enabled to make alternate percent of the post issue capital of financial disclosure subject to the issuer in contrast to earlier 10 fulfillment of certain conditions: percent of the issue size. n) Alternate method of book-building g) Value of allotment to any employee has been introduced in case of in pursuance of reservation shall further public offers. not exceed one lakh rupees. 2. SEBI (Issue of Capital and Disclosure h) The issuer may make reservation Requirements) Regulations, 2009 were for its employees along with rights further amended on January 1, 2010 issue subject to the condition that to provide that in all public issues value of allotment to any employee and rights issues, wherever only one shall not exceed one lakh rupees. payment option is available, the issuer i) Book-building process has been shall provide the facility of ASBA, in made available in case of issue of accordance with the procedure and IDRs. eligibility criteria specified by SEBI. j) 30 percent of the total IDR issued Further, ASBA investors have been has to be reserved for Retail allowed to revise their bids by this Individual Investors (RII) and amendment. in case of under subscription in 3. SEBI (Issue of Capital and Disclosure RII category, spill over to other Requirements) Regulations, 2009 were categories to the extent of under further amended on January 8, 2010 to subscription is also allowed. bring out certain changes in the alternate k) The financial information in the method of book-building process. The offer documents shall be certified changes are as follows:- by only those auditors who have a) The issuer may mention the subjected themselves to the peer floor price in the red herring review process of the Institute of prospectus or if the floor price is Chartered Accountants of India not mentioned in the red herring (ICAI) and hold a valid certificate prospectus, the issuer shall issued by the ‘Peer Review Board’ announce the floor price at least of the ICAI. one working day before opening l) In case where the financial of the bid in all the newspapers in statements of an issuer were which the pre-issue advertisement audited by an auditor who had was released. not been subjected to peer review b) Qualified Institutional Buyers may process of ICAI, all financial bid at any price above the floor information offer document must be price. re-audited for one full financial year c) Allotment shall be on price priority and the sub-period, by the auditor basis for Qualified Institutional certifying them. Buyers. m) An issuer making further public offer through Fast Track Mode has d) Allotment to retail individual 138 Part Four: Regulatory Changes investors, non-institutional investors his turnover (Rs.2.5 per crore) in case of and employees of the issuer shall be interest rate derivatives contracts. made proportionately. e) Retail individual investors, ix. Amendment to the SEBI (Credit Rating non-institutional investors and Agencies) Regulations, 1999 employees shall be allotted SEBI (Credit Rating Agencies) specified securities at the floor Regulations, 1999 were amended on March price provided that if employees are 19, 2010 to provide for the following: being allotted securities at a price less than floor price (as allowed by a) where the credit rating agency proposes the regulations) then the difference to change its status or constitution, between the floor price and the it shall obtain prior approval of SEBI allotment price shall not exceed 10 for continuing to act as such after the percent of the floor price. change. b) the change of status or constitution in f) The issuer may:- relation to a credit rating agency means • place a cap either in terms of number any change in its status or constitution of specified securities or percentage of whatsoever nature including of issued capital of the issuer that amalgamation, demerger, consolidation may be allotted to a single bidder; or any other kind of corporate • decide whether a bidder be allowed restructuring falling within the scope to revise the bid upwards or of section 391 of the Companies Act, downwards in terms of price and/or 1956, change in its managing director quantity; or whole-time director, any change in control over the body corporate. • decide whether a bidder be allowed single or multiple bids. c) the change in control in relation to a credit rating agency shall means – viii. Amendment to the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 • change in control as defined under the SEBI (Substantial Acquisition of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 were amended on Shares and Takeovers) Regulations, November 19, 2009 to provide for following: 1997 if its shares are listed on any recognised stock exchange; or a) SEBI has been empowered to extend the time for which exemption can be • in any other case, change in the granted to a trading member from controlling interest. the requirement of certification of its approved users and sales personnel from x. Amendment to the SEBI (Employees’ existing one year to one and a half year Service) Regulations, 2001 from August 11, 2008. SEBI (Employees’ Service) Regulations, b) Every trading member is required to pay 2001 were amended on January 14, 2010 to fees at the rate of 0.000025 percent of provide that the recruitment in SEBI may 139 Annual Report 2009-10 be taken by campus selection, as may be period stipulated by notification dated determined by the Chairman. May 13, 2009 SEBI issued a notification on August 4, III. Other Notifications 2009 to extend the period (as specified by the notification dated May 13, 2009), for obtaining i. Notification under Regulation 3 of the certification by approved users and sales Securities and Exchange Board of India personnel upto September 30, 2009. (Certification of Associated Persons in the Securities Markets) Regulations, iii. Notification under Regulation 3 of the 2007 - For approved users and sales Securities and Exchange Board of India personnel of trading members of the (Certification of Associated Persons in Currency Derivatives Segment the Securities Markets) Regulations, SEBI issued a notification on May 13, 2007 - For associated person of a 2009 by which SEBI has approved the Series-I: Registrar to an Issue or Share Transfer CD (specified by NISM), as the required Agent certification for approved users and sales SEBI issued a notification on September personnel of trading members of the currency 4, 2009 to specify that an associated person derivatives segment of recognised stock engaged or employed or to be engaged or exchanges for the purpose of sub-regulation employed by a registrar to an issue or share (2) of regulation 16L of the Securities and transfer agent for performing any of the Exchange Board of India (Stock Brokers and activities specified in the notification, shall Sub-Brokers) Regulations,1992. obtain RTA- Corp Certification or Series- II-B: RTA-MF certification (both specified The notification further required that a by NISM) as the case may be, as stated trading member of the currency derivatives hereinafter: segment of a recognised stock exchange shall ensure that all its approved users and sales a) where such associated person is engaged personnel obtain Series-I: CD certification, by or employed by a registrar to an issue or August 10, 2009. share transfer agent prior to September 4, 2009, he shall obtain Series-II-A: RTA- The notification further provided that Corp Certification or Series-II-B: RTA-MF from May 13, 2009 onwards a trading certification as the case may be within member of the currency derivatives segment two years from September 4, 2009; of a recognised stock exchange shall not engage or employ any approved user or sales b) where on being employed or engaged by personnel who does not have valid Series-I: a registrar to an issue or share transfer CD certification. agent on or after 4th September, 2009 such associated person does not possess ii. Notification under Regulation 3 of Series-II-A: RTA- Corp Certification or the Securities and Exchange Board Series-II-B: RTA-MF certification as the of India (Certification of Associated case may be, he shall obtain the said Persons in the Securities Markets) certification within one year from the Regulations, 2007 - For extending the date of being so employed or engaged. 140 Part Four: Regulatory Changes c) Through said notification, SEBI ii. Mr. Yogesh Bhansali -HUF & Others vs. specified following activities for which SEBI (Civil Appeal D.NO. 2506/2010, certification is required:- date of order: 11/02/2010) • dealing or interacting with the Pursuant to investigations, SEBI passed investors or issuers; an order against the Appellant directing impounding of ill gotten gains of Rs.41.6 lakh • dealing, collecting or processing with interest and debarment from securities applications from the applicants; market, for cornering shares meant for Retail • dealing with matters relating Individual Investor’s quota. to corporate actions, refunds or redemptions, repurchase of Hon’ble SAT vide order dated September securities; 23, 2009 while dismissing the appeals, held that ‘As found in the impugned • handling redressal of investors’ orders, multiple applications in different grievances; combinations were filed by the applicants • responsible for internal control and with a view to hoodwink the issuer company risk management; and to escape the weeding out of their • responsible for compliance of applications at the threshold’. Hon’ble securities laws; SAT further held that ‘the conduct of the appellants herein is similar, if not more • maintenance of books and records devious, to the conduct of Ms.Himani Patel pertaining to the above activities. in Appeal No.154/2008 and for the reasons stated therein we have no doubt in our mind 2. SIGNIFICANT COURT that their conduct was fraudulent. They have PRONOUNCEMENTS deprived a larger number of genuine retail investors from their dues’. Accordingly, I. Supreme Court Hon’ble SAT held that the appellants are i. M/s. Guru Teak Investment Mysore guilty of violating Section 12A of the SEBI (Investment) Pvt. Ltd. vs. SEBI (Civil Act, 1992 and regulations 3 & 4 of the Appeal No. 326/2009, date of order: SEBI(PFUTP) Regulations, 2003. Hon’ble 21/10/2009) SAT also imposed a cost of Rs.50,000/- on the appellant. Appeal was filed against SAT order dated October 21, 2009. The Hon’ble SAT vide The appellants challenged the said order said order had upheld the SEBI’s order dated of SAT before Hon’ble Supreme Court and February 08, 2006 directing the Petitioner the Hon’ble Supreme Court dismissed the Company to make repayment to the investors appeals. and wind up the schemes in accordance with SEBI CIS Regulations, 1999. The company iii. Mr. Mahesh Ratilal Shah vs. UOI & was found to have been running collective Ors (Civil Appeal No.1657/2005, date of investment schemes without obtaining order: 19/01/2010) registration from SEBI. The Hon’ble Supreme Petitioner, claiming to be a sub-broker Court upheld the SAT order and dismissed of BSE stock broker challenged the order the writ petition. of Bombay High Court dismissing the writ 141 Annual Report 2009-10 petition under Article 226 of the Constitution prospectus in the IPO of M/s. Trident Steel against the Union of India, SEBI and the BSE, Ltd. The order of SEBI was set aside on the inter-alia, for a direction upon the Union of ground that provision of Section 11B of the India and SEBI to withdraw the recognition SEBI Act, 1992 cannot be invoked in respect of granted to BSE for alleged non-compliance the alleged misconduct which took place at a with the provisions of Sections 7 and 9 of point of time when section 11B was not on the the Securities Contracts (Regulation) Act, statute book. SEBI filed an appeal against the 1956. A further direction was also sought said order before the Hon’ble Supreme Court. for cancellation of SEBI registration of all relevant 90 members of the BSE allegedly Hon’ble Supreme Court vide Order for fraudulently inducing investors to trade dated February 25, 2010 upheld SEBI’s in forged scrips of M/s. Presto Finance findings against the appellant. It was held Ltd. and to declare the Rules, Bye-laws that ‘it may be noticed that Section 11B of the Act and Regulations of the BSE as illegal, void was invoked even at the show cause notice stage. and ultra vires the 1956 Act as also the Therefore, it cannot be said that any provision Constitution of India. has been invoked in the midst of any pending proceeding initiated by the Board. The respondent Hon’ble Supreme Court dismissed the was, thus, put on notice that SEBI is invoking its petition vide judgment dated January 19, power under Section 11B which was available to 2010. However, the Hon’ble Supreme Court it under the law on the date of issuance of show directed BSE to publish in the Gazette all cause notice’. those Bye-laws which were not published earlier. Hon’ble Supreme Court inter alia, Hon’ble Supreme Court observed that held as follows; the conduct of the respondent and the prohibition from dealing in securities for "Before parting, we would, however, indicate a period of five years imposed on the that even if the 1956 Act did not contemplate respondent may not be equated to ‘offence’ publication of the pre-recognition Rules and Bye- and ‘penalty’. The order passed by SEBI is laws, the position is and would continue to be restraining the respondent from accessing rather ambivalent if the amended Rules and Bye- the securities market and same is totally laws were published in the Official Gazette while different from the definition and meaning of the main Rules and Bye-laws remain unpublished. “offence”. The order is not “penalty”. Hence, It may, therefore, be in the fitness of things to have the protection available under Article 20(1) of the said Rules and Bye-laws also published in the the Constitution is not tenable in the present Official Gazette and the State Gazette to prevent matter. questions similar to those raised in this Special Leave Petition from being raised in future." Hon’ble Supreme Court further held that the SEBI Act (1992) is pre eminently a iv. SEBI vs. Mr. Ajai Agarwal (Civil social welfare legislation seeking to protect Appeal No.1697/2005, date of order: the interests of the common men who are 25/02/2010) small investors. The Hon’ble Supreme Court The Hon’ble SAT had set aside the also held that ‘Provisions of Section 11B prohibitions imposed on the respondent being procedural in nature can be applied by SEBI for alleged mis-statement in the retrospectively. 142 Part Four: Regulatory Changes v. M/s. Bellary Steels & Alloys Ltd. vs. “No power is conferred on the Tribunal SEBI (Civil Appeal No. 1848/2009, date to travel beyond the areas covered by Section of order: 06/04/2009) 12 and Rule 3. When something is to be done M/s. Karnataka State Financial statutorily in a particular way, it can only be Corporation (KSFC) alleged that a fraud was done that way. There is no scope for taking perpetrated by the appellant and its share shelter under a discretionary power.” transfer agent M/s. Karvy Computershare Pvt. Ltd. in transferring the pledged shares vii. Mrs. Varsha Jain Shah vs. SEBI and Mr. to a third party. SEBI vide order dated Jatin Manubhai Shah vs. SEBI (Civil March 28, 2008 debarred the appellants for Appeal No 7840/2009 & Civil Appeal a period of five years, for illegally issuing No 7841/2009, date of order: 11/12/2009) duplicate share certificates though the original M/s. Oasis Media Matrix Ltd, a listed certificates continued to remain with KSFC company had been earning marginal profits and thereby violating Regulation 3 (a), (c) during the period 2002-2005. The company and (d) and Regulation 4 (2) (h) of the SEBI had reissued forfeited shares. SEBI carried (PFUTP) Regulations, 2003. SAT vide order investigations relating to reissue of shares dated November 18, 2008 upheld the findings and found that promoters of the company and order of SEBI. In the Civil Appeal filed offloaded the reissued shares, which were by the appellants the Hon’ble Supreme not listed. It was also found that there was Court refused to interfere in the matter and no consideration against the reissued shares. dismissed the appeal. SEBI found the appellants to have violated Regulation 3 (a), to (d) of SEBI (PFUTP) Regulations, 2003 and were restrained from vi. SEBI vs. M/s. Saikala Associates Ltd. dealing in securities for a period of two years and SEBI vs. M/s. Shilpa Stock Brokers vide order dated February 14, 2008. Pvt Ltd & M/s. Mehta Vakil Pvt Ltd (C. A. No. 3696 /05 & C. A. No 4640/2006, SEBI order dated February 14, 2008 was date of order: 21/04/2009) challenged before Hon’ble SAT in Appeal The short but important question that No 68/2008. SAT vide order dated August arose for consideration before the Hon’ble 10, 2009 dismissed the appeal. The appellant Supreme Court in the aforesaid appeals filed being aggrieved of the same filed the by SEBI were as to whether the Hon’ble captioned appeal and the Hon’ble Supreme SAT exercising power under Rules 21 of Court after hearing the counsel for the parties SAT (Procedure) Rules, 2000 can convert was pleased to dismiss the same in limine. the suspension of certificate of registration imposed by SEBI into monetary penalty. viii. M/s. Alka Securities Ltd vs. SEBI (Civil Hon’ble Supreme Court set aside the order Appeal No 58/2010, date of order: of SAT converting suspension of certificate of 22/01/2010) registration imposed by SEBI to a monetary The appeal was filed against the order penalty and agreed with SEBI that SAT has dated December 9, 2009 of the Hon’ble SAT in no power to convert the nature of the penalty. Appeal No 234/2009, which upheld the order Hon’ble Supreme Court, inter alia held : dated October 30, 2009 of SEBI, suspending 143 Annual Report 2009-10 the certificate of registration of the appellant Court which upheld the orders passed by AO for two months for violation of Section 12 of & SAT and dismissed the appeal. SEBI Act, 1992 and various circulars issued by SEBI, by handing over stock broking business x. Mr. Shankar Sharma vs. SEBI (Civil to an unregistered sub-broker. Appeal No-37 of 2010, date of order: 01/02/2010) Aggrieved by the order of Hon’ble, SAT dated December 09, 2009, the appellant The captioned appeal filed against the had filed the captioned appeal. The Hon’ble final order/judgment dated October 28, 2009 Supreme Court after hearing the counsel for passed by Hon’ble SAT in Appeal No 14/2009. the parties declined to issue notice as there The Hon’ble SAT vide its above mentioned is no ground to interfere with the order and order upheld the order dated February 13, dismissed the appeal accordingly. 2009 of SEBI whereby the appellant was prohibited from buying, selling or dealing in ix. M/s. Kajol Impex Ltd vs. SEBI (Civil securities and associating with the securities Appeal No 223/2010, date of order: market in any manner whatsoever for a 22/01/2010) period of one year for having found guilty SEBI investigated dealings in the scrip of of indulging in synchronised trades on a M/s. Shree Yaax Pharma & Cosmetics Limited large scale in number of scrips resulting in (hereinafter referred to as ‘the company’) artificial creations of volumes and price in for the period of June 11, 2004 to August 10, various scrips and thereby guilty of violating 2004. During the course of investigations, Regulation 4 (b) (c) and (d) SEBI (PFUTP) SEBI issued several summons requiring the Regulations 1995. appellant to furnish the details regarding The captioned appeal was listed for its dealings in the shares of the company. admission on February 1, 2010. The Hon’ble The appellant failed to comply with the said Court after hearing the counsel for parties summons/notices. pleased to dismiss the same and declined to SEBI initiated adjudication proceedings interfere with the impugned order. under the SEBI Act, 1992 and the II. High Courts Adjudicating Officer imposed a penalty of Rs.25 lakh on the appellant for non i. Ms. Chanchal Jain & Others vs. SEBI compliance of summons issued. & Others (W. P. (C) 10390/2009, date of The appellant filed appeal No 167/2009 order: 24/07/2009) – before the Hon’ble before the Hon’ble SAT. The Hon’ble SAT Delhi High Court observed that by not furnishing the requisite This writ petition was filed challenging information and by not appearing before the SEBI’s circular dated June 30, 2009 SEBI, the appellant had hampered the whereby SEBI had advised the mutual funds investigation process. The Hon’ble Tribunal and asset management companies (AMC) not was pleased to dismiss the appeal vide to impose any entry load on investors and order dated October 8, 2009. Aggrieved with the mutual fund distributors were advised the said order, the Appellant has filed the to charge the investors directly a separate captioned appeal before the Hon’ble Supreme advisory fee. Circular was challenged on 144 Part Four: Regulatory Changes the grounds inter alia that (i) it was contrary winding up and repayment report with SEBI. to the SEBI Act, as the SEBI Act, does not The company challenged the said SEBI order. include mutual fund distributors under The Hon’ble High Court, while disposing off its purview; (ii) it extinguishes the right the matter, gave liberty to the petitioner to file to trade and/or profession of the small adequate papers, in support of their claim, individual distributor and is therefore before the SEBI authorities to show that the unconstitutional and bad in law. Hon’ble interest of investor’s have been sufficiently High Court dismissed the writ petition protected by them. holding that section 11(1) of the Act is very widely worded, sub-section 2 does not iii. Indian Bank Mutual Fund vs. SEBI restrict or narrows down the wide scope of (W.P.(C) No. 7464 of 2009, date of order: sub-section 1. Sub-section 2 is not exhaustive 05/05/2009) – before the Hon’ble Delhi of the power and authority of SEBI. Under High Court sub-section 1, SEBI can regulate payment The captioned writ petition was filed of commission or state that there shall not by the Indian Bank Mutual Fund (Petitioner) be any entry load. SEBI is controlling and challenging the order dated November 30, regulating new issues by mutual fund 1999 passed by SEBI and the order dated managers. While doing so, they are entitled February 18, 2000 passed by the Central and empowered to issue circulars in respect Government upholding SEBI’s order. Vide of entry load in the new mutual fund. The the impugned orders the mutual fund was power conferred upon SEBI under section directed to pay dividend for the financial 11(2)(b) relates to both registration as well Year 1996-97 to Asian Institute of Transport as the regulation. It is not possible to accept Department (AITD) for the units it issued the contention that without registration of under the Ind-Jyoti Scheme, 1990 (Plan – A). distributors, SEBI cannot control or regulate The Supreme Court upheld the order of SEBI their working. SEBI is an expert body, which and the Central Government. is entitled to regulate the market and has now issued circular dated June 30, 2009. In economic matters and matters relating to III. Securities Appellate Tribunal finance, courts are reluctant to interfere unless i. M/s. Wealth Sea Properties and Others. clear violation of Article 14 is made out. vs. SEBI (Appeal no. 98 of 2008, date of ii. M/s. MPS Greenery Pvt Ltd vs. SEBI, order: 13/07/2009) (WP No. 1971/2001, date of order: Appeal was filed challenging SEBI’s 25/06/2009) – before the Hon’ble letter whereby the request of the acquirer for Kolkata High Court second re-valuation of the shares of the Target SEBI vide its order dated September 3, Company was refused. Hon’ble SAT allowed 2002 had directed the M/s. MPS Greenery, the appeal on the grounds that there were which found to have been running collective discrepancies in the report of the independent investment schemes without obtaining valuer and appointed M/s. Delloitte Touche registration from SEBI as per SEBI CIS as independent valuer to assess the values of Regulations, to wind up its existing schemes, the shares of the target company on the date make repayments to the investors and file of the acquisition. 145 Annual Report 2009-10 ii. M/s. Eight Capital Masters Fund and offer for the public offer of M/s. Disa India Others. vs. SEBI (Appeal no. 111 of Limited (Target Company) due to indirect 2008, date of order: 22/07/2009) acquisition of 74 percent shares in the Target Acquirers were allotted two types of Company. The appellant had calculated the debentures i.e. Compulsorily Convertible offer price in terms of regulation 20(12) by Debentures and Optionally Convertible taking the date of public announcement for Debentures (OCD) which were to be converted the Target Company. SEBI had advised the into the equity shares of the target company. merchant banker to calculate the offer price Post conversion of OCDs, acquirers were also by taking the date of Stock and Share to trigger the Takeover Regulations. They Purchase Agreement (i.e. March 08, 2008) made a public announcement for which they as the date of PA for the parent company in calculated the offer price by taking the date of terms of regulation 20(12) of the Takeover Board resolution authorising the preferential Regulations. Hon’ble SAT held that word allotment of OCDs (March 3, 2006) as the “public announcement” as used in Takeover reference date in terms of explanation (ii) Regulations has a specific connotation. to regulation 20(11). Vide the observation Regulation 20(12) applies only in case of letter dated August 29, 2008, SEBI advised indirect acquisition made through acquisition the acquirers to recalculate the offer price of parent company which is Indian listed by reckoning the public announcement (PA) company. It has no application where the date (January 22, 2008) as the reference date. parent company is unlisted Indian company Aggreived with the same, acquirer preferred or where it is a foreign company whether an appeal before Hon’ble SAT. Hon’ble SAT listed or unlisted. Since, in the present case held that as the Takeover Code triggers parent company was a foreign company, only on acquisition of voting rights and not no PA in terms of Regulation 20 (12) of the otherwise therefore, “preferential allotment” Takeover Regulations was required to be as mentioned in Explanation (ii) to regulation made. As there was no date for PA for the 20(11) of the Takeover Regulations means parent company, the acquirer was right in the preferential allotment of shares carrying calculating the offer price by taking the date voting rights. In the present case, meeting of of PA for the Target Company only. the Board of Directors when the resolution to allot the shares carrying voting rights iv. Mr. Deepak Mehra vs. SEBI (Appeal No. pursuant to conversion of debenture was 140 of 2009, date of order: 22/08/2009) held on January 26, 2008. Therefore, it is the In the present appeal, letter dated June date of Board resolution which authorised 22, 2009 issued by SEBI under the SEBI the preferential allotment to be taken as the (Informal Guidance) Scheme, 2003 on the reference date. proposed acquisition by M/s. MTN of 35 percent of GDRs and giving the rights to iii. M/s. Hamlet Holding Aps and Others the GDR holders to exercise voting rights in vs. SEBI and Others (Appeal no. M/s. Bharti Airtel Limited, was challenged. 12/2009, date of order: 05/08/2009) Hon’ble SAT dismissed the appeal holding The appellant had challenged the SEBI’s that a letter issued under the Informal observation issued on the draft letter of Guidance Scheme is not an order in terms of 146 Part Four: Regulatory Changes section 15T of the SEBI Act,1992 and hence Takeover Regulations. In terms of Stock is not appealable before SAT. Hon’ble SAT Purchase Agreement acquirer was also paying further held that appeal before SAT under non-compete fees to the promoters which section 15T lies against an order passed by amounted to 6.7 percent of the offer price per SEBI and not against inaction of SEBI. The share. SEBI advised merchant banker to revise remedy for the appellant, if any, in such cases the offer price by including non-compete fees lies elsewhere. also. In this appeal, acquirer impugned the said advice. Hon’ble SAT allowed the appeal v. Mr. M. Z. Khan vs. SEBI (Appeal no. 98 holding that in the present case payment of 2008, date of order: 08/09/2009) of extra consideration to promoters/sellers This appeal was filed challenging the was justified as non-compete, because sellers inaction of SEBI in not adjudicating on the were competent enough to give competition issue of alleged violation of the regulation to the acquirers. Hon’ble SAT further held 12 of the SEBI (SAST) Regulations, 1997 by that under regulation 20(8) of the Takeover the M/s. Burren Energy Limited (acquirer) Regulations, SEBI can look into whether a and M/s. Unocal Bharat Limited (PAC) in payment which is being called non-compete is acquiring the shares and control in the M/s. actually a non-compete or not even when it is Hindustan Oil and Exploration Company less than 25 percent of the offer price. (target company). Hon’ble SAT dismissed the appeal inter alia on the following grounds: vii. Dr. Jayaram Chigurupati vs. SEBI a) Inaction of SEBI cannot be challenged and Mr. Narayanan vs. SEBI (Appeal under section 15T before SAT; Ns. 137 & 139 of 2009, date of order: b) Principle of constructive res judicata and 07/10/2009) principle contained in order 2 Rule 2 of This appeal was filed impugning a the C.P.C.; communication by SEBI whereby SEBI c) Suppression of material facts by the informed the appellant that the price appellant from Hon’ble Supreme Court calculated by the acquirers (i.e. M/s. Daiichi) while withdrawing the SLP(C) No. 15404 was in accordance with the Takeover of 2008. Regulations. In this case M/s. Zenotech Hon’ble SAT also imposed a cost of (Target Company) was acquired by the M/s. Rs.50,000/- on the appellant. Ranbaxy (PAC) and M/s. Zenotech became the subsidiary of M/s. Ranbaxy. Subsequently, vi. M/s. Tata Tea Limited vs. SEBI M/s. Daiichi (Acquirer) acquired M/s. (Appeal no. 136 of 2008, date of order: Ranbaxy (Parent Company) and thereby 15/09/2009) resulting into indirectly acquiring M/s. M/s. Tata Tea Limited (acquirer) had Zenotech. Hon’ble SAT allowed the appeal acquired 24.2 percent shares of the M/s. holding that in cases of indirect acquisition, Mount Everest Mineral Water Limited for the purpose of determining acquirer (Target Company) by virtue of the two and PAC, in terms of regulation 20(4) agreements dated June 1, 2007 for which (b), the relevant date is the date of public he made the Public Announcement on June announcement for the target company. Thus 4, 2007 under regulation 10 and 12 of the it makes no difference that at the time of PA 147 Annual Report 2009-10 for the parent company (M/s. Ranbaxy) by clauses of the SS&SHA taken individually or the M/s. Daichi, M/s. Ranbaxy could not be collectively demonstrated control in the hands treated as PAC with M/s. Daichi as it was of the acquirer. itself a target company. Therefore, acquirer and PAC were required to calculate the offer ix. M/s. S. Kumars Nationwide Ltd. vs. price for the target company, by taking into BSE and Others. (Appeal N0. 151 of consideration the acquisition made by the 2008, date of order: 07/08/2009) M/s. Ranbaxy (PAC), in the target company, This appeal was filed against refusal 26 weeks prior to date of making of PA by of in-principle approval for listing by the the M/s. Daiichi for the parent company (M/s. BSE of 63,76,195 and 16,66,665 equity shares Ranbaxy). of M/s. S. Kumars Nationwide Ltd. issued on a preferential basis to its promoters, viii. M/s. Subhkam Ventures (I) Pvt. Ltd vs. under the Corporate Debt Restructuring SEBI (Appeal No. 08/2009, date of order: (CDR) scheme approved by a CDR Cell. 15/01/2010) The in-principle approval was refused The appeal was filed by M/s. Subhkam for violations of clause 13.4.1, 13.3.1 (f) Holdings Pvt. Ltd. (the acquirer) challenging and 13.3.1 (g) of the SEBI (Disclosure and the SEBI’s observation letter whereby the Investor Protection) Guidelines, 2000 (since merchant banker was advised to disclose the repealed). Hon’ble SAT allowed the appeal regulation 12 of the Takeover Regulations and exercising the powers of the Board given also in the letter of offer as the Share under clause 17.2A.1 of the SEBI (Disclosure Subscription & Shareholder Agreement and Investor Protection) Guidelines, 2000 (SS&SHA) signed by the acquirers were granted exemption to the appellant from giving the controlling rights to the acquirer, the provisions of clause 13.3.1 (f) and (g) in the M/s. MSK Projects (India) Ltd (Target of the guidelines and directed BSE to grant Company). In the present case acquirer had in-principle approval as sought by the made offer under the regulation 10 only. appellant. Hon’ble SAT while allowing the appeal held that the word ‘control’ is a proactive and x. M/s. PGFL vs. SEBI (Appeal No. not a reactive power. Control really means 138/2009, date of order : 17/09/2008) creating or controlling a situation by taking the initiative. Power by which an acquirer The appellant had challenged SEBI’s can only prevent a company from doing what order dated September 17, 2008 directing the the latter wants to do is by itself not control company and their director to not to access since the acquirer is only reacting rather than the capital market for a period of 10 years for taking the initiative. In the light of aforesaid its failure to make repayment to the investors observations, after deliberating upon various and wind up the schemes in accordance clauses of the said agreement, Hon’ble SAT with SEBI CIS Regulations. The Hon’ble SAT held that the protective provisions under observed that the company had not made SS&SHA were in the nature of standards of repayment of the money collected from good corporate governance and to protect investors in accordance with the SEBI CIS the interests of the acquirer and none of the Regulations and also continued mobilising 148 Part Four: Regulatory Changes funds despite the restraint order passed by part of the total trades so as to artificially SEBI on December 6, 2002. The Hon’ble SAT increase the price of the scrip. dismissed the appeal and upheld the SEBI’s order. xii. Mr. Dilip S. Pendse vs. SEBI (Appeal No. 80/2009, date of order: 19/11/2009) xi. M/s. Dimensional Securities Pvt. Ltd vs. The appeal was filed against the order SEBI (Appeal No. 143 of 2009, date of dated March 31, 2009 of SEBI restraining the order: 29/06/2009) appellant from accessing securities market The appeal was filed challenging the for a period of five years from the date of the order dated September 18, 2008 of the order for alleged insider trading. The Hon’ble Adjudicating Officer of SEBI imposing a SAT vide its order dated November 19, 2009 penalty of Rs 2,00,000 on the Appellant, a while allowing the appeal observed that ‘The Stock Broker, for violating Regulation 4(1) charge of Insider trading is one of the most serious & 4(2) (a) (b) (e) and (g) of SEBI (PFUTP) charges in relation to the securities market and Regulations, 2003 and Clauses A(1), (2), (3), having regard to the gravity of this wrong doing, (4) and (5) of Code of Conduct specified higher must be the preponderance of probabilities under Regulation 7 of SEBI (Stock Brokers in establishing the same.’ and Sub-brokers) Regulations, 1992 in respect xiii. Ms. Himani Patel vs. SEBI (Appeal of its dealings in the scrip of M/s. Soft BPO No.154/2008, date of order: 07.09.2009) Global Services Limited. The appellant preferred an appeal The appellant had placed several buy against the order of SEBI dated October 31, orders on behalf of its clients before the 2009, wherein he was directed to disgorge trading session started for the day. The the ill gotten gain of Rs.33.5 lakh together investigation report showed that 2009 of with interest at the rate of 10 percent and such orders out of 2,122 orders placed were prohibited him from dealing in the securities automatically rejected by the exchange market for a period of three years, for mechanism. However, there was a steep having cornered shares meant for the retail increase in the price of the scrip from Rs.15.2 individual investors in the initial public to Rs.230.4 within a period of 34 days. The offerings. A penalty of Rs.55 lakh was also Adjudicating Officer held that the broker imposed by the AO for violation of section had failed to exercise due care and diligence, 12A of the SEBI Act, 1992, Regulation 3 thereby violating the Code of Conduct of the SEBI (FUTP) Regulations, 2003 and prescribed for stock brokers and abetted its the provisions of the SEBI (Disclosure and client in manipulating the price of the scrip. Investor Protection) Guidelines, 2000. The Hon’ble SAT while allowing the The Hon’ble SAT, while upholding appeal held that the rejected orders did not SEBI’s power to disgorge the illegal gains, also affect the market mechanism and could not observed that ‘The conduct of the appellant is contribute to the creation of any volume not only subverted the allotment process but whatsoever and therefore could not affect the was also fraudulent in nature…… the whole price of the scrip. Also, the trades executed by time member was justified in requiring the the broker did not constitute any significant appellant to disgorge the aforesaid amount.’ 149 Annual Report 2009-10 The Hon’ble SAT dismissed the appeal and dated November 29, 1957 had made the provisions imposed costs of Rs.50,000/- on the appellant. of Section 13 applicable to the area comprising Greater Bombay with which we are concerned. xiv. M/s. Triumph International Finance Going only by provision of section 13 of the India Limited vs. BSE and Others. Act read with the notification issued by the (Appeal No. 183 of 2009, date of order: Central Government, no person could execute 09/02/2010) the transactions in securities in Greater Bombay The captioned appeal was filed against otherwise than through member of a recognised the order of AO dated June 30, 2009 imposing stock exchange(s) or through or with such a monetary penalty of Rs. five lakh on the member(s). Section 18(1) of Act, however, appellant for not disclosing the acquision carves out an exception. It provides that nothing of shareholding while acting in concert contained in Section 13 shall apply to spot with other noticees and thereby violating delivery contracts. A combined reading of Sections Regulation 7 of the SEBI (SAST) Regulations, 13 and 18(1) would lead us to conclude that as a 1997 in the scrip of M/s. Adani Exports general Rule, every contract in securities should Limited. The Hon’ble SAT, vide its order be executed through members of recognised stock dated February 9, 2010 while allowing exchange (s) or through or with such member(s) the appeal observed that close business and the only exception thereto is spot delivery association between two or more persons is contract(s)”. not sine qua non for establishing ‘persons acting in concert’. The Hon’ble SAT further held that; “The Parliament then inserted clause xv. Ms. Bhanuben Jaisukhlal Shah vs. SEBI (b) in Section 2(i) of the Act. This clause did (Appeal No. 271/2009, date of order: 05/03/2010) not bring about any change in the definition of spot delivery contract. Clause (a) of the The appeal raises an issue of amended definition remains the same as interpretation of “Spot Delivery Contract” the definition prior to the amendment. as defined in section 2(i)(b) of the SCR Act, Clause (b) was inserted only to explain what 1956. The appellant contended that it does “actual delivery” would mean in respect of not mandate the acceptance of money/ the securities held in dematerialised form. consideration between parties, but it only According to Clause (b), when securities speak about the transfer of securities from are transferred from one beneficial account one account to another by depositories. The to another, it would be treated as “actual Appellant further contended that section delivery” of securities within the meaning 13 of SCRA would not be applicable as per of Clause (a). It is, thus clear that Clause (b) exception provided in section 18(1) of the is not an independent clause, but only an SCRA. Hence, the appellant is not liable for violation of Section 13 read with section 2(i) explanation to the words “actual delivery” of the SCRA. as used in Clause (a). We cannot, therefore accept the argument of the appellant that The Hon’ble SAT while dismissing the appeal Clause (b) is an independent clause and held that; that the spot delivery contract is completed “The central government by its notification with the mere transfer of securities from the 150 Part Four: Regulatory Changes account of one beneficial owner to that of i) Provision to credit the unclaimed another without reference to the payment amounts lying with CIS, MF, VCF under of consideration. This could never be. If that any scheme (for seven years) to the were so, the contract itself would become Consolidated Fund of India. void being without consideration.” j) SEBI to impose monetary penalty up to the maximum permissible under IV. Proposed Amendments the relevant sections in Chapter VIA of SEBI has sent certain proposals to the Act and to double the maximum Central Government for amendments to monetary penalty currently prescribed Securities Laws. Some of the important in the Act. amendments proposed to various statutes are k) (a) To integrate enquiry and as follows: adjudicating functions with one authority (E&AO). i. Amendments proposed to SEBI Act (b) Persons aggrieved by the order of a) To dispense with the requirement of E&AO, may file review petition to registration of sub-brokers by SEBI. Board. b) To empower SEBI to mandate l) Explicit provision to provide for registration of intermediary with a SRO settlement of administrative proceedings. before it is registered by SEBI and to specify classes of intermediaries to be m) To rename the SAT as “Financial Services registered with recognised SROs only. Appellate Tribunal” (FSAT) to deal with appeals from the orders issued by SEBI, c) To empower SEBI to specify different PFRDA and IRDA. combinations of intermediation services that an intermediary may be allowed to n) To empower SEBI to give retrospective undertake. effect to any regulation. d) To empower SEBI to promote or o) To oblige SEBI to consult the public establish any institutions/trust etc. before making the regulations and to present the economic implications of the e) Specific power for SEBI to direct proposed regulations. disgorgement of ill-gotten gains. p) To provide that, SEBI Act to prevail over Disgorged amount to be, credited to other Acts in matters of issue/trading of IPEF and utilised for compensating the securities. investors. f) Power to cancel illegally allotted ii. Amendments proposed to Depositories securities. Act, 1996 g) To empower SEBI to file an application a) To empower SEBI to supersede the for winding up of an intermediary. governing body and take over the h) Power to attach and auction the assets management of a depository. and properties of vanishing companies b) To lay down separate procedure for and/or person behind such companies. transferring the amount realised from 151 Annual Report 2009-10 unclaimed securities lying in the f) To remove the exemptions provided to demat accounts for seven years to the certain issuers and instruments under Consolidated Fund of India (CFI). section 28(1). iii. Amendments proposed to SCRA g) To transfer all powers under the SCRA with the Central Government to SEBI. a) To Define “securities” in generic terms. b) To provide for nomination facility in h) To mandate recognised stock exchanges respect of entitlement of all securities. to transfer clearing and settlement functions to a recognised clearing c) To empower SEBI to grant recognition to corporation within three months. clearing corporations in a manner similar to RSE. i) To repeal the blanket exemption under d) To provide for priority rights of clearing section 28 and empower SEBI to relax corporation/clearing house in case of strict application of any provision of this winding up or insolvency of a clearing Act in specific cases. member. j) To make provision for recovery of e) To provide for making listing agreement amounts like monetary penalty as standard electronic agreement. arrears of land revenue. 152 PART FIVE: ORGANISATIONALPart MATTERSFive: Organisational Matters 1. SEBI BOARD 2. AUDIT COMMITTEE Shri Prashant Saran was appointed as In pursuit of high standards of Whole Time Member of SEBI under clause (d) governance and transparency, the SEBI of sub-section (1) of Section 4 of the SEBI Act, Board, in its 127th meeting held on September 1992 by Government of India vide notification 22, 2009 constituted an Audit Committee to dated April 28, 2009. Shri Saran assumed exercise oversight of SEBI’s financial reporting charge as Whole Time Member with effect process and disclosure of its financial from May 18, 2009. information. Smt Usha Thorat, Deputy Governor, Reserve Bank of India was nominated as one The committee comprises of three of the Members on the Board in terms of members nominated by the Board. The Government of India notification dated May tenure of the members of the committee is 12, 2009 in place of Shri V. Leeladhar. two years. The committee is presently chaired by Shri T. V. Mohandas Pai (Director, Infosys Shri R. Bandyopadhyay, Secretary, Technologies Ltd.) and Dr. K. P. Krishnan (Jt. Ministry of Corporate Affairs was nominated Secretary, Ministry of Finance) and Shri M. S. as one of the Members on the Board in terms Sahoo (Whole Time Member, SEBI) are the of Government of India notification dated other two members. The committee met twice October 14, 2009 in place of Shri Anurag Goel. on November 26, 2009 and February 2, 2010 During 2009-10 SEBI Board met on 9 during the financial year 2009-10. occasions (Table 5.1). The committee reviewed and discussed Table 5.1: Board Meetings during 2009-10 the financial statements of SEBI for the year Number of Number of 2009-10 with the management of SEBI and meetings meetings held attended the internal auditors. Relying on the review 1 2 3 and the discussions conducted with the (i) Chairman management and the independent auditors, Shri C. B. Bhave # 9 8 the audit committee believes that SEBI’s (ii) Whole Time Member financial statements are fairly presented Shri M. S. Sahoo 9 9 in conformity with Generally Accepted Dr. K. M. Abraham 9 8 Accounting Principles (GAAP) in all material Shri Prashant Saran 8 * 8 aspects. The committee has also reviewed (iii) Members the internal control systems put in place and Shri R. Bandyopadhyay 4 * 1 expressed its satisfaction with the same. Dr. K. P. Krishnan 9 9 Dr. G. Mohan Gopal 9 1 Shri T.V. Mohandas Pai 9 8 Smt Usha Thorat 8 * 8 3. HUMAN RESOURCES # As the agenda related to conflict of interest of Shri C.B. Human Resources Development Division Bhave, Chairman, he did not participate in the Board Meeting held on August 26, 2009. continued to play an important role with * Number of meetings held after assuming the charge. prime focus on implementation of policies Note: Shri Anurag Goel attended 3 out of 4 meetings held on capacity building, training, promotions, during the year, prior to his demitting the office of the Part- Time Member. placement and transfers. 153 Annual Report 2009-10 I. Staff Strength, Recruitment, and b. BSE Training Programme Deputation Around two–three officers were As on March 31, 2010, SEBI had a total of nominated every month for various 607 employees in various grades - 493 officers training programmes conducted by the and 114 secretaries and other staff. BSE Training Institute throughout the year. During 2009-10, two Executive Directors joined SEBI on contract basis and one officer c. Data Warehousing in the rank of Deputy Legal Adviser joined 40 officers were nominated for training the services of the Board. One Counselor on Data Warehousing and Business was appointed for staff consultation. One Intelligence during the year 2009-10. officer in the rank of Deputy Legal Adviser was absorbed in the services of the Board. d. Cyber Law Training Five officers were deputed to Competition 175 officers attended Training on “Cyber Commission of India and one officer was Laws and cyber crime investigation”. deputed to FATF Cell in Ministry of Finance. e. Induction Training SEBI undertook campus recruitment at 46 officers recruited from management various management institutes of repute and schools and Law schools in 2009-10 National Law Schools in an effort to augment were imparted induction training which its staff strength in various areas. During 2009 included class room training, attachment -10, 46 officers were recruited, out of which 12 training with various intermediaries as were hired in Legal Stream and rest 34 were well as different departments in SEBI. hired in General Stream. These officers joined directly as officers in Grade B during 2009-10. f. Other Programmes Officers were also deputed to attend II. Training and Development various training programmes on In order to enhance the knowledge base Reservation in Service, IT for Non-IT as well as “soft skills” including motivation, Professionals, Training for Trainers, etc. communication etc., staff members across all with the objective of enhancing specific grades were deputed to various behavioural skills. and functional training programmes at both Training/attachment programs were domestic and international level. The details conducted for senior officers of CBI, are as under: Trainee officers of Indian Foreign Service, etc., by SEBI. i. Domestic Training ii. Foreign Training a. Behavioural Training Programme for Around 105 officers were deputed Secretaries to attend various training programmes Behavioural training programmes and seminars/conferences conducted were conducted for 26 Secretaries on by regulators and other agencies outside “Personal Effectiveness”. India. 154 Part Five: Organisational Matters III. Internship V. Enhancement of Staff Pay, SEBI, as an integral part of its policy, Allowances and Benefits offered short duration projects/internships During the financial year the to students of reputed management schools entitlements under the following schemes and law schools. During 2009-10, 14 students have been enhanced: (11 General Stream and three Legal Stream) a. Medical Reimbursement from premier management schools and law schools were offered short duration projects/ b. Briefcase Reimbursement internships on IPO pricing, churning of c. Telephone Charges Reimbursement mutual funds, etc. During 2009-10, SEBI enhanced the IV. Promotions following benefits. During 2009-10, the following promotions took place covering various i. Health Check-up for employees grades in SEBI against the existing vacancies: The facility of annual health checkup for staff members and their spouses Table 5.2: Promotion of SEBI Officials was introduced during the year. Under during 2009-10 this scheme, the staff members would No. of be reimbursed the expenses on health From To persons promoted checkup subject to ceiling limit per person (for self and spouse) once in a 1 2 3 financial year. Assistant General Deputy General 9 Manager Manager Manager/ Assistant General 68 ii. Reimbursement towards Eye Refraction Legal Officer Manager/ Test Assistant Legal Adviser The facility of reimbursement of Secretary Grade – A/B Manager 12 expenses on eye refraction test and/ Secretary/Accounts Secretary/Accounts 14 or spectacles (lens with frame) for Assistant Grade – A Assistant Grade – B staff members and their spouse was Secretary Grade – B Secretary Grade – C 2 introduced during the year. The staff members would be reimbursed the expenses subject to ceiling limit per Further, during the year, six officers in person (for self and spouse) once in two Grade C and two officers in Grade D who years. had completed seven years of service in their existing grade were granted personal promotion to the next higher grade. VI. Disciplinary Matters Secretarial staff, Accounts Assistants During 2009-10, one staff member and Library Assistants who had completed was placed under suspension in terms 12 years of service in Grade A and 14 years of regulation 74 (1) and 86 (1) (b) of the in Grade B were promoted to the next higher Securities and Exchange Board of India grade. (Employees’ Service) Regulations, 2001. 155 Annual Report 2009-10 4. NATIONAL INSTITUTE OF colleges. Based on the experience, a separate SECURITIES MARKETS (NISM) programme for college students has been NISM undertook a number of activities developed. during 2009-10. NISM has developed a dedicated website for financial literacy and investor education. It I. Certification of Associated Persons has over 200 pages of content. The content is in the Securities Markets under review. The website is proposed to be NISM launched the certificate launched soon. examination for currency derivatives on May 15, 2009. Certification examinations for III. Corporate Governance (i) Registrar to an Issue and Share Transfer NISM, along with the Global Corporate Agents (Corporate) and (ii) Registrar to an Governance Forum and the Confederation Issue and Share Transfer Agents (Mutual of Indian Industries, organised a number Funds) were launched on August 7, 2009. of events on corporate governance. Two About 14,500 candidates appeared for the workshops on “Reporting on Corporate examinations during the year and about 7,100 Governance in India” were held for media candidates passed. persons in New Delhi and Mumbai. A round- NISM is in the process of developing table conference on “Corporate Governance certification examinations for several other in India: A Reality Check” was organised in categories of associated persons in the Mumbai on April 16, 2009. securities markets including examinations “Directors’ Colloquia” was held in Mumbai, for interest rate derivatives and compliance Kolkata and New Delhi. 61 participants function. (including eight women participants) II. Financial Literacy and Investor representing 47 companies participated in Education the three colloquia. NISM offered its financial literacy In addition, one “Board Leadership programme for school children across Workshops Toolkit: Training the Trainers” India. In all 2,795 students underwent the programme was offered. 20 participants from programme in 29 schools in North, South 13 organisations participated in this Training and Eastern regions of India. Of these, of Trainers (ToT). 1,405 students from 17 schools have already undertaken the certification examination held IV. Executive Education at the end of the program. NISM conducted the induction programme for 46 officers of SEBI during Five “Train the Trainer” workshops were July 15 to August 14, 2009. A series of held for school teachers in various cities. 143 programmes were conducted in various cities teachers from 58 schools were trained in these (Mumbai, New Delhi, Kolkata and Chennai) teachers training workshops. on “Training for Inspection of Brokers”. NISM Workshops on financial education organised the India Securitisation Summit in were held for college students in Mumbai Mumbai on July 8, 2009. There were over 180 and Pune covering 1,081 students from 10 delegates. 156 Part Five: Organisational Matters About twenty workshops titled 2009. The observance of the week commenced “Building an Investment Advisory Business” with the pledge administered by Chairman to were conducted in a number of cities across the Executive Directors and Division Chiefs, India for UTI Mutual Fund. who in turn, administered the pledge to their At the request of Securities Board staff. The regional managers located at the of Nepal, a five day training programme four regional offices – Northern Regional was conducted by NISM during October Office, Eastern Regional Office, Southern 26-30, 2009. A three day programme on Regional Office and Western Regional Office “Investigation of Securities Markets Fraud” administered the pledge to their staff. A was conducted for Mumbai Police during banner on ‘Vigilance Awareness Week’ was September 24-26, 2009 in Mumbai. About 50 prominently displayed outside the office police officers attended the programme. premises at Mumbai and all four regional offices during the above mentioned week. A workshop on Direct Tax Code was held by NISM in Mumbai on September 25, 2009. Representatives from the Ministry of Finance, 6. PROMOTION OF OFFICIAL SEBI and a number of participants from the LANGUAGE capital markets attended the programme. SEBI’s endeavor has always been to V. Securities Market Education propagate the use of Hindi in the functioning of SEBI. In this direction, Board took several During the year, NISM launched a initiatives such as ensuring availability of six month part-time course “Certificate various publications of the securities markets in Financial Engineering and Risk to the market participants and access to SEBI’s Management”. A workshop titled “Essential regulations and its policies in Hindi. Econometrics for Research in Finance” was conducted during December 26-30, 2009. In the direction of educating the A workshop on “Computational investors and to make them more aware of Finance” was held during March 24-25, 2010. the securities market so that they can take About 50 participants had attended. informed investment decision, SEBI not only conducted various training programmes in VI. Research Studies Hindi but also made available educating NISM prepared a report “Assessment material in Hindi as well as in regional of Long Term Performance of Credit Rating languages. Agencies in India” and submitted the To ensure smooth implementation of same to the Ministry of Finance. A report Official Language Policy of Government of on “Stock Market Health Index” was also India to facilitate development of conducive prepared. NISM prepared a report on environment for the implementation of “Market Stabilisation Fund” and submitted Hindi in Board offices, it launched several to SEBI. incentive schemes, conducted various training programmes in Hindi for staff 5. VIGILANCE members so that the employees were able ‘Vigilance Awareness Week’ for the year to discharge their official functions in 2009 was observed during November 3-7, Hindi. SEBI also contributed towards the 157 Annual Report 2009-10 programmes organised by other institutions etc) and System/Network Vulnerability/ in the implementation of Official Language Penetration Test. Policy of Government of India. • Technical Support Services from Oracle SEBI is determined to make official India Ltd were availed for further fine language a strong medium for educating tuning/enhancing the performance of and protecting the interest of investors and Oracle Database, Oracle Collaboration contributing to the development of capital Suite, Oracle ERP (HRMS, Finance), etc. market. 8. INTERNATIONAL 7. INFORMATION TECHNOLOGY CO-OPERATION The Information Technology Division Securities and Exchange Board of India (ITD) endeavors to implement emerging is an active and a leading member of the technologies. The major Information International Organisation of Securities Technology (IT) initiatives during 2009-10 Commissions (IOSCO) which is an assembly included strengthening/upgrading of existing of securities market regulators. Currently, systems. IOSCO has 193 members regulating more than 95 percent of the world’s securities • Paper-less initiatives were further markets. It is the standard setting body for strengthened with the implementation of the world’s securities markets and promotes various application software modules for international co-operation for sharing of the internal functioning of the Board. information and providing mutual assistance. • The IT infrastructure has been setup In addition to its association with at the newly opened Western Regional IOSCO, SEBI actively engaged in co-operation Office at Ahmedabad. with foreign regulators, self-regulatory • Leased line connectivity to Head Office, organisations, international financial for accessing the centralised database at institutions, international standard setting Mumbai, was also commissioned. bodies and other international agencies of repute and relevance for development • The old personal computers at Head and regulation of securities markets. SEBI Office and Regional Offices were also contributed actively to the cause of replaced with state of the art computers. development of securities markets in other • The connectivity link between Primary jurisdictions in Asia as well as other regions. Site, Mumbai and Disaster Recovery site at Chennai has been upgraded to I. SEBI Association with G20/FSB four mbps circuit in order to facilitate work and other Multi-lateral database synchronisation. Agencies • System Audit was conducted by CERT- India is a member of G20. The IN empanelled System Auditor. The implementation of G20 decisions and scope of audit includes application recommendations relating to strengthening audit on the ERP software/custom regulation and supervision of securities applications (like registration, claims, markets, maintaining financial stability and 158 Part Five: Organisational Matters other financial sector regulatory reforms are of Indian securities markets, development of being co-ordinated by the Financial Stability regulatory systems for securities markets in Board (FSB). India is also a member of the India and its involvement with IOSCO. FSB. Chairman, SEBI attends meetings of the The TC has several Standing Committees Plenary of FSB. (SC) which assist TC in its work. SEBI SEBI actively contributed to the work is a member of SC1 on Disclosure and of the FSB towards strengthening financial Accounting, SC2 on Regulation of Secondary regulation as per the G20 decisions and Markets, SC3 on Regulation of Market recommendations. During the year, the FSB Intermediaries, SC4 on Enforcement and initiated/furthered its work in key areas like the Exchange of Information and SC5 on thematic peer review of implementation Investment Management. of FSB Principles and Standards of sound SEBI hosted the meeting of the SC5 on compensation practices, measures to address Investment Management in November 2009 “too big to fail” problems associated with at Mumbai. systemically important financial institutions, monitoring perimeter and consistency ii) Appointment as Asia Pacific Regional of regulation, strengthening Accounting Committee (APRC) Chair Standards and strengthening adherence to international standards. SEBI made timely At the 34th IOSCO Annual Conference and effective contribution by sending inputs in Tel Aviv, Israel in May 2009, Chairman, as well as participating in the meetings and SEBI was elected to the IOSCO Asia Pacific conference calls organised by the FSB/MoF Regional Committee’s Chair. The APRC is one in this regard. The position of SEBI has of four regional committees constituted by the been particularly highlighted with regard to IOSCO to focus on regional issues relating to implementation of international standards securities regulation. The APRC comprises 25 related to cooperation. FSB has stated that members representing securities regulators there would be no further evaluation of India from the Asia-Pacific jurisdictions. with regard to co-operation related standards SEBI chaired the APRC meeting held at since SEBI is one of early signatories to Melbourne in October 2009 which discussed the IOSCO MMoU, and also the level of issues like the regulatory and supervisory implementation of IOSCO Principles relating challenges and issues arising out of the recent to co-operation for securities regulation is global financial crisis, implementation of the significantly high in India. IOSCO Standards and Principles, Mutual Recognition/Co-operation, Capacity Building, II. Association with IOSCO and other concerns about matters of systemic i) SEBI’s membership of the Technical risk, investor protection etc in the APRC Committee/Standing Committees region. SEBI is a member of the Technical SEBI remains an active member of Committee (TC), the main standard setting various committees and task forces of IOSCO body of the IOSCO. SEBI acquired this and is currently a co-chair of the EMC Task membership on the basis of size of the Indian Force on Securitisation. The mandate of the securities markets, the international nature Task Force includes working on fact-finding 159 Annual Report 2009-10 with regard to the level of development of III. MoU Agreements signed during markets for securitised products, regulatory 2009-10 issues thereof and recommending guidelines During the year, SEBI signed a for sound securitisation markets in emerging bilateral MoU for Mutual Co-operation and jurisdictions. Information sharing with the Dubai Financial iii) SEBI‘s participation in IOSCO & other Services Authority (DFSA). The MoU was international meetings signed by Mr. C.B. Bhave, Chairman, SEBI and Mr. Paul Koster, Chairman of DFSA on SEBI delegates participated in October 28, 2009 in Mumbai. various IOSCO and other international meetings held during the year such as SEBI also signed a Capital Market the 34th Annual Conference of IOSCO, Collaborative Agreement with the Securities meetings of the Technical Committee (TC), Commission (SC) of Malaysia. The Agreement Executive Committee (EC), Emerging was signed by Mr. C. B. Bhave, Chairman, Markets Committee (EMC), Asia Pacific SEBI and Ms. Zarina Anwar, Chairman, Regional Committee (APRC), EMC Securities Commission, Malaysia in the Advisory Board, CPSS-IOSCO Working presence of Hon’ble Prime Minister of India, Group, Implementation Task Force, Standing Dr. Manmohan Singh and Hon’ble Prime Committee 2, Standing Committee 5, Minister of Malaysia, Dato' Sri Mohd Najib Screening Group of the Standing Committee bin Tun Haji Abdul Razak on January 20, 2010 4 and the Task Force on Supervisory Co- in New Delhi. The agreement incorporates operation. SEBI delegates also attended measures to facilitate the development of other international meetings like the Plenary deeper and broader capital markets, greater Session at the Aflatoun Mid-Campaign, cross-border activities between the capital World Capital Market Symposium, Asian markets and to attain closer regulatory Roundtable on Corporate Governance, cooperation in a mutually beneficial manner. Structured Products Asia 2009 and the FSB Plenary Meeting. IV. MMoU and MoU Requests iv) IOSCO Technical Committee Reports During the year, SEBI received several As a Technical Committee (TC) requests from the securities regulators member of the IOSCO, SEBI approved overseas seeking SEBI’s assistance under the publication of the TC reports during the aegis of the Multilateral Memorandum the year such as Principles for Periodic of Understanding (MMoU/MoU). SEBI Disclosure by Listed Entities, Principles on through its best efforts executed the requests Point of Sale Disclosure, Transparency of so received, subject to the provisions of the Structured Finance Products, Unregulated MMoU/MoU. Financial Markets and Products, Disclosure Principles for Public Offerings and Listings SEBI also made several requests to other of Asset-Backed Securities etc. The reports are securities regulators overseas within the available on IOSCO Website. framework of the MMoU/MoU, seeking their (http://www.iosco.org/library/index.cfm assistance in the enforcement actions initiated ?section=pubdocs&criteria=none&year=none) by SEBI. 160 Part Five: Organisational Matters V. Technical Assistance the Embassy of France, Ms. Idanna Appio, During the year, SEBI provided technical Deputy Head of the Macroeconomics and Mr. assistance to the Securities and Exchange Joseph Caron, Canadian High Commissioner Commission (SEC) of Sri Lanka for introducing to India visited SEBI to discuss various issues. Exchange Traded Funds in Sri Lanka. SEBI also welcomed representatives The Securities Board of Nepal (SEBON) from USA, European Union, South Africa, has requested technical assistance from SEBI Hong Kong, UK and Thailand. Meetings with to undertake the study on the Nepalese the various delegations enabled sharing of Regulatory Framework. A team of five SEBI knowledge and exchange of ideas related to officials have been nominated to visit Nepal, the securities market and establishing inter- for the same. regulatory dialogue between the respective authorities. VI. SEBI’s Participation in the VIII. Study Visits for Overseas International Training Programmes Regulators Organised by SEBI The International training programs During the year, SEBI has organised provide a platform for capital market one day/week long study visits to SEBI regulators to meet, discuss and share ideas, on Indian securities market for various experiences and expertise on significant capital jurisdictions (Nepal, Tanzania) on their market regulation and development issues. request. SEBI nominated its officials at all levels to various training Programs/Conferences/ 9. PARLIAMENT QUESTIONS Seminars held by various international bodies The Parliament Questions Cell at like IOSCO, IMF, OECD, ADB, CFTC, APEC, SEBI functions under the supervision of IFIE, PCAOB, EC and securities market an Executive Director (Administration) regulators of other jurisdictions. as the nodal and interface point for all VII. Visits by Foreign Delegations/ Parliament Questions, assurances to Dignitaries to SEBI Parliament Questions, VIP references and other Parliament related work. During the year, SEBI had the honour of welcoming a number of dignitaries/ SEBI furnished material for reply to 177 delegations from various developed and Parliament Questions and 47 points/queries developing jurisdictions. raised by Parliamentary Committees, as under: The Lord Mayor of the City of London; Mr. Peter Burleigh, Ambassador of the U.S. Table 5.3: Parliamentary Queries Received/ in India accompanied by Mr. Paul Folmsbee, Raised U.S. Consulate General; Sir Richard (Dickie) 2009-10 2008-09 Stagg, British High Commissioner; Mr. 1 2 3 Charles Bean, Deputy Governor, Bank Number of Parliament 177 144 of England; Mr. Thomas Scholar, Second Questions received Permanent Secretary, HM Treasury; Mr. Number of points/queries raised 47 81 Nicholas Ferrari, Financial Counselor of by Parliamentary Committees 161 Annual Report 2009-10 Table 5.4: Break-up of Parliamentary Selection of Subjects for Examination for Queries Received and Replied 2009-10. by SEBI during 2009-10 The representatives of SEBI appeared No. of Admitted before the Parliamentary Standing committee Parliament Session Questions Questions received on Finance for a personal hearing on the 1 2 3 Securities and Exchange Board of India Monsoon Session 70 51 (Amendment) Bill, 2009 in February 2010. (July – August 2009) During 2009-10, SEBI received a list of Winter Session 67 39 (November – December 2009) points from the committee on papers tabled Budget Session – Part I 40 20 in Rajya Sabha. SEBI furnished replies to (February – March 2010) the questionnaire in a time bound manner. Total 177 110 Representatives of SEBI also appeared before the committee for a personal hearing. During 2009-10, SEBI received a questionnaire from the Standing Committee 10. RIGHT TO INFORMATION ACT on Finance - Examination of Demand for The office of Central Public Information Grants (2009-10) of the Ministry of Finance Officer was established in the year 2005 and and Ministry of Corporate Affairs. SEBI Appellate Authority was also designated furnished replies to the same in a time bound for the purpose of the first appeals. In order manner. to facilitate the operation of the Right to Relevant information was forwarded Information Act, 2005, Central Assistant to the Standing Committee on Finance on Public Information Officers were designated Table 5.5: Queries/Points Raised by Various Committees and Replied by SEBI during 2009-10 Queries/ Sr. Committee points No. raised 1 2 3 1. Standing Committee on Finance – Selection of subjects for examination during 2009-10 1 2. Delayed laying of Annual Reports and Audited Accounts of SEBI on the Table of Rajya Sabha 8 3. Examination of Demands for Grants (2009-10) of the Ministry of Finance 2 (Department of Economic Affairs, Expenditure and Disinvestment) – post oral evidence 4. General list of points on Demands for Grants (2009-10) relating to capital market 12 5. 1st Report of the Standing committee on Finance on Demands for Grants (2009-10) of the Ministry 2 of Finance (Department of Economic Affairs, Expenditure, Financial Services and Disinvestment) 6. Examination of Demands for Grants (2009-10) of the Ministry of Corporate Affairs 3 7. Examination of Demands for Grants (2009-10) of the Ministry of Corporate Affairs – 2 Directions of the Parliamentary Standing Committee on Finance. 8. List of points in connection with Examination of Demands for Grants (2010-11) of the 4 Ministry of Corporate Affairs. 9. General List of Points on Demands for Grants (2010-11) of the Ministry of Finance 3 (Department of Economic Affairs, Expenditure and Financial Services) 10. Information requested by Standing Committee on Finance 10 162 Part Five: Organisational Matters in different Regional Offices of the Board i.e., the functioning of SEBI and queries related the Northern, Southern, Eastern and Western to mutual funds, investor grievances, Regional Offices so that the citizens of the investigation, policies and regulations in country may have easy access to availability force, information with respect to broker of information. related complaints, derivatives etc. The applications were replied to within the In terms of Section 4 of the Right to stipulated time frame. The first appeals Information Act, the Board has provided received by the SEBI Appellate Authority disclosable information on its web-site at increased by 14.9 percent from 262 appeals www.sebi.gov.in which inter-alia provides for the year 2008-09 to 301 for the year updated information relating to various 2009-10. During the year 2008-09, 63 second policies and activities of the regulator. appeals were made before the Central The number of applications received Information Commission at New Delhi which under the Right to Information Act, 2005 increased to 75 appeals for the year 2009-10. increased by 7.7 percent from 846 applications The number of items/issues raised by for the year 2008-09 to 911 applications for the applicants in their various applications the year 2009-10 (Table 5.6). The applications and information provided is detailed in received pertained to various aspects of Table 5.7. Table 5.6: Status of Application under RTI Table 5.7: Number of Issues Raised/Replied Act during 2009-10 in RTI Queries Particualrs 2008-09 2009-10 Year 2009-10 1 2 3 1 2 Number of applications received 846 911 Total Number of Applications received 911 Number of appeals received by Total Number of issues raised in the Appellate Authority in SEBI 262 301 applications 4487 Number of orders passed by the Total Number of issues replied 2745 Appellate Authority in SEBI 242 327 Total Number of issues where Number appeals rejected/dismissed information sought from other entities/ by the Appellate Authority 141 234 third parties/others 1742 Number of appeals allowed 101 91 Number of appeals kept in abeyance – 4 Regarding the items raised in the CIC Cases applications and the providing of information Number of appeals received by CIC 63 75 relating to items raised, Board provided information in 91 percent of the items Number of appeals rejected/ dismissed by CIC 31 39 pertaining to the applications received in Number of appeals remanded back the year 2009-10 and only nine percent of to SEBI Appellate Authority by CIC 6 16 the remaining items were placed before the Number of appeals with directions Central Information Commission. Out of to furnish part of information this nine percent placed before the Central passed by CIC 25 19 Information Commission in only two percent Number of appeals kept in abeyance of cases certain directions were issued by the awaiting decision of Court – 1 Commission to furnish part of information. 163 Annual Report 2009-10 So in case of 98 percent information provided greater transparency in dissemination of by SEBI was found to be satisfactory or information by the various intermediaries and exempted from being furnished as per the details of complaints, status of redressal of relevant exemption sections. No penalties complaints, arbitration details/orders etc. are were imposed by the Central Information now available on exchange websites. Commission on SEBI or any of its employees During 2009-10, SEBI took various under the Act. other initiatives to maintain transparency SEBI’s endeavor has always been to in its functions including disclosure of most be transparent in providing information of the information on a regular basis. The to the citizens on the issues relating to the implementation of the Right to Information functions of the Regulatory Authority. By Act, 2005 in SEBI has contributed towards doing so, SEBI has been implementing the attaining the SEBI's objective of protection Right to Information Act, 2005 in its true and education of the investors of securities letter and spirit. Towards this end, SEBI market. has initiated several steps in bringing about 164 CHRONOLOGY OF MAJOR POLICYChronology INITIATIVES of Major Initiatives BY SEBI by SEBI Date Announcements April 20, 2009 With the opening of a Western Regional Office of SEBI at Ahmedabad, the allocation of regions for processing of draft offer documents for public/rights issues, were modified and SEBI (Disclosure and Investor Protection) Guidelines, 2000, were amended. Accordingly, merchant bankers were advised to file the draft offer documents of size up to Rs.50 crore, of the companies whose registered office falls in Gujarat and Rajasthan, with the regional office of SEBI in Ahmedabad. This was applicable for all draft offer documents for public/rights issues which are filed with SEBI on or after May 1, 2009. April 24, 2009 In order to enhance disclosures regarding shareholding pattern in a listed company and also to bring more transparency and efficiency in the governance of a listed company, certain clauses in the Equity Listing Agreement were modified i.e. clause 5A and 20A inserted, clause 16, 19 and 35 amended. May 11, 2009 Continuing with rationalisation of disclosure norms for listing of debt issuances, a simplified Listing Agreement for debt securities, prepared in consultation with the Bombay Stock Exchange Limited (BSE) and the National Stock Exchange of India Limited (NSE), was put in place. It was decided that those portfolio managers, who had not complied with the requirement of sub-regulation (8) of regulation 16 of the SEBI (Portfolio Managers) Regulations, 2008 by the deadline of May 10, 2009, should immediately stop undertaking new clients for portfolio management services till the time they become fully compliant with the said requirements. Such portfolio managers were also instructed to submit a monthly progress report in regard to status of compliance. May 12, 2009 It was decided that the unutilised investment limits for government debt should also be allocated in similar manner as specified in the SEBI circular IMD/FII & C/37/2009 dated February 6, 2009 providing the modalities for the allocation methodology for the debt investment limits with partial amendment to clause 3 (h) that no single entity shall be allocated more than Rs.1,000 crore of the government debt investment limit. May 20, 2009 It was clarified that for securities market transactions and off-market/ private transactions involving transfer of shares in physical form of listed companies, it is mandatory for the transferee(s) to furnish copy of PAN card to the Company/RTAs for registration of such transfer of shares. Contd. 165 Annual Report 2009-10 Date Announcements June 9, 2009 It was clarified that mutual funds can invest in Indian Depository Receipts (Indian Depository Receipts) as defined in Companies (Issue of Indian Depository Receipts) Rules, 2004 subject to compliance with SEBI (Mutual Funds) Regulations 1996 and guidelines issued thereunder, specifically investment restrictions as specified in the Seventh Schedule of the Regulations. June 11, 2009 All registered portfolio managers were instructed to submit a monthly report regarding their portfolio management activity every month as per format provided. In this regard, they were advised that the report should be uploaded on SEBI Portal by the 5th of the following month with data pertaining to Assets under Management (AUM) of the portfolio manager as on the last calendar day of each month shall be indicated in Rupees in crore. June 12, 2009 With a view to ensure that the value of debt securities reflects the current market scenario in calculation of net asset value, it was decided that discretionary mark up and mark down should be brought to the level as detailed in SEBI Circulars No. MFD/CIR/8/92/2000 dated September 18, 2000 and MFD/CIR No. 14/442/2002 dated February 20, 2002. Accordingly, the discretionary mark up and mark down for rated as well as unrated debt securities was given. June 15, 2009 It was clarified that in case of the existing mutual fund schemes where the investments in money market instruments of an issuer was not in compliance with the gazette notification No. LAD – NRO/ GN/2009-10/07/165404 dated June 5, 2009 pertaining to SEBI (Mutual Funds) (Second Amendment) Regulations, 2009, AMC should ensure compliance within a period of three months from the date of notification. June 16, 2009 Separate listing requirements for listing of IDRs issued by issuing companies from the countries whose securities market regulators are the signatories to the MMoU of IOSCO were specified which were to be read in conjunction with the Companies (Issue of Indian Depository Receipts) Rules, 2004 and Chapter VIA of the SEBI (Disclosure & Investor Protection) Guidelines, 2000 or any statutory modification or re-enactment thereof. June 23, 2009 With regard to the Regulation 16(7) of the SEBI (Portfolio Managers) Regulations, 1993, it was clarified that portfolio managers may keep the funds of all clients in a separate bank account maintained by the portfolio manager subject to the certain given conditions. Contd. 166 Chronology of Major Initiatives by SEBI Date Announcements June 23, 2009 It was clarified that, issue and listing of non-convertible debt securities, whether issued to the public or privately placed, is to be done in accordance with the provisions of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008. Issue of debt securities that are convertible, either partially or fully or optionally into listed or unlisted equity will be guided by the disclosure norms applicable to equity or other instruments offered on conversion in terms of the SEBI (Disclosure and Investor Protection) Guidelines, 2000. June 30, 2009 In order to incentivise long term investors it was considered necessary that exit loads/Contingent Deferred Sales Charge (CDSC) which are beyond reasonable levels are credited to the mutual fund scheme immediately. Further, in order to empower the investors in deciding the commission paid to distributors in accordance with the level of service received, to bring more transparency in payment of commissions and to incentivise long term investment, various steps such as abolition of entry load for all mutual fund schemes, suitable disclosures regarding distribution of upfront commission etc. were taken. July 3, 2009 To bring in parity between domestic Venture Capital Funds and Foreign Venture Capital Investors (FVCIs), it was decided that the applicants desirous of registering with SEBI as FVCIs had to obtain firm commitment from their investors for contribution of an amount of at least USD one million at the time of submission of applications seeking registration as FVCIs before the start of operations. July 8, 2009 It was clarified that the revised filing fee for mutual fund schemes would be applicable to those scheme(s) whose scheme information document(s) had been filed with SEBI on or after July 1, 2009. July 9, 2009 SEBI (Disclosure and Investor Protection) Guidelines, 2000 were amended to include compulsory listing of IPO on at least one stock exchange with nationwide trading terminals, changing eligibility period for equity shares to be considered for offer for sale and introducing concept of Anchor Investor in public issues through book building route. July 21, 2009 Equity Listing Agreement was amended to prohibit listed companies from issuing shares with superior rights as to voting or dividend vis- à-vis the rights on equity shares that are already listed. Pursuant to the recommendations made by the Secondary Market Advisory Committee of SEBI, ‘no-delivery period’ for all types of Contd. 167 Annual Report 2009-10 Date Announcements corporate actions in respect of the scrips which are traded in the compulsory dematerialised mode was removed and accordingly, short deliveries, if any, of the shares traded on cum-basis may be directly closed out. In case of such direct close-out, the mark-up price would be as stated in SEBI circular no. SMD/POLICY/Cir-08/2002 dated April 16, 2002. July 27, 2009 Pursuant to the recommendations made by the Secondary Market Advisory Committee of SEBI, it was decided that in case of a buy transaction in cash market, VaR margins, extreme loss margins and mark to market losses together should not exceed the purchase value of the transaction. Further, in case of a sale transaction in cash market, the existing practice will continue. July 31, 2009 It was decided that, the mutual funds, while reporting their trades in corporate bonds should also report their inter-scheme transfers on the BSE/NSE/FIMMDA reporting platforms. The mutual funds, or the brokers/intermediaries acting on their behalf should ensure that inter-scheme transfers are indicated separately while reporting the same. The authorised stock exchanges and FIMMDA were instructed to put in place suitable systems to capture the aforesaid inter-scheme transfers. Such trades should be reported distinctly from other OTC trades. Instructions were issued to all registered merchant bankers for due compliance in case of changes in the draft offer documents due to developments before the offer document is filed with Registrar of Companies (RoC) or Designated Stock Exchange (DSE) which may result in major deviations from the draft offer document that was available in public domain. Accordingly, it was decided to classify the changes in offer documents which may call for (i) filing of updated offer document, with the Board along with fees and (ii) filing of updated offer document, with the Board, without fees. Pursuant to amendment of SEBI (Portfolio Managers) Regulations 1993 vide notification dated 11 August, 2008, the Circular No. SEBI/ RPM circular No. 2 (2002-2003) dated January 14, 2003 specifying the additional information required for registration/renewal of registration as Portfolio Managers circular was amended. In order to align the disclosure requirements pertaining to issuance of Indian Depository Receipts (IDRs) with the recent amendments Contd. 168 Chronology of Major Initiatives by SEBI Date Announcements made to the Companies (Issue of Indian Depository Receipts) Rules, 2004 by the Ministry of Corporate Affairs and to bring in more clarity with respect to the disclosure requirements pertaining to the IDR issuances, Chapter VIA of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 was amended. The amendments in the DIP Guidelines mainly relate to the disclosure of financial information pertaining to the issuing company and the extent of applicability of the DIP Guidelines to IDR issues. August 5, 2009 It was clarified that for the purpose of payment of commission, both type of applications i.e. whether uploaded by Syndicate Members (Non–ASBA) or by self-sertified syndicate banks (SCSBs) (ASBA), will be treated on par and the commission will be paid accordingly to Syndicate Members or SCSBs, as the case may be. August 6, 2009 In terms of SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2008 amended on October 30, 2008, clarifications were issued with respect to the interpretation of the proviso inserted by the aforesaid amendment. August 7, 2009 In order to have parity among all classes of unit holders, it was decided that no distinction among unit holders should be made based on the amount of subscription while charging exit loads. August 17, 2009 Mutual funds were directed to ensure compliance with the circular regarding parity among all classes of unit holders on the basis of exit load on or before August 24, 2009. Mutual funds were further instructed to ensure that the principle laid down in the SEBI circular No. SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008 (clause 16 of the standard observations) should be followed and the parity among all classes of unit holders in terms of charging exit load should be made applicable at the portfolio level. August 20, 2009 In order to simplify the rights issue process as well as to make it more efficient and effective, SEBI (Disclosure and Investor Protection) Guidelines, 2000, were amended to rationalise the rights issue disclosure requirements, making ASBA applicable to all rights issues co-existing with the current procedure and to allow the issuer company to utilise the issue proceeds only after the basis of allotment is finalised. Contd. 169 Annual Report 2009-10 Date Announcements August 27, 2009 All intermediaries of mutual funds were advised to strictly follow the code of conduct for the mutual fund intermediaries as revised by AMFI. August 28, 2009 Exchange traded 10-Year Notional coupon bearing GoI security futures were introduced as per the details in terms of product design, risk management measures and other related issues. September 1, 2009 Additional requirements to be fulfilled or the clarifications with regard to existing requirements of Anti Money Laundering (AML) standards/ Combating Financing of Terrorism (CFT) Obligations of Securities Market Intermediaries under Prevention of Money Laundering Act, 2002 and Rules framed there-under were issued. September 3, 2009 Merchant bankers were advised to refer to the exact provisions of the ICDR regulations for doing due diligence and ensuring compliance with the ICDR regulations and to continue to comply with the following instruction circulars, contents of which do not form part of the ICDR Regulations and shall therefore continue to remain in force. In this context, merchant bankers were also advised to note that any reference to the provisions of the rescinded Guidelines in these circulars should be deemed to be a reference to the corresponding provisions of the ICDR Regulations. Stock exchanges were instructed to disclose the details of complaints lodged by clients/investors against trading members and companies listed in the exchange, in their website. The aforesaid disclosure should also include details pertaining to arbitration and penal action against the trading members. Subsequent to the notification of ICDR Regulations, provisions for considering the applications under sub-rule (7) of rule 19 of the SCRR are dealt under section 11 of the SEBI Act 1992 read with sub-rule (7) of the rule 19 of SCRR. The circular specifies the requirements for considering applications seeking relaxation from strict enforcement of clause (b) to sub-rule (2) of rule 19 thereof under sub-rule (7) of rule 19 of the SCRR in case of i) Application by an unlisted issuer for listing of equity shares pursuant to scheme sanctioned by a High Court; ii) Application by a listed issuer for listing of equity shares with differential rights as to dividend, voting or otherwise; iii) Application by a listed issuer for listing of warrants offered along with Non- convertible debentures; and iv) Miscellaneous cases. Contd. 170 Chronology of Major Initiatives by SEBI Date Announcements Certain provisions in the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 are required to be complied with by an unlisted issuer at the time of making an initial public offer. Since these provisions pertain to matters relating to issue of capital, the same have now been incorporated in the ICDR Regulations and consequently, the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 were amended to remove these provisions as well as the redundant provisions pertaining to application to Central Listing Authority. Provisions of clause 3.5.3 of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 (since rescinded) were incorporated in the equity listing agreement by amending clause 19 of the agreement, as these provisions pertain to compliance of listing conditions by a listed issuer. September 4, 2009 It was decided that the unutilised investment limits for government debt should be allocated in similar manner as specified in SEBI circular IMD/FII & C/37/2009 dated February 6, 2009 IMD/FII & C/39/2009 dated May 12, 2009. In partial amendment to clause 3 (h) of the aforesaid circular IMD/FII & C/37/2009, it was decided that no single entity should be allocated more than Rs.800 crore of the government debt investment limit. September 10, 2009 Regarding compliance with regulation 16(8) of SEBI (Portfolio Managers) Regulations, 1993, it was informed that portfolio managers may undertake new clients subject to the certain specified conditions September 14, 2009 It was clarified that in cases where a special resolution has already been passed under the delisting guidelines prior to commencement of the delisting regulations, the delisting process should be governed by the provisions of the delisting guidelines, provided the said resolution is acted upon within a period of three months from the date of this circular. Otherwise, the company would be required to pass a fresh special resolution in terms of delisting regulations and proceed for delisting in terms of delisting regulations. September 16, 2009 Mutual funds were advised to have a systems audit conducted by an independent CISA/CISM qualified or equivalent auditor which should be comprehensive, encompassing audit of systems and processes, conducted once in two years. Further, mutual funds were advised to place the Systems Audit Report and compliance status before the Trustees of the mutual fund. The systems audit report/findings Contd. 171 Annual Report 2009-10 Date Announcements alongwith trustee comments should be communicated to SEBI. For the financial years April 2008 – March 2010, the systems audit should be completed by September 30, 2010. September 29, 2009 AMCs were instructed to submit a soft copy of Statement of additional information (SAI) within seven days of issuance of this circular and soft copy of Scheme information document (SIDs) alongwith printed/ final copy two working days prior to the launch of the scheme, both in PDF format. Mutual Funds were advised to update the SID and SAI in terms of clause 5 and clause 6 of circular no. SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008, a soft copy of which to be filed with SEBI in PDF format within seven days alongwith a printed copy of the same. AMCs were also advised to upload the soft copy of SID on AMFI website two working days prior to the launch of the scheme. Merchant bankers were advised to file five copies of the draft offer documents or offer documents with a particular office of the Board based on the estimated issue size as indicated below: 1. For issues upto Rs.50 crore – Regional offices of SEBI (as per the jurisdiction covered in a particular regional office); 2. For issues more than Rs.50 crore – SEBI Head Office, Mumbai. October 7, 2009 The stock exchanges that have no trading for a period of six months or more were directed to resume trading only after ensuring that adequate and effective trading systems, clearing and settlement systems, monitoring and surveillance mechanisms, risk management systems are in place and have also complied with all other regulatory requirements stipulated by SEBI from time to time. Further, the stock exchanges were directed to resume trading only after obtaining prior approval from SEBI and comply with SEBI circular on annual systems audit within sixty days from the date of commencement of trading. October 14, 2009 It was noticed that stock exchanges have reduced/waived transaction charges on the trades executed on their trading platform. Stock exchanges, while revising such transaction charges, were advised to ensure certain conditions viz. the stock exchange system is capable of handling additional load, it does not affect the existing risk management system etc. October 16, 2009 It was decided that, all trades in corporate bonds between specified entities, namely, mutual funds, foreign institutional investors/sub- accounts, venture capital funds, foreign venture capital investors, Contd. 172 Chronology of Major Initiatives by SEBI Date Announcements portfolio mangers, and RBI regulated entities as specified by RBI should necessarily be cleared and settled through the National Securities Clearing Corporation Limited (NSCCL) or the Indian Clearing Corporation Limited (ICCL). October 23, 2009 In consultation with the stock exchanges and other market participants, it was decided to permit the stock exchanges to set their trading hours (in the cash and derivatives segments) subject to the condition that: a. The trading hours are between 9 AM and 5 PM, and b. The exchange has in place risk management system and infrastructure commensurate to the trading hours. Stock exchanges, depositories and registered intermediaries were directed to ensure expeditious and effective implementation of the procedure laid down in the Unlawful Activities (Prevention) Act (UAPA) order dated August 27, 2009 and various directions were issued to stock exchanges, depositories and all registered intermediaries for the same. November 6, 2009 SEBI registered stock brokers (including trading members) of stock exchanges were allowed to provide access to clients through authorised persons. The framework governing the market access through authorised persons was also given which provides the minimum requirements and the stock exchanges and stock brokers may prescribe additional requirements, as they may deem appropriate, in the interest of investors and market. November 13, 2009 Units of mutual fund schemes were permitted to be transacted through registered stock brokers of recognised stock exchanges and such stock brokers were eligible to be considered as official points of acceptance. In this regard, all mutual funds/asset management companies (AMCs)/association of mutual funds in India (AMFI) recognised stock exchanges/depositories/registrar to an issue and share transfer agents were issued various directions viz. code of conduct for intermediaries, time stamping, investor grievance mechanism, KYC etc. Based on recommendations of the Secondary Market Advisory Committee, it was decided to allow flexibility to the stock exchanges to set the expiry date/day for equity derivative contracts. While doing so, the stock exchanges were advised to ensure that there is no change in the contract specifications or the risk management framework and the integrity of the market is not affected in any manner. Contd. 173 Annual Report 2009-10 Date Announcements November 25, 2009 Since SEBI (Disclosure and Investor Protection) Guidelines, 2000 have now been rescinded, a new circular was issued giving various formats for letters/reports, terms and conditions for obtaining the No Objection Certificate (NoC) for release of one per cent of the issue amount of the securities offered to the public and/or to the holders of the existing securities of the company to issuer companies. November 26, 2009 Pursuant to suggestions received from various market participants, the simplified debt listing agreement was amended. December 2, 2009 Based on the recommendations of the Secondary Market Advisory Committee (SMAC), it was decided to compute the limitation period of six months for reference of a complaint/claim/difference/dispute for arbitration from the end of the quarter during which the disputed transaction(s) were executed. December 3, 2009 With a view to instill greater transparency and discipline in the dealings between the clients and the stock brokers, it was decided, in consultation with Investor Associations, Secondary Market Advisory Committee of SEBI (SMAC), market participants and major stock exchanges, that the stock brokers will comply with the requirements as given. December 9, 2009 It was clarified to the depositories and all the stock exchanges that if a copy of the various records/documents is taken by enforcement agencies like CBI, Police, Crime Branch etc. either from physical or electronic record then the respective original is to be maintained till the trial or investigation proceedings have concluded. December 11, 2009 SEBI reiterated that the requirements as mentioned in the master circular ISD/AML/CIR-1/2008 dated December 19, 2008 issued by SEBI is applicable to the mutual funds/AMCs and hence maintaining all the documentation pertaining to the unitholders/investor is the responsibility of the AMC. The trustees of the mutual funds were advised to take certain specified actions in case of such investor accounts/folios where investor related documents are incomplete/ inadequate/not available. Mutual funds were advised to ensure compliance with the instruction of the investor informing his desire to change his distributor and/or go direct, without compelling that investor to obtain a NoC from the existing distributor. Contd. 174 Chronology of Major Initiatives by SEBI Date Announcements December 15, 2009 A list of circulars/guidelines which were revised in consultation with AMFI in line with the requirements of investor protection, market development or effective regulation was issued. It was decided that the unutilised investment limits for government debt will also be allocated in similar manner as specified in the circular providing the modalities for the allocation methodology for the debt investment limits. Allocation of debt limit is done in two ways - Electronic bidding process and First-Come-First-served process. In partial amendment to clause 3 (c) and 3(d) of the aforesaid circular, the minimum amount which can be bid for and the minimum tick size was decided at Rs.50 crore. The bidding process was held on December 17, 2009 on the Bombay Stock Exchange. Further, an investment limit of Rs.350 crore in Government debt was allocated among the FIIs/sub- accounts on a first come first served basis in terms of SEBI circular dated January 31, 2008, subject to a ceiling of Rs.50 crore per registered entity. December 22, 2009 Regarding Exchange Traded Interest Rate Futures, exchanges were allowed to set any period of time during the delivery month as the delivery period for the deliverable grade securities. December 30, 2009 A detailed circular on Applications Supported by Blocked Amount (ASBA) facility in public and rights issues was issued. January 1, 2010 In order to enable the industry and other users to have an access to all the applicable circulars at one place, Master Circular for mutual funds was issued. January 6, 2010 Pursuant to feedback received from market participants and proposals received from NSE and BSE for revision of Securities Lending and Borrowing (SLB) framework , the framework for SLB was modified. It was decided in consultation with the credit rating agencies (CRAs) that the audit envisaged under Regulation 22 of the SEBI (Credit Rating Regulations), 1999 should include an internal audit to be conducted on a half yearly basis by Chartered Accountants, Company Secretaries or Cost and Management Accountants who are in practice and who do not have any conflict of interest with the CRA. January 7, 2010 Pursuant to suggestions from various market participants received subsequently, Simplified Debt Listing Agreement for Debt Securities was modified. Contd. 175 Annual Report 2009-10 Date Announcements Clarifications were issued for the cases of transmission of shares in physical form where it is mandatory to furnish a copy of PAN. January 8, 2010 In consultation with stock exchanges, the lot size for derivative contracts on individual securities was standardised. Stock exchanges were directed to review the lot size once in every six months based on the average of the closing price of the underlying for last one month and wherever warranted, revise the lot size by giving an advance notice of at least two weeks to the market. January 11, 2010 Format for the quarterly report on venture capital activity to be submitted by Venture Capital Funds was revised. In consultation with stock exchanges and based on the recommendations of the Secondary Market Advisory Committee of SEBI, the operationalisation of Market Wide Position Limits (MWPL) of the derivative contracts on individual securities traded across stock exchanges was streamlined. January 12, 2010 Format for the quarterly report on venture capital activity to be submitted by Foreign Venture Capital Investors was revised. January 18, 2010 It was clarified that the 'in person' verification done for opening the beneficiary owner's account by a depository participant will hold good for opening trading account by a stock broker and vice-versa, if the stock broker and the depository participant is the same entity or if one of them is the holding or subsidiary company of the other. In order to make statements appearing in Clauses 10, 13 and 14 of Schedule VI of SEBI (Mutual Funds) Regulations, 1996 on Advertisement Code more prominent, it was advised that these clauses should be printed in bold in the advertisements issued by mutual funds. January 19, 2010 Eligible stock exchanges were permitted to introduce currency futures on Euro-INR, Pound Sterling-INR and Japanese Yen-INR. Based on feedback received from stock exchanges, the calendar spread margin to be applied on the US Dollar-INR contract was modified. January 21, 2010 It was decided that the provisions of the clause 4 (e) of circular SEBI/ SMD/SE/Cir-24/2003/18/06 dated June 18, 2003 and clause 4 of circular MIRSD/MSS/Cir- 30/13289/03 dated July 9, 2003 will not be applicable to the trading members and clearing members in the equity derivatives and currency derivatives segments, stock brokers in the cash segment Contd. 176 Chronology of Major Initiatives by SEBI Date Announcements who are covered under Schedule III A [payment of fees by stock brokers] of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 and stock brokers in the cash segment who may migrate to Schedule III A [payment of fees by stock brokers] of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 in future (as and when they migrate). January 29, 2010 Depositories were directed to disclose the details of complaints lodged by beneficiary owners (BO’s)/investors against depository participants (DPs) in their website. The disclosure should also include details pertaining to arbitration and penal action against the DPs in the given formats. February 2, 2010 With a view to ensure that the value of money market and debt securities in the portfolio of mutual fund schemes reflect the current market scenario, the current provisions regarding valuation of these securities were modified. February 4, 2010 In order to improve the manner in which the message “Mutual Fund investments are subject to market risks, read the offer document carefully before investing” is conveyed to the investors, it was decided that with effect from May 1, 2010: i. The standard warning in audio-visual advertisement shall be displayed as “Mutual Fund investments are subject to market risks, read all scheme related documents carefully”. ii. No addition or deletion of words shall be made in the standard warning. It was re-emphasised that both the visual and the voice over of the standard warning will be run for at least five seconds. February 10, 2010 A committee was constituted under the Chairmanship of Dr. Bimal Jalan (Former Governor, Reserve Bank of India) for review of ownership and governance of market infrastructure institutions. February 12, 2010 A master circular was issued consolidating all the requirements/ instructions issued by SEBI with regard to AML/CFT till January 31 2010 superseding the earlier circulars, dated September 1, 2009, December 19, 2008, March 20, 2006 and January 18, 2006. March 5, 2010 Stock exchanges were advised to disclose the details of allottees and the corresponding pre and post Qualified Institutional Placements (QIP) issue shareholding in the issuer company on their websites. Contd. 177 Annual Report 2009-10 Date Announcements March 15, 2010 The format for the half yearly report on portfolio management activity was revised and all portfolio managers were advised to submit the half yearly report to SEBI in the revised format within 30 days after the end of respective period ended September 30 and March 31 of each year. Mutual Fund Policy Directions It has been decided to extend ASBA facility to the investors subscribing to New Fund Offers (NFOs) of mutual fundschemes. In order to make NFO process efficient, it has been decided to reduce the NFO period to 15 days. However, the NFO period in case of ELSS schemes shall continue to be governed by guidelines issued by Government of India. Non availability of Unit Premium Reserve for dividend distribution It has been decided that henceforth, AMCs shall disclose their general policies and procedures for exercising the voting rights in respect of shares held by them on the website of the respective AMC as well as in the annual report distributed to the unit holders from the financial year 2010-11. It has been decided that henceforth AMCs shall not enter into any revenue sharing arrangement with the underlying funds in any manner and shall not receive any revenue by whatever means/head from the underlying fund. Any commission or brokerage received from the underlying fund shall be credited into concerned scheme’s account. March 17, 2010 A master circular on oversight of members (stock brokers/trading members/clearing members of any segment of stock exchanges and clearing corporations) was issued. March 31, 2010 In consultation with the major stock exchanges, the time line to take necessary steps to implement the circular for 'Dealings between a client and a stock broker (trading members included)' and ensure its full compliance in respect of all clients - existing and new, was extended. Contd. 178