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SECURITIES CONTRACT REGULATION

ACT,1950 & DIP GUIDELINE

By

Shwetha S NMBA00901044



SECURITIES CONTRACT REGULATION ACT,

1956

It was enacted to prevent undesirabletransactions in securities by regulating the

business of dealing therein and by providing for

certain other matters connected therewith and Came into force on Feb, 20, 1957.



1. Application for recognition of stock

exchanges Any stock exchange, which is desirous of being

recognized may make an application in the prescribedmanner to the Central Government.

E very application under sub- section (1) shall contain

such particulars as may be prescribed and-> a copy of the bye- laws of the stock exchange for the

regulation and control of contracts and

->also a copy of the rules relating in general to theconstitution of the stock exchange and in particular, to-



Cont«

The governing body of such stock exchange, itsconstitution and powers of management and themanner in which its business is to be transacted;

The powers and duties of the office bearers of the

stock exchange. The admission into the stock exchange of various

classes of members, the qualifications and theexclusion, suspension, expulsion and re-admissionof members.

The procedure for the registration of partnershipsas members of the SE and the nomination andappointment of authorized representatives andclerks.



Cont«

Function :

³To liquefy the capital by enabling a person whohas invested money in, to convert it intodisposing of his share in the enterprise tosomeone else´.



2. Withdrawal of recognition

If the Central Government is of the opinion thatto be withdrawn,

-a written notice (reasons stated) and

-to be heard by notification in the Official Gazette.

No such withdrawal shall affect the validity of any contract entered into or made before thedate of the notification.



Listing of Securities W here securities are listed on the application of any

person in any recognized SE, such person shall comply with the conditions of the listing agreement with thatstock exchange .

W here a recognized SE acting in pursuance of any powergiven to it by its bye-laws, refuses to list the securities of any company, the company shall be entitled to befurnished with reasons for such refusal and the company may appeal to Securities Appellate Tribunal (SA T)against such refusal.



Cont«

Eg: MCX-SX questions Sebi's move to rejectapplication

Last month, Sebi rejected MCX Stock Exchange whichcontinued its tirade against the SEBI, alleging"discrimination" and "character assassination" whilerejecting its application for launching a full-fledged stock

exchange. The exchange will soon decide whether tochallenge the Sebi order in the high court (HC) here or atthe Securities Appellate Tribunal (SA T).



Delisting of Securities

A recognized stock exchange may delist thesecurities of any listed companies on suchgrounds as are prescribed under the Act.

The concerned company or any aggrieved

investor may appeal to SA T against suchdelisting.



3. Annual reports to be furnished to

Central Government by stock exchanges

E very recognised stock exchange shall furnishthe Central Government with a copy of the

annual report, and such annual report shallcontain such particulars as may be prescribed.



4. Power of recognized stock exchange to

make bye-laws

For the regulation and control of contracts.

In particular such bye- laws may provide for:

(a) The opening and closing of markets and the regulation of

the hours of trade;(b) A clearing house, the delivery of and payment for

securities, the passing on of delivery orders and theregulation and maintenance of clearing house.

(c) The submission to the SEBI by the clearing house as soon

as may be after each periodical settlement of all or any of the following particulars as the SEBI may, from time totime require, namely:



Cont«(i) The total number of each category of security

carried over from one settlement period to another.

(ii) The total number of each category of security

actually delivered at each clearing

(d) The publication by the clearing house of all or any of the particulars submitted to the SEBI.

(e)T

he regulation or prohibition of blank transfers.(f) The number of contracts in respect of whichsettlements shall be made or differences paidthrough the clearing house.

(g) The fixing, altering or postponing of days for

settlements.



Cont«

(h)T

he determination and declaration of marketrates, including the opening, closing, highest andlowest rates for securities.

(i) The terms, conditions and incidents of contracts,if any and the forms of contracts in writing.

(j) The regulation of the entering into, making,performance, rescission and termination of contracts, including contracts between members oror between a member and a person who is not amember, and the consequences of default orinsolvency on the part of a seller or buyer orintermediary, the consequences of a breach or

omission by a seller or buyer



Cont«

(k) The levy and recovery of fees, fines and penalties.(l) The fixing of a scale of brokerage and other

charges.

(m) the emergencies in trade, the power to fix

maximum and minimum prices for securities.(n) the regulation of dealings by members for their

own account.

(o) the separation of the functions of jobbers and

brokers.



Provide that the contravention of any of the bye-lawsshall render the member concerned liable to one ormore of the following punishments, namely:

(i) fine,

(ii) expulsion from membership,(iii) suspension from membership for a specifiedperiod,(iv) any other penalty of a like nature not involvingthe payment of money.

(4) shall be published in the Gazette of India and alsoin the Official Gazette of the State and shall haveeffect as from the date of its publication in theGazette of India.

(3) The bye-laws made under this section may;



5. Power of SEBI to make or amend bye-

laws of recognised stock exchanges

The SEBI is writing received from the governing body of a recognised stock exchange, if it is satisfiedafter consultation with the governing body that it is

necessary or expedient so to do and after recordingits reasons for so doing, make bye-laws, for all orany of the matters specified or amend any bye-laws.

It shall be published in the Gazette of India and alsoin the Official Gazette of the State.



Cont«

Provided that if the SEBI is satisfied in any case

that in the interest of the trade or in the publicinterest any bye-laws should be made, amendedor revised immediately, by order in writingspecifying the reasons therefor, dispense with

the condition of previous publication



6. Power to suspend business of

recognised stock exchanges If in the opinion of the Central Government an

emergency has arisen that it expedient so to do, by notification in the Official Gazette, for reasons to be setout therein, direct a recognised stock exchange to

suspend such of its business for such period, notexceeding 7 days.

If period of suspension is to be extended beyond the firstperiod, no notification extending the period of suspension shall be issued unless the governing body of the recognised stock exchange has been given anopportunity of being heard in the matter.



7. Penalties And Procedures

1. Any person who-

(a) W ithout reasonable excuse fails to comply.

(b) Enters into any contract in contravention .

(c) Manages, controls, or assists in keeping any place other than that of a recognised SE.

(d) Not being a member of a recognised SE or hisagent authorised as such under the rules or bye-laws of such stock exchange or not being a dealer insecurities licensed and also



Cont«(e) canvasses, advertises or touts in any mannereither for himself or on behalf of any otherperson for any business connected withcontracts in contravention or

(f) Joins, gathers or assists in gathering at any place other than the place of business specifiedin the bye-laws of a recognised SE any person orpersons for making bids or offers or for entering

into or performing any contracts incontravention shall be punishable withimprisonment for a term which may extend toone year or with fine, or with both.



Cont«2. Any person who enters into any contract who fails

to comply with or with the orders of the CentralGovernment or with the orders of the Securities

Appellate Tribunal shall, on conviction, bepunishable with fine which may extend to onethousand rupees.



DIP GUIDELINES

OBJECTIV ES:(a) To enhance the level of investors¶ protection

(b) To increase the transparency and efficiency of the primary market

(c) To strengthen the disclosure and eligibility norms for issuer companies

(d) To rationalize and simplify various operationalprocedures in the primary market so as to facilitate

raising of resources by the issuer companies.



Applicability of the Guidelines:

1.These guidelines shall be applicable to all publicissues by listed and unlisted companies, all offers forsale and rights issues by listed companies whose

equity share capital is listed, except in case of rightsissues where the aggregate value of securitiesoffered does not exceed Rs.50 lakhs.

2.Unless otherwise stated, all provisions in theseguidelines applicable to public issues by unlistedcompanies shall also apply to offers for sale to thepublic by unlisted companies.



SEBI has amended the DIP guidelines;

they are,1) Grading of all Initial Public Offerings (IPO)

2) Draft Offer Documents

3) Qualified Institutions Placement(QIP).

4) More clarity on provisions relating to

minimum promoters¶ contribution for thepurpose of public issues.



Compulsory listing of IPO

(a) At present, in terms of the Companies Act, 1956 andthe SEBI (DIP) Guidelines, there is no regulatory stipulation on an unlisted company making an IPO tocompulsorily list the securities being issued through theIPO on SE having nationwide trading terminals.

(b) Listing of securities on SE having nationwide tradingterminals provides an active trading platform toinvestors from all across the country in securities of the

company.

(c) The SEBI (DIP) Guidelines to provide that anunlisted company making an IPO shall list the securities

being issued through the IPO on at least one stock exchange having nationwide trading terminals.



Introduction of concept of Anchor

Investor in public issues through book

building route :Opening of Public Issue

An issue shall open within 12 months from the date

of issuance of the observation letter by SEBI.

R equirement of filing updated offer document

File an updated offer document with SEBI, highlightingall changes made in the document and in case of 'significant changes' in the offer document, it shall befiled with SEBI atleast 1 month before filing finalprospectus with RoC/SE.



Option not to disclose the floor price or price band

W here the issuer has not disclosed floor price or price band in prospectus filed with RoC/SE, it shall bedisclosed atleast 2 working days before opening of the

bid in case of IPO and atleast 1 working day before theopening of the bid in case of FPO, by way of anannouncement in all the newspapers in which the pre-issue advertisement was released by the issuer or themerchant banker.



Justification for Price in some cases Justification for price is required to be given in the

Offer Document and further, if the Issuer has notdisclosed floor price or price band in the prospectusand taken an option to disclose it before 2 workingdays (for IPO) or 1 working day (for FPO) before

opening of an issue announcement shall contain the relevant financial

ratios, computed for both upper and lower end of the price band and the basis of issue

price or prescribed statements to guide investors inRHP which are,



Cont«

(c) Names and editions of the newspapers where theannouncement of the floor price or price band would

be made;

(d) Names of websites (with address), journals or

other media in which the said announcement will bemade.



Amendments in the SEBI (DIP) Guidelines to

introduce a concept of Anchor Investor

Eligibility Norms of the issuer

The amendments include introduction of NetTangible Assets and minimum number of allottees

and appraisal route as an alternative to themandatory book building route. The changes are asfollows;

Eligibility norms should be satisfied both at the timeof filing draft offer document and final document.

A company with net tangible assets of at least 3 crscan make IPO through public issue. The company should have track record of profitability. The issuesize should not be more that five times the pre-issuenet worth.



Cont«

Companies can make IPO either through book building process or project appraisal method. Thecompany must have post issue capital of Rs 10crs or should have arrangement of µmarket maker¶

for at least two years. If a company has changed name in last 12 months, atleast 50% of the revenue for the preceding 1 full year isearned by the company from the activity suggested by the new name.



Cont«

An unlisted public company shall not make anallotment pursuant to a public issue or offer for saleof equity shares or any security convertible intoequity shares unless in addition to satisfying the

conditions mentioned No research report shall be circulated by the issuer

or any member of the issue management team/ syndicate or their associates, commencing from a

date 45 days immediately preceding the filing of draft offer document with SEBI and till 45 days aftercommencement of trading in the relevant securities.



PRICING BY COMPANIES ISSUING

SECURITIES

The companies eligible to make public issue canfreely price their equity shares or any security convertible at later date into equity shares in the

following cases:1. Public/ Rights Issue by Listed Companies

2. Public Issue by Unlisted Companies

3. Infrastructure company

4. Initial public Issue by Banks



1.T

he lead merchant banker shall exercise duediligence.

2. The liability of the merchant banker shallcontinue even after the completion of issue

process.3. The lead merchant banker shall pay requisite

fee along with draft offer document filed withthe Board.

4. Documents to be submitted along with the OfferDocument by the Lead Manager

5. Memorandum of Understanding (MOU)

PRE- ISSUE OBLIGATIONS



Cont«

Inter-se Allocation of Responsibilities:In case a public or rights issue is managed by more than one Merchant Banker the rights,obligations and responsibilities of each

merchant banker shall be demarcated. In addition to the due diligence certificate

furnished along with the draft offer document.



Thank you«