2. Need for reforms
Unhealthy practices
High cost of new issues
Exchanges dominated by elected member brokers
Excessive speculative activity
Default by stock brokers
Frequent payment crisis
Disruption of market activity
Inefficient and outdated trading system
Inefficient risk management system
Margins were not enforced strictly
Post trade settlement had serious drawbacks
Lack of investor protection guidelines
3. Policy developments in primary
market
1. Issue of IDRs
Issuer must be listed in home country
Must not have barred by any regulatory authority
Should have a good track record of compliance of security
market regulation
SEBI stipulated the issue size
Disclosures have to be made in the prospectus regarding:
general information
disclaimer clause
offering details
risk factors
Financial informarion
4. 2. Continuous listing regulations
Listed companies have to maintain a minimum level of
public shareholdings at 25% of total shares issued (or)
Companies can maintain more than 10% or less than 25% if
it has 2cr or more of listed shares and 1000cr or more of
market capitalization
3. The shareholding pattern should be indicated under 3
categories
Shares held by promoter and promoter group
Shares held by public
Shares held by custodians and against which depository
receipts have been issued
5. 4. Issuers have to be compulsorily graded by credit
rating agencies.
5. Raising funds through QIPs
6.’no Lock in’ on pre issue of shares available to VCFs
and FVCI shall be limited to
a) Shares held by them registered with SEBI for a
period of 1yr
b) Shares issued to SEBI registered VCFs/FVCI upon
conversion of convertible instruments during a
period of 1yr
6. 7. SEBI amended the disclosure and investor protector
guidelines and introduced “restrictions on pre issue publicity”
7. Measures undertaken in secondary
market
1. VaR margin to be updated 5 times a day
2. PAN has been made mandatory with effect from Jan 2007.to
strengthen KYC norm
3. Creation of unified platform for trading of corporate bonds
SEBI stipulated that BSE would set up a unified trading
platform
Reporting shall be made for all trades in listed debt
securities issueed by all institutions
SEBI and RBI have set up an internal working group for
creating a single unified exchange-traded market
8. 4. Policies on foreign investment
FI in infrastructural companies in stock exchanges,
depositories and clearing corporation have been
specified as follows
a) FI upto 49% will be allowed in these companies with
a separate FDI cap of 26% and cap of 23% on FII
b) FDI will be allowed with specific approval from
FIPB
c) FII will be allowed only through purchases in the
secondary market
d) FII shall not seek and get representation on the BOD
e) No foreign investors shall hold hold more than 5%
equity in the companies
9. 5. The application process for FIIs was simplified and new categories of
investment (insurance and reinsurance companies, foreign central banks,
investment managers, international organizations) were included in FIIs
6. GOI raised cumulative debt instruments limits
RBI in its mid-term monetary review policy enhanced the limit of FII on
central and state govt. securities
7. The aggregate ceiling for the mutual fund industry to invest in ADRs/GDRs
was raised
8. In govt. securities market RBI stopped to participate in the primary issues of
central govt. securities
9. Change in the ownership structure of BSE
10. FII have been allowed to invest in security receipts
10. IPO Norms
1. SEBI (disclosure and investor protection) guidelines require
a minimum offering of 25% of post issue capital to public
later it was minimised to 10%.
2. SEBI tightened the entry norms for IPO to enhance the
quality issues in primary market
3. Issue size upto 5 times the net-worth of pre-issue shall be
allowed only if the company has a track record of
profitability as specified in the guidelines
4. The book-building process is made compulsory for the
companies who do not have such track record.
5. In case of book-building process issue has to consist of 60%
of QIPs.
11. 6. Lock in provisions have been rationalized
for minimum promoters contribution of 20% shall
continue to be 3yrs
The remaining balance will be for 1yr
7. Shares issued on preferential basis by a listed
company have to be in lock in for 1yr
8. The procedure for allotment of shares and refunds
were streamlined. (the time for finalizing the
allotment has been reduced from 30 to 15 days in
book built issues)
12. Primary dealer system
They are the wholesalers of govt. securities. can
be referred to as merchant bankers to govt. of
India.
In 1996 RBI framed guidelines for a enlistment and
operations of primary dealers
13. Objectives of the PD system
To strengthen the infrastructure in the
govt.securities market
To ensure development of underwriting and
market making capabilities for govt.
To improve the secondary market trading
system
To contribute to the price discovery mechanism
To make Pds an effective mode for conducting
open market operations
14. Who can be the primary dealers
Subsidiary of scheduled commercial banks/all
India financial institutions
Company incorporated under companies act
1956
Subsidiaries or joint ventures set up by entities
incorporated abroad under the approval of
foreign investment promotion board
