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IMT-42: Capital Market and SEBI Regulations-MT1

IMT-42: Capital Market and SEBI Regulations-MT1













IMT-42: Capital Market and SEBI Regulations


1. List the components of capital market. How is call money market different from money market?

2. Describe the structure, scope of operation and objective of setting up of SEBI.

3. List at least four important reforms introduced by SEBI.

4. Describe the role of merchant bankers in issue management to watch investor's interests as prescribed by SEBI.

5. What are the eligibility requirements to set up merchant banking business?


1. How does SEBI exercise control over defaulting merchant bankers?

2. What is meant by firm allotment of shares? How is promoter's contribution regulated?

3. Describe the requirements for book building in 75% scheme.

4. Describe the post issue obligations of merchant bankers.

5. Give salient features of guidelines on bonus issue.


1. Describe eligibility and registration norms for credit rating companies.

2. List disclosure norms related to listing as prescribed by stock exchange and SEBI.

3. List a gist of guidelines on charging premium on securities in an issue.

4. How do SEBI guidelines assist to put a curb on insider trading?

5. Describe provisions related to publication of an advertisement in hostile takeover bid.


1. How is NAV of mutual funds to be computed?

2. Highlight SEBI requirements on investment of securities by mutual funds.

3. How should mutual funds value unlisted securities?

4. Describe guidelines on role of trustees in a mutual fund.

5. How is functioning of Asset Management Company regulated?


1. Describe the relationship between primary and secondary market in securities.

2. List at least five types of securities with salient features of each of them.

3. Describe the methods by which new issue of securities may be placed.

4. What is meant by corporatization of stock exchanges? Narrate SEBI's role in this process.

5. Describe any five important clauses in listing agreement.

6. What is the schedule of fees payable by a merchant banker?

7. Under which circumstances registration of merchant banker may be suspended or cancelled by SEBI?

8. List and describe role of each of the intermediaries involved in issue of securities.

9. What is meant by price sensitive information, connected person and deemed to be connected person?

10. What is meant by differential pricing of securities? How far is it permissible?

11. Differentiate between deemed prospectus and abridged prospectus.

12. Describe the terms and conditions of registration of mutual funds.

13. List the eligibility conditions for appointment as trustees of a mutual fund.

14. Describe the restrictions on investments and borrowings of mutual funds.

15. Describe the benefits and disadvantages of credit rating.

16. List SEBI regulations on rating process to be followed by credit rating companies.

17. Describe SEBI guidelines on buyback of shares through book building.

18. Provide a gist of guidelines on promoters' contribution in an issue.

19. How is offer price to be determined in acquisition?

20. Describe the obligations of a merchant banker in acquisition as prescribed by SEBI.


Sebi has announced a series of measures to encourage retail participation in the primary market. The principle of these changes seems to be that greater participation of retail investors in the primary market is possible only when they have a reasonable chance of making gains, certainly not the case earlier.

To enable such participation, Sebi has adopted a two-fold approach.The market watchdog has made sure that retail investors actually get an allotment in book-built IPOs. Hence, the 10% increase in the allocation for retail investors. But more significant is the change in the definition of what constitutes retail from those applying for up to 1,000 shares to applications for shares worth Rs 50,000 or less. This would ensure that 'retail' is truly retail.

To ensure some quality, the regulator has introduced concept of net tangible asset, making certain that issuing company has some pre-lPO history. Additionally, to discourage fancy ideas being sold to public and subsequently abandoned (plantation schemes), issuers have been asked to tie-up funds for a project before the issue. Of course, willful defaulters have been barred. Lastly, to fix accountability, the CEOs or the CFOs of the issuing company would have to certify disclosures in the offer document.

These measures should translate into higher allotment for retail investors and keep a check on the quality of issuers as well. The decision to disallow withdrawal of bids by institutional investors and the shift to price band instead of a floor price will prevent manipulation in pricing and subscription, both inimical to retail interest while the availability of a 'green shoe' option should deliver price stability post listing in the case of oversubscription.


1. How is participation of retail investors ensured in book building issue process?

2. What is meant by due diligence of lead manager in an issue?

3. What is the role of merchant banker to ensure that wilful default by promoters is minimal?

4. List the possible penalties imposed by SEBI on defaulters.


Securities and Exchange Board of India (SEBI) was established to regulate and develop capital market. SEBI regulates the working of stock exchanges and intermediaries such as stock brokers and merchant bankers, accords approval for mutual funds, and registers Foreign Institutional Investors who wish to trade in Indian securities.

SEBI regulates the business in stock exchanges and any other securities markets and the working of collective investment schemes, including mutual funds. SEBI promotes investor's education and training of intermediaries of securities markets. It prohibits fraudulent and unfair trade practices relating to securities markets, and insider trading in securities. It also regulates substantial acquisition of shares and takeover of companies and calling for information from carrying out inspection, conducting inquiries and audits of the stock exchanges and intermediaries and self regulatory organizations in the securities market.

SEBI has introduced a few reforms. Reform measures include improved transparency, computerisation, enactment against insider trading, improved capital adequacy, restrictions on forward trading, and provisions to encourage corporate membership in the stock exchanges. The restriction on forward or contango trading, referred to in India as 'Badla' has been met with cynicism. SEBI measures include provision for cash margin, and need for physical transfer on settlement date.


1. What is the background and main objective of establishing SEBI?

2. How does SEBI regulate business in stock exchanges?

3. What are the possible penalties SEBI can impose for violation of its regulations?

4. List the rationale for at least four of the major reforms introduced by SEBI.

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