CS Executive Capital Market & Securities Laws cheat sheet

Market segments: primary (new issuance) vs secondary (trading); organised exchanges vs OTC; cash/spot vs derivatives (futures, options, swaps).

SEBI classifies instruments as equity (shares, warrants, convertible securities) and debt (bonds, debentures, NCDs); hybrid instruments (partly convertible debentures, preference shares) sit between.

Money market instruments (T-bills, CP, CD, call money, repo) have tenor up to one year and are regulated jointly by RBI and SEBI; capital market instruments exceed one year.

Participants: issuers, investors (retail, HNI, QIB, DII, FPIs), intermediaries (merchant bankers, brokers, DP, RTA, custodians), exchanges, clearing corporations, depositories, and regulator SEBI.

FPI regime: registration categories I and II, investment limits tied to sectoral caps, and KYC through designated depository participant; FPIs may not invest in unlisted securities except permitted cases.

QIB definition (SEBI ICDR): mutual funds, AIFs, FPI, scheduled commercial banks, insurance companies, provident funds, and other specified institutions.

Stock exchange recognition under SCRA Section 4; corporatisation and demutualisation separated ownership, trading rights and management (Section 4B).

SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 govern debt listing; equity listing governed by SEBI LODR, 2015.

SEBI ICDR 2018 governs public issues; key thresholds: minimum 25% public shareholding for listed companies (50% for companies with market cap above the prescribed large-cap threshold), minimum 90% issue subscription for IPO, and minimum 100% for FPO.

IPO pricing: book-building (price band with floor and cap, 20% cap on band width) vs fixed price; 5% price band flexibility allowed at allotment in book-built issues.

Anchor investor: up to 60% of QIB portion, minimum application Rs 10 crore, 30-day lock-in for 50% and 90-day for balance.

Allocation norms: QIB 50%, HNI/NII 15%, retail 35% in book-built issues; retail 10% and HNI 15% in fixed-price issues.

Rights issue: offer to existing shareholders in proportion to holding; SEBI ICDR specifies minimum subscription, allotment within 12 days of closure, and rights entitlement renunciation.

Preferential allotment and QIP: QIP minimum size Rs 10 crore, 5% of equity to a single allottee cap, 12-month lock-in on QIP shares.

Disclosure: DRHP filed with SEBI, observations, RHP filed with ROC and exchanges; financials for 3 years, risk factors, objects of the issue, and use of proceeds.

Fast-track and SME IPO regimes have distinct disclosure and eligibility tests; SME issues list on SME platforms with minimum 100 allottees and 1,000 application forms.

Trading cycle: T+1 settlement in Indian equities (T+1 for most securities); pay-in and pay-out on T+1; T+0 optional for select stocks.

Order types: market, limit, stop-loss; validity: DAY, IOC, GTC; circuit filters and price bands limit intraday movement.

Clearing: trade confirmation, novation by clearing corporation, netting, margin collection (SPAN, exposure, VaR), and settlement guarantee fund.

Settlement: dematerialised delivery via depository, funds through RBI-regulated payment systems; early pay-in and securities lending reduce fails.

Insider trading prohibitions (PIT Regulations 2015): trading window closure, code of conduct, pre-clearance for designated persons, and UPSI handling.

Short selling permitted only for delivery-based institutional and retail trades; naked short selling prohibited; securities lending and borrowing (SLB) facilitates borrowing.

Market surveillance: SEBI and exchanges monitor abnormal price movements, and price bands, circuit breakers (10%, 15%, 20% market-wide) halt trading.

Investor protection: exchange investor protection fund, SEBI SCORES grievance portal, and arbitration for broker-client disputes.

SEBI registers intermediaries under separate regulations: stock brokers (SEBI Stock Brokers Regulations 1992), merchant bankers (1992), registrars (1993), underwriters, bankers to an issue, portfolio managers (2020), investment advisers (2013), research analysts (2014).

Merchant banker categories: Category I (issue management, underwriting, portfolio management) requires net worth Rs 5 crore; Category II Rs 50 lakh; Category III Rs 25 lakh.

Stock broker net worth: Rs 15 lakh for trading membership, Rs 75 lakh for clearing membership of a clearing corporation.

Investment adviser registration: individual net worth Rs 2.5 lakh, non-individual Rs 25 lakh; fiduciary duty and risk profiling required.

Portfolio manager: minimum client investment Rs 50 lakh, net worth Rs 2 crore for non-individuals and Rs 50 lakh for individuals.

Debenture trustee registration: net worth Rs 25 lakh; must be a scheduled bank, insurer, or body corporate.

Credit rating agencies registered under SEBI CRA Regulations 1999; must disclose rating rationale and maintain rating committee.

Intermediary obligations: code of conduct, KYC/AML compliance, record retention for 5 years, and periodic reporting to SEBI.

SCRA Section 2(h) defines 'securities' to include shares, bonds, debentures, derivatives, units of collective investment schemes, and Government securities.

Section 4: recognition of stock exchanges by Central Government on SEBI recommendation; recognition conditions include rules for fair dealing and investor protection.

Section 4B: corporatisation and demutualisation of exchanges; segregation of ownership, trading rights and management.

Section 13: contracts in notified securities are void if not made through a recognised stock exchange or in accordance with its rules; exceptions for spot delivery and permitted off-market transfers.

Section 16: power to prohibit contracts in certain cases for a specified period to protect investors or maintain market integrity.

Section 18A: power to call for information from exchanges and intermediaries; Section 19: power to suspend or withdraw recognition.

Section 23: penalties for violation of provisions; Section 23A: adjudication by SEBI; Section 23B: factors for determining penalty quantum.

Section 20A: SEBI may appeal to the Supreme Court against decisions of the Securities Appellate Tribunal.

Section 11: functions of SEBI include regulating securities markets, protecting investors, promoting market development, and registering intermediaries.

Section 11B: power to issue directions; Section 11C: investigation; Section 11D: cease and desist; Section 11(4): directions to restrain persons from accessing markets.

Section 12A: SEBI may initiate adjudication proceedings; Section 15A-15HB prescribe penalties for various violations, e.g., insider trading up to Rs 25 crore or three times profit.

Section 15: adjudicating officer appointed by SEBI; Section 15-I: appeal to Securities Appellate Tribunal against adjudication orders.

Section 19: appeal against SEBI orders to SAT within 45 days; Section 22: SAT decisions appealable to Supreme Court on questions of law.

Section 26: SEBI's annual report to Parliament; Section 18: establishment of a fund called the SEBI General Fund.

Section 29: SEBI may make regulations consistent with the Act; Section 30: rules by Central Government.

Section 32: no civil court jurisdiction over matters SEBI/SAT is empowered to decide; Section 33: protection of action taken in good faith.

Depositories Act 1996 provides for electronic form of securities; a depository holds securities in fungible form on behalf of beneficial owners.

Two-tier structure: depository (NSDL, CDSL) and depository participant (DP) who acts as agent; SEBI registers depositories under Section 12(1A) of the SEBI Act.

Section 3: application for certificate of commencement of business; Section 4: depository to be registered with SEBI and comply with conditions.

Section 6: surrender of certificate of registration; Section 7: power of SEBI to cancel registration after inquiry.

Section 8: depository to maintain records; Section 9: rights and obligations of depository and participants; Section 10: power of SEBI to call for information.

Section 11: power of Central Government to supersede the board of a depository; Section 12: power to appoint an auditor.

Dematerialisation process: client opens demat account through DP, submits DRF with certificate, DP sends to registrar, shares credited to demat account; rematerialisation reverses this.

Section 14: remedies for beneficial owners; Section 15: no civil court jurisdiction; Section 17: penalties for contraventions; Section 19: delegation of powers.

SEBI SCORES: online grievance redressal system; complaints tracked with unique registration number; escalation through SEBI's Office of Investor Assistance and Education.

SEBI (Prohibition of Insider Trading) Regulations, 2015: defines 'insider', 'unpublished price-sensitive information' (UPSI), and 'connected person'; requires code of conduct and trading window closure.

PIT Regulations: disclosure of holdings by promoters (2% threshold), directors and employees (Rs 5 lakh threshold); pre-clearance for designated persons; contra-trade prohibition within 6 months.

UPSI categories: financial results, dividends, changes in capital structure, mergers/demergers, and changes in key managerial personnel.

Investor education: SEBI conducts investor awareness programmes; the Investor Protection and Education Fund (IPEF) funds them.

SEBI (Investor Protection and Education Fund) Regulations, 2009; fund used for investor education, awareness, and research.

Whistleblower and insider trading tips: SEBI's Informant Mechanism (2019) provides reward up to 10% of disgorgement amount, capped at Rs 1 crore.

Grievance escalation: SEBI's online complaint system, exchange arbitration, and consumer forums; SEBI can also order disgorgement under Section 11B of the SEBI Act.

SEBI (SAST) Regulations, 2011: initial trigger at 25% voting rights; mandatory open offer for at least 26% of total voting rights; creeping acquisition up to 5% per financial year beyond 25%.

Open offer price: highest of negotiated price, 60-day VWAP, or 26-week VWAP, plus control premium.

Exemptions from open offer: inter se transfer among promoters, acquisition by inheritance, and certain government-mandated acquisitions.

Buy-back: SEBI (Buy-Back of Securities) Regulations, 2018; methods are tender offer, open market, and odd-lot; maximum 25% of paid-up capital and free reserves in a financial year.

Buy-back tender offer: minimum 15% reserved for small shareholders; buy-back period and escrow requirements.

Delisting: SEBI (Delisting of Equity Shares) Regulations, 2021; reverse book building for voluntary delisting; exit price determined by discovered price.

Corporate restructuring: SEBI circular on schemes of arrangement; requires no-objection from exchanges and SEBI; valuation report and fairness opinion.

Takeover disclosure: acquisition of 5% or more requires disclosure to target and exchanges; every 2% change thereafter must be disclosed.

SEBI (Mutual Funds) Regulations, 1996: mutual fund must be registered with SEBI; sponsor must have net worth of Rs 50 crore and 5-year track record; asset management company net worth Rs 50 crore.

Mutual fund structure: sponsor, trustee (minimum 4 trustees), AMC, custodian, and registrar; at least 2/3 of trustees independent.

Scheme categories: equity, debt, hybrid, solution-oriented, and other schemes; each with defined asset allocation and investment restrictions.

NAV calculation: (total assets - liabilities) / number of units outstanding; NAV disclosed daily for open-ended schemes.

SEBI (Collective Investment Schemes) Regulations, 1999: registration required; minimum net worth Rs 1 crore; CIS cannot be launched without SEBI registration.

SEBI (Alternative Investment Funds) Regulations, 2012: Category I (VC, SME, infrastructure), Category II (PE, debt), Category III (hedge funds); minimum investment Rs 1 crore for investors.

AIF registration: application to SEBI, minimum corpus Rs 20 crore for Category I and II, Rs 70 crore for Category III (with some exceptions).

Mutual fund expenses: TER limits based on AUM slabs; direct plans have lower TER than regular plans; exit load and switch rules apply.