sebi current affairs: february, 2018 (part ii)...sebi current affairs: february, 2018 (part –ii) ...
TRANSCRIPT
SEBI Current Affairs: February, 2018 (Part – II)
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Relevant for SEBI Grade A 2018 Examination
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MSE gets Sebi nod for electronic book building mechanism
• Metropolitan Exchange of India(MSE), formerly MCX-SX, said it hasreceived approval from Sebi
• to launch electronic book buildingmechanism to facilitate onlinebidding for private placement of debtsecurities.
• With this the exchange will be ableto attract new debt issues and theirsubsequent trading.
The exchange is also expected to rollout products for the equitysegment during the first quarter offiscal 2018-19.
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MSE
• MSE, earlier known as MCX-SX, was set up by Jignesh Shah-led FinancialTechnologies (India) Ltd (FTIL) and
• it commenced operations in the currency derivatives segment in October2008.
• It began operating as a full-fledged bourse with launch of equity trading inFebruary 2013.
• While MCX-SX had witnessed a strong performance in the initial period ofits launch, the turnover saw a sharp plunge amid a payment crisis atNational Spot Exchange Limited (NSEL), which was also promoted byJignesh Shah.
• MCX-SX was renamed as MSE as part of turnaround strategy to give theexchange a new identity, and disassociate from its original promoters andhelp it shift to a high growth phase.
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Electronic Book Building Process
• Book Building is basically a process used in Initial Public Offer (IPO)for efficient price discovery.
• It is a mechanism where, during the period for which the IPO is open,bids are collected from investors at various prices, which are aboveor equal to the floor price.
• The offer price is determined after the bid closing date.
• In case of Book Building, the demand can be known everyday as thebook is built.
• In an Electronic Book Building Process, bidding takes place online.
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Sebi sets up framework to calculate IRF daily settlement value
• Sebi decided to provide flexibility tothe stock exchanges with regards to thecomputation methodology
• of daily contract settlement value ofInterest Rate Futures (IRFs).
• Sebi also asked exchanges to disclosethe methodology used for arriving atthe price.
• Cash-settled IRFs provide marketparticipants an option to hedge risksarising from fluctuations in interestrates.
Fluctuation in interest rates depends on various factors,
including RBI policy, demand for liquidity and flow of
overseas funds.
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Interest Rate Futures
• An interest rate futures contract is a futures contract, based on anunderlying financial instrument that pays interest.
• It is used to hedge against adverse changes in interest rates.
Example
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Sebi allows NSE, BSE to trade in cross currencies derivatives
• SEBI has written a letter to the NationalStock Exchange and BSE allowing themthree pair of new currencies with anextended trading time in the derivativesmarket.
• Individuals and institutions can now trade inEuro-dollar, Pound sterling-dollar, dollar-Japanese yen in the exchanged tradefutures and options.
• The trade timing is extended to 7.30PMunlike 5PM now.
The move will help increaseliquidity in the market at a timewhen domestic exchanges are seenvying with overseas exchanges likeSingapore Stock Exchange.
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Currency Derivatives
• A currency future, also known as FX future, is a futures contract toexchange one currency for another at a specified date in the futureat a price (exchange rate) that is fixed on the purchase date.
• In India, one can use such derivative contracts to hedge againstcurrencies like dollar, euro, U.K. pound and yen.
• Corporates, especially those with a significant exposure to imports orexports, use these contracts to hedge against their exposure to acertain currency.
• Cross Currency Futures & Options contracts on EUR-USD, GBP-USDand USD-JPY are also available for trading in Currency Derivativessegment.
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Currency Derivatives
• Raghav Exports Ltd. has an export inward remittance that isreceivable on 30th September for $50,000/-.
• Presently, exchange rate is INR 64/$.
• Company is worried that INR may actually appreciate to 62/$ bySeptember 30th.
• That will mean that Raghav exports will receive less in rupee terms.
• Raghav Exports can hedge this risk by entering into futures contractof the USD-INR pair at a price of Rs.64.
• If exchange rate appreciates, Raghav Ltd. will gain on the derivativescontract and ultimately their amount will remain secured.
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Government expects up to Rs 4,000 crore surplus fund from Sebi
• Sebi has two kinds of money.
• One is what they earn as penaltiesand fines, etc. This belongs to thegovernment, which they regularlydeposit.
• The other one is they earn by way offees and other decisions. They haverun up into some surplus. So, thesurplus should be kept in publicaccounts rather than banks.
Government is eyeing Rs 3,000-4,000crore of surplus fund lying with Sebi aspart of an exercise to mop up non-taxrevenue to bridge the fiscal deficitgap.
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SC upholds high standards of market integrity by allowing SEBI appeal
• Supreme Court bench has in its recentruling upheld high standards of marketintegrity by (partly) allowing an appealfiled by the SEBI, in a case relating tosynchronized trading.
• Adjudicating Officer observed that most ofthe trades that were matched were ofbuying and selling of contracts within agap of few seconds between the sameparties through same set of brokers whichcreated suspicion.
SAT set aside the order of theAdjudicating Officer. SupremeCourt, however, did not findany merit in the SAT’sreasoning.
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Synchronized Trade
• A synchronized trade is one where the buyer and seller enter thequantity and price of the shares they wish to transact atsubstantially the same time.
• While synchronized trading isn’t illegal per se, it becomes illegal orviolative of the PFUTP Regulations, if it is executed with a view tomanipulate the market or if it is dubious in nature.
• In 2007, suspecting manipulation in the trading of F&O, a SEBI probefound that Rakhi Trading and a few other firms were buying andselling derivatives in equal number within a day.
• “It has an adverse impact on fairness, integrity and transparency ofstock markets,” said the Supreme Court.
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BSE to delist 36 companies from 5 March
• BSE will delist 36 companies fromnext week as trading in their shareshas remained suspended for overthree years.
• Under the compulsory delistingregulations, the delisted company, itswhole-time directors, promoters andgroup firm;
• would be debarred from accessingthe securities market for 10 yearsfrom the date of compulsorydelisting.
Promoters of these delistedcompanies will be required topurchase the shares from the publicshareholders as per the fair valuedetermined by the independentvaluer appointed by the BSE.
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Delisting of securities
• Delisting of securities from the stock exchange is carried out in two ways:voluntary and compulsory.
• Its norms and procedure have been laid down by SEBI Guidelines.
• ‘Compulsory’ delisting can be done by SE as per the norms laid down, whichincludes non-compliance of the terms of the Listing Agreement (LA) by acompany.
• Listing Agreement is the basic document which is executed betweencompanies and the Stock Exchange when companies are listed on the stockexchange.
• Prior to delisting, show-cause notices are to be sent to the company but nointimation and exit option is required to be given to the non-promotershareholders.
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Sebi plans crackdown on companies that cook their books
• Sebi is set to crack down oncompanies whose financial statementshave either been falsified or incorrectbusiness records approved by auditors.
• SEBI will identify these companies anddirect a detailed forensic audit of thebooks of accounts.
• SEBI will also pull up auditors whohave signed these financialstatements without disclosing thediscrepancies they have noticed duringthe audits.
SEBI has the powers of search and seizure, and should bring the
promoters to book on the basis of Section 447 of the Companies Act and
other LODR (listing obligations and disclosure requirements) guidelines.
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Sebi now looks to curb benami deals
• After its clampdown on shellcompanies, Sebi is turning its glare on‘benami trading’.
• It is tougher and more complicated thancracking down on shell companies.
• The regulator is believed to have comeacross instances of suspicious fundmovement of unsecured loans throughmultiple companies and individuals.
In ‘layering’, most of thecompanies and individuals in thechain are money mules who lendtheir identities, bank account, anddemat trading account.
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How the system works ?
• SEBI is trying to figure out ways to pull upperpetrators who indulge in insider trading andshare price manipulation through ‘layering’ of fundflows.
• This is an age-old technique of moving money asloan from one company to the next — in a chain ofnine to ten entities — before the last outfit receivingfund buys or sells shares.
• These layers of companies — many of which arenormal operating business entities and not shell firms— are used to mask the identities of men behind thetrades and obfuscate the true nature of thetransaction.
Company A
Company B
Company C
Acquire Company A shares !!!
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SEBI eyes tighter e-KYC standards
• In the wake of the Punjab National Bank(PNB) fraud, SEBI is looking to formaliseand then tighten its Know Your Client(KYC) norms for the capital markets.
• KYC norms apply to the venture capitalfunds (VCFs), collective investmentschemes (CIS) and mutual funds.
• However, currently there is no specificformat.
• As a result, these intermediaries usedifferent KYC formats and supportingdocuments, sometimes for the same client.
SEBI has discussed possibility of converting the e-KYC as use case as part of blockchain initiatives
and moving e-KYC data to a central server.
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Blockchain
• With a blockchain, many people canwrite entries into a record ofinformation, and a community of userscan control how the record ofinformation is amended and updated.
• The blockchain is like a ledger with abuilt-in trust, promising a distributedtransaction ledger with identicalcopies;
• maintained on multiple computersystems and capable of beingcontrolled by different entities.
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BSE, NSE to stop trading of their indices on foreign bourses
• Stock exchanges said they willimmediately stop the trading ofindices of Indian securities onforeign bourses as part of a jointeffort to stymie migration ofliquidity to overseas markets.
• The decision of the exchangescame after Sebi asked them tosuspend trading of their indices ininternational markets.
The existing licensing agreements for licensing indices/ prices of Indian
securities for trading derivatives on foreign exchanges and/or trading
platforms shall be terminated with immediate effect.
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In consultation with MCA, Sebi framing crowd-funding norms
• Framework would require all crowd-funding platforms to register withSebi, and fulfil compliancerequirements.
• For instance, these platforms will beasked to collect know-your-customer(KYC) documentation from allregistered users.
• They will also be required to sendreports of all successful fund-raisingexercises.
Crowd-funding is a platform, usually an internet portal or a social media
group, that can be used by companies to raise capital from
hundreds of investors.
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Sebi's new rules on categorisation: 20% MF scheme names to be changed
• SEBI had last October released a circularfor categorisation and merger of schemes.
• Sebi provided for key categories under thethree board segments, equity, debt, andhybrid, and directed MFs will have onlyone scheme in each category.
• It further asked asset managementcompanies that had more than onescheme in a category to either wind up,merge or change fundamental attributes ofscheme, after obtaining permission.
Sebi's objective behind the move to categorise and merge schemes was
to avoid mis-selling and end the practice of launching many similar schemes just for asset mobilisation
by fund houses.
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Sebi plans safeguards for overseas investors taking private bank route
• Sebi – through a circular titled “Easing ofaccess norms for investment by foreignportfolio investors –
• allowed clients of private banks to tradein the Indian equities without having toregister with the market regulator.
• Sebi will put enough safeguards so thatthe route is not exploited.
• Only the banks which are ready to foregotheir client confidentiality agreementswill be allowed to use the route.
“Indirect participation is not aconcern for us as long as wehave information of the endbeneficial owner,” a Sebi officialsaid.
MCQ’s
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1. __________ is basically a process used in Initial Public Offer (IPO) for efficient price discovery.
a) Price Building
b) Book Building
c) Offer Building
d) None of the above
2. Delisting of securities can be:
a) Voluntary
b) Compulsory
c) Voluntary or Compulsory
d) None of the above
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3. ___________ is the basic document which is executed between companies and the Stock Exchange when
companies are listed on the stock exchange.
a) Listing Agreement
b) Stock Agreement
c) Exchange Memorandum
d) None of the above
4. Which of the following is/are examples of Cross Currency Derivatives in context of India?
a) EUR-USD
b) GBP-USD
c) USD-JPY
d) All of the above
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ANSWERS1. B2. C3. A4. D
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SEBI Current Affairs - Feb. 2018
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Thank You! Happy Learning!
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