SEBI Current Affairs: May, 2018 (Part – II)

www.edutap.co.in

Relevant for SEBI Grade A 2018 Examination

www.edutap.co.in

SEBI allows debt issuers to review ratings by agencies

• SEBI has allowed debt issuers to review ratings givenby agencies, a move that will check the menace of‘rating shopping’ and ‘pick-and-choose’ approach intheir actions.

• In the past, several firms have expresseddissatisfaction against credit rating agencies (CRAs)after ratings on their debt were suddenlydowngraded or withdrawn.

• Now, such firms may approach credit rating agencieswith more supporting documents for a better rating.

www.edutap.co.in

Sebi likely to allow futures trading in petrol and diesel

• Sebi is close to giving its green signal tothe Indian Commodity Exchange (ICEX) tolaunch futures on petrol and diesel.

• This is aimed at insulating retail oildealers, large transporters and fleetoperators, and also consumers

• from being abruptly hit by volatility inprices of crude oil.

• Petrol and diesel are among the 90-pluscommodities that have been approved bythe government for derivatives trading.

www.edutap.co.in

Futures Contract

www.edutap.co.in

Sebi to make life easier for FPIs; to look at grey areas, rework rules

• Sebi has constituted a high-profileteam led by a former deputygovernor Sh. H.R. Khan ofReserve Bank of India (RBI) toredraft the rules.

• The committee will delve intomultiple grey zones andambiguities to come out with anew policy regime withoutaltering the broader framework.

www.edutap.co.in

Categories of Foreign Portfolio Investors

• FPIs are classified into three categories.

• Category I (or CAT I) FPIs are sovereign funds and those backed bygovernment and multilateral agencies;

• CAT II FPIs are regulated, broad-based entities like pension funds, andfunds led by insurance companies, banks and mutual funds; and,

• CAT III FPIs are ‘unregulated’ funds backed by corporates, individuals,family offices, and trusts; hedge funds, which are under a comparativelylooser regulatory regime, are also included under CAT III.

www.edutap.co.in

Sebi panel proposes stricter norms for RTAs

• SEBI has proposed tighterownership and governance normsfor registrar and transfer agents(RTAs).

• According to a discussion paperreleased by Sebi, the panel, headedby former Reserve Bank of India(RBI) deputy governor R. Gandhi,

• Felt that since RTAs managesensitive investor-related data,there need to be stricter governancerules for them.

The panel, however, felt RTAs, CRAs and debenture trustees

need not be categorized as MIIs but suggested that RTAs should

have tighter norms.

www.edutap.co.in

Registrar and Transfer agents (RTAs)

• RTAs maintain detailed records of all investor transactions in mutualfunds and shares.

• They also help investors complete their transactions and receive arecord of their account statements.

• In September 2017, Sebi had defined qualified RTAs (QRTAs) as“RTAs servicing more than 20 million folios”.

• Sebi panel said QRTAs should either have a dispersed ownership orbe owned by regulated entities or entities in the business of RTA.

• Sebi proposed that the board of RTA should have public interestdirectors (PIDs) when it becomes a QRTA.

www.edutap.co.in

Sebi announces additional risk management measures for derivatives segment

• SEBI has put in place additionalrisk management measures for thederivatives segment.

• These measures pertain to margincollection requirement andcomputation of liquid net worth forequity derivatives segment.

• Client margins are required to becompulsorily collected andreported to exchange or clearingcorporation.

These changes will impact the brokers who collect minimum

margins for F&O trading

www.edutap.co.in

Margin Requirements in Derivative Trading

• A margin in the derivatives market is the amount of cash an investormust put up to open an account to start trading.

• It acts as a down payment on the underlying asset and helps ensurethat both parties fulfill their obligations.

www.edutap.co.in

Use of SPAN for computing Margin Requirements

• The initial margin required for the positions is computed using asoftware called SPAN (Standard Portfolio Analysis of Risk).

• SPAN margin covers almost of the risk for of the day.

• Failure to have requisite SPAN margin in the account can result inpenalty being levied by the exchanges.

www.edutap.co.in

Sebi proposes uniform pricing for debt securities

• To deepen the bond markets,regulator Sebi proposed a uniformmethodology to determine pricing ofnon-traded and thinly traded non-convertible debt securities.

• Current practice of pricing ofcorporate bonds varies for differentclasses of regulated entities and thismove will bring uniformity in thisregard.

Uniform pricing methodology will provide prices on a daily basis and may be followed by all the regulated entities for valuing

their corporate bond portfolio.

www.edutap.co.in

Convertible vs. Non-Convertible Debt Securities

www.edutap.co.in

Sebi tightens KYC norms for foreign portfolio investors

• Stepping up its crackdown on moneylaundering and round-tripping, Sebi recentlycame out with a detailed framework for riskbased Know Your Client (KYC) documentationof foreign portfolio investors (FPIs).

• Among other things, the market regulatormade it clear that non-resident Indians (NRIs),overseas citizens of India (OCI) and residentIndians cannot be beneficial owners of FPIs.

• NRIs and OCIs can only obtain an FPI licenceon condition that they limit their roles toinvestment advisors and do not invest theirmoney.

Sebi further sought a comprehensive list of

beneficial owners from the existing FPIs within six months

www.edutap.co.in

NSE algo trading case: SEBI may ready final report soon

• SEBI is trying to find out the exactrole or possible collusion of each ofthe NSE employees who could belinked to the matter.

• Prima facie there are two questionsthat SEBI has looked at —

• first, if there is any case of systemiclapse, and the second, whocolluded and benefited from it.

SEBI’s Technical AdvisoryCommittee (TAC) in 2016 hadsaid in its report that,“Preferential access was givenby the NSE to stockbroker(s)."

www.edutap.co.in

Algo Trading

• Algorithmic trading is a methodof executing a large order (toolarge to fill all at once)

• using automated pre-programmed trading instructions

• accounting for variables such astime, price, and volume

• to send small slices of the order(child orders) out to the marketover time.

www.edutap.co.in

New SEBI framework to check non-compliance of listing rules

• Sebi has put in place a strongermechanism to check non-compliance of listing conditions,

• wherein exchanges will have powersto freeze promoter shareholding andeven delist the shares of suchdefaulting companies.

• Besides, exchanges can levy fines onnon-compliant company, move thestocks of such firms to restrictedtrading category and suspend tradingin the shares of such entities.

If a non-complaint entity is listedon more than one exchanges,the concerned bourses need totake uniform action inconsultation with each other

www.edutap.co.in

SEBI mandates secretarial audits for all listed cos

• SEBI has mandated secretarialaudits for all listed companies and"material unlisted" subsidiaries ofsuch companies.

• This has been done under itsListing Obligations and DisclosureRequirements (LODR) regulations.

• Company law since 2014 alreadyprovides for such audits for listedand unlisted companies above athreshold.

SEBI also made it clear that companysecretaries and CFOs are to be specificallyconsidered as part of "senior management"and therefore their remuneration has to berecommended by the Nomination andRemuneration Committee of the Board.

www.edutap.co.in

Sebi writes to govt urging tax parity between cash and derivatives

• Sebi is of the view that thedifferentiating tax structure, particularlythe securities transaction tax (STT), isincentivising participation in thederivatives segment.

• Currently, STT is charged at a muchhigher rate for delivery-based trades inthe cash segment.

• Favourable tax treatment among otherfactors is encouraging small timeinvestors towards derivative marketswho may lose their savings in it.

Sebi has been making efforts to discourage retail investors

from participating in the derivatives since these are sophisticated instruments

www.edutap.co.in

What is Securities Transaction Tax ?

• STT is levied on purchase or sale ofsecurities that are listed on theIndian stock exchanges.

• This would include shares,derivatives, or equity-orientedmutual funds units.

www.edutap.co.in

Derivatives vs. Cash Segment

• When you buy shares in the cash market and take delivery, you arethe owner of these shares but you can never be a shareholder whenyou trade in the derivatives segment of the capital market.

• Investor in cash segment is entitled to dividends that companies pay.

• Both, cash and futures markets pose risk, but the risk in the case offutures can be higher, because you have to settle the contract withina specified period and book losses.

• You buy a contract in the derivatives market to hedge risk or tospeculate. Individuals buying shares in the cash market are investors.

• In the derivatives segment you pay only margin money but in thecase of cash segment, you have to pay the entire amount and notonly margin.

MCQ’s

www.edutap.co.in

1. Which category of Foreign Portfolio investors include FPIs which are sovereign funds and those backed by

government and multilateral agencies?

a) Category I *

b) Category II

c) Category III

d) None of the above

2. Which of the following is/are correct w.r.t. Registrar and Transfer Agents (RTAs)?

a) They maintain detailed records of all investor transactions in mutual funds and shares

b) They help investors complete their transactions and receive a record of their account statements

c) Both a and b*

d) None of the above

www.edutap.co.in

3. A _______in the derivatives market is the amount of cash an investor must put up to open an account to

start trading.

a) Collateral

b) Margin*

c) Security

d) Corpus

4. The initial margin required for the positions in derivatives contracts is computed using a software.

Software used for this purpose is called as?

a) SPAN*

b) ASBA

c) DEMAT

d) ALGO

www.edutap.co.in

ANSWERS1. A2. C3. B4. A

www.edutap.co.in

SEBI Current Affairs - May 2018

www.edutap.co.in

Thank You! Happy Learning!

www.edutap.co.in