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Questions and Answers

Which of the following is NOT classified under Category I Foreign Portfolio Investors?

  • Pension funds
  • Entities from Financial Action Task Force member countries
  • Government-related investors
  • Unregulated funds without an appropriate investment manager (correct)

What is a requirement for an entity to be classified as a Category I FPI?

  • Ownership of at least 50% by private investors
  • Registration under SEBI regulations (correct)
  • Operational for less than one year
  • Involvement in speculative trading

Which of the following types of investors can be categorized as a Category I FPI?

  • Sovereign wealth funds (correct)
  • Private equity firms
  • Hedge funds
  • Family offices

Which statement is true about university-related endowments classified as Category I FPIs?

<p>They must be in existence for more than five years (C)</p> Signup and view all the answers

Which of the following is a characteristic of Category I FPIs?

<p>They include regulated entities such as asset management companies (D)</p> Signup and view all the answers

What categorizes an investment manager as responsible for unregulated funds within Category I FPI?

<p>The investment manager must be appropriately regulated and registered (B)</p> Signup and view all the answers

Which of the following investors is inherently categorized as a Category I FPI?

<p>Investment advisors associated with regulated entities (A)</p> Signup and view all the answers

Which of these organizations would NOT be considered a Category I Foreign Portfolio Investor?

<p>A multinational corporation without regulatory oversight (D)</p> Signup and view all the answers

What is the primary role of the financial system in a modern economy?

<p>To encourage savings and allocate resources for economic growth (D)</p> Signup and view all the answers

Which of the following is NOT included in the basics of capital market according to the index?

<p>Prohibition of insider trading (B)</p> Signup and view all the answers

What is one function of a sound financial system in India?

<p>Mobilizing savings from various households (A)</p> Signup and view all the answers

Which topic is covered under PART II of the capital market and securities law?

<p>Prohibition of Fraudulent and Unfair Trade Practices (B)</p> Signup and view all the answers

What is a key objective related to the issue of capital and disclosure requirements?

<p>Ensuring financial transparency and accountability (C)</p> Signup and view all the answers

Which option corresponds to a type of investment product commonly covered in capital market discussions?

<p>Stocks and Bonds (A)</p> Signup and view all the answers

Which of the following statements best describes securities market intermediaries?

<p>They assist in the trading of securities between buyers and sellers. (D)</p> Signup and view all the answers

What does the acronym IFSCA stand for in a capital market context?

<p>International Financial Services Centres Authority (D)</p> Signup and view all the answers

Which of these practices is covered under securities law concerning capital market activities?

<p>Prohibition of insider trading (A)</p> Signup and view all the answers

Which type of equity practice focuses on share buybacks?

<p>Delisting of equity shares (C)</p> Signup and view all the answers

What is the maximum number of anchor investors permitted for allocation up to Rs. 10 crore on the main board?

<p>2 (B)</p> Signup and view all the answers

What is the minimum allocation per investor for amounts above Rs. 2 crore and up to Rs. 25 crore?

<p>Rs. 1 crore (A)</p> Signup and view all the answers

In case of allocation above Rs. 25 crore, how many additional investors are allowed for every Rs. 25 crore or part thereof?

<p>10 (D)</p> Signup and view all the answers

What is the total number of anchor investors permitted for allocations above Rs. 25 crore on the SME exchange?

<p>25 (B)</p> Signup and view all the answers

When does bidding for anchor investors open in relation to the issue opening date?

<p>One day before the issue opening date (C)</p> Signup and view all the answers

What is the minimum number of anchor investors required for allocations above Rs. 25 crore?

<p>5 (C)</p> Signup and view all the answers

For allocation up to Rs. 2 crore on the SME exchange, how many maximum anchor investors are permitted?

<p>2 (C)</p> Signup and view all the answers

What is the maximum number of anchor investors allowed for an allocation range between Rs. 2 crore and Rs. 25 crore on the SME exchange?

<p>15 (A)</p> Signup and view all the answers

What is a requirement for an entity to qualify as a Category I foreign portfolio investor?

<p>The investment manager must be from a Financial Action Task Force member country. (A)</p> Signup and view all the answers

What percentage ownership is required for an entity to qualify via another entity under Category I?

<p>Seventy-five percent or more. (D)</p> Signup and view all the answers

Which of the following is NOT classified as a Category II foreign portfolio investor?

<p>Investment managers from a Financial Action Task Force member country. (A)</p> Signup and view all the answers

Which type of entity is categorized as a Category II foreign portfolio investor?

<p>Individuals. (D)</p> Signup and view all the answers

What type of funds are classified as unregulated under the Category II foreign portfolio investors?

<p>Limited partnerships and trusts. (C)</p> Signup and view all the answers

Which of the following entities is explicitly mentioned as a non-eligible Category I foreign portfolio investor?

<p>Endowments and foundations. (B)</p> Signup and view all the answers

Who holds responsibility for the acts of applicants seeking registration under Category I?

<p>The investment manager or eligible entity. (B)</p> Signup and view all the answers

What classification does an applicant established in an International Financial Services Centre fall under?

<p>Appropriately regulated. (B)</p> Signup and view all the answers

What is a common type of securitized debt that is mentioned?

<p>Mortgage-backed securities (B)</p> Signup and view all the answers

Which regulatory body established the framework for public offers of securitized debt instruments in India?

<p>Securities and Exchange Board of India (C)</p> Signup and view all the answers

What notable event occurred in 1997 regarding municipal bonds in India?

<p>First municipal bonds were issued (C)</p> Signup and view all the answers

What is one of the eligibility criteria for a municipality to issue municipal bonds in India?

<p>Must not have a negative net worth in each of the previous three years (B)</p> Signup and view all the answers

Why did municipal bonds struggle after their initial attraction?

<p>Inadequate funding raised from investors (B)</p> Signup and view all the answers

What benefit do securitized debt instruments provide to banks?

<p>Lower interest rates and increased capital availability (A)</p> Signup and view all the answers

Following which year did SEBI issue guidelines for urban local bodies to issue municipal bonds?

<p>2015 (A)</p> Signup and view all the answers

Which urban local body was the first to issue municipal bonds in India?

<p>Bangalore Municipal Corporation (B)</p> Signup and view all the answers

What do shares with differential voting rights (DVR) primarily allow a company to do?

<p>Retain control while raising investments (C)</p> Signup and view all the answers

According to the Companies Act, 2013, what is a requirement for a company to issue equity shares with differential rights?

<p>Shareholders must approve through an ordinary resolution (A)</p> Signup and view all the answers

What is the maximum percentage of voting power that shares with differential rights can have in a company?

<p>74% (C)</p> Signup and view all the answers

Which of the following is NOT a condition for a company to issue shares with differential rights?

<p>The company must hold regular shareholder meetings (A)</p> Signup and view all the answers

What type of shares carry a preferential right to dividends and repayment of capital upon liquidation?

<p>Preference shares (A)</p> Signup and view all the answers

Which financial obligation must a company have fulfilled to issue differential voting rights shares?

<p>It must have filed annual returns and financial statements for the last three years (A)</p> Signup and view all the answers

What is one of the main advantages of issuing shares with differential voting rights?

<p>They enable founders to retain control while attracting investment (C)</p> Signup and view all the answers

What happens to the voting power of shares with differential rights when their limit of 74% is reached?

<p>No additional shares can be issued (D)</p> Signup and view all the answers

Flashcards

Capital Market

A marketplace for raising capital, facilitating investment.

Financial System

Framework for production, capital, and growth, encouraging savings and investment.

Secondary Market

Market for trading previously issued securities.

Securities Contracts (Regulation) Act, 1956

Law in India governing securities contracts.

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SEBI

Indian securities regulatory body.

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Depositories

Institutions storing securities electronically.

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Depository Participants

Agents dealing with depositories.

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Market Intermediaries

Companies or entities assisting in securities trading.

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IFSCA

International financial services authority in India.

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Issue of Capital

Raising funds by companies and governments through securities.

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FPI

Foreign Portfolio Investor, a registered person under SEBI regulations, acting as an intermediary under SEBI Act, 1992.

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Category I FPI

Foreign Portfolio Investors (FPIs) whose investment manager is from a FATF member country and registered as a Category I FPI, or those who are 75% owned by an eligible entity from a FATF member country.

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Category II FPI

Foreign Portfolio Investors (FPIs) not eligible under Category I, including regulated funds, endowments, charities, corporations, family offices, individuals, appropriately regulated client-investing entities, and unregulated funds (LPs & trusts).

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Category I FPI

Specific category of FPIs, including Government entities, pension funds, regulated financial institutions, and entities from FATF member countries.

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Government entities (Category I)

Central banks, sovereign wealth funds, international/multilateral organizations, or entities at least 75% owned by such.

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FATF Member Country

Countries that are members of the Financial Action Task Force (FATF), an intergovernmental body focused on combating money laundering and terrorist financing.

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Foreign Portfolio Investor (FPI)

An investor from a foreign country investing in the capital markets of another country.

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Pension/University Funds (Category I)

Pension and university funds that are part of Category I FPIs.

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Investment Manager

The entity responsible for managing the investments of an FPI.

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Regulated entities (Category I)

Insurance, reinsurance, banks, asset management companies, investment managers, broker dealers, and swap dealers.

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Appropriate Regulation

Regulatory compliance by an investment entity.

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FATF member countries

Entities from countries that are members of the Financial Action Task Force (FATF).

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International Financial Services Centre

A financial centre with specific regulations and tax benefits.

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Unregulated funds (Category I)

Funds without direct regulation, but whose managers are registered and regulated FPIs.

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University Endowments (Category I)

University endowments existing for more than five years.

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Responsibility of Acts of Commission/Omission

The accountability of an Investment Manager or eligible entity for the actions (and inactions) of the applicant seeking registration.

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Differential Voting Rights (DVR) shares

Equity shares with different voting and dividend rights than other shares.

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Companies Act, 2013

Indian law governing types of shares, including DVRs.

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Maximum voting power (DVR)

Limit on the voting power of DVR shares, never exceeding 74% of the total.

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Shareholder Approval for DVRs

Requires a General Meeting vote for issuing DVR shares.

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Conditions for issuing DVRs

Rules about company conditions, such as annual returns, before DVR shares can be issued.

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Preference shares

Company shares with preferential rights to dividends and repayment in case of liquidation.

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Fixed rate dividend

A set amount or percentage of dividend for a preference share.

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Fixed payment for repayment

A fixed amount that the company must pay in case of liquidation.

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Anchor Investor Allocation (Public Issue)

Allocation of shares to anchor investors on the main board, with specific caps and minimums based on issue size.

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Maximum Anchor Investors (Main Board)

Up to 15 anchor investors allowed for allocations above Rs.25 crore, with additional investors for every Rs 25 crore increment.

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Minimum Investment (Anchor Investors)

Each anchor investor is required to buy at least Rs. 1 crore (minimum allocation).

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Anchor Investor Allocation (SME Exchange)

Similar rules to the main board for allocation to anchor investors, but for smaller issues.

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Book Building Process

A process to determine the price of securities by collecting bids from investors.

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Bidding for Anchor Investors

Investors interested in becoming anchor investors place bids one day before the issue opening date.

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Allocation Completion Date

Allocation to Anchor Investors is done on the day of the anchor investors' bidding.

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Issue Opening Date

The date when the issue officially opens to all investors.

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Securitized Debt Instruments (SDIs)

Financial instruments created by pooling together debt obligations (like mortgages) and selling them as securities.

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Mortgage-backed securities

A type of securitized debt instrument backed by mortgage loans.

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Municipal Bonds

Bonds issued by local governments (municipalities) to fund projects like roads and schools.

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SEBI (Public Offer and Listing of Securitized Debt Instruments) Regulations, 2008

Regulations made by SEBI (Securities and Exchange Board of India) to govern the listing of Securitized Debt Instruments.

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Eligibility Criteria for Municipal Bonds

Requirements that municipalities must meet before issuing municipal bonds, including positive net worth, as enforced by SEBI.

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Listing of Securitized Debt

Process of making certain financial instruments (Securitized Debt) available for purchase and sale on a public exchange.

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SEBI Guidelines 2015 (Municipal Bonds)

SEBI rules created for revitalizing municipal bonds by outlining eligibility criteria.

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Private placement of SDIs

Sale of securitized debt instruments directly to investors, rather than through a public offering.

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Study Notes

Capital Market and Securities Law Index

  • Basics of Capital Market: 1.1 to 1.16
  • Secondary Market in India: 2.1 to 2.18
  • Securities Contracts Act, 1956: 3.1 to 3.16
  • Securities and Exchange Board of India (SEBI): 4.1 to 4.16
  • Laws Governing Depositories and Depository Participants: 5.1 to 5.11
  • Securities Market Intermediaries: 6.1 to 6.11
  • International Financial Services Centres Authority (IFSCA): 7.1 to 7.8
  • Issue of Capital & Disclosure Requirements: 8.1 to 8.13
  • Share Based Employee Benefits and Sweat Equity: 9.1 to 9.9
  • Issue and Listing of Non-Convertible Securities: 10.1 to 10.7
  • Listing Obligations and Disclosure Requirements: 11.1 to 11.17
  • Acquisition of Shares and Takeovers - Concepts: 12.1 to 12.9
  • Prohibition of Insider Trading: 13.1 to 13.10
  • Prohibition of Fraudulent and Unfair Trade Practices: 14.1 to 14.5
  • Delisting of Equity Shares: 15.1 to 15.13
  • Buy-back of Securities: 16.1 to 16.10
  • Mutual Funds: 17.1 to 17.11
  • Collective Investment Schemes: 18.1 to 18.8

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