Part I (Capital Market) PDF

INDEX INDEX PART I – CAPITAL MARKET...

INDEX INDEX PART I – CAPITAL MARKET 1ST 2ND 3RD NO. LESSON TITLE PAGE NO. LECTURE READING READING READING 1 BASICS OF CAPITAL MARKET 1.1 to 1.16 2 SECONDARY MARKET IN INDIA 2.1 to 2.18 SECURITIES CONTRACTS (REGULATION) 3 3.1 to 3.16 ACT, 1956 SECURITIES AND EXCHANGE BOARD OF 4 4.1 to 4.16 INDIA LAWS GOVERNING TO DEPOSITORIES 5 5.1 to 5.11 AND DEPOSITORY PARTICIPANTS 6 SECURITIES MARKET INTERMEDIARIES 6.1 to 6.11 INTERNATIONAL FINANCIAL SERVICES 7 7.1 to 7.8 CENTRES AUTHORITY (IFSCA) PART II – SECURITIES LAW ISSUE OF CAPITAL & DISCLOSURE 8 8.1 to 8.13 REQUIREMENTS SHARE BASED EMPLOYEE BENEFITS 9 9.1 to 9.9 AND SWEAT EQUITY ISSUE AND LISTING OF NON- 10 10.1 to 10.7 CONVERTIBLE SECURITIES LISTING OBLIGATIONS AND 11 11.1 to 11.17 DISCLOSURE REQUIREMENTS ACQUISITION OF SHARES AND 12 12.1 to 12.9 TAKEOVERS – CONCEPTS 13 PROHIBITION OF INSIDER TRADING 13.1 to 13.10 PROHIBITION OF FRAUDULENT AND 14 UNFAIR TRADE PRACTICES RELATING TO 14.1 to 14.5 SECURITIES MARKET 15 DELISTING OF EQUITY SHARES 15.1 to 15.13 16 BUY-BACK OF SECURITIES 16.1 to 16.10 17 MUTUAL FUNDS 17.1 to 17.11 CAPITAL MARKET AND SECURITIES LAW CA CS LLM SHUBHAM SHUKLECHHA 18 COLLECTIVE INVESTMENT SCHEMES 18.1 to 18.8  CHAPTER 1 - BASICS OF CAPITAL MARKET CHAPTER 1 - BASICS OF CAPITAL MARKET FINANCIAL SYSTEM IN INDIA Every modern economy is based on a sound financial system which helps in production, capital and economic growth by encouraging savings habits, mobilising savings from households and other segments and allocating savings into productive usage such as trade, commerce, manufacture etc. Financial system covers both credit and cash transactions. All financial transactions are dealt with by cash payment or issue of negotiable instruments like cheque, bills of exchanges, hundies etc. Thus, a financial system is a set of institutional arrangements through which financial surpluses are mobilised from the units generating surplus income and transferring them to the others in need of them. The activities include production, distribution, exchange and holding of financial assets/instruments of different kinds by financial institutions, banks and other intermediaries of the market. In a nutshell, financial market, financial assets, financial services and financial institutions constitute the financial system. Componenets of Financial system in India Financial Market Financial Market Participant Financial Instruments Money Capital Qualified Shares Market Market Institutional Buyers Securities Other form of lending Foreign Portfolio Commercial Paper Debentures Market and borrowings Investors Certificate of New Issue Alternative Bonds deposits Market Investment Funds Secondary Indian Depositories Treasury Bills Venture Capital Market Receiots Commercial paper Anchor Investors Warrants Merchant Banker REITs Registrar and Share Invits Transfer Agents Exchange Underwriters Traded funds Bankers to an Issue Debenture Trustees FINANCIAL MARKETS IN INDIA Indian Financial Market, has been one of the oldest across the globe and is definitely the fastest growing and best CAPITAL MARKET AND SECURITIES LAW SHUBHAMM SUKHLECHA (CA, CS, LLM) among other financial markets of the emerging economies. The history of Indian capital markets is more than 200 years old, around the end of the 18th century. It was at this time that India was under the rule of the East India Company. The capital market of India initially developed around Mumbai; with around 200 to 250 securities brokers participating in active trade during the second half of the 19th century. Today, Bombay Stock Exchange (BSE), one among the world’s largest exchange in terms of trading turnover in the same city. Indian Financial market is one of the well-developed markets in the world. 1.1  CHAPTER 1 - BASICS OF CAPITAL MARKET A Financial market enables efficient trade of securities, and transfer of funds, between lenders and borrowers and also creates securities for investment. People who have surplus funds invests in these securities to earn return on their investments.  FUNCTIONS OF FINANCIAL MARKET  It facilitates mobilisation and channelization of savings into the most productive uses.  It helps in determining the price of the securities, on the basis of their demand and supply in the market. l It provides liquidity to tradable assets, by facilitating the exchange, as the investors can readily sell their securities and convert assets into cash.  It reduces cost by providing valuable information, regarding the securities traded in the financial market.  It facilitates exchange of assets without physical delivery. The financial markets are mainly divided into: A. MONEY MARKET Money Market is a segment of the financial market where borrowing and lending of short-term funds take place. The maturity of money market instruments ranges from one day to one year. In India, this market is regulated by both RBI (the Reserve bank of India) and SEBI (the Securities and Exchange Board of India). The nature of transactions in this market is such that they are large in amount and high in volume. Thus, we can say that the entire market is dominated by a small number of large players. The market consists of negotiable instruments having characteristics of liquidity (quick conversion into money), minimum transaction costs and no loss in value such as treasury bills, commercial papers, certificate of deposit, etc. It performs the crucial role of providing an equilibrating mechanism to even out the short-term liquidity, surpluses & deficits and therefore, facilitates the conduct of monetary policy of an economy. B. CAPITAL MARKET Capital Market is a part of the financial system that is concerned with the industrial securities market, government securities markets, and long- term loan market. A market that serves the medium & long-term liquidity needs of borrowers & lenders and therefore embraces all terms of lending & borrowing. The capital market comprises institutions and mechanisms through which intermediate terms funds and long-term funds are pooled and made available to business, government and individuals. The capital market also encompasses the process by which securities already outstanding are transferred. This market is also referred to as the Barometer of the Economy. It deals with instruments like shares, stocks, debentures and bonds. Companies turn to capital markets to raise funds needed to finance for the infrastructure facilities and corporate activities. The capital market is a vital part of any financial system. The wave of economic reforms initiated by the government has influenced the functioning and governance of the capital market. The Indian capital market has undergone structural transformation since liberalization.  NEED FOR CAPITAL MARKET Capital market plays an extremely important role in promoting and sustaining the growth of an economy.  It is an important and efficient conduit to channel and mobilize funds to enterprises, both private and government.  It provides an effective source of investment in the economy.  It plays a critical role in mobilizing savings for investment in productive assets, with a view to enhancing a country’s long-term growth prospects, and thus acts as a major catalyst in transforming the economy into a more efficient, innovative and competitive marketplace within the global arena.  In addition to resource allocation, capital markets also provide a medium for risk management by allowing the CAPITAL MARKET AND SECURITIES LAW SHUBHAMM SUKHLECHA (CA, CS, LLM) diversification of risk in the economy.  A well-functioning capital market tends to improve information quality as it plays a major role in encouraging the adoption of stronger corporate governance principles, thus supporting a trading environment, which is founded on integrity.  Capital market has played a crucial role in supporting periods of technological progress and economic development throughout history. 1.2  CHAPTER 1 - BASICS OF CAPITAL MARKET  Among other things, liquid markets make it possible to obtain financing for capital-intensive projects with long gestation periods. This certainly held true during the industrial revolution in the 18th century and continues to apply even as we move towards the so-called “New Economy”.  Capital markets make it possible for companies to give shares to their employees via ESOPs.  Capital markets provide a currency for acquisitions via share swaps.  Capital markets provide an excellent route for disinvestments to take place.  Venture Capital and Private Equity funds investing in unlisted companies get an exit option when the company gets listed on the capital markets  The existence of deep and broad capital market is absolutely crucial in spurring the growth our country.  FUNCTIONS OF THE CAPITAL MARKET The major objectives of capital market are:  To mobilize resources for investments.  To facilitate buying and selling of securities.  To facilitate the process of efficient price discovery.  To facilitate settlement of transactions in accordance with the predetermined time schedules. SECURITIES MARKET Securities Market is a place where companies can raise funds by issuing securities such as equity shares, debt securities, derivatives, mutual funds, etc. to the investors (public) and also is a place where investors can buy or sell various securities (shares, bonds, etc.). It is therefore, a market where financial instruments/claims are commonly & readily available for transfer by means of sale. Once the shares (or securities) are issued to the public, the company is required to list the shares (or securities) on the recognized stock exchanges. Securities Market is a part of the Capital Market.  FUNCTIONS OF SECURITIES MARKET a) The Securities Market allows people to do more with their savings than they would otherwise could. b) It also provides financing that enables people to do more with their ideas and talents than would otherwise be possible. c) The Securities Market provides a linkage between the savings and the investment across the entities, time and space. It mobilises savings and channelises them through securities into preferred enterprises. d) The Securities Market also provides a market place for purchase and sale of securities and thereby ensures transferability of securities, which is the basis for the joint stock enterprise system. e) The existence of the Securities Market makes it possible to satisfy simultaneously the needs of the enterprises for capital and the need of investors for liquidity. f) A developed Securities Market enables all individuals, no matter how limited their means, to share the increased wealth provided by competitive private enterprises. g) The Securities Market allows individuals who can not carry an activity in its entirety within their resources to invest whatever is individually possible and preferred in that activity carried on by an enterprise. Securities market has two inter-dependent & inseparable segments which are as follows: 1. Primary Market : The primary market deals with the issue of new instruments by the corporate sector such as equity shares, CAPITAL MARKET AND SECURITIES LAW SHUBHAMM SUKHLECHA (CA, CS, LLM) preference shares and debt instruments. Central and State Governments, various public sector undertakings (PSUs), statutory and other authorities such as state electricity boards and port trusts also issue bonds/debt instruments. This market is of great significance for the economy of a country as it is through this market that funds flows for productive purposes from investors to entrepreneurs. The strength of the economy of a country is gauged by the activities of the Stock Exchanges. The primary market creates and offers the merchandise for the secondary market. The primary market in which public issue of securities is made through a prospectus is a retail 1.3  CHAPTER 1 - BASICS OF CAPITAL MARKET market and there is no physical location. Offer for subscription to securities is made to the investing community. It is also known as Initial Public Offer (IPO) Market. There are two major types of issuers of securities:  Corporate Entities (companies) which mainly issue equity instruments (shares) and debt instruments (bonds, debentures, etc.).  Government (Central as well as State) which issues debt securities (dated securities and treasury bills). In addition to IPOs, the Company has other options to raise capital.  Qualified institutional placements (listed company issuing shares to Qualified Institutional Buyers (QIB).  In International markets through the issuance of American Depository Receipts (ADR), Global Depository Receipts (GDRs), External Commercial Borrowings (ECB) etc. 2. Secondary Market: The secondary market or stock exchange is a market for trading and settlement of securities that have already been issued. The investors holding securities sell securities through registered brokers/sub-brokers of the stock exchange. Investors who are desirous of buying securities, purchase them through registered broker/sub-broker of the stock exchange. It may have a physical location like a stock exchange or a trading floor. Since 1995, trading in securities is screen-based and Internet-based trading has also made an appearance in India. The secondary market provides a trading place for the securities already issued, to be bought and sold. It also provides liquidity to the initial buyers in the primary market to re-offer the securities to any interested buyer at any price, if mutually accepted. An active secondary market actually promotes the growth of the primary market and capital formation because investors in the primary market are assured of a continuous market and they can liquidate their investments. It is also known as Further Public Offer Market (FPO). REGULATORY FRAMEWORK FOR SECURITIES MARKET It is important to ensure smooth working of capital market, as it is the arena for the players associated with the economic growth of the country. Various laws have been passed from time to time to meet this objective. The financial market in India was highly segmented until the initiation of reforms in 1992-93 on account of a variety of regulations and administered prices including barriers to entry. The reform process was initiated with the establishment of Securities and Exchange Board of India. 1. SEBI Act, 1992: The SEBI Act, 1992 establishes SEBI with statutory powers for (a) protecting the interests of investors in securities, (b) promoting the development of the securities market, and (c) regulating the securities market. Its regulatory jurisdiction extends over corporates in the issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with securities market. It can conduct enquiries, audits and inspection of all concerned and adjudicate offences under the Act. It has powers to register and regulate all market intermediaries and also to penalise them in case of violations of the provisions of the Act, Rules and Regulations made there under. SEBI has full autonomy and authority to regulate and develop an orderly securities market. 2. Securities Contracts (Regulation) Act, 1956: It provides for direct and indirect control of virtually all aspects of securities trading and the running of stock exchanges and aims to prevent undesirable transactions in securities. It gives central government/SEBI regulatory CAPITAL MARKET AND SECURITIES LAW SHUBHAMM SUKHLECHA (CA, CS, LLM) jurisdiction over (a) stock exchanges through a process of recognition and continued supervision, (b) contracts in securities, and (c) listing of securities on stock exchanges. 1.4  CHAPTER 1 - BASICS OF CAPITAL MARKET As a condition of recognition, a stock exchange complies with prescribed conditions of Central Government. Organised trading activity in securities takes place on a specified recognised stock exchange. The stock exchanges determine their own listing regulations which have to conform to the minimum listing criteria set out in the Rules. 3. Depositories Act, 1996: The Depositories Act, 1996 provides for the establishment of depositories in securities with the objective of ensuring free transferability of securities with speed, accuracy and security by a) making securities of public limited companies freely transferable subject to certain exceptions; b) dematerializing the securities in the depository mode; and c) providing for maintenance of ownership records in a book entry form. In order to streamline the settlement process, the Act envisages transfer of ownership of securities electronically by book entry without making the securities move from person to person. The Act has made the securities of all public limited companies freely transferable, restricting the company’s right to use discretion in effecting the transfer of securities, and the transfer deed and other procedural requirements under the Companies Act have been dispensed with. 4. Companies Act, 2013: The Companies Act, 2013 envisage to strengthen the existing regulatory framework on Corporate Governance. It deals with issue, allotment and transfer of securities and various aspects relating to company management. It provides for standard of disclosure in public issues of capital, particularly in the fields of company management and projects, information about other listed companies under the same management, and management perception of risk factors. It also regulates underwriting, the use of premium and discounts on issues, rights and bonus issues, payment of interest and dividends, supply of annual report and other information. SEBI – THE CAPITAL MARKETS REGULATOR The Securities and Exchange Board of India (SEBI) was established in 1988 through an administrative order, but the Act was passed after about four years and it became a statutory and really powerful Institution only since 1992. The Controller of Capital Issues was repealed and its office was abolished in 1992 and SEBI was established on 21 February, 1992 through an ordinance issued on 30 January, 1992. The SEBI Act replaced the ordinance on 4 April, 1992. Certain powers under certain sections of Securities Contracts Regulation Act (SCRA) and Companies Act (CA) have been delegated to the SEBI. The regulatory powers of the SEBI were increased through the Securities Laws (Amendment) Ordinance of January 1995, which was subsequently replaced by an Act of Parliament. The SEBI is under the overall control of the Ministry of Finance, and has its head office at Mumbai. It has now become a very important constituent of the financial regulatory framework in India. SEBI was established with the statutory powers to:  Protecting the interest of investors;  Promoting the development of the securities market; and  Regulating the securities market. SEBI acts as a watchdog for all the capital market participants and its main purpose is to provide such an environment for the financial market enthusiasts that facilitate efficient and smooth working of the securities market. To ensure this the three main participants of the financial market should be taken care of, i.e. issuers of securities, investor, and financial intermediaries. Issuers of securities: These are entities in the corporate field that raise funds from various sources in the market. SEBI makes sure that they get a healthy and transparent environment for their needs. CAPITAL MARKET AND SECURITIES LAW SHUBHAMM SUKHLECHA (CA, CS, LLM) Investor: Investors are the ones who keep the markets active. SEBI is responsible for maintaining an environment that is free from malpractices to restore the confidence of general public who invest their hard-earned money in the markets. Financial Intermediaries: These are the people who act as middlemen between the issuers and investors. They make the financial transactions smooth and safe. 1.5  CHAPTER 1 - BASICS OF CAPITAL MARKET PARTICIPANTS OF CAPITAL MARKET A. QUALIFIED INSTITUTIONAL BUYERS Qualified Institutional Buyers (QIBs) are investment institutions who buy the shares of a company on a large scale. QIBs are those institutional investors who are generally perceived to possess expertise and the financial proficiency to evaluate and to invest in the Capital Markets. The institution is usually a collective group of people in which a large number of investors repose faith and the institution collects a large investible sum from various investors to invest in the market. When investing through the institution, investors usually have limited control on their investments in comparison to the individual investment as they hand over the amount for investment to the institution and they, in turn, engage experts to have a vigil on the market. According to Regulation 2(1)(ss) of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, Qualified Institutional Buyer comprises of — I. a mutual fund, venture capital fund, Alternative Investment Fund and foreign venture capital investor registered with SEBI; II. foreign portfolio investor other than individuals, corporate bodies and family offices; III. a public financial institution; IV. a scheduled commercial bank; V. a multilateral and bilateral development financial institution; VI. a state industrial development corporation; VII. an insurance company registered with the Insurance Regulatory and Development Authority; VIII. a provident fund with minimum corpus of twenty five crore rupees; IX. a pension fund with minimum corpus of twenty five crore rupees; X. National Investment Fund set up by the Government of India; XI. Insurance funds set up and managed by army, navy or air force of the Union of India; XII. Insurance funds set up and managed by the Department of Posts, India; XIII. Systemically important non-banking financial companies. B. FOREIGN PORTFOLIO INVESTOR Foreign Portfolio Investor (FPI) means a person who has been registered under Chapter II of SEBI (Foreign Portfolio Investors) Regulations, 2019 which shall be deemed to be an intermediary in terms of the provisions of the SEBI Act, 1992. Categories of FPI Category I FPIs include: I. Government and Government related investors such as central banks, sovereign wealth funds, international or multilateral organizations or agencies including entities controlled or at least 75% directly or indirectly owned by such Government and Government related investor(s); II. Pension funds and university funds; III. Appropriately regulated entities such as insurance or reinsurance entities, banks, asset management companies, investment managers, investment advisors, portfolio managers, broker dealers and swap dealers; IV. Entities from the Financial Action Task Force member countries, or from any country specified by the Central Government by an order or by way of an agreement or treaty with other sovereign Governments, which are– a) appropriately regulated funds; CAPITAL MARKET AND SECURITIES LAW SHUBHAMM SUKHLECHA (CA, CS, LLM) b) unregulated funds whose investment manager is appropriately regulated and registered as a Category I foreign portfolio investor. However the investment manager undertakes the responsibility of all the acts of commission or omission of such unregulated fund; c) university related endowments of such universities that have been in existence for more than five years. V. An entity (A) whose investment manager is from the Financial Action Task Force member country and such an investment manager is registered as a Category I foreign portfolio investor; or (B) which is at least seventy-five per 1.6  CHAPTER 1 - BASICS OF CAPITAL MARKET cent owned, directly or indirectly by another entity, eligible under sub-clause (ii), (iii) and (iv) of clause (a) of this regulation and such an eligible entity is from a Financial Action Task Force member country. However such an investment manager or eligible entity undertakes the responsibility of all the acts of commission or omission of the applicants seeking registration under this sub-clause. Category II FPIs include all the investors not eligible under Category I foreign portfolio investors such as – I. appropriately regulated funds not eligible as Category-I foreign portfolio investor; II. endowments and foundations; III. charitable organisations; IV. corporate bodies; V. family offices; VI. individuals; VII. appropriately regulated entities investing on behalf of their client, as per conditions specified by the Board from time to time; VIII. Unregulated funds in the form of limited partnership and trusts. Explanation: An applicant incorporated or established in an International Financial Services Centre shall be deemed to be appropriately regulated. C. ALTERNATIVE INVESTMENT FUNDS According to SEBI (AIF) Regulations, 2012, “Alternative Investment Fund” means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which,- I. is a privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors; and II. is not covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of SEBI to regulate fund management activities. However, the following shall not be considered as Alternative Investment Fund for the purpose of these regulations; I. Family trusts set up for the benefit of ‘relatives’ as defined under Companies Act, 2013. II. ESOP Trusts set up under the SEBI (Shares Based Employee Benefits) Regulations, 2014 or as permitted under Companies Act, 2013. III. Employee welfare trusts or gratuity trusts set up for the benefit of employees. IV. Holding companies within the meaning of Section 2(46) of the Companies Act, 2013. V. Other special purpose vehicles not established by fund managers, including securitization trusts, regulated under a specific regulatory framework. VI. Funds managed by securitisation company or reconstruction company which is registered with the Reserve Bank of India under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. VII. Any such pool of funds which is directly regulated by any other regulator in India. Thus, the definition of AIFs includes venture capital fund, hedge funds, private equity funds, commodity funds, Debt Funds, infrastructure funds, etc., while, it excludes Mutual funds or collective investment schemes, family trusts, employee benefit schemes, employee welfare trusts or gratuity trusts, ‘holding companies’ within the meaning of Section 2(46) of the Companies Act, 2013, securitization trusts regulated a specific regulatory framework, and funds managed by securitization company or reconstruction company which is registered with the RBI under Section 3 of CAPITAL MARKET AND SECURITIES LAW SHUBHAMM SUKHLECHA (CA, CS, LLM) the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. One AIF can float several schemes. Investors in these funds are large institutions, high net worth individuals and corporates. In India, AIF is regulated by the SEBI (Alternative Investment Funds) Regulations, 2012. 1.7  CHAPTER 1 - BASICS OF CAPITAL MARKET Categories of Alternative Investment Funds  Category I: which invests in start-up or early stage ventures or social ventures or SMEs or infrastructure or other sectors or areas which the government or regulators consider as socially or economically desirable and shall include venture capital funds (VCF), SME Funds, social venture funds (SVF), infrastructure funds and such other Alternative Investment Funds as may be specified;  Category II: which does not fall in Category I and III and which does not undertake leverage or borrowing other than to meet day-today operational requirements and as permitted in these regulations;  Category III: which employs diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives D. VENTURE CAPITAL Venture Capital is one of the innovative financing resource for a company in which the promoter has to give up some level of ownership and control of business in exchange for capital for a limited period, say, 3-5 years. Venture Capital is generally equity investments made by Venture Capital funds, at an early stage in privately held companies, having potential to provide a high rate of return on their investments. It is a resource for supporting innovation, knowledge- based ideas and technology and human capital-intensive enterprises. “Venture Capital Fund” means an Alternative Investment Fund which invests primarily in unlisted securities of start- ups, emerging or early-stage venture capital undertakings mainly involved in new products, new services, technology or intellectual property right based activities or a new business model and shall include an angel fund. Essentially, a venture capital company is a group of investors who pool investments focused within certain parameters. The participants in venture capital firms can be institutional investors like pension funds, insurance companies, foundations, corporations or individuals but these are high risk investments which may give high returns or high loss. Areas of Investment Different venture groups prefer different types of investments. Some specialize in seed capital and early expansion while others focus on exit financing. Biotechnology, medical services, communications, electronic components and software companies seem to be the most likely attraction of many venture firms and receiving the most financing. Venture capital firms finance both early and later stage investments to maintain a balance between risk and profitability. In India, software sector has been attracting a lot of venture finance. Besides media, health and pharmaceuticals, agri-business and retailing are the other areas that are favoured by a lot of venture companies. E. PRIVATE EQUITY Private equity is a type of equity (finance) and one of the asset classes who takes securities and debt in operating companies that are not publicly traded on a stock exchange. Private equity is essentially a way to invest in some assets that isn’t publicly traded, or to invest in a publicly traded asset with the intention of taking it private. As a source of investment capital, private equity comes from High Net-worth Individuals (HNI) & firms that purchase stakes in private companies or acquire control of public companies with plans to make them private & consequently delist from the stock exchange. Unlike stocks, mutual funds, and bonds, private equity funds usually invest in more illiquid assets companies. By purchasing companies, the firms gain access to those assets and revenue sources of the company, which can lead to very high returns on investments. Another feature of private equity transactions is their extensive use of debt in the form of high-yield bonds. By using debt to finance acquisitions, private equity firms can substantially increase their financial returns. CAPITAL MARKET AND SECURITIES LAW SHUBHAMM SUKHLECHA (CA, CS, LLM) Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies. Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet. The major of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time. 1.8  CHAPTER 1 - BASICS OF CAPITAL MARKET Types of Private Equity Private equity investments can be divided into the following categories: Leveraged Buyout (LBO): This refers to a strategy of making equity investments as part of a transaction in which a company, business unit or business assets is acquired from the current shareholders typically with the use of financial leverage. The companies involved in these type of transactions that are typically more mature and generate operating cash flows. Venture Capital: It is a broad sub-category of private equity that refers to equity investments made, typically in less mature companies, for the launch, early development, or expansion of a business. Growth Capital: This refers to equity investments, mostly minority investments, in the companies that are looking for capital to expand or restructure operations, enter new markets or finance a major acquisition without a change of control of the business. F. ANGEL FUND Angel fund refers to money pool created by high networth individuals or companies (generally known as Angel Investor), for investing in start up business. Angel fund is defined in SEBI (Alternate Investment Funds) (amendment) Regulations, 2013 as a sub-category of Venture Capital Fund under category I-AIF that raises funds from angel investors and invests in accordance with rugulations specified by SEBI. An angel investor or angel (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors invest online through equity crowd funding or organize themselves into angel groups or angel networks to share research and pool their investment capital, as well as to provide advice to their portfolio companies. Angel investments are typically the earliest equity investments made in start-up companies. They commonly band together in investor networks. Often these networks are based on regional, industry investor or academic affiliation. G. ANCHOR INVESTORS Anchor investor means a Qualified Institutional Buyer (QIB) who makes an application for a value of at least 10 crore rupees in a public issue on the main board made through the book building process or makes an application for a value of atleast ` 2 crore for an public issue on the SME exchange made in accordance with Chapter IX of the SEBI (ICDR) Regulations, 2018. Allocation to anchor investors shall be on a discretionary basis and subject to the following: (I) In case of public issue on the main board, though the book building process: I. Maximum of 2 such investors shall be permitted for allocation upto Rs. 10 crore. II. Minimum of 2 and maximum of 15 such investors shall be permitted for allocation above Rs. 2 crore and upto Rs. 25 crore, subject to minimum allotment of Rs. 1 crore per such investor. III. In case of allocation above Rs. 25 crore; a minimum of 5 such investors and a maximum of 15 such investors for allocation upto Rs. 25 crore and an additional 10 such investors for every additional Rs. 25 crore or part thereof, shall be permitted, subject to a minimum allotment of Rs. 1 crore per such investor. (II) In case of public issue on the SME exchange, through the book building process: i. Maximum of 2 such investors shall be permitted for allocation up to two crore rupees; ii. Minimum of 2 and maximum of 15 such investors shall be permitted for allocation above 2 crore rupees and up to Rs. 25 crore rupees, subject to minimum allotment of Rs. 1 crore rupees per such investor; iii. In case of allocation above Rs. 25 crore rupees; a minimum of 5 such investors and a maximum of 15 such CAPITAL MARKET AND SECURITIES LAW SHUBHAMM SUKHLECHA (CA, CS, LLM) investors for allocation up to Rs. 25 crore rupees and an additional 10 such investors for every additional 25 crore rupees or part thereof, shall be permitted, subject to a minimum allotment of Rs. 1 crore rupees per such investor. The bidding for anchor investors shall open one day before the issue opening date allocation to Anchor Investors shall be completed on the day of bidding by Anchor Investors. Shares allotted to the Anchor Investor shall be lockedin for 30 days from the date of allotment in the public issue. Upto 60% of the portion available for allocation to QIB shall be 1.9  CHAPTER 1 - BASICS OF CAPITAL MARKET available to anchor investor(s) for allocation/ allotment (“anchor investor portion”) and one-third of the anchor investor portion shall be reserved for domestic mutual funds. H. HIGH NET WORTH INDIVIDUALS HNIs or high net worth individuals is a class of individuals who are distinguished from other retail segment based on their net wealth, assets and investible surplus. While there is no standard put forth for the classification, the definition of HNIs varies with the geographical area as well as financial markets and institutions. Though there is no specific definition, generally in the Indian context, individuals with over Rs. 2 crore investible surplus may be considered to be HNIs while those with investible wealth in the range of Rs. 25 lac – Rs. 2 crore may be deemed as Emerging HNIs. I. PENSION FUND Pension Fund means a fund established by an employer to facilitate and organize the investment of employees’ retirement funds which is contributed by the employer and employees. The pension fund is a common asset pool meant to generate stable growth over the long term, and provide pensions for employees when they reach the end of their working years and commence retirement. Pension funds are commonly run by some sort of financial intermediary for the company and its employees like National Pension Scheme (NPS) is managed by UTIAMC (Retirement Solutions), although some larger corporations operate their pension funds in-house. Pension funds control relatively large amounts of capital and represent the largest institutional investors in many nations. Pension funds play a huge role in development of the economy and it play active role in the Indian equity market. This pension fund ensures a change in their investment attitudes and in the regulatory climate, encouraging them to increase their investment levels in equities and would have a massive impact on capital market and on the economy as a whole. Legislations There are three defining Acts for pensions in India: 1. Pensions under the EPF & MP Act 1952: These include the Employees, Provident Fund, Employees, Pension Scheme, and Employees, Deposit Linked Insurance Scheme. 2. Pensions under the Coal mines PF & MP Act 1948: These include Coal mines provident fund, Coal mines pension scheme & Coal mines linked insurance scheme. 3. Gratuity under the Payment of Gratuity Act, 1972: There are other provident funds in India like Assam Tea Plantations PF, J&K PF, and Seamens PF etc Pensions broadly divided into two sector:  A-Formal sector Pensions: Formal sector pensions in India can be divided into three categories; viz pensions under an Act or Statute, Government pensions and voluntary pensions.  B-Informal sector Pensions : This scheme will cover unorganized workers who are working or engaged as home based workers, street vendors, agriculture workers, construction workers, among others. CAPITAL MARKET INSTRUMENTS A. EQUITY SHARES Equity shares, commonly referred to as ordinary share also represents the form of fractional ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holder of such shares is the member of the company and has voting rights. CAPITAL MARKET AND SECURITIES LAW SHUBHAMM SUKHLECHA (CA, CS, LLM) According to explanation (i) to Section 43 of Companies Act, 2013 ‘‘equity share capital’’, with reference to any company limited by shares, means all share capital which is not preference share capital. Section 43 further provides for equity share capital (i) with voting rights, or (ii) with differential rights as to dividend, voting or otherwise in accordance with such rules as may be prescribed. Equity capital and further issues of equity capital by a company are generally based on the condition that they will rank pari passu along with the earlier issued share capital in all respects. However, as regards dividend declared by the 1.10  CHAPTER 1 - BASICS OF CAPITAL MARKET company such additional capital shall be entitled to dividend ratably for the period commencing from the date of issue to the last day of the accounting year, unless otherwise specified in the articles or in the terms of the issue. Important Characteristics a) Equity shares, have voting rights at all general meetings of the company. These votes have the affect of controlling the management of the company. b) Equity shares have the right to share the profits of the company in the form of dividend (cash) and bonus shares. However, even equity shareholders cannot demand declaration of dividend by the company which is left to the discretion of the Board of Directors. c) When the company is wound up, payment towards the equity share capital will be made to the respective shareholders only after payment of the claims of all the creditors and the preference share capital B. SHARES WITH DIFFERENTIAL VOTING RIGHTS Shares with differential voting rights (“DVR”) refer to equity shares holding differential rights as to dividend and/ or voting. Section 43 (a) (ii) of the Companies Act, 2013 allows a company limited by shares to issue DVRs as part of its share capital. Introduced for the first time in 2000 and issued by Tata Motors first, DVRs are seen as a viable option for raising investments and retaining control over the company at the same time Section 43(2) of the Companies Act 2013 read with Companies ( Share Capital & Debenture) Rules, 2013 provides that companies can issue equity shares with differential rights subject to the following conditions including:  Articles of association of the company must authorize the issue;  The voting power in respect of shares with differential rights of the Company shall not exceed 74% of total voting power including voting power in respect of equity shares with differential rights issued at any point of time;  Approval of shareholders by passing ordinary resolution in General Meeting;  The Company should not have defaulted in:  filing annual returns and financial statements for the last three years;  repayment of matured deposits or declared dividend;  redemption of its preference shares/debentures which are due for redemption;  repayment of term loan taken from any public financial institution or state level financial institution or from a scheduled bank that has become due and payable;  statutory dues of the employees of the company. C. PREFERENCE SHARES Preference shares are that part of a company’s share capital which carry a preferential right to:  dividend at a fixed rate or amount; and  repayment of capital in case of winding-up of the company. Preference shares enjoy a preferential right to dividend and repayment of capital in case of winding-up of the company. Governed by the provisions of Section 55 of the Companies Act, the main drawback of preference shares is that they carry limited voting rights. Generally, an equity share confers on its holder a right to vote on all resolutions that require shareholder approval under the Act, any other law, or the articles of association of the company. A preference share carries voting rights only with respect of matters which directly affect the rights of the preference shareholders. In this regard, the Act clarifies a resolution relating to winding-up and repayment or reduction of capital is deemed to directly affect the rights of the preference shareholders. Due to these limitations on voting rights, a preference CAPITAL MARKET AND SECURITIES LAW SHUBHAMM SUKHLECHA (CA, CS, LLM) shareholder does not have much control over the company. However, a preference shareholder may acquire voting rights on par with an equity shareholder if the dividend on preference shares is in arrears. 1.11  CHAPTER 1 - BASICS OF CAPITAL MARKET D. DEBENTURES Section 2(30) of the Companies Act, 2013 defines debentures. “Debenture” includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not. However, a) the instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934; and b) such other instrument, as may be prescribed by the Central Government in consultation with the Reserve Bank of India, issued by a company, shall not be treated as debenture. The important features of a debenture are: 1. It is issued by a company as a certificate of indebtedness. 2. It usually indicates the date of redemption and also provides for the repayment of principal and payment of interest at specified date or dates. 3. In case of secured debentures, it creates a charge on the undertaking or the assets of the company. 4. Debentures holders do not have any voting rights. 5. Company shall pay interest, irrespective of profits. 6. While issuance of debentures, the company shall ensure that the parameters for designation of deposits under Companies (Acceptance of Deposits) Rules, 2014 are not triggered. Categories of Debentures Based on convertibility, debentures can be classified under three categories:  Fully Convertible Debentures (FCDs) : These are converted into equity shares of the company with or without premium as per the terms of the issue, on the expiry of specified period or periods. If the conversion is to take place at or after eighteen months from the date of allotment but before 36 months, the conversion is optional on the part of the debenture holders in terms of SEBI (ICDR) Regulations. Interest will be payable on these debentures upto the date of conversion as per transfer issue.  Non Convertible Debentures (NCDs) : These debentures do not carry the option of conversion into equity shares and are therefore redeemed on the expiry of the specified period or periods. The issuer is required to list its Public issue of NCDs on stock exchange as per SEBI (Issue and Listing of Debt Securities) Regulations, 2008. NCDs can be also issued on private placement basis.  Partly Convertible Debentures (PCDs) : These may consist of two kinds namely-convertible and nonconvertible. The convertible portion is to be converted into equity shares at the expiry of specified period. However, the non- convertible portion is redeemed at the expiry of the stipulated period. If the conversion takes place at or after 18 months, the conversion is optional at the discretion of the debenture holder. Optionally Fully Convertible Debenture (OFCD) The Optionally Fully Convertible Debenture is a kind of debenture which can be converted into shares at the expiry of a certain period at a predetermined price, if the debt holder (investor) wishes to do so. The “securities” as defined u/s 2(81)) of Companies Act, 2013 means securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956, and includes hybrids. Hence after analysing the above definition of “OFCD”, “hybrid” and “securities” it could be rightly concluded that an OFCD being a hybrid security falls under the definition of “securities” as defined u/s 2 (h) of securities Contract (Regulation) Act, 1956 and u/s 2(81) of Companies Act, 2013 as it inherits the characteristics of debentures initially and also that of the shares at a later stage if the option to convert the securities into shares being exercised by the security holder. [This section has been discussed in Lesson CAPITAL MARKET AND SECURITIES LAW SHUBHAMM SUKHLECHA (CA, CS, LLM) No. 6 of Company Law Subject (Executive Programme)] E. BONDS Bonds are the debt security where an issuer is bound to pay a specific rate of interest agreed as per the terms of payment and repay principal amount at a later time. The bond holders are generally like a creditor where a company 1.12  CHAPTER 1 - BASICS OF CAPITAL MARKET is obliged to pay the amount. The amount is paid on the maturity of the bond period. Generally these bonds duration would be for 5 to 10 years. Characteristics of a Bond 1. Bond has a fixed face value, which is the amount to be returned to the investor upon maturity. 2. Fixed maturity date, which can range from a few days to 20-30 years or even more. 3. All bonds repay the principal amount after the maturity date. 4. Provides regular payment of interest, semi-annually or annually. 5. Interest is calculated as a certain percentage of the face value known as a ‘coupon payment’. 6. Generally considered as less risky investment as compared to equity. 7. It helps to diversify and grow investor’s money. Types of Bonds 1. Government Bonds: These are the bonds issued either directly by Government of India or by the Public Sector Undertakings (PSU's) in India. These bonds are secured as they are backed up with security from Government. These are generally offered with low rate of interest compared to other types of bonds. 2. Corporate Bonds: These are the bonds issued by the private corporate companies. Indian corporates issue secured or non secured bonds. However care to be taken to consider the credit rating given by Credit Rating Agencies before investing in these bonds. 3. Banks and other financial Institution Bonds: These bonds are issued by banks or any financial institution. The financial market is well regulated and the majority of the bond markets are from this segment. 4. Tax Saving Bonds: In India, the tax saving bonds are issued by the Government of India for providing benefit to investors in the form of tax savings. Along with getting normal interest, the bond holder would also get tax benefit. In India, all these bonds are listed in National Stock Exchange and Bombay Stock Exchange in India, hence they can be easily liquidated and sold in the open market. F. FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBS) ‘Foreign Currency Convertible Bond’ (FCCB) means a bond issued by an Indian company expressed in foreign Currency, and the principal and interest in respect of which is payable in foreign currency. The FCCBs are unsecured instruments which carry a fixed rate of interest and an option for conversion into a fixed number of equity shares of the issuer company. Interest and redemption price (if conversion option is not exercised) is payable in dollars. FCCBs shall be denominated in any freely convertible Foreign Currency. However, it must be kept in mind that FCCB, issue proceeds need to conform to ECB end use requirements. Foreign investors also prefer FCCBs because of the Dollar denominated servicing, the conversion option and, the arbitrage opportunities presented by conversion of the FCCBs into equity shares at a discount on prevailing Indian market price. In addition, 25% of the FCCB proceeds can be used for general corporate restructuring. G. FOREIGN CURRENCY EXCHANGEABLE BONDS (FCEBS) The FCEB is used to raise funds from the international markets against the security and exchangeability of shares of another company. Foreign Currency Exchangeable Bond (FCEB) means –  l A bond expressed in foreign currency.  l The principal and the interest in respect of which is payable in foreign currency.  l Issued by an issuing company, being an Indian company. CAPITAL MARKET AND SECURITIES LAW SHUBHAMM SUKHLECHA (CA, CS, LLM)  l Subscribed by a person resident outside India.  l Exchangeable into equity shares of another company, being offered company which is an Indian company. Either wholly or partly or on the basis of any equity related warrants attached to debt instruments. It may be noted that issuing company to be the part of promoter group of offer or company and the offeror company is to be listed and is to be eligible to receive foreign investment. Under this option, an issuer company may issue FCEBs 1.13  CHAPTER 1 - BASICS OF CAPITAL MARKET in foreign currency, and these FCEBs are convertible into shares of another company (off company) that forms part of the same promoter group as the issuer company. H. INDIAN DEPOSITORY RECEIPTS According to Section 2(48) of the Companies Act, 2013 “Indian Depository Receipt” means any instrument in the form of a depository receipt created by a domestic depository in India and authorized by a company incorporated outside India making an issue of such depository receipts. An IDR is an instrument denominated in Indian Rupee in the form of a depository receipt created by a domestic depository (Custodian of securities registered with SEBI) against the underlying equity of issuing company to enable foreign companies to raise funds from Indian Securities Markets. In an IDR, foreign companies would issue shares, to a domestic (Indian) depository, which would in turn issue depository receipts to investors in India. The actual shares underlying the IDRs would be held by an Overseas Custodian, which shall authorize the Indian depository to issue the IDRs. To that extent, IDRs are derivative instruments because they derive their value from the underlying shares. Standard Chartered PLC is only company to offer IDR in the Indian market. The foreign company issuing IDRs need to comply with the requirements of rules prescribed under Companies Act, SEBI Regulations and RBI notifications/ circulars. I. DERIVATIVES A derivative is a financial instrument that derives its value from an underlying asset. This underlying asset can be stocks, bonds, currency, commodities, metals and even intangible, assets like stock indices. Derivatives can be of different types like futures, options, swaps, caps, floor, collars etc. The most popular derivative instruments are futures and options. The term Derivative has been defined in Securities Contracts (Regulations) Act, as:- Derivative includes: - a) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; b) a contract which derives its value from the prices, or index of prices, of underlying securities; c) commodity derivatives; and d) such other instruments as may be declared by the Central Government to be derivatives. J. WARRANT Warrant means an option issued by a company whereby the buyer is granted the right to purchase a number of shares (usually one) of its equity share capital at a given exercise price during a given period. The holder of a warrant has the right but not the obligation to convert them into equity shares. Thus in the true sense, a warrant signifies optional conversion. In case the investor benefits by conversion of warrant, then he will convert the warrants, else he may simply let the warrant lapse. The companies listed on the Exchange can issue warrants in accordance with SEBI (ICDR) Regulations, 2018. K. REAL ESTATE INVESTMENT TRUSTS (‘REITS’) A real estate investment trust (“REIT”) is a collective investment scheme that owns, operates or finances income producing real estate. REITs provide all investors the chance to own valuable real estate, present the opportunity to access dividend-based income and total returns, and help communities grow, thrive, and revitalize. REITs allow anyone to invest in portfolios of real estate assets the same way they invest in other industries – through the purchase of individual company stock or through a mutual fund or exchange traded fund (ETF). The stockholders of a REIT earn a CAPITAL MARKET AND SECURITIES LAW SHUBHAMM SUKHLECHA (CA, CS, LLM) share of the income produced through real estate investment – without buying any finance property. Benefits of REITs include:  Less Capital Intensive: Direct investment in real estate property is very capital intensive. But each shares of REITs will be comparatively more affordable (it will not require large capital outflows).  Suitable for small Investors: Investing through REITs will eliminate dealing with builders, thereby avoiding potential exposure to big builders. 1.14  CHAPTER 1 - BASICS OF CAPITAL MARKET  Transparency: REITs stocks are listed in stock market, hence details will be available on public domain.  Assured Dividends: REITs generates income in form of dividend. REITs dividend payment is relatively assured as most of their income is in the form of rental (lease) income.  Tax Free: Dividend earned by the investors of REIT will be tax free.  Fast Capital Appreciation: Capital appreciation can be phenomenal.  Easy to buy: Investment in REITS easier than investment in Real Estate properties L. INFRASTRUCTURE INVESTMENT TRUSTS (‘INVITS’) Considering the importance of infrastructure sector with an aim to provide a suitable platform for financing / refinancing infrastructure projects and allow the investors to participate in the growth story of infrastructure, the Government introduced a new investment vehicle named Infrastructure Investment Trusts (‘InvITs’) in 2014. The primary objective of InvITs is to promote the infrastructure sector of India by encouraging more individuals to invest in it. Typically, such a tool is designed to pool money from several investors to be invested in income-generating assets. The cash flow thus generated is distributed among investors as dividend income. When compared to Real Estate Investment Trust or REITs, the structure and operation of both are quite similar. An InvIT is established as a trust and is registered with the SEBI. Typically, infrastructure investment trust SEBI comprises 4 elements, namely –  Trustee : They are required to be registered with SEBI as debenture trustees. Also, they are required to invest at least 80% into infra assets that generate steady revenue.  Sponsor : Typically, a body corporate, LLP, promoter or a company with a net worth of at least ` 100 crore classifies as a sponsor. Further, they must hold at least 15% of the total InvITs with a minimum lock-in period of 3 years or as notified by any regulatory requirement. When it comes to a public-private partnership or PPP projects, sponsors serve as a Special Purpose Vehicle (SPV).  Investment manager : As a body corporate of LLP, an investment manager supervises all the operational activities surrounding InvITs.  Project manager : The authority is mostly responsible for executing projects. However, in the case of PPP projects, it serves as an entity that also supervises ancillary responsibilities. M. SECURITIZED DEBT INSTRUMENTS Securitized debt instruments are financial securities that are created by securitizing individual loans (debt). Securitization is a financial process that involves issuing securities that are backed by assets, most commonly debt. The assets are transformed into securities, and the process is called securitization. The owner of the securities receives an income from the underlying assets; hence, the term asset-backed securities. Securitized debt instruments come with various advantages over conventional forms of investing and are more valuable to a portfolio. One of the most common types of securitized debt is mortgage-backed securities. Securitized debts can lower interest rates and free up capital for the bank, but they can also encourage lending for reasons other than making a profit. SEBI had laid down the framework for public offer and listing of securitized debt instruments vide SEBI (Public Offer and Listing of Securitized Debt Instruments) Regulations, 2008 and had specified listing agreement for Securitized Debt Instruments. A few privately placed SDIs have already been listed on exchanges. N. MUNICIPAL BONDS Municipal bonds are also referred to as ‘muni bonds’. The urban local government and agencies issue these bonds. Municipal bonds are issued when a government body wants to raise funds for projects such as infra-related, roads, airports, railway stations, schools, and so on. SEBI issued guidelines in 2015 for the urban local bodies to raise funds CAPITAL MARKET AND SECURITIES LAW SHUBHAMM SUKHLECHA (CA, CS, LLM) by issuing municipal bonds. Municipal bonds exist in India since the year 1997. Bangalore Municipal Corporation is the first urban local body to issue municipal bonds in India. Ahmedabad followed Bangalore in the succeeding years. The municipal bonds lost the ground after the initial investors’ attraction it received and failed to raise the desired amount of funds. To revive the municipal bonds, SEBI came up with guidelines for the issue of municipal bonds in 2015. Municipality should meet the following eligibility criteria to issue municipal bonds in India:  The municipality must not have a negative net worth in each of the three previous years. 1.15  CHAPTER 1 - BASICS OF CAPITAL MARKET  The municipality must have no default in the repayment of debt securities and loans availed from the banks or non-banking financial companies in the last year.  The municipality, promoter and directors must not be enlisted in the willful defaulters published by the Reserve Bank of India (RBI). The municipality should have no record of default in the payment of interest and repayment of principal with respect to debt instruments. CAPITAL MARKET AND SECURITIES LAW SHUBHAMM SUKHLECHA (CA, CS, LLM) 1.16  CHAPTER 2 - SECONDARY MARKET IN INDIA CHAPTER 2 - SECONDARY MARKET IN INDIA STOCK EXCHANGE Stock exchange is a market place for buying and selling of securities and ensuring liquidity to them in the interest of the investors. The stock exchanges are virtually the nerve center of the capital market and reflect the health of the country’s economy as a whole. The Securities Contracts (Regulation) Act, 1956, has defined Stock Exchange as: a) any body of individuals, whether incorporated or not, constituted before corporatization and demutualization under Sections 4A and 4B, or b) a body corporate incorporated under the Companies Act, 2013 whether under a scheme of corporatization and demutualization or otherwise, for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities. Stock exchange as an organized security market provides marketability and price continuity for shares and helps in a fair evaluation of securities in terms of their intrinsic worth. Thus it helps orderly flow and distribution of savings between different types of investments. Role of Stock Exchanges  Acts as a continuous market for securities: Investors can invest in any securities, b