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Unit 14: Financial Regulations

7. Companies making their first public issue are eligible to do only if they have three years Notes
of dividend paying track record preceding an issue. Those not meeting this requirement
can still make an issue if their projects are appraised by banks or financial institutions
with minimum 10 percent participation in the equity capital of the issuer, or if their
securities are listed on the OTCEI.
8. Private placement of non-transferable shares of promoters and directors was prohibited
as also the sale of shares under discount to institutions and mutual funds, etc.

9. There must be a gap of 12 months between the public or right issue and bonus issue. The
promoters should bring in their share capital before the public issue.
10. The reservation for employees should not be more than 10% at present and this quota is
non-transferable for 3 years and subject to a maximum allotment of 200 shares per
employee.

Measures in Secondary Market

1. The SEBI has been carrying out inspection of all the stock exchanges to determine, inter
alia, the extent of compliance with its directives.
2. Computerized or scree-based trading has been achieved on all exchanges.
3. Corporate membership allowed, and encouraged and articles of association of the stock
exchanges amended so as to increase their membership.
4. All the stock exchanges have been directed to establish either a clearing house or clearing
corporation.
5. Demat forum of trading was made compulsory in many scrips.
6. Rolling settlement on T+2 system for all listed securities across the stock exchanges.
7. By the Securities Amendment Act, 1999 ban on forward trading was lifted. Trading in
derivatives was allowed and derivatives were made securities eligible for trading. Mutual
funds and financial institutions were allowed trading in derivatives for hedging purpose.
In November 29, 2007, the SEBI approved derivative products to mini contracts on equity
indices, options with longer tenure, volatility index and futures and options contracts,
exchange traded currency futures and options.
8. Created the facility of depository in all stock exchanges, thus, providing for the
establishment of depositories in securities with the objective of ensuring free transferability
of securities, its speed, accuracy and security.
9. Directed the stock exchanges to set up service centres for investors to enable them to have
a forum for recording and counselling their grievances as well as access to financial and
other information of companies and government policies, rules and regulations, etc.

10. The capital adequacy norms of 3 percent for individual brokers and 6 percent for corporate
brokers introduced.
11. Compulsory audit of the brokers' books and filing of the audit report with the SEBI has
been made mandatory.
12. A system of market making in less liquid scrips on selected stock exchanges has been
introduced.
13. Insider trading has been prohibited and such trading has been made a criminal offence.
14. The SEBI lifted ban on forward trading in securities.

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