DTSi

DTSi is Digital Twin Spark Ignition

this is the technology used by bajaj in the famous pulser model and later in others


This technology consists of two spark plugs in the single cylinder engine to cater for higher power needs

expiry of LPG cylinders

expired LPG cylinders are dangerous to use and they may cause accidents.On one of the three stems of the cylinder, the expiry date is coded as A,B,C and D followed by some 2 digit no. Ex. D06. the alphabet stand for different quarter of the year.

A-first quarter
B-second quarter
C-third quarter
D-last quarter

the digit shows the year 06 means 2006

D06 means the cylinder life is up to Dec 2006.

expiry of Tyres

Tyres have a four year validity period from the date of manufacture. A stamp like *2507* asterisk at the beginning and end of the serial number.
First two numbers represent week of the year in which tyre was manufactured.
*2507* means the tyre was manufactured in the 25 th week of the year 2007. The expiry date will the the 25 th week of 2011.

communication and war

information about secondary markets

FREQUENTLY ASKED QUESTIONS

ON

SECONDARY MARKET





Disclaimer: These FAQs are not the interpretation of law but provide only a simplistic explanation of terms /concepts related to Secondary market. SEBI does not certify the authenticity of the information present in this section. All information has been updated till March 31, 2006. For full particulars of laws governing the secondary markets, please refer to the Acts/Regulations/Guidelines/Circulars appearing under the Legal Framework Section.



Some of the Questions for FAQs may be as follows:

1. Understanding “Financial Markets”

2. Understanding “Role of SEBI in the secondary market”

3. Who is a broker and sub-broker?

4. What is MAPIN?

5. What is margin trading facility?

6. What is securities lending and borrowing scheme?



Understanding Financial Markets



1. What are the various types of financial markets?



The financial markets can broadly be divided into money and capital market.



Money Market: Money market is a market for debt securities that pay off in the short term usually less than one year, for example the market for 90-days treasury bills. This market encompasses the trading and issuance of short term non equity debt instruments including treasury bills, commercial papers, bankers acceptance, certificates of deposits, etc.



Capital Market: Capital market is a market for long-term debt and equity shares. In this market, the capital funds comprising of both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges. Capital market can be further divided into primary and secondary markets.



2. What is meant by the Secondary Market?



Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets.



For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduit—by facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions.



3. What is the difference between the primary market and the secondary market?



In the primary market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary market is an equity trading avenue in which already existing/pre- issued securities are traded amongst investors. Secondary market could be either auction or dealer market. While stock exchange is the part of an auction market, Over-the-Counter (OTC) is a part of the dealer market.



SEBI and its Role in the Secondary Market



4. What is SEBI and what is its role?



The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto.



5. What are the various departments of SEBI regulating trading in the secondary market?



The following departments of SEBI take care of the activities in the secondary market.

Sr.No.


Name of the Department


Major Activities

1.


Market Intermediaries Registration and Supervision department (MIRSD)


Registration, supervision, compliance monitoring and inspections of all market intermediaries in respect of all segments of the markets viz. equity, equity derivatives, debt and debt related derivatives.

2.


Market Regulation Department (MRD)


Formulating new policies and supervising the functioning and operations (except relating to derivatives) of securities exchanges, their subsidiaries, and market institutions such as Clearing and settlement organizations and Depositories (Collectively referred to as ‘Market SROs’.)

3.


Derivatives and New Products Departments (DNPD)


Supervising trading at derivatives segments of stock exchanges, introducing new products to be traded, and consequent policy changes



Products available in the Secondary Market



6. What are the products dealt in the secondary markets?



Following are the main financial products/instruments dealt in the secondary market:



Equity: The ownership interest in a company of holders of its common and preferred stock. The various kinds of equity shares are as follows –



Equity Shares:



An equity share, 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 holders of such shares are members of the company and have voting rights. A company may issue such shares with differential rights as to voting, payment of dividend, etc.



* Rights Issue/ Rights Shares: The issue of new securities to existing shareholders at a ratio to those already held.



* Bonus Shares: Shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years.



* Preferred Stock/ Preference shares: Owners of these kind of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the company’s creditors, bondholders / debenture holders.



* Cumulative Preference Shares. A type of preference shares on which dividend accumulates if remains unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares.



* Cumulative Convertible Preference Shares: A type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company.



* Participating Preference Share: The right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for is paid. Participation right is linked with the quantum of dividend paid on the equity shares over and above a particular specified level.



· Security Receipts: Security receipt means a receipt or other security, issued by a securitisation company or reconstruction company to any qualified institutional buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right, title or interest in the financial asset involved in securitisation.



· Government securities (G-Secs): These are sovereign (credit risk-free) coupon bearing instruments which are issued by the Reserve Bank of India on behalf of Government of India, in lieu of the Central Government's market borrowing programme. These securities have a fixed coupon that is paid on specific dates on half-yearly basis. These securities are available in wide range of maturity dates, from short dated (less than one year) to long dated (upto twenty years).



· Debentures: Bonds issued by a company bearing a fixed rate of interest usually payable half yearly on specific dates and principal amount repayable on particular date on redemption of the debentures. Debentures are normally secured/ charged against the asset of the company in favour of debenture holder.



· Bond: A negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan. The various types of Bonds are as follows-



Ø Zero Coupon Bond: Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond.



Ø Convertible Bond: A bond giving the investor the option to convert the bond into equity at a fixed conversion price.



· Commercial Paper: A short term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary. It is usually issued by companies with a high credit standing in the form of a promissory note redeemable at par to the holder on maturity and therefore, doesn’t require any guarantee. Commercial paper is a money market instrument issued normally for a tenure of 90 days.



· Treasury Bills: Short-term (up to 91 days) bearer discount security issued by the Government as a means of financing its cash requirements.



7. What are the regulatory requirements specified by SEBI for corporate debt securities?



The issue of debt securities having maturity period of more than 365 days by listed companies (i.e. which have any of their securities, either equity or debt, offered through an offer document, and listed on a recognized stock exchange and also includes Public Sector Undertakings whose securities are listed on a recognized stock exchange) on private placement basis must comply with the conditions prescribed by SEBI from time to time for getting them listed on the stock exchanges. Further, unlisted companies/statutory corporations/other entities, if they so desire, may get their privately placed debt securities listed on the stock exchanges, by complying with the relevant conditions. Briefly, these conditions are:



Ø Compliance with disclosure requirements under Chapter VI of the SEBI (Disclosure and Investor Protection) Guidelines, 2000, Listing Agreement with the exchanges and provisions of the Companies Act.



Ø Such disclosures may be made through the web site of the stock exchanges where the debt securities are sought to be listed if the privately placed debt securities are issued in the standard denomination of Rs. 10 lakhs.



Ø The company shall sign a separate listing agreement with the exchange in respect of debt securities.



Ø The debt securities shall carry a credit rating from a Credit Rating Agency registered with SEBI.



Ø The company shall appoint a debenture trustee registered with SEBI in respect of the issue of the debt securities.



Ø The debt securities shall be issued and traded in demat form.



Ø All trades with the exception of spot transactions, in a listed debt security, shall be executed only on the trading platform of a stock exchange.



Role of Broker and Sub-broker in the Secondary Market





8. Whom should I contact for my Stock Market related transactions?



You can contact a broker or a sub broker registered with SEBI for carrying out your transactions pertaining to the capital market.









9. Who is a broker?



A broker is a member of a recognized stock exchange, who is permitted to do trades on the screen-based trading system of different stock exchanges. He is enrolled as a member with the concerned exchange and is registered with SEBI.



10. Who is a sub broker?



A sub broker is a person who is registered with SEBI as such and is affiliated to a member of a recognized stock exchange.



11. How do I know if the broker or sub broker is registered?



You can confirm it by verifying the registration certificate issued by SEBI. A broker's registration number begins with the letters "INB" and that of a sub broker with the letters “INS". For the brokers of derivatives segment, the registration number begins with the letters “INF”. There is no sub-broker in the derivatives segment.



12. Am I required to sign any agreement with the broker or sub-broker?



Yes. For the purpose of engaging a broker to execute trades on your behalf from time to time and furnish details relating to yourself for enabling the broker to maintain client registration form you have to sign the “Member - Client agreement” if you are dealing directly with a broker. In case you are dealing through a sub-broker then you have to sign a ”Broker - Sub broker - Client Tripartite Agreement”. The Model Agreement between Broker-Client / Broker -Sub Broker - Client and Know your Client Form can be viewed from SEBI Website at www.sebi.gov.in. Model Tripartite Agreement between Broker-Sub broker and Clients is applicable only for the cash segment. The Model Agreement has to be executed on the non-judicial stamp paper. The Agreement contains clauses defining the rights and responsibility of Client vis-à-vis broker/ sub broker. The documents prescribed are model formats. The stock exchanges/stock broker may incorporate any additional clauses in these documents provided these are not in conflict with any of the clauses in the model document, as also the Rules, Regulations, Articles, Byelaws, circulars, directives and guidelines.



13. What is Member –Client Agreement Form?



This form is an agreement entered between client and broker in the presence of witness where the client agrees (is desirous) to trade/invest in the securities listed on the concerned Exchange through the broker after being satisfied of brokers capabilities to deal in securities. The member, on the other hand agrees to be satisfied by the genuineness and financial soundness of the client and making client aware of his (broker’s) liability for the business to be conducted.



14. What kind of details do I have to provide in Client Registration form?



The brokers have to maintain a database of their clients, for which you have to fill client registration form. In case of individual client registration, you have to broadly provide following information:



· Your name, date of birth, photograph, address, educational qualifications, occupation, residential status(Resident Indian/ NRI/others)

· Unique Identification Number (wherever applicable)

· Bank and depository account details

· Income tax No. (PAN/GIR) which also serves as unique client code.

· If you are registered with any other broker, then the name of broker and concerned Stock exchange and Client Code Number.

· Proof of identity submitted either as MAPIN UID Card/Pan No./Passport/Voter ID/Driving license/Photo Identity card issued by Employer registered under MAPIN



For proof of address (any one of the following):



· Passport

· Voter ID

· Driving license

· Bank Passbook

· Rent Agreement

· Ration Card

· Flat Maintenance Bill

· Telephone Bill

· Electricity Bill

· Certificate issued by employer registered under MAPIN

· Insurance Policy



Each client has to use one registration form. In case of joint names /family members, a separate form has to be submitted for each person.



In case of Corporate Client, following information has to be provided:

· Name, address of the Company/Firm

· Unique Identification Number (wherever applicable)

· Date of incorporation and date of commencement of business.

· Registration number(with ROC, SEBI or any government authority)

· Details of PAN Account Number:

· Details of Promoters/Partners/Key managerial Personnel of the Company/Firm in specified format.

· Bank and Depository Account Details

· Copies of the balance sheet for the last 2 financial years (copies of annual balance sheet to be submitted every year)

· Copy of latest share holding pattern including list of all those holding more than 5% in the share capital of the company, duly certified by the Company Secretary / Whole time Director/MD. (copy of updated shareholding pattern to be submitted every year)

· Copies of the Memorandum and Articles of Association in case of a company / body incorporate / partnership deed in case of a partnership firm

· Copy of the Resolution of board of directors' approving participation in equity / derivatives / debt trading and naming authorized persons for dealing in securities.

· Photographs of Partners/Whole time directors, individual promoters holding 5% or more, either directly or indirectly, in the shareholding of the company and of persons authorized to deal in securities.

· If registered with any other broker, then the name of broker and concerned Stock exchange and Client Code Number.



15. What is meant by Unique Client Code?



In order to facilitate maintaining database of their clients, it is mandatory for all brokers to use unique client code which will act as an exclusive identification for the client. For this purpose, PAN number/passport number/driving License/voters ID number/ ration card number coupled with the frequently used bank account number and the depository beneficiary account can be used for identification, in the given order, based on availability.



16. What is MAPIN?



MAPIN is the Market Participants and Investors Integrated Database. The SEBI (Central Database of Market Participants) Regulations, 2003 were notified on November 20, 2003. As per these regulations, all the participants in the Indian Securities Market viz., SEBI registered intermediaries, listed companies and their associates and the investors would need to get registered and obtain a Unique Identification Number (UIN). The system for allotment of UIN involves the use of biometric impressions for natural persons.



The major objective is creation of a comprehensive database of market participants. Once created, the database would not only help the regulator in establishing the identity of person(s) who have taken large exposures in the market and/or who are trading through a large number of different brokers but also enable the regulator to take adequate risk containment measures such as imposition of margins, trading or exposure limits etc., depending upon the exposures of various investors. Hence, in the event of a failure of market integrity, an immediate audit trail would be possible and the regulator would be able to take early preventive and / or remedial measures and track down the defaulters and / or manipulators.

It has been decided to suspend all fresh registrations for obtaining UIN and the requirement to obtain/quote UIN under the MAPIN Regulations/Circulars with effect from July 01, 2005.

17. What is a risk disclosure document?



In order to acquaint the investors in the markets of the various risks involved in trading in the stock market, the members of the exchange have been required to sign a risk disclosure document with their clients, informing them of the various risks like risk of volatility, risks of lower liquidity, risks of higher spreads, risks of new announcements, risks of rumours etc.



18. How do I place my orders with the broker or sub broker?



You can either go to the broker’s /sub broker’s office or place an order over the phone /internet or as defined in the Model Agreement given above.



19. How do I know whether my order is placed?



The Stock Exchanges assign a Unique Order Code Number to each transaction, which is intimated by broker to his client and once the order is executed, this order code number is printed on the contract note. The broker member has also to maintain the record of time when the client has placed order and reflect the same in the contract note along with the time of execution of the order.



20. What documents should be obtained from broker on execution of trade?



You have to ensure receipt of the following documents for any trade executed on the Exchange:



a. Contract note in Form A to be given within stipulated time.



b. In the case of electronic issuance of contract notes by the brokers, the clients shall ensure that the same is digitally signed and in case of inability to view the same, shall communicate the same to the broker, upon which the broker shall ensure that the physical contract note reaches the client within the stipulated time.



It is the contract note that gives rise to contractual rights and obligations of parties of the trade. Hence, you should insist on contract note from stock broker.















21. What details are required to be mentioned on the Contract note issued by the Stock Broker?



A broker has to issue a contract note to clients for all transactions in the form specified by the stock exchange. The contract note inter-alia should have following:



* Name, address and SEBI Registration number of the Member broker.
* Name of partner /proprietor /Authorised Signatory.
* Dealing Office Address/Tel No/Fax no, Code number of the member given by the Exchange.
* Unique Identification Number
* Contract number, date of issue of contract note, settlement number and time period for settlement.
* Constituent (Client) name/Code Number.
* Order number and order time corresponding to the trades.
* Trade number and Trade time.
* Quantity and Kind of Security brought/sold by the client.
* Brokerage and Purchase /Sale rate are given separately.
* Service tax rates and any other charges levied by the broker.
* Securities Transaction Tax (STT) as applicable.
* Appropriate stamps have to be affixed on the original contract note or it is mentioned that the consolidated stamp duty is paid.
* Signature of the Stock broker/Authorized Signatory.



Contract note provides for the recourse to the system of arbitrators for settlement of disputes arising out of transactions. Only the broker can issue the contract notes.



22. What is the maximum brokerage that a broker/sub broker can charge?



The maximum brokerage that can be charged by a broker has been specified in the Stock Exchange Regulations and hence, it may differ from across various exchanges. As per the BSE & NSE Bye Laws, a broker cannot charge more than 2.5% brokerage from his clients. This maximum brokerage is inclusive of the brokerage charged by the sub-broker. Further, SEBI (Stock brokers and Sub brokers) Regulations, 1992 stipulates that sub broker cannot charge from his clients, a commission which is more than 1.5% of the value mentioned in the respective purchase or sale note.



23. What are the charges that can be levied on the investor by a stock broker/sub broker?



The trading member can charge:



1. Brokerage charged by member broker.

2. Penalties arising on specific default on behalf of client (investor)

3. Service tax as stipulated.

4. Securities Transaction Tax (STT) as applicable.



The brokerage, service tax and STT are indicated separately in the contract note.



24. What is STT?



Securities Transaction Tax (STT) is a tax being levied on all transactions done on the stock exchanges at rates prescribed by the Central Government from time to time. Pursuant to the enactment of the Finance (No.2) Act, 2004, the Government of India notified the Securities Transaction Tax Rules, 2004 and STT came into effect from October 1, 2004.



25. What is an Account Period Settlement?



An account period settlement is a settlement where the trades pertaining to a period stretching over more than one day are settled. For example, trades for the period Monday to Friday are settled together. The obligations for the account period are settled on a net basis. Account period settlement has been discontinued since January 1, 2002, pursuant to SEBI directives.



26. What is a Rolling Settlement?


In a Rolling Settlement trades executed during the day are settled based on the net obligations for the day.


Presently the trades pertaining to the rolling settlement are settled on a T+2 day basis where T stands for the trade day. Hence, trades executed on a Monday are typically settled on the following Wednesday (considering 2 working days from the trade day).


The funds and securities pay-in and pay-out are carried out on T+2 day.

27. What is the pay-in day and pay- out day?



Pay in day is the day when the brokers shall make payment or delivery of securities to the exchange. Pay out day is the day when the exchange makes payment or delivery of securities to the broker. Settlement cycle is on T+2 rolling settlement basis w.e.f. April 01, 2003. The exchanges have to ensure that the pay out of funds and securities to the clients is done by the broker within 24 hours of the payout. The Exchanges will have to issue press release immediately after pay out.











28. What are the prescribed pay-in and pay-out days for funds and securities for Normal Settlement?


The pay-in and pay-out days for funds and securities are prescribed as per the Settlement Cycle. A typical Settlement Cycle of Normal Settlement is given below:






Activity


Day

Trading


Rolling Settlement Trading


T

Clearing


Custodial Confirmation


T+1 working days




Delivery Generation


T+1 working days

Settlement


Securities and Funds pay in


T+2 working days




Securities and Funds pay out


T+2 working days

Post Settlement


Valuation Debit


T+2 working days




Auction


T+3 working days




Bad Delivery Reporting


T+4 working days




Auction settlement


T+5 working days




Close out


T+5 working days




Rectified bad delivery pay-in and pay-out


T+6 working days




Re-bad delivery reporting and pickup


T+8 working days




Close out of re-bad delivery


T+9 working days


Note: The above is a typical settlement cycle for normal (regular) market segment. The days prescribed for the above activities may change in case of factors like holidays, bank closing etc. You may refer to scheduled dates of pay-in/pay-out notified by the Exchange for each settlement from time-to-time.



29. In case of purchase of shares, when do I make payment to the broker?



The payment for the shares purchased is required to be done prior to the pay in date for the relevant settlement or as otherwise provided in the Rules and Regulations of the Exchange.



30. In case of sale of shares, when should the shares be given to the broker?



The delivery of shares has to be done prior to the pay in date for the relevant settlement or as otherwise provided in the Rules and Regulations of the Exchange and agreed with the broker/sub broker in writing.





31. How long it takes to receive my money for a sale transaction and my shares for a buy transaction?



Brokers were required to make payment or give delivery within two working days of the pay - out day. However, as settlement cycle has been reduced fromT+3 rolling settlement to T+2 w.e.f. April 01, 2003, the pay out of funds and securities to the clients by the broker will be within 24 hours of the payout.



32. Is there any provision where I can get faster delivery of shares in my account?



The investors/clients can get direct delivery of shares in their beneficiary accounts. To avail this facility, you have to give details of your beneficiary account and the DP-ID of your DP to your broker along with the Standing Instructions for ‘Delivery-In’ to your Depository Participant for accepting shares in your beneficiary account. Given these details, the Clearing Corporation/Clearing House shall send pay out instructions to the depositories so that you receive pay out of securities directly into your beneficiary account.



33. What is an Auction?


The Exchange purchases the requisite quantity in the Auction Market and gives them to the buying trading member. The shortages are met through auction process and the difference in price indicated in contract note and price received through auction is paid by member to the Exchange, which is then liable to be recovered from the client.



34. What happens if the shares are not bought in the auction?



If the shares could not be bought in the auction i.e. if shares are not offered for sale in the auction, the transactions are closed out as per SEBI guidelines.



The guidelines stipulate that “the close out Price will be the highest price recorded in that scrip on the exchange in the settlement in which the concerned contract was entered into and upto the date of auction/close out OR 20% above the official closing price on the exchange on the day on which auction offers are called for (and in the event of there being no such closing price on that day, then the official closing price on the immediately preceding trading day on which there was an official closing price), whichever is higher.



Since in the rolling settlement the auction and the close out takes place during trading hours, the reference price in the rolling settlement for close out procedures would be taken as the previous day’s closing price.











35. What is Margin Trading Facility?



Margin Trading is trading with borrowed funds/securities. It is essentially a leveraging mechanism which enables investors to take exposure in the market over and above what is possible with their own resources. SEBI has been prescribing eligibility conditions and procedural details for allowing the Margin Trading Facility from time to time.



Corporate brokers with net worth of at least Rs 3 crore are eligible for providing Margin trading facility to their clients subject to their entering into an agreement to that effect. Before providing margin trading facility to a client, the member and the client have been mandated to sign an agreement for this purpose in the format specified by SEBI. It has also been specified that the client shall not avail the facility from more than one broker at any time.



The facility of margin trading is available for Group 1 securities and those securities which are offered in the initial public offers and meet the conditions for inclusion in the derivatives segment of the stock exchanges.



For providing the margin trading facility, a broker may use his own funds or borrow from scheduled commercial banks or NBFCs regulated by the RBI. A broker is not allowed to borrow funds from any other source.



The "total exposure" of the broker towards the margin trading facility should not exceed the borrowed funds and 50 per cent of his "net worth". While providing the margin trading facility, the broker has to ensure that the exposure to a single client does not exceed 10 per cent of the "total exposure" of the broker.



Initial margin has been prescribed as 50% and the maintenance margin has been prescribed as 40%.



In addition, a broker has to disclose to the stock exchange details on gross exposure including name of the client, unique identification number under the SEBI (Central Database of Market Participants) Regulations, 2003, and name of the scrip.



If the broker has borrowed funds for the purpose of providing margin trading facility, the name of the lender and amount borrowed should be disclosed latest by the next day.



The stock exchange, in turn, has to disclose the scrip-wise gross outstanding in margin accounts with all brokers to the market. Such disclosure regarding margin-trading done on any day shall be made available after the trading hours on the following day.



The arbitration mechanism of the exchange would not be available for settlement of disputes, if any, between the client and broker, arising out of the margin trading facility. However, all transactions done on the exchange, whether normal or through margin trading facility, shall be covered under the arbitration mechanism of the exchange.



36. What is the SEBI Risk Management System?



The primary focus of risk management by SEBI has been to address the market risks, operational risks and systemic risks. To this effect, SEBI has been continuously reviewing its policies and drafting risk management policies to mitigate these risks, thereby enhancing the level of investor protection and catalyzing market development. The key risk management measures initiated by SEBI include:-



Ø Categorization of securities into groups 1, 2 and 3 for imposition of margins based on their liquidity and volatility.

Ø VaR based margining system.

Ø Specification of mark to Market margins

Ø Specification of Intra-day trading limits and Gross Exposure Limits

Ø Real time monitoring of the Intra-day trading limits and Gross Exposure Limits by the Stock Exchanges

Ø Specification of time limits of payment of margins

Ø Collection of margins on T+1 basis

Ø Index based market wide circuit breakers

Ø Automatic de-activation of trading terminals in case of breach of exposure limits

Ø VaR based margining system has been put in place based on the categorization of stocks based on the liquidity of stocks depending on its impact cost and volatility. It addresses 99% of the risks in the market.

Ø Additional margins have also been specified to address the balance 1% cases.



SEBI issued a circular modifying the above mentioned present risk management framework to move to upfront collection of VaR margins (instead of margin collection on T+1 basis). The entire details of the new framework which was made effective from May 30, 2005 is given in SEBI Circular MRD/DoP/SE/Cir-07/2005 dated February 23, 2005. In the revised framework the liquid assets deposited by the broker with the exchange should be sufficient to cover upfront VaR margins, Extreme Loss Margin, MTM (Mark to Market Losses) and the prescribed BMC. The Mark to Market margin would be payable before the start of the next day’s trading. The Margin would be calculated based on gross open position of the member. The gross open position for this purpose would mean the gross of all net positions across all the clients of a member including his proprietary position. The exchanges would monitor the position of the brokers online real time basis and there would be automatic deactivation of terminal on any shortfall of margin.









37. What is “Securities Lending Scheme”?



Securities Lending and Borrowing is a scheme which enables lending of idle securities by the investors to the clearing corporation and earning a return through the same. For securities borrowing and lending system, clearing corporations of the stock exchange would be the nodal agency and be registered as the “Approved Intermediaries”(AIs). The clearing corporation can borrow, on behalf of the members, securities for the purpose of meeting shortfalls. The defaulter selling broker may make the delivery within the period specified by the clearing corporation. In the event of the defaulted selling broker failing to make the delivery within the specified period, the clearing corporation has to buy the securities from the open market and return the same to the lender within seven trading days. In case of an inability to purchase the securities from the market, the transaction shall be closed out.



38. What happens if I do not get my money or share on the due date?



In case a broker fails to deliver the securities or make payment on time, or if you have complaint against conduct of the stock broker, you can file a complaint with the respective stock exchange. The exchange is required to resolve all the complaints. To resolve the dispute, the complainant can also resort to arbitration as provided on the reverse of contract note /purchase or sale note. However, if the complaint is not addressed by the Stock Exchanges or is unduly delayed, then the complaints along with supporting documents may be forwarded to Secondary Market Department of SEBI. Your complaint would be followed up with the exchanges for expeditious redressal.



In case of complaint against a sub broker, the complaint may be forwarded to the concerned broker with whom the sub broker is affiliated for redressal.



39. What recourses are available to me for redressing my grievances?



You have following recourses available:



* Office of Investor Assistance and Education (OIAE) : You can lodge a complaint with OIAE Department of SEBI against companies for delay, non-receipt of shares, refund orders, etc., and with Stock Exchanges against brokers on certain trade disputes or non receipt of payment/securities.



* Arbitration: If no amicable settlement could be reached, then you can make application for reference to Arbitration under the Bye Laws of concerned Stock Exchange.



* Court of Law









40. What is Arbitration?



Arbitration is an alternative dispute resolution mechanism provided by a stock exchange for resolving disputes between the trading members and their clients in respect of trades done on the exchange.



41. What is the process for preferring arbitration?



The byelaws of the exchange provide the procedure for Arbitration. You can procure a form for filing arbitration from the concerned stock exchange. The arbitral tribunal has to make the arbitral award within 3 months from the date of entering upon the reference. The time taken to make an award cannot be extended beyond a maximum period of 6 months from the date of entering upon the reference.



42. Who appoints the arbitrators?



Every exchange maintains a panel of arbitrators. Investors may choose the arbitrator of their choice from the panel. The broker also has an option to choose an arbitrator. The name(s) would be forwarded to the member for acceptance. In case of disagreement, the exchange shall decide upon the name of arbitrators.



43. What happens if I am aggrieved by the award of the arbitrator?



In case you are aggrieved by the arbitration award, you can take recourse to the appeal provisions as given in the bye-laws of the Exchange.



44. What is Investor Protection Fund (IPF)/ Customer Protection Fund (CPF) at Stock Exchanges?



Investor Protection Fund is the fund set up by the Stock Exchanges to meet the legitimate investment claims of the clients of the defaulting members that are not of speculative nature. SEBI has prescribed guidelines for utilisation of IPF at the Stock Exchanges. The Stock Exchanges have been permitted to fix suitable compensation limits, in consultation with the IPF/CPF Trust. It has been provided that the amount of compensation available against a single claim of an investor arising out of default by a member broker of a Stock Exchange shall not be less than Rs. 1 lakh in case of major Stock Exchanges viz., BSE and NSE, and Rs. 50,000/- in case of other Stock Exchanges.



45. What is BSE IndoNext?



Regional stock exchanges (RSEs) have registered negligible business during the last few years and thus small and medium-sized companies (SMEs) listed there find it difficult to raise fresh resources in the absence of price discovery of their securities in the secondary market. As a result, investors also do not find exit opportunity in case of such companies.



BSE IndoNext has been formed to benefit such small and medium size companies (SMEs), the investors in these companies and capital markets at large. It has been set up as a separate trading platform under the present BSE Online Trading (BOLT) system of the BSE. It is a joint initiative of BSE and the Federation of Indian Stock Exchanges (FISE) of which 18 regional stock exchanges (RSEs) are members.



Corporatisation and Demutualisation



46. What is the traditional structure of the stock exchanges in India?



There are 22 recognised stock exchanges in India. Mangalore Stock Exchange was refused renewal of recognition vide SEBI order dated August 31, 2004.



In terms of legal structure, the stock exchanges in India could be segregated into two broad groups – 19 stock exchanges which were set up as companies, either limited by guarantees or by shares, and the 3 stock exchanges which were associations of persons (AOP) viz. BSE, ASE and Madhya Pradesh Stock Exchange. The 19 stock exchanges which have been functioning as companies include: the stock exchanges of Bangalore, Bhubaneswar, Calcutta, Cochin, Coimbatore, Delhi, Gauhati, Hyderabad, Interconnected SE, Jaipur, Ludhiana, Madras, Magadh, NSE, Pune, OTCEI, Saurashtra-Kutch, Uttar Pradesh, and Vadodara. Apart from NSE, all stock exchanges whether established as corporate bodies or Association of Persons (AOPs), were non-profit making organizations.



47. What is meant by corporatisation of stock exchanges?



Corporatisation is the process of converting the organizational structure of the stock exchange from a non-corporate structure to a corporate structure.



Traditionally, some of the stock exchanges in India were established as “Association of persons”, e.g. the Stock Exchange, Mumbai (BSE), Ahmedabad Stock Exchange (ASE) and Madhya Pradesh Stock Exchange (MPSE). Corporatisation of such exchanges is the process of converting them into incorporated Companies.



48. What is demutualisation of stock exchanges?



Demutualisation refers to the transition process of an exchange from a “mutually-owned” association to a company “owned by shareholders”. In other words, transforming the legal structure of an exchange from a mutual form to a business corporation form is referred to as demutualisation. The above, in effect means that after demutualisation, the ownership, the management and the trading rights at the exchange are segregated from one another.







49. How is a demutualised exchange different from a mutual exchange?



In a mutual exchange, the three functions of ownership, management and trading are intervened into a single Group. Here, the broker members of the exchange are both the owners and the traders on the exchange and they further manage the exchange as well. A demutualised exchange, on the other hand, has all these three functions clearly segregated, i.e. the ownership, management and trading are in separate hands.



50. Currently are there any demutualised stock exchanges in India?



Currently, two stock exchanges in India, the National Stock Exchange (NSE) and Over the Counter Exchange of India (OTCEI) are not only corporatised but also demutualised with segregation of ownership and trading rights of members.



The Corporatisation and Demutualisation Schemes of 19 stock exchanges (other than NSE, OTCEI, Mangalore Stock Exchange and Coimbatore Stock exchange) have been notified by SEBI and are at various stages of implementation.



General Questions



51. What are the relevant rules and regulations and where can I find them?



You can browse through the “Legal Framework” section on the SEBI website http://www.sebi.gov.in/Index.jsp?contentDisp=Section&sec_id=1 for complete information relating to acts, rules, regulations, circulars, and guidelines relating to securities market.

information about driving licence

What is a Driving Licence and Why is it Necessary?



A Driving Licence is an official document certifying that the holder is suitably qualified to drive a motor vehicle or vehicles. Under the provisions of the Motor Vehicles Act, 1988 in India, no person can drive a motor vehicle in any public place unless he holds a valid Driving Licence issued to him, authorising him to drive a vehicle of that particular category.



In India, two kinds of Driving Licences are issued: Learner’s Licence and Permanent Licence. Learner’s Licence is valid only for six months. Permanent Licence can be availed only after the expiry of one month from the date of issuance of the Learner’s Licence.


What You Need to Do to Obtain a Driving Licence

A Learner’s Licence is essential for obtaining a Permanent Licence. The eligibility for obtaining a Learner's Licence for a private motor vehicle for a vehicle of 50 CC engine capacity and without any gear, is 16 years (if the applicant’s parents or guardians give their consent). The minimum age to apply for a permanent licence to drive a private motor vehicle is 18 years.

A person who is at least 20 years old and possesses a Learner's License can obtain a Licence for driving a commercial vehicle. Also, one has to be conversant with the traffic rules and regulations in all the cases.

For obtaining a Learner’s Licence, you will need to apply in the prescribed format to the Local Transport Office in your region, along with your passport-sized photographs, proof of your age and residence, declaration of medical fitness and the required fee. After verification of your documents, you will have to go through the Learner’s Test. Usually a handbook of traffic rules, signs and regulations is provided with the application form. On passing the Learner’s Test, you will be issued a Learner’s Licence. If you fail the test, you will be given a chance to take the test again.

For obtaining a Permanent Licence, you must have a valid Learner’s Licence, and must apply after 30 days and within 180 days of issue of the Learner’s Licence. You should be conversant about vehicle systems, driving, traffic rules & regulations. You will be put through a driving test, for which you must bring a vehicle with you. On passing the test, you will be issued a Permanent Driving Licence.

information about issues

http://investor.sebi.gov.in/faq/pubissuefaq.pdf

information about demat accounts

FREQUENTLY ASKED QUESTIONS ON DEMATERIALISATION

Disclaimer: These FAQs are not the interpretation of law but provide only a simplistic explanation of terms /concepts related to the depository system. SEBI does not certify the authenticity of the information present in this section. All information has been updated till March 31, 2006. For full particulars of laws governing the depository system, please refer to the Acts/Regulations/Guidelines/Circulars appearing under the Legal Framework Section.




Understanding Depository System

1. What is a Depository?

A depository is an organisation which holds securities of investors in electronic form at the request of the investors through a registered Depository Participant. It also provides services related to transactions in securities.

3. How many Depositories are registered with SEBI?

At present two Depositories viz. National Securities Depository Limited (NSDL) and Central Depository Services (I) Limited (CDSL) are registered with SEBI.

4. Who is a Depository Participant?

A Depository Participant (DP) is an agent of the depository through which it interfaces with the investor. A DP can offer depository services only after it gets proper registration from SEBI. Banking services can be availed through a branch whereas depository services can be availed through a DP.

5. What is the minimum net worth required for a depository?

The minimum net worth stipulated by SEBI for a depository is Rs.100 crore.

6. How many Depository Participants are registered with SEBI?

As on 31/03/2006, total of 538 DPs are registered with SEBI. A list of DP’s and their addresses can be downloaded from SEBI website.

7. Is it compulsory for every investor to open a depository account to trade in the capital market?

As per the available statistics at BSE and NSE, 99.9% settlement takes place in demat mode only. Therefore, in view of the convenience in settlement through demat mode, it is advisable to have a beneficiary owner (BO) account to trade at the exchanges.

8. What are the benefits of availing depository services?

The benefits are enumerated below:-

· A safe and convenient way to hold securities;
· Immediate transfer of securities;
· No stamp duty on transfer of securities;
· Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc.;
· Reduction in paperwork involved in transfer of securities;
· Reduction in transaction cost;
· No odd lot problem, even one share can be sold;
· Nomination facility;
· Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately;
· Transmission of securities is done by DP eliminating correspondence with companies;
· Automatic credit into demat account of shares, arising out of bonus/split/consolidation/merger etc.
· Holding investments in equity and debt instruments in a single account.

Account Opening
9. How can services of a depository be availed?

To avail the services of a depository an investor is required to open an account with a depository participant of any depository.

10. How can one open an account?

First an investor has to approach a DP and fill up an account opening form. The account opening form must be supported by copies of any one of the approved documents to serve as proof of identity (POI) and proof of address (POA) as specified by SEBI. Besides, production of PAN card in original at the time of opening of account has been made mandatory effective from April 01, 2006.

All applicants should carry original documents for verification by an authorized official of the depository participant, under his signature.

Further, the investor has to sign an agreement with DP in a depository prescribed standard format, which details rights and duties of investor and DP. DP should provide the investor with a copy of the agreement and schedule of charges for their future reference. The DP will open the account in the system and give an account number, which is also called BO ID (Beneficiary Owner Identification number).

The DP may revise the charges by giving 30 days notice in advance. SEBI has rationalised the cost structure for dematerialisation by removing account opening charges, transaction charges for credit of securities, and custody charges vide circular dated January 28, 2005.

Further, SEBI has vide circular dated November 09, 2005 advised that with effect from January 09, 2006, no charges shall be levied by a depository on DP and consequently, by a DP on a Beneficiary Owner (BO) when a BO transfers all the securities lying in his account to another branch of the same DP or to another DP of the same depository or another depository, provided the BO Account/s at transferee DP and at transferor DP are one and the same, i.e. identical in all respects. In case the BO Account at transferor DP is a joint account, the BO Account at transferee DP should also be a joint account in the same sequence of ownership.

11. Why should an investor give his bank account details at the time of account opening?

It is for the protection of investor’s interest. The bank account number will be mentioned on the interest or dividend warrant, so that such warrant cannot be encashed by any one else. Further, cash corporate benefits such as dividend, interest will be credited to the investors account directly through the ECS (Electronic Clearing Service) facility, wherever available, by the company.

12. Can an investor change the details of his bank account?

Yes. Since in the depository system monetary benefits on the security balances are paid as per the bank account details provided by the investor at the time of account opening, the investor must ensure that any subsequent change in bank account details is informed to the DP.

13. What should be done if the address of the investor changes?

Investor should immediately inform his/her DP, who in turn will update the records. This will obviate the need of informing different companies.

14. Can multiple accounts be opened?

Yes. An investor can open more than one account in the same name with the same DP and also with different DPs.

15. Does the investor have to keep any minimum balance of securities in his/her accounts?

No.

16. Is it necessary to have account with the same DP as broker has?

No. Depository / DP can be chosen by investor as per convenience irrespective of the DP of the broker.

17. Can an investor open a single account for securities owned in different ownership patterns such as securities owned individually and securities owned jointly with others? No. The demat account must be opened in the same ownership pattern in which the securities are held in the physical form. e. g. if one share certificate is in the individual name and another certificate is jointly with somebody, two different accounts would have to be opened.

18. What is required to be done if one has physical certificates with the same combination of names, but the sequence of names is different i.e. some certificates with ‘A’ as first holder and ‘B’ as second holder and other set of certificates with ‘B’ as first holder and ‘A’ as the second holder?

In this case the investor may open only one account with ‘A’ & ‘B’ as the account holders and lodge the security certificates with different order of names for dematerialisation in the same account. An additional form called "Transposition cum Demat" form will have to be filled in. This would help you to effect change in the order of names as well as dematerialise the securities.

19. Can an investor operate a joint account on "either or survivor" basis just like a bank account?

No. The demat account cannot be operated on "either or survivor" basis like the bank account.

20. Can someone else operate the account on behalf of the BO on the basis of a power of attorney?

Yes. If the BO authorises any person to operate the account by executing a power of attorney and submit it to the DP, that person can operate the account on behalf of the BO.

21. Can addition or deletion of names of accountholders is permitted after opening the account?

No. The names of the account holders of a BO account cannot be changed. If any change has to be effected by addition or deletion, a new account has to be opened in the desired holding pattern (names) and then transfer the securities to the newly opened account. The old account may be closed.

22. Can an investor close his demat account with one DP and transfer all securities to another account with another DP?

Yes. The investor can submit account closure request to his DP in the prescribed form. The DP will transfer all the securities lying in the account, as per the instruction, and close the demat account.

23. What would be the charges for account closure and securities transfer due to account closing?

SEBI vide Circular No. MRD/DoP/Dep/Cir-22 /05 dated November 09, 2005 advised that with effect from January 09, 2006, no charges shall be levied by a depository on DP and consequently, by a DP on a Beneficiary Owner (BO) when a BO transfers all the securities lying in his account to another branch of the same DP or to another DP of the same depository or another depository, provided the BO Account/s at transferee DP and at transferor DP are one and the same, i.e. identical in all respects. In case the BO Account at transferor DP is a joint account, the BO Account at transferee DP should also be a joint account in the same sequence of ownership.



All other transfer of securities consequent to closure of account, not fulfilling the above-stated criteria, would be treated like any other transaction and charged as per the schedule of charges agreed upon between the BO and the DP.



24. Whether investors can freeze or lock their accounts?



Investors can freeze or lock their accounts for any given period of time, if so desired. Accounts can be frozen for debits (preventing transfer of securities out of accounts) or for credits (preventing any movements of hindrances into accounts) or for both.



Dematerialisation



25. What is dematerialisation?



Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited into the investor's account with his/her DP.



26. How can one convert physical holding into electronic holding i.e how can one dematerialise securities?



In order to dematerialise physical securities one has to fill in a DRF (Demat Request Form) which is available with the DP and submit the same along with physical certificates one wishes to dematerialise. Separate DRF has to be filled for each ISIN Number. The complete process of dematerialisation is outlined below:



* Surrender certificates for dematerialisation to your depository participant.
* Depository participant intimates Depository of the request through the system.
* Depository participant submits the certificates to the registrar of the Issuer Company.



Registrar confirms the dematerialisation request from depository.



* After dematerialising the certificates, Registrar updates accounts and informs depository of the completion of dematerialisation.
* Depository updates its accounts and informs the depository participant.
* Depository participant updates the demat account of the investor.



27. What is an ISIN?



ISIN (International Securities Identification Number) is a unique identification number for a security.



28. Can odd lot shares be dematerialised?



Yes, odd lot share certificates can also be dematerialised.



29. Do dematerialised shares have distinctive numbers?



Dematerialised shares do not have any distinctive numbers. These shares are fungible, which means that all the holdings of a particular security will be identical and interchangeable.



30. Can electronic holdings be converted back into Physical Certificates?



Yes. The process is called rematerialisation. If one wishes to get back his securities in the physical form one has to fill in the RRF (Remat Request Form) and request his DP for rematerialisation of the balances in his securities account. The process of rematerialisation is outlined below:



• One makes a request for rematerialisation.

• Depository participant intimates depository of the request through the system.

• Depository confirms rematerialisation request to the registrar.

• Registrar updates accounts and prints certificates.

• Depository updates accounts and downloads details to depository participant.

• Registrar dispatches certificates to investor.





Trading / Settlement



31. What is the procedure for selling dematerialised securities?



The procedure for buying and selling dematerialised securities is similar to the procedure for buying and selling physical securities. The difference lies in the process of delivery (in case of sale) and receipt (in case of purchase) of securities.



In case of purchase:-

· The broker will receive the securities in his account on the payout day

· The broker will give instruction to its DP to debit his account and credit investor's account

· Investor will give ‘Receipt Instruction to DP for receiving credit by filling appropriate form. However one can give standing instruction for credit

in to ones account that will obviate the need of giving Receipt Instruction every time.



In case of sale:-

The investor will give delivery instruction to DP to debit his account and credit the broker’s account. Such instruction should reach the DP’s office at least 24 hours before the pay-in as other wise DP will accept the instruction only at the investor’s risk.









32. What is 'Standing Instruction' given in the account opening form?



In a bank account, credit to the account is given only when a 'pay in' slip is submitted together with cash/cheque. Similarly, in a depository account 'Receipt in' form has to be submitted to receive securities in the account. However, for the convenience of investors, facility of 'standing instruction' is given. If you say 'Yes' for standing instruction, you need not submit 'Receipt in' slip everytime you buy securities. If you are particular that securities can be credited to your account only with your consent, then do not say 'yes' [or tick ] to standing instruction in the application form.



33. What is delivery instruction slip (DIS)? What precautions do one need to observe with respect to Delivery Instruction Slips?



To give the delivery one has to fill a form called Delivery Instruction Slip (DIS). DIS may be compared to cheque book of a bank account. The following precautions are to be taken in respect of DIS:-



· Ensure and insist with DP to issue DIS book.

· Ensure that DIS numbers are pre-printed and DP takes acknowledgment for the DIS booklet issued to investor.

· Ensure that your account number [client id] is pre-stamped.

· If the account is a joint account, all the joint holders have to sign the instruction slips. Instruction cannot be executed if all joint holders have not signed.

· Avoid using loose slips

· Do not leave signed blank DIS with anyone viz., broker/sub-broker.

· Keep the DIS book under lock and key when not in use.

· If only one entry is made in the DIS book, strike out remaining space to prevent misuse by any one.

· Investor should personally fill in target account -id and all details in the DIS.



34. Is it possible to give delivery instructions to the DP over Internet and if yes, how?



Yes. Both NSDL and CDSL have launched this facility for delivering instructions to your DP over Internet, called SPEED-e and EASI respectively. The facility can be used by all registered users after paying the applicable charges.



Corporate Benefits



35. Is it possible to get securities allotted in public offering directly in the electronic form?



Yes, it is possible to get securities allotted to in Public Offerings directly in the electronic form. In the public issue application form there is a provision to indicate the manner in which an investor wants the securities allotted. He has to mention the BO ID and the name and ID of the DP on the application form. Any allotment made will be credited into the BO account.



36. How are cash corporate benefit such as dividend / interest received?



The concerned company obtains the details of beneficiary holders and their holdings as on the date of the book closure / record date from Depositories. The payment to the investors will be made by the company through the ECS (Electronic Clearing Service) facility, wherever available. Thus the dividend / interest will be credited to your bank account directly. Where ECS facility is not available dividend / interest will be given by issuing warrants on which your bank account details are printed. The bank account details will be those which you would have mentioned in your account opening form or changed thereafter.



37. How would one receive non-cash corporate benefit such as bonus etc.?



The concerned company obtains the details of beneficiary holders and their holdings as on the date of the book closure / record date from depositories. The entitlement will be credited by the company directly into the BO account.



38. Who should be contacted in case of discrepancies in corporate benefits?



In case of discrepancies in corporate benefits, one can approach the company / its R&T Agent.



Pledging



39. Can one pledge dematerialised securities?



Yes. In fact, pledging dematerialised securities is easier and more advantageous as compared to pledging physical securities.



40. What should one do to pledge electronic securities?



The procedure to pledge electronic securities is as follows:



· Both investor (pledgor) as well as the lender (pledgee) must have depository accounts with the same depository;

· Investor has to initiate the pledge by submitting to DP the details of the securities to be pledged in a standard format ;

· The pledgee has to confirm the request through his/her DP;

· Once this is done, securities are pledged.

· All financial transactions between the pledgor and the pledgee are handled as per usual practice outside the depository system.



41. How can one close the pledge after repayment of loan?



After one has repaid the loan, one can request for a closure of pledge by instructing the DP in a prescribed format. The pledgee on receiving the repayment will instruct his DP accordingly for the closure of the pledge.



42. Can one change the securities offered in a pledge?



Yes, if the pledgee [lender] agrees, one may change the securities offered in a pledge.



43. Who would receive the corporate benefits on the pledged securities?



The securities pledged are only blocked in the account of pledgor in favour of the pledgee. The pledgor would continue to receive all the corporate benefits.



Transaction Statement



44. How does one know that the DP has updated the account after each transaction?



The DP gives a Transaction Statement periodically, which will detail current balances and various transactions made through the depository account. If so desired, DP may provide the Transaction Statement at intervals shorter than the stipulated ones, probably at a cost.



45. At what frequency will the investor receive his Transaction Statement from his DP?



DPs have to provide transaction statements to their clients once in a month, if there are transactions and once in a quarter, if there are no transactions.



Moreover, DPs can provide transaction statement in electronic form under digital signature subject to their entering into a legally enforceable arrangement with the BOs to this effect.



46. What is to be done if there are any discrepancies in transaction statement?



In case of any discrepancy in the transaction statement, one can contact his/her DP. If the discrepancy cannot be resolved at the DP level, one should approach the Depository.



47. Whom should one contact in case of any investor complaint / problem / query?



In case of any investor complaint / problem / query one may first contact his DP. If DP is unable to solve the complaint / problem / query one should approach concerned depository. If one is not satisfied one may approach SEBI. One may also approach SEBI directly.



Lending and borrowing of demat securities



48. What is Lending and Borrowing of Securities?



If any person required to deliver a security in the market does not readily have that security, he can borrow the same from another person who is willing to lend as per the Securities Lending and Borrowing Scheme.



49. Can lending and borrowing be done directly between two persons?



No. Lending and borrowing has to be done through an 'Approved Intermediary' registered with SEBI. The approved intermediary would borrow the securities for further lending to borrowers. Lenders of the securities and borrowers of the securities enter into separate agreements with the approved intermediary for lending and borrowing the securities. Lending and borrowing is effected through the depository system.



50. Can I lend the securities lying in my account?



Yes. You can lend your securities through Approved Intermediaries registered with SEBI.



51. How would I lend my demat securities?



You may enter into an agreement with the approved intermediary to be a lender under this scheme. After that, you may lend securities any time by submitting lending instruction to your DP.



52. How would I get back the securities lent by me?



Intermediary may return the securities at any time or at the end of the agreed period of lending. Intermediary has to repay the securities together with any benefits received during the period of the loan.



53. How would I receive the corporate benefits which would accrue on these securities during the period of lending?



The benefits will be given to the Intermediary/borrower. However, whenever the securities are being returned / recalled. Intermediary/borrower will return the securities together with benefits received.



Nomination



54. Who can nominate?



Nomination can be made only by individuals holding beneficiary accounts either singly or jointly. Non-individuals including society, trust, body corporate, karta of Hindu Undivided Family, holder of power of attorney cannot nominate.





55. Who can be a nominee?



Only an individual can be a nominee. A nominee shall not be a society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family or a power of attorney holder.



Transmission of demat securities



56. What is transmission of demat securities?



Transmission is the process by which securities of a deceased account holder are transferred to the account of his legal heirs / nominee. Process of transmission in case of dematerialised holdings is more convenient as the transmission formalities for all securities held in a demat account can be completed by submitting documents to the DP, whereas in case of physical securities the legal heirs/nominee/surviving joint holder has to independently correspond with each company in which securities are held.



57. In the event of death of the sole holder, how the successors should claim the securities lying in the demat account?



The claimant should submit to the concerned DP an application Transmission Request Form (TRF) along with the following supporting documents



1. In case of death of sole holder where the sole holder has appointed a nominee



Notarised copy of the death certificate



2. In case of death of the sole holder, where the sole holder has not appointed a nominee



Notarised copy of the death certificate



Any one of the below mentioned documents -

Succession certificate

Copy of probated will

Letter of Administration



The DP, after ensuring that the application is genuine, will transfer securities to the account of the claimant.



The major advantage in case of dematerialised holdings is that the transmission formalities for all securities held with a DP can be completed by interaction with the DP alone, unlike in the case of physical share certificates, where the claimant will have to interact with each Issuing company or its Registrar separately.







Inter Depository Transfers



58. If my depository account is with NSDL/CDSL, can I receive my securities from an account holder having account with the other depository in India?



Yes. Inter depository transfers are possible.

information about derivatives

What is a Futures Contract?

Futures contract means a legally binding agreement to buy or sell the underlying security on a future date. Future contracts are the organised/standardised contracts in terms of quantity, quality (in case of commodities), delivery time and place for settlement on any date in future. The contract expires on a pre-specified date which is called the expiry date of the contract. On expiry, futures can be settled by delivery of the underlying asset or cash. Cash settlement entails paying/receiving the difference between the price at which the contract was entered and the price of the underlying asset at the time of expiry of the contract.

What is an Option contract?

Option contract is a type of derivatives contract which gives the buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying asset at a predetermined price within or at end of a specified period. The buyer/holder of the option, purchases the right from the seller/writer for a consideration which is called the premium. The seller/writer of an option is obligated to settle the option as per the terms of the contract when the buyer/holder exercises his right. The underlying asset could include securities, an index of prices of securities etc.

Under Securities Contracts (Regulations) Act, 1956 options on securities has been defined as "option in securities" means a contract for the purchase or sale of a right to buy or sell, or a right to buy and sell, securities in future, and includes a teji, a mandi, a teji mandi, a galli, a put, a call or a put and call in securities. An Option to buy is called Call option and option to sell is called Put option. Further, if an option that is exercisable on or before the expiry date is called American option and one that is exercisable only on expiry date, is called European option. The price at which the option is to be exercised is called Strike price or Exercise price.

Therefore, in the case of American options the buyer has the right to exercise the option at anytime on or before the expiry date. This request for exercise is submitted to the Exchange, which randomly assigns the exercise request to the sellers of the options, who are obligated to settle the terms of the contract within a specified time frame.

As in the case of futures contracts, option contracts can be also be settled by delivery of the underlying asset or cash. However, unlike futures cash settlement in option contract entails paying/receiving the difference between the strike price/exercise price and the price of the underlying asset either at the time of expiry of the contract or at the time of exercise / assignment of the option contract.

What are Index Futures and Index Option Contracts?

Futures contract based on an index i.e. the underlying asset is the index, are known as Index Futures Contracts. For example, futures contract on NIFTY Index and BSE-30 Index. These contracts derive their value from the value of the underlying index.

Similarly, the options contracts, which are based on some index, are known as Index options contract. However, unlike Index Futures, the buyer of Index Option Contracts has only the right but not the obligation to buy / sell the underlying index on expiry. Index Option Contracts are generally European Style options i.e. they can be exercised / assigned only on the expiry date.

An index in turn derives its value from the prices of securities that constitute the index and is created to represent the sentiments of the market as a whole or of a particular sector of the economy (Sectoral Index).

By its very nature, index cannot be delivered on maturity of the Index futures or Index option contracts therefore, these contracts are essentially cash settled on expiry.

What is minimum contract size?

The Standing Committee on Finance, a Parliamentary Committee, at the time of recommending amendment to Securities Contract (Regulation) Act, 1956 had recommended that the minimum contract size of derivative contracts traded in the Indian Markets should be pegged not below Rs. 2 Lakhs. Based on this recommendation SEBI has specified that the value of a derivative contract should not be less than Rs. 2 Lakh at the time of introducing the contract in the market.

What is the lot size of a contract?

Lot size refers to number of underlying securities in one contract. Additionally, for stock specific derivative contracts SEBI has specified that the lot size of the underlying individual security should be in multiples of 100 and fractions, if any, should be rounded off to the next higher multiple of 100. This requirement of SEBI coupled with the requirement of minimum contract size forms the basis of arriving at the lot size of a contract.

For example, if shares of XYZ Ltd are quoted at Rs.1000 each and the minimum contract size is Rs.2 lacs, then the lot size for that particular scrips stands to be 200000/1000 = 200 shares i.e. one contract in XYZ Ltd. covers 200 shares.

valuable information on mutual funds

Frequently asked Questions about mutual funds

How do I invest in a scheme of a mutual fund?

Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms, filled application forms can be deposited with mutual funds through these agents/distributors etc. Now a days post offices and banks also distribute the units of mutual funds. However, you may please note that the mutual funds schemes being marketed by banks and post offices should not be taken as their own schemes and no assurance of returns is given by them.

How do I fill up the application form of a mutual fund scheme?

You must mention clearly your name, address, number of units applied for and such other information as required in the application form. You must give your bank account details so as to avoid any fraudulent encashment of any cheque/draft issued by the mutual fund at a later date for the purpose of dividend or repurchase. Any changes in the address, bank account details etc at a later date should be informed to the mutual fund immediately.

Can non-resident Indians (NRIs) invest in mutual funds?

Yes, non-resident Indians can also invest in mutual funds. Necessary details in this respect are given in the offer documents of the schemes.

How much should I invest in debt or equity oriented schemes?

It is for you to decide as to how much to invest where but you should take into account your risk taking capacity, age, financial position, etc. before making any investment. As already mentioned, the schemes invest in different type of securities as disclosed in the offer documents and offer different returns and risks.

What should I look for into an offer document?

An abridged offer document, which contains very useful information, is required to be given to the prospective investor by the mutual fund. You should read the whole offer document very carefully. The application form for subscription to a scheme is an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer document. Due care must be given to portions relating to main features of the scheme, risk factors, initial issue expenses and recurring expenses to be charged to the scheme, entry or exit loads, sponsor’s track record, educational qualification and work experience of key personnel including fund managers, performance of other schemes launched by the mutual fund in the past, pending litigations and penalties imposed.

When will the investor get certificate or statement of account after investing in a mutual fund?

Mutual funds are required to despatch certificates or statements of accounts within six weeks from the date of closure of the initial subscription of the scheme. In case of close-ended schemes, the investors would get either a demat account statement or unit certificates as these are traded in the stock exchanges. In case of open-ended schemes, a statement of account is issued by the mutual fund within 30 days from the date of closure of initial public offer of the scheme. The procedure of repurchase is mentioned in the offer document.

What is sales or repurchase/redemption price?

The price or NAV a unitholder is charged while investing in an open-ended scheme is called sales price. It may include sales load, if any. Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases or redeems its units from the unitholders. It may include exit load, if any.

What is an assured return scheme?

Assured return schemes are those schemes that assure a specific return to the unitholders irrespective of performance of the scheme.A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document. Investors should carefully read the offer document whether return is assured for the entire period of the scheme or only for a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year.

Can a mutual fund change the asset allocation while deploying funds of investors?

Considering the market trends, any prudent fund managers can change the asset allocation i.e. he can invest higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed in the offer document. It can be done on a short term basis on defensive considerations i.e. to protect the NAV. Hence the fund managers are allowed certain flexibility in altering the asset allocation considering the interest of the investors. In case the mutual fund wants to change the asset allocation on a permanent basis, they are required to inform the unitholders and giving them option to exit the scheme at prevailing NAV without any load.

How do I know where the mutual fund scheme has invested money mobilised from the investors?

The mutual funds are required to disclose full portfolios of all of their schemes on half-yearly basis which are published in the newspapers. Some mutual funds send the portfolios to their unitholders. The scheme portfolio shows investment made in each security i.e. equity, debentures, money market instruments, government securities, etc. and their quantity, market value and % to NAV. These portfolio statements also required to disclose illiquid securities in the portfolio, investment made in rated and unrated debt securities, non-performing assets (NPAs), etc. Some of the mutual funds send newsletters to the unitholders on quarterly basis which also contain portfolios of the schemes.

Can a mutual fund change the nature of the scheme from the one specified in the offer document?

Yes.However, no change in the nature or terms of the scheme, known as fundamental attributes of the scheme e.g. structure, investment pattern, etc. can be carried out unless a written communication is sent to each unitholder and an advertisement is given in one English daily having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. The unitholders have the right to exit the scheme at the prevailing NAV without any exit load if they do not want to continue with the scheme. The mutual funds are also required to follow similar procedure while converting the scheme from close-ended to open-ended scheme and in case of change in sponsor. The mutual funds are required to inform about any material changes to their unitholders.

At present, offer documents are required to be revised and updated at least once in two years. In the meantime, new investors are informed about the material changes by way of addendum to the offer document till the time offer document is revised and reprinted.

How long will it take for transfer of units after purchase from stock markets in case of close-ended schemes?

According to SEBI Regulations, transfer of units is required to be done within thirty days from the date of lodgment of certificates with the mutual fund.

As a unitholder, how much time will it take to receive dividends/repurchase proceeds?

A mutual fund is required to despatch to the unitholders the dividend warrants within 30 days of the declaration of the dividend and the redemption or repurchase proceeds within 10 working days from the date of redemption or repurchase request made by the unitholder.

In case of failures to despatch the redemption/repurchase proceeds within the stipulated time period, Asset Management Company is liable to pay interest as specified by SEBI from time to time (15% at present).

How do I know the performance of a mutual fund scheme?

The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. NAV of mutual funds are required to be published in newspapers.The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) www.amfiindia.com and thus the investors can access NAVs of all mutual funds at one place. The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format. The mutual funds are also required to send annual report or abridged annual report to the unitholders at the end of the year. Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis. Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds. Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc. On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme.

Is there any difference between issue of a mutual fund and an initial public offering (IPO) of a company?

Yes, there is a difference. IPOs of companies may open at lower or higher price than the issue price depending on market sentiment and perception of investors. However, in the case of mutual funds, the par value of the units may not rise or fall immediately after allotment. A mutual fund scheme takes some time to make investment in securities. NAV of the scheme depends on the value of securities in which the funds have been deployed.

If schemes in the same category of different mutual funds are available, should I choose a scheme with lower NAV?

Some of the investors have the tendency to prefer a scheme that is available at lower NAV compared to the one available at higher NAV. Sometimes, they prefer a new scheme which is issuing units at Rs.10 whereas the existing schemes in the same category are available at much higher NAVs. Investors may please note that in case of mutual funds schemes, lower or higher NAVs of similar type schemes of different mutual funds have no relevance. On the other hand, investors should choose a scheme based on its merit considering performance track record of the mutual fund, service standards, professional management, etc.

How do I choose a scheme for investment from a number of schemes available?

As already mentioned, the investors must read the offer document of the mutual fund scheme very carefully. They may also look into the past track record of performance of the scheme or other schemes of the same mutual fund. They may also compare the performance with other schemes having similar investment objectives. Though past performance of a scheme is not an indicator of its future performance and good performance in the past may or may not be sustained in the future, this is one of the important factors for making investment decision. In case of debt oriented schemes, apart from looking into past returns, the investors should also see the quality of debt instruments which is reflected in their rating. A scheme with lower rate of return but having investments in better rated instruments may be safer. Similarly, in equities schemes also, investors may look for quality of portfolio. They may also seek advice of experts.

Are the companies having names like mutual benefit the same as mutual funds schemes?

You should not assume some companies having the name "mutual benefit" as mutual funds. These companies do not come under the purview of SEBI. On the other hand, mutual funds can mobilise funds from the investors by launching schemes only after getting registered with SEBI as mutual funds.

Is the higher net worth of the sponsor a guarantee for better returns?

In the offer document of any mutual fund scheme, financial performance including the net worth of the sponsor for a period of three years is required to be given. The only purpose is that the investors should know the track record of the company which has sponsored the mutual fund. However, higher net worth of the sponsor does not mean that the scheme would give better returns or the sponsor would compensate in case the NAV falls.

Where do I look out for information on mutual funds?

Almost all the mutual funds have their own web sites. You can also access the NAVs, half-yearly results and portfolios of all mutual funds at the web site of Association of mutual funds in India (AMFI) www.amfiindia.com. AMFI has also published useful literature for the investors. You can also log on to the web site of SEBI i.e. www.sebi.gov.in and go to "Mutual Funds" section for information on SEBI regulations and guidelines, data on mutual funds, draft offer documents filed by mutual funds, addresses of mutual funds, etc. Also, in the annual reports of SEBI available on the web site, a lot of information on mutual funds is given. Many newspapers also publish useful information on mutual funds on daily and weekly basis. Investors may approach their agents and distributors to guide them in this regard.

If mutual fund scheme is wound up, what happens to money invested?

In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after adjustment of expenses. Unitholders are entitled to receive a report on winding up from the mutual funds which gives all necessary details.

How can I redress my complaints?

You would find the name of contact person, in the offer document of the mutual fund scheme, whom you may approach in case of any query, complaints or grievances. Trustees of a mutual fund monitor the activities of the mutual fund. The names of the directors of asset management company and trustees are also given in the offer documents. You can also approach SEBI for redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up with them till the matter is resolved.