CAPITAL, COMMODITY AND MONEY MARKET

1 ISTUDY MATERIALPROFESSIONAL PROGRAMMECAPITAL, COMMODITYAND MONEY MARKETMODULE 3 ELECTIVE PAPER House, 22, Institutional Area, Lodi Road, New Delhi 110 003tel 011-4534 1000, 4150 4444fax +91-11-2462 6727email THE INSTITUTE OF COMPANY SECRETARIES OF INDIATIMING OF HEADQUARTERSM onday to FridayOffice Timings to Dealing TimingsWithout financial transactions to financial transactions to , Typesetting by AArushi Graphics, Prashant Vihar, New Delhi, andPrinted at Tan PrintsiiiiiPROFESSIONAL PROGRAMMECAPITAL, COMMODITYAND MONEY MARKETE fficient financial systems are indispensable for speedy economic development. The financial system of acountry is a conglomeration of sub MARKET , viz. capital , COMMODITY and MONEY MARKET . The flow of funds in thesemarkets is multi directional depending upon liquidity, risk profile, yield pattern, interest rate differential or arbitrageopportunities, regulatory restrictions etc.

2 As the Indian economy gets integrated with the global economyempowered by increasingly sophisticated information and technology systems, there is an acute need for trainedprofessionals to entrust important roles in all the spheres of the financial MARKET activity. This study material hasbeen designed to provide expert knowledge and understanding of various capital MARKET instruments, commoditymarket products, MONEY MARKET instruments, key features and participants in these markets, raising capital ininternational MARKET by companies study material has been published to aid the students in preparing for the capital , COMMODITY and MoneyMarket paper of the CS Professional Programme. It is part of the educational kit and takes the students step bystep through each phase of preparation stressing key concepts, pointers and Secretaryship being a professional course, the examination standards are set very high, with emphasison knowledge of concepts, applications, procedures, for which sole reliance on the contents of this study materialmay not be enough.

3 Besides, as per the Company Secretaries Regulations, 1982, students are expected to beconversant with the amendments to the laws made upto six months preceding the date of examination. Thematerial may, therefore, be regarded as the basic material and must be read alongwith the original Bare Acts,Rules, Regulations, Academic Guidance etc. This study has been updated upto June 30, subject of capital , COMMODITY and MONEY MARKET is inherently complicated and is subject to constantrefinement through, rules and regulations made thereunder. It is, therefore becomes necessary for every studentto constantly update himself with the various legislative changes made from time to time by referring to theInstitute s journal Chartered Secretary as well as other professional journals. In the event of any doubt, studentsmay write to the Directorate of Academics and Perspective Planning of the Institute for clarification care has been taken in publishing this study material yet the possibility of errors, omissions and/ordiscrepancies cannot be ruled out.

4 This publication is released with an understanding that the Institute shall notbe responsible for any errors, omissions and/or discrepancies or any action taken in that there be any discrepancy, error or omission noted in the study material, the Institute shall be obliged ifthe same is brought to its 2: capital , COMMODITY & MONEY MARKET (100 Marks)Level of Knowledge: Expert KnowledgeObjective:To acquire specialized knowledge of capital , COMMODITY and MONEY MarketDetailed Framework Basic structure of Flow of funds in the economy; capital Markets its Role in capital formation, Functions of Liquidity, , Resource Allocation and Framework Ministry of Finance ( capital Markets Division,Department of Economic Affairs) Ministry of Corporate Affairs Companies Act, 1956 SEBI Act, 1992 Securities Contracts (Regulation) Act, 1956 (SCRA) Depositories Act, 1996 SEBI Regulations and Guidelines An Overview, SEBI (Prohibition of Insider Trdaing) Regulations,1992, SEBI (Substantial Acquisitions of Shares and Takeovers) Regulations, 2011 (SAST) Prevention of MONEY Laundering Act, 2002 Grievance Redressal Mechanism: Stock Exchange (Investor Protection Fund), SEBI, SecuritiesAppellate Tribunal (SAT), Supreme Court Enforcement.

5 Economic Offences Wing, Financial Intelligence Unit, Central Bureau of Investigation,Financial Action Task Force (FATF) Intermediaries Framework Framework of MARKET Infrastructure Institutions (MII), Stock Exchanges Clearing Corporations,Custodians, Depositories, Depository Participants, Registrars and Transfer Agents (RTA), Bankers to issue Merchant Bankers, Underwriters, , Investment Advisors, Portfolio Managers, Self Certified SyndicateBanks, Brokers, Sub-brokers, MARKET -makers Credit Rating Markets IPO, FPO, Offer for Sale, Private Placement, Preferential Allotment, Institutional Placement Procedures(IPP), Qualified Institutional Placement (QIP), Rights Issue, Bonus Issuev Prospectus, DRHP, Shelf Prospectus, Red Herring prospectus Private Investment in Public Equity (PIPE) SEBI (Issue of capital & Disclosure Requirements) Regulations, 2009 Lead Manager (Pre & Post Issue Activities) Due Diligence Review Underwriting obligations Basis of Allotment Book-building Pre-issue and Post-issue activities, Green-shoe Option Pre-listing and Post-listing activities, Listing Markets Opening day (listing) Continuing compliance obligations and disclosures: Post-listing activities, Corporate Actions Requirements for Continuing Listing Corporate Governance Norms Disclosures as per Listing Agreement: Price Sensitive Information, Material Changes, Quarterly results Functioning of an Exchange: Margining, Trading, Clearing and Settlement, Trade Guarantee Fund,Trading Software, Arbitration Mechanism Stock MARKET Indices6.

6 capital MARKET Investment Institutions Domestic Financial Institutions (DFI) , Qualified Institutional Buyers (QIB), Foreign Institutional Investors(FII) , Private Equity (PE), Angel Funds, HNIs, Venture capital (VC), Qualified Foreign Investors (QFI),Mutual Funds, Alternative Investment Funds (AIF), Hedge Funds, Pension MARKET Instruments Equities Preference Shares, Shares with Differential Voting Rights (DVR) Corporate Debt :Non Convertible Debentures (NCD), Partly-and Fully-Convertible Debentures (PCD,FCD) NCDs with or without Call and Put Features Bonds, Foreign Currency Convertible Bonds (FCCB) Indian Depository Receipts (IDR) Derivatives: Single Stock Futures, Single Stock Options, Index futures (SENSEX, NIFTY), Index Options,Interest Rate Futures, Currency futures Exchange Traded Funds (ETF) Mobilization through International Markets Global Depository Receipt (GDR) American Depository Receipt (ADR) Listing on the London Alternative Investment MARKET (AIM), NASDAQ, Studies and Report of Committees on capital of Commodities Marketing(a)Economic Rationale for Commodities Trading Place and store value(b)Perishables and non-perishables(c)Tangibles and Intangibles (Weather , Freight)(d)How resources can be optimized through price MARKET Operations Origin of COMMODITY MARKET in India Products, Participants and Functions Evolution of COMMODITY Exchanges.

7 Regulatory Framework Structure Of COMMODITY exchanges, membership, Risk Management, Clearing and Settlement System,Commodities Traded on Stock Exchanges Platform-NCDEX, MCX SX Instruments available for Trading Using COMMODITY exchanges for Hedging, Speculation and to MONEY MARKET Nature & Deployment of Surplus Funds and Raising of Short-term funds, Characteristics of MoneyMarket Regulatory framework of RBI, FIMMDA (Fixed Income, MONEY MARKET and Derivatives Association)and Foreign Exchange Dealers Association of India (FEDAI)Call MONEY MARKET -Players, Utility, Moneymarket Instruments: Commercial Paper, Certificates of Deposits, Bills of Exchange, Treasury Bills (T-Bills), Bill Discounting, Factoring, Letter of Credit, MONEY MARKET Mutual Funds, Fixed Maturity PlansviiLIST OF RECOMMENDED BOOKSMODULE 3 PAPER : capital , COMMODITY AND MONEY MARKETThe students may refer to the given books and websites for further knowledge and study of the subject Khan:Indian Financial Systems; Tata McGraw Hill, 4/12, Asaf Ali Road, New Delhi110 :SEBI K Gupta:Financial Institutions and Markets ; Kalyani Publishers, 4863/2B, Bharat RamNeeti GuptaRoad, 24, Daryaganj, New Delhi -110002 Nishja Institute of:Securities Markets and Products; Taxmann Publications (P) Ltd.

8 , 21/35, WestBanking & FinancePunjabi Bagh, New S Gurusamy: capital Markets, Tata McGraw Hill Education Private Limited, 7 West PatelNagar, New Nandini: COMMODITY Markets, Tata McGraw Hill Education Private Limited, 7 WestChatnaniPatel Nagar, New Kulkarni: COMMODITY Markets and Derivatives, Excel Books, A-45, Naraina, Phase I,New Delhi-1100028 REFERENCESW ebsite and:Taxmann, 59/32, New Rohtak Road, New Delhi-110 Law:Corporate Law Adviser, Post Bag No. 3, Vasant Vihar, Monthly BulletinSEBI Annual Report:SEBI, News:National Stock Exchange of India Ltd., Mahindra Towers, Worli, : Students are advised to read relevant Bare Acts and Rules and Regulations relating thereto. StudentCompany Secretary and Chartered Secretary should also be read regularly for updating the OF STUDY LESSONSS tudy Lesson No. Framework of capital of MARKET Infrastructure Intermediaries MARKET Investment MARKET Mobilization through International of Commodities MARKET Acquisition of Shares and TakeoversREPORT OF THE COMMITTEES ON capital MARKETTEST PAPERSxCONTENTSCAPITAL, COMMODITYAND MONEY MARKETLESSON 1 ECONOMIC FRAMEWORK OF capital MARKETI ntroduction2 Constitutents Of The Financial System2 Financial Assets2 Financial Intermediaries3 Financial Markets3 capital Market5 Primary Market6 Secondary Market6 Functions of capital Market8 Role of capital MARKET in Resource Allocation9 capital Formation10 Stages of capital Formation10 Role of capital MARKET in capital Formation11 LESSON SUMMARY12 SELF TEST QUESTIONS13 LESSON 2 LEGAL FRAMEWORKI ntroduction16 Department of Economic Affairs (DEA)

9 16 capital MARKET Division17 Ministry of Corporate Affairs18 Company Law Board18 Reserve Bank of India19 Securities and Exchange Board of India (SEBI)19 Legislations20 Grievance Redressal Mechanism20 Grievance Rederessal Mechanism at Stock Exchange20xiPageInvestor Protection Fund21 Grievance Rederessal Mechanism at SEBI21 Investor Protection and Education Fund21 Securities Appellate Tribunal22 Prevention of MONEY Laundering Act, 200223 Investigating Agencies in case of PMLA, 200227 LESSON ROUND UP31 SELF TEST QUESTIONS32 LESSON 3 FRAMEWORK OF MARKET INFRASTRUCTURE INSTITUTIONSI ntroduction36 Securities Contract (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 201236 The Depositories Act, 199641 Enquiry and Inspection43 Penalty44 Offences47 Special Court48 Appeals49 Securities Contracts (Regulation) Act, 195651 LESSON ROUND UP56 SELFTEST QUESTION57 LESSON 4 FINANCIAL INTERMEDIARIES FRAMEWORKI ntroduction60 Primary MARKET intermediaries60 Merchant Banker60 SEBI (Merchant Bankers) Regulations, 199260 Registrars to an Issue and Share Transfer Agents66 SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 199366 Code of Conduct67 Underwriters70xiiPageSEBI (Underwriters) Regulations, 199370 Banker to an Issue72 SEBI (Banker to an Issue) Regulation, 199472 Code of Conduct74 Debenture Trustees74 SEBI (Debenture Trustees) Regulations, 199375 Secondary MARKET intermediaries78 Stock Brokers and Sub-broker79 SEBI (Stock Brokers & Sub-Brokers) Regulations, 199279A Case Study on Fraudulent dealings87 Portfolio manager89 SEBI (Portfolio Managers) Regulations, 199389 Internal Audit of Portfolio Manager98 Custodian of securities98 SEBI (Custodian of Securities)

10 Regulations, 199698 Foreign Institutional Investor104 SEBI (Foreign Institutional Investors) Regulations, 1995104 Qualified Foreign Investors (QFIs)111 SEBI (Investment Advisers) Regulations, 2013112 SEBI (Credit Rating Agencies) Regulations, 1999116 MARKET Maker123 Guidelines for MARKET Maker123 SEBI (Depositories and Participants) Regulations, 1996125 Governance of Depository126 Audit under SEBI (Depositories and Participants) Regulations, 1996127 Internal Audit of Operations of Depository Participants127 Concurrent Audit128 Qualified Depository Paticipants128 LESSON ROUND UP130 SELF TEST QUESTIONS131xiiiPageLESSON 5 PRIMARY MARKETI ntroduction134 Types of Issue134 Offer for Sale135 OFS Process135 Difference between Offer for Sale (OFS) process and IPOs/FPOs136 SEBI Guidelines on Offer for Sale (OFS) of shares by promoters through the Stock Exchange Mechanism136 Understanding the Guideline Step wise140 Different form of Prospectus141 Filing of Offer Document142 Lead Manager142 Underwriting144 Due Diligence145 Due Diligence in IPO/FPO145 Basis of Allotment150 Book Building151 Additional Disclosures in Case of Book Building157 Green Shoe Option Facility159 Illustration161 Pre-Issue Activities162 Rights Issue164 Bonus Issue167 Preferential Issue170 Qualified Institutions Placement174 Institutional Placement Programme177 Listing Agreement179 Event based and time based Compliances under Listing Agreement180 LESSON R