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    by: sandesh

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    1 : Chapter 5 Intermediaries
    2 : Brokers The gazette of India extraordinary Part II - Section 3 - Sub-section (II) was published by the authority in Bombay on the 20th day of August 1992 notification securities and exchange board of India (stock brokers and sub-brokers) rules, 1992. In exercise of the powers conferred by Section 29 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Central Government hereby makes the following rules, namely Definitions In these rules, unless the context otherwise requires: a) "Act" means the Securities and Exchange Board of India Act, 1992 (15 of 1992); b) "certificate" means a certificate of registration issued by the Board; Cont….
    3 : c) "Rules" mean the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules, 1992; d) "stock exchange" means a stock exchange which is for the time being recognised by the Central Government under Section 4 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); e) "stock broker" means a member of a stock exchange; f) "sub-broker" means any person not being a member of a stock exchange who acts on behalf of a stock-broker as an agent or otherwise for assisting the investors in buying, selling or dealing in securities through such stock-brokers; g) "Regulations" mean the Securities and Exchange Board of India (Stock Brokers and Sub- Brokers) Regulations, 1992. Cont….
    4 : The Board may grant a certificate to a stock-broker subject to the following conditions, namely: he holds the membership of any stock exchange; he shall abide by the rules, regulations and bye-laws of the stock exchange or stock exchanges of which he is a member; in case of any change in the status and constitution, the stock broker shall obtain prior permission of the Board to continue to buy, sell or deal in securities in any stock exchange; he shall pay the amount of fees for registration in the manner provided in the regulations; and he shall take adequate steps for redressal of grievances of the investors within one month of the date of the receipt of the complaint and keep the Board informed about the number, nature and other particulars of the complaints received from such investors. Cont…. Conditions for grant of certificate to stockbroker.
    5 : Conditions of grant of certificate to sub-broker. The Board may grant a certificate to a sub-broker subject to the following conditions, namely: he shall pay the fees in the manner provided in the regulations; he shall take adequate steps for redressal of grievances of the investors within one month of the date of the receipt of the complaint and keep the Board informed about the number, nature and other particulars of the complaints received; in case of any change in the status and constitution, the sub-broker shall obtain prior permission of the Board to continue to buy, sell or deal in securities in any stock exchange; and he is authorised in writing by a stock-broker being a member of a stock exchange for affiliating himself in buying, selling or dealing in securities: Provided such stockbroker is entitled to buy, sell or deal in securities.
    6 : Cont…. Trading System Trading on stock exchanges is carried out through brokers and dealers. All members can act as brokers and for this purpose they have to maintain security deposits. Brokers act as agents buying and selling or others for which they receive brokerage commission at stipulated rates. Dealers act as principals and sell securities on their own accounts. However, members cannot enter into contract with any person other that member without prior permission from the Governing Body. The stock exchange rules, bye-laws and regulations have identified eight major functional specializations for the members.
    7 : Commission Broker Floor Broker Tataniwala Dealer in Non-cleared securities Odd-lot Dealer Budiwalas Security Dealer
    8 : Primary Dealers The primary dealers have two major roles to play that of an underwriter in the primary market and that of a market maker in the secondary market for the government instruments.
    9 : Banking Services Universal Banking Universal banks are the one-stop shops, who deal with a wide portfolio of financial products integrating commercial banking, term lending, retail operations investment banking, mutual funds, pension funds, insurance, underwriting of issues securities issuance etc. Universal banks derive benefit from economies of scale, direct mobilisation of funds from the general public through bank deposits, using such deposit funds for the term lending and retail business. As the universal banks would serve more customers with the same existing network, and the customers would be ultimately benefited with the low cost of services. Cont….
    10 : Cont…. Correspondent Banking Services provided by correspondent bank include cheque collection, data processing, federal funds trading, securities safekeeping or sale of securities, loans to directors and officers, international transactions investment banking advice on mergers and acquisitions, loan participation and many others. Retail Banking It is a subset of commercial banking. A retail banker provides banking service for individuals. Private Banking In private banking, the banking services, including lending and investment management, are offered only for wealthy individuals.
    11 : CHIPS The Clearing House Interbank Payment System (CHIPS) is a computerised fund transfer system for international dollar payments linking major US and foreign banks with offices in New York. SWIFT Society for Worldwide Interbank Financial Telecommunications, a cooperative company that transmits financial messages, payment orders, foreign exchange confirmations and delivery of securities to nearly 7,000 financial institutions on the network, located in 190 countries.
    12 : INVESTMENT MANAGEMENT COMPANY The investment management company has to undertake only the management of the scheme; act as a trustee of any scheme; launch any scheme for the purpose of investing in securities but not invest in any schemes floated by it. An investment management company appoints a trustee who holds the assets of the scheme for the benefit of unit-holders. The investment management company may launch only those schemes that are approved by the trustee. The scheme has to obtain a rating from a credit rating agency. The company has to get the scheme appraised by an appraising agency. Cont….
    13 : The investment management company has to issue unit certificates to accepted scheme applicants, at the most six weeks from the date of closure of the subscription list. A unit certificate issued under the scheme is freely transferable. The investment management company, on production of the instrument of transfer, together with relevant unit certificates, registers the transfer and returns the unit certificate to the transferee within 30 days of the date of such production.
    14 : Merchant Bankers/Investment Banks Definition Merchant banking may be defined as, 'an institution which covers a wide range of activities such as management of customer services, portfolio management, credit syndication, acceptance credit, counselling, insurance etc. Origin Merchant banking originated through the entering of London merchants in financing foreign trade through acceptance of bill.
    15 : Services of Merchant Banks The services of merchant bankers are described in detail in the following section. i) Corporate Counselling ii) Project Counselling iii) Loan Syndication iv) Issue Management The pre-issue management is divided into as following: Issue through prospectus, offer for sale and private placement Marketing and underwriting Pricing of Issues Post-issue Management Underwriting of Public Issue Managers, Consultants or Advisers to the Issue Portfolio Management Off-shore Finance
    16 : Fund Manager Fund managers sell the units of funds to investors at the net asset value (NAV) and are also ready to purchase units from the investors at the net asset value. In case of a "no-load" fund, the fund manager sells the units by mail to the investors. Since there are no other intermediaries, this type of fund does not have a sales commission. In terms of a loaded fund, the units are sold through a salesperson. When investors purchase units, a part of the investor's equity is removed as the load at the beginning of the contract. This is called the front-end loading. By adding the commission at the time of sale of units by the investors, exit fees or back-end loading can also be charged. Cont….
    17 : The commission to be paid to the salesperson is added to the net asset value. Apart from this, the fund managers also charge a management fee for the cost of operating the portfolios. These costs include expenses that will be borne by the fund manager such as brokerage fees, transfer costs, book-keeping expenses, and fund managers' salaries. Mutual Funds "A mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. Anybody with an investible surplus of as little as a few thousand rupees can invest in mutual funds. These investors buy units of a particular mutual fund scheme that has a defined investment objective and strategy." Cont….
    18 : ENTITIES IN A MUTUAL FUND OPERATION A mutual fund represents a vehicle for collective investment. In India, the following entities are involved in a mutual fund operation. Sponsor Mutual Fund Trustees Asset Management Company (AMC) Custodian Registrars and Transfer Agents
    19 : Mutual Funds and SEBI The Unit Trust of India was the first mutual fund set up in India in the year 1964. In the year 1992, the Securities and Exchange Board of India (SEBI) Act was passed. The objectives of SEBI are to protect the interest of investors in securities and to promote the development of and to regulate the securities market. All mutual funds whether promoted by public sector or private sector entities, including those promoted by foreign entities are governed by the same set of regulations. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI.
    20 : REGULATORY BODIES There are four regulatory bodies for the Indian capital market. The main capital market regulator is The Securities and Exchange Board of India The Reserve Bank of India (RBI) Department of Company Affairs (DCA) Department of Economic Affairs (DEA) Other regulatory bodies are CLB, RBI, SEBI, DEA, DCA, SEC, FRB, etc.
    21 : AUDITING BODIES Good corporate governance stipulates that all public companies having a paid-up capital of Rs 5 crores or more have to constitute a committee of the Board of Directors known as the audit committee, which will consist of not less than three directors. At least two-thirds of the total number of the members of such a committee should not be managing or whole time directors. The members have to elect a chairman from amongst themselves. Cont….
    22 : Cont…. Credit Rating Credit Rating is a symbolic indication of the current opinion regarding the relative capability of a corporate entity to service its debt obligations in time with reference to the instrument being rated. It enables the investor to differentiate between debt instruments on the basis of their underlying credit quality. To facilitate simple and easy understanding, credit rating is expressed in alphabetical or alphanumerical symbols. Credit Rating 1. Financial Instruments Rating Bond Rating Equity Rating Short-term Instruments Rating
    23 : 2. a) Customer Rating b) Sovereign Rating c) Borrower Rating The various purposes for which credit rating is applied are: 1. Long-term/medium-term debt obligations such as debentures, bonds, preference shares or project finance debts are considered long-term and debts ranging from 1 to 3 years like fixed deposits are considered medium-term; 2. Short-term debt obligations the period involved in one year or less and cover money market instruments such as commercial paper, credit notes, cash certificates etc.; Cont….
    24 : Equity Grading and Assessment, structured obligations, municipal bonds, mutual fund schemes, plantation schemes, real estate projects, infrastructure-related debts, ADR, GDR issues, bank securities etc. Uses of Credit Rating Credit rating is useful to investors, issuers, intermediaries and regulators. Credit Rating Agencies Credit Rating and Information Services of India Ltd. (CRISIL) Credit Analysis and Research (CARE) Investment Information and Credit Rating Agency of India Ltd. (ICRA) Duff & Phelps Credit Rating India (DCR)
    25 : TECHNOLOGY/INTERNET PROVIDERS In order to smoothen the online trading and terminal updating, technology is a must. For Internet trading to succeed, good business models as well as a comprehensive technology strategy are imperative. With net trading in securities and rapid consolidation between multiple stock exchanges, the securities marketplace is fast becoming an international market place. Cont….
    26 : Investment Companies Investment companies are firms that invite individual investors to subscribe to their capital, combine the capital thus collected into a common pool of investible resources and then seek to accomplish the investment objectives of the investors by investing these resources in an appropriate portfolio of securities. Investment companies may have a number of different schemes (or 'funds' as they are sometimes called; we shall use the terms interchangeably) catering to the specific investment objectives of different classes of investors. These investment schemes, offered by investment companies, can be categorized based either on the nature of their capitalization or based on their investment objectives or based on the types of assets held by them. Cont….
    27 : Investment Companies in India Unit Trust of India (UTI) Mutual Funds of Commercial Banks (MFS) Life Insurance Corporation of India (LIC) Investment Options for Investment Companies In India

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