Unraveling SEBI's Regulatory Tapestry: 175 Insights into India's Securities Landscape

Safeguarding the Cornerstone: SEBI's Establishment and Evolution

Q1. What is the genesis of SEBI, and how did it transition from a non-statutory to a statutory body?

A1.SEBI, the Securities and Exchange Board of India, was initially constituted as a non-statutory body on April 12, 1988, through a resolution passed by the Government of India. However, recognizing the need for a robust regulatory framework, SEBI was established as a statutory body in 1992 under the SEBI Act, effective from January 30 of that year.

Q2. Can you shed light on SEBI's historical background and its current organizational structure?

A2. Before SEBI's inception, the Controller of Capital Issues (CCI) served as the market regulatory authority under the Capital Issues (Control) Act of 1947. SEBI's headquarters is strategically located in the business district of Bandra Kurla Complex (BKC) in Mumbai, with four regional offices in New Delhi, Kolkata, Chennai, and Ahmedabad, as well as 17 local offices spread across India to promote investor education.

SEBI is managed by a board comprising persons nominated by the Government of India, the Union Finance Ministry, the Reserve Bank of India (RBI), and other whole-time and part-time members appointed by the government.

Specifically,

a) 1 Chairman being nominated by Government of India (Govt.)

(b) 2 members being nominated by Union Finance Ministry.

(d) 5 members being nominated by govt. where minimum 3 members are required

to be Whole-Time Members (WTM). Hence maximum 2 members required to be Part

Time Members (PTM)

Q3. What are SEBI's primary objectives, and what functions does it encompass?

A3.SEBI's primary objectives are to protect investors' interests in securities, promote the development of the securities market, regulate the securities market, and address related and incidental matters. Its functions encompass a wide range of responsibilities, including regulating stock exchanges, intermediaries, collective investment schemes, mutual funds, and self-regulatory organizations, among others.

Pioneering Achievements: SEBI's Transformative Milestones

Q4. How has SEBI streamlined the securities trading process through its ?

A4. SEBI has introduced paperless workings and reduced the rolling cycle period from T+5 in July 2001 to T+2 in April 2003, where settlement is completed within two days after the trade date. Additionally, SEBI has discontinued transactions through physical certificates to mitigate postal delays, theft, forgery, and other risks.

Q5. Can you highlight SEBI's efforts to enhance retail investor participation?

A5. SEBI has increased the application limit for retail investors from INR 1 lakh (USD 1,200) to INR 2 lakh (USD 2,400), making it more accessible for individuals to participate in the securities market.

Q6. How has SEBI addressed transparency and disclosure requirements in the wake of corporate scandals?

A6. In the aftermath of global financial crises and corporate scandals like the Satyam fiasco, SEBI has increased the extent and number of disclosures required from Indian corporate promoters, enhancing transparency and accountability.

Q7. What measures has SEBI taken to facilitate investments and remove regulatory barriers?

A7. SEBI has liberalized the takeover code, removing regulatory hurdles and facilitating investments in the Indian securities market.

Q8. Can you share SEBI's initiatives to promote financial literacy among investors?

A8. SEBI has taken proactive steps to enhance financial literacy, with its Executive Director, G.P. Garg, launching a book on financial literacy during World Investor Week 2022. This joint effort with the Metropolitan Stock Exchange of India Limited and CASI New York aims to empower investors with knowledge and understanding.

Navigating Legal Challenges: SEBI's Pivotal Moments

Q9. Can you elaborate on the Public Interest Litigation (PIL) filed by the India Rejuvenation Initiative before the Supreme Court, and its implications for SEBI?

A9. The Supreme Court heard a PIL filed by the India Rejuvenation Initiative, challenging the procedures adopted by the government for key appointments within SEBI. The PIL alleged that the constitution of the search-cum-selection committee for recommending the names of the chairperson and whole-time members had been altered, impacting SEBI's balance and compromising its role as a watchdog.

While the Supreme Court allowed the petitioner to withdraw the PIL and file a fresh one specifically addressing constitutional issues related to the appointments of regulators and their independence, it refused the finance ministry's request to dismiss the case, acknowledging the importance of the matter.

Q10. Can you discuss the complaint filed by K.M. Abraham, a SEBI Whole-Time Member, regarding alleged malpractices within the organization?

A10. K.M. Abraham, a SEBI Whole-Time Member, filed a written complaint with the Prime Minister of India, alleging malpractices within the regulatory institution. Abraham stated that SEBI was under duress and severe attack from powerful corporate interests operating in concert to undermine its authority. He specifically mentioned that the Finance Minister's advisor, Omita Paul, was attempting to influence several pending cases before SEBI, including those involving the Sahara Group, Reliance, Bank of Rajasthan, and MCX. Navigating the Regulatory Landscape: SEBI's Role and Responsibilities.

Q11. How does SEBI regulate Regional Stock Exchanges (RSEs) in India

A11. SEBI has announced exit guidelines for Regional Stock Exchanges (RSEs) through a circular dated May 30, 2012. Recognizing the illiquid nature of trade in more than 20 RSEs, SEBI has mandated that these exchanges either meet the required criteria or opt for a graceful exit. The criteria include maintaining a minimum net worth of INR 1 billion and an annual trading volume of INR 10 billion. SEBI has allowed 2 years time to comply required criteria or opt for graceful exit (any).

Q12. Can you explain SEBI's process for voluntary and compulsory exit (de-recognition) of RSEs?

A12. SEBI has allowed RSEs to apply for voluntary surrender of recognition if their annual turnover is lower than INR 10 billion before the expiry of two years from the date of the circular (May 30, 2012). If an RSE does not apply for voluntary exit within this period or fails to meet the required criteria, SEBI will proceed with compulsory de-recognition under prescribed terms and conditions.

Q13. How does SEBI function through its various departments?

A13. SEBI operates through 20 departments, each responsible for specific areas of regulation and oversight. These departments include the Commodity Derivatives Market Regulation Department, Corporation Finance Department, Department of Economic and Policy Analysis, Department of Debt and Hybrid Securities, Enforcement Departments, Enquiries and Adjudication Department, General Services Department, Human Resources Department, Information Technology Department, Integrated Surveillance Department, Investigations Department, Investment Management Department, Legal Affairs Department, Market Intermediaries Regulation and Supervision Department, Market Regulation Department, Office of International Affairs, Office of Investor Assistance and Education, Office of the Chairman, and Regional Offices.

Q14 What is SEBI's role in regulating recognized stock exchanges in India?A14. SEBI plays a crucial role in regulating recognized stock exchanges, where stock brokers and traders are permitted to buy and sell securities such as shares, bonds, and other financial instruments. These exchanges facilitate the issuance and redemption of securities, capital events, payment of income and dividends, and continuous trading through open outcry or electronic platforms.

SEBI ensures that securities are listed on recognized stock exchanges to enable trading and maintains records through electronic communication networks to accommodate the high volume of transactions. While trading on recognized exchanges is not legally obligated, investors are also permitted to engage in off-market transactions or Over-The-Counter (OTC) trading.

Combating Insider Trading: SEBI's Stringent Measures

Q15. How does SEBI clarify the applicability of the Prohibition of Inside Trading (PIT) Regulations, 2015, in various scenarios?

A15. SEBI has provided comprehensive clarifications on the applicability of the PIT Regulations, 2015, addressing scenarios such as:

- Pledge creation, invocation, or revocation by Depository Participants (DPs) is considered trading under the regulations.

- Securities trading by DPs or Non-Designated Persons (NDPs) after possessing Unpublished Price Sensitive Information (UPSI) is treated as insider trading.

- Transmission of shares is exempted from provisions related to trading window closure, pre-clearance, and Contra Trade Transactions (CTRs), but disclosure requirements remain applicable.

Q16. What are SEBI's requirements for maintaining a Structured Digital Database (SDD) by listed companies and intermediaries?

A16. Listed companies, intermediaries, and fiduciaries are required to maintain a Structured Digital Database (SDD) under Regulation 3(5) of the PIT Regulations, 2015. This database must include the names of persons or entities with whom UPSI is shared and those handling UPSI during the course of business. The Board of Directors and compliance officers are responsible for ensuring the confidentiality, integrity, and security of the SDD, as well as compliance with relevant laws, regulations, circulars, and FAQs issued by SEBI or stock exchanges.

Q17. Can the SDD be maintained on cloud servers hosted outside India?

A17. While the SDD must be maintained in compliance with Regulations 3(5) and 3(6) of the PIT Regulations, 2015, the Board of Directors and compliance officers are responsible for ensuring adherence to all aspects of SDD maintenance, whether on Amazon, Google, cloud servers, or other methods, both within and outside India. They must ensure confidentiality, integrity, data security, logs, and compliance with applicable laws, regulations, circulars, and FAQs issued by SEBI or stock exchanges.

Q18. Is it mandatory for listed companies to maintain the SDD internally, or can it be outsourced?

A18. Listed companies are required to maintain the SDD internally and are not permitted to outsource its maintenance to third-party vendors where the SDD is maintained on a login basis or where third-party vendors have access to the SDD besides the data being prepared by the listed company's employees.

Q19. Are there restrictions on publishing the list of UPSI items for public access or on a portal?

A19. The list of UPSI items must be prepared in-house and is not permitted to be published for public access on the listed company's website or portal.

Q20. Is it necessary to maintain the SDD even when information is shared within the company?

A20. Yes, listed companies are required to maintain the SDD in-house, even when information is shared within the company. Requisite records must be updated in the SDD when information is transmitted.

Q21. How does SEBI regulate the sharing of legitimate information by nominee directors with banks or financial institutions?

A21. Nominee directors or entities who are Designated Persons (DPs) or insiders are permitted to share UPSI with banks or financial institutions for their legitimate purposes only. However, such sharing of UPSI must be recorded in the listed company's SDD.

Q22. What are the requirements for preserving the SDD after the completion of relevant transactions?

A22. Listed companies are required to preserve the SDD for a minimum of eight years after the completion of relevant transactions, as well as until the completion of any proceedings against SEBI's investigation or enforcement, if applicable.

Q23. Can Designated Persons (DPs) create, revoke, or invoke pledges during a trading window closure?

A23. DPs who are listed companies or lenders (pledgors) are required to demonstrate that the creation, revocation, or invocation of a pledge is bona fide and prove their innocence under Regulation 4(1) of the PIT Regulations, 2015.

Q24. Is the sale of pledged securities by a lender considered a revocation of the pledge?

A24. Yes, the sale of pledged securities by a lender is treated as a revocation of the pledge shares under the PIT Regulations, 2015, and must be reported in SEBI's Form C.

Q25. Are DPs required to provide a declaration stating they do not possess UPSI at the time of implementing a trading plan?

A25. Yes, DPs (insiders) are not permitted to trade based on old UPSI under the PIT Regulations, 2015. They are allowed to trade when the old UPSI no longer exists and no new UPSI has been generated.

Q26. Are DPs required to provide details of their immediate relatives?

A26. Yes, listed companies are required to provide details of DPs' immediate relatives, including members of the promoter group, directors, and others, as specified under Regulation 7(2) of the PIT Regulations, 2015, as notified by SEBI's Circular dated September 9, 2020.

Q27. Are DPs required to disclose their trading activities if they do not have a PAN or demat account?

A27. System-driven disclosure by listed companies is not required for a DP who does not have a PAN or demat account number, as individuals or entities are not permitted to trade in Indian securities markets without having a PAN or demat account number.

Q28. Are DPs required to disclose subsequent trades if the original limit is not exhausted?

A28. DPs are permitted to trade in securities markets without subsequent disclosure under the explanation to Regulation 7(2)(b) of the PIT Regulations, 2015, when the threshold amount of INR 10 lakh is not exhausted. However, DPs are required to disclose subsequent trades when the threshold amount of INR 10 lakh is exhausted, as specified under Regulation 2(a) of the PIT Regulations, 2015.

Q29. Are DPs required to disclose the market rate or the net realizable rate for securities transactions?

A29. DPs are required to disclose the market rate for securities transactions. The net market realizable rate, after subtracting brokerage, commission, taxes, etc., is not required to be disclosed. Hence, the gross market realizable rate must be disclosed.

Q30. Are DPs required to disclose trading values exceeding INR 10 lakh within two days?

A30. Yes, DPs are required to disclose securities trading in SEBI's Form C when the value exceeds INR 10 lakh within two days, as per Regulation 7(2)(a) of the PIT Regulations, 2015. However, DPs are not required to disclose the acquisition of bonus shares when the value exceeds INR 10 lakh.

Q31. Are DPs required to disclose the names of their immediate relatives for securities trading?

A31. Yes, DPs' immediate relatives are required to disclose securities trading in SEBI's Form C when the value exceeds INR 10 lakh, as specified under Regulation 6(2) of the PIT Regulations, 2015.

Q32. Are DPs required to disclose the acquisition of ESOP shares with financial assistance?

A32. DPs are required to disclose the acquisition of ESOP shares with financial assistance in SEBI's Form C when the value exceeds INR 10 lakh. However, DPs are not required to disclose the acquisition of ESOP shares with or without financial assistance when the value does not exceed INR 10 lakh.

Q33. Are DPs required to disclose the exercise of ESOPs?

A33. Yes, DPs are required to disclose the exercise of ESOPs in SEBI's Form C, as ESOPs are covered under Clause 4(3)(b) of Schedule B of the PIT Regulations, 2015, even though they are issued under the SEBI (Share Based Employee Benefits) Regulations, 2014.

Q34 Is a Managing Director (MD) required to disclose trading in their own company's shares?

A34. Yes, an MD is required to disclose trading in their own company's shares in SEBI's Form C when possessing UPSI. However, if the company's Code of Conduct permits trading plans for persons who perpetually possess UPSI, like the MD, disclosure may not be required.

Q35. Are DPs required to disclose the exercise and sale of ESOP cashless options?

A35. Pre-clearance is required for both exercising and selling ESOP cashless options. However, pre-clearance is not required for exercising ESOP cashless options only.

Q36. Are DPs required to disclose off-market transfers of securities?

A36. Yes, DPs are required to obtain pre-clearance for off-market transfers of securities under the PIT Regulations, 2015, as securities trading includes both on-market and off-market transfers.

Q37. Is the compliance officer required to inform DPs about their eligibility during a trading window closure?

A37. No, DPs are not permitted to trade during a trading window closure as declared by the company's compliance officer, even if they had obtained pre-clearance when the trading window was open.

Q38. Are listed companies permitted to grant ESOPs during a trading window closure?

A38. Yes, listed companies are permitted to grant ESOPs during a trading window closure, as ESOPs are a right, not an obligation, to acquire the company's shares.

Q39. Is the compliance officer required to inform DPs about a trading window closure?

A39. Yes, the company's compliance officer is required to communicate the trading window closure to DPs.

Q40. Is the company's compliance officer permitted to declare a trading window closure?

A40. Yes, the company's compliance officer is permitted to declare a trading window closure when they determine that a DP or class of DPs possesses UPSI.

Q41. Can the compliance officer declare a trading window closure against each UPSI?

A41. Yes, listed companies' compliance officers are permitted to declare a trading window closure against each UPSI. --------------------------------------------------------------------------- Q1: What is the significance of Regulation 4(3) read with Regulation 4(1)(vi) of the SEBI (Prohibition of Insider Trading) Regulations, 2015?

A1: Regulation 4(3) read with Regulation 4(1)(vi) permits designated persons to trade in securities when the trading window is closed, provided the trade is carried out in accordance with a pre-approved trading plan.

Q2: Can designated persons trade through the block deal window mechanism during the trading window closure period?

A2: Yes, Regulation 4(3) read with Regulation 4(1)(ii) permits designated persons to trade through the block deal window mechanism during the trading window closure period, without violating Regulation 3, provided both parties are aware of the trade decision.

Q3: What is the meaning of contra trade restrictions (CTRs)?

A3: Contra trade restrictions refer to the prohibition on designated persons and their immediate relatives from entering into opposite transactions (buy after sell or sell after buy) in the securities of the company within six months.

Q4: Are CTRs applicable to the exercise of employee stock options (ESOPs) and subsequent sale of shares?

A4: No, CTRs are not applicable to the subscription, exercise, and sale of shares acquired through the ESOP route, even if the sale occurs in multiple transactions. However, other provisions of the SEBI (PIT) Regulations, 2015, will still apply to the sale of ESOP shares.

Q5: How are CTRs applied to futures and options (F&O) contracts?

A5: CTRs do not apply to F&O contracts that are physically settled upon expiry. However, CTRs are applicable if the F&O contracts are cash-settled before expiry. CTRs are also not applicable to trading in index futures or other derivatives where the underlying security is part of the derivative.

Q6: Are CTRs applicable to trades executed under a trading plan?

A6: No, CTRs are not applicable to trades executed by designated persons in accordance with a pre-approved trading plan. Additionally, CTRs do not apply to the pledging of securities.

Q7: Are CTRs applicable to acquisitions or disposals through rights issues, follow-on public offers (FPOs), buybacks, open offers, etc.?

A7: CTRs are not applicable to the acquisition of securities through rights issues, FPOs, offer for sale (OFS), bonus issues, share splits, mergers, amalgamations, or demergers, provided the initial transaction of disposal was carried out in compliance with the SEBI (PIT) Regulations, 2015. Similarly, CTRs do not apply to the disposal of securities through buybacks, open offers, exit offers, mergers, amalgamations, or demergers, provided the initial transaction of acquisition was compliant.

Q8: How are CTRs applied to transactions involving rights issues, mergers, demergers, bonus issues, and share splits?

A8: For rights issues, FPOs, OFS, bonus issues, share splits, mergers, amalgamations, and demergers, CTRs are applicable to the initial acquisition transaction. Additionally, CTRs apply if securities acquired through these routes are disposed of within six months of the initial transaction, or if securities are disposed of through buybacks or open offers within six months of the initial transaction, or if securities are subsequently acquired within six months of the initial transaction.

For mergers or amalgamations, the six-month period is calculated from the date of acquisition of securities of the entities that were merged or amalgamated. For demergers, the six-month period is calculated from the date of acquisition of securities of the demerged entity. For bonus or share splits, the six-month period is calculated from the date of acquisition of the original securities on which the bonus or split was received.

Q9: Are CTRs applicable to persons other than designated persons who possess unpublished price-sensitive information (UPSI)?

A9: Yes, CTRs are applicable to any person, including listed companies, market intermediaries, and other entities, who possess UPSI during the course of their business operations, as specified under Clause 10 of the Code of Conduct and the SEBI (PIT) Regulations, 2015.

Q10: Are CTRs applicable to designated persons and their immediate relatives?

A10: Yes, CTRs are applicable to designated persons and their immediate relatives, as specified in Clause 3 of Schedule B and Schedule C of the SEBI (PIT) Regulations, 2015. These restrictions are also governed by the internal code of conduct for dealing in securities.

Q11: Are CTRs applicable when shares are held in different capacities using the same Permanent Account Number (PAN)?

A11: Yes, CTRs are applicable to designated persons who hold shares in different capacities, such as personal capacity, trustee capacity, executor capacity, etc., but using the same PAN. However, CTRs are not applicable if different PANs are used for holding shares in different capacities.

Q12: How are CTRs calculated when multiple purchase transactions occur?

A12: CTRs are calculated date-wise for multiple purchase transactions. The six-month period is calculated from the last day of the purchases.

Q13: Are CTRs applicable to a company's debt securities?

A13: Yes, CTRs are applicable to a company's debt securities, which have the same meaning as assigned under the Securities Contracts (Regulation) Act, 1956.

Q14: Are CTRs applicable to the sale of rights entitlements when the original shares were acquired within six months?

A14: Yes, CTRs are applicable to the sale of rights entitlements in the open market if the original shares were acquired within six months. However, CTRs are not applicable if the original shares were not acquired within six months.

Q15: Are CTRs applicable when gifting shares to a niece who is not part of the promoter group?

A15: Yes, gifting shares is considered a dealing in securities, and designated persons are required to comply with the requirements of disclosure, pre-clearance, and CTRs when gifting shares, even if the recipient is not part of the promoter group.

Q16: Can a company's compliance officer relax the application of CTRs?

A16: A company's compliance officer is empowered to grant relaxations from the application of CTRs after recording the reasons in writing, as per the code of conduct. However, the compliance officer cannot grant relaxations that violate the SEBI (PIT) Regulations, 2015.

Q17. Are CTRs applicable to trades executed under pre-clearance or below a specified threshold limit?

A17: Yes, CTRs are applicable to all trades, regardless of whether they were executed under pre-clearance or below a specified threshold limit.

Q18: Is a resigning designated person required to provide information for compliance with the SEBI (PIT) Regulations?

A18: Yes, all information related to the designated person's dealings must be collected until the date of their resignation. The company, intermediary, or fiduciary is required to maintain updated contact details of the resigning designated person for at least one year from the date of resignation and preserve these details for a minimum of five years.

Q19: Does the definition of "designated person" include support staff members, such as IT and secretarial staff?

A19: Yes, the definition of designated persons includes support staff members, such as IT and secretarial staff, who have access to unpublished price-sensitive information, as specified under Regulation 9(4)(v) of the SEBI (PIT) Regulations, 2015. The coverage is based on the role, functions, seniority, and professional designation within the organization.

Q20: Are whole-time directors or managing directors of a holding company considered designated persons for the subsidiary company?

A20: Yes, whole-time directors or managing directors of a holding company are generally considered designated persons for the subsidiary company, as they are likely to have access to unpublished price-sensitive information of the subsidiary.

Q21: Are promoters and members of the promoter group considered designated persons?

A21: Yes, all promoters of listed companies, as well as promoters who are individuals or investment companies for intermediaries or fiduciaries, are considered designated persons under Regulation 9(4)(iii) of the SEBI (PIT) Regulations, 2015. Additionally, members of the promoter group are also generally included in the list of designated persons, as they are likely to have access to unpublished price-sensitive information.

Q22: Can designated persons and their immediate relatives trade in the company's derivatives?

A22: Designated persons and their immediate relatives are permitted to trade in the company's derivatives when they do not possess unpublished price-sensitive information. However, they are prohibited from trading in the company's derivatives when in possession of unpublished price-sensitive information.

Q23: Are foreign employees of listed companies covered under the SEBI (PIT) Regulations, 2015, for trading in American Depository Receipts (ADRs) and Global Depository Receipts (GDRs)?

A23: Yes, foreign employees of listed companies are covered under the SEBI (PIT) Regulations, 2015, for trading in ADRs and GDRs of the listed companies. They are required to follow the company's code of conduct for trading in ADRs and GDRs and disclose a unique identifier analogous to the Permanent Account Number (PAN).

Q24: Can a company's Board of Directors approve trades based on unpublished price-sensitive information by the compliance officer or their immediate relatives?

A24: Yes, a company's Board of Directors is permitted to approve trades based on unpublished price-sensitive information by the compliance officer or their immediate relatives, who are considered insiders. The Board of Directors can also stipulate procedures as necessary to ensure compliance with the SEBI (PIT) Regulations, 2015.

Q25: Can a company and its group intermediary have separate codes of conduct for dealing in securities?

A25: Yes, a company and its group intermediary are permitted to have separate codes of conduct for dealing in securities.

Q26: What are the responsibilities of the Chief Investor Relations Officer (CIRO) and the compliance officer regarding unpublished price-sensitive information (UPSI)?

A26: The CIRO and the compliance officer are responsible for dealing with the dissemination of information and disclosures related to UPSI when specific responsibilities are assigned to the CIRO under Clause 3 of Schedule A of the SEBI (PIT) Regulations, 2015. The functions and responsibilities of the compliance officer are specified under Regulation 2(c) of the SEBI (PIT) Regulations, 2015. Listed companies have the discretion to designate separate persons as the CIRO and the compliance officer to fulfill their respective responsibilities.

Q27: Are financially independent spouses of designated persons covered under

SEBI (PIT) Regulations, 2015?

A27: Yes, financially independent spouses of designated persons are covered under the SEBI (PIT) Regulations, 2015, and are treated as immediate relatives, even if they do not consult with the designated person while making trading decisions.

Q28: Are promoters of investment companies covered under the SEBI (PIT) Regulations, 2015?

A28: Yes, promoters of investment companies are covered under the SEBI (PIT) Regulations, 2015, where the main activity of the investment company is to hold investments in various companies. In such cases, the promoters are covered by the intermediary's code of conduct. Additionally, non-individual corporate promoters of intermediaries or fiduciaries are treated as designated persons under Regulation 9(4)(iii) of the SEBI (PIT) Regulations, 2015.

Q29: Can an entity that has participated in a bidding process trade in the shares of the same company?

A29: No, an entity that has participated in a bidding process is not permitted to trade in the shares of the same company, as Regulation 4(1) of the SEBI (PIT) Regulations, 2015, is applicable when the entity possesses unpublished price-sensitive information during the bidding process.

Q30: What are the penalties for insider trading transactions under Section 15G of the SEBI Act, 1992?

A30: Under Section 15G of the SEBI Act, 1992, any person who deals in securities of a listed company based on possessing unpublished price-sensitive information, either directly or on behalf of others, or any person who communicates unpublished price-sensitive information to another person (except in the ordinary course of business or as required by law), or any person who counsels or procures another person to deal based on unpublished price-sensitive information, is liable for penalties.

The penalty amount can range from a minimum of INR 10 lakh to a maximum of three times the amount of profits made from insider trading, whichever is higher.

Q31: What are SEBI's powers for general administration under Section 11(1) of the SEBI Act, 1992?

A31: Under Section 11(1) of the SEBI Act, 1992, SEBI is empowered to take measures as deemed necessary to protect the interests of investors in securities and promote the development and regulation of the securities market.

Q32: What are SEBI's powers for regulating stock exchanges and other securities markets under Section 11(2)(a) of the SEBI Act, 1992?

A32: Under Section 11(2)(a) of the SEBI Act, 1992, SEBI is empowered to regulate the business of stock exchanges and other securities markets.

Q33: What are SEBI's powers for regulating stock brokers and associated intermediaries under Section 11(2)(b) of the SEBI Act, 1992?

A33: Under Section 11(2)(b) of the SEBI Act, 1992, SEBI is empowered to register and regulate the working of stock brokers, sub-brokers, share transfer agents, bankers to issues, trustees of trust deeds, registrars to issues, merchant bankers, underwriters, portfolio managers, investment advisers, and other associated intermediaries with securities markets.

Q34: What are SEBI's powers for regulating depositories, participants, custodians, foreign institutional investors, and credit rating agencies under Section 11(2)(ba) of the SEBI Act, 1992?

A34: Under Section 11(2)(ba) of the SEBI Act, 1992, SEBI is empowered to register and regulate the working of depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies, and other associated intermediaries as specified by SEBI through notification.

Q35: What are SEBI's powers for regulating venture capital funds, collective investment schemes, and mutual funds under Section 11(2)(c) of the SEBI Act, 1992?

A35: Under Section 11(2)(c) of the SEBI Act, 1992, SEBI is empowered to register and regulate the working of venture capital funds, collective investment schemes, and mutual funds.

Q36: What are SEBI's powers for regulating and promoting self-regulatory organizations under Section 11(2)(d) of the SEBI Act, 1992?

A36: Under Section 11(2)(d) of the SEBI Act, 1992, SEBI is empowered to promote and regulate self-regulatory organizations.

Q37: What are SEBI's powers for prohibiting fraudulent and unfair trade practices under Section 11(2)(e) of the SEBI Act, 1992?

A37: Under Section 11(2)(e) of the SEBI Act, 1992, SEBI is empowered to prohibit fraudulent and unfair trade practices in the securities markets.

Q38: What are SEBI's powers for promoting investor education and intermediary training under Section 11(2)(f) of the SEBI Act, 1992?

A38: Under Section 11(2)(f) of the SEBI Act, 1992, SEBI is empowered to promote investor education and training for intermediaries working in the securities markets.

Q39: What are SEBI's powers for prohibiting insider trading in securities under Section 11(2)(g) of the SEBI Act, 1992?

A39: Under Section 11(2)(g) of the SEBI Act, 1992, SEBI is empowered to prohibit insider trading in securities.

Q40: What are SEBI's powers for regulating substantial acquisitions and takeovers under Section 11(2)(h) of the SEBI Act, 1992?

A40: Under Section 11(2)(h) of the SEBI Act, 1992, SEBI is empowered to regulate substantial acquisitions of shares and takeovers of companies.

Q41: What are SEBI's powers for calling information, conducting inspections, and audits under Section 11(2)(i) of the SEBI Act, 1992?

A41: Under Section 11(2)(i) of the SEBI Act, 1992, SEBI is empowered to call for information, undertake inspections, conduct inquiries and audits of stock exchanges, mutual funds, other persons associated with securities markets, intermediaries, and self-regulatory organizations operating in the securities market.

Q42: What are SEBI's powers for calling records from any person, bank, or authority under Section 11(2)(ia) of the SEBI Act, 1992?

A42: Under Section 11(2)(ia) of the SEBI Act, 1992, SEBI is empowered to call for information and records from any person, bank, or other authority or board or corporation established or constituted under any Central or State Act, as deemed necessary for investigating or inquiring into transactions in the securities market.

Q43: What are SEBI's powers for calling information from authorities outside India under Section 11(2)(ib) of the SEBI Act, 1992?

A43: Under Section 11(2)(ib) of the SEBI Act, 1992, SEBI is empowered to call for information from, and furnish information to, other authorities inside and outside India that have functions similar to SEBI, for the prevention or detection of violations of securities laws, subject to provisions of other laws for time being in force.

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Q1: What authority does SEBI have to collaborate with foreign regulators?A1: Under Setion 11(2)(ib) of the SEBI Act, SEBI is permitted to enter into arrangements, agreements, or understandings with authorities located outside India, subject to government approval, to call for or furnish any information.

Q2: Can SEBI exercise powers under the Securities Contracts (Regulation) Act, 1956?

A2: Yes, Section 11(2)(j) of the SEBI Act allows SEBI to perform certain functions and exercise powers available under Section 19 of the Securities Contracts (Regulation) Act, 1956.

Q3: Is SEBI authorized to charge fees for conducting research?

A3: Yes, under Section 11(2)(k) of the SEBI Act, SEBI can levy fees or other charges for conducting research related to its purposes

Q4: Can SEBI obtain information from other agencies for discharging its functions?

A4: Yes, Section 11(2)(la) of the SEBI Act permits SEBI to call for or furnish information to other agencies specified by SEBI for the efficient discharge of its functions.

Q5: What other functions can SEBI perform?

A5: Section 11(2)(m) of the SEBI Act allows SEBI to perform other functions as may be prescribed by the government.

Q6: Does SEBI have the power to inspect books of listed companies?

A6: Yes, under Section 11(2A) of the SEBI Act, SEBI can undertake inspection of books, registers, or other documents of listed public companies or non-listed companies intending to get listed if SEBI has reasonable grounds to believe the company is involved in insider trading or fraudulent or unfair trade practices in the securities market.

Q7: What powers does SEBI have that are equivalent to those of a Civil Court?

A7: Section 11(3) of the SEBI Act grants SEBI the same powers as a Civil Court under the Code of Civil Procedure, 1908, for matters such as: (i) Discovering and producing books of accounts and other documents at any place and time specified by SEBI (ii) Summoning and enforcing attendance of persons and examining them on oath (iii) Inspecting books, registers, and other documents of any person referred to in Section 12 of the SEBI Act (iv) Inspecting books, registers, or other documents of a company referred to in Section 11(2A) of the SEBI Act (v) Issuing commissions for the examination of witnesses or documents.

Q8: What special actions can SEBI take against listed public companies?A8: Under Section 11(4) of the SEBI Act, SEBI can take special actions against listed public companies in the interest of investors or securities markets, during or after an investigation or inquiry, such as: (i) Suspending trading of any security on recognized stock exchanges (ii) Restraining persons associated with securities markets from buying, selling, or dealing in securities (iii) Suspending office-bearers of stock exchanges or self-regulatory organizations from holding their positions (iv) Impounding and retaining proceeds or securities from transactions under investigation (v) Attaching bank accounts of intermediaries or persons associated with securities markets involved in violations of the SEBI Act, rules, and regulations, for up to one month after passing an order approved by a First Class Judicial Magistrate (vi) Directing intermediaries or persons associated with securities markets not to dispose of or alienate assets forming part of transactions under investigation.

Q9: Can SEBI direct the crediting of amounts to the Investor Protection and Education Fund (IPEF)?

A9: Yes, under Section 11(5) of the SEBI Act, SEBI can direct the crediting of amounts to the IPEF against directions issued under Section 11B or 12A of the Securities Contracts (Regulation) Act, 1956, or Section 19 of the Depositories Act, 1996.

Q10: What powers does SEBI have regarding the regulation or prohibition of prospectuses?

A10: Section 11A(1) of the SEBI Act allows SEBI to regulate or prohibit the issue of prospectuses, offer documents, or advertisements soliciting money through the issue of securities for the protection of investors.

Q11: How can SEBI regulate prospectuses through regulations?

A11: Under Section 11A(1)(a) of the SEBI Act, SEBI can regulate matters related to the issue of capital, transfer of securities, and other incidental matters through regulations.

Q12: How can SEBI regulate prospectuses through general or special orders?A12: Section 11A(1)(b) of the SEBI Act permits SEBI to: (i) Prohibit a company from issuing a prospectus, offer document, or advertisement soliciting money from the public for the issue of securities (ii) Specify conditions for the issue of a prospectus, offer document, or advertisement if SEBI has not already prohibited it.

Q13: What requirements can SEBI specify regarding the listing and transfer of securities?

A13: Under Section 11A(2) of the SEBI Act, SEBI can specify requirements for the listing and transfer of securities and other incidental matters.

Q14: What is the purpose of SEBI’s code on conflict of interest for Board members?

A14: The code is introduced to ensure that the conduct of SEBI’s Board members does not compromise their ability to complete SEBI’s mandate or undermine public confidence in their ability to discharge their responsibilities.

Q15: How does the code define “Family”?

A15: The code defines “Family” as including a spouse and dependent children below 18 years of age.

Q16: What is the code’s definition of “Conflict of Interest”?

A16: The code defines “Conflict of Interest” as a personal interest or association of Board members that is likely to influence SEBI’s decisions, as viewed by an independent third party.

Q17: Who does the code’s definition of “Members” include?

A17: The code’s definition of “Members” includes Board members and the Board Chairman.

Q18: What entities are considered “Regulated Entities” under the code?

A18: “Regulated Entities” under the code include listed companies, companies proposed to be listed on recognized stock exchanges, and SEBI-registered intermediaries.

Q19: How does the code define “Shares”?

A19: The code defines “Shares” as equity shares or other instruments convertible into equity shares of listed companies or companies proposed to be listed on recognized stock exchanges.

Q20: What is the definition of “Substantial Transactions” in the code? 

A20: “Substantial Transactions” are defined as transactions where the minimum quantum is 5,000 shares or a minimum value of INR 1 lakh.

Q21: Who are considered “Whole Time Members (WTMs)” under the code?

A21: “Whole Time Members (WTMs)” include SEBI’s Whole Time Members and the SEBI Chairman.

Q22: Does the code override other provisions of the SEBI Act, 1992?

A22: No, the code does not override: (i) Section 7A of the SEBI Act, 1992 (ii) Rules 3(1) and 19A(1) of the SEBI (Terms and Conditions of Service of Chairman and Members) Rules, 1992 (iii) Regulations 9 and 11 of the SEBI (Procedure for Board Meetings) Regulations, 2001.

Q23: What are the general principles outlined in the code?

A23: The general principles in the code are: (i) Board members must take necessary steps to ensure conflicts of interest do not affect SEBI’s decisions (ii) Board members must disclose their interests where there is a conflict with their duties (iii) Board members cannot exploit their personal advantages or relationships with regulated entities or employees.

Q24: What restrictions does the code place on WTMs’ outside or private activities?

A24: The code prohibits WTMs from: (i) Holding other offices of profit (ii) Engaging in other professional activities that entitle them to salaries or professional fees.

Q25: What are the requirements for SEBI’s Board members and WTMs regarding share transactions? 

A25: The code requires: (i) Board members to disclose their own and their family members’ equity shareholdings within 15 days of joining SEBI and by April 15 of each financial year (ii) WTMs to disclose their own and their family members’ substantial transactions within 15 days of the transactions (iii) Board members not to deal in securities of listed companies based on Unpublished Price Sensitive Information (UPSI).

Q26: How does the code govern participation in SEBI’s Board meetings? 

A26: The code requires: (i) Board members to disclose the nature of their interest in matters under consideration at Board meetings (ii) Board members not to take part in deliberations or discussions on matters where they have an interest, but they may provide professional advice if asked.

Q27: What are the restrictions on SEBI’s Board members regarding interested matters?

A27: The code prohibits Board members from hearing or deciding on matters where they have a conflict of interest.

Q28: What are the requirements for SEBI’s Board members regarding intermediaries’ services?

A28: The code requires Board members to disclose if they or their family members have disputes over products or services availed from intermediaries.

Q29: What are the rules regarding gifts from regulated entities?

A29: The code prohibits WTMs from accepting gifts from regulated entities and requires them to hand over gifts exceeding INR 1,000 in value to SEBI’s General Services Department.

Q30: What other disclosures are required from SEBI’s Board members?

A30: The code requires Board members to disclose: (i) Any post, employment, or fiduciary position held or held in the previous 5 years related to regulated entities (ii) Professional, personal, financial, or family relationships with regulated entities.

Here are 30 new questions and answers on the same subject matter, without referencing the original article:

Q1: What is the procedure followed by SEBI to manage conflicts of interest among its board members and chairperson?

A1: SEBI has established a comprehensive code to address potential conflicts of interest among its board members and chairperson. Board members are required to disclose any conflicts at the earliest opportunity. If a member is unsure whether a conflict exists, they can seek a determination from the chairperson. Conversely, if the chairperson is uncertain, they can seek a determination from the board members. When a conflict is identified, the affected individual(s) must refrain from dealing with the particular matter and can assign it to another member or committee.

Q2: How can members of the public raise concerns about potential conflicts of interest at SEBI?

A2: Any person can submit a notice to SEBI's secretary if they have reasonable grounds to believe that a board member has a conflict of interest in a particular matter. The secretary must then present these details to the board. The board member or chairperson in question must determine if an actual conflict exists that could affect their decision-making. If so, they must refrain from dealing with that matter and can assign it to another member or committee.

Q3: How does SEBI handle the disclosure of conflicts of interest?

A3: SEBI is required to maintain the confidentiality of information disclosed under its conflict of interest code. However, this information can be disclosed in certain circumstances, such as managing potential or actual conflicts, changing a member's responsibilities, or for disciplinary proceedings. The chairperson has authority over board member disclosures, while the board oversees the chairperson's disclosures. SEBI's secretary, appointed under the relevant regulations, is responsible for maintaining custody of all disclosure documents and records.

Q4: What are SEBI's powers to issue directions and conduct investigations?A4: Under Section 11B of the SEBI Act, the regulator can issue directions when necessary to protect investor interests, promote market development, or prevent the detrimental conduct of intermediaries or other market participants. SEBI can direct any person associated with the securities market or companies on matters specified under Section 11A, including ordering the disgorgement of wrongful gains.

Q5: How does SEBI initiate investigations into intermediaries or market participants?

A5: If SEBI has reasonable grounds to believe that securities transactions are detrimental to investors or the market, or that intermediaries or market participants have violated the SEBI Act, rules, regulations, or directions, it can order an Investigation Authority (IA) to investigate their affairs and report to the board, as per Section 11C(1).

Q6: What powers does the IA have to examine books, registers, and documents?A6: Under Section 11C(2), managers, managing directors, officers, employees of companies, intermediaries, and persons associated with the securities market must preserve and produce all books, registers, records, and documents in their custody or power to the IA or its authorized representatives.

Q7: Can the IA call for relevant information and documents during an investigation?

A7: Yes, as per Section 11C(3), the IA or its authorized person can call for any relevant information, books of accounts, registers, documents, records, etc., deemed necessary for the investigation.

Q8: What are the IA's powers regarding the custody of seized materials?

A8: The IA can keep custody of any books, registers, documents, and records produced before it under Sections 11C(2) or 11C(3) for up to six months, as stated in Section 11C(4). The IA can also call for these materials again if needed and must provide certified copies upon request.

Q9: Can the IA examine individuals under oath during an investigation?

A9: Yes, under Section 11C(5), the IA is empowered to examine under oath any manager, managing director, officer, or other employee of an intermediary or person associated with the securities market.

Q10: What actions can the IA take if a company fails to cooperate without reasonable cause?

A10: If a company fails without reasonable cause to produce documents, furnish information, appear before the IA, or answer questions, the IA can take action under Section 11C(6). The company can be punished with a fine of up to Rs. 1 crore, imprisonment for up to one year, or both.

Q11: What are the IA's duties regarding examination notes?

A11: As per Section 11C(7), the IA must prepare written notes of any examination conducted under Section 11C(5). These notes must be read over to the examinee and signed, making them admissible as evidence in the future.

Q12: Under what circumstances can the IA seize books, registers, and documents?

A12: If the IA has reasonable grounds to believe that books, registers, documents, and records belonging to intermediaries or market participants are likely to be destroyed, mutilated, altered, falsified, or secreted, it can seize them under Section 11C(8). The IA must apply to a magistrate or judge of a designated court for authorization to seize these materials.

Q13: Can the IA requisition assistance from law enforcement during a seizure?

A13: Yes, under Section 11C(8A), the IA can requisition the assistance of police officers or other officers to aid in the seizure of books, registers, documents, and records as specified under Section 11C(8).

Q14: What authority does the IA have after receiving a magistrate or judge's authorization for seizure?

A14: After receiving authorization from a magistrate or judge of a designated court, who must consider the IA's application and hear them, the IA can be authorized under Section 11C(9) to enter any premises with or without assistance, search those premises, and seize any books, registers, documents, and records deemed necessary for the investigation. However, this authorization cannot extend to the seizure of materials belonging to a listed public company or a company in the process of listing, unless it is involved in insider trading or market manipulation.

Q15: How long can the IA retain custody of seized materials?

A15: The IA can retain custody of any seized books, registers, documents, and records until the conclusion of the investigation, as per Section 11C(10). The IA must then inform the magistrate or judge and return the materials, though it can place identification marks on them.

Q16: Must the IA follow the Code of Criminal Procedure during searches and seizures?

A16: Yes, under Section 11C(11), the IA must follow the procedures laid down in the Code of Criminal Procedure, 1973, for any searches or seizures conducted.

Q17: What are SEBI's powers regarding cease and desist proceedings?

A17: As stated in Section 11D, SEBI can pass a written order to cease and desist proceedings if, after an inquiry, it finds that a person has violated or is likely to violate the provisions of the SEBI Act, rules, or regulations. However, SEBI cannot cease and desist proceedings without reasonable grounds to believe that the company has engaged in insider trading or market manipulation.

Q18: How does the SEBI Act define a Collective Investment Scheme (CIS)?

A18: Under Section 11AA(1), a CIS includes any scheme or arrangement that meets the conditions specified in Sections 11AA(2) or 11AA(2A), as well as any pooling of funds under a scheme or arrangement where the amount collected is Rs. 100 crore or more and is not registered or covered under the SEBI Act.

Q19: What are the key functions of a CIS?

A19: As per Section 11AA(2), the key functions of a CIS include pooling investors' contributions or payments, utilizing these funds for a designated scheme or arrangement, allowing investors to receive profits, income, or properties from the scheme, managing the properties or investments forming part of the scheme on behalf of investors, and preventing investors from having day-to-day control over the scheme's management and operations.

Q20: What conditions must schemes or arrangements meet to be considered a CIS?

A20: Under Section 11AA(2A), all schemes or arrangements made or offered by a person must satisfy the conditions specified by regulations made under the SEBI Act to be considered a CIS.

Q21: Are cooperative societies considered CIS under the SEBI Act?

A21: No, as per Section 11AA(3)(i), cooperative societies registered under the Cooperative Societies Act, 1912, or other state cooperative societies laws are not considered CIS under the SEBI Act.

Q22: Can Non-Banking Financial Companies (NBFCs) operate CIS?

A22: No, under Section 11AA(3)(ii), NBFCs are permitted to accept deposits from investors as defined under the Reserve Bank of India Act, 1934, but these are not considered CIS.

Q23: Are insurance companies allowed to operate CIS?

A23: No, as stated in Section 11AA(3)(iii), insurance companies are permitted to collect funds from investors under insurance contracts as defined by the Insurance Act, 1938, but these are not considered CIS.

Q24: Is the Employees' Provident Fund considered a CIS under the SEBI Act?

A24: No, Section 11AA(3)(iv) clarifies that the Employees' Provident Fund and its general, pension, or insurance schemes as defined under the Employees' Provident Fund and Miscellaneous Provisions Act, 1952, are not considered CIS.

Q25: Can companies accept deposits from investors under the Companies Act?A25: Yes, as per Section 11AA(3)(v), companies are permitted to accept deposits from investors as defined under Section 73 of the Companies Act, 2013, but these are not considered CIS.

Q26: Are Nidhis or mutual benefit societies considered CIS?

A26: No, Section 11AA(3)(vi) states that companies declared as Nidhis or mutual benefit societies under Section 406 of the Companies Act, 2013, are not considered CIS.

Q27: Are chit fund companies considered CIS under the SEBI Act?

A27: No, as clarified in Section 11AA(3)(vii), companies engaged in chit business as defined under the Chit Fund Act, 1982, are not considered CIS under the SEBI Act.

Q28: Are mutual funds considered CIS under the SEBI Act?

A28: No, Section 11AA(3)(viii) explicitly states that mutual funds are not considered CIS under the SEBI Act.

Q29: Can the government notify certain schemes or arrangements as non-CIS?A29: Yes, under Section 11AA(3)(ix), the government can notify any scheme or arrangement as non-CIS in consultation with SEBI.

Q30: What is the relevance of the various sections and provisions discussed regarding CIS?

A30: The SEBI Act provides a comprehensive definition and framework for regulating Collective Investment Schemes (CIS) in India. The various sections discussed outline the key characteristics and functions of CIS, specify the conditions for identifying such schemes, and clarify the types of entities and arrangements that are excluded from the CIS definition. These provisions empower SEBI to effectively regulate and monitor CIS activities, protecting the interests of investors and promoting the development of the securities market.