Monitor and track net sales position *
Turnover to reported single side
Appointment of Compliance officer
*Reporting of spot and off-the-floor transactions.
*Clarification for rights issue
*Common members in the Appellate body and the Committees
*Severance of connections with other businesses
*Inter-linking of exchanges through e-mail facility
*Case of Rishyashringa Jewellers
*Right not accompanied by public issues- no vetting
*Submission of Cash Flow Statement.
*Fixing of record dates relating to rights issues
*Precaution while granting underwriting permission.
*Effective Year of Submission of Cash Flow Statement
*Registration of sub-brokers
*Settlement wise information of turnover/ delivery
*Setting up of Market Surveillance Departments
*Submission of Audit Reports by the members
*Revised Carry Forward System
*Surveillance and Inter-exchange Co-ordination
*Rupangi Impex
*Turnover data
*Total amount of transactions on the exchanges
*NOC by SEBI for the release of 1% Listing Deposit
*Progress report on Surveillance
*Bad delivery- amendment. to clause 12(A)
*Status of computerisation
*Categorisaton of companies
*
DIVISION CHIEF
SECONDARY MARKET DEPARTMENT
SMD(N)/CIR/8371/95
12TH January 1995
The Presidents/Executive Directors
all the stock exchanges.
Dear Sir,
Monitor and track net sales position
The prices on the stock exchanges in the country have been going down for sometime now and there has been a drop in the various indices. In these circumstances, the stock exchanges should
The exchanges, should keep SEBI informed of the steps that they have taken in this regard.
Yours faithfully,
sd/-
RAJIV NABAR
DIVISION CHIEF
SECONDARY MARKET DEPARTMENT
SMD (N)/JJ/8890/95
23 January, 1995
President/Executive Director of all
the Stock Exchanges
Dear Sir,
Turnover to reported single side
This has reference to our letter no. SMD (N)/JJ/4311/94 dated July 20, 1994 regarding submission of report of turnover and delivery figures of your stock exchange.
We find that some exchanges are reporting the turnover figures on the basis of sales and purchases and some are reporting only one side. Henceforth, turnover figures may be reported to SEBI by counting one side of the transaction i.e., only sales on only purchases. This will ensure uniformity of reporting.
Yours faithfully,
sd/-
R.V. NABAR
SR. EXECUTIVE DIRECTOR
March 1, 1995
NO.SMD/SED/CIR/95/005
THE EXECUTIVE DIRECTOR OF
ALL STOCK EXCHANGES
Dear Sir,
Appointment of Compliance officer
SEBI is examining the question of appointing a Compliance Officer for each stock exchange whose function would be to ensure that violations of stock exchange rules and regulations do not remain undetected or unreported. We feel that such an Officer should be identified by the stock exchange from within its own officials and should report any instances of violation directly to the Executive Director.
We would request you to send your suggestions to us in this regard by March 20, 1995 at the latest.
Yours faithfully,
sd/-
C B BHAVE
cc: Dr.P.J. Nayak
Jt. Secretary (ECB & Inv)
Dept. of Economic Affairs
Ministry of Finance
Government of India
North Block,
NEW DELHI 110 001.
DIVISION CHIEF
SMD/RCG/CIR/(BKG)/293/95
March 14, 1995
The Presidents/Executive Director
of all the Stock Exchanges.
Dear Sir,
Reporting of spot and off-the-floor transactions.
The issue of reporting spot transactions and off the floor transactions has been taken up with the exchanges on several occasions.
It has been observed that even though this is a requirement under the exchange regulations, it is not being observed in actual practice.
The exchange is, therefore, directed to take steps to ensure that:-
The exchange is advised to inform us about the steps taken in this regard not later than April 10, 1995. The exchanges must also send a report to SEBI indicating the trading floor volumes and off-exchanges volumes separately.
Yours faithfully,
sd/-
R.C. GUPTA
DIVISION CHIEF
SECONDARY MARKET DEPARTMENT
SMD(N)/JJ/360/95
March 16, 1995
The Presidents/Executive Director
of all the stock exchanges.
Dear Sir,
Clarification for rights issue
This has reference to our letter No.SMD/SED/N/JJ/4984/94 dated September 23, 1994 regarding amendment of Listing Agreement.
With reference to sub-clause (C) of Clause 24 as mentioned in our above letter, it is clarified that SEBI Directive no. C.III dated August 13, 1992 is operative. Where issue of shares by way of rights by a company listed in a recognised stock exchange does not exceed Rs.50 lacs and where an option is required to be given to the debenture holders in respect of debentures value of which does not exceed Rs.50 lacs for purposes of roll over or conversion, as the case may be, it will be sufficient if the copy of the relevant letter of offer or the letter of option is forwarded to SEBI for its information. Issuers are however expected to conform to the Guidelines with regard to disclosures.
Yours faithfully,
sd/-
R.V. NABAR
SMD/536/95
March 28, 1995
The President/Executive Director
All recognised stock exchanges.
Dear Sir,
Common members in the Appellate body and the Committees
As you are aware the Stock Exchanges have amended their Rules/Articles of Association in accordance with SEBI order dated April 20, 1993 under section 8 of the Securities Contracts (Regulation) Act, 1956 and constituted three Statutory Committees, viz, Arbitration, Defaults and Disciplinary Action Committees with 40% representation from member-brokers of the Exchange and 60% from non-members appointed with prior approval from SEBI. While generally the President and Executive Director are the ex-officio members of each of these Committees, a few Public Representatives and elected directors are also nominated on these committees. The Committees have, thus, a few members who are also the members of the Governing Board/Council of Management of the Exchange.
In some cases the aggrieved party has a right of appeal to the Governing Board/Council of Management against the decision of the Committee. Since some of the members on these Statutory Committees and the Governing Board/Council of Management are common, it has been brought to our notice that it would be inappropriate for the same committee members to be part of the appellate authority. There is a merit in this argument. It has, therefore, been suggested that the members, who have decided the arbitration case/imposed disciplinary or penal action while sitting in a Statutory Committee should not sit in the appellate body when the appeal is being considered in the same case. The other alternative would be not to appoint office bearers and members of the Governing Board/Council of Management as members of these Committees.
It has also been suggested by some of the Stock Exchanges that we may appoint retired judges in the Arbitration Committee to make it a more professional and impart quick and fair justice to the investors.
However, before taking a final view, we would like to have the views/comments of the Stock Exchanges on the above suggestions. Accordingly, you are requested to please forward to us views/comments of the Exchange in this regard at the earliest and in any case not later than April 15, 1995.
Yours faithfully,
sd/-
S.T. GERELA
DIVISION CHIEF
SMD/VRN/1476/95
27TH April 1995
The President/Executive Director
OTCEI
92-93 Maker Towers ‘F’
Cuffe Parade
BOMBAY 400 005.
Dear Sir,
Severance of connections with other businesses
The Securities Contract Regulator Rule 1957, particularly Rule 8(1)(f) and Rule 8(3)(f) requires that members, whether individual, partnership or corporate of a Stock Exchange shall not engage in any business other than that of securities. This rule is applicable to dealers, members, and trading members of OTCEI and NSE also. Stock Exchanges are advised that while admitting new members it should be ensured that the applicants do not attract the above stated rule.
It is observed that corporate applicants recently being admitted into various Stock Exchanges are engaged in businesses other than securities business like ICDs, leasing, hire purchase and bill discounting due to which SEBI is not in a position to consider their registration. The members who are already working on various Stock Exchanges as on the date of publication of SEBI (Stock Brokers and Sub Brokers) Rules and Regulations in November 1992 and obtained registration thereunder also will have to severe connections with businesses other than securities business forthwith.
We request the Stock Exchange to report on whether all other members comply with the above stated Rule.
Thanking you,
Yours faithfully,
sd/-
C.B. BHAVE
SR. EXECUTIVE DIRECTOR - SMD
No.SMD/JNG/448/95
3rd May, 1995
The Presidents/Executive Directors
Stock Exchanges
Dear Sir,
Inter-linking of exchanges through e-mail facility
In order to ensure timely and proper dissemination of price sensitive information, company news and to improve co-ordination between exchanges, so as to bring uniformity in decisions regarding trading restrictions/permissions, it has been suggested to us that all the Stock Exchanges be connected through E-Mail facility. This will enable Stock Exchanges to communicate with all the other Stock Exchange, without any extra effort. This is expected to reduce distortions in prices/price manipulations. The initial cost in the first year is expected to be Rs.26,000/- which will be reduced to Rs.15,000/- from the second year onwards. However, recurring communication charges would be extra.
You are requested to send your views regarding the feasibility and usefulness of the above to us latest by 15th May 1995.
Yours faithfully,
sd/-
(J.N. GUPTA)
DIVISION CHIEF - SMD
Ref.SMD/1475/95
May 03, 1995
The President/Executive Director
of All Recognised Stock Exchanges
Dear Sir,
Case of Rishyashringa Jewellers
We enclose for your information and necessary action a copy of the Order dated April 17, 1995 of the Supreme Court of India in the matter of M/s Rishyashringa Jewellers Limited and another versus Bombay Stock Exchange and others, the contents of which are self-explanatory. Please note that the Supreme Court has until further orders stayed temporarily the trading in the shares of the respondent company in all stock exchanges.
Yours faithfully,
sd/-
S.T. GERELA
DIVISION CHIEF
Encl : as above
S.C. 608 JUDGEMENTS TODAY 1995 (7)
JT 1995(7) S.C. 602
M/s Rishyashiringa Jewellery Ltd., & Anr.
Vs
The Stock Exchange, Bombay & Ors.
Civil Appeal No.9723 of 1995
(arising out of Special Leave Petition (Civil) No. 8420 of 1995)
J.S. VERMA &
K. VENKATASWAMI JJ.
Dt. 31.10.1995
CORPORATE LAW
Companies Act, 1956:
Section 73(1a) - Enlistment of shares in the recognised Stock Exchanges - Meaning of the word ‘each’ in the expression "If the permission has not been granted by the stock exchange or each such stock exchange" used in sub-section (1A) of Section 73 - Whether the entire allotment of shares is rendered void by virtue of Section 73(1A) because of the objection of the application by one of the several Stock Exchanges mentioned in the prospectus - Held yes - Appeal dismissed.
HELD
… Sub-section (1A) of Section 73 requires that where a prospectus stated that an application under sub-section (1) has been made for permission for the shares or debentures offered thereby to be dealt in one or more recognised stock exchanges, such prospectus shall state the name of the stock exchange, or as the case may be, each such stock exchange’. In other words, if the application is made only to one stock exchange than the name of that stock exchange is to be mentioned and where the prospectus states that application has been made to more than one recognised stock exchanges then it shall state the name of each such stock exchange, i.e., every such stock exchange or in other words, all the stock exchanges to which the application has been made.
The second part of sub-section (1A) of Section 73 then provides the consequence of refusal of the permission by saying that any allotment made on an application in pursuance of such prospectus shall be void "If the permission has not been granted by the stock exchange or each such stock exchange", as the case may be, before the expiry of ten weeks from the date of the closing of the subscription list. This means that any allotment made shall be void if the permission has not been granted by the stock exchange where the application is made only to one stock exchange or each such stock exchange "where the application is made to more than one stock exchange". The expression "each such stock exchange" here must mean the same as in the earlier part of sub-section )1A) of Section 73, i.e., each and every or in other words, all such stock exchanges. Thus where the prospectus held out that enlistment of shares would be in more than one stock exchange the consequence envisaged in sub-section (1A) of Section 73 ensues to render void the entire allotment of shares unless the permission is granted by each and everyone or all of the stock exchanges named in the prospectus for enlisting the shares. This is the plain meaning of sub-section (1A) of Section 73. In short, unless permission is granted by each or everyone of all the stock exchanges named in the prospectus for listing of shares to which application is made by the company, the consequence is to render the entire allotment void. In other words, if the permission has not been granted by any one of the several stock exchanges named in the prospectus for listing of shares the consequence by virtue of sub-section (1A) of Section 73 is to render the entire allotment void and the grant of permission by one of them is inconsequential. This construction also promotes the object of insertion of sub-section (1A) in Section 73 by amendment of the law made to overcome the effect of the decision of this Court in Allied International Products Ltd. [Para 14]
WORDS AND PHRASES
‘Every’ the true meaning of ‘every’ is each one of all".
Case Referred:
Union of India V. Allied International products Ltd. & Anr., 1970 (3) SCC 594 [Para 6]
Books and Articles Referred:
Stroud’s Judicial Dictionary of Words and Phrases. [para]
J.S. VERMA, J.:
2. The short but ticklish question which arises for decision in the present case is the meaning of the word ‘each’ in the expression "if the permission has not been granted by the stock exchange or each such stock exchange" used in sub-section (1A) of Section 73 of the Companies Act, 1956. This is the real question for decision in the present appeal.
(1A) Where a prospectus, whether issued generally or not, states that an application under sub-section (1) has been made for permission for the shares or debentures offered thereby to be dealt, in one or more recognised stock exchanges, such prospectus shall state the name of the stock exchange or, as the case may be, each such stock exchange, and any allotment made on an application in pursuance of such prospectus shall, whenever made, be void, if the permission has not been granted by the stock exchange or each such stock exchange, as the case may be, before the expiry of ten weeks from the date of the closing of the subscription lists:
Provided that where an appeal against the decision of any recognised stock exchange refusing permission for the shares or debentures to be dealt in on that stock exchange has been preferred under section 22 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), such allotment shall not be void until the dismissal of the appeal."
(emphasis supplied)
4. The material facts which give rise to the above question are only a few. On 31.5.1994 the appellant company issued a prospectus offering to the public for subscription 27,40,000 equity shares of Rs.10/- each in terms of the prospectus, intimating that "applications have been made to the Stock Exchanges at Coimbatore, Bombay and Madras for permission to deal in and
for an official quotation in respect of the Equity Shares of the Company now being offered in terms of this prospectus." The date of closing the subscription mentioned in the prospectus was 19.7.1994. The period of ten weeks from the date of closing of the subscription list prescribed in Section 73(1A) for grant of permission by the Stock Exchange expired on 27.9.1994. The allotment of shares was finalized on 16.9.1994. Permission was granted by the Madras Stock Exchange on 28.10.1994 . However, in spite of reminders issued on 18.8.1994 and 12.9.1994 by the Bombay Stock Exchange to the company to complete the required formalities, the necessary compliance was not made by the company which resulted in rejection of the company’s application by the Bombay Stock Exchange on 28.9.1994. The city-wise break up of allotment of the shares shows that the number of shares allotted were 17,44,600 in Bombay; 2,45,400 in Coimbatore and 2,89,900 in Madras.
7. In Allied International Product’s case (supra) a similar question arose for decision prior to insertion of sub-section (1A) in Section 73 when applications were made for permission to several stock exchanges but only one out of them granted the permission to enter the company’s share. That question arose in the context of Section 73(1), as it then stood, which was as under:
"(1) Where a prospectus, whether issued generally or not, states that application has been made or will be made for permission for the share or debentures offered thereby to be dealt in on a recognised stock exchanges, any allotment made on "an application in pursuance of the prospectus shall, pursuance of the prospectus shall, whenever made, be void, if the permission has not been applied for before the tenth day after the first issue of the prospectus, or, if the permission has not been granted before the expiry of four weeks from the date of the closing of the subscription lists or such longer period not exceeding seven weeks as may, within the said four weeks, be notified to the applicant for permission by or on behalf of the stock exchange".
8, It was held by this Court as follows:
"…. If application are made to several Exchanges, some within the period of ten days after the first issue of the prospectus, and some beyond, or that one or more applications but not all, is or are defective, and the error is not rectified, it would be unreasonable to hold that because some of the applications made beyond the tenth day after the first issue of the prospectus, or are defective, are liable to be rejected, the applications properly made before some of the Exchanges are also ineffective and the allotment made may be invalid."
(at page 601)
"6. Under the present Bill some other practices prevalent in the corporate sector, in so far as they may prove injurious or undesirable, are also sought to be checked. The provisions contained in the Bill designed for this purpose deal with the following:-
Failure to enlist shares with all the Stock Exchanges mentioned in a prospectus. In legislating on this point, it is proposed to make an incidental amendment to Securities Contracts (Regulation) Act, 1956.
"Clause 7:- Sub-clauses (I) and (iii) Section 73 prescribes certain time limit for enlistment with the stock exchanges. It also contemplates that enlistment has to be done in all the stock exchanges mentioned in the prospectus and in case of failure to do so, the money received in respect of allotment of shares on the basis of the prospectus should be refunded within a specified time. In the recent judgment in Union of India Vs. Allied International Products Ltd., the Supreme Court has held that if the stock exchange had intimated that it would give further consideration to an application, the time limit contemplated by the by the section will not operate. It has also held that if any one of the stock exchanges mentioned in the prospectus approved the application for enlistment, it would mean sufficient compliance with the provisions of section 73 and allotment made in pursuance of that prospectus would be valid.
It has been felt that the decision of the Supreme Court referred to above is likely to lead to complications in as much as the investing public as well as under-writing institutions are likely to lose the protection hitherto enjoyed by them. Hence section 73 is being amended suitably."
(emphasis supplied)
**********
DIVISION CHIEF
SECONDARY MARKET DEPARTMENT-I
URGENT
SMD/RCG/PJ/2179/95
June 6, 1995
To,
*
The Executive Directors/Managing Directors/Presidents of
all Stock Exchanges.
Dear Sir,
Right not accompanied by public issues- no vetting
You are aware that SEBI has recently issued a circular No.RMB(DIP Series) Circular No.1 (95-96) dated May 23, 1995, relating to guidelines for Disclosure and Investor Protection (copy enclosed). It has been decided that rights issues which are not accompanied by public issues three months prior or subsequent to the rights issues will not be required to be vetted by SEBI. This would be applicable for offer documents filed with SEBI after July 1, 1995.
Amendments to Regulations of your exchange would be required to give effect to these new guidelines. Therefore, you are requested to make necessary amendments in your regulations and confirm the compliance thereof by June 21, 1995. Please send a copy of the amended regulations for our record.
Yours faithfully,
sd/-
R C GUPTA
SENIOR EXECUTIVE DIRECTOR
SMD-I(N)/JJ/2331/95
June 26, 1995
To
All stock exchanges
Dear Sir,
Submission of Cash Flow Statement.
It may be recalled that SEBI formed a group consisting of representatives of SEBI, the Stock Exchanges of Bombay, Calcutta, Delhi and Ahmedabad, National Stock Exchange and the Institute of Chartered Accountants of India (ICAI) to frame the norms for incorporating a new provision in the Listing Agreement requiring the companies to give a Cash Flow Statement in their Annual Reports.
The Cash Flow Statement in the annual report will ensure the disclosure of actual cash flow in the operations of the company. Incorporation of a new provision in the Listing Agreement requiring the companies to give a Cash Flow Statements in their annual reports will help the investors to get better quality information about the performance of the company. Internationally, the requirement of a cash flow statement is imposed and this is considered to be an essential source of information for investors.
The group has suggested the requirements for Cash Flow statements and also a model of the same. SEBI has decided that the suggested modifications in the Listing Agreement should provide for the companies giving of Cash Flow Statement in the Annual Report.
It is therefore considered necessary to amend Clause 32 of the Listing Agreement as indicated hereunder:-
"The company will supply a copy of the complete and full Balance Sheet, Profit and Loss Account and the Director’s Report to each shareholder and upon application to any member of the exchange. The company will also give a Cash Flow Statement along with the Balance Sheet and Profit and Loss Account. The Cash Flow Statement will be prepared in accordance with the Annexure attached hereto."
The above mentioned Annexure is in Annexure A.
Cash Flow Statement, as a requirement in the Listing Agreement, should be made effective for the accounts prepared by the companies and listed entities from the financial year 1994-95.
It is requested that these amendments may be put up before your Governing Board for approving the changes suggested herein and we may be intimated of the resolution passed by your Board.
Yours faithfully,
sd/-
P.V. KRISHNAMURTHY
Encl : As stated above.
ANNEXURE- A
OBJECTIVES
1. The objective of the cash flow statement (CFS) is to require reporting entities falling within its scope to report on a standard basis their cash generation and cash absorption for a period between two balance sheet dates. Standard headings have been devised for assisting the users to assess the liquidity, viability and financial adaptability of the reporting entity. This will ensure that cash flows highlight the significant components of the cash flow and facilitates comparison of the cash flow performance of different and varying natures of business.
APPLICABILITY
2. This requirements shall be mandatory for all the listed companies and other listed entities on the recognised stock exchanges.
SCOPE
BENEFITS OF CASH FLOW INFORMATION
4. A cash flow statement, when used in the conjunction with the rest of the financial statements, provides information that enables users to analyse the pattern of resource deployment in/out of assets, evaluate the changes in net assets of a company, its financial structure (including its liquidity and solvency) and its ability to affect the amounts and timing of cash flow in order to adapt to changing circumstances and assessing the ability of the company to generate cash and cash equivalent and enables users to develop models to assess and compare the present value of the future cash flows of different companies. It also enhances comparability of the reporting of operating performance by different companies because it eliminates the effects of using different accounting treatments for the same transactions and events.
5. Historical cash flow information is often used as an indicator of the amount, timing and certainty of future cash flows. It is also useful in checking the accuracy of past assessments of future cash flows and in examining the relationship between profitability and net cash flow and the impact of changing prices.
GROUND RULES FOR PREPARATION OF THE CASH FLOW STATEMENTS
6.(i) The cash flow statement for a period should be derived from the audited annual financial statements of the company. This statement should be mandatorily circulated by all listed companies alongwith the annual report to the share holders and will also be made available to the stock exchanges and SEBI.
6.(ii) This will form part of the listing agreement between the listed and other entities and the exchange and would come into effect for all annual accounts approved by the shareholders after March 31, 1995.
6.(iii) The figure relating to change in the working capital shall be supported by a statement giving an item-wise break-up of the elements comprised therein.
6.(iv) Movements within the financing section of the CFS or where several balance sheet amounts or part thereof have to be combined, to permit a reconciliation sufficient detail should be shown to enable the movements to be understood.
6.(v) Comparative figures should be given in the CFS and notes/supporting statements thereto.
6.(vi) The statement shall be issued under the authority of the Board and shall be signed on behalf of the Board of Directors in the manner provided for authentication of Balance Sheet and Profit and Loss account in Section 215 of the Companies Act, 1956.
6.(vii) The statement shall be verified and accompanied by a certificate of the statutory auditors.
DEFINITIONS
7.(i) CASH Cash in hand and deposits repayable on demand with any bank or other financial institutions and body corporates. Cash includes cash in hand and deposits denominated in foreign currencies.
7.(ii) CASH EQUIVALENTS Are short term (three months or less) or highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
7.(iii) CASH FLOW An increase or decrease in the amount of the cash or cash equivalent resulting from a transaction.
7.(iv) COMPANIES ACT, 1956 Companies Act of 1956 and all amendments made therein.
7.(v) INVESTMENTS Assets held not for operational purposes or for carrying on the business of the company will be called investments. However in the case of a company where securities are stock in trade, they shall be reckoned as inventory and not cash equivalents.
7.(vi) OPERATING ACTIVITIES Are the principal revenue-producing activities of the company and other activities that are not investing or financing activities.
7.(vii) INVESTING ACTIVITIES Are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.
7.(viii) FINANCING ACTIVITIES Are activities that result in changes in the size and composition of the equity capital and borrowings of the company.
CASH AND CASH EQUIVALENTS
8. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. For an investment to qualify as a cash equivalent, it must be readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. Share investments are excluded from cash equivalents unless they are, in substance, cash equivalents, for example, in the case of preference shares acquired within a short period of their maturity and with a specified redemption date.
9. Bank borrowings are generally considered to be financing activities. However, in some countries, bank overdrafts which are repayable on demand form an integral part of a company's cash management. In these circumstances, bank overdrafts are included as a component of cash and cash equivalents. A characteristic of such banking arrangements is that the bank balance often fluctuates from being positive to overdrawn.
10. Cash flows exclude movements between items that constitute cash or cash equivalents because these components are part of the cash management of a company rather than a part of its operating, investing and financing activities. Cash management includes the investment of excess cash in cash equivalents.
PRESENTATION OF CASH FLOW STATEMENT.
11. The cash flow statement should report cash flows during the period classified by operating, investing and financing activities.
12. A company presents its cash flows from operating, investing and financing activities in a manner which is most appropriate to its business. Classification by activity provides information that allows users to assess the impact of those activities on the financial position of the company and the amount of its cash equivalent. This information may also be used to evaluate the relationships among these activities.
13. A single transaction may include cash flows that are classified differently. For example, when the cash repayment of a loan includes both interest and capital, the interest element may be classified as an operating activity and the capital element is classified as a financing activity.
OPERATING ACTIVITY
14. The amount of cash flows arising from operating activities is a key indicator of the extent to which the operations of the company have generated sufficient cash flows to repay loans, maintain the operating capability of the company, pay dividends and make new investments without recourse to external sources of financing. Information about the specific components of historical operating cash flows is useful, in conjunction with other information, in forecasting future operating cash flows.
15. Cash flows from operating activities are primarily derived from the principal revenue-producing activities of the company. Therefore, they generally result from the transactions and other events that enter into the determination of net profit or loss. Examples of cash flows from operating activities are :
A) Cash receipts from the sale of goods and the rendering of services;
B) Cash receipts from royalties, fees, commissions and other revenue;
C) Cash payments to suppliers for goods and services;
D) Cash payments to and on behalf of employees;
E) Cash receipts and cash payments of an insurance company for premiums and claims, annuities and other policy benefits;
F) Cash payments or refunds of income taxes unless they can be specifically identified with financing and investing activities; and
G) Cash receipts and payments from contracts held for dealing or trading purposes.
16. Some transactions, such as the sale of an item or plant may give rise to a gain or loss which is included in the determination of net profit or loss. However, the cash flows relating to such transactions are cash flows from investing activities.
17. A company may hold securities and loans for dealing or trading purposes, in which case they are similar to inventory acquired specifically for resale. Therefore, cash flows arising from the purchase and sale of dealing or trading securities are classified as operating activities. Similarly, cash advances and loans made by financial institutions are usually classified as operating activities since they relate to the main revenue-producing activity of that company.
INVESTING ACTIVITY
18. The enterprise disclosure of cash flows arising from investing activities is important because the cash flows represent the extent to which expenditure have been made for resources intended to generate future income and cash flows. Examples of cash flows arising from investing activities are:
A) Cash payments to acquire property, plant and equipment, intangible and other long-term assets. These payments include those relating to capitalised development and self-constructed property, plant and equipment;
B) Cash receipts from sale of property, plant and equipment, intangible and other long-term assets;
C) Cash payments to acquire equity or debt instruments of other company and interests in joint ventures (other than payments for those instruments considered to be cash equivalents or those held for dealing or trading purposes);
D) Cash receipts from sales of equity or debt instruments of other company and interests in joint ventures (other than receipts for those instruments considered to be cash equivalents and those held for dealing or trading purposes);
E) Cash advances and loans made to other parties (other than advances and loans made by a financial institution);
F) Cash receipts from the repayment of advances and loans made to other parties (other than advances and loans of a financial institution);
H) Cash receipts from future contracts, forward contracts, option contracts and swap contracts except when the contracts are held for dealing or trading purposes, or the receipts are classified as financing activities.
19. When a contract is accounted for as an identifiable position, the cash flows of the contracts are classified in the same manner as the cash flows of the position being hedged.
FINANCING ACTIVITIES
20. The disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of capital of the company. Examples of cash flows arising from financing activities are :
A) Cash proceeds from issuing shares or other equity instruments;
B) Cash payments to owners to acquire or redeem the company's shares as may be permissible;
C) Cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other short or long-term borrowings;
D) Cash repayments of amounts borrowed; and
E) Cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease.
REPORTING CASH FLOWS FROM OPERATING ACTIVITIES
21. A company should report cash flows from operating activities.
22. Whereby net profit or loss is adjusted for the effects of transactions of a non-cash nature, and deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows.
23. Under this method, the net cash flow from operating activities is determined adjusting the net profit or loss for the effects of :
A) changes during the period in inventories and operating receivables and payables;
B) non-cash items such as depreciation, provisions, taxes, unrealised foreign currency gains and losses, and
C) all other items for which the cash effects are investing or financing cash flows.
REPORTING CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES
24. A company should report separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities, except the extent that cash flows described in paragraphs 23 and 25 are reported on a net basis.
REPORTING CASH FLOWS ON A NET BASIS
25. Cash flows arising from the following operating, investing or financing activities may be reported on a net basis:
A) Cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the company; and
B) Cash receipts and payments for items in which the turnover is quick. The amounts are large and the maturities are short.
26. Examples of cash receipts and payments referred to in paragraph 23 (A) are :
A) The acceptance and repayment of demand deposits of a bank;
B) Fund held for customers by an investment company; and
C) Rents collected on behalf of, and paid over to, the owners of properties.
27. Examples of cash receipts and payments referred to in paragraph 23 (B) are advances made for and the repayment
of:
A) Principal amounts relating to credit card customers;
B) The purchase and sale of investments and
C) Other short-term borrowings, for example those which have a maturity period of three months or less.
28. Cash flows arising from each of the following activities of a financial institution may be reported on a net basis:
A) Cash receipts and payments for the acceptance and repayment of deposits with a fixed maturity date;
B) The placement of deposits with and withdrawal of deposits from other financial institutions; and
C) Cash advances and loans made to customers and the repayments of those advances and loans.
FOREIGN CURRENCY CASH FLOWS
29. Cash flows arising from transactions in a foreign currency should be recorded in a company's reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the cash flow.
30. The cash flows of foreign subsidiary should be translated at the exchange rates between the reporting currency at the dates of the cash flows.
31. Cash flows denominated in foreign currency are reported in a manner as permitted under the relevant accounting standard.
32. Unrealised gain and losses arising from changes in foreign currency exchange rates are not cash flows. However, the effect of exchange rate changes on cash and cash equivalent held or due in a foreign currency is reported in the cash flow statement in order to reconcile cash and cash equivalents at the beginning and the end of the period. This amount is presented separately from cash flows from operating, investing and financing activities and includes the differences, if any, had those cash flows been reported at the end of period exchange rates.
EXTRAORDINARY ITEMS
33. The cash flows associated with extraordinary items should be classified as arising from operating investing or financing activities as appropriate and separately disclosed.
34. The cash flows associated with extraordinary items are disclosed separately as arising from operating, investing or financing activities in the cash flows statement to enable users to understand their nature and effect on the present and future cash flows of the company.
INTEREST AND DIVIDENDS
35. Cash flows from interest and dividends received and paid should each be disclosed separately. Each should be classified in a consistent manner from period to period as either operating, investing or financing activities.
36. The total amount of interest paid during the period is disclosed to the cash flow statement whether it has been recognised as an expense in the income statement or capitalised.
37. Interest paid and interest and dividends received are usually classified operating cash flows for a financial institution. However, there is no consensus on the classification of these cash flows for other companies. Interest paid and interest and dividends received may be classified as operating cash flows because they enter into the determination of net profit or loss. Alternatively, interest paid and interest and dividends received may be classified as financing cash flows and investing cash flows respectively, because they are costs of obtaining financial resources or returns on investments.
38. Dividends paid may be classified as a financing cash flow because they are cost of obtaining financial resources. Alternatively, dividends paid may be classified as a component of cash flows from operating activities in order to assist users to determine the ability of a company to pay dividends out of operating cash flows.
TAXES ON INCOME
39. Cash flows arising from taxes on income should be separately disclosed and should be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities.
40. Taxes on income arise on transactions that give rise to cash flows that are classified as operating, investing or financing in a cash flow statement. While tax expense may be readily identifiable with investing or financing activities, the related tax cash flows are often impracticable to identify and may arise in a different period from the cash flows of the underlying transactions. Therefore, taxes paid are usually classified as cash flows from operating activities. However, when it is practicable to identify the tax cash flow with an individual transaction that gives rise to cash flows that are classified as investing or financing activities the tax cash flow is classified as an investing or financing activity as appropriate. When tax cash flow are allowed over more than one class of activity, the total amount of taxes paid is disclosed.
INVESTMENT IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
41. When accounting for an investment in an associate or a subsidiary accounted for by the use of equity or cost method, an investor restricts its reporting in the cash flow statement to the cash flows between itself and the investee, for example to the dividends and advances.
42. A company which reports its interest in a jointly controlled entity using a proportionate consolidation, includes in its consolidated cash flow statement its share of the jointly controlled entity's cash flow. A company which reports such an interest using the equity method includes in its cash flow statement, the cash flows in respect of its investments in the jointly controlled entity, and distributions and other payments or receipts between it and the jointly controlled entity.
ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES AND OTHER BUSINESS UNITS
43. The aggregate cash flows arising from acquisition and from disposals of subsidiaries or other business units should be presented separately and classified as investing activities.
44. A company should disclose, in aggregate, in respect of both acquisition and disposal of subsidiaries or other business units during the period each of the followings :
A) The total purchase or disposal consideration;
B) The portion of the purchase or disposal consideration discharged by means of cash and cash equivalents;
C) The amount of cash and cash equivalents in the subsidiary or business unit acquired or disposed of; and
D) The amount of the assets and liabilities other than cash or cash equivalents in the subsidiary or business unit acquired or disposed of, summarised by each major category.
45. The separate presentation of the cash flow effects of acquisitions and disposals of subsidiaries and other business units as single line items, together with the separate disclosure of the amounts of assets and liabilities acquired or disposed of, helps to distinguish those cash flows from the cash flows arising from the other operating, investing and financing activities. The cash flow effects of disposals are not deducted from those of acquisitions.
46. The aggregate amount of the cash paid or received as purchase or sale consideration is reported in the cash flow statement net of cash and cash equivalent acquired or disposed of.
NON-CASH TRANSACTIONS
47. Investing and financing transactions that do not require the use of cash or cash equivalents should be excluded. From a cash flow statement, such transactions should be disclosed elsewhere in the financial statements in a way that provides all the relevant information about these investing and financing activities.
48. Many investing and financing activities do not have a direct impact on current cash flows although they do affect the capital and asset structure of a company. The exclusion of non-cash transactions from the cash flow statement is consistent with the objective of a cash flow statement as these items do not involve cash flows in the current period. Examples of non-cash transactions are :
A) The acquisition of asset or assets either by assuming directly related liabilities or by means of a finance lease:
B) The acquisition of a company by means of an equity issue; and
C) The conversion of debt to equity.
COMPONENTS OF CASH AND CASH EQUIVALENTS
49. An enterprise should disclose the components of cash and cash equivalents and should present a reconciliation of the amounts in its cash flow statement with the equivalent items reported in the balance sheet.
OTHER DISCLOSURES
50. A company should disclose, together with a commentary by management, the amount of significant cash and cash equivalent balances held by the company.
51. Additional information may be relevant to users in understanding the financial position and liquidation of a company. Disclosure of this information, together with a commentary by management, is encouraged and may include:
A) The amount of undrawn borrowing facilities that may be available for future operating activities and to settle capital commitments, indicating any restrictions on the use of these facilities.
B) The aggregate amount of cash flows that represent increase in operating capacity separately from those cash flows that are require to maintain operating capacity.
52. The separate disclosure of cash flows that represent increases in operating capacity and cash flows are required to maintain operating capacity is useful in enabling the user to determine whether the company is investing adequately in the maintenance of its operating capacity. A company that does not invest adequately in the maintenance of its operating capacity may be prejudicing future profitability for the use of current liquidity and distribution to owners.
ABC LTD.
CASH FLOW STATEMENT FOR ______________
A. CASH FLOW FROM OPERATING ACTIVITIES :
NET PROFIT BEFORE TAX AND EXTRAORDINARY ITEMS
Adjustments for :
(Depreciation)
Foreign Exchange
Investments
Interest/Dividend
OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES
Adjustments for :
Trade and other receivables
Inventories
Trade payables
CASH GENERATED FROM OPERATIONS
INTEREST PAID
DIRECT TAXES PAID
Cash flow before extraordinary items
Extraordinary items
Net cash from operating activities
B. CASH FLOW FROM INVESTING ACTIVITIES :
Purchase of fixed assets
Sale of fixed assets
Acquisitions of companies
(As per annexure)
Purchase of investments
Sale of investments
Interest received
Dividend received
Net cash used in investing activities
C. CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issue of share capital
Proceeds from long term borrowings
Repayment of finance lease liabilities
Dividends paid
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents as at ____________
(Opening Balance)
Cash and cash equivalents as at ____________
(closing Balance)
****************
DIVISION CHIEF
PRIMARY MARKET DEPARTMENT
PMD/PKN/1759/95
July 5, 1995
Executive Directors/Presidents/Managing Directors.
All Stock Exchanges.
Dear Sirs,
Fixing of record dates relating to rights issues
Please refer to the letter dated June 6, 1995 from our Secondary Market Department advising you to amend the listing agreement since the requirement of obtaining acknowledgment card from SEBI for the purpose of rights issue has been done away with from 1.7.95.
We have received queries about the fixation of the record dates for the purpose of rights issues. It is clarified that we have no objection if a company gives a notice to the stock exchange for fixing up the record date at the time of submission of letter of offer to SEBI. However, if SEBI makes observations on the letter of offer, it would be the responsibility of the lead manager to incorporate the observations in the letter of offer.
If the terms of offer of the rights issue are subsequently changed, it will be the lead manager’s responsibility to compensate the buyers or sellers in the market.
Yours faithfully,
sd/-
P K NAGPAL
SMD/VRN/2545/95
6th July 1995
The Executive Directors
All Stock Exchanges
Precaution while granting underwriting permission.
Some instances have been brought to our notice that broker underwriters are signing underwriting agreements in anticipation of no objection/ approval from Stock Exchanges and also give an assurance to Lead Managers that no objection/ approval will be received. However, such underwriters do not pursue/ obtain permission from the Stock Exchange. It is desirable that Stock Exchanges should deny approval/ no objection certificate if member brokers have taken up underwriting commitment without prior approval of the Exchange/ in anticipation of approval/ no objection. Merchant bankers are being separately advised that underwriting contract shall not be accepted unless a written no objection/ approval of Stock Exchange is actually furnished at the time of signing the contract.
Thanking you,
Yours faithfully,
sd/-
V.R. NARASIMHAN
DIVISION CHIEF - SMD
DIVISION CHIEF
SECONDARY MARKET DEPARTMENT - I
SMD-I(N)/JJ/2621/95
11 July 1995
The Presidents/Executive Directors
of all Stock Exchanges.
Dear Sir,
Effective Year of Submission of Cash Flow Statement
With reference to our letter no.SMD-I(N)/JJ/2331/95 dated June 26, 1995, it has been decided that the requirement of submitting Cash Flow Statement by the companies along with the Annual Report is to be made effective for the accounts prepared by the companies from the financial year 1995-96.
Yours faithfully,
sd/-
R.V. NABAR
Ref.SMD/STG/2652/95
July 13, 1995
The President/Executive Director
Ahmedabad/Bombay/Calcutta/Delhi/
Madras/Hyderabad/Bangalore/Cochin/
Uttar Pradesh/Pune/Ludhiana/Gauhati
Jaipur/Mangalore/Madhya Pradesh/
Saurashtra-Kutch/Magadh/Bhubaneshwar/
Vadodara/Coimbatore/OTC Exchange of India.
Dear Sir,
Please refer to our letter No.SMD-I/3118 dated December 27, 1993 wherein you were advised to ensure that sub-brokers and brokers execute an agreement as required under the SEBI (Stock Brokers & Sub-brokers) Rules & Regulations, 1992. You were also requested to collect registration fees of Rs.1,000/- from each sub-broker and forward the same to us, to enable us to issue certificates of registration. In this connection, it is observed that several applications from sub-brokers received through your Exchange are pending, inter-alia, for want of confirmation of execution of agreement, etc. A list of such pending applications is enclosed for your perusal. You are once again requested to take up the matter with the concerned brokers/ sub-brokers, ensure execution of agreement between sub-brokers and brokers, collect registration fees and forward the same to us to enable us to take further action on the applications. Please bring the contents of the letter to the notice of members of your Exchange as well as the concerned sub-brokers.
Your attention is also drawn to the provisions of Section 12 of SEBI Act 1992 which requires the sub-brokers to get themselves registered with SEBI for doing business in securities. The stock brokers are not supposed to deal with those sub-brokers who are not registered with SEBI.
Please take an early action in the matter and keep us advised of the action taken in this regard.
Yours faithfully,
sd/-
S.T. GERELA
DIVISION CHIEF (SMD-II)
Encl: List of pending applications forwarded by your Exchange, in the form of Floppy Program - Dbase.
DIVISION CHIEF
SECONDARY MARKET DEPARTMENT - I
SMD-I(N)/JJ/2727/95
20 July 1995
The President/ Executive Director of
all the Stock Exchanges.
Dear Sir,
Settlement wise information of turnover/ delivery
It is requested to furnish us with information regarding the turnover and the delivery in value terms as well as percentage delivery for every settlement form April 1, 1995 till date.
You are also requested to furnish us this information on a regular basis for every settlement within 7 days from the close of the settlement. The format of the report is given hereunder.
|
Clearing No. |
Settlement Period From To |
Volume Traded |
Delivery in value terms Percentage Delivery |
Yours faithfully,
sd/-
R.V. NABAR
IEMI/LKS/MI/2990/95
August 8, 1995.
To,
Presidents/Executive Directors of
All Stock Exchanges,
Dear Sirs,
Setting up of Market Surveillance Departments
One of the important issues discussed during the meeting of the Executive Directors of Stock Exchanges with SEBI on 19th July 1995 was regarding requirement of market Surveillance by Stock Exchanges.
1.1 During the discussions, it was emphasised by the Chairman that it is the responsibility of the Stock Exchanges to detect market manipulations like price rigging, etc. and to monitor abnormal price and volume movements which are non consistent with normal trading pattern. It is also the responsibility of Stock Exchanges to monitor broker’s positions, margins, trading limits, etc. to ensure that the brokers do not commit defaults adversely affecting the market and the interest of the investors.
1.2 It is noticed that at present, barring one or two, Stock Exchanges do not have a separate market surveillance department and therefore the above mentioned functions of market surveillance are not carried out in a systematic, objective and effective manner.
1.3 In the context of the above and to ensure proper and orderly functioning of the markets, it is directed that:-
| ||
|
c) |
This department shall not be saddled with any other responsibility so that it can concentrate on the functions mentioned in para (b) above. | |
|
d) |
This department will be directly under the Executive Director of the stock exchange or senior most official of the stock exchange in his absence. |
1.4 On the issue of connectivity and reporting to SEBI separate format will be worked out and sent to Stock Exchanges. The Executive Director and in his absence the senior most official of the Exchange will ensure timely reporting to SEBI.
Yours faithfully,
sd/-
(L.K. SINGHVI)
SR. EXECUTIVE DIRECTOR
V.R. NARSIMHAN
DIVISION CHIEF
SMD/VRN/SU/3611/95
October 6, 1995
The President/ Executive Director
of all the stock exchanges, OTC & NSE.
Dear Sir,
Submission of Audit Reports by the members
This is with reference to the Circular No.F1/5/SE/83, of Government of India, Ministry of Finance, Department of Economic Affairs, Stock Exchange Division, dated May 31, 1984 and our letter No.SMD/SED/0012/92 dated December 31, 1992 regarding the aforesaid subject.
The six months period from the closure of the financial year 1994-95 ended on September 30, 1995. Therefore, we request you to furnish the status of submission of Audit Reports for the year 1994-95 by the members of your stock exchange in the following format by October 30, 1995.
|
Total No. of members |
Total No. of active members |
No. of members who have submitted Audit Reports for the year 1994-95 |
No. of members who have not submitted Audit Reports for the year 1994-95 |
Action proposed to be taken by the stock exchange against the defaulting members |
It has also been noted that 10 members of your exchange have not submitted the Audit reports for the year 1993-94.
Yours faithfully,
sd/-
V R NARSIMHAN
DC SMD-I
L K SINGHVI
SR. EXECUTIVE DIRECTOR
SMD/SED/3703/95
October 16, 1995
The President/Executive Director
All Stock Exchanges
Dear Sir,
a. Sock Exchanges would be allowed to introduce carry forward system only with the prior permission of SEBI. Such permission would be accorded subject to the availability of suitable infrastructure of the Stock Exchanges and their capability to have an effective monitoring and surveillance system. Regarding infrastructure, it would be essential for the stock exchanges to have screen-based trading before the carry forward system could be introduced. The responsibility of monitoring, surveillance and reporting would be cast on the Executive Director of the Exchange, who must be empowered in this regard, if necessary, by the change of bye-laws, rules and regulations or the Exchange. The Exchanges would also ensure the submission of timely and regular information to SEBI about various parameters and their implementation.
The Stock Exchanges must introduce the "twin track" system which will provide for segregation of transactions into carry forward transactions and cash transactions. Each carry forward transaction will be identified with a ID number till its final settlement. Each broker will have to submit a monthly Auditor’s certificate., indicating that there has been no violation of the time limit. The jobbing and transactions representing trading on broker won account would also be shown separately.
c. The transaction would be allowed to be carried forward for a period not exceeding 90 days. While the transactions would be allowed to be squared off upto 5th settlement (75th day), a transaction remaining unsettled till this day, will have to be settled by delivery or payment, as the case may be.
d. In the absence of capital adequacy norms for brokers, the margin on carry forward transactions would be imposed on gross basis in accordance with the following graded scale:
Upto Percantage
1st settlement 20
2nd settlement 30
3rd settlement 40
4th settlement 50
5th settlement 50
6th settlement Delivery/Payment
It may be noted that the above are daily margins. The Board also desired that outstanding positions will have to be marked to market. The possibility of enforcing this system of mark to market on a daily basis as against weekly basis might also be explored.
e. For the same reason mentioned above i.e the absence of capital adequacy norms for brokers, the broker-wise outstanding position on any day in respect of carry forward transactions should not exceed 25% of a broker’s total transactions on that day. The calculations in this regard would be made the next day. In case this limit is exceeded on any day, as is found during the calculations on the next day, the broker concerned would be allowed to undertake any further carry forward transactions till the positions rectified.
f. The financiers funding the carry forward transactions being lenders of funds should not permitted under any circumstances to square up their positions till repayment of the loan and the shares received by such Financiers against those transactions should be deposited and kept in safe custody of the clearing house of the stock exchange/or its Authorised Agent.
g. ‘Vandhas’ or objection memos will be rectified immediately and the ‘kapli’ system and `chalu upla’ transactions will not be permitted.
h. Every member will be required to keep books of record of the source of finance with sub-accounts being maintained in the clearing house.
i. The carry forward position shall be disclosed to the market scrip-wise and broker-wise by the Stock Exchanges ant the beginning of the carry forward session.
j. The brokers must ensure segregation of client account and own account in accordance with the existing guidelines issued by SEBI.
2. SEBI received representations from the Bombay Stock Exchange and other stock exchanges regarding the difficulties in implementing the conditions, especially related to graded margins starting from 20% and going upto 50%, restriction that outstanding position on any day in respect of carry forward transaction not to exceed 25% of a broker’s total transactions on that day, monthly auditor’s certificate to certify that there were no violations of the time limit for carry forward transactions, and disclosure of scrip-wise outstanding positions of broker. The BSE also proposed to implement capital adequacy norm at 3% for individual member and 6% for corporate members and requested that the Board review its decision taken on July 27, 1995 regarding conditions for introduction of revised carry forward system.
3. In the light of these representations and the proposal to implement the capital adequacy norms, the SEBI Board reconsidered its earlier decision of July 27, 1995 in its meeting held on October 5, 1995 and changed some of the earlier conditions of July 27, 1995 and added the conditions regarding the capital adequacy. The modifications/changes are as under:-
i. Stock Exchanges will be required to implement capital adequacy norms of 3% for individual members and 6% for corporate members in respect of their outstanding position. These norms will be reviewed and revised further over the time by the SEBI after taking into consideration all the relevant factors and in particular investor protection. However, the requirement of minimum base capital of Rs. 10 lacs for Bombay and Calcutta Stock Exchanges, and Rs. 7 lacs for Delhi and Ahmedabad Stock Exchange and Rs. 5 lacs for other stock exchanges will also apply. It may be clarified here that the base capital will form part of the capital for the purpose of determining the capital adequacy as indicated above.
ii. In view of the above capital adequacy requirements, the condition stipulation graded margins of 20% to 50% on carry forward transactions is replaced by the following margin system as recommended by G S Patel Committee:
b. The rate of carry over margins will not be less than the rate of daily margins. In addition, the profits to the extent of at least 25% should be impounded while fixing the carry over margins.
c. The margins are to be levied on mark-to-market system on a weekly basis with the losses being collected and gains being withheld in the first week of fortnight. Efforts should be made to apply this on daily basis later.
d. The exchanges may impose ad hoc margins also in cases on individual brokers or scrips if the situation so demands.
iii. Again in view of the requirement of the capital adequacy norms being accepted, the condition that the broker’s outstanding position on any day in respect of carry forward transactions will not exceed 25% of the Broker’s total transactions on that day is deleted.
However, initially, the limits on the carry forward position will be the same as were operative on Bombay Stock Exchange on December 13, 1993, i.e., an over all limit of Rs. 5 crores with sub-limits of Rs. 3 crores each on purchases and sales and Rs. 50 lacs for each individual scrip. Further, there will be an over all limit of Rs. 7.5 crores with sub-limits of Rs. 4 crores each for sale and purchase positions with a sub-limit of Rs. 1 crore in respect of each scrip outstanding at the close of business on any day within the settlement period of 14 days, subject to the condition that the limits applicable to a broker in terms of capital adequacy norms will not be exceeded.
iv. The condition that the scrip wise carry forward position of each broker shall be disclosed to the market, is deleted and instead the stock exchange will make public only the daily overall outstanding position for each scrip. However, scrip-wise position of a broker will be available to the stock exchange.
v. The requirement of monthly auditor’s certificate is substituted by self certification by brokers on monthly basis certifying that 90 days time limit has not been violated. However, stock exchanges and SEBI would exercise the right to order an audit or verification whenever required.
5. The earlier decisions of the Board as given in para 1 except for the modification and changes as detailed in para 3 would be applicable. As regards the detailed norms for capital adequacy and also the other recommendations of G S Patel Committee, some of which are advisory in nature, the exchanges will be advised separately.
6. The stock exchanges would be allowed to introduce carry forward system after satisfying the conditions and modalities detailed above and after seeking formal approval from SEBI in that regard.
Yours faithfully,
sd/-
(L. K. SINGHVI)
L.K. SINGHVI
SENIOR EXECUTIVE DIRECTOR
IEMI.
IEMI(N)/95/
October 27, 1995
The President/Executive Directors,
All the Stock Exchanges,
Dear Sir,
Surveillance and Inter-exchange Co-ordination
As you may be aware, SEBI had recently formed a Group comprising Representatives of some of the Stock Exchanges to discuss the functioning of the Surveillance Department and about Inter-exchange co-ordination in the areas of Surveillance and Market Operations. The group in its meeting on September 14, 1995, discussed various issues in this regards, Some of the views which had a broad consensus are as under :
1. Reporting by Stock Exchanges :
The participants of the meeting agreed that the reports to be sent to SEBI on market monitoring may be daily for major stock exchanges while the others may send the report on settlement basis. It was decided that formats should be prepared as discussed in the meeting. It was also decided that these could be modified after verifying their practicability and effectiveness in due course of time. The formats of the reports are enclosed as Annexure ‘A-I, A-II, and A-III ‘.
2. Pre-Issue Monitoring and Reporting :
SEBI has started intimating the exchanges about the Offer Documents filed for vetting. The Exchanges were advised that wherever a listed company is coming with a fresh issue or a rights Issue, then the price of such scrip has to be monitored. The Exchanges felt that since the number of such issues are limited, full details about the price movement can be sent to SEBI. It was agreed that such reports shall be sent to SEBI every week. The report would be sent from the date of filing the Offer Document with SEBI till two weeks after the closure of the issue. For every scrip in the first such report, the exchanges would also indicate the price movement and volume traded for six months prior to the filing of the Offer Documents/Letter of Offer with SEBI.
3. Circuit Breaking Mechanism :
The Exchanges agreed to apply the circuit breaker norms uniformly and for this purpose it was decided that the norms of the BSE in this regard would be followed to the extent possible by all the exchanges. (Copy of BSE norms are enclosed).
4. Inter-exchange co-ordination :
The exchange were readily agreeable to have an unified approach. It was agreed that the suspensions of the scrips would be informed to all the exchanges by the concerned exchange. If the suspension is on the grounds of price fluctuations, then all the other exchanges where the same scrip is traded should act in tandem. If the scrip is suspended only for a day then no action need be taken by the other exchanges. If the scrip is suspended for more than a day then the other exchanges would suspend the script at least for a day. In case a scrip is suspended indefinitely in any Exchange, then the other exchanges would follow, the same after taking into account their own settlement cycle. In the intervening period, the scrip shall be monitored by other exchanges for any abnormality, in which case the exchange shall take steps accordingly.
When the scrip is suspended for other reasons like violations of Listing Agreement etc. then the other exchanges would consider to take action depending on the issue involved. It was felt that such an effort will not only discipline the companies but also strengthen the positions of the exchanges as SROs.
Under all circumstances, an Exchange should ensure that intimations are sent to the relevant Exchanges regarding the suspension of the scrips/brokers, etc. with relevant reasons.
b. Rectification of bad delivery pertaining to fake and stolen shares.
The exchanges agreed to co-ordinate with each other to rectify the bad deliveries as fast a as possible.
The introducing broker of the exchanges would be identified and immediate steps would be taken to get the document rectified. In case of stolen or fake shares the introducing broker shall file a Police complaint. It would be the responsibility of the exchange to co-ordinate and ensure action on the part of the introducing broker.
The other issues that were discussed, but no consensus could be arrived is mentioned below.
The exchanges discussed the issue of volatility in Scrips and suggested various steps to control it. Accordingly there were various suggestions made that are enumerated below:
1. The newly listed companies should be allowed to be traded only on spot basis for the period of first three months. The counter view was that this would only delay the process of manipulation by three months, but would not serve as a deterrent against price manipulation.
2. Only the finance companies should be monitored and be traded on spot. The counter view was that it would not be fair to isolate only finance companies for this purpose, since manipulations do take place in non-finance companies also.
3. Only the small capital company should be allowed to be traded on spot basis in the initial period till the prices stabilise.
4. The companies where the public holding is less than 10% should be monitored and put on spot in the event of increased trading activity and volatility. This view was appreciated, but the problem was regarding the availability of information about the actual public holding and how it can be ascertained.
5. The shares which are not traded frequently should be monitored closely and any activity in such counters has to be checked by the exchanges. This view was again well received, but the data regarding the trading is not readily available in many exchanges.
6. The Exchange generally provide a period of four days for price stabilisation in newly listed scrips. This period of four days was considered excessive and could lead to price manipulation.
The Exchanges are requested to forward their views on the issues discussed above within a period of ten days from the receipt of this letter.
The Exchanges are also requested to forward reports as per the formats given in the enclosed Annexure with immediate effect. All the reports required to furnished as per earlier instructions may be discontinued.
Yours faithfully,
sd/-
L K SINGHVI
ANNEXURE A - I
MONITORING REPORT I
DAILY REPORT
(FOR BOMBAY, CALCUTTA, DELHI, AHMEDABAD AND NSE)
MEDIUM OF REPORTING : FAX
DAILY REPORTS TO BE SENT BY THE EXCHANGES IN THE FORMAT GIVEN BELOW EARLY NEX MORINING
B GROUP
B GROUP
6. LIST OF COMPANIES THAT RECORDED THE HIGHEST EVER PRICE IN YOUR EXCHANGE (NEW HIGHS) DURING THE DAY WITH VOLUMES
ANNEXURE A - II
MONITORING REPORT II
SETTLEMENT REPORT
(FOR ALL EXCHANGES)
MEDIUM OF REPORTING : FLOPPY TO BE SENT IMMEDIATELY AND CONFIRMATION BY HARD COPY WITHIN TWO DAYS FROM THE LAST DAY OF THE SETTLEMENT PERIOD.
ANNEXURE A - III
MONITORING REPORT III
WEEKLY REPORT ON PRE-ISSUE MONITORING
(ALL STOCK EXCHANGES)
MEDIUM OF REPORTING : FAX
REPORT TO BE SENT BY THE EXCHANGES EVERY MONDAY
THE PRESENT PRICE MONITORING MECHANISM AT B.S.E
6. Refinements are carried out on continuous basis in order to achieve perfection in the price monitoring system.
PRESIDENTS/E.Ds OF ALL RECOGNISED STOCK EXCHANGES
The price rise in the shares of M/s Rupangi Impex Ltd. as well as the lack of floating stock in the market have been widely reported. The SEBI has ordered an investigation into this matter.
It has also been decided that no trading in the shares of the company would be permitted on the Stock Exchanges from November 1, 1995 till further orders.
You are further requested to communicate to us the shortage in the delivery of the scrip at the time of settlement indicating the names of the selling brokers and their clients who failed to give delivery.
Such shortage should be auctioned as per the usual procedure in your stock exchange. However, it has been decided that the auction price shall not be allowed to exceed the last recorded highest price on the exchanges. If the auctions do not succeed with such a ceiling in outstanding transactions (undelivered) should be closed out at the last highest price. While the difference between the transaction price and the highest price would be collected from the selling brokers, the same should be held by the stock exchanges in a separate account and should not be passed on to the buyers till the SEBI investigation is completed and suitable instructions are given to the Exchanges in this regard.
Yours faithfully,
sd/-
M D Patel
Executive Director- SMD
October 30, 1995
NO. SMD/AA/4081/95
15th November, 1995
The Executive Director
Stock Exchanges
Dear Sir,
Please send us the monthly gross turnover data (single side) for the months of April, 1995 till date. Gross turnover (net of jobbing) on single side basis may also please be indicated.
This is urgent please.
Yours faithfully,
sd/-
(AFTAB ALAM)
DIVISION CHIEF - SMD
DIVISION CHIEF
SECONDARY MARKET DEPARTMENT - I
SMD-1(N)/JS/4158/95
21 November 1995
The Presidents / Executive Directors
of all Stock Exchanges
Dear Sir,
Total amount of transactions on the exchanges
You are requested to send year wise total amount of transactions on the stock exchange, (single side) since 1990.
Please treat the matter as urgent.
Yours faithfully,
sd/-
R.V. NABAR
SECURITIES AND EXCHANGE BOARD OF INDIA
PRIMARY MARKET DEPARTMENT
Earnest House, 14th Floor
Nariman Point, BOMBAY 400 021
Tel : 2850441 - 2850450
Fax : 2870746
IGG(NOC) CIRCULAR No:1(95-96)
November 23, 1995
To All Registered Category-I Merchant Bankers
Dear Sirs,
NOC by SEBI for the release of 1% Listing Deposit
The 1% deposit placed by the issuer companies with the regional Stock Exchange can be released by the concerned stock exchange only after obtaining an NOC from SEBI.
An application for NOC is to be submitted by issuer company to SEBI in the format enclosed as per Annexure-1. The eligibility criteria for consideration of the application are:
Responses against complaints forwarded by SEBI to the concerned companies should be submitted to SEBI as per Annexure-2 for updation of records.
In cases where issues (i.e. public/ rights/ offer of sale or any other) fail and the investors monies are fully refunded, an NOC from SEBI is not required and the concerned regional stock exchange can refund the 1% security deposit after duly verifying that the refund orders have actually been dispatched.
Please acknowledge receipt.
Yours faithfully,
sd/-
A. SATYANARAYANA
Encl: as above.
SENIOR EXECUTIVE DIRECTOR
IEMI/MID No./4567/95
December 6, 1995
To,
All the Presidents/ Executive Directors
of recognized Stock Exchanges
Dear Sir,
Progress report on Surveillance
As you are aware vide our letter No. IEMI/LKS/MI/2990/95 dated August 8, 1995 all the stock exchanges had to set up surveillance departments and the exchanges had reported that independent surveillance departments were set up. Since two months have elapsed since the setting up of the Department, we would be interested in knowing -
There is no need to repeat that we attach utmost importance to the activity of the market monitoring and market surveillance for ensuring integrity and transparency of the market which is essential for building up investor confidence.
Further we had sent formats for furnishing various monitoring reports. The stock exchanges which have not started sending these reports are advised to do so forthwith. It is reiterated that the Executive Director would be directly responsible for the proper and independent functioning of the surveillance department in the stock exchanges and also forwarding the reports in the prescribed formats to SEBI.
Yours faithfully,
sd/-
L. K. SINGHVI
SENIOR EXECUTIVE DIRECTOR
SED/SMD/4606/95
December 7, 1995
To,
The President / Executive Director / Managing Director
of all the recognised stock exchanges
Dear Sir,
Bad delivery- amendment. to clause 12(A)
The Bombay Stock Exchange had considered the problem of bad deliveries and proposed to amend the listing agreement by adding a new clause 12A to the listing agreement. SEBI has conveyed its approval to the amendments proposed by the Exchange.
In this connection, SEBI had also appointed a Group to look into the problems relating to transfer of shares by companies. A copy of the report, which was sent earlier also, is enclosed for your ready information and perusal. You are requested to please amend the listing agreement by adding a new clause 12A on the lines given below -
|
12A(1) |
The Company agrees that when proper documents are lodged for transfer and there are no material defects in the documents except minor difference in signature of the transferor(s),
( i )then the Company will promptly send to the first transferor an intimation of the aforesaid defect in the documents, and inform the transferor that objection, if any, of the transferor supported by valid proof, is not lodged with the Company within fifteen days of receipt of the Company’s letter, then the securities will be transferred;
| |
|
(2) |
The Company agrees that when the signature of transferor(s) is attested by a person authorised by the Department of Company Affairs, u/s 108(1A) of the Companies Act, 1956, then it shall not refuse to transfer the securities on the ground of signature difference unless it has reasons to believe that a forgery or fraud is involved. |
Further, with a view to monitor the position of the companies delaying the transfer of shares, you are requested to please obtain the details from member-brokers of your Exchange and forward a list of top ten such companies to us every quarter to enable us to take further necessary action in the matter.
It is also proposed that some further changes in the system of share certification, rectification of bad delivery etc., could be introduced in the stock exchanges on the lines as under :
Before we take a view on the above changes, you are requested to send us your views/ comments urgently, if necessary by discussing the matter in the Governing Board / Council of Management of your Exchange. We expect your views / comments within fortnight.
Please acknowledge receipt of the letter.
Yours faithfully,
sd/-
DIVISION CHIEF
SMD/AA/SU/4616/95
December 11, 1995
The Presidents / Executive Directors
All Stock Exchanges except OTCEI, NSE, and BSE
Dear Sir,
Kindly recall the time frame committed to, by your stock exchange in the meeting of Executive Directors held on July 18, 1995. Please let us know the progress in the following activities relating to computerisation :
Means of finance:
Infrastructure :
Software acquisition :
Hardware selection :
Target date of computerisation
Please treat this as urgent and send in your reply by return fax.
Thanking you,
Yours faithfully,
sd/-
AFTAB ALAM
DIVISION CHIEF
IEMI
SMD/SED/IEMI/112/95
December 26, 1995
To Executive Directors and Presidents
of all Stock Exchanges
Dear Sir,
This has reference to the meeting of the Inter-Exchange co-ordination Group constituting the representatives of Exchanges held on December 19, 1995. The problem of thinly traded securities and securities with a very low public holding were discussed. In this connection, it was felt that date on such companies need to be obtained before any decision can be taken in this direction.
It is, therefore, requested that out of the scrips listed in your Exchange, thinly traded scrips (i.e. scrips which have not been traded at all for the past two years or more along with the date of the last trade) are identified.
In addition kindly categorise the companies listed in your Exchange in terms of paid-up capital according to the slab given below. For the companies identified under each of the category, along with the name of the company kindly provide actual paid up capital of the company, the share holding pattern of company and the total number of share holders of the company. All the above may be given as per the latest distribution schedule of the company (with the year mentioned).
1. Companies with a paid up capital of less than Rs. 1 crore.
2. Companies with a paid up capital between Rs. 1 crore and 3 crores.
3. For companies with a paid up capital between Rs. 3 and 10 crores and a total public holding of less than 30 percent.
The above information may be collated and sent to us fifteen days from date of receipt of this letter.
Yours faithfully,
sd/-
R.V. NABAR