Capital Market Structure, SEBI and Market Intermediaries — Practice

Question 1

In which market does an IPO take place — primary or secondary?

Accepted Answer

Primary market.

Question 2

Name India's two depositories.

Accepted Answer

NSDL and CDSL.

Question 3

Under which statute was SEBI established?

Accepted Answer

The SEBI Act, 1992.

Question 4

State SEBI's three-fold statutory mandate under the SEBI Act, 1992.

Accepted Answer

Protecting the interests of investors, promoting the development of the securities market, and regulating the securities market.

Question 5

Distinguish the role of a depository from that of a Depository Participant.

Accepted Answer

A depository (NSDL or CDSL) actually holds securities in electronic form on behalf of investors. A Depository Participant is the investor-facing agent of the depository, through which an investor opens and operates a demat account — analogous to a bank branch being the customer-facing agent of the banking system.

Question 6

Which intermediary manages a public issue's due diligence and pricing, and which maintains the register of security holders?

Accepted Answer

A merchant banker manages due diligence and pricing of a public issue; a Registrar and Transfer Agent (RTA) maintains the register of security holders and processes transfers.

Question 7

Explain the four categories of power SEBI exercises, with one example of each.

Accepted Answer

Registration power (registering intermediaries such as stock brokers, merchant bankers and mutual funds), rule-making power (framing regulations such as the ICDR or LODR Regulations), investigative power (inspecting books and investigating suspected market manipulation), and quasi-judicial power (passing orders, imposing penalties, and directing disgorgement of ill-gotten gains, appealable to the SAT and then the Supreme Court).

Question 8

A scheme pools funds from thousands of investors for a common agricultural venture, managed by a promoter with no day-to-day investor control, and is not structured as a SEBI-registered mutual fund. What registration does it likely require, and why is it not automatically exempt as a mutual fund?

Accepted Answer

It likely requires registration under the SEBI (Collective Investment Schemes) Regulations, 1999, since it fits the general definition of a CIS (pooled funds, common enterprise, managed by someone other than the investors, no day-to-day investor control). It is not automatically exempt as a mutual fund because the mutual fund exemption applies specifically to schemes registered and regulated under the SEBI (Mutual Funds) Regulations, 1996 — merely resembling a mutual fund in structure does not confer that exemption without the specific registration.

Practice — Capital Market Structure, SEBI and Market Intermediaries

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